Australian Securities and Investments Commission v McNamara

should the scheme be wound up 30 I note that the application of ASIC is to have the scheme wound up, and not to have AFLP itself would up. 31 Section 601EE of the Act relevantly provides: "(1) If a person operates a managed investment scheme in contravention of subsection 601ED(5), the following may apply to the Court to have the scheme wound up: (a) ASIC … (2) The Court may make any orders it considers appropriate for the winding up of the scheme." 32 I have found earlier in these reasons that the scheme was a managed investment scheme. It was being operated by AAIS as the general partner in AFLP, under the partnership agreement providing that AAIS was responsible for managing the scheme. Its management of the scheme and its carrying out the activities that constitute the managed investment scheme, lead me to the conclusion, in the light of my findings, that it was operating the scheme in contravention of s 601ED(5) of the Act: see Australian Securities and Investment Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 at [55] (Pegasus). As JJM was the person who formulated and directed the scheme and was actively involved in its day to day operations, and as he was the directing mind and will of AAIS and of the scheme rather than simply as its agent or employee of AAIS, I find also that he was operating the scheme in contravention of s 601EB(5): see Pegasus at [55] and [57]. 33 Accordingly, the foundation for the exercise of the discretion under s 601EE(2) has been established. The sort of factors which should guide the Court in determining whether to exercise its power to wind up the scheme are those that are relevant to the exercise of the discretion to wind up companies on the just and equitable ground under s 461(1)(k) of the Act: see Australian Securities and Investment Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at [74]. 34 In this matter, in my view it is in the public interest that the scheme be wound up. I have found that it is operating in contravention of the Act. That is a material consideration: Australian Securities and Investments Commission v Koala Produce Ltd (2002) 41 ACSR 628 at [5]. There are in addition some transactions involving the interests of unit holders in AFLP in the scheme which indicate that it is desirable in the public interest that the scheme be wound up in a formal administration rather than by a person connected with the scheme: see Pegasus at [93]. The public interest is, of course, a matter of relevance: Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 530 - 533; Australian Securities and Investments Commission v Austimber Pty Ltd (1999) 17 ACLC 893 at [5]. JJM has contended that, by reason of the issue of shares in EMS on 27 May 2002 to those who previously were unit holders in AFLP, and by the transfer of the rights of those persons as unit holders in AFLP to EMS, apparently by him exercising the limited power of attorney granted to him at the time the application was made for units in AFLP, there is no need for the Court now to make any order with respect to the scheme. He contends that AFLP itself has little money, now has only three members, (namely AAIS, JJM and BG), and is not now in breach of the Act. He contends further that the partnership itself of AFLP need not be wound up. He asserts that it does not intend to accept any money from any persons in the future. He further contends that the issue of shares in EMS to the (former) unit holders of AFLP as limited partners was done without consideration. 35 I do not think the position is as clear as he says. Given the timing of the purported assignment of rights of the limited partners in AFLP through their units, the purported cancellation of those units, and the issue of shares in EMS, I am not persuaded that each of those transactions was independent and without consideration. The scheme still has some funds, albeit minor. It is unclear whether the unit holders have any ongoing rights in funds already paid to ASSF, or what accounting from ASSF the scheme might be entitled to. 36 Moreover, there are matters indicating that the extent of rights that AFLP has in any successful marine salvage are uncertain. AAIS purported to transfer the rights of AFLP under the joint venture agreement dated 28 November 2001, but it is not a party to that agreement and it is unclear how it was able to do so. There may be some issue to explore, by virtue of JJM's information provided to ASIC that he has assigned 80% of what he gets under the joint venture agreement with ASSF to AFLP, as to the extent of AFLP's rights. He has indicated to ASIC a further agreement with ASSF dated 27 February 2002, which he said varied the joint venture agreement dated 28 November 2001, but in a way which does not accord with the purported transfer of rights under that agreement to AFLP. Legal advice provided to JJM and AFLP, moreover, has described the documentation as "poorly drafted", "incomplete" and "difficult to follow". That advice stated that the solicitors were "not confident at all that the documentation accurately reflects (and more importantly protects) the respective parties and their interests". 37 In the circumstances, I consider that it is in the public interest, and in the interests of those limited partners of AFLP granted units in AFLP in response to an application made following the Proposal are better protected if the scheme is wound up by the appointment of a liquidator independent of the parties, rather than to leave it in its present position where it may or may not be wound up, or if it is to be wound up would be wound up under the control of one of the persons presently directly involved in its control. 38 For those reasons, I order that: 1. The managed investment scheme be wound up; 2. Robert Ferguson be appointed liquidator of the managed investment scheme. 3. The liquidator may exercise such functions and powers as set out in Chapter 5 of the Act as he would be entitled to exercise if the managed investment scheme were a company, with such modifications as are reasonably necessary in the circumstances. 39 I note that JJM gave notice under s 78B of the Judiciary Act 1903 (Cth) that he contended that the proceedings involved a matter arising under the Constitution or involving its interpretation. It is, as I understand his concern, that the Act should not operate to diminish the scope and operation of the Partnership Act 1892 (NSW) or its comparative provisions in other States. No argument was addressed on the matter, and no Attorney-General sought to intervene. 40 As the point has been taken, I shall deal briefly with it. 41 I do not think there is any inconsistency between the Act and the Partnership Act 1892 (NSW). The Act does not purport to regulate partnerships of themselves, but to regulate managed investment schemes. A managed investment scheme can take a number of forms, determined upon by the promoters of the scheme. It happens that in this particular case the scheme is in the form of a limited partnership, and to that extent in my view the Act is able to operate in relation to the scheme itself. It does not involve the Act purporting to do something inconsistently with rights granted under the Partnership Act 1892 (NSW). Indeed, ASIC has not sought the winding up of the partnership but the winding up of the scheme. 42 It is also clear that the Corporations (Common Law Powers) Act 2001 (NSW) referred to the Commonwealth the power to regulate such schemes. That referral Act referred to the Parliament of the Commonwealth the matters to which the referred provisions relate, and matters of the regulation of financial products and services. Section 3 of that Act provided relevantly: "referred provisions means the tabled text to the extent to which that text deals with matters that are included in the legislative powers of the Parliament of the State. tabled text means the text of the following proposed Bills for Commonwealth Act, comprised in two or more documents (each bearing identification as "part of the tabled text") as tabled by or on behalf of the Attorney General in the Legislative Assembly at any time during the period between the giving of notice of motion for leave to introduce the Bill for this Act in the Legislative Assembly and the second reading of that Bill in the Legislative Assembly: (a) Corporations Bill 2001. (b) Australian Securities and Investments Commission Bill 2001." 43 There is an explicit referral of power of the referred provisions set out in the tabled text, that being in effect relevantly for present purposes the Act or including the Act. As I have said, however, I do not think it is necessary to refer to that legislation because I do not discern in the Act dealing with managed investment schemes so far as they apply to the present proceedings anything inconsistent with a right or provision in the Partnership Act 1892 (NSW). 44 Moreover, JJM's contention that the Act should not operate to diminish the scope and operation of the Partnership Act 1982 (NSW) is misconceived. That is because s 109 of the Constitution provides that where there is an inconsistency between a law of the Commonwealth and a law of a State, the State law is invalid (or, in a practical sense, inoperable) to the extent of the inconsistency. Therefore, even if an inconsistency between the laws were apparent, the Act must operate to diminish the scope of the Partnership Act 1982 (NSW). 45 I accordingly make the orders referred to above. 46 I note that JJM filed, and sought to rely upon, an affidavit sworn on 30 July 2002, to dispute that he contravened ss 601ED(5), 780(1), 911A(1) and 1012B(3) of the Act. Those contraventions were declared by the Court on 18 July 2002 to have taken place, and consequential injunctive orders were made. The declarations and orders made on 18 July 2002 have been formally entered under O 36 of the Federal Court Rules. 47 The orders and declarations made on 18 July 2002 related to conduct for the period from 26 February 2002, save for the declaration concerning contravention of s 780(1) of the Act. The affidavit of 30 July 2002 of JJM asserts that up to 14 February 2002 less than 20 persons had acquired units in AFLP, and that after 14 February 2002, JJM had not introduced any persons into AFLP nor made any offers to any persons to become limited partners in AFLP. One fact asserted by ASIC at the hearing, and which JJM did not dispute, was that from about November 2001, JJM approached people by mail and by telephone to invest in AFLP. JJM did not then dispute the clear meaning of that asserted fact, namely that such conduct continued at relevant times, until about May 2002. He did not then claim that he had no role in securing the increase in limited partners from over 20 at 26 February 2002 to about 55 by 16 May 2002, that increment also being a fact asserted by ASIC and not contested. The facts asserted by ASIC were supported by its affidavit evidence. ASIC has not had the opportunity to respond to JJM's claims. Were the Court to receive the affidavit, it would have to be given that opportunity. It might wish to cross-examine JJM. It would no doubt make submissions about whether any conduct as the Court ultimately found to have been undertaken by JJM after 11 December 2001 involved him contravening s 780(1) of the Act and whether his conduct after 28 February 2002 involved him contravening the other identified provisions of the Act. Those matters were not addressed because at the hearing he acknowledged the facts asserted by ASIC, and subject to the matters referred to he acquiesced in the making of the orders, about some of which his affidavit now suggests he had second thoughts. 48 There is no formal application by JJM to set aside those declarations and orders: O 35 r 7 of the Rules, and see McDonald v McDonald (1965) 113 CLR 529. He does not claim that the declarations and orders were obtained by fraud: see O 35 r 7(2)(b). There is serious doubt in the circumstances whether the Court constituted by a single Judge now has jurisdiction to set aside its orders made on 18 July 2002: see e.g. Bailey v Marinoff (1971) 125 CLR 529; Jovanovic v The Queen (1999) 92 FCR 58. But even if such jurisdiction exists, it will only be exercised in exceptional circumstances: see per Black CJ and Davies J in Donkin v AGC (Advances) Ltd [1995] FCA 696. Moreover, the setting aside of a judgment and orders of the Court requires the applicant to confront a number of evidentiary and discretionary obstacles: see per Mason CJ, Deane, Dawson, Toohey & Gaudron JJ in Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 at 141. 49 JJM has not had the opportunity of advancing material or argument in support of any application to set aside the declarations and orders made on 18 July 2002 having regard to such matters, and has not made a formal application to do so. I think it is therefore appropriate simply not to receive his affidavit of 30 July 2002 nor to rule upon its significance at this point. In my view, the fairer course, at present, is simply to decline to receive that affidavit. If he subsequently applies formally to set aside the orders made on 18 July 2002, he may apply to rely upon his affidavit of 30 July 2002 at that time. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

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