Australian Securities and Investments Commission v Ostrava Equities Pty Ltd

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

AND: OSTRAVA EQUITIES PTY LTD (ACN 108 866 717)

JUDGE: DAVIES J DATE: 2 june 2015 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 On 7 May 2015 I made orders that the fourth defendant ("Ms Ash") and the fifth defendant ("Mr Grimm") be restrained from leaving Australia without the consent of the Court until 26 May 2015 or until further order. The plaintiff ("ASIC") has applied to extend the travel restraint orders for another 12 weeks. The application is opposed and Ms Ash and Mr Grimm seek the discharge of the travel restriction orders and the dismissal of the proceeding. 2 The travel restriction orders were made pursuant to s 1323(1)(j) and (k) of the Corporations Act 2001 (Cth) ("the Corporations Act"). Section 1323(1) provides relevantly: Where: (a) an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; …… and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders: …… (j) if the relevant person is a natural person - an order requiring that person to deliver up to the Court his or her passport and such other documents as the Court thinks fit; (k) if the relevant person is a natural person - an order prohibiting that person from leaving this jurisdiction, or Australia, without the consent of the Court. 3 ASIC is carrying out an investigation pursuant to s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") into breaches of the Corporations Act and the ASIC Act by the defendants. The investigation was commenced on 9 April 2015. 4 On 17 April 2015, the Court made travel restriction orders against Ms Ash and Mr Grimm on the ex parte application of ASIC. Those orders were extended on 21 April 2015 and 4 May 2015, and extended again following a contested hearing on 7 May 2015: ASIC v Ostrava Equities Pty Ltd [2015] FCA 425. ASIC has contended that the orders should be further extended for a period of 12 weeks by reason that ASIC's investigation cannot properly or effectively be conducted in the absence of Ms Ash and Mr Grimm. Whilst ASIC accepted that Ms Ash and Mr Grimm are not flight risks and have no present intention to travel, ASIC submitted that their presence in the jurisdiction is necessary, or at least desirable, in the interests of aggrieved persons, to enable their further examination by ASIC on matters in relation to which there appear to be no, or limited, documentary records, and which only Ms Ash and Mr Grimm can explain. 5 As the authorities make clear, s 1323(1) of the Corporations Act is directed to the protection of the interests of aggrieved persons (as defined): ASIC v Hawley (2008) 68 ACSR 79; [2008] FCA 1423; ASIC v Carey (No 3) (2006) 232 ALR 577; [2006] FCA 433. However, orders under s 1323 are not made lightly by the Court. In ASIC v Carey (No 19) (2008) 65 ACSR 421; [2008] FCA 38, French J (as his Honour then was) observed that the authorities on the imposition of such restrictions under s 1323 of the Corporations Act mandate caution in imposing them: see the cases cited at [32]; ASIC v Hawley. In ASIC v Adler & Ors (2001) 38 ACSR 266; [2001] NSWSC 451 Santow J at [7] stated that an order under s 1323 should 'operate in a matter [sic] that is proportionate and not more intrusive than is necessary in the circumstances, recognising that it is inevitable that such orders will intrude upon private rights.' 6 The function of orders made under s 1323(1)(j) and (k) is essentially one of risk assessment and management: ASIC v Carey (No 3) at [26] and [30]. In deciding whether to make such orders the Court balances the interests, on the one hand, of the aggrieved persons referred to in s 1323(1) and, on the other hand, the interests of a defendant in avoiding undue interference with his or her affairs; ASIC v Hawley at [8]; ASIC v Active Super Pty Ltd (No 4) [2013] FCA 318 at [32]; ASIC v Ivey (1998) 29 ACSR 391 at 394; ASIC v Adler & Ors at [7]. In ASIC v Krecichwost [2007] NSWSC 948, McDougall J at [27] noted that the Court: … must take into account not only the interests to be protected but also the threats to those interests. For example, if the Court were affirmatively satisfied that there was no risk that a relevant person might abscond, it would be difficult to conclude, regardless, that an order under para (j) or para (k) would be necessary or desirable. In each case, it must be shown that the travel restriction orders are necessary or desirable. 7 Counsel for Ms Ash and Mr Grimm contended that the gravamen and likely quantum of claims that ASIC has identified that may be, or have been, made by "aggrieved persons" do not support a finding that travel restriction orders under s 1323(1) are necessary or desirable to protect the interests of those "aggrieved persons". It was submitted that even though ASIC has been inquiring into the affairs of the defendants since October 2014, ASIC has only identified three clients in relation to whom there may be suspected contraventions. One of those persons was said not to be an aggrieved person (so defined), as that person has reached a settlement of her claim against Ostrava. Another of those persons was said not to have made a claim and, it was submitted, it is strongly arguable based on the documentation that the defendants may not be liable to that person in respect of any contravention. Furthermore, it was submitted, even if a claim were made, the claim 'is likely to be no more than the fees charged,' amounting to around $5,000. In relation to the third person who does have a claim for alleged over-charging of fees of $20,000, it was submitted that Ostrava has agreed to refund $9,000 and the dispute is over the balance of $11,000 at most. It was submitted that in the circumstance where, on ASIC's 'best evidence,' the likely quantum of claims is in the order of $25,000, and the defendants have assets within the jurisdiction to satisfy such claims, the travel restriction orders would be an oppressive remedy. 8 It was submitted, moreover, that the Court can be satisfied that there is a very low risk that Ms Ash and Mr Grimm would leave the jurisdiction and not be available to provide assistance to ASIC in respect of its investigations. It was submitted that it was relevant for the Court to take into consideration that Ms Ash and Mr Grimm have fully cooperated with ASIC and have instructed solicitors to represent them in relation to its investigations. Furthermore, Ms Ash and Mr Grimm each offered to provide an undertaking to ASIC that they will not leave Australia before 18 August 2015 without first giving ASIC 14 days notice of their intention to leave Australia, together with details of the intended duration of, and the reason for, any travel outside of Australia. ASIC rejected the offer of the undertaking. 9 The submissions on behalf of Ms Ash and Mr Grimm cannot be wholly accepted. ASIC's investigation relates to the conduct generally of the financial services business carried on by the defendants, not just in relation to the three persons identified, and the 'aggrieved persons' (so defined) are the present and/or former clients of the defendants to whom the defendants are liable, or may be or become liable, to pay money by reason of the suspected contraventions of the Corporations Act and the ASIC Act. It was sufficient to come within the terms of s 1323 for ASIC to show that the acts or omissions which are the subject of the investigation may constitute a contravention of the Corporations Act, giving rise to a possible liability by the defendants or any of them to its present and/or former clients (which it has done here). ASIC did not need to demonstrate a prima facie case of liability on the part of the defendants in relation to particular persons: ASIC v Carey (No 3) at [26]. 10 I am satisfied that ASIC's investigation cannot properly or effectively be conducted in the absence of Ms Ash and Mr Grimm, who are the key persons involved in the business: ASIC v Wiggins (1998) 90 FCR 314; [1998] FCA 1727. The investigation is in the early stages. ASIC is still in the process of obtaining documents for review and examinations are yet to be conducted, including the examinations of Ms Ash and Mr Grimm which are to take place in early June 2015. ASIC also anticipates that it is possible that as a result of other examinations to take place, it will need to examine Ms Ash and Mr Grimm further. Given the early stage of the investigations and the importance to the investigation that Ms Ash and Mr Grimm be available to assist ASIC, I consider that ASIC has made out a case that it is desirable for the protection of the interests of aggrieved persons (so defined) (i.e. present and former clients) that Ms Ash and Mr Grimm remain in Australia at this stage. In balancing the competing interests, I take into account that ASIC has accepted that Ms Ash and Mr Grimm are not flight risks and they have no present plans to travel. ASIC however raised concerns that Ms Ash and Mr Grimm have not been fully co-operative with respect to its investigations to date. This was denied by Ms Ash and Mr Grimm, who said they have been fully co-operative and have every intention of cooperating with ASIC in its investigation. The evidence does not positively show that Ms Ash and Mr Grimm have not been co-operative and, in the circumstances, I do not think that ASIC's concern provides a compelling reason to extend the orders. I also take into account that Ms Ash and Mr Grimm have offered to provide undertakings to the Court in the same terms as the undertakings that they offered to provide to ASIC. In my view, it is reasonable for the Court to accept those undertakings from Ms Ash and Mr Grimm, in lieu of further extending the travel restriction orders. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.