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[2021] FCA 673
Federal Court of Australia
2021-06-17
Moshinsky J
Original judgment source is linked above.
PENAL NOTICE TO: REMEDY HOUSING PTY LTD (ACN 637 023 851) IF YOU: A. REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR B. DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: REMEDY HOUSING PTY LTD (ACN 637 023 851) This is a 'freezing order' made against you on 17 June 2021 by Justice Moshinsky at a hearing without notice to you after the Court read the affidavit listed in Schedule A to this order.
Introduction
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND: REMEDY HOUSING PTY LTD (ACN 637 023 851) First Defendant
MAHMOUD KHODR (and another named in the Schedule) Third Defendant
order made by: MOSHINSKY J DATE OF ORDER: 17 jUNE 2021
PENAL NOTICE TO: BRENT LINDSAY SMITH IF YOU: A. REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR B. DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: BRENT LINDSAY SMITH This is a 'freezing order' made against you on 17 June 2021 by Justice Moshinsky at a hearing without notice to you after the Court read the affidavit listed in Schedule A to this order.
Introduction
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND: REMEDY HOUSING PTY LTD (ACN 637 023 851) First Defendant
MAHMOUD KHODR (and another named in the Schedule) Third Defendant
order made by: MOSHINSKY J DATE OF ORDER: 17 JUNE 2021
PENAL NOTICE TO: MAHMOUD KHODR IF YOU: A. REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR B. DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: MAHMOUD KHODR This is a 'freezing order' made against you on 17 June 2021 by Justice Moshinsky at a hearing without notice to you after the Court read the affidavit listed in Schedule A to this order.
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND: REMEDY HOUSING PTY LTD (ACN 637 023 851) First Defendant
MAHMOUD KHODR (and another named in the Schedule) Third Defendant
order made by: MOSHINSKY J DATE OF ORDER: 17 JUNE 2021
PENAL NOTICE TO: TREVOR LEOTA IF YOU: A. REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR B. DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: TREVOR LEOTA This is an order made against you on 17 June 2021 by Justice Moshinsky at a hearing without notice to you after the Court read the affidavit listed in Schedule A to this order.
Introduction
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND: REMEDY HOUSING PTY LTD (ACN 637 023 851) First Defendant
MAHMOUD KHODR (and another named in the Schedule) Third Defendant
order made by: MOSHINSKY J DATE OF ORDER: 17 JUNE 2021
PENAL NOTICE TO: MAY-ANN SMITH IF YOU: A. REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR B. DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: MAY-ANN SMITH This is a 'freezing order' made against you on 17 June 2021 by Justice Moshinsky at a hearing without notice to you after the Court read the affidavit listed in Schedule A to this order.
Introduction
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND: REMEDY HOUSING PTY LTD (ACN 637 023 851) First Defendant
MAHMOUD KHODR (and another named in the Schedule) Third Defendant
order made by: MOSHINSKY J DATE OF ORDER: 17 JUNE 2021
PENAL NOTICE TO: JULIANA KHODR IF YOU: A. REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR B. DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: JULIANA KHODR This is a 'freezing order' made against you on 17 June 2021 by Justice Moshinsky at a hearing without notice to you after the Court read the affidavit listed in Schedule A to this order.
Introduction
Introduction 1 This is an ex parte application by the plaintiff, the Australian Securities and Investments Commission (ASIC), for freezing orders, disclosure orders and travel ban orders. 2 The proceeding was commenced by ASIC by originating application filed today. The defendants to the proceeding are: (a) Remedy Housing Pty Ltd (Remedy Housing); (b) Brent Lindsay Smith (Mr Smith); (c) Mahmoud Khodr (Mr Khodr); and (d) Trevor Leota (Mr Leota). 3 In the substantive proceeding, ASIC seeks a series of orders including a permanent injunction to prevent the conduct of a business which it says is being conducted contrary to the provisions of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the National Consumer Credit Protection Act 2009 (Cth). 4 By interlocutory process filed today, ASIC seeks certain interlocutory orders against the four defendants and also two other individuals. The two additional individuals are: (a) May-Ann Smith (Ms Smith); and (b) Juliana Khodr (Ms Khodr). 5 The relief sought in the interlocutory process falls into two categories. The first category comprises relief that ASIC seeks today on an ex parte basis - that is, freezing orders, disclosure orders and travel ban orders. The second category comprises interlocutory relief that ASIC will seek on a subsequent occasion on an inter partes basis. That part of the interlocutory process can be put to one side for present purposes. 6 In relation to freezing orders, disclosure orders and travel ban orders, ASIC does not seek all three types of orders against each of the defendants and the two additional individuals. The orders that ASIC seeks in relation to each defendant and the two additional individuals can be summarised as follows: (a) Remedy Housing - freezing orders and disclosure orders; (b) Mr Smith - all three types of orders; (c) Mr Khodr - all three types of orders; (d) Mr Leota - disclosure orders and travel ban orders; (e) Ms Smith - freezing orders and disclosure orders; and (f) Ms Khodr - freezing orders and disclosure orders. 7 At this stage, ASIC seeks orders that will continue for a period of one week, that is, until the end of Thursday, 24 June 2021, with the matter to return to Court on the morning of that day. 8 The evidence currently before the Court indicates that: (a) Since November 2020, Remedy Housing and Messrs Smith, Khodr and Leota have been conducting a business branded "Remedy Housing". Advertised principally via the internet, Remedy Housing offers consumers an "interest free mortgage" without any credit checks upon payment of a $10,000 deposit. Neither Remedy Housing nor those operating it hold an Australian Financial Services Licence (AFSL) or an Australian Credit Licence (ACL). (b) Since 7 November 2019, 123 individuals have deposited $1,484,250 into Remedy Housing's bank account. So far as ASIC can tell, these depositors have not obtained any interest in real property or any other return. (c) A significant portion of those funds have been disbursed to the individual defendants. For example: (i) an amount over $775,000 has been transferred to Mr Smith's and Mr Khodr's personal bank accounts; and (ii) at least $130,000 has been transferred to overseas bank accounts and invested in cryptocurrency exchanges. 9 ASIC's interlocutory application is supported by Evan Bradshaw's affidavit affirmed on 16 June 2021 (the Bradshaw affidavit).
Form of order and jurisdiction 10 ASIC seeks ex parte orders pursuant to s 1323(1)(a) of the Corporations Act. 11 The orders sought are similar, but not identical, to the standard form of freezing order granted pursuant to Div 7.4 of the Federal Court Rules 2011. Accordingly, the orders provide the defendants and the additional individuals with certain protections pending the return of the matter, including access to funds for living and legal expenses, as well as a mechanism to object to disclosure on the grounds of self-incrimination. 12 As noted above, the orders are sought under s 1323(1)(a), which provides that the Court may make certain orders where (relevantly): (a) an investigation is being carried out under the ASIC Act or the Corporations Act in relation to an act or omission by a person (the "relevant person"), being an act or omission that constitutes or may constitute a contravention of the Corporations Act; and (b) the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (an "aggrieved person") to whom the relevant person may 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). 13 Under s 1323(3), the Court may grant the same orders on an interim basis. Under s 1323(4), the Court must not require the applicant or any other person, as a condition of granting an interim order under subsection (3), to give an undertaking as to damages. 14 With respect to this jurisdiction, the following is generally accepted (see Australian Securities and Investments Commission v Carey (No 3) (2006) 57 ACSR 307 at [21]-[27] per French J; Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2018] NSWSC 1918 at [11] per Black J): (a) The liabilities, actual or potential, to which the section refers, may arise from a contravention of the Corporations Act or under the general law. (b) There are a variety of ways in which the interests of persons, to whom liabilities may be owed, can be protected by orders made under the section. The interests of aggrieved persons may be protected not only by orders designed to protect dissipation of assets, but also by orders which create an opportunity for the assets of the person under investigation to be ascertained. (c) Orders can be made before liability is established and indeed before the evidence necessary to establish liability has been collected. (d) The circumstances in which the Court may make orders under s 1323(1) are wide as indicated by the words "necessary or desirable … for the purpose of protecting the interests of a person …". It follows that there is no requirement on the part of an applicant to demonstrate a prima facie case of liability on the part of the relevant person or that the person's assets have been or are about to be dissipated. 15 An issue arises regarding the availability of freezing type orders under s 1323(1). In this regard, none of the powers conferred upon the Court under s 1323(1)(d)-(k) expressly include the power to restrain the disposal of assets as ASIC seeks here. This raises the issue whether, if s 1323(1) is not expressed in this way, s 23 of the Federal Court of Australia Act 1976 (Cth) may be deployed to achieve the same end: see Australian Securities and Investments Commission v Wiggins (1998) 90 FCR 314 (Wiggins) at 319 per Finkelstein J; Australian Securities and Investments Commission v Carey (No 14) (2007) 158 FCR 92 (ASIC v Carey) at [29]-[30] per French J; and Australian Securities and Investments Commission v Banovec (No 2) (2007) 214 FLR 33 at [4]-[37] per White J. 16 However, any issues on this front are resolved in the present case for the following reasons: (a) I consider that jurisdiction exists to grant such orders on an interlocutory basis under s 23 of the Federal Court of Australia Act in aide of the Court's jurisdiction under s 1323 of the Act: see ASIC v Carey at [29] per French J. In this case, as envisaged by both its interlocutory process and its originating application, ASIC might seek orders under s 1323 once the assets of the defendants and the additional individuals have been ascertained. (b) Even if the exercise of jurisdiction under Div 7.4 of the Federal Court Rules were required, there is evidence that indicates that a relevant dissipation of assets is occurring in this instance: see the Bradshaw affidavit at [56]-[72] and [78]-[106]. That dissipation will frustrate any orders ultimately made under either s 1323 or otherwise. However, so far as this jurisdiction is relevant, I note that ASIC does not proffer any undertaking as to damages. 17 The orders sought restraining the individual defendants from leaving Australia are supported by s 1323(1)(j) and (k).
Background facts 18 ASIC's investigation has progressed as follows: (a) In October 2020, ASIC commenced investigating Remedy Housing, Mr Smith and Mr Khodr under the National Consumer Credit Protection Act. (b) On 16 December 2020, the investigation was expanded to include an investigation pursuant to s 13 of the ASIC Act into suspected contraventions by Remedy Housing, Mr Smith and Mr Khodr of various provisions of the ASIC Act, the National Consumer Credit Protection Act and the Corporations Act. The investigation was further expanded on 15 January 2021 to include suspected contraventions of ss 81 and 82 of the Crimes Act 1958 (Cth). (c) On 1 March 2021, the investigation was further expanded to include an investigation pursuant to s 13 of the ASIC Act into suspected contraventions by Remedy Housing, Mr Smith, Mr Khodr and Mr Leota of s 12DC of the ASIC Act and s 911A of the Corporations Act. 19 The steps undertaken pursuant to this investigation, and what those steps have revealed, are detailed in the Bradshaw affidavit. ASIC's investigation remains ongoing with a view to: (a) issuing further statutory notices for documents and analysing the information obtained therefrom; (b) interviewing individuals, including Remedy Housing's customers as well as those involved in its business; and (c) obtaining and analysing information regarding the defendants' crypto assets. 20 The Bradshaw affidavit outlines what is known and unknown regarding Remedy Housing's business. Operating from both a Facebook page and a stand-alone website, Remedy Housing has been offering "interest free mortgages". 21 Although certain things remain unknown at this stage, it appears from the material before the Court that Remedy Housing's customers are induced to expect a significant delay between their payment to Remedy Housing and some form of return. ASIC contends that this has likely facilitated those involved dealing with the deposits as they please. 22 Remedy Housing's bank statements evidence approximately 123 consumers who have deposited funds in its account. These people are, for the purposes of s 1323, the aggrieved persons. Although not presently parties to this proceeding, nor even aware of ASIC's investigations, the protection of these individuals' interests is the very purpose of the orders ASIC now seeks. 23 As for those involved, being the "relevant persons" under s 1323: (a) Mr Smith is Remedy Housing's director and 50 per cent shareholder; (b) Mr Khodr is Remedy Housing's former director, current secretary and 50 per cent shareholder; (c) Mr Leota promotes Remedy Housing's business and is described on its websites as its "co-founder"; (d) Ms Smith is Mr Smith's wife. There is no evidence she is directly involved in the business. However, her assets have been comingled with money from Remedy Housing's bank account; and (e) Ms Khodr is Mr Khodr's wife. There is no evidence she is directly involved in the business. However, her assets have been comingled with money from Remedy Housing's bank account. 24 Noting none of the defendants possesses an AFSL or ACL, ASIC suspects that Remedy Housing, and individuals associated with Remedy Housing, may have contravened, and may be continuing to contravene, the following provisions: (a) with respect to financial services: (i) s 911A of the Corporations Act, prohibiting persons from carrying on a financial services business without a financial services licence; (ii) s 12DA of the ASIC Act, prohibiting misleading or deceptive conduct in relation to financial services; (iii) s 12DB of the ASIC Act, prohibiting false or misleading representations in relation to financial services; and (iv) s 12DC of the ASIC Act, prohibiting false or misleading representations in relation to financial products that involve interests in land; and (b) with respect to credit activities: (i) s 29 of the National Consumer Credit Protection Act, prohibiting persons from engaging in credit activities without an Australian credit licence; and (ii) s 160D of the National Consumer Credit Protection Act, prohibiting false or materially misleading information in the course of engaging in a credit activity. 25 Against this background, there is material before the Court that suggests that the relevant persons might become liable to the aggrieved persons. 26 ASIC has gathered and analysed significant information relating to the transfer of money from Remedy Housing's bank account. This is set out in the Bradshaw affidavit. 27 ASIC's investigations have also revealed various international transfers and cryptocurrency dealings as detailed in the Bradshaw affidavit. 28 On the basis of the above, ASIC submits, and I accept for present purposes, that there are serious concerns that: (a) the $1,484,250 in deposits from 123 customers is no longer available from Remedy Housing; and (b) Mr Smith and Mr Khodr have either: (i) intermingled those funds with their own as well as that of their wives; and (ii) taken additional steps to put beyond those funds beyond reach.
Freezing orders and disclosure orders 29 I am satisfied that, on the basis of the material currently before the Court, these matters warrant freezing orders and disclosure orders as sought today by ASIC. In this regard: (a) the freezing orders will prevent the further dissipation of assets, preventing the frustration of any further relief ASIC might seek under s 1323(1); and (b) the disclosure orders will reveal the details and location of assets, allowing ASIC to seek more specific relief under s 1323(1). 30 ASIC accepts that, so far as asset dealings are concerned, the evidence against Mr Leota is more limited. ASIC does not presently seek freezing orders against him but maintains its application for disclosure orders.
Travel ban orders 31 ASIC seeks orders restraining Mr Khodr, Mr Smith and Mr Leota from leaving Australia, pursuant to s 1323(1)(j) and (k) of the Corporations Act. Details regarding their citizenship are set out in the Bradshaw affidavit. 32 It is established that great caution is required in restricting a person's freedom of movement: see Wiggins at 320 per Finkelstein J. In my view, on the basis of the material presently before the Court, the following matters warrant the making of travel ban orders against Mr Khodr, Mr Smith and Mr Leota (see Australian Securities and Investments Commission v Johnston [2009] FCA 1276 at [10]-[12] per Siopis J): (a) ASIC requires Mr Kohdr's, Mr Smith's and Mr Leota's continued presence in Australia to: (i) ensure compliance with ASIC's prospective freezing orders and/or disclosure orders sought in the present interlocutory application; and (ii) assist with ASIC's ongoing investigation. (b) The potential allegations against each person are serious, extending as high as taking money under a deliberately false pretence. They are matters from which a person might seek to abscond. (c) All three might have the capacity to settle overseas: Mr Khodr has traded heavily in cryptocurrency and transferred significant sums overseas; Mr Smith and Mr Leota may travel to New Zealand without exemption. They presumably have ties there. 33 These orders should be expressed to be "subject to further order", to make clear that they can be reviewed when the matters comes back on an inter partes basis. 34 ASIC does not seek travel bans against Ms Smith and Ms Khodr.
Conclusion 35 Accordingly, I will make orders substantially in the terms sought by ASIC. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.
SCHEDULE OF PARTIES VID 319 of 2021 Defendants Fourth Defendant: TREVOR LEOTA
Australian Securities and Investments Commission
Remedy Housing Pty Ltd