AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v RENARD JONAS WIGGINS & ORS

HIS HONOUR: The applicant, the Australian Securities and Investments Commission (ASIC), is conducting an investigation into the activities of a number of companies including the two corporate respondents, being companies that are incorporated in Australia, and other companies that are incorporated in jurisdictions such as Hong Kong, the British Virgin Islands and Canada. The investigation commenced on 11 December 1998. It resulted from complaints made by minority shareholders in Tritech Technology Pty Ltd (Tritech), the second respondent, that its sole director, Renard Wiggins, the first respondent, had failed to keep them fully informed about the business activities of Tritech and that he may have misappropriated some of its funds. In the course of its investigation the ASIC discovered that Mr Wiggins, a citizen of the United States of America, was involved in the marketing of shares in royalties to be received in respect of the exploitation of an invention relating to a self‑inflatable life raft. The evidence relating to these activities is not at all detailed. In part this is due to the fact that this application, which I will describe more fully in a moment, was brought at short notice during the long vacation. Perhaps another explanation is that the investigation that is being conducted by the ASIC is still in its infancy and not a great deal is known about the detail. At all events, what the evidence does disclose is as follows. Until recently Tritech was registered as the proprietor of, or had made application for, the registration of patents for the life raft in a number of countries excluding the United States. Mr Wiggins held the patent or had made application for the registration of the patent in the United States. It may be, but it is by no means clear, that another person, the inventor of the life raft, also had an interest in the patents and the patent applications. In consequence of certain arrangements, the full details of which have not been put into evidence, a group known as the Venture Capital Group is entitled to receive 10 per cent of the gross sale price of each life raft that is sold. According to the ASIC the group is entitled to receive this proportion of the royalty because Tritech has entered into a number of agreements conferring on corporations around the world the right to manufacture or market the life raft in return for a royalty of 25 per cent of the gross sale price of each life raft and Tritech has "allocated" (I use the language of the affidavit filed in support of the application) two‑fifths of this royalty to the group. There is evidence that suggests that it may be Mr Wiggins and not the Venture Capital Group that is entitled to receive the 10 per cent share of the gross revenue from the sale of the life rafts. However, for present purposes, it is not necessary to inquire whether it is the group or Mr Wiggins who is entitled to the percentage in question as the answer will not affect the outcome of this application. The Venture Capital Group comprises Tritech, Self Righting Systems Australasia Pty Ltd, Andrews, Wiggins and Associates Consulting Inc and Mr Wiggins. In 1998, or perhaps a little earlier, this group began to offer to potential investors the right to receive a percentage of the 10 per cent interest in the royalty. It seems that approximately 34 persons have taken up a share of the royalty at a collective purchase price of $420,000 according to the ASIC or a lesser price according to Mr Wiggins. Between them these 34 investors are entitled to approximately 32 per cent of the 10 per cent interest in the royalty, according to my calculation. Affidavits filed by a number of the minority shareholders are to the effect that Mr Wiggins has applied the money received from the investors to his own use. According to the ASIC, in May 1998 Tritech assigned its patents and patent applications for the life raft for China, Macau, Taiwan and Burma to Eastchina Technology Ltd (Eastchina) for $US400,000 and, presumably because it was able to control the issue of shares in that company, procured the allotment of 15 per cent of the capital of Eastchina to Dynamic Group International Ltd (Dynamic Group), a Hong Kong based company. Also according to the ASIC, Eastchina sold the marketing rights for the life rafts to Dynamic Group for $US700,000. The ASIC also alleges that later in May 1998, Tritech assigned the same patents and patent applications that had been assigned to Eastchina to Holonomic International Technology Inc (Holonomic), this time for a consideration of $1. Holonomic is incorporated in the British Virgin Islands. The respondents explain these inconsistent dealings on the basis that the assignment to Eastchina did not proceed and that, by agreement, the assignment to Holonomic occurred in substitution. The ASIC says that, whether in consequence of the assignment of the patents and patent applications to Eastchina or to Holonomic, the assets of Tritech have been diminished to the disadvantage of its shareholders. The ASIC also says that the proceeds received as the consideration for the assignment ($US400,000) have been improperly utilised by Mr Wiggins for his own purposes. Mr Wiggins puts forward a different view of the facts. He says that the assignment of the patent rights was with the consent of the minority shareholders of Tritech and he produced the written consent of a number of them. He says that much of the money received from the assignment of the patents and patent applications and the "sale" of interests in the 10 per cent proportion of the royalty has been lent to Tritech to fund the development of the life raft. Importantly, Mr Wiggins also says that the minority shareholders are to be allotted shares in Eastchina and Holonomic so that they will maintain their existing "equity" in the patent rights save to the extent of any dilution in that "equity" that is brought about by the allotment of 15 per cent of the capital in Eastchina to Dynamic Group; a dilution that, according to Mr Wiggins, was consented to by the minority shareholders. The ASIC contends that, on the basis of the evidence that I have briefly summarised, there may have been the following contraventions of the Corporations Law as was in force at the time the alleged transactions occurred. First, it is said that there may have been a contravention of s 1018(1) of the Corporations Law. That subsection provided: "A person shall not offer for subscription, or issue invitations to subscribe for, securities of a corporation unless: (a) a prospectus in relation to the securities has been lodged; (b) the prospectus complies with the requirements of this Division; (c) if the prospectus is a registrable prospectus - the prospectus has been registered by the Commission under section 1020A. " The definition of "securities" is to be found in s 92 of the Corporations Law and, relevantly, they are defined to include, among other interests, "prescribed interests". Section 9 of the Corporations Law contains a definition of "prescribed interest". One meaning given to that term is "a participation interest". "A participation interest" is defined in s 9 to mean, so far as is presently relevant: "any right to participate, or any interest: (a) in any profits, assets or realisation of any financial or business undertaking or scheme whether in Australia or elsewhere; (b) in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party;" Prima facie, the offering for sale of a right to receive a proportion of the 10 per cent gross proceeds of the sale of the life rafts is a "participation interest", as defined, being a right to participate in the profits of a business undertaking. If that is not the correct view, then the right to receive a proportion of the 10 per cent gross proceeds would, prima facie at least, be a right to participate in the profits of a financial undertaking or scheme. For the purpose of the present application the respondents accept that the ASIC has made out a case that there has been or, at the least, may have been a contravention of s 1018 of the Corporations Law. The respondents concede that no prospectus had been lodged in respect of the "sale" of the rights to receive a percentage of the royalty. The ASIC also alleges that there is a prima facie case made out that Mr Wiggins has contravened s 232 of the Corporations Law. Section 232 is concerned with the duties and liabilities of officers, including the directors, of a corporation. The allegation is strenuously contested by Mr Wiggins, and I must say that the evidence in support of it is not at all satisfactory. By its originating application, which was issued on 23 December 1998, the ASIC asks for a declaration that, in substance, the sale of the right to receive a percentage of the 10 per cent gross proceeds of the sale of the life rafts was conduct which contravened the Corporations Law and it also asks for an injunction restraining the respondents from promoting, offering or inviting expressions of interest from members of the public to receive a percentage of those gross proceeds. By its notice of motion, also issued on 23 December 1998, the ASIC seeks interlocutory relief of a kind that I will describe in a moment, pending the determination of its originating application. The motion was first returnable before Goldberg J on 24 December 1998. After hearing short argument, his Honour granted certain relief of an interim nature and adjourned the further hearing of the motion until this day. The application for interlocutory relief is brought under s 1323 and s 1324 of the Corporations Law. By s 1323 the court is given power to make a variety of specified orders in the case where an investigation is being carried out under the ASC Law (as defined) or the Corporations Law, or where a prosecution has commenced for a contravention of the Corporations Law or where a civil proceeding has been begun against a person under the Corporations Law: see s 1323(1). An application under the section may be brought by the ASIC or by "an aggrieved person", being a person to whom the person under investigation, or being prosecuted or who is the defendant in a civil proceeding is liable or may become liable in debt or by way of damages or compensation or to account for property: see s 1323(1). An order under the section may be made only where "the Court considers it necessary or desirable for the purpose of protecting the interests of [the aggrieved] person" although an interim order may be made if "it is desirable to do so": s 1323(3). Section 1324(1) empowers the court to grant an injunction to restrain a person who has engaged in or is proposing to engage in conduct that constituted, constitutes or would constitute a contravention of the Corporations Law from engaging in that conduct and, if thought desirable, requiring that person to do any act or thing. The application may be brought by the ASIC or by a person whose interests have been, are or could be affected by the conduct. By s 1323(4) an order contemplated by s 1324(1) may be made on an interlocutory basis. As it has turned out, the respondents will submit to certain orders being made against them. It is first convenient to mention those orders. The respondents agree to the granting of an injunction until the hearing of the application or further order restraining the respondents and any other person acting on their behalf from inviting expressions of interest in the Venture Capital Group scheme, being the scheme set out in the document entitled "Venture Capital Agreement private offering" between the Venture Capital Investor and the Venture Capital Group until the requirements of the law are satisfied. The respondents agree that pending the final determination of the application or further order, an injunction should be granted to prohibit the respondents and any other person acting on their behalf from responding to expressions of interest received from any members of the public who have expressed an interest in the Venture Capital Group scheme until the requirements of the law are satisfied. The respondents agree that an injunction should be granted prohibiting the respondents and any other person acting on their behalf from transferring or otherwise parting with possession of any of the funds that have been received since 9.00am on 24 December 1998 from actual or proposed Venture Capital investors in the Venture Capital Group scheme by the respondents or any other person acting on their behalf. The first respondent agrees that pending the final determination of the application or further order, an injunction should be granted requiring the first respondent by 4.15pm on 8 January 1999 to prepare and swear an affidavit providing the ASIC with the names and addresses of any person who by an agreement or agreements executed in Australia has become or who, to the best knowledge of the first respondent, has since 1 January 1998 expressed an intention or interest in becoming a Venture Capital investor in the Venture Capital Group scheme. The first respondent also agrees that until the final determination of the application or further order an injunction should be granted requiring the first respondent by 4.15pm on 8 January 1999 to prepare and swear an affidavit providing details of all money received from the Venture Capital investors referred to in the earlier order and, to the best of his knowledge, how such moneys have been spent or otherwise dealt with. In my view it is proper for those orders to be made pursuant to the powers conferred on the court by a combination of s 1324(1) and s1324(4). I note that by s 1324(8), the ASIC is not required to give any undertaking as to damages as the price for obtaining those orders. I can now turn to those matters where the parties are not in agreement. First, the ASIC seeks an order restraining or prohibiting the respondents and any other person acting on their behalf from transferring, assigning or otherwise parting with possession of any right, title or interest or otherwise parting with possession of any patents or patent applications to another person or persons at the direction or request of the person on whose behalf the patents or patent applications are held. Mr Hurley, on behalf of the ASIC, says that I have power to make such an order either under s 1323(1)(e) or s 1323(1)(g). Those paragraphs permit the court to make the following orders: "(e) an order prohibiting a person holding money, securities, futures contracts or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the securities, futures contracts or other property, to, or to another person at the direction or request of, the person on whose behalf the money, securities , futures contracts or other property, is or are held; (f) . . . (g) an order prohibiting the taking, sending or transfer by a person of securities, futures contracts or other property of the relevant person, or of an associate of the relevant person: (i) from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of securities from a register in this jurisdiction to a register outside this jurisdiction); or (ii) from a place in Australia to a place outside Australia (including the transfer of securities from a register in Australia to a register outside Australia);" I am of the clear view that none of those provisions empowers the court to make the order that is sought. Section 1323(1)(e) is concerned with the case where the person against whom the order is sought (the defendant) holds money etc. on behalf of a person (defined in s 1323(1) as the "relevant person") who is the subject of an investigation under the ASC Law or the Corporations Law, or who is being prosecuted for an offence under the Corporations Law or against whom a civil proceeding under the Corporations Law has been commenced. The paragraph contemplates that the defendant may be restrained from disposing of money etc. held on behalf of the relevant person at the direction or request of the relevant person. Thus the order must relate to property that the defendant holds on trust for the relevant person, or property that belongs to the relevant person but is in the possession of the defendant as bailee, agent or in some other like capacity. It is not a paragraph which empowers the court to restrain the disposition by a relevant person of property that is in the possession of that person. There is no suggestion here, at least so far as the evidence is concerned, that any respondent, Mr Wiggins, Tritech or the third respondent, Self Righting Systems Australasia Pty Ltd, holds money or property on behalf of any other respondent which can be made the subject of a restraining order under s 1323(1)(e). Section 1323(1)(g) is also of no assistance to the ASIC. It empowers the court to restrain the removal of property from one jurisdiction, either a state or territory of the Commonwealth or the Commonwealth, to another jurisdiction. A patent, which does constitute property, and an application for a patent, which may constitute property, is not removable from one jurisdiction to another. Patent rights are created by statute. They subsist in the particular jurisdiction in which the statute has operation. In Australia the relevant statute is the Patents Act 1990 (Cth). It confers monopoly rights throughout Australia in respect of the invention to which the patent or application for a patent relates. Those monopoly rights are not exercisable in and cannot be transferred to have effect in some other jurisdiction. So it is with monopoly rights created by similar legislation in other jurisdictions. Of course, the rights created by the statute are usually assignable. But an assignment of the monopoly rights conferred by the statute, even an assignment to a person outside the jurisdiction, does not remove or transfer the patent, or the application for a patent, to the jurisdiction where the assignee is located. I do not doubt that, on proper material, I have power to make an order along the lines sought by the ASIC but it would not be an order in pursuance of the powers conferred by s 1323. However, the ASIC has indicated that it does not seek to base the order on some other power because it would not thereby obtain the advantage conferred by s 1323(4), namely, the advantage of not being required to give an undertaking as to damages. Finally, the ASIC seeks an order requiring the first respondent to deliver up to the court his passport and also an order prohibiting the first respondent from leaving Australia without the consent of the court. I have power to make those orders under s 1323(1)(j) and s 1323(1)(k) provided it is shown that it is either "necessary or desirable to do so for the purpose of protecting the interests of " an aggrieved person. In my view the power to restrain a person from leaving the jurisdiction or requiring a person to deliver up his passport, which would have the same effect, is a power that should be exercised with great caution. I regard any restriction on a person's individual freedom of movement from one country to another as being a sufficiently serious interference with that person's personal rights and liberties that the power to impose the restriction should be exercised only in the most clear case. Thus, in circumstances such as the present where the orders are sought for the purposes of assisting a current investigation that is being conducted by the ASIC, unless it is shown that the investigation cannot properly or effectively be conducted in the absence of the person, the orders should not be made. In this case, Mr Ashworth, a principal investigator employed by the ASIC, has sworn the main affidavit in support of the application. He has not said directly why it is necessary or desirable that the orders sought against Mr Wiggins be made, but it is clear enough, by implication, that Mr Ashworth is proceeding on the basis that for the ASIC to properly conduct its investigation it may be necessary for it to exercise the coercive powers of examination and compel the production of documents that the ASIC has available to it under the Corporations Law and the Australian Securities Commission Act 1989 (Cth) in relation to Mr Wiggins. No argument was put that the ASIC was prevented from continuing with its investigation by reason of it having commenced this proceeding. One problem with the orders that the ASIC seeks is that, if granted, they would require Mr Wiggins to remain in Australia for months, perhaps even a year or so, pending the determination of the originating application. I am not disposed to make any order that would keep Mr Wiggins in the jurisdiction for that length of time for the reason that the evidence falls far short of showing that it is either necessary or desirable for Mr Wiggins to remain in the jurisdiction for that period. With the orders that will be made by consent, the ASIC will have available to it, in a very short time, the names of the persons who have "invested" in the right to receive a percentage of the 10 per cent gross proceeds of the sale of life rafts. The ASIC will then be in a position to speak to those people, or to their representatives, to ascertain in detail the facts that may establish a contravention of s 1018 and perhaps other provisions of the Corporations Law. The ASIC can then decide whether Mr Wiggins is to be asked to produce documents or is to be called in to be examined, and then determine the timing within which such steps are to be taken. The ASIC might also decide that to further its investigation it may be necessary to exercise other statutory powers that may require the continued presence of Mr Wiggins within the jurisdiction. In my view the ASIC should be able to formulate concluded views on all of these matters and, if it decides to do so, take the relevant steps within four weeks or so. In these circumstances, although I regard this as a borderline case, I am of the opinion that it is appropriate, in the sense of it being desirable, that Mr Wiggins remain in the jurisdiction until 29 January 1999 to enable the ASIC to take the steps that I have mentioned. On one view a period of 4 to 5 weeks for these steps to be taken might be regarded as unduly lengthy and, in ordinary circumstances, I would not be disposed to allow so long for the ASIC to conduct its investigation in relation to what appears to be relatively uncomplicated contraventions of the Corporations Law. However, in view of the fact that it is now in the middle of the long vacation and Mr Wiggins has not indicated a desire to leave Australia, the ASIC is entitled to some indulgence. I should also mention one additional factor upon which I rely in reaching the conclusion that Mr Wiggins should be required to remain in Australia for a very short period to assist the inquiries being conducted by the ASIC. The ASIC has filed three affidavits, sworn by minority shareholders in Tritech, that are to the general effect that Mr Wiggins has made statements to those shareholders that if he has breached the Corporations Law or is in some difficulty because of the manner in which he has conducted the affairs of Tritech, he might leave the country to avoid whatever adverse consequences would result. The affidavits to which I refer are those of Alan Freedman, Norman Freedman and Darren Rigby. In fairness to Mr Wiggins I should point out that he strongly denies having made the statements attributed to him by the three deponents. There is also an affidavit of Mark Worsnop, a member of the firm of solicitors retained by the respondents, who was in attendance at one of the meetings where it is alleged that Mr Wiggins made his statement about leaving the jurisdiction, and Mr Worsnop's evidence confirms Mr Wiggins' version of the discussions that transpired; so also do the notes that Mr Worsnop made of the meeting. However, as is the case with all applications of this type, being applications of an interlocutory nature, often it is not possible to determine whether one version of a conversation should be preferred over another version. Interlocutory applications, based on affidavits that have often been prepared at short notice and where the witnesses' evidence is not tested by cross-examination, are not a satisfactory basis for resolving contested issues of fact. Thus, for the purpose of deciding whether the restraining orders should be made I am compelled to have regard to the fact that three deponents have sworn that Mr Wiggins has threatened to leave the country if the need arises. I accept, as was submitted on behalf of Mr Wiggins, that each of the three deponents is interested in the affairs of Tritech and, for one reason or another, may have some motivation for seeking to cause harm to Mr Wiggins and Tritech. But that is not a basis upon which their evidence can be ignored. In particular, I cannot say, on the material that I have read, that their version of events is so improbable that, although not tested, it should be disregarded. In the result, I am disposed to make the orders that the ASIC seeks, although for a shorter period than is sought, unless Mr Wiggins' solicitor proffers an undertaking not to part with control of the passport of Mr Wiggins that is presently in his possession. There are two reasons why I regard the taking of the undertaking from Mr Wiggins' solicitor as the appropriate course. First, I suspect that, although the loss of possession of the passport will not cause him any practical problems, there may be occasions when Mr Wiggins will need to show his passport to some person or governmental authority. If the passport is left under the control of Mr Wiggins' solicitor then, no doubt at some expense to Mr Wiggins, but not a great expense I would expect, if the passport must be made available that can be done more easily than if the passport is delivered into the possession of the court. The second reason why I think that an undertaking from Mr Wiggins' solicitor concerning the control of the passport is desirable rather than having injunctions granted against Mr Wiggins is his concern, expressed to both me and to Goldberg J on 24 December 1998, that if the court was to make an order against him for delivery up of his passport and prohibit him from leaving Australia, that might tell badly against Mr Wiggins in his current application for permanent residence. I have read Goldberg J's comments in relation to this matter and in particular his Honour's observations that it would be quite wrong of any person, and in particular any regulatory agency, to take an adverse view of Mr Wiggins by reason of the fact that, for a short period of time, he is required, by order of the court, to remain in Australia. His Honour quite correctly expressed the opinion that the making of any order should not adversely affect Mr Wiggins and I agree with his Honour's views. But in order to minimise as much as possible any harm that might befall Mr Wiggins by reason of giving effect to what the ASIC seeks, it is appropriate to accept the undertaking, which has been proffered, rather than make the orders sought. If the ASIC wishes to ask for an order requiring Mr Wiggins to remain in Australia for any period beyond 29 January 1999, then I will hear that application on 29 January 1999 provided proper notice of that application has been given to Mr Wiggins and any material upon which the ASIC relies has been duly served. I will not give any directions in that regard but I will leave it to the parties to take the appropriate steps. I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein