REASONS FOR JUDGMENT
1 This application is made because Australian Securities and Investments Commission (ASIC) became concerned about certain fund-raising activities associated with Advanced Energy Systems (Australia) Ltd ACN 118 790 444 (AESAL), ACN 124 647 609 Ltd, previously known as SunEnergy Ltd (SEL), SunEnergy Asia Pacific Pty Ltd (ACN 136 736 395) (SEAPPL), an American entity SunEnergy Incorporated (SEI) and John Ernest Price (Mr Price).
2 SEI was incorporated in Delaware on 21 March 2007. Its sole director is Mr Price. It changed its name to SunEnergy America Inc on 14 August 2009.
3 The material before the Court also refers to two other entities: Advanced Energy Systems Ltd ACN 066 908 530 (AESL) and SunEnergy Asia Pacific Ltd (SEAPL). SEAPL is an entity which is not registered in Australia, and therefore does not exist (s 119 Corporations Act 2001 (Cth) (the Act).
4 On 22 December 2010, I made certain ex parte orders against the defendants. It is not necessary to refer to them at this point. I also directed that notice of the originating application and the Orders then made should be given to SEI and to Mr Price by delivering them to the address within Australia provided by SEI in its Convertible Note Application Form, namely 101 Collins Street, Level 27, Melbourne Victoria 3000 and by sending the originating application and the orders then made by facsimile to the facsimile address there given (specified in the Order) and by email to john.price@sunenergy.net. The orders were made in those terms, in the light of the evidence indicating that service of the application but through those avenues communicated with the public or ASIC or both.
5 The proceedings were duly served on SEAPPL and AESAL, and notified to SEI and Mr Price.
6 I subsequently ordered on 1 February 2011 under O 8 r 3 of the Federal Court Rules that the notice given to Mr Price takes the place of service of the application on him nunc pro tunc. I fixed a time for any of the defendants to file any answering affidavits.
7 No defendant has chosen to file an appearance or to file or serve any affidavits responsive to the material now relied on by ASIC. That material has been served upon them. The only material lodged with the Court on behalf of any of them are an affidavit of Mr Price of 23 February 2011 and an affidavit of Dr Coetzee, a specialist urologist. Neither is in proper form, but pursuant to O 14 rr 5 and 6, I order that each be filed notwithstanding any irregularity in them and each be used for the purposes of considering ASIC's current application for final orders. It is also convenient to make an order under O 14 rr 5 and 6 that the affidavit of Frederick Fargher irregularly sworn on 16 February 2011 (as annexed to the affidavit of Richard Dunstone sworn on 18 March 2011) also be used in this proceeding.
8 Dr Coetzee indicates that he has been treating Mr Price for a serious illness since September 2010, that Mr Price is not fit to participate in any demanding or stressful activities or to instruct lawyers on this matter, and will be unlikely to be fit to do so "for at least six months if at all". He does not say when Mr Price reached that state of disability. Mr Price's affidavit is a little surprising for what it does not say. He refers mainly to his medical condition and the recurrence of that condition for which he was first treated in 2005. He seeks an order that the proceedings be adjourned for six months. Furthermore, he seeks an order that all affidavits in the proceeding be sealed, but without giving any reason for that request. Finally, he refers to earlier email communications with ASIC in November and December 2010, one of which (dated 15 November 2010) is signed by "Shaunagh McEvoy", who says instructions were to be sought from a Mr Sharkey and from Mr Price "in order to get our attorney's to respond to you". Another email communication annexed to Mr Price's affidavit and again signed by "Shaunagh McEvoy" (dated 24 November 2010) says Mr Sharkey is now instructing Australian attorneys and that, after speaking to Mr Price, "he and SunEnergy would co-operate fully". A third email communication, similarly signed (dated 30 January 2011) raised the possibility of enforceable undertakings being proffered by Mr Price. ASIC responded by seeking details of the incorporation and registration of "SunEnergy Inc" before exploring the prospect of enforceable undertakings. No response was received.
9 I am not prepared to adjourn the proceedings for six months as requested by Mr Price. There is no explanation for why SEAPPL or SEL cannot, through their directors, conduct the proceedings. There is no explanation of the role of Mr Sharkey, or why he has not responded in any way to the proceedings as was foreshadowed. There is no evidence to suggest that the affairs of SEI, or indeed of Mr Mr Price, are not being conducted during his illness. Indeed, the role of Ms McEvoy as implied by her email communications would tend to suggest to the contrary. Obviously, notwithstanding Mr Price's illness there was someone available to instruct her to communicate the prospect of enforceable undertakings, if she herself did not have the authority to explore this possibility. If, on the other hand, Mr Price is the only person capable in practice of making decisions on behalf of SEAPPL, SEL and SEI, as well as on his own behalf and (as I accept) he is not able to attend to the affairs of those entities or his own affairs for a lengthy period, there is every reason to promptly address the issues raised by ASIC. Otherwise, those entities will be simply rudderless for some months. That is not to say that the directors of the three corporate defendants would abrogate their responsibilities in that way. I conclude that they have simply chosen not to participate in these proceedings, despite the serious allegations made by ASIC. They have had ample opportunity to do so. Nor is there reason to think that Mr Price's position is in any way different from that of the corporate defendants. However, the evidence tends to the contrary. It shows that Mr Price is an integral actor in the matters to be considered. But as I am not persuaded that Mr Price, despite his illness, has been unable to secure legal representation over the period that ASIC has been communicating with him, or that there are not others who can directly instruct legal representatives on his behalf (even if in recent times the finer details of his instructions might not have been capable of being given), I propose to proceed with the hearing against him. There are documents under his signature at least up to October 2010 promoting one or other of the investment opportunities. However, no material has been presented on behalf of any of the defendants to suggest the claim is in any way defensible; the suggestion of the provision of enforceable undertakings suggests that there is no defence.
10 In the absence of any responsive material from any defendant, I gave leave to ASIC, on five days notice to the defendants, to apply to the Court for further directions. It has given that notice. It now seeks final orders. To determine whether final orders should be made, it is necessary to consider and record my findings on the basis of the extensive affidavit evidence of ASIC.
11 The following findings are based on that material.
12 From approximately June 2007 to at least October 2010, AESAL, SEL and SEI have offered shares or options for shares or convertible notes to convert to shares in themselves, and in other entities which are not clearly identified, or are unidentified. The offers have been made to persons and entities in Australia, and a number of persons and entities have subscribed for shares, options and/or convertible notes, as a result of the offers.
13 The offers have been made in a series of documents titled as Information Memoranda, Corporate or Investor Profiles, Shareholder Reports, and in emails and letters (the Materials). The offers have been made in stages. In June 2007, there was an offer to buy shares in AESAL. In September 2007, there was an offer for the issue of "replacement" share certificates in SEL. Between October 2007 and January 2009, there were invitations to subscribe for, and the issue of shares in, SEL. In 2009, invitations were made to subscribe for, and there were the issue of shares in, variously, SEL and SEI. From May 2009, those were invitations to subscribe for convertible notes, and then the issue of certificates promising shares in SEI and SEAPL. Finally, from February 2010 there were invitations to participate in one or more "SunEnergy" rights issues.
14 ASIC contends that the evidence shows a history of misleading or deceptive statements made in connection with these offers and consequent payment for shares and "options". In my judgment, each of the six allegations of ASIC are made out.
15 Firstly, there has been a failure to identify clearly the entities in which investments are made or invited to be made. There are several elements of that misleading or deceptive conduct.
16 The evidence reveals extensive communications over that time. On 1 June 2007, there was published an AESAL Information Memorandum. That induced investments in AESAL shares. In July 2007, an investor was sent an AESAL "Entitlement Certificate" for ordinary shares, but by September 2007 that investor was sent by SEL, an SEL "Entitlement Certificate" for its ordinary shares. That was followed in October 2007 by an SEL Information Memorandum.
17 A further SEL Information Memorandum was issued on 6 June 2008. Subsequently SEL in correspondence with investors, wrote variously of the issue of share certificates in "SunEnergy", and of SEL Share "Entitlement Certificates" and SEL Option "Entitlement Certificates". Correspondence with investors appears to have randomly come from SEL or SEI.
18 By 25 August 2009, certificates in the form of convertible notes in the name of the apparently now existent SEAPL were being issued, funding the listing of SEAPL, and on the basis that conversion of the notes will result in the issues of shares in SEI and SEAPL. By March 2010 certificates were being issued to investors in the name of SEI, but also for shares in SEAPL.
19 The misleading and deceptive conduct involved the substitution of SEL for AESAL, without identifying that they are two different entities; the substitution of SEI for SEL; the use of the unqualified name "SunEnergy"; the issuing of documents in the name of SEAPL when SEAPL was (and still is) not a company registered under the Act; and the issuing certificates in the name of SEI and SEAPL asserting entitlements to shares in SEI and SEAPL when SEAPL "is quoted on the Australian Securities Exchange". Such last-mentioned conduct, incidentally, may contravene s 726 of the Act which prohibits the offer of securities of a body that has not been formed or does not exist if the offer would need disclosure to investors under Part 6D.2 if the body did exist.
20 In many of those communications, Mr Price was the signatory or apparent author.
21 Second, the conduct of the defendants (they seem to move within the proposals without any clear difference between them) has been misleading and deceptive about the listing proposals on the Australian Securities Exchange, both as to the proposed listed entity and as to the time of listing. There is considerable documentary evidence to support that conclusion. I shall not refer to it; it is listed and described in the Index to Materials: ASX Listing provided by ASIC. That misleading and deceptive conduct is constituted by promises of listing on the ASX when:
the entity to be listed was and remains uncertain. It changes from AESAL to SEI to "the Asia Pacific business" or "activities";
the date upon which listing was set to be achieved was consistently not met and a later date substituted; and
statements were made to the effect that SEL (or "SunEnergy" or "our Asia Pacific Business" or similar) meets criteria for listing and is in a position to, or is ready to, list within a short time. In fact, none of the Australian entities qualify for listing: see ASX Listing Conditions Rule 1.1 Conditions 7.8 Rule 1.2.2, 1.2.3. Ultimately, the material suggests that by August 2009 the only intention was to incorporate a new company SEAPL, rather than to list an existing entity.
22 Thirdly, the conduct of the defendants was misleading and deceptive by their statements that large numbers of shares in AESAL, SEI or SunEnergy were committed or were on issue. That was not correct. In fact, the ASIC national database (ASCOT) records the shareholdings of the only three Australian entities to be:
AESAL: 2,000,0001 ordinary shares;
SEL: 3 ordinary shares; and
SEAPPL: 5 ordinary shares (owned by SEI).
23 The power to issue shares arises under s 124(1)(a) of the Act. Under s 254X(1), a company must lodge a notice with ASIC within 28 days after issuing shares. No notices presenting any different picture have been lodged. Moreover, in respect of SEAPPL, s 113 of the Act requires that it have no more than 50 non-employee shareholders. There has been no process of change of company type as required by ss 162, 163 and 164 so its presentation as an investment entity could not have been accurate. Again, there is ample documentary evidence identified by ASIC in its submissions to support that conclusion.
24 Fourthly, statements that the Board and Management of SunEnergy includes Ty McCoy, Michael Eckhart, Graham Spurling, Richard Dewhurst (Dewhurst) and Andrew Cooke are misleading and deceptive. Cooke never agreed to become a director, as revealed by his own affidavit.
25 According to the ASIC Public Register, the directors of the Australian entities are:
AESAL: Mr Price, Dewhurst and Sharkey. Dewhurst denies he has ever been a director;
SEL: Dewhurst, Mr Price, Sharkey (Longbottom and Spurling are recorded as former directors, having ceased on 6 August 1997); and
SEAPPL: Mr Price
There has been no process of notice of change of directors as required by ss 295A and 205B.
26 Fifthly, the defendants have made misleading and deceptive statements to the effect that AESAL and SEL have secured land in the Flinders Rangers for the construction of a solar farm. The evidence shows that there is no such agreement.
27 Sixthly, the evidence shows the defendants have engaged in misleading and deceptive conduct by statements to the effect that AESAL, SEL and/or SEI have provided "grid Feed" products to the Sydney Olympics, associated with a photograph of solar panels. In fact, no such products were provided.
28 These statements have been made and repeated in various forms in association with invitations to subscribe to securities. I find that individually each statement referred to above was misleading, and that collectively they comprise a course of misrepresentation with the effect of exaggerating the continuity of the corporate entities involved and their activities, and of concealing or minimising the changes in identity of the corporations in which investment was solicited, exaggerating the size, experience and capabilities of management, and inducing initial and continuing investment in several entities under the name "SunEnergy".
29 In reaching that conclusion, I have applied the objective test as explained in Taco Co v Taco Bell (1982) 42 ALR 177. Thus, conduct is misleading or deceptive if it does, or is likely to, cause a person to misinterpret, or be deluded as to, the facts: Weitmann v Katies (1977) 29 FLR 336 at 342. It is likely to mislead or deceive if there is a real or not remote possibility of it doing so: Global Sportsman v Mirror Newspapers (1984) 55 ALR 25 at 30. There must, in the circumstances of the case, be a nexus between the relevant conduct and misconception or deception: Campomar Societad v Nike International (2000) 202 CLR 45.
30 I find on the evidence that a number of investors were in fact induced to invest by the particular conduct identified: see Hornsby Building Information Centre v Sydney Building Information Centre (1978) 140 CLR 216; National Exchange v Australian Securities and Investments Commission (2004) 49 ACSR 369.
31 I accept ASIC's contention that the conduct of the defendants, as evidenced by the affidavit material, shows a cavalier disregard to accurate identification of the entities in which investment is sought or was sought and the interests acquired or to be acquired. That is indicated by the unilateral substitution of SEL for AESAL by the gradual transfer of invitations from SEL to SEI; the introduction of offers to acquire securities in SEAPL; the nature of the "certificates" issued to investors; and the issuing of "certificates" in the name of SEI and SEAPPL where the offer had been for convertible notes to convert to shares in SEL: see generally Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 at [78].
32 Section 1041H of the Act deals with misleading or deceptive conduct within Australia in relation to a financial product or a financial service. I have found that the defendants have engaged in conduct within Australia that is misleading or deceptive or is likely to mislead or deceive.
33 It is necessary to determine whether that conduct was in relation to a financial product or financial service. As to that matter, the words "in relation to" are words of great breadth: Australian Securities and Investments Commission v Narain (2008) 169 FCR 211 at [72]. I have no doubt that the required connective link is made out in these circumstances.
34 The term "financial product" is defined in s 763A. The evidence establishes that the defendants have offered facilities (ss 763A(1), 762C), through which persons make financial investments (ss 763A(1), 763B). Moreover, independently of s 763A(1), the issue of certificates purporting to record shares or interests in shares falls within subparagraphs (a) or (c) of the definition of "security" (s 761A). They are thus financial products (s 764A(1)(a)), and the convertible notes, as they offer to pay interest until conversion, also fall within s 763B(a)(ii) so their acquisition is a financial investment, and they are to be termed financial products: see generally Australian Securities and Investments Commission v West [2008] SASC 111 at [169]-[186] and [189]. I am satisfied the conduct was in relation to financial products.
35 The term "financial service" is defined in s 766A. The evidence establishes that the defendants have made recommendations or statements of opinion intended to influence persons, or which could reasonably be regarded as being intended to have such an influence, within the meaning of s 766B(1), and thus have given financial product advice within the meaning of s 766A(1)(a). So much is clear from any of the introductions to the Information Memoranda in evidence, as well as from many of the accompanying emails and letters. They have also issued or varied certificates purporting to record shareholdings, interests in shares, or entitlements to shares, within the meaning of s 766A(1)(b). I am also satisfied their conduct was in relation to financial services.
36 The application is primarily for declarations and final injunctive relief under s.1324(1) of the Corporations Act. Palmer J in Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd and Anor [2002] NSWSC 741 at [36] summarised the applicable principles as follows:
• the jurisdiction which the Court exercises under s.1324 CA is a statutory jurisdiction, not the Court's traditional equity jurisdiction;
• Parliament has made it increasingly clear by successive statutory enactments that the Court, in exercising its statutory jurisdiction under s.1324, is not to be confined by the considerations which would be applicable if it were exercising its traditional equity jurisdiction;
• amongst the considerations which the Court must take into account in an application for an injunction under s.1324 CA are the wider issues referred to by Austin J in Sweeney and Parkes, and by Davies AJ in Pegasus; they may be gathered under the broad question whether the injunction would have some utility or would serve some purpose within the contemplation of the Corporations Act;
• these considerations are to be taken into account regardless of whether the application is for a permanent injunction under s.1324(1) or for an interim injunction under s.1324(4);
• where an application under s.1324(4) is made by ASIC rather than a private litigant the Court is more likely to give greater weight to the broad question whether the injunction would serve a purpose within the contemplation of the Corporations Act;
• where there is an appreciable - that is, not fanciful - risk of particular future contraventions of the Corporations Act by a defendant, it would serve a purpose within the contemplation of the Corporations Act that the Court grant not only a permanent injunction but, in an appropriate case, an interim injunction restraining such conduct. Section 1324 evinces an intention that the possibly severe consequences and the relative promptness of proceedings for contempt of Court be added to criminal prosecutions as a deterrent to contraventions of the Corporations Act;
37 In this matter, even exercising caution in granting final relief on affidavits, in this case there is a substantial body of evidence making out breaches of s 1041H. Much of that evidence comprises the defendants' own documents. There is a total lack of any acceptable explanation or response by any of the defendants, even accepting that Mr Price is seriously ill. It is available to me to more comfortably then, reach the conclusions I made.
38 The balance of the relief sought is secondary to the injunction orders. It falls within the additional powers at the conclusion of s 1324(1). I am satisfied that it is appropriate to grant it.
39 There will be orders to give effect to these conclusions. They include orders declaratory of the contraventions, and an injunctive order. I consider the injunctive order should operate for a period of seven years. I also make an order under s 1324 of the Act for the refund of subscriptions or other monies received by any of the defendants by reason of their offending conduct.
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.