Australian Securities and Investments Commission v Wong

REASONS FOR JUDGMENT 1 On 8 June 2010, the plaintiff, Australian Securities and Investments Commission, commenced the present proceeding in which it seeks orders under paras (j) and (k) of s 1323(1) of the Corporations Act 2001 (Cth). Those orders are sought against the defendants, Kim Wong and Yun Jung Choi. The orders, if made, would require them to deliver up their passports to the court, and would prohibit them from leaving Australia without the consent of the court. 2 On 8 June 2010, Goldberg J made interim orders, ex-parte, requiring the defendants to deliver up their passport (or passports), and restraining them, until 4:00 pm on 15 June 2010, from leaving Australia, and from coming within 100 metres of an Australian point of overseas departure. The defendants having appeared in the proceeding, on 15 June 2010 I extended the restraints imposed by Goldberg J until, in the case of the second defendant, 8:00 pm on 21 June 2010. At 2:15 pm on 21 June 2010, I heard argument from the parties as to whether those restraints should be extended, and whether the second defendant should be held out of possession of her passport (or passports), pending the hearing and determination of the originating application. Having heard argument, I extended the restraints operating with respect to the second defendant until 3:00 pm on 22 June 2010, to permit preparation of these reasons. 3 These reasons, and the judgment to which they relate, apply to the circumstances of the second defendant only. Corresponding questions, insofar as they relate to the first defendant, are to be considered by the court in the near future. 4 Under s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"), the plaintiff is empowered to make "such investigation as it thinks expedient for the due administration of the corporations legislation … where it has reason to suspect that there may have been committed", amongst other things, a contravention of the corporations legislation. On 7 December 2009, the plaintiff commenced an investigation into the fundraising activities of Wintech Group Ltd ("Wintech"), which related to suspected contraventions of ss 184, 722, 1308 and 1309 of the Corporations Act in relation to the affairs of Wintech. That investigation is continuing. A significant focus of that investigation is the activities of Mr Wong, the managing director of Wintech. His circumstances are not the direct concern of the court on this occasion, but the plaintiff says that Ms Choi, who was Mr Wong's girlfriend at relevant times, assisted him, and received payments from him, in circumstances which bring her within the scope of s 1323 of the Corporations Act, and make it necessary or desirable that she be prevented from leaving Australia pending the completion of the plaintiff's investigation. 5 Because the plaintiff's interlocutory application in relation to Mr Wong himself is yet to come before the court, it is best that I keep to a minimum any findings, even provisional ones, which relate to him. It is sufficient for present purposes to say that at least an important element of the plaintiff's case against Mr Wong is that, as managing director, he was instrumental in the diversion of funds which had been received by way of investments in Wintech. As presented to Goldberg J on 8 June 2010 and to me on 15 June 2010, the case against Ms Choi was that she had received, either directly from Wintech or via Mr Wong, substantial sums which ought to have been held on trust in the interests of investors. It was said that her continued presence in Australia was necessary both to assist the plaintiff with the conduct of its investigation, and to facilitate the tracing of misappropriated trust funds, should a finding of such misappropriation ultimately be the outcome of the investigation. 6 The evidence shows that, between 20 October 2008 and 7 May 2009, there were 20 deposits ranging in size from $10,000 to $50,000 made into Ms Choi's bank account. The total was $364,008.90. Within that sum there were three payments, made on 13 February 2009, 17 February 2009 and 25 February 2009, of $40,000, $10,000 and $20,000 respectively, which were reversed by Ms Choi's bank, apparently because the cheques in question were dishonoured. Those cheques were drawn on the trading account of Wintech. There was no evidence as to the source of the other 17 deposits, but the circumstances unquestionably provide a legitimate basis for further investigation by the plaintiff. 7 The other aspect of the evidence which concerns Ms Choi relates to the apparent falsification of a bank statement in early March 2009. According to evidence which I admitted over the objection of Ms Choi's counsel, but which Ms Choi herself, when she went into the witness box briefly, accepted, on 6 March 2009, she prepared a false statement of the Wintech account with National Australia Bank. When she had grounds to believe that the sum standing to the credit of that account was about $900, she prepared a statement which showed a credit balance of about $2.5 m. She did this using a word processing program on her computer. She sent the falsified statement to Mr Wong, and she accepted that there were, at the time, grounds to suspect that the statement may have been used by him to represent a financial position of Wintech which was not the correct one. Because I am not presently dealing with Mr Wong's own situation, I shall say nothing further about the circumstances which led to the preparation of the falsified bank statement. 8 In the proceeding as such, the plaintiff invokes the court's jurisdiction under s 1323 of the Corporations Act, subs (1) and (3) of which read as follows: (1) 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; or (b) a prosecution has been begun against a person for a contravention of this Act; or (c) a civil proceeding has been begun against a person under 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: (d) an order prohibiting a person who is indebted to the relevant person or to an associate of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed; (e) an order prohibiting a person holding money, financial products 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 financial products or other property, to, or to another person at the direction or request of, the person on whose behalf the money, financial products or other property, is or are held; (f) an order prohibiting the taking or sending out of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person; (g) an order prohibiting the taking, sending or transfer by a person of financial products 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 financial products 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 financial products from a register in Australia to a register outside Australia); (h) an order appointing: (i) if the relevant person is a natural person - a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or (ii) if the relevant person is a body corporate - a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person; (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) Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application. 9 Counsel for the plaintiff treated their present application as an interim one under subs (3). They sought an extension of the orders made on 15 June 2010, and suggested that 12 weeks would, at least in the first instance, be sufficient to enable their client to progress its investigation to the point where it would be possible to move for final relief. Counsel for Ms Choi, on the other hand, submitted that the present application had to be regarded as one for final relief in itself, since what the plaintiff sought was precisely the relief for which subs (1) provides. It was not, he submitted, open to the plaintiff to side-step the jurisdictional and discretionary requirements of the section simply on the basis of proposing a seriously arguable case, and the need, as it were, to preserve the subject matter of the litigation. 10 The fact that the plaintiff seeks relief which is four-square within that for which s 1323(1) provides, does not, in my view, mean that its application cannot be regarded as an interim one only. Subsection (3) expressly contemplates that an interim order will be "an order of the kind applied for". On the other hand, the power of the court under subs (3) is to make an order "pending the determination of the application", not pending the completion of the investigation; nor even pending some point in the future where the investigation will have reached a more mature stage. On any view, however, the position reached when I heard the plaintiff's motion was no more than that contemplated by subs (3). The plaintiff made it clear that it did not regard itself as presenting its final case, and the steps taken during the very short life of the proceeding so far in the court are quite inconsistent with this being a final hearing. I shall, therefore, approach the matter as an interim application under subs (3). 11 Despite being prepared, in the plaintiff's favour, to take that approach, there are certain basic aspects of the facts of the case which are sufficiently clear to preclude me from reaching the conclusion that it is desirable to grant an interim order of the kind referred to in paras (j) or (k) of s 1323(1). I accept the argument advanced on behalf of Ms Choi that an essential precondition to the power to make orders under the section is lacking in the circumstances of the present case. 12 The plaintiff made it clear that it was relying on para (a), rather than paras (b) or (c), of s 1323(1). It is a condition of the power to make orders under para (a) that there be "an investigation … in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention" of the Corporations Act. The investigation which was commenced on 7 December 2009 did not and, subject to what I say presently about s 181 of the Corporations Act, does not, relate to any act or omission of such a kind on the part of Ms Choi. It is not suggested that Ms Choi contravened, or may have contravened, any of ss 184, 722, 1308 or 1309 of the Corporations Act, in relation to the affairs of Wintech. 13 In the terminology of s 1323(1), the "person" referred to in para (a) is described as "the relevant person", and it is such a person only who may be the subject of an order under paras (j) or (k). That is to say, the power to make an order under one or other of those paragraphs is exercisable only with respect to the person whose act or omission (being one that constitutes or may constitute a contravention of the Corporations Act) is the subject of the plaintiff's investigation. Ms Choi does not meet this description. 14 When this point was raised by counsel for Ms Choi during the hearing on 21 June 2010, counsel for the plaintiff submitted that their client may wish to investigate the possibility that Ms Choi had contravened s 181 of the Corporations Act, which reads as follows: (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Although it was accepted that Ms Choi was not a director or officer of Wintech, counsel submitted that, by her involvement in the falsification of the bank statement in the way I have described above, she was involved in a contravention of s 181(1) on the part of someone who was a director or officer of Wintech, and that she was, therefore, likewise in contravention of the section pursuant to subs (2) thereof. Notwithstanding that they made this submission, counsel for the plaintiff quite properly accepted that a possible contravention of s 181 by Ms Choi was not the concern of the investigation which commenced on 7 December 2009, and had not been considered at all until it was necessary, during the hearing on 21 June 2010, to respond to the jurisdictional submission advanced on behalf of Ms Choi. 15 Although it seems, from the terms of s 13 of the ASIC Act, that the plaintiff may commence an investigation with relatively little formality, nonetheless such a step must be a considered one, and may be taken only where the plaintiff has reason to suspect that a contravention of certain legislation may have been committed. The existence of an investigation has certain important consequences under the ASIC Act, such as the activation of the examination provisions of Div 2 of Part 3. I must assume that the plaintiff's decision of 7 December 2009 to commence the subject investigation was a considered one, and that, consistently with s 13 of the ASIC Act, attention was given to those provisions of the Corporations Act, in relation to possible contraventions of which the investigation was appropriate. Those provisions did not include s 181. 16 In the circumstances, I do not consider it seriously arguable that, either at the time when this proceeding was commenced or now, the plaintiff was, or is, conducting any such investigation as would make Ms Choi a "relevant person" for the purposes of s 1323 of the Corporations Act. This conclusion is not affected by the circumstance that, during the hearing yesterday, counsel for the plaintiff were able to identify a provision of the Corporations Act which, on one view of events, Ms Choi may have contravened. I am of the view, therefore, that the court lacks the power to make an order under s 1323 of the Corporations Act with respect to Ms Choi. 17 The current restraint on Ms Choi leaving Australia expires at 3:00 pm today, in which circumstances it is unnecessary to make any further order on that subject. I shall direct that such passport or passports of hers that have been delivered to the court be returned to her, or to her solicitor. 18 The plaintiff accepted that, if it were to be unsuccessful on the present application, it should pay Ms Choi's costs. Counsel for Ms Choi sought that those costs be paid on an indemnity basis, upon the ground, as I understand it, that there was no suggestion by the plaintiff that Ms Choi might have been in contravention of any relevant provision of the Corporations Act. However, counsel for Ms Choi accepted that the merit of his client's application for indemnity costs became less obvious once the court received, as it did over his opposition, a late affidavit filed on behalf of the plaintiff which, for the first time, dealt with the subject of the falsified bank statements. 19 In situations where indemnity costs are sought upon the ground that the moving party has a case which ought to be seen as conspicuously weak, the approach taken by the court is that referred to recently by Dowsett and Lander JJ in Seven Network Limited v News Limited (2009) 262 ALR 160, 393 [1102]: Usually costs are ordered on a party and party basis but if there is "some special or unusual feature in the case to justify the court exercising its discretion" costs may be ordered on some other basis: Preston v Preston [1982] 1 All ER 41 at 58. There must, however, be some justification to depart from the ordinary rule. The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151; 141 ALR 727. The categories of case in which it might be appropriate to do so are not closed: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 (Colgate-Palmolive). An applicant who should have known that his or her proceeding was foredoomed to failure could be obliged to pay costs on an indemnity basis: Smolle v Australia and New Zealand Banking Group Ltd (No 2) [2007] FCA 1967. A clearly hopeless proceeding may mean that the unsuccessful applicant should be subjected to an order for indemnity costs. An applicant who persists in prosecuting a proceeding without regard to the evidentiary difficulties in the case may be called upon to pay costs on some basis other than the usual basis: Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685. Specific examples of cases which might attract the exercise of the discretion to award indemnity costs were given by Sheppard J in Colgate-Palmolive at FCR 233; ALR 256-7. As matters have transpired, the view which I have been able to reach - that the court lacks power to make an order against Ms Choi under s 1323 - is ultimately a clear and obvious one. However, the case does not have any special or unusual feature, by reason of which justice requires a departure from the normal practice of awarding costs. The facts as they appeared to the plaintiff did provide grounds for a reasonable concern as to the involvement of Ms Choi in goings-on which may have been to the detriment of investors in Wintech. The plaintiff has failed because, whatever Ms Choi's involvement may have been, it fell outside the limits of s 1323. An understanding of those limits arises only upon an appreciation of the internal structure of subs (1), specifically with respect to the significance of someone under investigation being a "relevant person". I was myself led to an appreciation of the way the subsection operates in relevant respects only as a result of the careful submissions of counsel for Ms Choi. I am not prepared to criticize the plaintiff, in the strong terms which would be implicitly associated with the making of an order for indemnity costs, for not having appreciated, from the outset, the full extent of the internal grammatical linkages in s 1323(1) that have made it inapplicable to the circumstances of Ms Choi. 20 I shall, therefore, award Ms Choi her costs on the conventional basis. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.