Australian Securities & Investment Commission v Axis International Management Pty Ltd

Federal Court of Australia|2008-10-15|Before: Gilmour J

REASONS FOR JUDGMENT 1 By notice of motion the plaintiff seeks leave to join Green Triton Limited. It also seeks certain consequential orders. The motion is supported by affidavits from Justin Duncan Jones affirmed on 13 and 14 October 2008; Gary Martyn Bertram sworn 14 October 2008; Noel Edward Singleton affirmed 26 May 2008; Michelle Gaye Singleton affirmed 26 May 2008; and Nicholas Joseph Furlan sworn 13 June 2008.

Background 2 In the substantive proceeding the plaintiff, Australian Securities and Investment Commission, seeks declarations against the first, second, third, fourth and fifth defendants to the effect that each has contravened subsection 727(1) of the Corporations Act 2001 (Cth) ("Corporations Act") by making an offer for sale of shares in a company called Firepower Holdings Group Limited ("Firepower") in circumstances where the Act provided that the offer needed disclosure to investors and where no prospectus or other disclosure document for the offer was lodged with the plaintiff. The motion for joinder is made because the plaintiff also seeks the same relief as against Green Triton. The allegations against that company are subjacent to the existing pleadings. 3 The reason those remedies were not sought against Green Triton when these proceedings were commenced was that the plaintiff, based on advice from agents in the British Virgin Islands, believed that Green Triton had been deregistered and therefore could not be sued. It is now apparent on the material before me that Green Triton has been re-registered, or at least is registered, and therefore it may be sued. The plaintiff submits that had Green Triton been registered at the time proceedings were commenced, it would have been appropriate for it to be joined in the proceedings.

Joinder 4 In order to establish the grounds that enliven the Court's discretion to join Green Triton as the eighth defendant to these proceedings under Order 6 rule 8(1) of the Federal Court Rules 1976 (Cth) the plaintiff must satisfy the court that either (a) Green Triton ought to have been joined as a party or (b) Green Triton is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon. 5 A person ought to have been joined under Order 6 rule 8(1)(a) if a judgment of the Court will have a direct effect on the rights and liabilities of that person and not one that is merely indirect or inconsequential: Orrcon Operations Pty Ltd v Capital Steel and Pipe Pty Ltd (No 2) [2008] FCA 24 at [35]. This rule is permissive only but should be liberally construed so that all parties to disputes relating to the one subject matter may be dealt with at the one time: John Cooke and Co Ltd v Commonwealth (1922) 31 CLR 394 at 411. 6 The plaintiff must, however, show that it has an arguable case against the proposed defendant to the standard or being able to resist an application for summary judgment by the proposed respondent had that proposed party been sued in separate proceedings: Review Australia Pty Ltd v Redberry Enterprise Pty Ltd [2003] FCA 1009 at [5]. 7 I have read the affidavits of the several investors together with the affidavits of Mr Jones, to which I have referred. The evidence which establishes at least an arguable case includes relevantly: (a) The existence, at all material times, of the relevant companies, namely: (i) the proposed eighth defendant; and (ii) Firepower Holdings Group Limited. (b) The issue of shares in Firepower to Green Triton on 2 June 2005. (c) The absence at all material times of a prospectus, profile statement or offer information statement lodged with the plaintiff in relation to any offer of shares in Firepower: s 727(1). (d) The fact that the shares that were the subject of the alleged contravening offers made by the eighth defendant were among those issued to it on 2 June 2005. (e) The purpose of the issue of the shares to Green Triton was the sale or transfer of the shares: s 707(3), which is to be inferred on the basis of s 707(4) from the sales of shares by Green Triton that are described in the affidavits of Geoffrey Allan, Carol Ashworth, Darryl Edmondson and Nicholas Furlan, and from the transcript of Timothy Francis Johnston on 4 March 2008. In the transcript, Mr Johnston is recorded to say that, in effect, the eighth defendant was (among other things) to bring funds into Firepower through the sale of shares. (f) The alleged contravening offers were made by the first defendant, Axis International Management Pty Ltd as agent on behalf of the eighth defendant. (g) The fact that those offers were made on behalf of the eighth defendant, is referred to in the transcript of the examination of Timothy Francis Johnston on 5 March 2008. In the transcript, Mr Johnston is recorded to say that, in effect, the sixth defendant, Quentin Ward, in his position with the first defendant, had authority to make the offers shown in the share register on behalf of the eighth defendant. (h) The absence of the exemptions set out in ss 708 and 708A: see s 707(3). The exemptions that are potentially relevant for the purpose of this application are those set out in ss 708(8) (sophisticated investors); 708(10) (offer through financial advisers); 708(11) (professional investors - to be read together with the definition of that term in section 9); 708(12) (offers to person associated with Firepower) and 708A(5), (11) and (12) (certain offers of quoted securities). The Investor Affidavits establish, to the requisite degree of proof, the absence of the exemptions found in s 708. Section 708A does not apply because Firepower has never been listed. 8 In the current proceedings Green Triton should be joined as the eighth defendant, in my opinion, as it is a party necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon and, furthermore, ought to have been joined and indeed would have been joined save for the fact that it was thought to have been deregistered at the time proceedings commenced. I will accordingly make an order in terms of para 1 of the motion.

Leave to serve out of the jurisdiction 9 The plaintiff also seeks an order under Order 8 rule 3(2) of the Federal Court Rules for leave to serve the originating process out of the jurisdiction. In order to establish the grounds that enliven the Court's discretion to grant leave to serve the amended originating process in this proceeding on a defendant in a foreign country under Order 8 subrule 3(2) the plaintiff must satisfy the Court first that the Court has jurisdiction in the proceeding, second that the proceeding is of a kind mentioned in Order 8 rule 2 and third that the plaintiff has a prima facie case for the relief it is claiming in the proceeding. The requirements in relation to jurisdiction to give leave to serve the statement of claim are the same: Order 8 rule 5.

Jurisdiction 10 The claim against the eighth defendant includes an application for declarations of breaches of s 727(1) Corporations Act. The claim also includes an application for disclosure orders under s 1324B Corporations Act. 11 The claim is therefore a civil matter arising under the Corporations legislation, so s 1337B confers jurisdiction on the Court in respect to the claim: IMF (Australia) Ltd v Sons of Gwalia Ltd (Administrator Appointed) (2004) 211 ALR 231 at [43]. Section 21 of the Federal Court of Australia Act 1976 (Cth) and s 39B(1A) of the Judiciary Act 1903 (Cth) are sources of the Court's jurisdiction to make the declarations sought.

Proceedings of a kind under Order 8 rule 2 Federal Court Rules 12 The kinds of proceedings listed in Order 8 rule 2 include: 1. Proceeding based on a cause of action arising in Australia … 11. Proceeding based on a breach of a provision of an Act that is committed in Australia … 13. Proceeding in relation to the construction, effect or enforcement of an Act, regulations or any other instrument having, or purporting to have, effect under an Act … . 13 The claim against the eighth defendant that is made in the amended originating process and statement of claim falls within each of these categories.

Prima facie case 14 A prima facie case is made out if, on the material before the Court, inferences are open which, if translated into findings of fact, would support the relief claimed: Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 30 FCR 102 at 110. The requirement to establish a prima facie case does not suggest the kind of scrutiny that would occur in a submission of no case to answer following the closure of a plaintiff's case at trial. As a matter of practicality, the relevant enquiry is concerned with evidence which discloses in a little detail what the facts are: Merpro Montassa Ltd v Conoco Special Products Inc (1991) 28 FCR 387 at 389. The requirement to satisfy the Court that a plaintiff has a prima facie case for relief will be met where, upon a broad examination, rather than an intense scrutiny, of the material placed before the Court, inferences are shown to be open which, if translated into findings of fact, would support the relief claimed: Bell Group Ltd (In Liq) v Westpac Banking Corporation (1996) 20 ACSR 760 at 763. 15 Here, the requirements necessary to make out a relevant cause of action against the eighth defendant are to be found in sub-sections 707(3) and (4) and 727(1). The cause of action is pleaded in the statement of claim at paras 51-55, 62-67, 98-109, 129-134, 141‑146 and 214-219. Paragraphs 2, 3 and 11 set out the existence of relevant entities and 41, 42, 44-46 and 47 the allegation of the initial issue of shares without disclosure to investors under Part 6D.2 Corporations Act with purpose of on-sale or on-transfer. 16 Relevant evidence which supports these allegations to a prima facie standard, is set out under paragraph 7 above. 17 Under Order 8 rule 3(3) of the Federal Court Rules, the evidence on this application must also include the following: (a) the name of the foreign country where the eighth defendant is or is likely to be; (b) the proposed method of service; and (c) a statement that the proposed method of service is permitted by: (i) if a convention applies - the convention; or (ii) in any other case - the law of the foreign country. 18 These matters are all established in the affidavit of Mr Jones of 13 October 2008 from which it appears that: (a) the eighth defendant is in the British Virgin Islands (it being a company incorporated and having its registered office in that country); (b) the plaintiff will serve the eighth defendant by way of having a local agent leave the amended originating process at the registered offices of the eighth defendant in the British Virgin Islands and by sending it by registered post to that address; and (c) no convention applies in relation to service of documents issued by Australian courts in the British Virgin Islands, but the method of service described in the preceding sub-paragraph is permitted under British Virgin Islands' law.

Discretion 19 The plaintiff submits, and I accept, that the causes of action set out in the statement of claim, if established at trial, would constitute repeated breaches by the eighth defendant of the Corporations Act. There is no reason militating against the exercise of the Court's discretion to grant the application for leave to serve that defendant. 20 I am accordingly satisfied that the relevant criteria have been established and I would in my discretion make an order for leave to serve the amended originating process and statement of claim in the terms sought in para 3 of the motion. 21 I will also make orders for the amendment of the originating process together with the consequential orders set out under paras 2, 4 and 5 of the motion. I would also order costs as sought in para 6 of the motion, subject to the order being confined to costs in the cause against the eighth defendant. There will be orders accordingly. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Associate: Dated: 27 October 2008 Counsel for the Plaintiff: Mr J C Vaughan

Solicitor for the Plaintiff: Blake Dawson Waldron

Counsel for the First and Sixth Defendants: Mr T M Clavey

Solicitor for the First and Sixth Defendants: Clavey Legal

Counsel for the Second and Seventh Defendants: Mr J Geale

Solicitor for the Second and Seventh Defendants: Varrass & Associates

Counsel for the Third Defendant: Mr J E Scovell

Solicitor for the Third Defendant: Jackson McDonald

Counsel for the Fourth Defendant: Mr S Penglis

Solicitor for the Fourth Defendant: Freehills

Counsel for the Fifth Defendant: Ms R Tan

Solicitor for the Fifth Defendant: Maxim Litigation Consultants

Federal Court Rules 1976(Cth)

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