Australian Securities & Investments Commission; in the Matter of Richstar... [2008] FCA 38 | Case summary

REASONS FOR JUDGMENT 1 On 22 January 2008 I made orders in these proceedings extending from 31 January 2008 current orders under s 1323 of the Corporations Act 2001 (Cth) (the Act) against the first, second, fifth, seventh, ninth, tenth and twelfth defendants to midnight on 6 March 2008. These orders were subsequently extended, by consent, to midnight on 12 March 2008. In the case of the fourth defendant, the current orders were extended to midnight on 25 March 2008. 2 In relation to the first and second defendants, Messrs Carey and Rundle, I excluded from the extension orders, those restraining them from leaving Australia. In the course of hearing I pointed out to senior counsel for the Australian Securities and Investments Commission (ASIC) that it would be a matter for ASIC to justify the extension of the travel restrictions and that if ASIC wanted to do something about it, it could do it urgently within the next few days. 3 On 29 January 2008 ASIC filed a motion seeking orders in the following terms: 1. An order that the time for service and hearing of this Interlocutory Process be abridged. 2. Each of the First and Second Defendants (the Defendants) are restrained until further order of the Court, from, without consent of the Court, leaving the jurisdiction of Australia. 3. Each of the Defendants deliver up, all passports held by them in their possession, custody or control until further order of the Court. In the alternative, ASIC sought travel reporting orders in reliance upon s 23 of the Federal Court of Australia Act 1976 (Cth), they being orders that: 4.1 Each of the Defendants must provide the Plaintiff with 14 days written notice of any intention to travel outside Australia. 4.2 At the time of giving such written notice, the Defendants must provide to the Plaintiff: 4.2.1 Evidence that a return ticket has been purchased; and 4.2.2 The following information: a. The date of the intended travel; b. The purpose of the intended travel; c. The travel destination or destinations; d. The date of the Defendant's intended return; e. Whether the particular Defendant is to be accompanied by any person(s), and if so, the identity of that person(s); and f. The contact details (ie address and telephone number) of all places the Defendant intends to stay while overseas. ASIC sought an order that the defendants pay its costs of and incidental to the interlocutory process and that the parties and any third parties affected by the orders have liberty to apply to the Court on the giving of reasonable notice. 4 In seeking to extend the travel restraint and, alternatively, to require that the defendants give notice of any intention to travel outside Australia, ASIC has relied upon a variety of affidavits previously read in evidence which deal with transactions and events relevant to its investigations into the collapse of the Westpoint Property and Finance Group. 5 It is not necessary for present purposes to canvass all of the history which has been dealt with in many judgments given since these proceedings were initiated. 6 ASIC relies in particular upon an affidavit of Ms Jan Redfern sworn 30 January 2008. She is its Executive Director Enforcement. After referring to background facts and circumstances she described the status of ASIC's ongoing investigations into whether any criminal offences were committed in relation to the affairs of the Westpoint Group. She said that ASIC has recently presented briefs of evidence to the Commonwealth Director of Public Prosecutions (CDPP) for consideration in relation to various persons, including Messrs Carey and Rundle. The briefs are said to have arisen out of ASIC investigations previously designated the 'Fundraising Investigation' and the 'Asset Stripping Investigation'. She did not indicate what kind of conduct was under consideration. 7 Ms Redfern said that the CDPP will be in a position to make a final determination as to whether any charges should be preferred against any person once it has: (i) reviewed the relevant evidence; (ii) advised ASIC of all the further information it requires ASIC to provide or obtain; and (iii) received and reviewed the additional information it has requested. She also said that as part of the Brief Investigations, ASIC is in the process of offering to various persons, including Messrs Carey and Rundle, a voluntary recorded interview to give them an opportunity to answer questions and provide an explanation in answer to allegations that may be directed against them. 8 Ms Redfern referred to ongoing investigations in respect of which ASIC has yet to provide the CDPP with briefs of evidence. These particularly concern transactions under examination in the Asset Stripping Investigation. These other investigations are likely to be substantially completed by 30 June 2008. She foreshadowed the further use of ASIC's compulsory powers requiring Mr Carey and Mr Rundle to attend an examination or examinations under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). 9 Ms Redfern referred to ASIC resolutions under s 50 of the ASIC Act to carry on pending proceedings commenced by the liquidators of Ann Street Mezzanine Pty Ltd in which Messrs Carey and Rundle have been named as defendants and by the liquidators of York Street Mezzanine Pty Ltd. It has also resolved to carry on other proceedings in the name of various mezzanine finance companies associated with the Westpoint Group. In the Ann Street Mezzanine proceedings allegations have been made against Messrs Carey and Rundle of negligence and breach of their duty as directors in connection with the raising of investor funds by promissory notes. The damages claimed in the proceedings are said to be of the order of $27.8 million. Recovery would no doubt be of assistance to creditors of companies in the Westpoint Group. 10 Ms Redfern stated that she has been informed by Senior Special Counsel in the Enforcement Directorate of ASIC, that ASIC is examining how the results of its investigations may sit with the claims made and to be made in the proceedings referred to in its s 50 resolution. She also said that she had been informed that there is a risk that ASIC's ability to effect service of any future compensation proceedings would be frustrated if any of the defendants named in those actions were not within the jurisdiction. Harking back to her first affidavit, she said that the liquidators of Westpoint Corporation had identified potential claims against Mr Carey which they may wish to pursue. Those claims appeared to be related to some of the matters the subject of ASIC's other investigations. If the liquidators do not pursue those claims, ASIC might consider doing so pursuant to s 50 of the ASIC Act. 11 Ms Redfern said that as a result of the matters referred to in her affidavit she believes there is a real prospect that further assistance that ASIC might require from Mr Carey and Mr Rundle in conducting its other investigations may enhance the recoveries which may be obtained for the benefit of Westpoint Corporation's creditors. There is a real prospect that the absence from the jurisdiction of either would impede ASIC's ability to seek assistance from them in a timely manner '… because it is not currently possible for ASIC to accurately identify when such assistance will be required'. 12 ASIC submitted in respect of both Mr Carey and Mr Rundle that continuation of the travel restraint orders was desirable given: 10.1 A need to protect the interests of aggrieved persons by preserving and securing the presence of Mr Carey and Mr Rundle in the jurisdiction: absent appropriate restraint there is a risk they may leave the jurisdiction and not be amenable to assist ASIC in further examinations pursuant to s 19 ASIC Act or by participating in a record of interview. 10.2 The scale and complexity of the ongoing investigations into the Westpoint Group generally - not only those of ASIC, but also those of the liquidators appointed to various Westpoint Group companies. More time is required for completion of the investigations and both Mr Carey and Mr Rundle are significant persons of interest. 13 Although the written submissions refer to a 'necessity' for travel restraints, senior counsel for ASIC properly accepted that their case was based upon their desirability. That acceptance was proper as the evidence did not disclose any risk of imminent flight or other circumstance which would render continuing travel restraints 'necessary'. 14 Additional matters relied upon in relation specifically to Mr Carey were: 11.1 The limited cooperation provided by Mr Carey to the receiver. 11.2 [His] disposal of property without the prior authorisation of the receiver. This evidently referred to settlement of legal proceedings which were seen to amount to the disposal of a chose in action. I place little weight on that matter. 11.3 [His] failure to disclose significant overseas assets and his unsatisfactory evidence given during his examinations. 11.4 The receiver's conclusion that, as to Mr Carey, although identifying assets or potential assets not disclosed by him, the receiver is not in a position to determine whether he has identified all of Mr Carey's assets. The receiver has identified further areas for investigation. 11.5 The claim brought against Mr Carey in respect of Ann Street Mezzanine Pty Ltd (In Liq) and the potential further claims against [him] and other defendants. 15 In relation to Mr Rundle, ASIC relied upon evidence of asset dissipation prior to these proceedings. The transaction relied upon involved the transfer to his wife of his interest in their matrimonial home. It was described in my reasons for judgment given on 9 November 2007 in connection with consent orders affecting Mr Rundle: Australian Securities & Investments Commission In the Matter of Richstar Enterprises Pty Ltd ACN 009 071 968 v Carey (No 18) [2007] FCA 1718. In that case, as I noted, ASIC was prepared to accept the proposed consent orders which dispensed with the continued appointment of a receiver to Mr Rundle's property on the basis that:

The process of identification of the property was complete.
He had been generally cooperative with the receiver and ASIC expected that he would comply with the freezing orders then proposed. 16 ASIC drew something of a distinction between Mr Carey and Mr Rundle in its submissions on the basis that Mr Carey remains a key subject of its investigations. It placed particular emphasis on the disclosure, through the examination process and ancillary Court orders, of his involvement in overseas entities and the movement of certain funds overseas. He was said to have failed to disclose a significant involvement over many years with the entities under his control or acting on his behalf in relation to the movement of significant amounts of money at his direction into accounts under his control, located both in Australia and overseas. 17 ASIC pointed out that in proceedings in the Real Estate and Business Agents Supervisory Board Mr Carey deposed to having total assets with a current estimated value of $1,169,547. In disclosure affidavits in these proceedings he told the Court and the receiver that he had assets of a mere $69,457. One of the additional assets disclosed in the Real Estate and Business Agents Supervisory Board proceedings was an interest in the Westpoint Realty Pty Ltd (In Liq) rent roll said to have an estimated realisable value of $400,000. 18 ASIC submitted that in balancing public and private rights in this case, the Court pay close regard to the conduct of both Mr Carey and Mr Rundle in considering the risk that they might absent themselves from the jurisdiction and be unavailable to assist ASIC in further investigations it is currently undertaking. ASIC accepted that the risk is inevitably difficult to quantify but that it is nevertheless a real risk. 19 Mr Carey swore two affidavits in response on 30 and 31 January 2008. He said in the first of those affidavits that he has two children, aged 12 and 15 years, and that his immediate and extended family all lived in Perth and have lived here all of their lives. His children attend local private schools and rely upon his child support payments and other financial support which he has provided and has continued to provide since the orders in this proceeding were first put in place in March 2006. His employment is in Perth and he relies on his income to meet his child support payments and other expenditure for his children, as well as to provide funds on which to live. His academic and professional qualifications are Australian. 20 Mr Carey referred to the adverse public perception associated with ongoing travel restrictions. He pointed out that after nearly two years under the present orders made pursuant to s 1323 of the Act only one claim had been brought against him, that is the Ann Street Mezzanine claim. He denied that he had ever been a 'shadow director' of that company and claimed to have available to him a number of defences along with claims against other parties. 21 He said he was informed by his solicitors that although ASIC purportedly utilised its powers under s 50 on 26 October 2007, his solicitors were yet to receive a sworn copy of the Redfern affidavit announcing that resolution. They had not heard or received anything from ASIC advising what was being done in the Ann Street Mezzanine proceedings or in relation to any other mezzanine company. 22 Mr Carey said the financial accounts for Ann Street Mezzanine and Ann Street Development Pty Ltd were audited by KPMG and signed off on an unqualified basis. He said he had not been interviewed by ASIC since July 2005. He claimed to have volunteered to assist with their investigation. He also continued to provide substantial affidavit evidence in these proceedings to assist ASIC and the Court to understand the operations of the Westpoint Group. He had written to the receiver, Mr McMaster, regularly since the second extension of the orders offering to provide him with any additional information or documents with which he could assist him. 23 As to the ongoing criminal investigation, Mr Carey denied any wrong doing in the management of the Westpoint Group. He maintained and said he had always maintained that as a director he acted professionally in accordance with his duties and obligations. 24 Mr Carey said he has no intention of leaving the jurisdiction for the purpose of avoiding his responsibilities. As evidenced by his actions to date he will rigorously defend any action brought against him and seeks to bring to account those persons whom he regards as responsible for the collapse of the Westpoint Group and to endeavour to recover investors' money and reputation. 25 In relation to the overseas Hilton Trust, he has instructed his solicitors to terminate the trust and repatriate the funds to Australia. 26 In his second affidavit of 31 January 2008, Mr Carey said he had specifically offered to cooperate with the receivers' solicitors in their ongoing investigations. He referred to other recent correspondence with ASIC. 27 Mr Rundle in his affidavit filed 30 January 2008 said that he is 42 years of age and was born in Western Australia. Save for occasional holidays and short business trips, he has lived his entire life in this State. He is married with three children aged 14, 12 and 7, all of whom rely on his income as a contract engineer for their food, clothing, accommodation and education. They all attend school in Perth. 28 Mr Rundle is a member of the Institute of Chartered Accountants. He is currently employed by Insignia Contracts Pty Ltd as a Contracts Engineer based in Perth. He is entitled to four weeks annual leave and estimates that his current accrued leave entitlements are approximately one week. 29 Mr Rundle's parents were born in Australia and live in Perth. His wife's parents were born and live in Busselton. His brother and sister both live in Perth. He has no immediate or extended family outside Australia. He has no assets outside Australia. He has never been convicted of any criminal, civil or statutory misdemeanour. 30 Mr Rundle says he currently has no intention of travelling overseas, however he wishes to have his passport returned and his right to free travel restored in line with the rights of every other Australian citizen. He has no intention of moving to live overseas. 31 Mr Rundle also referred to recent exchanges between his solicitor, Mr Lemonis and the Australian Government Solicitor about the intentions of ASIC in relation to seeking an extension of the preservation orders made against him. Although inquiries were made in November and December 2007, he was not informed of ASIC's intention to seek an extension until 21 December 2007. He and his solicitor attended a without prejudice meeting at ASIC on 18 January 2008 to discuss continuing asset preservation orders and other matters. Those discussions are ongoing. Relevant principles and considerations 32 The imposition of restrictions upon a person's freedom of movement is a serious step not lightly to be undertaken. Such authority as there is on the imposition of such restrictions under s 1323 of the Act mandates caution in imposing them: Corporate Affairs Commission v Price Commodities Pty Ltd (1987) 5 ACLC 787 at 789-790; Australian Securities and Investments Commission v Wiggins (1998) 30 ACSR 190; Australian Securities and Investments Commission v Ivey (1998) 29 ACSR 391; ASIC v Australian Investors Forum Pty Ltd [2001] NSWSC 1180 and ASIC v Mauer-Swisse Securities Ltd [2002] NSWSC 684. 33 The s 1323 orders were made and have been continued on the basis of ongoing investigations by ASIC and to protect the interests of parties who may have claims in relation to matters arising out of those investigations. The orders and the associated travel restrictions have been in place for nearly two years, having been first imposed on 20 April 2006. 34 In my opinion, ASIC has not made a case for the continuation of the travel restrictions by reference to any imminent risk of flight or disruption to its investigations. It has not been able to make a case of necessity. It has given reasons which are characterised by a degree of generality and uncertainty as to the precise stage of the current investigations and of any possible criminal prosecutions. It has relied in part upon transactions previously undertaken by both defendants and by Mr Carey's involvement with overseas entities and lack of cooperation. 35 If there be any concerns about travel by either of the defendants in the context of particular litigation such as the Ann Street Mezzanine proceedings, those concerns can be raised in those proceedings before a judge properly seized of them. If there be concerns about possible travel if and when criminal charges have been laid, those concerns can be raised before the appropriate Court. It is not for this Court to speculate upon such matters on the basis of the rather inchoate evidence before it today. 36 On the other hand, I do not consider it unreasonable, in light of the complexity and significance of the ongoing investigations that, for the duration of the general orders, Mr Carey and Mr Rundle give prior notice to ASIC of any intention to travel overseas. If ASIC seeks to prevent such travel it will have to do so on the basis of more concrete concerns than have been presented to the Court today. It will have to bear the onus of justifying any further order and paying the costs if it fails to do so. 37 Each defendant has been involved centrally in a major collapse of a large corporate group. Many investors have been left lamenting. It is a reasonable incident of the other orders made in reliance upon the ongoing investigations that they give notice of pending travel overseas so that if there be any aspect of the ongoing investigation that would be affected by such travel or any likely affect upon the interests of aggrieved persons, ASIC can take appropriate steps. 38 I propose therefore to make orders in the following terms:

Australian Securities & Investments Commission; in the Matter of Richstar Enterprises Pty Ltd ACN (099 071 968) v Carey

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