(b) whether the orders sought fall within s 1323.
8 On 7 December 2006, Mr Phillip Peck, an investigator employed by ASIC, formally commenced an investigation pursuant to s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") in relation to the suspected contraventions of the Corporations Act by the defendant. The investigation has been widened. The investigation arose from complaints made by Mr Avanish Mookhy in November 2006. In substance, Mr Mookhy complained to the effect that between October 2004 and July 2005, he was induced to lend a little under $1,300,000 to the defendant, or to CSL, at very high rates of interest on the faith of representations that his money would be on-lent to named individuals on second mortgage security. ASIC's investigations revealed that between November 2004 and about 31 October 2005, Mr Mookhy received interest payments on his advances, but that only $150,000 of principal has been repaid.
9 The defendant says that Mr Mookhy was provided with notes clearly recording that his advances were made on an unsecured basis and were loans to CSL. The defendant says that it was made clear that CSL was not on-lending money on his behalf to third party borrowers. Rather, it, and it alone, was the borrower, and Mr Mookhy, it is said, accepted CSL's unsecured promise to pay interest and to repay principal. The high rates of interest reflected the risk that the principal would not be repaid.
10 However, there are clear grounds for ASIC to continue its investigation that Mr Mookhy was induced to lend money by false representations. There is no dispute that letters were sent by facsimile to Mr Mookhy shortly before his advances were made. Those facsimiles represent that loans were to be made, in some cases by CSL, or in some cases by him to named borrowers, at high rates of interest on second mortgage security over specified properties. Statements have been provided to ASIC by some of the named borrowers to the effect that whilst they had had dealings with the defendant, there never was a proposal for such borrowings. Thus, one of the persons named as an intending borrower of $92,000 for a term of 30 days at interest of 4% per month has provided a statement that the defendant had acted as his finance broker in arranging refinance, but that he knew nothing about a suggested loan of $92,000. There are similar statements from three other persons named as intending borrowers of loans to be made by CSL.
11 Whether or not Mr Mookhy understood he was to lend money to CSL, there are serious questions for ASIC to investigate as to whether he was induced to make advances on the faith of representations that moneys would be lent to named intending borrowers, and whether such representations were misleading, and whether they were known to be false.
12 During an examination by ASIC, the defendant said that about $2,000,000 was raised by CSL as a result of the defendant's "contacts". Before me the defendant said that the only money raised by CSL was money borrowed from Mr Mookhy in an amount of about $1,300,000. However, ASIC's investigations properly extend to whether other persons were induced to lend moneys or to otherwise invest moneys with CSL.
13 The defendant says that Mr Mookhy is not an aggrieved person within the meaning of s 1323. Mr Mookhy commenced proceedings against CSL and the defendant in about February 2006. Those proceedings are still pending. However, the defendant says that he and Mr Mookhy have reached an agreement for the settlement of those proceedings. He says that the agreement is that Mr Mookhy will be paid $600,000 in four instalments over the next three years, with the first such payment to be made within 30 days of a deed being entered into.
14 The alleged settlement has not been reduced to writing. It would be unusual, but not impossible, for such an agreement to be immediately binding, even though a formal deed is contemplated. However, whether or not such a settlement has been reached is not presently to the point. If such an agreement has been reached, Mr Mookhy is a person to whom it appears the defendant is liable to pay money. If not, Mr Mookhy is a person to whom the defendant may be or become liable to pay money. In either case, he is an aggrieved person within the meaning of s 1323 whose interests may call for protection.
15 On the basis of statements made by the defendant in the course of his examination under s 19 of the ASIC Act, it appears there is also a potential class of persons, who are as yet unidentified, whom the defendant described as "contacts", who may have advanced about another $700,000 to CSL.
16 The defendant does not hold a financial services licence. ASIC is continuing to investigate possible breaches of Chapter 7. If such persons exist, it is difficult at this stage to say what claim they may have against the defendant. That may be because such persons do not exist. It may be because the circumstances do not give rise to any claim. It may be because ASIC has not yet ascertained the relevant facts.
17 A further aspect of the investigation concerns the Capital Trust. Its trustee is in liquidation. Two other companies in liquidation are thought to be associated with the activities of the trust. In respect of one of those companies, the liquidator has lodged a report under s 533 of the Corporations Act advising that he considers that the directors, including the defendant, may have allowed the company to incur debts whilst insolvent in contravention of s 588G of the Corporations Act. In the case of another company in liquidation, the liquidator has reported that he considers that there were breaches of ss 180 to 184, 588G, 590 and 596 of the Corporations Act. These are matters still being investigated.
18 I am satisfied that there are persons to whom the defendant is or may be or may become liable to make monetary compensation. In Australian Securities and Investments Commission v Carey (2006) 57 ACSR 307, French J (at [26]) aptly described the task of deciding whether it is necessary or desirable to make an order under s 1323 to protect the interests of such persons as an exercise in risk assessment and risk management. It is not necessary for ASIC to demonstrate that there is a prima facie case that the defendant is liable to compensate affected persons. Nor is it necessary for it to show the defendant is likely to dissipate assets unless restrained, although these would be powerful discretionary considerations in favour of making an order under s 1323 (ASIC v Adler (2001) 38 ACSR 266 at [7]; ASIC v Carey at [26]).
19 An important element of the task of risk management and risk assessment is fairness to the defendant. It must be recognised that no claims have been established against him. It must also be recognised that orders under s 1323 would impose a drastic limitation on his freedom to deal with his own property and on his freedom to travel.
20 The current investigation began in November 2006 and was formally commenced on 7 December 2006. On 14 February 2007, ASIC obtained orders ex parte restraining the defendant from travelling and restraining dealings with his assets. Those orders have been continued, with modifications consented to by the parties, up to 14 May 2007. On that day, they were continued further by me until today.
21 Prima facie this period for inquiry ought to have been sufficient for ASIC to have determined with some precision whether there was a prima facie case of contravention by the defendant of the Corporations Act which might lead to a claim for monetary compensation by persons other than Mr Mookhy. In the case of Mr Mookhy, who has had proceedings on foot for about eighteen months, it might be thought that he could protect his own position by seeking Mareva relief if there are grounds for doing so.
22 However, ASIC's investigation has been delayed. Partly that has been due to adjournments of the defendant's examinations under s 19 of the ASIC Act to meet the convenience of the defendant's legal representatives. More importantly, the delay arises because it was only on 3 April 2007 that the defendant produced eighty compact discs containing data in response to notices for production of documents served in February 2007. On 5 April 2007, the defendant produced a computer hard drive in further response to those notices. The compact discs and hard drives, including a hard drive from a different source, contain over 800,000 files. The imaging and indexing of those files was not finished until about 30 April 2007.
23 The defendant says that ASIC's notices for production of documents were oppressive. That is not an issue before me. There is no reason for me to assume - and I do not - that the notices were oppressive. It appears to me that it is the defendant himself who is the cause of ASIC's investigations not having reached a further point.
24 ASIC says the defendant is a "flight risk". He is an Austrian citizen. However, he is also a permanent resident of Australia. He has family in Austria. His mother resides there. He owns no real property in Australia. However, the defendant points to business connections he has in this country.
25 The defendant openly says that if he is not restrained, he intends to travel to Europe. He advances three reasons for doing so, namely:
" (a) I need to sell a property so as to allow me to bring approximately $300,000 into Australia for the purposes of settling the dispute with Mr Mookhy;
(b) My mother is currently aged 63 and may need to be hospitalised for treatment in the next few months. I would like to be there to support her; and
(c) I would like to travel to Sweden to meet a potential investor who is considering purchasing one of our development properties. "
26 None of the suggested reasons is persuasive. I am not satisfied, on the evidence adduced on this application, that a settlement has in fact been reached with Mr Mookhy. However, even if it has, no details were forthcoming as to why the defendant's presence overseas was needed for him to sell a property to raise funds for the purposes of the settlement. There were no details of the property which allegedly needs to be sold.
27 As to the second ground, in cross-examination the defendant struggled to identify the reason his mother may need hospitalisation. I had the impression that he was searching for plausible reasons, or plausible details, to support his contention.
28 No details were advanced in respect of the third ground.
29 I do not accept the defendant's evidence that he needs to travel overseas for the reasons he advances, or at all.
30 The defendant quotes his established business connections in Australia. He says that two companies associated with him, namely, St Ives Securities Pty Limited and The Crescent Securities (TCS) Pty Limited, have residential developments in train. He also refers to the construction of a residential home which he says has a completed project value of $3,800,000. No details are given as to these projects.
31 St Ives Securities Pty Limited and The Crescent Securities (TCS) Pty Limited have issued prospectuses to raise funds. ASIC has placed orders that no securities be offered, issued, sold or transferred under the prospectuses. There is no evidence as to the current state of those developments or how they are expected to be completed without the funds sought to be raised by the embargoed prospectuses.
32 In those circumstances, I do not consider that the defendant's business connections in Australia are such as to give rise to any grounds for confidence that the defendant would return to Australia if permitted to travel. Nor do they provide grounds for confidence that the defendant has property in Australia which is unlikely to be transferred or dealt with which would in any event be available to meet the monetary claims of aggrieved persons. I consider that there is a significant risk that if the defendant is permitted to leave Australia, he may not return. I am not satisfied that any particular circumstance requires his attendance overseas.
33 The orders sought by ASIC are sought for a period of about three months, that is, up to 13 August 2007. The only potential prejudice with any specificity to which the defendant pointed was the asserted need for him to travel to raise moneys to satisfy his obligations under the asserted settlement with Mr Mookhy. However, the orders will provide for liberty to apply. If it is established that such a settlement has been reached and that the defendant needs to travel overseas so as to raise funds as a result of such a settlement, then the defendant can exercise that liberty. The question will then be considered whether the orders should be continued in the circumstances which then obtain.
34 For these reasons, I am of the view that orders under s 1323 are necessary or desirable to protect the interests of persons to whom the defendant is, or may be liable, or to whom he may become liable to make monetary compensation.
35 There was no argument as to the form of the orders sought. However, the question is one of jurisdiction. Wide though s 1323 is, it does not, as it presently appears to me, extend to simply restraining a defendant from dealing within Australia with his or her own property. I will need to be persuaded that the proposed orders 1-3 (to which the proposed order 4 is incidental) and parts of the proposed orders 5 and 6 are orders authorised by s 1323. I will hear further submissions on the form of the proposed orders.
36 The parties have sought further time to make submissions as to the precise orders which ought to be made. The current orders expire at 5.00pm today. Because of the doubts I have as to the jurisdiction of the Court to make part of the orders which have been made up to today, I do not propose to continue those orders further. I will make orders under s 1323 until a convenient time next week, being orders which appear to me, as presently advised, would be clearly justified by the section.
37 I order that until 5.00pm on Wednesday 23 May 2007, or earlier further order, the defendant shall not, without the leave of the Court: