Australian Securities & Investments Commission v R Wynhoven & Associates Pty Ltd [2004] FCA 1418 | Case summary

REASONS FOR JUDGMENT 1 In these proceedings (hereinafter "the underlying proceedings") final orders were made, by consent, on 25 October 2004. However, interlocutory orders were made by Goldberg J on 10 February 2004. Those orders are discussed in more detail below. On 10 September 2004 the plaintiff issued a Notice of Motion (hereinafter "the contempt proceedings") seeking orders that the third defendant be found guilty of contempt for breach of the orders of Goldberg J. The third defendant has consented to the making of those orders save as to the question of penalty. The plaintiff and the third defendant have made submissions as to what penalty is appropriate in relation to that contempt. 2 The "underlying proceedings" concerned an investment business operated by the third defendant through the first and second defendants. In general terms the third defendant raised moneys from investors which was then "pooled" by the first defendant and used for various investments. It is unnecessary to go into the detail of how the investment business was operated. It is sufficient to say that it was in breach of the Corporations Law and the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). It would seem that the investors have lost all or, at least, most of their investments. 3 Orders 1(b) and (c) of the orders made by Goldberg J on 10 February, 2004 provided: '1. Until the hearing and determination of the proceeding or until further order, the First, Second and Third Defendants whether by themselves, their servants or agents or otherwise howsoever be restrained from being in any way, directly or indirectly knowingly concerned in or a party to: … (b) receiving, soliciting or otherwise procuring funds from or on behalf of any person or entity for the purpose of any of the Defendants issuing, selling or offering a financial product, as defined in the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"), provided that nothing in this order shall be construed as preventing the Defendants continuing to act as finance brokers, namely, by arranging for the provision of finance to clients by third parties, in the business of providing loans; (c) transferring, disposing of or otherwise parting with any funds that have come into the Defendants' possession or control after 10 November 2003 through or by any of them issuing, selling or offering a financial product as defined in the ASIC Act, provided that nothing in this order shall be construed as preventing the Defendants continuing to act as finance brokers, namely, by arranging for the provision of finance to clients by third parties, in the, business of providing loans;' 4 The plaintiff and the third defendant are agreed that the third defendant breached that order in the following manner: '(1) The Third defendant on 9 August 2004 at Geelong, received, solicited or otherwise procured from Gary Raymond Henry ("Henry") funds, namely the sum of $25,000.00, after issuing, selling or offering a financial product (as defined in the Australian Securities and Investments Commission Act 2001 ("the ASIC Act") namely, a facility through which or through the acquisition of which, Henry made a financial investment, by giving the Third defendant the sum of $25,000.00 in circumstances where Henry intended that the Third defendant would use the said sum to generate a financial return for Henry, in breach of Order l(b) made by Justice Goldberg on 10 February 2004. (2) The Third defendant in or about August 2004, at Geelong, transferred, disposed of or otherwise parted with funds, namely the $25,000.00 received from Henry referred to in [par] (1) above, being funds that had come into the possession or control of the Third defendant after 10 November 2003 through or by any of the Defendants issuing, selling or offering a financial product (as defined in the ASIC Act), in breach of Order l(c) made by Justice Goldberg on 10 February 2004. (3) The Third defendant, in or about June 2004 at Geelong, received, solicited or otherwise procured from Henry funds, namely $11,000.00, after issuing, selling or offering a financial product (as defined in the ASIC Act) namely, a facility through which or through the acquisition of which, Henry made a financial investment by giving the Third defendant the sum of $11,000.00 in circumstances where Henry intended that the Third defendant would use the said sum to generate a financial return for Henry, in breach of Order l(b) made by Justice Goldberg on 10 February 2004. (4) The Third defendant in or about June 2004at Geelong, transferred, disposed of or otherwise parted with funds, namely the $11,000.00 received from Henry referred to in [par] (3) above, being funds that had come into the possession or control of the Third defendant after 10 November 2003 through or by any ofthe Defendants issuing, selling or offering a financial product as defined in the ASIC Act, in breach of Order 1 (c) made by Justice Goldberg on 10 February, 2004.' 5 The plaintiff and the third defendant are agreed that these breaches of the orders made by Goldberg J were wilful, although not contumacious. They are agreed that the breaches of the orders comprised a civil contempt of this Court. I am satisfied that they were correct in that conclusion: see, for example, Gillard J in National Australia Bank Ltd v Juric [2001] VSC 375 at [37]. 6 Although the parties have reached the above agreements, they have not reached agreement as to all relevant facts. In this case the plaintiff accepted that I could rely upon the facts as set out in par 4 above supplemented by those facts contained in the affidavits tendered before me, including the affidavit of the third defendant. 7 The result of doing so would seem to be: (a) On 9 August, 2004 Mr Henry paid $25,000 to the third defendant. Mr Henry believed that the third defendant would invest that money on behalf of Mr Henry, and that whatever financial return would be received in relation to that money would depend upon the success or otherwise of the "investment". It is not clear that Mr Henry had any clear understanding of what the investment would be. The third defendant, on the other hand, believed that Mr Henry understood that the third defendant intended to use the money as a personal loan to him for a period of 5 years at an interest rate of 8% per annum. The third defendant did use the money as a personal loan. (b) In June, 2004 Mr Henry paid $11,000 to the third defendant. There is no dispute that the moneys were paid to the third defendant for him to apply those moneys to meet the lease costs of a number of computers. The computers had been obtained by the third defendant for use in a proposed "internet café" to be established as a joint venture by Mr Henry, by the third defendant (or a person or body acting in his stead) and by another person. Mr Henry and the third defendant understood that any financial return from the $11,000 depended upon the establishment of the internet café and its successful operation. (c) The third defendant is 48 years of age. He has 4 children, two still at school. Until the events referred to in the underlying proceedings he had been a teacher and subsequently a mortgage broker. He was reasonably successful and well respected. He continues to be involved in his local church and in volunteer activities. However, he now has no assets, or very few assets. He is currently working as a plasterer for his son. He will have difficulty meeting any significant financial penalty. 8 The third defendant claimed that he had acted "to the best of my knowledge and understanding within the framework" set out in the orders made by Goldberg J. This claim was disputed by the plaintiff. Indeed, it was the only aspect of the evidence or claim put forward on behalf of the third defendant that was disputed. The third defendant gave evidence in relation to his knowledge and belief. I am satisfied that the third defendant did not understand that what he was doing was in breach of the orders of Goldberg J. Indeed, so much would seem to be accepted in the agreement of the parties that the actions of the third defendant did not involve a "contumacious" breach of those orders. I am satisfied beyond reasonable doubt that the third defendant understood that the relevant orders prevented him from engaging in "pooling" investment moneys in the manner in which he had been doing and which resulted in the underlying proceedings. However, I am also satisfied beyond reasonable doubt that there was no reasonable basis for him having that understanding. In particular, I am satisfied beyond reasonable doubt that he did not obtain any legal or other advice as to the effect of the orders made by Goldberg J or as to whether the transactions with Mr Henry in June or August, 2004 involved a breach of those orders. If he had obtained such advice he would undoubtedly have been informed of the breadth of those orders. 9 The plaintiff described the behaviour of the third defendant in breaching the relevant orders as "reckless". It seems to me that that is a fair description. The third defendant submitted that the breaches were "technical". This may have been a fair description if the third defendant had made any real attempt to discover what the orders meant and what he was required to do in order to comply with them. In the absence of doing so it does not seem to me that the breaches can be described as being merely "technical". 10 This still leaves the question of determining what is the appropriate penalty. I am reminded that the primary purpose of imposing such a penalty is to compel obedience to the orders of the Court for the benefit of present and future litigants in this Court: see Law Reform Commission Contempt (Report No 35; 1987 at pp 306-307) ("Report"). One-off fines can be imposed for this purpose: Report at 320. Given that the orders made by Goldberg J have now been spent by reason of the making of the orders in the underlying proceedings then in my view a "one-off fine" is an appropriate penalty in this case. Given the third defendant's financial circumstances, it is unnecessary to impose a very large fine in order to achieve the primary purpose already referred to. I also note that the third defendant has agreed that he was in contempt of the orders of the Court and that he has agreed to the resolution of the underlying proceedings. As his counsel put on his behalf, he wishes to put all this behind him and start afresh. 11 The plaintiff submitted to me that I should make an order requiring that the third defendant pay some compensation to Mr Henry. In my view it is inappropriate that I do so. Firstly, it is not clear to me on the facts as they have been presented to me just what the legal relationship between Mr Henry and the third defendant was in relation to these payments. Given the agreement made by the parties it is unnecessary for me to resolve that issue in the context of these contempt proceedings, but it would be necessary to do so in the context of any orders made in favour of Mr Henry. I am also not certain what effect such orders might have in relation to others who may also have claims against the third defendant. Finally I am not satisfied that it is appropriate to make such orders in the context of contempt proceedings, even civil contempt proceedings. On the other hand, no detailed submissions have been made regarding any of these issues. For present purposes it is sufficient to say that I am not prepared to make such orders in this case. 12 In all the circumstances I think that a fine of $7,000 would be appropriate. I allow three months to pay this amount, from the date of this order. I note that Merkel J has drawn attention to the problems that may arise if the fine is not paid within the period specified: see Australian Industrial Group v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union of Australia & Ors [2001] FCA 774. In light of those problems it is appropriate that I direct the District Registrar to bring to the attention of a Judge of this Court if that order is not complied with. Finally, I also order that the third defendant pay the costs of the plaintiff in relation to the contempt proceedings. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Selway.

Australian Securities & Investments Commission v R Wynhoven & Associates Pty Ltd

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Judgment (14 paragraphs)

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