BAC Property Pty Ltd v Nee

Federal Court of Australia|2024-10-29|Before: Goodman J

THE COURT NOTES THAT:

The plaintiffs have filed an originating process pursuant to which they seek interlocutory relief in the form of orders under s 1323(1) of the Corporations Act 2001 (Cth) (s 1323(1) application).
The s 1323(1) application is supported by affidavits of: a. Lisa Jane Camp sworn on 26 September 2024; b. Zack Mason sworn on 16 October 2024; and c. Zack Mason sworn on 21 October 2024. THE COURT ORDERS THAT: Asset preservation orders
A freezing order be made against the defendant in the form set out in Schedule 1 to these orders, such order to have effect pending the determination of the s 1323(1) application. Use of preliminary discovery documents
The plaintiffs be released from the implied undertaking not to use the documents produced by 578 Sherwood Rd Pty Ltd to the plaintiffs on 5 July 2024 pursuant to the orders of Registrar O'Connor made on 6 June 2024 in proceeding ACD13/2024 (Documents) or the information contained in the Documents, such release being for the purpose only of using the Documents and the information contained in the Documents in this proceeding.
The defendant have leave to apply for the recission or variation of order 2, such leave to be exercised by application to the Commercial and Corporations Duty Judge for the Australian Capital Territory on reasonable notice. Generally
The plaintiffs file a statement of claim substantially in the form of the statement of claim annexed to the affidavit of Zack Mason sworn on 16 October 2024 forthwith.
The proceeding be listed before the Commercial and Corporations Duty Judge for the Australian Capital Territory at 9:30am on 12 November 2024.
The whole of the proceeding be referred to the National Operations Registrar for allocation to a docket judge.
Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. SCHEDULE 1 Freezing Order (made without notice) Federal Court of Australia District Registry: Australian Capital Territory Division: General No: ACD71/2024

BAC Property Pty Ltd and Ors Plaintiffs Charles Alvin Nee Defendant PENAL NOTICE TO: THE DEFENDANT, MR CHARLES ALVIN NEE IF YOU: (A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR (B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED.

TO: THE DEFENDANT, MR CHARLES ALVIN NEE This is a 'freezing order' made against you on 29 October 2024 by Justice Goodman following a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B (Affidavits) to this order. THE COURT ORDERS THAT: INTRODUCTION 1. (a) The application for this order is made returnable immediately; (b) the following documents (Documents): (i) the originating process; (ii) the statement of claim; (iii) the Affidavits (and any accompanying annexures and exhibits); (iv) the plaintiffs' outline of submissions dated 21 October 2024; (v) the reasons for judgment in BAC Property Pty Ltd v Nee [2024] FCA 1243; and (vi) these orders, be served upon the defendant by 5:00pm AEDT on 31 October 2024 in the first instance in the following manner:  delivering a copy of the Documents to 9 Chenin St, Calamvale, QLD 4116 by way of Priority Registered Post;  emailing a copy of the Documents to charles@crestmount.com.au; and  emailing a copy of the Documents to the defendant's former solicitors, Results Legal, for on-forwarding via pclark@resultslegal.com.au and mmcdonnell@resultslegal.com.au. 2. Subject to the next paragraph, this order has effect up to and including 5:00pm on 12 November 2024 (the Return Date). On the Return Date at 9:30am there will be a further hearing in respect of this order before the Commercial and Corporations Duty Judge for the Australian Capital Territory. 3. Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified. 4. In this order: (a) 'plaintiffs', if there is more than one plaintiff, includes all the plaintiffs; (b) 'third party' means a person other than you and the plaintiffs; (c) 'unencumbered value' means value free of mortgages, charges, liens or other encumbrances. 5. (a) If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions. (b) If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way. FREEZING OF ASSETS 6. (a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of AUD$1,150,000 ('the Relevant Amount'). (b) If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount. (c) If the unencumbered value of your Australian assets is less than the Relevant Amount, and you have Property outside Australia ('ex-Australian assets'): (i) You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and (ii) You may dispose of, deal with or diminish the value of any of your ex‑Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount. 7. For the purposes of this order, (a) your assets includes: (i) all your assets, whether or not they are in your name and whether they are solely or co-owned; (ii) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions). (b) the value of your assets is the value of the interest you have individually in your Property. PROVISION OF INFORMATION 8. Subject to paragraph 9, you must: (a) at or before the further hearing on the Return Date (or within such further time as the Court may allow) to the best of your ability inform the plaintiffs in writing of all your assets, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; (b) within 14 working days after being served with this order, swear and serve on the plaintiffs an affidavit setting out the above information. 9. (a) This paragraph 9 applies if you wish to object to complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that you: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (b) You must: (i) disclose so much of the information required to be disclosed to which no objection is taken; and (ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and (iii) file and serve on each other party a separate affidavit setting out the basis of the objection. EXCEPTIONS TO THIS ORDER 10. This order does not prohibit you from: (a) paying up to $2,000 a week on your ordinary living expenses; (b) paying your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the plaintiffs, if possible, at least two working days written notice of the particulars of the obligation. 11. You and the plaintiffs may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the plaintiffs or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the plaintiffs and you, and the Court may order that the exceptions are varied accordingly. 12. (a) This order will cease to have effect if you: (i) pay the sum of $1,150,000 into Court; or (ii) pay that sum into a joint bank account in the name of your lawyer and the lawyer for the plaintiffs as agreed in writing between them; or (iii) provide security in that sum by a method agreed in writing with the plaintiffs to be held subject to the order of the Court. (b) Any such payment and any such security will not provide the plaintiffs with any priority over your other creditors in the event of your insolvency. (c) If this order ceases to have effect pursuant 12(a) above, you must as soon as practicable file with the Court and serve on the plaintiffs notice of that fact. COSTS 13. The costs of this application are reserved to the Court hearing the application on the Return Date. PERSONS OTHER THAN THE PLAINTIFFS AND DEFENDANT 14. Set off by banks This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order. 15. Bank withdrawals by the defendant No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order. 16. Persons outside Australia (a) Except as provided in subparagraph (b) below, the terms of this order do not affect or concern anyone outside Australia. (b) The terms of this order will affect the following persons outside Australia: (i) you and your directors, officers, employees and agents (except banks and financial institutions); (ii) any person (including a bank or financial institution) who: (A) is subject to the jurisdiction of this Court; and (B) has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and (C) is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience of the terms of this order; and (iii) any other person (including a bank or financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person's assets. 17. Assets located outside Australia Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party's application, reasonable written notice of the making of the application is given to the plaintiffs. SCHEDULE A UNDERTAKINGS GIVEN TO THE COURT BY THE PLAINTIFFS (1) As soon as practicable, the plaintiffs will file and serve upon the defendant copies of: (a) this order; (b) the application for this order for hearing on the return date; (c) the following material in so far as it was relied on by the plaintiffs at the hearing when the order was made: (i) affidavits (or draft affidavits); (ii) exhibits capable of being copied; (iii) any written submission; and (iv) any other document that was provided to the Court. (d) a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court; (e) the originating process, or, if none was filed, any draft originating process produced to the Court. (2) As soon as practicable, the plaintiffs will cause anyone notified of this order to be given a copy of it. (3) The plaintiffs will pay the reasonable costs of anyone other than the defendant which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the defendant's assets. (4) If this order ceases to have effect the plaintiffs will promptly take all reasonable steps to inform in writing anyone to who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect. (5) The plaintiffs will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding. (6) The plaintiffs will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the defendant or the defendant's assets. SCHEDULE B AFFIDAVITS RELIED ON Name of deponent Date affidavit made (1) Lisa Jane Camp 26 September 2024 (2) Zack Mason 16 October 2024 (3) Zack Mason 21 October 2024

NAME AND ADDRESS OF PLAINTIFFS' LAWYERS The plaintiffs' lawyers are: Adero Law Address: 3 Hobart Place, Canberra, ACT 2601 Office Hours Ph: 02 6189 1022 Out of Office Hours Phone: 04 5532 9954 Email: Andrew.chakrabarty@aderolaw.com.au; zack.mason@aderolaw.com.au REASONS FOR JUDGMENT GOODMAN J

A. INTRODUCTION 1 These reasons for judgment deal with two applications for interlocutory orders sought by the plaintiffs in this proceeding, namely: (1) an application for leave to use, in this proceeding, documents produced by the defendant to the plaintiff pursuant to preliminary discovery orders made in proceeding ACD13/2024 (preliminary discovery documents); and (2) an application for interim orders in the nature of freezing orders pursuant to s 1323(3) of the Corporations Act 2001 (Cth). The plaintiffs are yet to serve the originating process (or any other documents) upon the defendant and these applications were heard on an ex parte basis.

B. BACKGROUND 2 The plaintiffs claim to be investors in a managed investment scheme that was operated by 578 Sherwood Rd Pty Ltd, a company of which the defendant was the sole director. As a result of their investments, the plaintiffs became holders of preference shares in Sherwood. The plaintiffs also contend that the defendant was a promoter and operator of the scheme. 3 In proceeding ACD13/2024, the plaintiffs (qua prospective applicants) sought orders for preliminary discovery from Sherwood (qua prospective respondent). On 6 June 2024, orders were made by consent requiring Sherwood to give discovery of 12 categories of documents and on 5 July 2024, the preliminary discovery documents were provided by Sherwood to the plaintiffs. 4 On 9 August 2024, a resolution was passed for a creditors voluntary winding up (s 491(1) of the Act) and a liquidator was appointed to Sherwood. 5 On 9 October 2024, the plaintiffs commenced this proceeding by filing an originating process pursuant to which they seek, inter alia, orders requiring the defendant to pay $1,150,000 to them as damages pursuant to s 1041I of the Act by reason of the defendant's involvement in contraventions by Sherwood of ss 1041D, 1041G and 1041H of the Act; or as equitable compensation for breaches of fiduciary duties owed by the defendant to the plaintiff qua operator of the scheme. 6 The plaintiffs' claims have been set out in a draft statement of claim. At the risk of over‑simplification, those claims are in essence that: (1) the defendant and Sherwood promoted and operated the scheme; (2) an information memorandum issued by Sherwood in connection with the scheme contained a series of representations (IM representations) including representations that: (a) Sherwood was created for the purpose of developing a parcel of land into 28 apartments (Development); (b) the scheme would be a small scale offering for the purposes of s 708 of the Act; (c) all scheme monies would be controlled by an independent accounting firm; (d) Sherwood intended to raise funds from investors to complete the Development by issuing preference shares to investors at $1 per share; (e) upon submitting the application form, an investor would select an apartment in the Development as a Designated Lot and that upon completion of the Development, investors would be entitled to: (a) redemption of their preference shares of Sherwood; (b) the Designated Lot as selected by the investor, subject to the payment of a "Designated Price"; (f) if the indicative terms and conditions of proposed construction funding were unacceptable to any scheme member, they would have the right to redeem their preference shares at no cost; (g) Sherwood would not proceed with the project until construction funding had been obtained sufficient to provide the balance of funds necessary to complete the project on terms and conditions satisfactory to Sherwood; and (h) the projected company surplus after the redemption of preference shares was $2,609,000; (3) Sherwood made a series of other representations in connection with the operation of the scheme; (4) the defendant engaged in various forms of conduct during the operation of the scheme, including: (a) failing to register the scheme, in contravention of s 601ED(1) of the Act; (b) operating the scheme without registration, in contravention of s 601ED(5) and (8) of the Act; (c) failing to provide a constitution, compliance plan, prospectus or product disclosure statement for the scheme; (d) commencing the project and using funds subscribed by investors prior to the satisfaction of the conditions precedent to the use of those funds, including a condition precedent concerning the funding of construction; (e) entering into various undisclosed loan agreements (including seemingly undocumented loan agreements) with various parties including entities controlled by the defendant; (f) failing to disclose the true financial position of the scheme; (g) selling the plaintiffs' Designated Lots without informing the plaintiffs, and using the proceeds of sale to pay persons other than the plaintiffs; (h) entering into "buyback agreements" with other investors in the scheme pursuant to which Sherwood purchased all of the preference shares held by investors in the scheme other than those held by the plaintiffs, the defendant in his personal capacity and one investor who had commenced a proceeding against Sherwood in the District Court of Queensland, in circumstances where: (i) it was a term of the "buyback agreements" that all debts and amounts owed by Sherwood to the particular investors would be extinguished; and (ii) the buyback of the investors' preference shares contravened s 257A of the Act because it materially prejudiced Sherwood's ability to pay its creditors; (5) Sherwood contravened s 1041E of the Act (which, in broad terms, prohibits the making of false or misleading statements) by making the IM representations; (6) Sherwood contravened s 1041G of the Act (which prohibits a person carrying on a financial services business from engaging in dishonest conduct in relation to a financial product or service) by making the IM representations and the other representations and by engaging in the conduct referred to at (4) above; (7) Sherwood contravened s 1041H of the Act (which prohibits conduct, in relation to a financial product or a financial service that is misleading or deceptive or is likely to mislead or deceive) by making the IM representations and the other representations and by engaging in the conduct referred to at (4) above; (8) the defendant was involved in each of Sherwood's contraventions of the Act; (9) the defendant owed fiduciary duties to the plaintiffs which he breached; and (10) the contraventions of the Act and breaches of fiduciary duties caused loss to the plaintiffs, which the plaintiffs are entitled to recover from the defendant. 7 The plaintiffs also contend that: (1) from at least 15 March 2024, the defendant took steps to prepare to place Sherwood into liquidation; (2) prior to the appointment of the liquidator on 9 August 2024, the defendant acted so as to: (a) engage in creditor-defeating dispositions; (b) complete the "buyback agreements"; (c) dissipate all scheme funds and assets, including the remaining assets of $1,358,059.80, save for $30; and (d) engage in misappropriation of scheme funds and assets.

C.1 Application to use the preliminary discovery documents in this proceeding 8 As noted above, the plaintiffs seek an order for leave to use the preliminary discovery documents in this proceeding. It is clear, as the application assumes, that the implied undertaking not to disclose or use documents produced by another party pursuant to an order of the Court (or the information contained therein) other than for the purposes of the proceeding in which such an order was made (see Hearne v Street [2008] HCA 36; (2008) 235 CLR 125) operates in circumstances where the preliminary discovery documents were produced pursuant to an order of the Court compelling their disclosure. This is so regardless of whether, as in the present case, the order was made by consent: see Austin Engineering Ltd v Podulova (No 3) [2024] FCA 1001 at [35] (Feutrill J). 9 On 17 October 2024, in circumstances where the plaintiffs sought to use the preliminary discovery documents for the purposes of both of the present applications before the Court, and in particular the ex parte application for orders pursuant to s 1323 of the Act which is discussed below, I made an order that the plaintiffs have leave to use those documents for the purpose of the hearing of that application and any incidental matter arising from that hearing. 10 The question which now arises is whether the Court should make an order which provides the plaintiffs with a more general release from the implied undertaking. In Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 the Full Court of this Court (Branson, Sundberg and Allsop JJ) explained at 289 to 290 ([31]): In order to be released from the implied undertaking it has been said that a party in the position of the appellants must show "special circumstances": see, for example, Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217; 110 ALR 685. It is unnecessary to examine the authorities in this area in any detail. The parties were not in disagreement as to the legal principles. The notion of "special circumstances" does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. In Springfield Nominees, Wilcox J identified a number of considerations which may, depending upon the circumstances, be relevant to the exercise of the discretion. These were:  the nature of the document;  the circumstances under which the document came into existence;  the attitude of the author of the document and any prejudice the author may sustain;  whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain;  the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information);  the circumstances in which the document came in to the hands of the applicant; and  most importantly of all, the likely contribution of the document to achieving justice in the other proceeding. 11 I am satisfied on the evidence before the Court on this application that the leave sought should be given, particularly in circumstances where the preliminary discovery documents: (1) were discovered for the purpose of consideration by the plaintiffs of the commencement of a proceeding (albeit against Sherwood before it was placed into liquidation, apparently at the instigation of the defendant); (2) appear to be relevant to the issues raised in this proceeding and as such appears likely to be discoverable in this proceeding, to the extent that such documents are within the control of the defendant and otherwise properly the subject of a subpoena to produce documents; and (3) are likely to be central to the achievement of justice in this proceeding. 12 Nevertheless I am conscious that, by dint of the unusual circumstances in which this application has been brought and in particular its tie to the ex parte application for relief under s 1323 of the Act, the defendant has not been heard on the question of whether leave ought to be given. Thus I will grant the leave sought, but on terms which allow the defendant the opportunity to seek an order rescinding or varying such leave should he wish to do so.

C.2 Application pursuant to s 1323 of the Act 13 I turn now to the plaintiffs' application for relief under s 1323 of the Act, which provides in so far as is presently relevant: Power of Court to prohibit payment or transfer of money, financial products or other property (1) Where: ... (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… … (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. (emphasis in original) 14 The application is presently for interim orders pursuant to s 1323(3) of the Act. Pursuant to that sub-section, the Court has a discretion to grant an interim order of the kind applied for (namely a freezing order), with such interim order being expressed to have effect pending the determination of the application, before the application is considered. Before granting such an interim order, the Court must be satisfied that it is desirable to do so. I am persuaded that it is desirable to make an interim order, for the following reasons: (1) it is at least arguable, on the evidence before the Court, that the plaintiffs will satisfy the Court that: (a) a civil proceeding has been begun against a person under the Act, within the meaning of s 1323(1)(c) of the Act; (b) each of the plaintiffs is an "aggrieved person"; and (c) the defendant is a "relevant person" who may become liable to pay money, damages or compensation or to account for property; (2) it is also at least arguable, on the evidence before the Court, that at the hearing of the application for orders under s 1323(1) of the Act, the plaintiffs will satisfy the Court that it is "necessary or desirable" to make such orders under that sub-section for the purpose of protecting the plaintiffs' interests. In this regard, it is sufficient to note (without making any findings at this stage) that the evidence on the application may be capable of supporting an inference that the defendant, based on his previous conduct, may take steps that would have the effect of frustrating the processes of the Court including attempts to execute any judgment made in favour of the plaintiffs; and (3) the defendant will have the opportunity to argue against the continuation of the interim order at the return date specified therein, or at an earlier time pursuant to a grant of liberty to apply. 15 I have taken into account various matters properly and fairly raised by Mr Mason for the plaintiffs on this ex parte application as matters which may tend against the making of the orders sought under s 1323(1), including the potential operation of limitation periods with respect to parts of the claims pleaded. However, I do not regard any of the matters raised by Mr Mason as so potentially significant as to outweigh the considerations set out in the previous paragraph.

CONCLUSION 16 For the reasons set out above, orders should be made substantially in the form of the orders sought by the plaintiffs. I will make orders accordingly. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.

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