Solicitors:
Australian Securities and Investments Commission (Plaintiff)
File Number(s): 2017/119478
[2]
Judgment - ex tempore
By Originating Process made returnable by leave today the Australian Securities and Investments Commission ("ASIC") seeks both final, and urgent interim relief, in respect of several defendants, including the First Defendant, Courtenay House Capital Trading Group Pty Ltd, the Second Defendant, Courtenay House Pty Ltd, several individuals associated with those companies and entities associated with those individuals. The relief that is sought includes the appointment of receivers to the relevant entities, and relief is also sought by way of asset preservation orders, disclosure orders and travel restraint orders, and orders restraining the relevant entities, or some of some of them, from carrying on a financial services business as defined in the Corporations Act 2001 (Cth).
In the matter of Courtenay House Capital Trading Group Pty Ltd [2017] NSWSC 467 | Case summary | Zoe
The application has proceeded on an urgent basis, given the nature of evidence relied on, and ex parte. It seems to me that the evidence on which ASIC has relied also has supported that course. It is preferable that I deliver a judgment in a short form, both because of the urgency of the matter and because, as Mr Stack, who appears for ASIC, has fairly recognised, the evidence put before me is evidence which reflects ASIC's analysis based on its inquiries to date. It is, of course, possible, as ASIC fairly accepts, that further evidence may be led by the Defendants which will qualify or displace areas of ASIC's concerns based on the evidence that is presently material to it. Nothing that I should say in this judgment should be treated as indicative of any finding, on any final basis, in respect of the position of the relevant Defendants. All that I need to determine, for present purposes, is whether, on an interlocutory basis, sufficient evidence exists to support the relief which is sought by ASIC, so as to preserve the position, over a relatively short period, before the matter is brought back before the Court. Any question of continuance of the relief will then be addressed in the Defendants' presence.
I should briefly refer to the relevant evidence, then to the relevant statutory provisions. ASIC relies on a detailed affidavit of Ms Harris affirmed 20 April 2017, which includes reference to a significant range of documents, to which I have been taken in submissions, and to interviews with a number of clients of the First and Second Defendants. ASIC identifies, in paragraph 154 of Ms Harris' affidavit, several concerns, including a concern that the First Defendant, Courtenay House Capital Trading Group Pty Ltd, has been carrying on an unregistered managed investment scheme in contravention of s 601ED of the Corporations Act; that other defendants have been involved in that contravention; that the First or Second Defendants, or both of them, have been carrying on an unlicensed financial services business providing foreign exchange trading to consumers in contravention of s 911A of the Corporations Act, and that other persons have been involved in that contravention; and that misleading statements have been made to investors, in particular, as to the level of risk involved in foreign exchange trading, if that is the activity which the First and Second Defendants in fact undertake.
It seems to me that there is sufficient evidence, at an interlocutory level, to establish a serious question to be tried as to ASIC's concerns, at a level that is sufficient to warrant interim relief of the serious and intrusive kind that is sought.
The matters which give rise to concern, summarised in short form, include that there is evidence that the First Defendant, Courtenay House Capital Trading Group Pty Limited was at one point the operator of a registered managed investment scheme, although it may be that its entitlement to conduct such a scheme has recently lapsed. It appears, however, from the evidence as to the financial position of that scheme that is in evidence, and through the evidence of the scale of the financial transactions involving the First and Second Defendant that are in evidence, that there is a substantial possibility or probability that transactions are taking place, involving a significant number of investors and in excess of the 20 investor level at which registration of such a scheme would be required, in respect of a further unregistered scheme.
It also appears, again subject to any explanation that may be given by the Defendants, that the Defendants are holding themselves out as carrying on a foreign currency trading and commodities trading business, which, on the face of it, would require licensing under s 911A of the Corporations Act, or that they be authorised representatives, holding an authority as a corporate representative to conduct the relevant activities. There is, on the evidence that is presently before me, no suggestion that those entities do hold licences to conduct the relevant activities, or that any authorised representative status which they have held, at any relevant time, would extend to the conduct of a substantial foreign currency or commodities trading business. There is also a serious question to be tried as to whether statements made by the Defendants as to the level of risk allocated to foreign currency and commodity trading has been misleading, by understating that risk.
Third, there is evidence that suggests that there are a significant number of deposits which have been made directly to accounts of the First and Second Defendants, in a manner that is inconsistent, or potentially inconsistent, with the conduct of these activities within either a registered or unregistered managed investment scheme. There is also evidence of transfers of substantial funds between the accounts of the First and Second Defendants, and from those accounts, to other corporate defendants associated with the individual defendants.
There is evidence of other conduct, including cash withdrawals from the accounts of the corporate defendants, and possibly the application of moneys from those withdrawals to gambling activities of the Third Defendant, Mr Iervasi, that would give rise to cause for concern for the security of moneys held within the relevant arrangements, particularly if those moneys are held outside the safeguards that would ordinarily be required in respect of the activities for financial services dealers or managed investment funds. That concern is exacerbated by evidence as to the scale of Mr Iervasi's gambling activities, albeit I again recognise that that may be explicable by, for example, evidence of his personal wealth which is not presently before the Court.
I again repeat that I do not reach any final conclusions as to any of these matters. ASIC also draws attention to the fact that at least Mr Iervasi has been a regular traveller, and there appears a reasonable possibility, given the amount of money involved in this matter, that he would have the resources to travel overseas in a manner that may prejudice ASIC's inquiries and any recovery proceedings which may ultimately be brought, depending upon the outcome of those inquiries.
In the first instance, ASIC seeks interim relief under ss 1101B, 1323 or 1324 of the Corporations Act. It is not necessary to deal with those sections at length, although it is clear that they, and the Court's inherent jurisdiction, would support the relief that is sought in an appropriate case. Section 1101B of the Corporations Act allows the Court to make orders, on ASIC's application, where it appears there has been a contravention of Chapter 7 of the Corporations Act in relation to dealing in financial products or providing financial services. It seems to me that such a contravention is at least seriously arguable, so far as the dealing activities to which I have been referred are established, and so far as there is a serious question whether the entities are licensed to conduct those activities. Section 1323 of the Corporations Act in turn allows the Court to prohibit payments or transfers of moneys, financial products or other property in an appropriate case, and includes power for the Court to make an interim order in an appropriate case, without requiring an undertaking as to damages. I have regard to the authorities that make clear that, in dealing with an application under this section, the Court will have regard to the statutory purpose of the section, including the particular role occupied by the ASIC in respect of the supervision of financial markets and their integrity and the protection of investors in such markets. Where the Court has power, under that section, to appoint a receiver, it also has power to make lesser orders, in an appropriate case.
The Court also has power to make interim orders by way of interim injunction under s 1324, in respect of a contravention of the Act. The orders the court may make under these sections extend, in an appropriate case, to travel restriction orders, either where that will be necessary to secure the efficacy of ASIC's investigation, or to secure the prospects of relief in proceedings that may be brought. I am conscious of the level of intrusion upon personal autonomy that is involved in the making of such orders, but I equally recognise that such orders can, and should, be made in an appropriate case. In the present case, it seems to me that the nature of ASIC's concerns, the substantial amounts involved in the transactions, and the evidence of frequent travel, in the past, by Mr Iervasi is sufficient to indicate that there is a risk that Mr Iervasi may not remain in the jurisdiction while the period of the investigation continues. In making that observation, I do not reach any view that that would in any way be improper, absent any orders made by the Court in that regard.
Having regard to the matters which I have indicated, but again indicating that those matters reflect an ex parte application, and may be qualified or displaced by further evidence led by the defendants in due course, I am satisfied that the case has been established for the making of ex parte orders, including for short service, and for asset preservation orders and travel restraint orders in respect of Mr Iervasi. I am also satisfied that an order should be made, as ASIC seeks, restraining the conduct of a financial services business, to the extent that the relevant entities are not licensed to conduct such business.
I raised, in the course of submissions, one concern, which has been addressed by ASIC. It seems to me that, on the hypothesis that the entities are in fact conducting foreign currency and commodities trading, whether on a large scale or on a smaller scale, there is a real risk that open positions exist. Even if those entities are unlicensed, as appears to be the case, such positions may require active management to allow their closure in an orderly way, rather than generating further losses for investors. In those circumstances, it seems to me that it is preferable that, at least in respect of the two operating entities, the First and Second Defendants, the matter be brought before the Court at the earliest opportunity, so those entities have an opportunity to identify, at that point, any difficulties which may arise from any such open positions. Those difficulties may possibly be addressed, if the need arises, by appointment of a special purpose receiver to deal with any open positions. It seems to me that the orders which are made should be amended to make the proceedings returnable next Monday, 24 April 2017, at least to allow the opportunity for those entities to indicate any issues in that regard. If those entities had not then had the opportunity to absorb the material, and require further time to do so, that can readily be accommodated.
I make orders in accordance with the Short Minutes of Order initialled by me, amending order 2 to insert in line 2 after the words "abridged to" the additional words "5pm on Saturday, 22 April 2017 in respect of the first and second defendants and to" and amending order 5, in line 2, to read "2pm on Monday, 24 April 2017 in respect of the first and second defendants and such other defendants who have been served or wish to appear and at 2pm on Monday, 1 May 2017 before Black J in respect of all defendants".
[3]
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Decision last updated: 30 April 2017