Sage v Australian Securities and Investments Commission

REASONS FOR JUDGMENT 1 The applicant has applied for an interlocutory injunction restraining the Australian Securities and Investments Commission ("the Commission") from conducting a hearing pursuant to s 920A of the Corporations Act 2001 (Cth) ("the Act") pending the determination of certain criminal proceedings which have been commenced against the applicant. 2 Section 920A of the Act provides: "(1) ASIC may make a banning order against a person, by giving written notice to the person, if: (a) ASIC suspends or cancels an Australian financial services licence held by the person; or (b) the person has not complied with their obligations under section 912A; or (ba) ASIC has reason to believe that the person will not comply with their obligations under section 912A; or (bb) the person becomes an insolvent under administration; or (c) the person is convicted of fraud; or (d) [repealed] (e) the person has not complied with a financial services law; or (f) ASIC has reason to believe that the person will not comply with a financial services law. (2) However, ASIC may only make a banning order against a person after giving the person an opportunity: (a) to appear, or be represented, at a hearing before ASIC that takes place in private; and (b) to make submissions to ASIC on the matter. (3) Subsection (2) does not apply in so far as ASIC's grounds for making the banning order are or include the following: (a) that the suspension or cancellation of the relevant licence took place under section 915B; (b) that the person has been convicted of serious fraud." 3 Section 920B of the Act provides: "(1) A banning order is a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities. (2) The order may prohibit the person against whom it is made from providing a financial service: (a) permanently; or (b) for a specified period, unless ASIC has reason to believe that the person is not of good fame or character. (3) A banning order may include a provision allowing the person against whom it was made, subject to any specified conditions: (a) to do specified acts; or (b) to do specified acts in specified circumstances; that the order would otherwise prohibit them from doing." 4 The application before the Court arises in the following circumstances. It appears that the applicant through a number of companies of which he is the sole director and sole shareholder has been engaged in the development and sale of real property and, in particular, residential units. I say "it appears" because the factual background to the proceeding was not the subject of direct evidence and I have pieced part of it together from statements found in the Commission's notice of hearing. I am not making any factual findings in relation to this background and I only set it out to provide a context for the application and the reasons which follow. 5 It appears that the applicant was involved in the development and sale of residential apartments at a property situated at 582 St Kilda Road. It appears to be alleged by the Commission that this development was not particularly successful and that an administrator was appointed to the development company. It also appears that the Commission alleges that the applicant through other companies, of which he was the sole director and sole shareholder, undertook further property developments at 737 Burwood Road, Hawthorn and 443 Upper Heidelberg Road, Heidelberg and that the applicant sought investors to invest in those projects. It appears to be alleged that the applicant made false or misleading representations to the investors in these later projects in relation to the structure of the investment relationships in the development at 582 St Kilda Road and in relation to the extent of the return to the investors in that project. 6 On or about 22 April 2005 a number of charges were laid against the applicant charging him with offences under the Act (the "Criminal Charges"). In short, some of the charges related to contraventions of s 999 of the Act in relation to a number of statements that were alleged to be materially misleading and, speaking loosely, were likely to induce persons to invest in the developments to which I have referred. The other charges related to alleged contraventions of s 727 of the Act with respect to making offers of shares without the required disclosure statements, and also alleged contraventions of ss 1041E and 184(2)(a) of the Act. In total, twenty indictable charges were laid. 7 It was agreed between the Director of Public Prosecutions and the applicant's solicitors that the Criminal Charges were appropriate for the Complex Fraud Committal List. A committal mention is scheduled towards the end of August 2005 when a date for what is expected to be a four day committal hearing will be set. 8 On 6 June 2005 the applicant received from the Commission a notice of hearing under s 920A(2) of the Act. 9 The notice of hearing was from Mr Graeme Plath, a delegate of the Commission. In the letter it was stated that the Commission was concerned that: "A. You have not complied with a financial services law (paragraph 920A(1)(e) of the Corporations Act 2001 as in force after 11 March 2002 ('Act')); and B. ASIC may have reason to believe that you will not comply with a financial services law (paragraph 920A(1)(f) of the Act)." 10 The letter initially set aside Wednesday 29 June 2005 for a hearing pursuant to s 920A of the Act (the "banning order hearing"). The applicant was given the opportunity to give evidence or make submissions or both. The applicant was also informed that if he did not wish to appear at the banning order hearing he could nevertheless make a written submission which the delegate would take into account. The banning order hearing date has now been adjourned to Tuesday 2 August 2005. 11 In the letter the delegate set out the Commission's "areas of concern" and also set out a number of documents upon which the concerns were based. The concerns, in general terms, related to the development and financing of the projects at 582 St Kilda Road, 737 Burwood Road, Hawthorn and 443 Upper Heidelberg Road, Heidelberg, the circumstances in which persons came to be investors in those projects and the statements made, or information given, to them which were relied upon in relation to investments made in the projects. 12 The applicant contends that the notice received from the Commission and the matters and areas of concern referred to in it arise out of the same facts and circumstances as the Criminal Charges. This appears to be correct and was not seriously contested by the Commission. 13 The applicant has submitted that he will be prejudiced if the Commission proceeds with the banning order hearing by reason of: (a) a potential breach of his "right to silence" in the criminal proceeding; (b) potentially having to outline his evidence and witnesses and any defence prior to the testing of the strength of the prosecution case in the criminal proceeding; (c) a real potential of a miscarriage of justice; and (d) the burden of preparing for, and potentially appearing in, both proceedings concurrently. 14 He also contends that he will be prejudiced if a banning order is made pursuant to s 920A prior to the determination of the criminal proceeding by reason of: (a) the adverse finding that would be made against him in respect of any order being made; and (b) the adverse inference that will be drawn in the criminal proceeding. 15 In the application filed with the Court, which was supported by a statement of claim, the applicant sought a declaration that he not be required to appear at the banning order hearing or make submissions before it, and injunctive relief restraining the Commission from proceeding with the banning order hearing and making a banning order against him. He also sought a declaration that the Commission enter into enforceable undertakings with him in relation to s 920A of the Act. Apparently these enforceable undertakings related to a proposal by him that he undertake not to provide any "financial services" pending the determination of the criminal proceeding. 16 The applicant's statement of claim recites, in general terms, the laying of the Criminal Charges, the service of the notice pursuant to s 920A of the Act, his offer to give enforceable undertakings to the Commission which offer was rejected, and that to give evidence at the banning order hearing prior to the committal hearing would prejudice his defence of the Criminal Charges. 17 There are a number of misconceptions in the applicant's application and statement of claim. There is no basis upon which the Court could make an order or declaration requiring the Commission to enter into enforceable undertakings with the applicant in relation to s 920A. The applicant did not provide any jurisdictional basis upon which such an order might be made and, in my view, no such jurisdiction exists. 18 Further, the statement of claim appears to be premised upon the proposition that the banning order hearing is in the nature of a civil proceeding and that the Court should exercise its discretion and restrain the continuation of that proceeding. It is alleged in the statement of claim that at the banning order hearing the applicant would be required to give evidence, cross‑examine witnesses and produce documentary evidence in support of his defence of the order contemplated. This is not the case. The applicant cannot be compelled to give evidence or indeed to participate in the proceeding. It is a matter for him. Nevertheless, it is clear that if the applicant wishes to contest the making of the proposed banning order, he would need to attend the hearing or, at the least, make submissions. 19 The applicant's submissions proceeded primarily on the basis that because there were concurrent civil and criminal proceedings, the civil proceeding should be restrained by the Court because of the prejudice which would occur in relation to the presentation of his defence in the criminal proceeding. The applicant relied on two authorities in support of his submissions, Philippine Airlines v Goldair (Aust) Pty Ltd [1990] VR 385 and Australian Securities and Investments Commission v Kavanagh (1994) 13 ACSR 573. 20 The applicant's reliance on Australian Securities and Investments Commission v Kavanagh (supra) is misplaced. In particular he relied upon the passages in the judgment of Batt J referring to the proposition that one could not have a criminal proceeding and a civil proceeding being heard at the same time or even overlapping. The passages upon which the applicant relied upon related to the oppression brought about by the preparation and hearing of two proceedings almost at the one time. That is not the situation in the present circumstances. The banning order hearing is scheduled for Tuesday 2 August 2005 whereas the committal will not come on for hearing until much later in the year. 21 In Philippine Airlines v Goldair (Aust) Pty Ltd (supra), Young CJ set out a number of principles which his Honour considered a useful guide to the exercise of the court's discretion in determining an application for a stay of a civil proceeding. Although some of those principles may be of assistance, by way of analogy, I do not consider that the principles which apply to a stay of civil proceedings because of pending criminal proceedings are the correct principles to apply in the present circumstances. The procedure which has been commenced pursuant to s 920A of the Act is an administrative proceeding instituted by the Commission as part of its administrative functions under the Act. In such circumstances the relevant principles to consider are those which relate to whether administrative proceedings impinge upon pending court proceedings to such an extent that they may be considered as bringing about a potential contempt of court. 22 Even if the principles set out by Young CJ in Philippine Airlines v Goldair (Aust) Pty Ltd (supra) were applicable, none of those factors are relevant in the present circumstances. 23 As counsel for the Commission properly pointed out, the relevant principles to apply are those which are applicable to a court staying administrative proceedings. The relevant principles in this context were considered by the High Court in Hammond v Commonwealth of Australia (1982) 152 CLR 188. Gibbs CJ, with whom Mason and Murphy JJ agreed, said at 196: "The ground of the application for the injunction is that the further examination of the plaintiff, and the making of the report, would constitute a contempt of the County Court before which the criminal proceedings against the plaintiff are pending. To succeed in obtaining an injunction on that ground, the plaintiff must establish that there is a real risk, as opposed to a remote possibility, that justice will be interfered with if the Commission proceeds in accordance with its present intention. The tendency of the proposed actions to interfere with the course of justice must be a practical reality - a theoretical tendency is not enough. So much is recognized by the Builders Labourers' Case. The first question that arises is whether it would be an interference with the due administration of justice if the examination of the plaintiff were to proceed before the Commission. A witness appearing before the Commission is subject to the obligations imposed by s. 6 of the Royal Commissions Act 1902 (Cth) and s. 16 of the Evidence Act 1958 (Vict.)." 24 The relevant question to ask is whether the continuation of a hearing pursuant to s 920A would constitute a contempt of the court in which the criminal proceedings are pending. In Hammond v Commonwealth of Australia (supra), an injunction was granted, but there is a critical distinction between that case and the present circumstances before the Court. In Hammond v Commonwealth of Australia (supra) the applicant was compelled and obliged to answer questions by virtue of the provisions of the Royal Commissions Act 1902 (Cth) and the Evidence Act 1958 (Vic). It was an offence for the applicant not to answer the questions. In the present circumstances the applicant does not have to give evidence at the hearing if he does not wish to do so. 25 Although the statement of claim filed in the proceeding does not allege a cause of action against the Commission in that it is not alleged that there is any breach of the Act or any threat of a contravention of it, or that there would be a contempt of the criminal proceedings, I consider it appropriate to proceed on the basis, as discussed in Hammond v Commonwealth of Australia (supra) that it is necessary to inquire whether there will be a real risk that the administration of justice will be interfered with. In that context one focuses upon the criminal proceeding. As I have already noted the principles applicable to the restraint of civil proceedings when criminal proceedings are pending are a useful analogy and I have taken them into consideration. There is a helpful consideration and re-statement of them in the recent judgment of Mansfield J in Guglielmin v Trescowthick (No 3) [2005] FCA 139. 26 If the banning order hearing proceeds and the applicant participates in it, it is problematic as to the extent to which he will participate in it. The applicant can either give evidence, make submissions or perhaps even call for persons who have made written statements which will be before the delegate to be present for cross‑examination. In this context he may well have to present what will be seen as his defence to the criminal proceeding as an answer or response to the banning order proposal. However, he will not be compelled to give evidence or to participate in any way. It will not, inevitably, impinge upon the applicant's 'right to silence'. It will be a matter for him as to whether he presents any evidence at the banning order hearing. 27 The applicant also submitted that if he remained silent during the banning order hearing with the result that a banning order was made against him, an adverse inference would be drawn against him in the criminal proceeding. I consider this submission to be misconceived. Even if the applicant did remain silent and a banning order was made against him I cannot see any basis upon which the existence or content of the banning order could be admitted into evidence in the criminal proceeding or used against him. I do not consider that there is any basis upon which an adverse inference could be drawn from the banning order at the criminal proceeding whether by a judge or a jury. Even if evidence of a banning order was admissible in the criminal proceeding, I doubt that any probative value could be accorded to it, considering the manner in which the banning order hearing proceeds. 28 It is also important to note that the banning order hearing will be a private hearing. If the Commission makes a banning order it is obliged to give a statement of its reasons to the applicant pursuant to s 920F(1) of the Act, but that statement of reasons will not be made public. 29 In all these circumstances I do not consider that there will be a real danger of injustice in the criminal proceedings if the banning order hearing proceeds. 30 It is also relevant to consider the consequences of restraining the continuation of the banning order hearing. It would result in a considerable delay in determining whether a banning order should be made. If I were to grant a restraint, then there would also be a considerable period of time during which there would be no restraint upon the applicant in providing financial services. It is undesirable that there be a delay in the hearing and determination of administrative proceedings of this nature. When such a hearing is proposed it is desirable that it proceed to a conclusion expeditiously so all parties know where they stand on the issue. 31 The applicant responded to the proposition that there would be no restraint on him by offering an enforceable undertaking that he would not provide financial services pending the determination of the proceeding. The difficulty with that course is, as counsel for the Commission pointed out, that pursuant to s 922A(1) of the Act the Commission must establish registers relating to financial services, which would be open for public inspection. If a banning order is made, reg 7.6.06 of the Corporations Regulations 2001 requires details of the banning order to be placed on the register including the name of the person banned. The making of the banning order is then available as a public record. The register can be searched by persons, such as interested investors or their advisers, pursuant to s 922B(1) of the Act. If an injunction were to be granted, or an undertaking accepted by the Court, there would be no similar basis upon which the fact that the applicant had been restrained from providing financial services or had undertaken to the Court not to provide such services, would be readily searchable by the investing public. To that extent, accepting an undertaking from the applicant would not be an adequate alternative to a banning order if it were ultimately to be made by the Commission. 32 In all the circumstances I am not satisfied that a substantial injustice will occur if the banning order hearing proceeds and, if the delegate thinks appropriate, a banning order is made. 33 The application for interlocutory relief will be dismissed. I certify that the preceding thirty-two (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg.