Australian Securities and Investments Commission v Infomercial Management Group Pty Ltd
[2002] VSC 262
•28 June 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 5009 of 2000
In the Matter of the 1998 Infomercial Investment Scheme, Infomercial Management Group Pty Ltd (ACN 073 859 579) & Ors pursuant to the attached Schedule.
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| INFOMERCIAL MANAGEMENT GROUP PTY LTD (ACN 073 859 579) AND ORS | Defendants |
---
No. 5010 of 2000
In the Matter of the 1997 Infomercial Investment Scheme, Infomercial Management Group Pty Ltd (ACN 073 859 579) & Ors pursuant to the attached Schedule.
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| INFOMERCIAL MANAGEMENT GROUP PTY LTD (ACN 073 859 579) AND ORS | Defendants |
JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 27 and 28 May 2002 | |
DATE OF JUDGMENT: | 28 June 2002 | |
CASE MAY BE CITED AS: | ASIC v Infomercial Management Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 262 | |
---
Corporations – “prescribed interest” – “securities” – promotion of investment scheme – misleading and deceptive conduct – declarations of breaches of the Law – winding up of companies involved in the scheme – injunction.
Corporations Law ss.1064, 1065, 1018, 780, 461.
---
APPEARANCES: | Counsel | Solicitors | ||
| For the Plaintiff | Mr J. Beach QC and Mr D. Star | Australian Securities and Investments Commission | ||
| No Appearance for the Defendants | ||||
HIS HONOUR:
By originating motion filed on 11 April 2000 the Australian Securities and Investments Commission (“ASIC”) sued two persons and seven companies who were involved in a scheme or schemes for the manufacturer and distribution of Infomercials in the United States of America. An infomercial is a short fact-based commercial programme for broadcast on television which is intended to generate telemarket sales to the viewing public of a defined consumer product.
In broad terms, the potential investors were invited to contribute sums of money to these projects as a speculative investment with the expectation of earning a profit. An incidental, but by no means unimportant, by-product of this investment was that investors expected to derive a significant tax deduction in the year of investment.
ASIC alleges that the defendants or some of them are in breach of various provisions of the Corporations Law (“the Law”) as it stood at the relevant time with respect to the marketing of prescribed interests and were guilty of misleading and deceptive conduct in marketing the scheme or schemes. It seeks declaratory relief to this effect, injunctive relief to prevent further breaches and orders winding up the corporate defendants.
These proceedings are concerned with the scheme or schemes for which investments were obtained in two financial years: Proceeding No. 5010 of 2000 for the scheme or schemes for the year ending 30 June 1997 (“the 1997 schemes”), and Proceeding No. 5009 of 2000 for the scheme or schemes for the year ending 30 June 1998 (“the 1998 schemes”). In fact these were not the first years in which these schemes were operated. According to Alan Douglas Burlock who was involved in their creation, promotion and implementation, the idea dated from late 1995 when the thirdnamed defendant, Peter Leslie Ambrosy, outlined them to him at a series of meetings. In May 1996 Mr Ambrosy told him that the schemes were sufficiently developed that he, Ambrosy, could proceed to seek investors. It was agreed between them that they and one Peter Bawtree Lucas would act as joint venturers with Mr Ambrosy assuming responsibility for raising capital, Mr Lucas making the infomercials in the United States and Mr Burlock assuming responsibility for their roll-out. And this is how it came to pass.
In June 1996 Mr Burlock acquired a shelf company which became the firstnamed defendant Infomercial Management Group Pty Ltd (“IMG”), which was to act as project manager for each of the schemes. For the production and marketing of the infomercials, Mr Burlock purchased another shelf company which in June 1996 became ICM‑International Communications & Marketing Pty Ltd (“ICM Aust”).
The Schemes
The 1997 Schemes
In the year ending 30 June 1996 four projects were undertaken. In the following year 1996-7 there were in all 24 projects for which investors contributed an aggregate of $12,168,065. As presented in the explanatory memorandum, the scheme or schemes were as follows. Each project for an infomercial was to be funded by payments totalling $4,362,268. There were to be two sources of these funds:
(a)investors who were to provide in the aggregate $910,064, representing 95% of what was called ordinary project capital; and
(b)the project manager who was to provide $3,452,204 of which $47,898 represented the remaining 5% of the ordinary project capital and a further $3,404,306 which was called preferred project capital.
The vehicle for the implementation of the project was to be an unincorporated joint venture between a project manager and each of the investors or, in the case of two projects, by a partnership between them. The execution of the project was to be the task of the project manager. There is in evidence a joint venture agreement with respect to the project “The Pump” dated 1 May 1997 and a partnership agreement for the project “Empower your Life” dated 17 June 1997. These were in standard forms which were adopted for all projects in that year. The project manager for 20 of the projects in this year was IMG; of the remaining four projects, three had each a different project manager: the sixthnamed defendant, Capeway Pty Ltd; the seventhnamed defendant, Hawksbury Pty Ltd; and the ninthnamed defendant, Olivebank Pty Ltd. The identity of the project manager of the last project was not disclosed by the evidence.
In the case of each project, the project capital of $4,362,268 was to be applied by payment of $7,895 to the licensor of the product pursuant to a licensing agreement, and $4,354,373 to ICM Aust pursuant to a marketing agreement for the production and marketing of the Infomercial and for the administration and management of the project. Clause 3.3 of the Explanatory Memorandum emphasises the fact that the project manager’s contribution of $3,404,306 would be paid only for the balance of the budget and that it would be paid to or at the direction of ICM Aust.
The profit after rollout to be earned from the exploitation of the licence was to be applied as follows. From one half of the product net income, the project manager would receive its preferred capital contribution of $3,404,306. From the balance, the profits and losses were to be shared by the project manager and the investors in the proportions of their respect contributions to ordinary project capital, namely 5 percent: 95 percent.
The scheme also offered to investors the prospect of a tax deduction equal to 4.5 times their investment contribution. This was because all of the expenses of each of the projects was paid in advance in the tax year 1997 and no income was earned in that year. This, it was thought, meant that the project suffered a trading loss in the tax year Putting to one side the $7,895 licence fee which was treated as capital, this loss was $4,354,373, which loss was to be borne by the joint venturers or partners in proportion to their contribution to ordinary project capital. The share of the investors was 95%, representing $4,136,654, or about 4.5 times their aggregate investment of $910,064.
The 1998 Schemes
In the year 1997-8 there were in all 48 projects for which investors contributed an aggregate of $16,693,170. As presented in the explanatory memorandum, the scheme or schemes were as follows. Each project for an infomercial was to be funded by payments totalling $5,505,375. There were to be two sources of these funds:
(a)investors who were to provide in the aggregate $1,150,000, representing 95% of what was called ordinary project capital; and
(b)the project manager who was to provide $4,355,375 of which $60,375 represented the remaining 5% of the ordinary project capital and a further $4,295,000 which was called preferred project capital.
The vehicle for the implementation of the project was to be an unincorporated joint venture between a project manager and each of the investors or, in the case of nineteen projects, by a partnership between them. The execution of the project was to be the task of the project manager. There is in evidence a joint venture agreement with respect to the project: “Arthritis: A Natural Approach” dated 4 May 1998, and a partnership agreement for the project “Six Day Bio Diet” and others dated 30 June 1998. These were in standard form adopted for all projects in that year. The project manager for 23 of the projects in this year was IMG; the remaining 25 projects had as project manager the fifthnamed defendant, Bellemore Pty Ltd (six projects); the sixthnamed defendant, Capeway Pty Ltd (five projects); the seventhnamed defendant, Hawksbury Pty Ltd (eight projects); and the ninthnamed defendant, Olivebank Pty Ltd (three projects). The project manager for the remaining three projects was not disclosed by the evidence.
In the case of each project, the project capital of $5,505,375 was to be applied as to $7,895 by payment of this sum to the licensor of the product pursuant to a licensing agreement, and $5,497,480 to ICM Aust pursuant to a marketing agreement for the production and marketing of the Infomercial and administration and management of the project. Clause 3.3 of the Explanatory Memorandum emphasises the fact that the project manager’s contribution of $4,355,375 would be paid only for the balance of the budget and that it would be paid to or at the direction of ICM Aust.
The profit after rollout to be earned from the exploitation of the licence was to be applied as follows. From one half of the product net income, the project manager would receive its preferred capital contribution of $4,295,000. From the balance, the profits and losses were to be shared by the project manager and the investors in the proportions of their respect contributions to ordinary project capital, namely 5 percent: 95 percent.
The scheme also offered to investors the prospect of a tax deduction equal to 4.5 times their investment contribution. This was because all of the expenses of each of the projects was paid in advance in the tax year 1998 and no income was earned in that year. This, it was thought, meant that the project suffered a trading loss in the tax year. Putting to one side the $7,895 licence fee which was treated as capital, this loss was $5,497,480, which loss was to be borne by the joint venturers or partners in proportion to their contribution to ordinary project capital. The share of the investors was 95%, representing $5,222,606, or about 4.5 times their aggregate investment of $1,150,000.
The Proceedings
The allegations and claims of ASIC in respect of the 1989 music schemes are contained in its amended points of claim filed on 22 December 2000 (“the points of claim”). The defendants were identical; the applicable legislation was the same; the two proceedings, as well as Proceeding No.5008 of 2000, were heard together. It is therefore convenient to deal with them together in this common judgment.
In its points of claim, ASIC alleges that the interests which the investors acquired in these projects were “prescribed interests” and “participation interests” and “securities” within the meaning of those terms as defined in s. 9 of the Law and that their promotion was a contravention of ss. 1064, 1065 and 1018. Before I turn to these allegations, it is necessary that I make some preliminary procedural observations.
The claim against the eighthnamed defendant, Kingsmere Lane Pty Ltd has been discontinued. The fourthnamed defendant, Donald Stuart MacGregor, has not entered an appearance and has taken no part in the proceedings.
The remaining defendants, whom I shall refer to simply as “the active defendants”, have defended the proceedings throughout their interlocutory stages. On 29 April 2002, some days before the trial was originally fixed to commence before me, the solicitors for all of these sought and obtained leave to withdraw as practitioner for those parties. The parties did not appear at trial. At this time, too, I directed that notice be given to the individual investors so that they may consider whether they should seek to participate at the trial or otherwise take steps to protect their interests. This was done. Eventually, none sought to do so. The trial, therefore, proceeded as an undefended matter.
The trial was conducted upon affidavit. All of the affidavits filed by ASIC were taken as read. As an undefended matter, no deponent was called to be cross-examined. During the interlocutory stages, the active defendants filed defences and affidavits. By order of Mandie J on 23 June 2000, Mr Ambrosy was permitted to give evidence in chief orally and did not make and file an affidavit. Upon my enquiry whether I should have regard to the affidavits and pleadings filed on behalf of the absent active defendants, counsel for ASIC informed me that, as a regulator, their client considered it proper that I should have regard to them and I have done so.
This said, it should be noted that the court books for these proceedings and for associated proceeding No 5008 of 2000 numbered nearly 80 volumes. Counsel for ASIC in presenting its case appeared to take me to those parts of this mass of material which were important and I have been content, in general, to be lead by them through it.
The Participants
It is convenient at this stage to introduce the principal participants in the 1997 and 1998 schemes.
Peter Leslie Ambrosy
Mr Ambrosy is a qualified lawyer who was in the years relevant for my purposes no longer practising as a solicitor. It was he who devised the scheme in conjunction with a solicitor, Warwick Mowbray. At all relevant times he was a director and secretary of IMG and its subsidiaries, Bellemore, Capeway, Hawksbury and Olivebank, who were the project managers for the 1997 and 1998 schemes.
Donald Stuart MacGregor
Mr MacGregor was the director of Berimah until 6 October 1997. On 15 October 1997 a four year disqualification order pursuant to s. 600 of the Law became effective. The evidence shows that he and Mr Ambrosy actively promoted and marketed the infomercial schemes in 1996, 1997 and 1998 schemes. I infer, too, that notwithstanding his disqualification, he continued in the management of Berimah in 1998.
Bellemore
According to the company search conducted on 30 April 2002, this company was incorporated on 17 June 1997 on which date Mr Ambrosy was appointed sole director and secretary. He remained so until his resignation from these offices on 5 April 2002. There is now no director or secretary of the company. Its single share was and is held beneficially by IMG. It was incorporated for the sole purpose of acting as project manager for the schemes.
It is alleged in paragraph 6 of the points of claim that Bellemore Pty Ltd was a project manager for some of the partnerships or joint ventures for the 1997 schemes. This is denied in the defence of that defendant. The evidence does not support this allegation and I do not find that Bellemore was project manager for any of these schemes. It was, however, shown to be project manager for six of the 1998 schemes.
Berimah
According to the company search conducted on 30 April 2002, the secondnamed defendant, Berimah International Pty Ltd, was registered in January 1980. Its directors at all relevant times were the fourthnamed defendant, Donald Stuart MacGregor to 6 October 1997, James Stuart MacGregor to 24 June 1997 and Malcolm Stephen Christie from 6 October 1997. Berimah promoted the 1997 schemes and the 1998 schemes and received funds for these schemes totalling $13,128,142.07 and $17,249,205 respectively.
Capeway
According to the company search conducted on 30 April 2002, this company was incorporated on 26 June 1997 on which date Mr Ambrosy was appointed sole director and secretary. He remained so until his resignation on 5 April 2002. There is now no director or secretary of the company. Its single share was and is held beneficially by IMG. It was incorporated for the sole purpose of acting as project manager for the schemes and so acted for one of the 1997 schemes and five of the 1998 schemes.
Hawksbury
According to the company search conducted on 30 April 2002, this company was incorporated on 17 June 1997 on which date Mr Ambrosy was appointed sole director and secretary. He remained so until his resignation on 5 April 2002. There is now no director or secretary of the company. Its single share was and is held beneficially by IMG. It was incorporated for the sole purpose of acting as project manager for the schemes and so acted for one of the 1997 schemes and eight of the 1998 schemes.
ICM – Aust
According to the company search conducted on 30 April 2002, ICM-International Communications & Marketing Pty Ltd was incorporated on 3 May 1996. Its directors from that time were Mr Lucas from 17 May 1996 to 15 March 1999, Mr Burlock from 29 January 1998 to 7 September 1998 and Mr Ambrosy from 15 March 1999 upon which date he also became its company secretary, replacing Mr Lucas.
IMG
According to the company search conducted on 30 April 2002, this company was incorporated on 3 May 1996 and changed its name to IMG on 20 June of that year. On 17 May 1996 Mr Ambrosy and Mr Burlock became its directors and Mr Ambrosy its secretary. On 27 January 1998 Mr Burlock ceased to be a director and on 5 April 2002 Mr Ambrosy too relinquished his offices as director and secretary. These offices are presently vacant. Mr Ambrosy continues to hold its two issued shares.
Olivebank
According to the company search conducted on 30 April 2002, this company was incorporated on 18 June 1997. Mr Ambrosy was appointed sole director and secretary on 26 June 1997 and remained so until his resignation on 5 April 2002. There is now no director or secretary of the company. Its single share was and is held beneficially by IMG. It was incorporated for the sole purpose of acting as project manager for the schemes and so acted for one of the 1997 schemes and three of the 1998 schemes.
Prescribed Interests
Central to the case of ASIC was that the scheme for each of the projects or, if it be one scheme for all, that scheme, involved the acquisition by the investor of a prescribed interest. The importance of this concept lies in the fact that both ss. 1064(1) and 1065(1) prohibit certain dealings with a prescribed interest and s. 1018 prohibits certain dealings with securities which are, in s. 92(1), defined to include prescribed interests. The allegation that the promotion of the schemes involve a prohibited dealing in a prescribed interest is put in issue in the defences of the active defendants[1].
[1]Points of Claim para. 17; Defences 17.
It is necessary, then, that I plunge into the complicated definition structure of the Law. For my present purposes “prescribed interest” is defined in s. 9 as meaning:
“(a) a participation interest; or
(b) …
(c)a right or interest, or a right or interest included in a class or kind of rights or interests, declared by the regulations to be an exempt right or interest, or a class or kind of exempt rights or interests, for the purposes of Chapter 7;…”
Exempt rights or interests referred to in paragraph (c) were identified by declaration made in Reg 7.12.04. Again, I quote only that part which bears upon this case:
“(b)rights or interests in a joint venture agreement or a proposed joint venture agreement:
(i)that relates to a scheme of a kind commonly known as a joint venture; and
(ii)any promoter of which is or will be a party to the agreement; and
(iii)that does not relate to a scheme promoted by or on behalf of a person, or an associate of a person, whose ordinary business is or includes the promotion of similar schemes; and
(iv)except in the case of an agreement that has been entered into when this provision commences, that provides, or will provide, for no more than 15 parties;”
It will be recalled that all of the 1997 projects except two, and 29 of the 1998 projects were conducted by joint venture. The defences of IMG and Mr Ambrosy rely upon this regulation as taking the joint ventures out of the definition.
Under the regulation, the joint venture must have four characteristics. I am satisfied that each of the joint ventures presently under consideration satisfies the first and fourth requirement. With respect to paragraph (ii), the only person, apart from the investors, who is a party to the joint venture agreements is the project manager. “Promoter” is not defined in the law in this context, so I am thrown back on its ordinary meaning: a person who sets up the joint venture and markets it to the investors[2]. In the present case it is clear that Mr Ambrosy and Mr MacGregor were promoters of the schemes in this sense. The joint ventures, therefore, do not satisfy the second requirement.
[2]See Tracy v Mandalay Pty Ltd (1953) 88 CLR 215 at 241-2, per Dixon CJ, Williams and Taylor JJ.
Furthermore, they do not satisfy the third requirement. It is clear that the individual schemes were promoted by or on behalf of Mr Ambrosy and Mr MacGregor. Moreover, each of them is an associate[3] of the other and of the project manager. The evidence shows that, if each of the projects is to be seen as an individual scheme, as I think is correct, the ordinary business of these two men in the context of each scheme included the promotion of similar schemes, namely the schemes established for the other projects.
[3]See definition s. 9 and Part 1.2., Division 2.
If, on the other hand, the projects for the year 1997 are to be seen as a composite scheme, I am satisfied that the ordinary business of the two men included the promotion of a similar scheme or schemes in 1996 and it included doing so in subsequent years. A further consequence of this composite scheme analysis is that the joint venture, understood in this way, had more than 15 members so that it would not satisfy the fourth requirement. However it is viewed, the 1997 scheme or schemes does or do not concern exempt rights or interests.
I return, then, to the definition of prescribed interest. It means a participation interest which is itself defined in s. 9 as meaning:
“any right to participate, or any interest:
(a)in any profits, assets or realisation of any financial or business undertaking or scheme whether in Australia or elsewhere;
(b)in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or
(c)in any investment contract;
whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset,…”
Pausing at this point, the rights of the investors in each of the projects fall within this definition. The definition then goes on to exclude a number of interests of which paragraph (g)(i) relating to partnerships is relied upon by IMG and Mr Ambrosy in their defences. It is in these terms:
“(g)an interest in a partnership agreement, unless the agreement or proposed agreement:
(i)relates to an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts, whether or not that person is, or is to become, a party to the agreement or proposed agreement; or…”
Some of the projects in each year were established under a partnership between each of the investors and the project manager. These, however, fail to satisfy exclusion (g) because each of them relates to a scheme promoted by or on behalf of a person “whose ordinary business is or includes the promotion of similar undertakings, schemes…” For the reasons already expressed, each of Mr Ambrosy and Mr MacGregor is such a person.
I conclude, therefore, that each of the schemes established to conduct an infomercial project in 1997 and in 1998 involves a prescribed interest. For this reason they concern securities[4].
[4]Section 92(2).
Breaches of the Law
The provisions of the Law which are said to have been contravened are ss. 1064(1), 1065(1), 1018(1) and 780. Section 1064(1) is in these terms:
“1064(1)A person, other than a public corporation, must not make available, offer for subscription or purchase, or issue an invitation to subscribe for or buy, any prescribed interest.”
Given my conclusions that the schemes involved a prescribed interest and the evident fact that neither Mr Ambrosy nor Mr MacGregor nor IMG was a public corporation, the only question remaining is whether those persons made available, offered for subscription or purchase, or issued an invitation to subscribe for or buy those interests. On the evidence before me it is plain that each of them did these things. They produced an explanatory memorandum for would-be investors and actively marketed the schemes to them directly or through their accountants or financial advisers. The contraventions of s. 1064(1) have been established.
Section 1065(1) is in these terms:
“1065(1)A person shall not issue, offer for subscription or purchase, or issue invitations to subscribe for or buy, any prescribed interest unless, at the time of the issue, offer or invitation, there is in force, in relation to the interest, a deed for the purposes of this Division or a corresponding law that is an approved deed.”
Again, given my conclusions and the fact that there was no approved deed in existence at the time that each of the schemes was marketed, these contraventions likewise have been established.
Section 1018(1) is in these terms:
“1018(1)A person shall not offer for subscription, or issue invitations to subscribe for, securities of a corporation unless:
(a)a prospectus in relation to the securities has been lodged;
(b)the prospectus complies with the requirements of this Division; and
(c)if the prospectus is a registrable prospectus – the prospectus has been registered by the Commission under section 1020A.”
Again, given my conclusion that the interests involved in the schemes were securities and the fact that no prospectus had been lodged or registered, this contravention has been established in respect of each of the schemes.
Section 780 is in these terms:
“780 A person must not:
(a) carry on a securities business; or
(b) hold out that the person carries on a securities business;
unless the person holds a dealers licence or is an exempt dealer.”
In s. 93(1) it is provided that a securities business is a business of dealing in securities. I have concluded that the interests in the 1997 schemes and the 1998 schemes offered to investors are securities. The promotion and marketing of the schemes falls within paragraph (b) of the definition of dealing in s. 9. The evidence shows that neither Mr Ambrosy nor Mr MacGregor was at any relevant time the holder of a dealer’s licence nor an exempt dealer.
The allegation of ASIC contained in paragraph 33 of its points of claim that Mr Ambrosy and Mr MacGregor contravened s. 780 is established.
Misleading and deceptive conduct
Next, ASIC alleges in paragraphs 26A and 26B of its points of claim that each of the defendants other than Kingsmere engaged in conduct that was misleading and deceptive or was likely to mislead or deceive in their promotion and implementation of the schemes, contrary to s. 995 of the Law and, in the case of the corporate defendants, contrary to s. 52 of the Trade Practices Act 1974. The terms of this s. 995 follow those of the familiar s. 52 and I shall not set them out. In this case, the conduct relied upon was representations made to investors in the explanatory memorandum as to the operations of the schemes in the future. There is in s. 765 of the Law a provision with respect to representations as to future matters which follows s. 51A of the Trade Practices Act. This means that there lies on the representor as to future matters the burden of providing evidence that they had reasonable grounds for making the representation. This, I need hardly add, is a provision of some significance in an undefended case.
It is put that the representations were made by each of the active defendants and Mr MacGregor. It is clear that Mr Ambrosy and Mr MacGregor used the explanatory memorandum to attract investors in 1997 and 1998 and that Berimah was used as the vehicle of Mr MacGregor for the purpose. The remaining corporate active defendants were the project managers. Their involvement as such was with the implementation of the schemes rather than with their promotion to the investors. I am, for this reason, unable to conclude that these companies made the representations relied on as constituting the misleading and deceptive conduct.
The representations relied on were contained in a standard form explanatory memorandum prepared as part of the promotion of the 1997 scheme and the 1998 scheme and distributed to likely investors or to their accountants and financial advisors. There were five in number and I shall deal with each of them in turn.
(a)The project manager would provide 95 percent of the venture capital for each scheme. This was in fact not done. Putting to one side the defendants’ burden of proof to which I have referred, there is evidence, which I accept, that the promoters did not at the time have the resources or the expectation of having the resources to fulfil this representation. The first representation was misleading and deceptive.
(b)The project manager would in the case of each scheme provide the preferred project capital. For the same reason this representation was misleading and deceptive.
(c)The project manager would in the case of each scheme provide 5% of the ordinary project capital. For the same reason this representation was misleading and deceptive.
(d)The venture capital for each scheme would be paid to ICM “for an Approved Marketing and Media Plan which includes provision for product evaluation and refinement, testing, a tailored distribution system and initial project administration service fee”. The evidence shows that no more than a sum representing approximately 10 percent of this amount and less than 50 percent of the investors ordinary capital was ever applied in the furtherance of the scheme. The balance of the investors ordinary capital contributions appears to have been sent offshore to companies associated with Mr Ambrosy or Mr MacGregor. The evidence shows that Mr Ambrosy, as the moving spirit behind the schemes, and the other active defendants and Mr MacGregor had no intention of fulfilling this representation. This representation was misleading and deceptive.
(e)IMG would be the project manager for each joint venture or partnership. The evidence shows that it did assume that sole for three out of the 24 schemes. It is not clear why it was not project manager of the remaining schemes. I make no finding that Mr Ambrosy or the other active defendants or Mr MacGregor had no grounds for making this representation. The statutory presumption, however, leads to the conclusion that this representation, too, was misleading and deceptive.
Unlawful implementation of the Schemes
Next, and associated with this, ASIC alleges in paragraph 28 of its points of claim that the defendants other than Kingsmere implemented the schemes unlawfully in that they applied or disbursed the investors’ money through various foreign corporations and offshore banking entities otherwise than in the manner promoted in the explanatory memorandum or agreed to by the investors.
The evidence offered in support of this allegation was very complicated. In support of the active defendants’ defence that they were not guilty of the alleged conduct, an affidavit was sworn by Walter William Strauss on 14 February 2001. Mr Strauss was the solicitor for the active defendants other than Berimah. In this affidavit Mr Strauss merely exhibits a large volume of accounting and other records of his clients with respect to the schemes. These documents were subjected to an analysis by Kevin William Neville, an accountant retained by ASIC. In his affidavit sworn 2 May 2001 Mr Neville concludes that, from an accounting point of view, the Strauss documents are insufficient to confirm:
¨ that payments by the investors of their share of the ordinary project capital were received in the bank account of the project manager; and
¨ the payments by the project manager of its 5% of ordinary project capital and its preferred project capital were made in the manner set out in the Explanatory Memorandum.
An examination of the accounting records was carried out by Kon Anastasios Tsiakis, a senior investigation officer with ASIC. In paragraph 61-76 of his affidavit sworn 10 April 2000 Mr Tsiakis sets out the results of his investigations of the money trail supported by these records. I will not burden this judgment with an extensive account of his conclusions. Relevant for my purposes are the following conclusions which I accept –
(1)The investors’ contributions were paid not to the project manager but to Berimah. Most of the contributions for all but one of the projects have been reconciled.
(2)None of the project manager’s ordinary or preferred capital contributions was paid into the Berimah account.
Mr Burlock deposed that of the 24 projects for which investors’ money was received in 1997, only 15 projects were undertaken and, for these projects, for which $4,354,373 per project was to be paid by the project manager, the project manager paid only $400,000 for each of 14 projects and $10,000 for the remaining project.
With respect to the forty-eight 1998 schemes, ASIC has particulars of 45 projects only. The bank records show that $17,249,205.34 was deposited in the Berimah account with respect to these projects. The investigations conducted by Mr Tsiakis show that this sum represents the deposits of the investors. No money was deposited by the project managers. The investors’ money was dispersed to various companies including $14.8M to bank accounts in Hong Kong and Israel. None of the payees was ICM Australia, the company mentioned in the explanatory memorandum as the marketing company and the company to which the funds ought to have been paid. No funds were provided for the production of the infomercials other than a $654,000 up‑front fee to Mr Burlock and Mr Lucas. No preferred capital was made available for the production or marketing of the infomercials under the 1998 schemes. Both Mr Burlock and Mr Lucas verified that none of the preferred project capital to be raised by the project manager was ever used or made available for the production or marketing of any of the infomercials. Mr Burlock was unable to say whether any of this preferred capital ever existed, adding, “To the best of my knowledge the only purpose served by the preferred capital was to attract investors by offering them the means by which they could magnify their tax claims”. In short, the scheme in each case was a fraud on the investors, if not on the Australian Tax Office.
Relief
In Part VI of its points of claim, ASIC seeks in paragraph 1 declarations that the defendants other than Kingsmere have contravened ss. 1018, 1064 and 1065 of the Law and that Mr Ambrosy and Mr MacGregor have contravened s. 780 of the Law. These contraventions have been established. I will make the declarations sought, but not against Bellemore in respect of the 1997 schemes.
Further declaratory relief is sought in paragraphs 5A, 5B and 6 of Part VI relating to the misleading and deceptive conduct which I have found to have been committed by the defendants excepting Kingsmere. I will make these declarations, but only against Mr Ambrosy, Mr MacGregor and Berimah.
In paragraph 4 of Part VI, ASIC seeks a winding up order against each of the corporate defendants other than Kingsmere pursuant to s. 461(1) of the Law. This is, in my view, clearly a case for winding up companies which have been involved in the delinquent conduct which I have found to be associated with the establishment, promotion and implementation of these fraudulent schemes. There is in this case the further consideration that a liquidator will have the power to pursue the assets of the scheme insofar as they may be recoverable and may be repayable to investors. Whether these powers will or should be exercised will be a matter for the decision of the liquidator. Finally, since Mr Ambrosy has resigned from the offices of director and secretary of these companies, they are for practical purposes incapable of action. This is undesirable. Accordingly, winding up orders will be made.
ASIC seeks, too, in paragraph 2(a), injunctive relief against the defendants other than Kingsmere in effect restraining them from promoting any scheme similar to the 1997 schemes or the 1998 schemes. Again, Bellemore must be exempted from this relief with respect to the 1999 schemes.
I must confess to having some difficulty with this part of the ASIC case. I have determined to make orders winding up the corporate defendants against which this injunctive relief might go. There seems, therefore, little utility in granting this injunctive relief. It can hardly be supposed that, when in liquidation, these companies will offend again or that they will do so if they are released from liquidation into the direction of persons other than Mr Ambrosy or Mr MacGregor.
With respect to these injunctions sought against Mr Ambrosy and Mr MacGregor, the difficulty lies in formulating their terms with sufficient particularity to render them enforceable. If, perchance, they might be inclined to promote some new scheme it is unlikely that it will closely resemble those the subject of this proceeding. The relief sought in terms of paragraph 2(b) of Part VI is an injunction permanently restraining these men:
“… from carrying on a securities business including promoting or offering for sale interests of the type offered under the [1997 and 1998] schemes in contravention of section 780 of the Law.”
Again, it is difficult to see how this injunction might be enforced. I decline, therefore to grant this injunctive relief.
Next, in paragraph 3 of Part VI, ASIC seeks against the corporate defendants other than Kingsmere a series of injunctions restrictive and mandatory, directed to recovering for the investors their funds. This I would suppose would be the task to be undertaken by the liquidator if it is practicable. Accordingly, this relief will not be granted.
I will hear counsel further as to the terms of the orders to be made in each proceeding to give effect to these conclusions.
---
1
0