Australian Securities and Investments Commission v Ocean Salvage Ltd

[1999] FCA 423

FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission v Ocean Salvage Ltd

[1999] FCA 423

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v OCEAN SALVAGE LTD

S 3005 OF 1999

MANSFIELD J
ADELAIDE
29 MARCH 1999

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 3005 OF 1999

BETWEEN:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant
AND:	OCEAN SALVAGE LTD Respondent

JUDGE:	MANSFIELD J
DATE:	29 MARCH 1999
PLACE:	ADELAIDE

REASONS FOR DECISION

HIS HONOUR:

1. On 5 March 1999, the day upon which this application generally was commenced, I made an interim order ex parte on the application of the applicant, restraining the respondents from applying the funds in two specified bank accounts until a certain date.  I have extended that order on an interim basis from time to time.  That order presently expires at 5.00 pm on 30 March 1999.

2. The matter was listed today for the hearing of the interlocutory application for those orders and for other orders against the respondents.  As between the applicant and the first respondent, arrangements have been agreed upon by virtue of which it is contemplated that the first respondent will provide certain undertakings to the applicant in writing to be filed with the Court, and which are in terms acceptable to the applicant, in lieu of pursuing the interlocutory relief specified in the notice of motion of 5 March 1999.  Provided those undertakings are so filed, the present interim orders against the first respondent will lapse.

3. In relation to the second and third respondents, the parties have also successfully addressed the practicalities of the matter.  They have also agreed, subject to certain issues, upon a form of undertaking to be proffered by the second and third respondents acceptable to the applicant in lieu of interlocutory orders.  Again it is contemplated that the motion for interlocutory orders will not presently be proceeded with, and that the interim orders presently in force will lapse at 5.00 pm on 30 March 1999.

4. The second and third respondents have previously applied to vary the interim orders to permit the expenditure of moneys from the two accounts specified in the injunctive orders.  I have previously refused those applications.  On the last occasion that I did so, namely 23 March 1999, I gave reasons for that decision and gave leave to those respondents to reapply when the interlocutory hearing took place.  The agreement between the parties to proffer, on the part of those respondents, and to accept, on the part of the applicant, certain undertakings means that there is now no need for a formal interlocutory hearing.  Whatever my ruling on the question of whether certain moneys should be allowed to be applied from those accounts for the purposes now sought by the second and third respondents, those undertakings in either event will be acceptable to the applicant.  The undertakings will include undertakings concerning the application of funds from those two specified accounts.

5. Over the course of the applications to vary the interim injunctive orders, the scope of what is sought by way of authorised payment from those accounts has been limited.  It is now sought that moneys be authorised to be drawn from one of them entitled the Number 2 Trust Account, for two purposes only:  one is to pay the sum of $44,312.40 for tax instalment deductions or group tax in respect of moneys paid or payable by the second respondent to its employees or commission agents; the second is to pay salaries or commission due to employees or commission agents of the second respondent.  The applicant opposes those applications, but if I am minded to permit those withdrawals, the applicant will nevertheless accept undertakings in the terms proffered.

6. In considering the matter, I have assumed that the applicant has made out a serious question to be tried in respect of the allegations made, including a serious question to be tried, that each of the commission agents or employees (there is a dispute as to their status) is not entitled to payment by way of salary or commission because each of those persons is not a licensed security dealer and each of those persons did not disclose to the investor in each case the extent of the commission which was proposed to be received by that person pursuant to the form of engagement apparently typified by the acknowledgment form which is exhibit 11 to Mr McNamara’s affidavit of 19 March 1999.

7. It remains therefore to address the balance of convenience.

8. In my judgment, in respect of the acknowledged liability to the Australian Taxation Office of $44,312.40, the balance of convenience lies with authorising the payment of that sum from the Number 2 Trust Account to the Australian Taxation Office.  As appears to have been accepted, the payment by the respective investors is not subject to an express trust at the time of that payment, although the purpose of the payment was relatively clear.  The moneys presently injuncted in those accounts are moneys which would be available to satisfy any claim for damages by the investors in the event that the application generally succeeds and in the event that the applicant, on behalf of the investors, or the individual investors, pursues a claim in respect of the moneys so paid.  It is not apparently a claim based upon an express trust.  If such claims are made and succeed, provided the proceedings are prosecuted promptly, I do not think that those persons will be materially disadvantaged by the authorisation of that payment.  If they do bring such claims and the claims succeed, they will be able to pursue those claims against the second respondent and probably against the respondents generally.  If the claims are not promptly met, the normal avenues available at law will be available to them.  The payment to the Commissioner of Taxation is a payment in respect of which there can be no doubt that, if it is subsequently obliged to be repaid to the second respondent for some reason associated with the consequence of winding up or bankruptcy, it will be able to be repaid.  I am not satisfied that there is an imminent threat of recovery by the Australian Taxation Office against the second respondent, but it is an admitted liability and the penalty provisions under the Income Tax Assessment Act1936 (Cth) make it plain that both the second and third respondents are liable to incur penalties if the money is not paid promptly.

9. I propose therefore to authorise the payment of that sum by the second and third respondents from the Number 2 Trust Account.  I do so on the condition that, at the time of payment, those respondents inform the Australian Taxation Office of these proceedings, of the general nature of the allegations made in these proceedings, and of the circumstances in which this payment is being permitted so that there can be no question at a later point that the Commissioner of Taxation was not informed of those matters and accepted the payment in the light of those circumstances.  That notice may be entirely beside the point ultimately, if the action fails against the respondents or if the action succeeds and claims for damages are otherwise met.

10. Having given that intimation in respect of that particular payment, I will adjourn the application to enable the second and third respondents, through their legal advisers, to propose to the applicant, through its legal advisers, a form of notification to the Australian Taxation Office acceptable to meet that requirement.  I will adjourn the matter to 4.00 pm tomorrow to enable that to be attended to.

11. In respect of the amounts said to be due to employees or commission agents, there is no dispute that the amounts of $887.50 payable to Ms Genery, or the amount of $1,939.50 payable to Ms Koutoulas, should be authorised to be paid from the Number 2 Trust Account, and I authorise those two payments.  Those persons, on the material before me, are clearly clerical employees of the second respondent, entitled to normal salary payment as PAYE employees.  I regard the attitude of the applicant in that respect as entirely sensible.

12. In respect of the balance of the amounts said to be due to employees, the amount in issue is $13,660.  Again, the identified employees and the amounts have been refined.  The amount in issue relates to twelve employees or commission agents for sales or transactions effected during the week ending 5 March 1999, or during the week ending 15 March 1999.  I have taken those two dates from par 7 of Mr McNamara’s affidavit of 29 March 1999, although there are, of course, ten days between those two week endings as described.  I do not know why that is the case but I assume for some reason it is an accurate description.

13. No action has been threatened or foreshadowed by any of those employees.  I am satisfied on the material before me that there are no resources available other than the two accounts to satisfy those liabilities as they are described.  On the other hand, in respect of those twelve persons (who are named in pars 7.1 to 7.12 of Mr McNamara’s affidavit of 29 March 1999), there is no evidence of any of them having demanded the sum said to be payable.  There is clearly evidence of a substantial rate of commission in the order of 11 to 12 per cent being said to be payable.  There is no suggestion in the material before me that any of those persons indicated to the investor from whom the money was procured that that amount of commission was to be paid to them.  I have no information concerning the personal situation of any of those persons - that is, the extent to which they are dependent upon those earnings as distinct from other income.  Paragraph 6 of Mr McNamara’s affidavit indicates that such persons may spend time performing other work, but they are not entitled to undertake work in conflict with the work as employees or commission agents in their sales work.  There is no information to indicate whether that is the case in respect of all or any of those persons, or whether their inability to recover the particular amounts at present will cause them especial hardship.  Some of the amounts are relatively small and some of them are substantial, but in respect of those persons where the amount is substantial, in some cases they have been earning or becoming entitled to, and have apparently received substantial amounts by way of commission over the last several weeks or from the start of 1999.  By way of example, Mr Nevill, who is shown to have been entitled to a commission of $3,852 for the period ending 5 March 1999, has otherwise become entitled to commission of some $42,000 during the period from the period ending 28 December 1998.

14. In those circumstances, at present I am not satisfied that the balance of convenience in respect of those sales personnel warrants a variation of the orders which is proposed.  Given the nature of the serious question to be tried which I have assumed for the reasons I have set out above, and given that such payments, if they are made, are of such an amount and would be paid in such circumstances that at present there is no indication that they would be available in the event that subsequently they had to be returned to the second respondent, I propose to decline to authorise the payment out of that sum of $13,660 to those persons as sought.

15. In the light of those reasons, I propose to adjourn the application for interlocutory relief generally until 4.00 pm tomorrow.  I note that both the first respondent, and the second and third respondents, will proffer undertakings in an agreed form and that, in the case of the second and third respondents, that undertaking is in the form of the document handed to me today and which I have initialled.  I have deleted from par 4.1 - which should be renumbered 3.1 - the reference to par 7 of the affidavit of Mr McNamara sworn on 29 March 1999 to reflect my ruling.

16. I will adjourn the directions hearing in the action generally to 9.00 am on Thursday, 1 April 1999, and I adjourn the application for interlocutory relief to 4.00 pm tomorrow.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield.

Associate:

Dated:               20 May 1999

Counsel for the Applicant:	Ms C Francas
Solicitors for the Applicant:	Australian Securities & Investments Commission
Counsel for the First Respondent:	Mr M Frayne
Solicitors for the First Respondent:	Phillips Fox
Counsel for the Second and Third Respondents:	Mr H Abbott
Solicitors for the Second and Third Respondents:	Cosoff Cudmore & Partners
Date of Hearing:	29 March 1999
Date of Decision:	29 March 1999