Australian Securities and Investments Commission v Secured Bond Ltd
[2009] NSWSC 578
•16 June 2009
CITATION: Australian Securities and Investments Commission v Secured Bond Ltd [2009] NSWSC 578 HEARING DATE(S): 15, 16 June 2009 JURISDICTION: Equity JUDGMENT OF: Austin J EX TEMPORE JUDGMENT DATE: 16 June 2009 DECISION: Passport control extended against third defendant for eight weeks CATCHWORDS: CORPORATIONS - financial services licences and managed investment schemes - suspected contraventions of the Corporations Act - substantial and continuing investigations by ASIC - passport control order - whether orders should be extended for a substantial period - defendant's evidence that he needs to be able to travel to pursue his vocation in sales and marketing in international markets - relevant considerations LEGISLATION CITED: Corporations Act 2001 (Cth), s 1323 CASES CITED: ASIC v Burnard (2007) 64 ACSR 630
ASIC v Mauer-Swisse Securities Ltd (2002) 20 ACLC 153PARTIES: Australian Securities and Investments Commission (Plaintiff)
Secured Bond Ltd (First Defendant)
David John Hobbs (Second Defendant)
David John Collard (Third Defendant)
Min Hua Li (Fourth Defendant)
Li Min Zeng (Fifth Defendant)
Bi Hong Dong (Sixth Defendant)
888 Management Inc (Seventh Defendant)
Barclaywest Ltd (Eighth Defendant)
J&B Financial Group Pty Ltd (Ninth Defendant)
Magny-Cours Ltd (Tenth Defendant)
Shunfu Corporation (Eleventh Defendant)
North Wave Ltd (Twelfth Defendant)
GP Global Ltd (Thirteenth Defendant)FILE NUMBER(S): SC 4532/08 COUNSEL: J Halley SC with J Emmett (Plaintiff)
M H Southwick (Second Defendant)
A Ketas (Third Defendant)SOLICITORS: Georgina Hayden (Solicitor for Australian Securities and Investments Commission)(Plaintiff)
Murphy's Lawyers Civil (Second Defendant)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COROPRATIONS LIST
AUSTIN J
TUESDAY 16 JUNE 2009
4532/08 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V SECURED BOND LTD AS TRUSTEE FOR THE MASTER FUND & ORS
JUDGMENT (EX TEMPORE; REVISED 19 JUNE 2009)
1 HIS HONOUR: In this application the plaintiff, ASIC, seeks a further extension of asset preservation orders and passport orders initially made on 2 September 2008, and most recently extended to 19 June 2009.
2 The second defendant, Mr Hobbs, by his legal representative, informed the Court yesterday that he opposed the extension of the orders but did not intend to make submissions.
3 The third defendant, Mr Collard, has appeared by counsel today to oppose any further extension of the orders.
4 When the case opened this morning ASIC informed the Court that it wished to extend the orders in relation to both asset preservation and surrendering of passport until 30 November 2009. However, when during the course of submissions I expressed some reluctance as to whether, in the circumstances of this case, the Court ought to extend the passport orders for such a long period of time, senior counsel for ASIC took instructions and put forward a revised position. He informed the Court that the work that was necessary to be done in relation to the third defendant, including preparation for further examination and the conduct of the examination, required that the orders be extended for eight weeks but that ASIC would not press the Court for any extension beyond that time.
5 It is important to note that senior counsel for ASIC made it clear that the eight weeks estimate was an estimate of how long it would take to complete the examination process currently in contemplation. He made it clear that if a serious issue emerged during the course of ASIC's further work that would require further investigation and further examination of Mr Collard, then it might be necessary for an application to be made to continue the passport order so that such further examination could be conducted.
6 ASIC has also reserved the possibility that it might make an application for a further extension on some ground other than to pursue the investigations and examinations currently in contemplation: for example, if it emerges that the Mr Collard is likely to be an important witness in relation to other aspects of the proceedings and ASIC wishes to contend that there is a flight risk with respect to his availability for that purpose. It is unnecessary for me to express a view as to whether a passport order is appropriate in those circumstances.
7 In summary, the matter to be addressed now is whether I should, on the evidence provided to me today, make an order extending the passport order against Mr Collard for eight weeks. Counsel for Mr Collard submitted that there was no ground for any further extension and that the Court should reject the application accordingly, so far as Mr Collard was concerned.
8 It is unnecessary to traverse in detail the background investigation and procedural developments in this case and related cases that have been before the Court several times over the period from about August 2008 to date. It is enough to say that according to ASIC's case:
· Mr Collard, along with Ms Li who is the fourth defendant, have been centrally involved in the establishment and operation of a Master Fund, and in setting up the company Secured Bond Ltd for the purpose of running the Master Fund;
· they operated the Master Fund for a period from approximately October 2003 to May 2008;
· they were directors and/or officers and the only shareholders of Secured Bond during that period;
· they controlled the movement of all funds and accounts held by Secured Bond; and
· they operated a financial services business and offered investment advice to investors based in New South Wales in relation to the Master Fund for that period, in contravention of provisions of the Corporations Act.
9 I was taken to evidence by investors who deposed to the involvement of Mr Collard in investment seminars and discussions which, according to ASIC's case, led to their investment of significant funds, which ASIC says were transferred from Secured Bond accounts to other entities in which the second defendant, Mr Hobbs, was sole director and shareholder or beneficial owner.
10 There was a company operated by Mr Hobbs that offered "education packages" to prospective investors as a pre-condition to Secured Bond accepting investments in Master Fund. The circumstances relied upon by ASIC suggest that there may have been a close interrelationship between Secured Bond and other entities associated with Mr Hobbs.
11 ASIC has already conducted extensive investigations, and some examinations under section 19 of the ASIC Act. It has caused interviews of Mr Hobbs and Mrs Jacqueline Hobbs in New Zealand to be commenced, but they cannot presently be concluded due to the medical conditions of those parties. It wishes to bring those investigations and interviews to a conclusion as soon as their health permits it.
12 ASIC seeks, as I have said, asset preservation orders against Mr Collard and others. It is unnecessary to reproduce in these reasons for judgment the detail of the orders that have been made and are proposed to be extended, as no particular issue has been raised about those orders today.
13 The passport order sought to be continued against Mr Collard was made under section 1323 of the Corporations Act. That section applies where:
- (a) an investigation has been carried out under the ASIC Act or the Corporations Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of the Act; or
(b) a prosecution has begun against the person for a contravention of the Act; or
(c) a civil proceeding has been begun against a person under the Act;
14 In thoroughly prepared submissions, ASIC has provided the Court with a summary of the relevant law and copies of relevant authorities. I do not intend to deal with the legal principles in any detail, because it seems to me that the present case can be resolved pragmatically. For present purposes, I am happy to accept and adopt the statements of principle made by Palmer J in ASIC v Mauer-Swisse Securities Ltd (2002) 20 ACLC 1530 and by Barrett J in ASIC v Burnard (2007) 64 ACSR 360.
15 Those cases and the others referred to in ASIC's submissions make it plain that the Court’s task includes the balancing of, on the one hand, the interest of the aggrieved persons who are to be protected by the order, and on the other hand, the interests of the respondent to the order in avoiding undue interference in his or her affairs.
16 So far as aggrieved persons are concerned, they are identified in ASIC's submissions as the investors who have suffered through the conduct of unregistered managed investment schemes, and the carrying on of financial services businesses without licences, and the various misrepresentations which ASIC has alleged in these proceedings. The need to protect their interests is plain, in circumstances where ASIC is conducting a major investigation and the investigation is far from complete, where it appears from what has been uncovered so far that the company Secured Bond was engaged in activities which were related to the financial activities of other companies and schemes associated with Mr Hobbs, and where Mr Collard was closely involved in the activities of Secured Bond.
17 The evidence indicates that there is likely to be a substantial shortfall in the assets of Master Fund, and it appears that there have been substantial payments made to those who managed or were otherwise involved in the Master Fund. ASIC points to substantial disbursements from scheme funds that are not currently explicable, and the limited net assets disclosed in the evidence presently before the Court.
18 It seems to me that the interest of the aggrieved persons in the investigations is a weighty interest that needs to be carefully taken into account. That interest dictates, in my view, that ASIC should be given adequate opportunity to conduct all necessary investigations involving Mr Collard, so as to move the investigation forward expeditiously.
19 On the other hand, Mr Collard has given some evidence about his circumstances which must be weighed in the balance. Mr Collard has deposed to his financial circumstances, which include a very substantial legal bill incurred in relation to the present ASIC investigations. His evidence is that over the past 30 years his principal source of income has been his sales activities, for the most part conducted off-shore. He says that over the past 30 years he has made in excess of 100 international flights and has worked in nine countries. He claims to have employed or recruited in excess of 3,000 people. He says he made 16 separate international flights in the nine-month period to September 2008. He says his skills and his income relate to his activities as a sales and marketing manager specialising in international markets. He claims that the effect of making of a passport order against him has been to halt his overseas business activities and consequently the income he has derived from them.
20 The result, he says, is that since his passport was handed to his solicitor last September, he has not gained any employment and during this time, he has had no income. He claims that at the age of 62 he has less than $1,000 to his name (although it appeared during the course of submissions that he was giving instructions to his counsel that he had access to some shares that could be sold for his benefit).
There is also evidence given on behalf of Mr Collard about his family circumstances. It is unnecessary to set out the detail of that evidence, except to say that his aged mother, his four children and five grandchildren all live in Australia. His evidence is that his family has been supportive of him during recent months when he has been unable to earn income, and he does not feel he could or would ever desert them. He says he has never fled from a confrontation or refused to talk to a customer. He has offered the Court an undertaking that he would make himself available to ASIC for examination when necessary. And he relies on numerous letters of support essentially in the nature of character references.
21 For the purposes of this application, I am prepared to accept Mr Collard's evidence and I therefore proceed on the basis that it is to be balanced against the evidence given on behalf of ASIC so as to pay proper regard to the interests of aggrieved persons while at the same time minimising so far as practicable not only the interference with Mr Collard's personal liberty to move about that is involved in passport orders, but more particularly in this case, the interference with his business activities and therefore with his principal source of income.
22 Even so, it seems to me that ASIC has made out a case for an extension of the passport orders, in view in particular of the matters that it lists in paragraph 12 of its written submissions, namely:
- (a) that Mr Collard is a material witness in an incomplete investigation of serious alleged contraventions of corporations legislation, that might reflect adversely on his probity and lead to the institution of civil proceedings for recovery of money or damages, civil penalties or even the laying of criminal charges;
(b) according to the evidence available to ASIC at this stage, which of course has not been tested, he appears to have received substantial funds either directly or through related entities in connection with the Master Fund scheme;
(c) by his own evidence he has very limited net assets in Australia;
(d) he was a regular overseas traveller prior to the commencement of the proceedings;
(e) though he has apparently extensive family ties in Australia, he has not pointed to any compelling family reason that would require him to return to Australia in the short to medium term;
(f) he does not claim to have had any source of income in Australia since May 2008;
(g) according to evidence upon which ASIC relies, which has not been tested, he appears to have displayed a serious lack of candour in a number of material respects in answers provided to ASIC; and
(h) he does not have a financial services licence under the Australian legislation.
23 Taking all those matters into account, it does seem to me that there is a case for a further extension of the passport orders. The extension should at this stage be for the limited period of eight weeks which ASIC considers to be the minimum period necessary for it to complete its investigations and examinations directly involving Mr Collard.
24 While I acknowledge the difficulty of Mr Collard's circumstances, and in particular his evidence that he has family ties that give him an incentive to return to Australia, at least in the medium to longer term, and also the significance of his undertaking offered to the Court, it seems to me that in the present circumstances ASIC and the aggrieved investors are entitled to some assurance that he will be available in Australia while ASIC conducts the necessary investigations and examinations with respect to his direct involvement in the matters that it has under consideration.
25 I should mention that though I exchanged some views with counsel for Mr Collard about the significance of an undertaking, in order to be clear about the submissions she was making, I accept that the giving of an undertaking to the court, breach of which punishable as contempt of court, can in some circumstances be a significant factor weighing against the making or extending of a passport order. But in the present circumstances it seems to me the security of ASIC's position in the investigation is sufficiently important, given the nature of the investigation and the scale of it, to make it advisable to rely on Mr Collard's physical preference in the country rather than merely an undertaking by him to return when needed.
26 Finally, I should say that nothing in my reasons for judgment should be taken as implying that in my view, passport control orders should be available only during the course of direct investigations in respect of the defendant subject to the orders. I leave open for consideration on another occasion the question whether orders of that kind might be justified for other reasons.
27 The result is that I will extend the passport order against Mr Collard for eight weeks only, and otherwise extend the asset preservation and passport orders to 30 November 2009.
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