Australian Securities and Investments Commission v Sherwin Financial Planners Pty Ltd
[2015] FCA 1168
•30 October 2015
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Sherwin Financial Planners Pty Ltd [2015] FCA 1168
Citation: Australian Securities and Investments Commission v Sherwin Financial Planners Pty Ltd [2015] FCA 1168 Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v SHERWIN FINANCIAL PLANNERS PTY LTD ACN 010 675 260, BRADLEY THOMAS SHERWIN, DEBORAH BERNADETTE SHERWIN, DIY SUPERANNUATION SERVICES PTY LTD ACN 083 416 915, REACROFT PTY LTD ACN 077 117 116, BLUE DIAMOND INVESTMENTS PTY LTD ACN 134 292 265, SP PROPERTY PTY LTD ACN 121 296 053, ASTOR FUNDS PTY LTD ACN 108 355 406, SHERWIN FINANCIAL SERVICES PTY LTD ACN 094 135 672, WICKHAM CAPITAL PTY LTD ACN 115 086 970, BROTHERS FINANCIAL SERVICES PTY LTD ACN 090 058 656, NRL FINANCIAL SERVICES PTY LTD ACN 132 370 079, SUNSHINE REGIONAL INVESTMENTS PTY LTD ACN 141 159 159, GARTH PETER ROBERTSON and CATHERINE LOUISE ROBERTSON File number(s): QUD 25 of 2013 Judge(s): GREENWOOD J Date of judgment: 30 October 2015 Catchwords: CORPORATIONS – consideration of an application in a corporations matter that the costs of and incidental to an interlocutory application be paid on an indemnity basis Legislation: Corporations Act 2001 (Cth), s 1323(3)
Federal Court of Australia Act 1976 (Cth), ss 23 and 43Date of hearing: 31 July 2015 Date of last submissions: 1 September 2015 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 89 Counsel for the Plaintiff: Mr S Seefeld Solicitor for the Plaintiff: Mr H Copley, ASIC Solicitor for the Defendant: Mr C Hargreaves, McInnes Wilson Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 25 of 2013
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: SHERWIN FINANCIAL PLANNERS PTY LTD
ACN 010 675 260
First DefendantBRADLEY THOMAS SHERWIN
Second DefendantDEBORAH BERNADETTE SHERWIN
Third DefendantDIY SUPERANNUATION SERVICES PTY LTD
ACN 083 416 915
Fourth DefendantREACROFT PTY LTD ACN 077 117 116
Fifth DefendantBLUE DIAMOND INVESTMENTS PTY LTD
ACN 134 292 265
Sixth DefendantSP PROPERTY PTY LTD ACN 121 296 053
Seventh DefendantASTOR FUNDS PTY LTD ACN 108 355 406
Eighth DefendantSHERWIN FINANCIAL SERVICES PTY LTD
ACN 094 135 672
Ninth DefendantWICKHAM CAPITAL PTY LTD ACN 115 086 970
Tenth DefendantBROTHERS FINANCIAL SERVICES PTY LTD
ACN 090 058 656
Eleventh DefendantNRL FINANCIAL SERVICES PTY LTD ACN 132 370 079
Twelfth DefendantSUNSHINE REGIONAL INVESTMENTS PTY LTD
ACN 141 159 159
Thirteenth DefendantGARTH PETER ROBERTSON
Fourteenth DefendantCATHERINE LOUISE ROBERTSON
Fifteenth Defendant
JUDGE:
GREENWOOD J
DATE OF ORDER:
30 OCTOBER 2015
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.The affidavits of Bradley Thomas Sherwin filed on 5 June 2015 and 31 July 2015 sealed by order of the Court made on 31 July 2015 be un‑sealed.
2.The costs incurred by the plaintiff of and incidental to the interlocutory application filed by the second defendant, Bradley Thomas Sherwin, on 5 June 2015 and dismissed by order of the Court made on 31 July 2015, be paid by the second defendant.
3.The costs contemplated by Order 2 be paid on an indemnity basis.
4.The costs contemplated by Orders 2 and 3 include the costs of and incidental to the issue of the subpoenas referred to in [59] of the reasons for judgment published today and the examination and consideration of the documents produced in response to those subpoenas.
5.Pursuant to sections 23 and 43 of the Federal Court of Australia Act 1976 (Cth), the plaintiff is given leave to tax the costs contemplated by Orders 2 and 3, immediately.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 25 of 2013
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: SHERWIN FINANCIAL PLANNERS PTY LTD
ACN 010 675 260
First DefendantBRADLEY THOMAS SHERWIN
Second DefendantDEBORAH BERNADETTE SHERWIN
Third DefendantDIY SUPERANNUATION SERVICES PTY LTD
ACN 083 416 915
Fourth DefendantREACROFT PTY LTD ACN 077 117 116
Fifth DefendantBLUE DIAMOND INVESTMENTS PTY LTD
ACN 134 292 265
Sixth DefendantSP PROPERTY PTY LTD ACN 121 296 053
Seventh DefendantASTOR FUNDS PTY LTD ACN 108 355 406
Eighth DefendantSHERWIN FINANCIAL SERVICES PTY LTD
ACN 094 135 672
Ninth DefendantWICKHAM CAPITAL PTY LTD ACN 115 086 970
Tenth DefendantBROTHERS FINANCIAL SERVICES PTY LTD
ACN 090 058 656
Eleventh DefendantNRL FINANCIAL SERVICES PTY LTD ACN 132 370 079
Twelfth DefendantSUNSHINE REGIONAL INVESTMENTS PTY LTD
ACN 141 159 159
Thirteenth DefendantGARTH PETER ROBERTSON
Fourteenth DefendantCATHERINE LOUISE ROBERTSON
Fifteenth Defendant
JUDGE:
GREENWOOD J
DATE:
30 OCTOBER 2015
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Background and context
This proceeding is concerned with the disposition of the question of costs of and incidental to an interlocutory application made by the second defendant in the principal proceeding, Mr Bradley Sherwin, and filed on 5 June 2015.
By that application, Mr Sherwin sought an order that orders made by the Federal Court on 21 January 2013 against him be discharged with the result that he would be no longer restrained from engaging in conduct the subject of the restraints framed by those orders according to their terms. In the alternative, Mr Sherwin sought an order that Order 4(b) of the orders made that day be varied so that he was no longer subject to the restraint framed by that order.
On 21 January 2013, the Federal Court made orders in the principal proceeding pursuant to s 1323(3) of the Corporations Act 2001 (Cth) (the “Act”) restraining a number of defendants, and relevantly, Mr Sherwin, from, put simply, dealing with funds in a relevant account in a particular way subject to certain qualifications set out in Order 4(a).
By Order 4(b), the Court restrained Mr Sherwin and others from paying, transferring or otherwise dealing with money or property held by them, either independently or at the request of another defendant, subject to qualifications preserving the right of those defendants to use their own funds as reasonably required for the purpose of obtaining legal advice and representation in relation to the principal proceeding; living expenses; and usual business expenses.
The orders of 21 January 2013 were operative until 5.00pm on 23 January 2013. However, the interim orders were extended by a number of orders so as to reflect the position which would prevail until the determination of the principal proceeding.
By the interlocutory application, Mr Sherwin also sought a guillotine order that in the event that the plaintiff failed to take a step in the principal proceeding by 1 July 2015, the proceeding be deemed resolved and the originating process dismissed.
Mr Sherwin also sought an order that particular affidavits filed by him in support of the interlocutory application be sealed.
I will return later in these reasons to that matter.
The interlocutory application was the subject of directions orders made on 9 July 2015 concerning the date for the hearing of the application and a particular protocol governing the filing and serving of affidavit material to be relied upon by the parties to the application.
Ultimately, on 31 July 2015, orders were made vacating the orders of 9 July 2015 and vacating the listing date for the hearing of the application of 7 August 2015. Mr Sherwin was given leave to file his affidavit sworn 19 June 2015 and filed 31 July 2015.
By Order 3, Mr Sherwin’s interlocutory application was dismissed. By Order 4, his affidavits filed 5 June 2015 (sworn 20 May 2015) and 31 July 2015 were sealed until further order.
By Order 5, the Australian Securities and Investments Commission (“ASIC”) was ordered to file and serve on or before 14 August 2015 any material and submissions upon which it intended to rely in relation to the determination of the costs of the interlocutory application of 5 June 2015.
By Order 6, within 14 days of service of that material and submissions, Mr Sherwin was required to file and serve any material and submissions upon which he intended to rely in relation to costs and whether his affidavits of 5 June 2015 and 31 July 2015 ought to remain sealed.
By Order 7, within seven days of service of that material and submissions, ASIC was required to file and serve any submissions on the question of whether the affidavits ought to remain sealed.
Finally, by Order 8, the Court directed that the question of costs and whether Mr Sherwin’s two affidavits ought to remain sealed would be determined on the papers.
ASIC contends, by its submissions, supported by the material upon which it relies, that Mr Sherwin should pay ASIC’s costs of and incidental to the interlocutory application and that those costs should be paid on an indemnity basis.
Mr Sherwin contends, by his solicitors, that ASIC has not discharged an onus of establishing that an order for costs on an indemnity basis is a proper exercise of the discretion. Mr Sherwin’s solicitors contend that the costs of and incidental to the interlocutory application should be costs in the cause in the principal proceeding.
Before turning to the merits of those competing contentions, it is necessary to identify the context within which the interlocutory application was made.
On 9 January 2013, ASIC commenced an investigation under the relevant provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (the “ASIC Act”) into the affairs of an unlisted public company incorporated on 18 October 2004 called Wickham Securities Ltd (“Wickham”). That investigation was said to concern an investigation of suspected contraventions of s 184 of the Act (in relation to the duties of directors) and s 1309 of the Act concerning false information relating to particular matters. The investigation was also said to concern an examination of matters relevant to s 408C of the Queensland Criminal Code in relation to loans made by Wickham and documents in relation to those loans in the period 1 January 2007 to 21 December 2012. On 16 January 2013, that investigation was said to have been expanded to include an examination of whether securities had been offered in circumstances where s 727 of the Act had not been satisfied. Concerns in relation to possible contraventions of s 952D(1) and further matters concerning s 1309 of the Act during the period 1 January 2007 to 21 December 2012 were also said to be the subject of examination.
Mr Brett Jamahl Crawford is a senior investigator employed by ASIC who holds delegations under the ASIC Act for the purpose of conducting investigations under that Act. Mr Crawford swore an affidavit on 26 June 2015 in which he says that the investigation referred to in [19] of these reasons was on 30 May 2013 expanded by ASIC to investigate whether particular contraventions of ss 184, 727, 1041E, 1041F, 1041G, 1041H, 952D(1) and 1309 of the Act had occurred in the period 1 October 2005 to 21 December 2012 having regard to conduct or contended conduct on the part of Wickham, Planners, the fourth, fifth, sixth, seventh, eighth and tenth defendants and officers of those entities during the relevant period. That investigation also involved an examination of whether any contraventions of s 408C of the Queensland Criminal Code had occurred in the relevant period having regard to all of the particular defendants just mentioned.
In December 2013, ASIC referred material arising out of the investigation as expanded to the Commonwealth Director of Public Prosecutions (the “CDPP”).
The directors of Wickham during the relevant period were Bradley Sherwin, Peter John Gerard Siemons and Garth Peter Robertson. Put simply, Wickham was established to raise funds through the issue of unsecured deposit notes and invest those funds in a portfolio of high‑yielding loans with a pre‑determined risk profile. Those loans were to be secured against real property. In the period between 2005 and 2010, Wickham lodged six prospectuses with ASIC for offers of unsecured deposit notes pursuant to s 283BH of the Act. Each prospectus sets out a range of matters the detail of which need not be identified in these reasons.
The first defendant in the principal proceeding is Sherwin Financial Planners Pty Ltd (“Planners”). Bradley Sherwin was appointed as sole director of that company on 1 December 1986. During the relevant period he was the sole director and secretary and sole shareholder of Planners. During the relevant period, Planners held an Australian Financial Services Licence and an Australian Credit Licence. Planners described itself as an entity that provided excellent investment services.
The third defendant is Ms Deborah Bernadette Sherwin who was formerly Bradley Sherwin’s wife.
The entities described as the fourth to thirteenth defendants can be described for present purposes, put simply, as entities relevantly related to Mr Sherwin and his financial affairs.
On 1 May 2013, Mr Sherwin presented a debtor’s petition under the provisions of the Bankruptcy Act 1966 (Cth). Messrs Morgan Lane (Mr Lane) and Rajendra Khatri (Mr Khatri) of Worrells Brisbane were appointed as trustees in bankruptcy of Mr Sherwin’s estate. On 21 August 2013, ASIC made a banning order against Mr Sherwin under ss 920A(1) of the Act which has the effect of preventing Mr Sherwin from providing financial services for a period of two years and nine months (until 21 May 2016). Planners is now in liquidation. For the purposes of determining the costs question in issue in this proceeding, it is not necessary to examine the present circumstances of administration (or otherwise) of each of the remaining corporate defendants in the proceeding.
The material relied upon by Bradley Sherwin in support of the application – the affidavit of 5 June 2015
In the submissions put on by Mr Sherwin’s solicitors, McInnes Wilson Lawyers, Mr Sherwin does not press for ongoing confidentiality of the affidavits sworn 19 June 2015. That affidavit is properly described as the principal and substantial affidavit upon which Mr Sherwin relies.
The earlier affidavit sworn 20 May 2015 and filed 5 June 2015 which is presently the subject of the sealing order (together with the affidavit sworn 19 June 2015 and filed on 31 July 2015) is a very short affidavit. There is no basis for preserving a sealing order in respect of that affidavit and thus the order of 31 July 2015 providing for the sealing of both affidavits is to be discharged.
By the affidavit filed on 5 June 2015, Mr Sherwin says that he refers (generally) to his earlier affidavits in the principal proceeding sworn 27 March 2013 and 16 July 2013 although no reference is made to any particular elements of those two affidavits. By para 3, Mr Sherwin says that since 21 January 2013 he has been subject to asset freezing orders of the Federal Court which have been extended until the determination of the principal proceeding. He says by para 6 that the last substantive step in the principal proceeding was taken by ASIC on 16 July 2013 to amend the originating application. By para 7, he says that as a “direct result” of ASIC’s delay, he has experienced prejudice and continues to incur significant costs. He also says, by para 8, that other legal matters in which he is involved have been delayed by reason of ASIC’s delay in the principal proceeding. Thus, he seeks dismissal of the proceeding or the discharge of the interlocutory injunctions.
The orders
The interim injunction made on 21 January 2013 by Order 4(a) bound Planners, Bradley Sherwin and an entity called DIY Superannuation Services Pty Ltd. Order 4(b) bound Planners, Bradley Sherwin, Deborah Sherwin and the entities described as the fourth to tenth defendants.
By order made on 12 February 2013, Order 4(b) made on 21 January 2013 was vacated as against Planners and the fourth to eighth defendants and the tenth defendant.
By Order 1 made on 15 July 2013, the eleventh, twelfth and thirteenth defendants were joined in the proceeding. So too were Garth Robertson and Catherine Robertson as fourteenth and fifteenth defendants. By Order 4, interim injunctions were ordered against the eleventh to fifteenth defendants essentially in the same terms as Order 4(b) of the orders made on 21 January 2013.
By an order made on 14 March 2014, Order 4(b) of the orders made by the Court on 21 January 2013, as varied, were further varied such that the third defendant, Deborah Sherwin, was discharged and released from the restraints imposed upon her by that order including the restrictions on the expenditure of her own funds, except that the restraints imposed upon her by the order were to remain in full effect (subject to any dealing consented to by ASIC) with respect to her interest in three properties situated in Queensland at respectively, 25 Henry Street, Wooloowin, 1 Lakelands Drive, Merrimac and 4 Towers Street, Ascot.
Bradley Sherwin’s affidavit of 19 June 2015
In Mr Sherwin’s affidavit sworn 19 June 2015 he again makes the observations set out in his affidavit filed on 5 June 2015 and then addresses the question of the contended delay on the part of ASIC in prosecuting the proceedings since the amendment to the originating application on 16 July 2013. He says that as a direct result of ASIC’s delay he has experienced prejudice and continues to incur significant legal costs. Other legal matters in which he has an interest are said to have been delayed.
At paras 9 and 10, he says that a family law matter concerning separation from his wife has been significantly delayed as steps required to be taken cannot be taken until the principal proceeding is finalised. He says that until finalisation of the proceeding he is not able to identify and quantify the “asset pool” for the purposes of the Family Court proceeding. He says he cannot identify the future needs of each party to the marriage; he cannot negotiate as to each of these two matters; and cannot give effect to what might be negotiated. He says that his inability to do these things flows as a “direct result” of the principal proceeding and the asset freezing orders.
At paras 11 to 13, Mr Sherwin addresses the implications for particular criminal law matters. He says that on 15 October 2013 he engaged lawyers, Lawler Magill, to represent him in an investigation regarding the misappropriation of funds from “Self‑Managed Super Funds through his company, Wickham Securities”: see letter Lawler Magill dated 13 May 2015, BTS 2‑1. He says that on 24 April 2014 he engaged Lawler Magill to represent him in relation to criminal charges. Lawler Magill, in its letter dated 13 May 2015, observes that Mr Sherwin was charged with “threats to murder” on 24 April 2014. Mr Sherwin says that that matter was referred on 22 May 2014 to the Mental Health Tribunal. He says that no decision has been made about that matter. He annexes to his affidavit a letter from Lawler Magill dated 13 May 2015 in which the author says that although a brief of evidence arising out of the investigation was presented by ASIC to the CDPP in December 2013 no advice had been received by Lawler Magill from the CDPP as to whether or not Mr Sherwin would face any criminal charges. On 20 May 2015, a complaint was made by an officer of ASIC before a Justice of the Peace which resulted in a summons being issued to Bradley Sherwin which contends that between 12 November 2009 and 27 October 2010, Bradley Sherwin, a director of Wickham, failed, contrary to s 184(1) of the Act, to exercise powers and discharge duties in good faith in the best interests of Wickham or for a proper purpose and that his failure to do so was intentionally dishonest.
At para 14, Mr Sherwin says this:
As a result of these proceedings, I have not been able to fund my family law matter or my criminal law matters which is also adding to their delay.
[emphasis added]
Apart from the above contended consequences of delay, Mr Sherwin says that he has suffered prejudice due to the principal proceeding itself and the resulting delay in the proceeding due to the affects upon his mental health. Those affects are these. On 17 January 2013, Mr Sherwin attempted to take his own life. In the period 17 January 2013 to 21 January 2013 he was admitted to the Royal Brisbane Hospital and then from 21 January 2013 to 22 March 2013 he was admitted as a patient at the Belmont Private Hospital. He was discharged from that hospital on 22 March 2013. At para 17, Mr Sherwin describes the mental health issues he has been confronting. In May 2013, he was re‑admitted to the Belmont Private Hospital under the care of a psychiatrist. At paras 19 to 21, he describes the medication he receives and its cost. At paras 22 to 24, he describes aspects of his consultations with his psychiatrist, Dr Greig Richardson. At paras 25 and 26, he describes his referral to and consultations with a psychologist, Dr Yolande Dreyder. At para 27, Mr Sherwin says that he believes that the existence of the principal proceeding and the contended delay and uncertainty in them is causing him significant distress and is a significant cause of his mental health issues.
Mr Sherwin’s statements concerning financial issues
In the remaining part of his affidavit, Mr Sherwin sets out comprehensive details about the financial implications arising out of the steps taken by ASIC related to the principal proceeding.
Income consequences
As to his income, Mr Sherwin says that on 21 August 2013 he received a letter from ASIC advising him that a banning order had been made against him from providing any financial services for a period of two years and nine months which expires on 21 May 2016. He says that as a result of the principal proceeding, including the affect the proceeding is having upon his mental health and also the banning order, he has been unemployed since 21 January 2013.
Affect upon property holdings
At paras 30 to 32, Mr Sherwin sets out the financial disadvantage he has suffered in relation to interests in properties he formerly held. He says that on 21 January 2013 when the Federal Court made the orders earlier discussed, Mr Sherwin held an interest in eight properties and an 11% interest in the RCW Property Trust which held a property at Robina in Queensland. The other Queensland properties were located at 25 Henry Street, Wooloowin; 1 Lakelands Drive, Merrimac; 4 Towers Street, Ascot; 38 Perry Street, Northgate; 4/1 Petrie Street, Coolangatta; 5/39 Tweed Street, Coolangatta; 2/24 Woodroffe Avenue, Main Beach; and several home and land packages including a major share of the Stage 5 Summit View Development at Kingaroy.
At para 31(a), Mr Sherwin says that as a direct result of the proceedings commenced by ASIC, the National Australia Bank exercised rights as mortgagee and took possession of the properties at Wooloowin, Merrimac and Ascot and exercised a Power of Sale and sold those properties.
At para 31(b), Mr Sherwin says that FTI Consulting as receivers of the fifth defendant took possession of and sold the properties at Northgate, Main Beach, Stage 5 Summit View Development at Kingaroy and Mr Sherwin’s 11% interest in the RCW Property Trust.
At para 31(c), Mr Sherwin says that the twelfth defendant as trustee of the NBJ Super Fund sold the properties at 4/1 Petrie Street, Coolangatta and 5/39 Tweed Street, Coolangatta. However, Mr Sherwin says that the proceeds of sale amounting to $364,423.54 in respect of those two properties were deposited into the trust account of Mr Sherwin’s previous lawyers Van de Graaf Lawyers where those funds remained at the date of swearing of the affidavit.
At para 32, Mr Sherwin says that he is no longer the owner of any real property.
The NBJ Super Fund
As to the NBJ Super Fund, Mr Sherwin says, at paras 33 to 36 of his affidavit, that when ASIC filed its amended originating process on 16 July 2013, the twelfth defendant, Brothers Financial Services Pty Ltd (“Brothers”), was the trustee of the NBJ Super Fund. He says that as a direct result of Brothers being joined in the proceedings, he and his then wife, Deborah Sherwin, “lost control” of the NBJ Super Fund which, he says, is now controlled by ASIC. He says that notwithstanding their loss of control of the NBJ Super Fund, he and Deborah Sherwin remained responsible for ensuring, at their own cost, that the Fund was compliant by lodging yearly tax returns and ensuring that audit reports and annual reviews were undertaken. Mr Sherwin says that even though he and Deborah Sherwin have that obligation, they “cannot transact into the fund to generate income or make any investment decisions”.
Moreover, at para 36, Mr Sherwin says that as a result of the NBJ Super Fund falling under the control of ASIC, three things of significance happened. First, a property under the control of the Fund located at 6/24 Kent Street, Gladstone, Queensland, was re‑possessed and Deborah Sherwin’s guarantees were called upon. At the date of swearing the affidavit, the financial loss to the Fund was expected to be $150,000 to $200,000. Second, chartered accountants were required to be retained to prepare and complete financial statements for the Fund which resulted in fees of approximately $25,000. Third, Mr Sherwin has not been able to “rollover” his member balance in the Fund which resulted in an audit of the Fund by the Australian Taxation Office with the result that accounting fees of $10,000 were incurred in the audit process.
Rent
Mr Sherwin says that as a result of no longer owning any real property, he has been forced to rent a property at 15 Garfield Terrace, Everton Hills. He resides there with his son. He currently pays $500 per week in rent.
Legal costs
Mr Sherwin says that the very existence of the principal proceeding and the contended delay in prosecuting the proceeding means that he has been forced to continue to incur significant legal costs and he will continue to incur further legal costs until such time as the principal proceeding is at an end. At para 40, he says that out of “an abundance of caution” and to ensure “clarity and transparency” taken together with his realisation that he can become depressed, he has taken steps to ensure that loss of income insurance payments from AMP are deposited into his solicitor’s trust account with a direction that funds are transferred to him only in accordance with the orders made in the principal proceeding. The AMP insurance payments average approximately $22,000 per month. At para 42, Mr Sherwin says that he is currently receiving payments of $1,114 per week (plus an amount of $500 in respect of the rent payment). These payments are paid to Mr Sherwin from his solicitor’s trust account. Mr Sherwin says, at para 43, that he has incurred legal fees to date of $27,500 (approximately) from his solicitors in respect of their management of the AMP insurance payments into and out of their trust account and also in respect of variations to the orders in the principal proceedings. These fees also relate to negotiations with ASIC to secure ASIC’s consent to various payments having regard to Order 4(b).
Mr Sherwin’s belief
As a result of all these financial considerations, Mr Sherwin says at para 44 that he believes that the injunction orders made against him are “futile” and have “no utility”. He says that he seeks dismissal of the principal proceeding or alternatively the discharge of the injunction orders against him.
In summary then, apart from the mental health issues described at paras 16 to 27 of the affidavit, Mr Sherwin sets out at paras 7 to 15 his understanding of the prejudice he suffers. Then, at paras 28 to 43, he sets out considerable detail about his financial circumstances as they exist at the date of swearing of his affidavit, leading to the conclusion that the interim restraints no longer have utility and are truly futile with the result that the proceeding should be dismissed and/or the orders should be discharged.
As mentioned earlier, Mr Sherwin elected not to proceed with the interlocutory application with the result that he did not seek to advance it or prosecute it. Thus, the hearing date was vacated and orders were made on 31 July 2015 dismissing the application. As earlier mentioned, orders were made for the filing and service of affidavits and submissions going to the question of costs.
ASIC seeks indemnity costs of and incidental to the application.
The principal affidavit relied upon by ASIC is that of Mr Hugh Copley sworn 31 July 2015. Mr Copley also swore an affidavit dated 8 July 2015. ASIC also relies upon the affidavit of Mr Crawford sworn 26 June 2015.
At para 13 of his affidavit, Mr Crawford says that as a result of the investigation described at [19] and [20] of these reasons and ASIC’s referral of material to the CDPP, Mr Sherwin:
… was served with a Complaint and Summons in relation to thirty three (33) counts of dishonestly causing detriment totalling nearly $10 million between May 2009 and December 2012. The charges relate to the use of self‑managed superannuation funds of former clients of Sherwin Financial Planners.
At para 14, Mr Crawford says this:
Mr Sherwin has also been charged with one count of dishonestly breaching his duties as a director of Wickham between November 2009 and October 2010.
Mr Crawford says that Mr Sherwin appeared in the Brisbane Magistrates Court on the first mention of the charges and certain bail conditions were set.
In his affidavit sworn 8 July 2015, Mr Copley, who is employed by ASIC as Litigation Counsel and who has had the carriage of this proceeding since 27 January 2013, says at para 4 that the primary focus of ASIC’s investigation has been the referral of briefs of evidence to the CDPP in respect of the contended conduct of Mr Sherwin and Mr Robertson. Mr Copley says at para 6 of his affidavit that since the making of orders by consent on 14 March 2014, no substantive step has been taken in the principal proceeding either by ASIC or any of the defendants until the filing of Mr Sherwin’s interlocutory application on 5 June 2015. Mr Copley says that Mr Sherwin was charged with particular offences by the CDPP on 22 May 2015. Mr Sherwin has made his intention plain to defend those charges. Mr Robertson was charged with particular offences on 18 March 2015 by the CDPP. Those charges were mentioned on 25 June 2015. At the date of swearing Mr Copley’s second affidavit on 31 July 2015, the “hand up” committal proceeding in respect to the charges against Mr Robertson had been adjourned until 20 August 2015.
Mr Copley’s affidavit sworn 31 July 2015
In Mr Copley’s second affidavit, he says that in accordance with the orders of the Court made on 9 July 2015, ASIC filed a range of subpoenas on 15 and 16 July 2015 seeking documents from the Commonwealth Bank of Australia Limited (“CBA”); the Colonial Mutual Life Assurance Society Limited (“Colonial Mutual”); Worrells Solvency + Forensic Accountants (“Worrells”); George Bousgas, GB Lawyers; Infinite Property Management Pty Ltd trading as Ray White Redcliffe; and, ING Bank (Australia) Limited.
Mr Copley says that the material produced by those addressees is voluminous and at the date of swearing the affidavit, ASIC was still in the process of analysing the content of the material. Nevertheless, Mr Copley annexes documents from the material to his affidavit and contends that a review of the documents produced on subpoena “tends to suggest” particular matters. Mr Copley then describes a range of circumstances drawn from the documents.
The relevant matters are these.
On 22 November 2007, Mavis Mary Sherwin opened a “New Account” at the CBA described as a “Pensioner Security Account” in a CBA document (at HDC 7 – p 9) bearing a particular account number which ends with the digits 1960 (the “1960 account”). The date of birth of Mavis Mary Sherwin is recited as 28 February 1917 and thus at the date of opening the account she was aged 90 years and nine months. The CBA document recites that Mavis Mary Sherwin was an existing account customer having opened an account on 12 June 1996.
At HDC 7, pp 13 to 23, Mr Copley attaches a series of “Saving Bank Ledger Transaction” details for the period commencing 3 January 2013 to 31 December 2014. The transactions show a regular fortnightly deposit to the 1960 account of payments described as “Pension” payments. They begin on 3 January 2013 in an amount of $772.60 and incrementally increase across the period to $808.40, $815.08, $827.10 with other increments. The transactions show withdrawals of relatively minor amounts from time to time.
At p 22, the ledger transactions show that a Pension payment was received on 9 October 2014 of $854.30 and at p 23 the account balance at 22 October 2014 is shown as $384.12. On 22 October 2014, the account balance is shown as $1,295,907.72, consequent upon a deposit on that date of $1,295,523.60 into the account: that is, Mavis Mary Sherwin’s “Pensioner Security Account”. The next day, 23 October 2014, the balance of the account is shown as $26,762.02 as a result of a withdrawal (transfer) from the account of $1,270,000.
At p 24 of HDC 7, Mr Copley annexes a document described as “Application for Discharge” bearing the title and logo “CommInsure” (“CommInsure”). The document is an Application for Discharge and Deed of Release in respect of a policy of insurance in the name of Bradley Sherwin. The policy owner is described as Bradley Sherwin. The document is date stamped 24 October 2014 although the document is signed and witnessed on 20 October 2014. The “net claim value” under the policy at 21 January 2013 is recited as $1,295,523.60, the amount of the deposit into Mavis Mary Sherwin’s 1960 account. The document recites an amount of “Total and Permanent Disablement Benefit” under the policy of $1,295,523.60 and recites that payment of this amount to Bradley Sherwin is in full and final satisfaction of CommInsure’s liability under the policy. The document bears a signature above Bradley Sherwin’s name with a date of signing of 20 October 2014 and a signature above a witness, Michael J Purvis, also bearing the date 20 October 2014.
At p 25 of HDC 7, Mr Copley attaches a “Payment Options” document which requests CommInsure to deposit the funds into an account in the name “Sherwin” at the CBA into an account which recites, as the last six digits of the account, the same six digits of Mavis Mary Sherwin’s CBA account.
At p 26 of HDC 7, Mr Copley attaches a letter from CommInsure to Mr Bradley Sherwin dated 20 October 2014 which confirms that an amount of $1,295,523.60 “has been directly credited to your nominated bank account, representing payment of the Total and Permanent Disablement Benefit of your policy”.
At pp 28 and 29 of HDC 7 and following, Mr Copley attaches to his affidavit a “Commonwealth Bank Account Confirmation Form” as at 20 October 2014. On 20 October 2014, Mavis Mary Sherwin opened another “Pensioner Security Account” bearing a new account number ending with the last four digits 2329 (the “2329 account”). At p 33 of HDC 7, Mr Copley attaches to his affidavit a Commonwealth Bank document entitled “Authority to Operate – Third Party”. That Authority relates to Mavis Mary Sherwin’s new Pensioner Security Account. The Authority authorises Bradley Thomas Sherwin to operate the new account.
At p 35 of HDC 7, Mr Copley attaches a Transaction Statement for the new Pensioner Security Account. The first transaction for the account is dated 23 October 2014 and shows a credit, based on a transfer from the 1960 account, of $1,270,000. That amount, of course, is precisely the same amount as the withdrawal from the 1960 account and the transaction identification reference shows a transfer from the 1960 account.
At p 40 of HDC 7, Mr Copley attaches a document described as “Interactions History” concerning Mavis Mary Sherwin created on 29 October 2014 at 4.06pm by Stacey Tripp at the Carindale Branch of the Commonwealth Bank. The document is also described as a “File Note” of a meeting with Mrs Mavis Mary Sherwin which lasted for 30 minutes and eight seconds. The File Note records that Mrs Sherwin has two accounts and the full account numbers are set out. They are the same account numbers for the accounts earlier described. The “Notes” are (among other entries) in these terms:
Mrs Sherwin attend[ed] the branch on Friday 24/10/2014 to report her passbook [for the 1960 account] lost – we have reissued Mrs Sherwin a new passbook. Mrs Sherwin noticed a very large withdrawal going into the account and then coming out of her book – Mrs Sherwin confirmed this was not her money. Mrs Sherwin also told the staff she only had one account and was not sure why there was 2. Mrs Sherwin did confirm her son has authority to operate on the accounts. Mrs Sherwin did confirm she does not have a credit card and wasn’t aware that an application had been processed. Group Security have placed a stop on the credit card and netbanking access – While Mrs Sherwin was in the branch her [carer] received a phone call which was Mrs Sherwin[’s] son Bradley Sherwin. Mrs Sherwin confirmed with us that the funds credited to her passbook did not belong to her and that her son had arranged to [for] the money to go into her passbook without her permission. Mrs Sherwin was very upset and angry with her son and advised that her son had done this before.
...
OPC have confirmed the credit of $1,295,000 into Mrs Sherwin’s passbook [1960 account] was from Colonial Mutual [with a particular reference number recited]. …
Subsequent to the deposit of $1,270,000 into the 2329 account, an amount of $80,000 was deposited into the account on 17 November 2014 and an amount of $2,248.59 was deposited into the account as interest on 1 December 2014. Apart from those deposits, substantial amounts were withdrawn from the account in the period 23 October 2014 to 31 December 2014 resulting in a closing balance on 31 December 2014 of $14,652.85. Some of the withdrawals, made from Commonwealth Bank branches, were these:
$381,805 Coolangatta Branch, on the same day as the deposit of $1,270,000, namely, 23 October 2014 $9,520 Tweed Mall Branch, 24 October 2014 $9,900 Queen Street Branch, Brisbane, 27 October 2014 $9,000 Coolangatta Branch, 29 October 2014 $21,510 Tweed Mall Branch, 6 November 2014 $9,850 Tweed Mall Branch, 6 November 2014 $10,000 Tweed Mall Branch, 6 November 2014 $30,010 Coolangatta Branch, 10 November 2014 $80,010 Aspley Branch, 13 November 2014 $40,410 Tweed Mall Branch, 14 November 2014 $40,010 Redcliffe Branch, 21 November 2014 $10,010 Redcliffe Branch, 21 November 2014 $400,108.29 Redcliffe Branch, 11 December 2014
At pp 42, 44 and 46 of HDC 7, Mr Copley attaches copies of Commonwealth Bank cheques drawn on the 2329 account. Bank Cheque No. 641252 dated 23 October 2014 in an amount of $275,000 is payable to the Trust Account of Lawyers, Lawler Miller. Mr Copley asserts in his affidavit that these lawyers are the lawyers retained by Mr Sherwin in relation to the criminal matters. Bank Cheque No. 641253 dated 23 October 2014 in an amount of $47,124 is payable to Worrells. Bank Cheque No. 641254 dated 23 October 2014 in an amount of $9,741 is payable to the Trust Account of Lawyers, Hartley Healy. Mr Copley asserts in his affidavit that these lawyers are a firm of Family Law practitioners. Bank Cheque No. 557177 dated 6 November 2014 in an amount of $21,500 is payable to Grand Motors Toyota: see p 48 of HDC 7. On 6 November 2014, an amount of $21,510 was withdrawn from the 2329 account at the Tweed Mall Branch of the Commonwealth Bank.
At pp 55 to 59 of HDC 7, Mr Copley attaches a document described as “REIQ Contract for Houses and Residential Land”. The contract date is 8 December 2014. By that contract, Nu Property Pty Ltd ACN 603 167 111 as Trustee for the Nu Property Trust purchases from Donna Jane Shanks a property located at 32 James Street, Scarborough described as Lot 175 on RP 30459 with Title Reference 12720015. The purchase price is recited as $405,000. The settlement date is recited as 19 December 2014. As mentioned above, on 11 December 2014 a withdrawal was made from the 2329 account at the Redcliffe Branch of the Commonwealth Bank in the amount of $400,108.29. The contract recites that the buyer’s solicitor is “GB Lawyers” of Sandgate. On 12 December 2014, GB Lawyers receipted into their Trust Account an amount of $409,598.29 which was ultimately disbursed on the settlement of the purchase transaction on 19 December 2014. Of that disbursement, a refund was made to Deborah Sherwin of $650: see Trust Account Statement GB Lawyers at p 63 of HDC 7. The transfer of the property to the buyer was lodged with the Titles Office on 22 December 2014: see p 66 of HDC 7.
At pp 70 to 73 of HDC 7, Mr Copley attaches a copy of an historical extract from ASIC’s company’s database in respect of Nu Property Pty Ltd. The company has a start date of 2 December 2014 having been registered on that date. Deborah Sherwin was the sole Director of the company from 2 December 2014 until 29 January 2015. She was also the Company Secretary for that period.
On 22 July 2015, the solicitors for Mr Bradley Sherwin wrote a letter to ASIC in which they said this:
At the time the Interlocutory Application was filed, we were not aware that criminal proceedings had been commenced against our client.
In light of that, and the effect of Section 1317N of the Corporations Act 2001, our instructions are that our client does not intend to press for the orders sought in item 4 of our client’s Interlocutory Application.
Otherwise, our client intends to proceed with the application so far as it relates to orders 1 to 3, 5 and 6 of the Interlocutory Application.
Item 4 of the application sought an order that in the event that ASIC failed to take a step by 1 July 2015, the proceedings be deemed resolved and the originating process dismissed. Orders 1 to 3, 5 and 6 concerned orders in relation to the sealing of Mr Sherwin’s affidavits, the dismissal of the proceeding, alternatively, the discharge of the injunctions, costs and any other appropriate order. Thus, Mr Sherwin pressed for that relief supported by the affidavits he had filed.
Mr Sherwin’s interlocutory application together with his affidavit sworn 20 May 2015 was served upon ASIC enclosed with a letter from Mr Sherwin’s solicitors to ASIC dated 22 June 2015. It was served upon ASIC on 25 June 2015 by post. ASIC sent a letter to Mr Sherwin’s solicitors dated 25 June 2015 raising certain matters in relation to the application and Mr Sherwin’s solicitors responded on 3 July 2015. On 7 July 2015, ASIC wrote to Mr Sherwin’s solicitors raising questions about service of the application on other affected parties. In that letter, Mr Copley said this:
I note your comments concerning the likely attitude of Messrs Morgan Lane and Raj Khatri of Worrells (Mr Sherwin’s bankruptcy trustees) to the Sherwin Application. It should be noted that, since February this year, ASIC has been awaiting information from Mr Sherwin’s bankruptcy trustees concerning notification that ASIC had received from Stefan Dopking (the liquidator appointed to a number of other defendants) to the effect that Mr Sherwin had received, or was soon to receive, a payment of $1.2M (the unaccounted for funds). Service of the Sherwin Application has caused ASIC to renew its enquiries with Mr Sherwin’s bankruptcy trustees in respect of the unaccounted for funds. ASIC has this afternoon been contacted by Mr Lane. Mr Lane has indicated that:
(i)he had no personal knowledge of the fact of the Sherwin Application (though he has not yet spoken to Mr Khatri, who may have such knowledge); and
(ii)Mr Sherwin’s bankruptcy trustees intend to make further enquiries of Mr Sherwin concerning the unaccounted for funds and whether those funds are properly part of his bankruptcy estate.
The Sherwin affidavits make no mention of the unaccounted for funds. …
As earlier mentioned, on 31 July 2015, the directions orders of 9 July 2015 were vacated as was the hearing date of 7 August 2015. The interlocutory application was dismissed with directions orders as to the filing of affidavits and submissions on the question of costs. Mr Sherwin was required to file and serve any affidavit material and submissions within 14 days of service upon his solicitors of ASIC’s material and submissions. Apart from submissions on behalf of Mr Sherwin, Mr Sherwin sought to rely upon a further affidavit dated 1 September 2015. ASIC objects to the receipt of that affidavit as it is out of time. I give leave to rely upon the further affidavit. In that affidavit, Mr Sherwin says this at paras 3 to 6:
3.In paragraphs 15 to 18 of the Plaintiff’s Submissions, the Plaintiff submits to the Court that I sought to dismiss my interlocutory application in these proceedings as a consequent[ce] of certain communications from the Plaintiff to my solicitors.
4.I did not instruct my solicitors to seek to dismiss my application because of any communication from the Plaintiff.
5.In my earlier affidavit sworn on 19 June 2015 I deposed (in particular at paragraphs 16 to 22) to a series of health conditions and issues that I was at the time, and still am, suffering from.
6.The reason I instructed my solicitors to withdraw my application was because the stress and anxiety I was suffering as a result of the existence of the application and the potential need to be cross examined was exacerbating a number of those health issues and I was concerned about the ongoing effect on my mental and physical health while the application was still on foot. I made this decision following a number of consultations with my psychiatrist, Dr Richardson, since filing the interlocutory application.
In Mr Sherwin’s principal affidavit in support of the interlocutory application, he sets out circumstances he says are relevant to the application concerning the state of his assets and his present financial position. In that affidavit, he makes no reference to any of the matters described at [64] to [74] of these reasons. For the purposes of determining the costs question, I am willing to infer that the references to Bradley Sherwin in the material attached to the affidavit of Mr Copley is Bradley Sherwin, the second defendant in the principal proceeding and the applicant on the interlocutory application.
To the extent that the orders of the Federal Court made on 21 January 2013 (and extended as earlier described restraining Mr Sherwin in the way described in those orders) are said to be futile or lacking utility by reason of the changes in Mr Sherwin’s asset position and financial circumstances, that proposition simply cannot be made good without any discussion of the receipt by Mr Sherwin on or about 20 October 2014 of the CommInsure payment of $1,295,523.60 deposited to the 1960 account on 22 October 2014 in the name of Mavis Mary Sherwin. I am willing to infer that there is a relationship between Mavis Mary Sherwin and Bradley Sherwin and in all probability Mavis Mary Sherwin is Mrs Sherwin, the mother of Bradley Sherwin.
In any event, Mr Bradley Sherwin has remained entirely silent about any of the financial factual matters described at [64] to [74] of these reasons.
Mr Sherwin’s bankruptcy trustees might contend that the monies received by Mr Sherwin from CommInsure represents property of the bankrupt divisible among his creditors. Mr Sherwin might take a different position and presumably does so as there is no mention in his affidavit of the CommInsure monies coupled with observations by him that these monies are not available to him as they form property of the bankrupt in which the trustees have an interest. Mr Sherwin might have made some observations to that effect, if he held that view, as, in that circumstance, those monies would not be available to him which would be consistent with his position that his financial resources are very limited.
On the other hand, if the monies received from CommInsure are not property of the bankrupt for the purposes of the Bankruptcy Act 1966 (Cth) divisible amongst his creditors, then one would have expected to see some discussion by Mr Sherwin of the receipt of those monies and their use.
In Mr Sherwin’s supplementary affidavit he says that he did not seek to dismiss his interlocutory application by reason of anything said by ASIC to his solicitors in the letter earlier mentioned. He says that he sought to dismiss the application by reason of the stress and anxiety associated with the application. Nevertheless, Mr Sherwin does not take issue in his supplementary affidavit with any of the factual contentions put to his solicitors about the receipt on or about 20 October 2014 of $1,295,523.60.
Mr Sherwin must have understood that his affidavit of 19 June 2015 was not a full and frank disclosure of the relevant financial circumstances. ASIC was required to test that affidavit by seeking leave to issue subpoenas to the relevant addressees and then examine the documents produced by those addressees. Mr Sherwin must have understood that there was no prospect of his application being successful in the light of the actual financial circumstances relevant to the application. I do not accept that the principal proceeding has been delayed by ASIC. The financial circumstances relevant to the principal proceeding overlaps substantially the circumstances relevant to ASIC’s investigation of the relevant events and the possibility that criminal proceedings would be taken against Mr Sherwin. In those circumstances, the civil proceedings would need to take account of the possibility or probability of criminal proceedings.
I am satisfied that ASIC has been put to incurring legal costs which it ought never to have incurred. I am also satisfied that Mr Sherwin’s affidavit in support of the application does not accurately disclose the relevant financial circumstances. Mr Sherwin’s interlocutory application is not simply an application which raises issues where minds might legitimately differ about a question that requires judicial determination. The application was doomed to fail once it became clear that the relevant financial circumstances had not been disclosed. Mr Sherwin may well have elected to seek dismissal of the application due to the stress and anxiety he was experiencing about it. Nevertheless, the material he assembled in support of the application was substantially inaccurate by omission and he sought to rely upon that material to secure particular orders from the Court.
The exercise of the discretion as to costs arising under s 43 of the Federal Court of Australia Act 1976 (Cth) is informed by a number of considerations. Fundamentally, however, the discretion is exercised to compensate a party for the costs it has incurred in successfully addressing or resisting contentions advanced against it by another party to proceedings. The discretion is not exercised for the purpose of penalising an unsuccessful party. The nature of the discretion is compensatory or restitutionary in principle.
However, in circumstances where a party such as Mr Sherwin has mounted an application against another party such as ASIC which is supported by material which fails to accurately set out the relevant facts (by omission) and the forensic testing of those facts then falls to the other party with the result that costs are incurred in addressing the application (and those facts) which ought never to have been incurred, the successful party ought to have the benefit of a costs order which properly compensates it for the unnecessary costs incurred. Such an order ought to provide a greater degree of compensation or restitutionary effect than merely a party and party costs order.
I am satisfied that in this case it is appropriate to make an order for indemnity costs coupled with the direction in relation to certain aspects of those costs set out in the orders made today.
I certify that the preceding eighty‑nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate:
Dated: 30 October 2015
0
0
2