Australian Securities and Investments Commission v West - [2008] SASC 111

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v WEST & ANOR
[2008] SASC 111
Judgment of The Honourable Justice Gray
9 May 2008
CORPORATIONS - GENERALLY - CORPORATIONS LEGISLATION
CORPORATIONS - MANAGED INVESTMENTS - WHAT CONSTITUTE - GENERALLY
CORPORATIONS - MANAGED INVESTMENTS - WINDING UP
CORPORATIONS - WINDING UP - OTHER GROUNDS FOR WINDING UP - JUST AND EQUITABLE
CORPORATIONS - SUPERVISION - COURTS - POWERS - INJUNCTIONS RELATING TO CONTRAVENTION OF LEGISLATION
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
Application by ASIC for winding up orders against second defendant, pursuant to s 461(1)(k) Corporations Act, and against alleged unregistered managed investment scheme operated by second defendant and first defendant, a director of the second defendant , pursuant to s 601EE Corporations Act – injunctive and declaratory relief and ancillary orders also sought against defendants – whether second defendant should be wound up – whether business operation of second defendant constitutes a managed investment scheme – whether alleged managed investment scheme should be wound up – whether alleged managed investment scheme was required to be registered (s 601EB) – whether alleged managed investment scheme was unregistered and therefore unlawful (s 601ED(5)) – whether interests in alleged managed investment scheme constituted “financial products” (s 763A) – whether defendants made offers in relation to issue of financial products in alleged managed investment scheme (s 1020A) – whether defendants unlawfully failed to provide a product disclosure statement in relation to offer and/or issue of interests in alleged managed investment scheme (s 1012B) – whether second defendant failed to keep necessary financial records (s 286) – whether second defendant unlawfully carried on financial services business without holding an Australian Financial Services Licence (s 911A) – whether the defendants should be permanently restrained from further promoting or operating the managed investment scheme (ss 1101B, 1324(1) – whether the defendants should be permanently restrained from carrying on any business related to a managed investment scheme or being involved in the promotion or establishment of a managed investment scheme that requires registration – whether declarations of contravention should be made against defendants – whether defendants should pay ASIC's costs on an indemnity basis – whether certificate for senior counsel – consideration of legislative scheme of Corporations Act, ASIC Act 2001 (Cth), Financial Services Reform Act 2001 (Cth) and Managed Investments Act 1998 (Cth) – consideration of documentary evidence tendered at trial.
Held (allowing the application): second defendant wound up and liquidator appointed – mortgage investment business constituted an unregistered managed investment scheme - mortgage investment business wound up and liquidator appointed – declarations of contravention against the following Corporations Act provisions made: ss 286, 601ED(5), 911A, 1020A, 1012B – permanent injunctions against the defendants granted – first defendant to pay costs of action on an indemnity basis and costs of placing second defendant into provisional liquidation on a party and party basis - second defendant to pay the costs of ASIC on a party and party basis to the date of the order for provisional liquidation - certified fit for two counsel including senior counsel.
Acts Interpretation Act 1901 (Cth) s 25; Australian Securities and Investments Commission Act 2001 (Cth) s 1(2), s 5, s 8, s 11, s 12A, s 13, s 19 and s 76; Companies (NSW) Code 1981 ; Corporations Act 2001 (Cth) s 9, s 21, s 286, s 449B, s 461(1)(k)), s 462(2)(e), s 464, s 475(7), s 588E(4), s 601EA, s 601EB, s 601EC, s 601ED, s 601EE, s 601FA, s 601FC, s 601FD, s 601FE, s 601FF, s 601MA, s 601MB, s 760A, s 761A, s 761C, s 761E, s 761G, s 762A, s 763A, s 763B, s 764A, s 765A, s 766A, s 766C, s 911A, ; Corporations Act 2001 (Cth) - continued: s 912E, s 916A, s 1011B, s 1012B, s 1012E, s 1012DA, s 1012E, s 1020A, s 10122A, s 1022B, s 1022C, s 1101B(1), s 1311, s 1311(1A), s 1318(1), s 1323, s 1324(1), s 1325 and s 1337B(2); Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 (Cth); Corporations Regulations 2001 (Cth) reg 5.1.01(1), reg 7.9.16A, Item 8203(a) of Schedule 3; Corporations Rules 2003 (SA) r 1.3; Evidence Act 1929 (SA) s 45A and s 45B; Federal Court Act 1976 (Cth) s 21(1); Financial Services Reform Act 2001 (Cth); Managed Investments Act 1998 (Cth); Supreme Court (Civil) Rules 2006 (SA) r 263 and r 264; Supreme Court Act 1935 (SA) s 31; Supreme Court Act 1935 (SA) s 40(1); Supreme Court Rules 1987 (SA) r 101.01, referred to.
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; Alexander v Donohoe (1906) 4 CLR 781; ASC v AS Nominees Ltd (1995) 62 FCR 504; ASIC v ABC Fund Managers Ltd (2001) 39 ACSR 443; ASIC v ABC Funds Management Ltd (No 3) [2001] VSC 397; ASIC v Adler (2001) 38 ACSR 266; ASIC v Arafura Equities Pty Ltd (2005) 56 ACSR 429; ASIC v Austimber Pty Ltd (1999) 17 ACLC 893; ASIC v Chase Capital Management Pty Ltd (2001) 36 ACSR 778; ASIC v Drury Management Pty Ltd [2004] QSC 068; ASIC v Enterprise Solutions 2000 Pty Ltd (1999) 33 ACSR 403; ASIC v Enterprise Solutions 2000 Pty Ltd [2003] 1 Qd R 135; ASIC v FUELbanc Australia Ltd (2007) 162 FCR 174; ASIC v Hutchings (2001) 38 ACSR 387; ASIC v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416; ASIC v IP Product Management Group Pty Ltd (2002) 42 ACSR 343; ASIC v Maxwell [2004] NSWSC 221; ASIC v McDougall and others (2006) 229 ALR 158; ASIC v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561; ASIC v Rich (2001) 51 NSWLR 643; ASIC v Sweeney [2001] NSWSC 114; ASIC v Takaran Pty Ltd (2002) 170 FLR 388; ASIC v Young (2003) 173 FLR 441; Australian Softwood Forests Pty Ltd & Ors v Attorney-General for the State of New South Wales; Ex rel Corporate Affairs Commission (1982) 148 CLR 121; Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287; Beasley v Marshall (No 3) (1986) 41 SASR 321; Burton v Arcus (2006) 32 WAR 366; Casley-Smith v Evans & Sons (1989) 148 LSJS 483; Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225; Corporate Affairs Commission (NSW) v Walker (1987) 11 ACLR 884; Corporate Affairs Commission of NSW v Transphere Pty Ltd (1988) 15 NSWLR 596; Corporate Affairs Commission v ASC Timber Pty Ltd (1992) 10 ACSR 525; Davies v Chicago Boot Co Pty Ltd (No 2) (2007) 96 SASR 164; Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549; Eastern Garden Pty Ltd v Sangster (No 2) [2004] SASC 66; Ebrahimi v Westbourne Galleries Ltd [1973] AC 360; Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd (2006) 157 FCR 229; Forster v Jododex Aust. Pty Ltd (1972) 127 CLR 421; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Groom v Earthmoving Contractors Association (No 2) [2001] SASC 241; Hurst v Vestcorp Ltd (1988) 12 NSWLR 394; JN Taylor Holdings Ltd (in liq) v Bond (1993) 59 SASR 432; Kroehn v Kroehn (1912) 15 CLR 137; Litmus Australia Pty Ltd (in liq) v Canty (2006) 57 ACSR 71; Loch v John Blackwood Ltd [1924] AC 783; Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148; Manning v Cory [1974] WAR 60; Nilant v RL & KW Nominees Pty Ltd [2007] WASC 105; Pastro v Lombard Insurance Co Ltd (No 2) (1993) 172 LSJS 276; Peacock v Newtown Marrickville General Co-op Building Society Ltd (No 4) (1943) 67 CLR 25; Re Bleriot Manufacturing Aircraft Co (Ltd) (1916) 32 TLR 253; Re Netsor Pty Ltd (1981) 6 ACLR 114; Re Straw Products Pty Ltd [1942] VLR 222; Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151; Ruhani v Director of Police (2005) 222 CLR 489; Sheahan v Northern Australia Land and Agency Co (Unreported, Supreme Court of South Australia; Full Court, Mohr, Olsson and Nyland JJ, 18 December 1995); Stanley v Phillips (1966) 115 CLR 470; Sunburst Properties Pty Ltd (in liq) v Agwater Pty Ltd and Ors (No 2) [2005] SASC 393; Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89; Trade Practices Commission v Nicholas Enterprises (1979) 28 ALR 201; Van Reesema v Flavel (1992) 7 ACSR 225; Waldron v Auer [1977] VR 236; Walton v McBride (1995) 36 NSWLR 440, considered.

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v WEST & ANOR
[2008] SASC 111
Civil
GRAY J
INTRODUCTION
Australian Securities and Investments Commission
Jonathan Peter West
John West & Associates Pty Ltd (ACN 008 156 929)
Janet Hamilton West
PROCEDURAL HISTORY
ASIC Investigation
ASIC Proceedings
The $60,000 Transaction
Settlement
DOCUMENTARY MATERIAL
The Pleadings
The Tender Bundle
Affidavit Evidence
Other Documentary Evidence
UNLAWFUL OPERATION OF MANAGED INVESTMENT SCHEME
Legislative Scheme
Regulation of Managed Investments Schemes
Effect of Contravention of Chapter 5C

Analysis of the Elements of a Managed Investment Scheme
The Concept of a Scheme: Section 9(a)
The Contribution of Money: Section 9(a)(i)
Pooling or Common Enterprise: Section 9(a)(ii)
Lack of Day-to-Day Control: Section 9(a)(iii)

Findings of Fact
An Alternative Claim
WINDING-UP APPLICATIONS
John West & Associates Pty Ltd
The Scheme
CONTRAVENTION OF CORPORATIONS ACT PROVISIONS
Failure to Keep Written Financial Records
Unlawful Offer, Issue & Dealing in Financial Products
Legislative Scheme
Failure to Provide a Product Disclosure Statement
Carrying on a Financial Services Business without Holding an Australian Financial Services Licence

DECLARATIONS OF CONTRAVENTION
PERMANENT INJUNCTIONS
COSTS
CONCLUSION

Introduction

This is an application by the plaintiff, the Australian Securities and Investments Commission (“ASIC”), for winding-up orders against the second defendant, John West & Associates Pty Ltd (In Liquidation) (“JWA”) and an alleged unregistered managed investment scheme (“the scheme”). The scheme was operated by JWA together with the first defendant, Jonathan Peter West (“Mr West”), who was at relevant times a director of JWA. In addition, ASIC sought injunctive and declaratory relief, and ancillary orders. ASIC appeared pursuant to its statutory powers seeking to argue matters of public interest.
In summary, the proceedings concern a dispute over the operation of a private mortgage investment business conducted by the defendants, in which it was alleged that investors loaned moneys to Mr West and alternatively to JWA. Mr West and JWA were engaged in a scheme of seeking moneys from members of the public to be invested on the security of mortgages. The scheme involved bringing together investors with borrowers who were prepared to grant a mortgage of land, or some other asset, as security. There was a pooling of funds. The scheme involved more than 60 investors with loans and contributions totalling more than $15.2 million. ASIC alleged that approximately $9.3 million of these funds remains outstanding, together with claims for interest.
In the course of the proceedings I concluded that there was an unregistered managed investment scheme operated by Mr West and JWA. I made winding-up orders against JWA on 18 September 2007, and the managed investment scheme on 27 September 2007. I now publish my reasons for the making of those orders as well as the declarations and further orders that are referred to hereafter.
The trial of the proceedings was judicially managed with the assistance of Masters of the Court. The matter has proceeded with expedition. The issues of fact and law that arise are complex, and have resulted in the collation and presentation of extensive evidentiary material. I acknowledge the considerable efforts of those who have appeared in the proceedings and those involved in preparing the matter for trial.
Issues of public importance concerning the regulation and supervision of managed investments have arisen in these proceedings. In order to understand these issues it is necessary to outline the parties to the dispute, to identify the procedural history of the proceedings and to make reference to relevant statutory provisions.
Australian Securities and Investments Commission
ASIC is a statutory body corporate constituted pursuant to section 8 of the Australian Securities and Investments Commission Act 2001 (Cth). ASIC’s functions and powers are conferred under the corporations legislation, defined in section 5 of the Australian Securities and Investments Commission Act to mean the Australian Securities and Investments Commission Act and the Corporations Act 2001 (Cth), and are also conferred under agreements or arrangements with States and Territories.[1] ASIC serves the important public interest function of securing compliance with the legislation it regulates. As was observed by Finn J in Australian Securities Commission v AS Nominees Ltd:[2]
As a matter of obligation in our system of government the ASC, like all other agencies of government, is required to act in the public interest within its sphere of responsibility …
[1] Australian Securities and Investments Commission Act 2001 (Cth), section 11.
[2]ASC v AS Nominees Ltd (1995) 62 FCR 504 at 530 (Finn J). The Australian Securities Commission (ASC) became the Australian Securities and Investments Commission (ASIC) on 1 July 1998 as a result of the enactment of the Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 (Cth).
The policies relevant to the performance of ASIC’s functions and powers are set out in section 1(2) of the Australian Securities and Investments Commission Act as follows:
In performing its functions and exercising its powers, ASIC must strive to:
(a)maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and
(b)promote the confident and informed participation of investors and consumers in the financial system; and
(d)administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and
(e)receive, process and store, efficiently and quickly, the information given to ASIC under the laws that confer functions and powers on it; and
(f)ensure that information is available as soon as practicable for access by the public; and
(g)take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.
ASIC’s functions and powers are primarily set out in sections 11, 12A and 13 of the Australian Securities and Investments Commission Act. ASIC is expressly declared to have “power to do whatever is necessary for or in connection with, or reasonably incidental to, the performance of its functions”.[3]
[3] Australian Securities and Investments Commission Act 2001 (Cth), sections 11(4) and 12A(6).
Section 11 of the Australian Securities and Investments Commission Act outlines the general administrative powers of ASIC. Section 12A of that Act sets out ASIC’s functions and powers in relation to the monitoring and promotion of market integrity and consumer protection in relation to the Australian financial system. The Australian Securities and Investments Commission Act addresses ASIC’s investigative power. Section 13 relevantly provides:
(1)ASIC may make such investigation as it thinks expedient for the due administration of the corporations legislation (other than the excluded provisions) where it has reason to suspect that there may have been committed:
(a)     a contravention of the corporations legislation (other than the excluded provisions); or
(b)     a contravention of a law of the Commonwealth, or of a State or Territory in this jurisdiction, being a contravention that:
(i)concerns the management or affairs of a body corporate or managed investment scheme; or
(ii)involves fraud or dishonesty and relates to a body corporate or managed investment scheme or to financial products.
(2)Where ASIC has reason to suspect that unacceptable circumstances within the meaning of Subdivision B of Division 2 of Part 6.12 of the Corporations Act have, or may have, occurred, ASIC may make such investigation as it thinks expedient:
(a)     for the purposes of determining whether or not to make an application under section 657C of that Act; or
(b)     otherwise for the due administration of the corporations legislation (other than the excluded provisions).
(6)If ASIC has reason to suspect that a contravention of a provision of Division 2 of Part 2 may have been committed, ASIC may make such investigation as it thinks appropriate.
Under Division 2 of Part 3 of the Australian Securities and Investments Commission Act in the event of an investigation, ASIC may require a person to appear for examination on oath.[4]By section 76, a statement made at an examination is generally admissible in evidence against the person in a proceeding.
[4] Australian Securities and Investments Commission Act 2001 (Cth), section 19(2).
Various provisions of the Corporations Act confer other functions and powers on ASIC. Examples relevantly include the surveillance power in section 601FF to check whether the responsible entity of a registered scheme is complying with the scheme’s constitution, compliance plan and the Corporations Act, and the obligation under section 912E of a financial services licensee to give assistance to ASIC when it reasonably requests that assistance when seeking to determine whether the licensee and its representatives are complying with the financial services laws.
Jonathan Peter West
Mr West is a financial planner. At the time of the commencement of the proceedings, Mr West was the sole director of JWA (ACN 008 156 929), registered on 26 October 1987, and Sovereign Securities Pty Ltd (ACN 008 174 301), registered on 21 April 1998.
Sovereign Securities was a service company to JWA and the registered proprietor of the business name “Financial Horizons”, and traded under this name. ASIC company extracts reveal that Financial Horizons was registered as a financial planning business carried on at 292 Payneham Road, Payneham, South Australia, 5070.
Between 1990 and 2002, Mr West held proper authorities from the following financial services licensees: DJ Belling from 27 September 1990 to 29 July 1992; ACN 007 988 918 Pty Ltd (formerly Maple Securities Pty Ltd) from 22 March 1993 to 17 December 1999; Personal Investment Planners Pty Ltd from 5 March 1996 to 10 March 2004; and Lifeplan Australia Friendly Society Ltd from 4 January 2001 to 27 July 2002.
On 16 February 2004, Mr West became an “authorised representative”[5] of Total Financial Solutions Pty Ltd, an Australian Financial Services Licence holder. Mr West was authorised to provide financial product advice, deal in financial products and apply for, acquire, vary or dispose of financial products on behalf of others. Mr West ceased as a representative of Total Financial Solutions on 30 September 2005.
[5]See section 916A Corporations Act 2001 (Cth). The concept of a “proper authority” was replaced with the concept of an “authorised representative” by the Financial Services Reform Act 2001 (Cth), which came into force on 11 March 2002.
John West & Associates Pty Ltd (ACN 008 156 929)

JWA, at relevant times, operated a private mortgage investment business. Initially JWA was solely the trustee of the JRS West Family Trust, a family trust established on 1 May 1997, through which it held and managed Mr West’s personal family assets. Since July 2005, JWA provided services to Mr West to assist in the operation of the private mortgage investment business. JWA performed the accounting and management of the JWA Trust Account.
ASIC company extracts revealed the registered address of JWA as 292 Payneham Road, Payneham, South Australia, 5070. It was the investment activities of this business which are said to constitute the managed investment scheme.
On ASIC’s case the following matters described the following elements of a managed investment scheme operated either by Mr West, JWA or both of them jointly:
A [managed investment scheme was] operated by either West, JWA or both of them jointly with the following elements (Scheme):
West or JWA or both of them jointly, during the period from November 1998 onwards:
[O]btained money from lenders;
[I]n the majority of cases, pooled those moneys in the Financial Horizons Trust Account or the JWA Trust Account;
[R]epresented to and/or agreed with lenders that the moneys were to be invested for various periods;
[R]epresented to and/or agreed with lenders that in return for advancing funds, lenders would receive the right to interest payments as agreed with West or JWA or both of them jointly;
[W]ere to use the funds to finance loans to borrowers with a view to generating profit out of which interest payments were to be paid to lenders; and
[L]enders did not have day-to-day control over the moneys invested with West or JWA or both of them jointly.
The flow of moneys through the JWA Trust Account has been outlined by ASIC as follows:
Monies received from lenders are deposited into the JWA Trust Account (or the Financial Horizons Trust Account). …
Monies [are] then taken out of trust account and paid to a borrower. …
Interest received from borrowers is paid into the JWA trust account. A portion of that interest is then paid to the lenders and a portion is paid to a bank account from the JRS West Family Trust. …
The JRS West Family Trust financial accounts record income earned from the loan scheme, as management fee for loans. …
Where loan monies have been provided directly from/to JRS West Family Trust or Sovereign Securities, the monies have been recorded in the financial accounts of the relevant entity. …
JWA is responsible for all the accounting and management of the JWA trust account. …
The JWA trust account does not appear in the financial accounts of JWA or JRS Family Trust. …
There are no financial statements prepared for the ... scheme. …
ASIC’s analysis of the operation of the scheme was based on the examination of documents supplied to ASIC by various persons and entities including Mr West, JWA, Total Financial Solutions and Sovereign Securities, and the transcript of an examination of Mr West conducted pursuant to section 19 of the Australian Securities and Investments Commission Act.
The moneys received from all sources in connection with the business were apparently processed through the following bank accounts: Financial Horizons (FH) Trust Account, operated through a bank account with Adelaide Bank Limited (March 2002 to July 2005); and John West & Associates Pty Ltd Trust Account, operated through a bank account with Adelaide Bank (after July 2005).
The business operation of JWA has been described by Mr West as follows:
The alleged scheme has the following characteristics:
[A]n investor will approach me requesting that I source an investment that provides an income stream. The most common objective of such investors is that I achieve a return on their money that is better than the return from a bank if they placed the funds on a deposit;
[T]he investor then usually opens a bank account with Adelaide Bank;
I am made a signatory to that account;
I then identify a suitable borrower to whom the investor’s funds could be advanced, and then broker the terms of the facility in favour of the borrower and the security to be provided in support of that facility by the borrower, between the borrower and the lender;
[O]nce the terms of the facility in favour of the borrower have been agreed as between the borrower and the lender, then the investor pays the investment funds into the investor’s said Adelaide Bank account. At this point in time I then issue a letter on JW&A letterhead to the investor confirming the arrangements. I call this document a promissory note and it is in a standard form. …
[S]ubject to obtaining the investor’s prior instructions, the investor’s funds are then transferred from the investor’s said Adelaide Bank account to me for the express purpose of advancing those funds to the borrower on the terms agreed;
[I]n order to ensure that the investor’s funds are not mixed with my personal funds, the investor’s funds are paid into a trust account operated by John West & Associates Pty Ltd (“JW&A”);
JW&A does not have a principal role in the alleged scheme. I am the principal operator of the alleged scheme. JW&A simply acts as a service company, providing me with certain services, including operating a trust account for the purpose of conducting the alleged scheme;
Accordingly, the JW&A trust account is an account through which I receive investor’s funds, pay those funds in accordance with the express purpose for which those funds were received, and receive payment of either principal or interest from the borrower on account of those borrowings;
[T]he funds that are paid to the borrower are paid from the JW&A trust account, and JW&A takes the relevant security, but does so as trustee for me, in my capacity as agent of the investor;
[W]hen the borrower pays interest on account of its borrowings, that interest is paid to JW&A who receives the same in trust for me. I receive the agreed proportion of that interest that is due to the investor, as agent for the investor and in the normal course I pay that interest to the investor. This usually occurs by the payment of funds by JW&A direct to the investor, but this occurs at my direction. I receive my share of the interest beneficially. This may be retained by JW&A for my benefit, or it may be paid to me, or it may be paid to a third party (such as my family trust) at my discretion;
[A]ccordingly at no time does either JW&A or I have beneficial interest in the investor’s capital. I receive it as the investor’s agent. JW&A receives in trust for me, but in my capacity as the investor’s agent, and then pays it to the borrower, takes security from the borrower, and receives repayment from the borrower in the same capacity;
[A]ny expenses incurred by JW&A in operating the trust account, such as bank fees and charges, are paid from interest earned on funds held in the JW&A trust account from time to time. If there are not sufficient moneys from this source to meet these charges then the charges are paid from monies which are beneficially owned by me in the form of surplus interest paid by borrowers after the investor’s interest entitlement has been paid. Accordingly the funds which are paid from the investor to the borrower and from the borrower to the investor through the JW&A account are not reduced by any kind of operating charge or expense. In this way the investor’s funds always remain intact and are fully accounted for;
[W]hen the borrower repays the principal debt, or any portion thereof, that is received into the trust account and then paid direct to the investor at my direction.
These proceedings primarily concern the use and operation of the JWA Trust Account. The accounts were managed using the software program “QuickBooks Premier Multi User Accounting”.
Janet Hamilton West
Mrs West is the spouse of Mr West. Although Mrs West was not a party to these proceedings, she was relevant to the proceedings due to her involvement in business activities of JWA and of other entities associated with Mr West. Mrs West was previously a director and company secretary of JWA between 26 October 1987 and 22 April 2004. Mrs West holds 50 per cent of the shares in JWA. On 15 March 2007, Mrs West was appointed as the sole director and company secretary of Sovereign Securities. Mr West asserted that Mrs West was a trustee of the JRS West Family Trust.
The 28 July 2006 transcript of the ASIC examination of Mr West revealed further information about Mrs West’s involvement in the mortgage investment business said to constitute the scheme. Mrs West was an employee of JWA and was paid a wage by JWA. She was responsible for preparing the information upon which the financial records prepared for JWA were based, and she was responsible for keeping the records of the scheme in QuickBooks. She was aware of and participated in the mortgage business said to constitute the scheme, was responsible for preparing the statements for the various loan codes, and had, on occasions, sent facsimiles to Adelaide Bank requesting the transfer of funds from a lender’s account to the Financial Horizons Trust Account. Her duties included the responsibility for keeping the records of the scheme and the provision of services to Sovereign Securities, for which a management fee was paid. Mrs West also asserted that she lent money to Mr West, which was in turn paid to JWA and invested into the scheme.
Procedural History
ASIC Investigation
In March 2005, ASIC commenced an inquiry into alleged contraventions of the Corporations Act by Mr West. This inquiry concluded that Mr West was conducting a mortgage investment business.
On 20 April 2006, ASIC commenced a formal investigation into suspected contraventions of sections 601ED, 911A, 1012B and 1020A of the Corporations Act, by Mr West, JWA, and related entities, in relation to the mortgage investment business. The investigation proceeded on the basis that the business comprised an unregistered managed investment scheme.
Between March 2005 and July 2006, ASIC served notices issued pursuant to Division 3 of Part 3 of the Australian Securities and Investments Commission Act on various entities including Mr West, JWA, Total Financial Solutions, and Sovereign Securities. Pursuant to the notices, ASIC received client files and other records, including lender or investor files and borrower files of the mortgage investment business.
On 27 and 28 July 2006, Mr West was examined pursuant to section 19 of the Australian Securities and Investments Commission Act. The examination was recorded, and the transcripts subsequently prepared from the recordings were tendered as evidence at trial in the present proceedings. During the examination, Mr West acknowledged that there were loans outstanding in an amount of between $7 million and $8 million, that 80 per cent of the loans were in default, and that 50 per cent of the investors, including Mr West and entities associated with him, were not receiving agreed interest payments.
ASIC Proceedings
On 15 March 2007, ASIC instituted the within proceedings. The originating process, inter alia, sought a winding-up order against JWA pursuant to section 461(1)(k) of the Corporations Act, a winding-up order against the scheme pursuant to section 601EE of the Corporations Act, an order appointing joint liquidators to JWA and the scheme, and injunctions pursuant to section 1324(1) of the Corporations Act restraining each of the defendants, their servants or agents or otherwise from further promoting or operating the scheme or any managed investment scheme within the meaning of the Corporations Act that requires registration under section 601EB of the Corporations Act and is not so registered.
The interlocutory processes were voluminous and complex, and often required urgent attention. It was not practicable to provide reasons at the time of the making of important orders, and accordingly it is convenient to record those reasons at this time. A consideration of the pre-trial proceedings also provides the necessary background to the reasons for the making of final orders.
On 16 February 2007, Barry James Gracey, a creditor, instituted winding-up proceedings in this Court, being Action 204 of 2007, against JWA on the grounds of insolvency, pursuant to section 459P of the Corporations Act.
On 27 March 2007, JWA sought leave to defend the summons. Later that day, the hearing of the winding-up summons was adjourned to 10 April 2007. On 10 April 2007, a further creditor filed a notice in support of Mr Gracey’s summons for winding-up.
On 1 May 2007, an interlocutory process in Action 204 of 2007 was filed, which sought the consolidation of that action with the within proceedings.
On 15 May 2007, the application for consolidation was not pursued. JWA brought an application to adjourn the winding-up summons pending the determination of the within proceedings. A master allowed the application.
Ultimately, the proceedings were adjourned by consent to 20 November 2007 in anticipation of the trial of the within proceedings being concluded by that date.In the event, the proceedings in Action 204 of 2007 have not been determined, and are presumably at an end.
The within proceedings first came before the Court on 23 March 2007. Following negotiation between the parties, agreement was reached as to the terms of the interlocutory relief. The effect of the interlocutory orders was to restrict the ongoing business activities of JWA, and to allow for close monitoring by ASIC. The purpose of the orders was to maintain the status quo of the scheme until the dispute could be determined by the Court. On 30 March 2007, ASIC sought further injunctive relief against Mr West and JWA. Following argument, the injunctive relief was extended.
From April to July 2007, numerous interlocutory applications were before the Court. The injunctive relief was varied to allow particular transactions to proceed, and to accord ASIC the opportunity of closer monitoring. Pleadings and amended pleadings were filed. The discovery process continued. Orders were made to facilitate the discovery process, including orders giving access to electronic information thereby allowing ASIC access to the defendants’ computer hardware and software.
The public interest in the proceedings suggested that an expedited trial should be held. To this end a trial date was set for mid June 2007. The necessary interlocutory processes, however, were unable to be concluded to allow the trial to proceed at that time. A trial date was then set for September 2007, with an indication to the parties that the public interest required the trial to commence at that time. Although it was accepted that this would put considerable pressure on the parties, in the event the trial was able to proceed according to the timetable.
In late July 2007, events of significance occurred. Administrators were appointed to JWA by Mr West. Mr Gracey sought an order to remove those administrators and for the appointment of new administrators pursuant to section 449B of the Corporations Act. The ground for the application was articulated in an affidavit filed in support of the application as follows:
Whilst I have no reason to think that the present administrators of the Company will not act independently, I am concerned that the appointment of the administrators of the Company was a tactical move by Mr West.
On 25 July 2007, JWA appeared in the proceedings with separate legal representation. Mr West continued to appear with his original legal representation. Counsel for Mr Gracey submitted that the application for the appointment of new independently appointed administrators was based on the perception that the appointment by Mr West was a tactical move. In this regard, counsel drew my attention to the decision in ASIC v Maxwell[6] where an administrator who appeared to have been appointed for tactical reasons was removed.
[6] ASIC v Maxwell [2004] NSWSC 221.
Following discussions with counsel for Mr Gracey, ASIC and JWA, it was agreed by those parties that the appointment of a provisional liquidator would be the best way to properly preserve matters pending trial. The appointment of a provisional liquidator was opposed by Mr West. I made an order terminating the administration of JWA and appointing Austin Robert Meerten Taylor as provisional liquidator of JWA. This was the appropriate order to maintain the status quo.
During August 2007, the parties were frequently before the Court as final directions were given concerning the preparation for trial. Of pressing concern was the obtaining of further discovery and production from Mr West. The concern arose from the examination of the electronic and other records and the belief that further documents may exist. Although ASIC was not able to indicate to the Court that the discovery process was complete, it was accepted that in the public interest the trial should proceed.
Late in August 2007, the Court approved the distribution of a circular from the provisional liquidator to all creditors advising of the proceedings, and to issues of concern that might arise. On 28 August 2007, a Form 507 “Report as to affairs” of JWA was filed by the provisional liquidator, pursuant to section 475(7) of the Corporations Act, regulation 5.1.01(1) and Item 8203(a) of Schedule 8 to the Corporations Regulations 2001 (Cth).
In early September 2007, ASIC was granted leave to issue subpoenas designed to bring into court relevant documents that had not been discovered, and which were in the possession or control of third parties, including a number of banks.
Later in September 2007, an order was made allowing JWA to file a more detailed report from the provisional liquidator in accordance with the decision in Australian Securities and Investments Commission v Arafura Equities Pty Ltd.[7]
[7]ASIC v Arafura Equities Pty Ltd (2005) 56 ACSR 429.
In the course of his opening address, counsel for ASIC submitted that the proceedings should be managed in two stages. The first would address the determination as to whether the defendants were operating a managed investment scheme and whether JWA and that scheme should be wound up. The Court would also consider consequential matters, including contravention orders against various provisions of the Corporations Act, the granting of injunctive relief, the making of declarations and orders as to costs.
The second stage would, in the event of ASIC obtaining orders, allow for the consideration of claims of different classes of creditors to be addressed. This would allow determination of whether any creditor could trace an entitlement to any particular asset.
During the trial of the proceedings, several issues arose for consideration which had a significant impact on the course of the trial. These issues are considered below.
The $60,000 Transaction
The examination of this transaction allowed for a detailed analysis of the business practices of the defendants. In particular, the examination disclosed the manner in which Mr and Mrs West and JWA dealt with a member of the public who was an investor in the scheme. The examination revealed a number of matters of grave concern, including grossly inadequate documentation of the financial arrangements. Many documents relating to this transaction had not been discovered by the defendants, and relevant information only came forward through subpoenas issued during the course of the trial. When this particular transaction was considered with other client transactions, a clear picture of the business dealings of the defendants was exposed. For these reasons, it is helpful to discuss this transaction in detail.
On 10 September 2007, during ASIC’s opening address, concern was raised regarding an internet transfer of $60,000 from the JWA Trust Account to Mrs West on 23 March 2007, in apparent contravention of an injunctive order of that date. On the morning of 11 September 2007, ASIC issued a subpoena to Adelaide Bank returnable that afternoon, so as to determine the exact time of the internet transaction. A response to the subpoena revealed that the internet transaction was completed at 3:53pm on 23 March 2007. This was subsequent to the hearing before me on 23 March 2007 which concluded at 2:40pm.

Counsel for Mr West submitted that the $60,000 transaction related to funds borrowed by Mrs West from Sisto Priarollo, an investor in the scheme. The Court was handed a promissory note between Mrs West as borrower and the Priarollo Superannuation Fund as noteholder dated 1 March 2007. The promissory note provided:
PROMISSORY NOTE (WITH GUARANTOR)
$190,000 (One Hundred & Eighty [sic] Thousand Dollars)
Dated: 1^st March 2007
For value received, the Borrower Mrs Janet Hamilton West of 5 Ainsley Court, Athelstone SA 5076 (the Borrower)
Promises to pay to (the Noteholder) PRIAROLLO SUPERANNUATION FUND, C/-13 Prinse Street, West Beach 5024, City of ADELAIDE, State of South Australia, the principal amount of $190,000 with interest at the rate of 1% per month, on any unpaid balance for each and every month or part thereof.
Payments are payable to the Noteholder being $1,900 IN FULL Per month, being interest only.
This Note may be prepaid in whole or in part at any time without penalty. If the Borrower is in default more than 7 days with any payment, this Note is payable upon demand of any Noteholder and may be used to secure a Caveat over the Property or Asset in their name. This note is not assumable without the written consent of the Noteholder. The Borrower waives demand, presentment for payment, protest, and notice. In the event of such default, Borrower will also be responsible for any costs of collection on this Note, including court costs and solicitor’s fees.
_________________________
(Signature of Borrower)
Janet Hamilton West
(Name of Borrower)
Counsel for Mr West took me to the relevant bank statement for the JWA Trust Account for the period from 1 to 31 March 2007, and a copy of a bank statement for the Priarollo Superannuation Fund from 1 January 2007 to 31 March 2007. The JWA statement recorded, inter alia, an internet transfer of $190,000 into the account on 1 March 2007 and an internet transfer of $60,000 out of the account on 23 March 2007. The Priarollo Superannuation Fund statement showed an internet transfer of $190,000 out of the account on 1 March 2007. Counsel submitted that Mrs West elected to place the $190,000 into the JWA Trust Account. Counsel further submitted that Mrs West facilitated the transfer directly from the Priarollo Superannuation Fund account to the JWA Trust Account.
At the conclusion of submissions on 11 September 2007, I expressed concern regarding the authority of Mrs West to access or operate the Priarollo Superannuation Fund account. I requested that counsel for Mr West seek instructions so as to provide the Court with a full explanation concerning the $60,000 transaction.
On 13 September 2007, ASIC advised that an original copy of the promissory note dated 1 March 2007 had been located on Mr West’s computer system. Investigations had revealed that the promissory note was created on 18 May 2007 and was varied on 1 June 2007. I made an order, with the consent of Mr West, granting Ferrier Hodgson, on behalf of ASIC, liberty to review Mr West’s computer system for the purpose of locating the underlying electronic material relevant to the promissory note dated 1 March 2007.
On 13 September 2007, ASIC advised that Ferrier Hodgson had located a number of other promissory notes on Mr West’s computer system and that there was a concern that these promissory notes may have also been incorrectly dated. I made an order that Ferrier Hodgson be at liberty to review the balance of the information extracted from Mr West’s computer system for the purpose of locating information relevant to further promissory notes.
On 14 September 2007, ASIC tendered two affidavits of Jean-Pierre du Plessis of Ferrier Hodgson sworn 13 September 2007. The first deposed to the promissory note dated 1 March 2007, having been created on 18 May 2007, last modified on 1 June 2007 and last accessed on 29 July 2007. The second deposed to the discovery of six further documents titled “Promissory Note”, respectively dated 5 June 2006, 9 June 2006, 28 June 2006, 25 August 2006, 2 November 2006 and 2 December 2006. Annexed as an exhibit to this affidavit were metadata analysis print-outs which revealed the following date irregularities: the promissory note dated 5 June 2006 was created on 18 May 2007; the promissory note dated 9 June 2006 was created on 1 June 2007; the promissory note dated 28 June 2006 was created on 18 May 2007; the promissory note dated 25 August 2006 was created on 1 June 2007; the promissory note dated 2 November 2006 was created on 18 May 2007; and the promissory note dated 2 December 2006 was created on 1 June 2007.
Following the tender of these affidavits, ASIC made an application for asset preservation orders pursuant to section 1323 of the Corporations Act. Counsel referred me to the decisions of ASIC v Adler[8] and ASIC v Arafura Equities Pty Ltd,[9] where similar orders were made.
[8] ASIC v Adler (2001) 38 ACSR 266.
[9]ASIC v Arafura Equities Pty Ltd (2005) 56 ACSR 429.
I formed the view that there was a sufficient risk of dissipation of assets as to justify a freezing order being made on an interim basis.[10] As was noted by Austin J in ASIC v Rich,[11] risk of dissipation of assets is a fundamental consideration when an application is made under section 1323 of the Corporations Act.
[10] The freezing order provides, inter alia:
“Until further order, each of the First Defendant and Mrs West be restrained and an injunction be granted restraining them whether by their officers, employees, agents or otherwise howsoever from:
(i)removing from Australia or causing, procuring, assisting or permitting to be removed from Australia or from the jurisdiction of this Court;
(ii)selling, charging, mortgaging, encumbering, securing, diminishing, disposing of, parting with possession, making any declaration of trust in relation to, exercising any power to vary or modify any trust deed or interest under any trust in relation to their property; or
(iii)otherwise dealing with,
all or any of their property, whether such property be in the First Defendant’s or Mrs West’s own names or be held jointly with any other person, company or entity or in the names of nominees or trustees of any of the First Defendant or Mrs West or in the name of any company or other entity managed or controlled by Mrs West or the First Defendant including, without limitation, the Second Defendant or Sovereign Securities Pty Ltd.
Provided that this order:
(i)will not prevent each of the First Defendant or Mrs West from paying ordinary living expenses each in an amount of $500 per week or as otherwise fixed by the Court; and
(ii) will not prevent each of the First Defendant or Mrs West from paying their reasonable costs of and incidental to these proceedings and the provisional liquidation of the Second Defendant in an amount fixed by the Court.”
[11]ASIC v Rich (2001) 51 NSWLR 643 at [35], citing ASIC v Adler (2001) 38 ACSR 266; Corporate Affairs Commission (NSW) v Walker (1987) 11 ACLR 884; Corporate Affairs Commission v ASC Timber Pty Ltd (1992) 10 ACSR 525.
I also directed that Mrs West, both in her personal capacity and in her capacity as trustee of the JRS West Family Trust, file an affidavit setting out, inter alia: the names and addresses of any financial institutions in which there are accounts held in Mrs West’s name or control or concerning which she is signatory; the names and addresses of any person or persons indebted to Mrs West or to any entities controlled by Mrs West, and the amount of such debts; the names and addresses of any person or persons to whom Mrs West or entities controlled by Mrs West is indebted, and the amount of such debts; an itemised inventory of each asset or item of property over the value of $1,000 in the name of Mrs West or entities controlled by Mrs West, and the details of any securities over such assets or property; the name of any trust in which Mrs West or JWA, or Sovereign Securities has an interest and full particulars of such trust and interest therein; and the name and address of any financial institution in which monies advanced to Mrs West or any entities controlled or managed by Mrs West and any monies of the scheme have been deposited, specifying the amount of such deposit.
I ordered that Mrs West answer such questions about the contents of her affidavit as ASIC, or the provisional liquidator of JWA, may reasonably require her to answer, as to the identification of accounts, assets and liabilities of Mrs West, JWA, Sovereign Securities and the scheme.
On 17 September 2007 I extended the freezing order to 21 September 2007 with consent of the parties. I also granted an application brought by ASIC for leave to issue subpoenas to financial institutions for the purpose of tracing the $60,000 to various recipients. On 21 September 2007, an affidavit of Mrs West sworn 20 September 2007 was filed pursuant to my order of 14 September 2007. The freezing order against Mrs West was extended to 28 September 2007, and Mr West was ordered to file and serve an affidavit addressing the same issues as addressed in Mrs West’s affidavit sworn on 20 September 2007. On 28 September 2007, Mr West filed an affidavit sworn on 27 September 2007, pursuant to my order.
On 26 October 2007, ASIC filed a written submission concerning the $60,000 transaction. The submission was based on the documents received from Adelaide Bank in response to the various subpoenas. Key documents produced by Adelaide Bank pursuant to these subpoenas included a document entitled “Adelaide Cash Management Trust Appoint/Delete/Modify and Authorised Operator” concerning the Priarollo Superannuation Fund dated 23 February 2006, Adelaide Cash Management Trust Product Disclosure Statement dated 1 April 2005, and Merlin Visa Statements in the name of Mr JP and Mrs JH West for the period 17 March 2007 to 16 April 2007 and 17 April 2007 to 16 May 2007.
The document dated 23 February 2006 appointed Mr and Mrs West as authorised operators of the Priarollo Superannuation Fund with “limited operator access”. It can be seen from Clause 2.1(d) of the Product Disclosure Statement dated 1 April 2005 that this authority permitted Mr and Mrs West to access personal information and financial information relating to the account, view commission details relating to the account, and receive copies of periodic statements. Limited operator access is to be contrasted with Full Operator Access, defined in Clause 2.1(e) of the Product Disclosure Statement as to fully operate the account, including the authority to perform all functions that could be exercised by a limited access operator as well as the authority to withdraw some or all units, change the account holder’s personal details, order a card and close the account.
On the basis of this evidence, ASIC submitted that if the sum of $60,000 did come from funds provided by Mr Priarollo, which was disputed, serious questions were raised about how Mr Priarollo’s money was taken, including whether it was pursuant to his authority, and by whom. ASIC further submitted that this evidence reinforced the basis for findings about the unsatisfactory nature of the JWA financial record keeping, as well as the undesirability of Mr West managing JWA, or indeed, any financial services arrangement.
The statement for the period 17 March 2007 to 16 April 2007 reveals the receipt of $60,000 on 23 March 2007, following which the balance of the account was $63,713.81. ASIC has traced the recipients of the dispersed funds through the descriptions that appear on the Merlin Visa Statements, and where necessary, through issuing of further subpoenas to entities listed on the Merlin Visa Statement. The results of this tracing process reveal the following: on 23 March 2007 and 10 April 2007, payments were made to Mr Winter, the solicitor acting for Mr West, totalling $15,000; on 29 March 2007 and 13 April 2007, payments were made to Rodger Fromm, a borrower in the scheme, totalling $15,000; on 5 April 2007, payments were made to the Meadows Boarding Kennel and Cattery, a business apparently owned by Mrs West, in the amount of $10,000; on 26 March 2007, an internet transfer of funds back to the JWA Trust Account was made in the amount of $1677.12; and on 18 April 2007, an internet transfer of funds to an account in the name of “Financial Horizons ITF Rodger and Lynette Fromm” was made in the amount of $15,000.
ASIC submitted that there was no evidence as to precisely who made or authorised these transactions but that it was a fair inference that they were undertaken by Mr West or Mrs West, or possibly someone acting with their authority.
ASIC submitted that the documentary evidence produced reaffirmed that it was desirable that JWA be wound up and removed from the control of Mr West, and that it also suggested that Mr West had not acted to the standards expected of a financial services licensee.
As earlier observed, the $60,000 transaction raised matters of considerable concern. As the result of a suggested loan by Mr Priarollo to Mrs West, it was claimed that the monies became the property of Mrs West. It was suggested that she was under an obligation to repay Mr Priarollo. The purported loan transaction was the basis for Mrs West “clearing out” the balance of the JWA Trust Account at or about the time of the freezing order, and then using that balance to meet the earlier identified expenses. The documentation surrounding the transaction is inadequate, incomplete, confusing and perhaps fabricated. The consequences of these matters are discussed later in these reasons.
Settlement
Between 13 and 17 September 2007, applications were made to adjourn the trial for the purpose of facilitating settlement between the parties. At times during this period, Mr West was unable to give instructions due to poor health. Evidence from a general practitioner and a consulting psychiatrist provided confirmation of Mr West’s condition. However, by 17 September 2007, a settlement had been reached. Apparently by this time Mr West’s health had sufficiently recovered to allow him to give instructions. On 18 September 2007, ASIC sought the following orders:
-Declarations that the defendants had contravened sections 286, 601ED(5), 911A, 1012B and 1020A of the Corporations Act;
-A permanent injunction pursuant to section 1324(1) of the Corporations Act restraining the defendants, whether by themselves, their servants, agents or otherwise, from further promoting or operating the scheme;
-A permanent injunction pursuant to section 1101B and 1324(1) of the Act restraining Mr West, whether by himself, his servants, agents or otherwise, from:
oCarrying on any business related to, concerning or directed to be, a managed investment scheme within the meaning of the Corporations Act; or
oBeing in any way, directly or indirectly, knowingly concerned in or a party to the promotion or establishment of, or the carrying on of the business of, a managed investment scheme within the meaning of the Corporations Act;
that requires, in any case, registration under section 601ED of the Corporations Act if it is not registered.
-That the scheme be wound up pursuant to section 601EE of the Corporations Act;
-That Austin Robert Meerten Taylor be appointed liquidator of the scheme for the purposes of winding it up;
-That JWA be wound up pursuant to section 461(1)(k) of the Corporations Act;
-That Mr Taylor be appointed liquidator of JWA; and
-Indemnity costs against the defendants.
Counsel for Mr West advised the Court that he had obtained instructions that Mr West did not oppose the orders sought, save as to costs, but that he did not consent and did not make any admissions. This led to the need for ASIC to prove its case on the balance of probabilities in circumstances where Mr West took no further part in the hearing.
The provisional liquidator of JWA supported the application for the winding-up of JWA, on both the insolvency ground and on the just and equitable ground.
A statement of assets and liabilities of JWA as at 18 September 2007 revealed deficiencies of assets over liabilities amounting to $2,851,592.16. On the basis of this deficiency, Mr Taylor, by affidavit, deposed that:
[F]or the reasons set out in the preceding paragraphs…, given that the Company is not trading and given that the majority of the loans are in default and not meeting payments, it is my submission that the Company is insolvent, and, in my submission, it would be safe for the Company to be wound up by this Honourable Court on the ground of insolvency.
Mr Taylor also deposed by affidavit that his examination of the books and records of JWA revealed that the following documents had not been kept and delivered by the company: cash receipt journal; bank deposit books; cash payments journal; complete history of bank account statements and bank reconciliations; journals detailing procuration and loan establishment fees earned; minutes of meetings of directors and members; tax files; insurance files; and various investor files. On the basis of this information, Mr Taylor concluded:
[T]he Company’s records have not been properly kept and the reports evidence mismanagement of the Company’s affairs to a high order.
For the reasons set out in the preceding paragraphs … and as a necessary element in facilitating the effective winding up of the Scheme, I respectfully submit that it would be appropriate to wind the Company up on the just and equitable ground.
On 18 September 2007, my review of the evidence allowed the conclusion that JWA should be wound up, and that there should be an order appointing Mr Taylor as liquidator. I reserved my decision in regard to the application to wind up the scheme as well as the making of declarations, permanent injunctions and other ancillary orders. On 27 September 2007, I announced that I had reached the conclusion that there was one unregistered managed investment scheme. I then made an order winding-up the scheme, and appointing Mr Taylor as scheme liquidator.
It is convenient to now turn to my detailed reasons for the making of these orders. I have reached the further conclusion that it is appropriate to make the declarations to grant the permanent injunctions as sought, as well as other ancillary orders. My reasons also address these matters.
As earlier observed, although there was no opposition from Mr West with the exception of costs as to the orders sought by ASIC, he did not consent to any order. In this circumstance it was necessary for ASIC to establish its case on the balance of probabilities. ASIC did so by the tender of voluminous business records, records of examination, affidavits from ASIC investigators and third party experts. The affidavit evidence was not challenged. There was no cross-examination. There was no objection to the tender of the documentation. There was no challenge to the documentation being characterised as “business records”. This body of evidence provided reliable material from which findings could be made. I accept the affidavit evidence of the ASIC investigators and third party experts. I am prepared to act on that evidence, together with the other documentation that has been tendered. In the reasons that follow I have identified the particular aspects of the evidence that have allowed me to reach my ultimate conclusions.
Documentary Material
It is now convenient to set out the relevant documents that I have relied upon in the determination of these proceedings.
The Pleadings
There are three pleadings of principal relevance to this matter: ASIC’s third amended statement of claim filed on 10 September 2007; the third amended defence of Mr West filed on 15 August 2007; and the defence of JWA filed on 23 August 2007.
The Tender Bundle
On 10 September 2007, a hardcopy bundle of 27 volumes of documents, together with an overview, were tendered by ASIC. An electronic version of the tender bundle on CD-ROM was also tendered. Broadly, the tender bundle comprised the following: banking records of Mr West and entities associated with him; schedule of funds held in the JWA Trust Account; ASIC search extracts; communications with Mr West and Total Financial Solutions; Mr West’s section 19 examination transcript; various investor files; various borrower files; financial statements; documents relating to the documents produced by Mr West to ASIC; and miscellaneous correspondence.

During the course of the trial, further documents were tendered by ASIC, including the JWA Trust Account ledgers and company sheets, commentaries and summary documents prepared by ASIC, e-mail correspondence between Mr West and his professional indemnity insurer Aon Risk Services Australia Ltd, copies of filed subpoenas and responses, the JWA Trust Account information stored on QuickBooks accounting software (CD-ROM), Compliance Representative Review Report of Mr West as authorised representative of Total Financial Solutions dated 22 April 2005 and prepared by Tribeca Compliance; and a report into the JWA Trust Account dated 10 September 2007 prepared by Michael McCabe, an ASIC investigator.
On 18 September 2007, the tendered documents were admitted into evidence pursuant to sections 45A and 45B of the Evidence Act 1929 (SA). Counsel for the defendants did not oppose the receiving of the evidence in this way.
ASIC submitted that the records of JWA were in an “appalling” and “dreadful” state. It was said that there were no proper trust ledger records, loan summaries, term sheets, product disclosure statements, securities registers or regular reports concerning loan performance. Notwithstanding the state of the records, I considered that the Court had substantial evidence supporting the findings and conclusions sought by ASIC. The evidence was organised as well as it could have been, and the Court had before it the necessary material to make the relevant findings of fact and law.
ASIC submitted that I should adopt the course followed in ASIC v Takaran Pty Ltd[12] where Barrett J concluded that in some circumstances, inferences to be drawn from documents admitted into evidence would be sufficient to make findings as to the existence of a managed investment scheme.[13] This is the approach that I propose to adopt.
[12] ASIC v Takaran Pty Ltd (2002) 170 FLR 388.
[13] ASIC v Takaran Pty Ltd (2002) 170 FLR 388 at [15].
Affidavit Evidence
The primary affidavit evidence relied upon by ASIC was from Ralph Murray Holmes, the Assistant Director Enforcement within ASIC’s Adelaide office, Jeremy Gordon Peel and Kathy-Anne Prosser, who are both ASIC investigators, Melissa Joy Smith, a lawyer employed by ASIC and Mr du Plessis, the Director of Forensic Technology at Ferrier Hodgson.
Mr Holmes, in his capacity as Assistant Director Enforcement was familiar with ASIC’s investigation and with the nature of the within proceedings. Mr Holmes’ affidavit, sworn 24 July 2007, summarises the effect of many of the financial records and provides a general background to financial dealings through the JWA Trust Account.
Mr Peel was a leader of the investigation and took a principal role in the section 19 examination of Mr West on 27 and 28 July 2006. Mr Peel’s affidavit, sworn 15 March 2007, sets out in considerable detail the history of and findings from the ASIC investigation. The affidavit also sets out the nature and function of the scheme. Exhibited to the affidavit is the transcript of the section 19 examination as well as copies of original borrower and loan documentation relevant to the investigation.
Ms Prosser was involved in the investigation the subject of these proceedings. Ms Prosser’s affidavit, sworn 15 March 2007, undertakes a thorough analysis of the evidence obtained from Mr West’s section 19 examination transcript. Ms Prosser’s affidavit also sets out the deposit and payment transaction history of moneys in the Financial Horizons Trust Account which was the trust account for the scheme between March 2002 to July 2005. Exhibited to the affidavit are copies of original banking and financial records of the Financial Horizons Trust Account, JWA, Sovereign Securities and JRS West Family Trust relevant to the ASIC investigation.
Ms Smith prepared ASIC’s tender bundle of documents for trial. Ms Smith’s affidavit of 6 June 2007 sets out in detail the facts concerning the background to the investigation, the institution of the within proceedings, and the matters concerning the defendants’ discovery and the state of documents produced generally. Exhibited to the affidavit are copies of original documents discovered by the defendants. Ms Smith’s affidavits of 14 and 21 June 2007 set out further matters concerning the defendants’ discovery and the state of documents produced generally. Exhibited to the affidavits are copies of original documents discovered by the defendants, and correspondence between ASIC and Mr West’s solicitor concerning the discovery process. Exhibited to the affidavit of 14 September 2007 is a copy of the “Form 507 Report as to Affairs” of JWA and “Form 507A Statement Verifying Report under section 475(1)”, both signed by Mr West on 9 August 2007 and filed by the provisional liquidator in the within proceedings. The Form 507 sets out the assets and liabilities of JWA and certain particulars relating to those assets and liabilities. Exhibited to Ms Smith’s affidavit of 7 August 2007 are copies of original documents relevant to Mrs West’s involvement in JWA and the scheme, including the historical company extract for JWA, correspondence with Mr West’s solicitor and extracts from Mr West’s examination transcript.
Mr du Plessis reviewed the defendants’ computer files for the purpose of identifying and producing information relevant to the existence and creation of documents titled “promissory notes”, including the promissory note relevant to the Priarollo transaction described earlier in my reasons. Mr du Plessis’ two affidavits of 13 September 2007, deposed to his findings from his investigation.
Mr West relevantly swore affidavits dated 30 March, 4 April, 20 and 30 July 2007 which were filed in the within proceedings. A summary of these affidavits was tendered by ASIC and admitted into evidence.
Mr West’s affidavit evidence primarily addressed the issue of whether the scheme is a managed investment scheme for the purpose of the Corporations Act. ASIC’s plea for winding-up on the just and equitable ground, and complaints about the failure to keep written records, the absence of an Australian Financial Services Licence, as well as the failure to provide a product disclosure statement, were not matters which were addressed by Mr West’s affidavits.
For present purposes, the affidavit of Mr West of 4 April 2007 is most relevant. This affidavit addressed the issue of whether the alleged scheme is a managed investment scheme for the purpose of the Corporations Act. In summary, Mr West claimed that the scheme is not a managed investment scheme under the Act. In the alternative, Mr West suggested that if the alleged scheme is a managed investment scheme under the Act, then it was not required to be registered for the purposes of section 601ED of the Act. In the further alternative, Mr West claimed that any proven failure to register the alleged scheme was a breach of the Corporations Act by Mr West only, and from which Mr West should be relieved by order of the Court pursuant to section 1318(1) of the Act.
Affidavits of Austin Robert Meerten Taylor, the provisional liquidator of JWA, sworn on 17 September 2007 and 18 September 2007, were tendered and admitted into evidence as exhibits. The affidavit of 17 September 2007 set out the assets of JWA contemplated to be taken into the custody and control of Mr Taylor. The affidavit of 18 September 2007 was tendered in support of the winding-up of JWA on the ground of insolvency and on the just and equitable ground.
Other Documentary Evidence
A report into the JWA Trust Account dated 10 September 2007 prepared by Mr McCabe provides a comprehensive review and analysis of the operation of the JWA Trust Account from the period 1 April 2006 to 31 March 2007 and examines ledgers of the Financial Horizons Trust Account and bank statements of the Adelaide Bank account used to operate the JWA Trust Account.
Unlawful Operation of Managed Investment Scheme
ASIC’s primary case was that the mortgage investment business constituted a single scheme involving, during relevant periods, more than 20 members and contributions exceeding $2 million in 12 months. ASIC’s alternative case was that if the mortgage investment business did not constitute a single scheme, each sub-scheme, involving multiple investors associated with each borrower, constituted a managed investment scheme and those sub-schemes were promoted by the defendants who were in the business of promoting those schemes.
ASIC submitted that Mr West and JWA contravened various provisions of the Corporations Act relating to managed investment scheme interests. It was contended that the defendants operated a managed investment scheme that was unregistered and unlawful.
ASIC further submitted that the defendants breached section 601ED(5) of the Corporations Act by operating a managed investment scheme which was not registered when it was required to be registered. ASIC contended that the defendants breached section 1020A of the Corporations Act by making offers to, or accepting offers from, retail clients relating to managed investment scheme interests.
ASIC pointed out that although the plea for winding-up on the just and equitable ground, and complaints about the failure to keep written records and the absence of an Australian Financial Services Licence, as well as the failure to provide a product disclosure statement, were highlighted in the originating process and in submissions by ASIC’s counsel, the defendants had never contended that JWA kept financial records as required by section 286 of the Act, had never contended that they held an Australian Financial Services Licence as required by section 911A of the Act, and had never contended that they provided a product disclosure statement as required by section 1012B of the Act.
Further, ASIC submitted that no answer to these obvious breaches of the Corporations Act had ever been offered by the defendants. Instead, the defendants concentrated on defending discrete, technical aspects of the claims relating to the existence of a managed investment scheme. ASIC contended that in the face of their own records, the defendants asserted that loans were not made to Mr West or to JWA, and that Mr West and JWA acted as agents or trustees and merely facilitated loans being made directly by investors to borrowers.
Before considering these submissions it is appropriate to set out and explain the relevant legislative provisions concerning managed investment schemes.
Legislative Scheme
During the early 1990s, concerns developed in Australia about the need for the control and regulation of the financial services industry. It was perceived that small investors were disadvantaged and in need of a measure of protection. The legislators faced the difficulty of enacting a regulatory scheme that could accommodate the wide and diverse financial services industry practices. In the event, amendments were introduced to the Corporations Act that implemented relevant legislation in response to these needs. At the same time, the Managed Investments Act 1998 (Cth) was enacted. Shortly thereafter the Financial Services Reform Act 2001 (Cth) was also enacted.
The regulation of managed investment schemes is dealt with in Chapter 5C of the Corporations Act. This chapter covers, inter alia, the registration of managed investment schemes, the responsibilities of entities responsible for managed investments schemes, requirements for a managed investment scheme to have a constitution, compliance plan and compliance committee, and provisions relating to the effect of contraventions and the winding-up of schemes.
On 1 July 1998, the Managed Investments Act came into effect to introduce Chapter 5C into the Corporations Law. The new provisions were carried over into Chapter 5C of the present Corporations Act. Chapter 5C was a response to recommendations for reform made by the Australian Law Reform Commission and the Companies and Securities Advisory Committee. The explanatory memorandum to the Managed Investments Bill 1997 (Cth) suggested that the adoption of the legislative proposals would result in a simplified structure for the managed investments industry, would clarify the responsibilities of the operators of managed investment schemes, and would introduce measures to improve corporate governance in relation to responsible entities and appropriate powers for the Australian Securities Commission[14] as the regulator.
[14] Now ASIC.
The amendments introduced by the Managed Investments Act replaced the concept of a “prescribed interest scheme” in Divisions 5 and 5A of Part 7.12 of the Corporations Law with that of a “managed investment scheme”.
The starting point for consideration of the statutory framework is the definition of “managed investment scheme” in section 9 of the Corporations Act:[15]
[15]During the course of the proceedings, section 9 was amended by the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 (Cth), which inserted subsection (ma), with effect from 28 June 2007. Section 9(ma) excludes “contribution plans” from the definition of a “managed investment scheme”. This amendment does not affect the issues arising in the present proceedings.
managed investment scheme means:
(a)     a scheme that has the following features:
(i)    people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);
(ii)     any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);
(iii)     the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or
(b)     a time-sharing scheme;
but does not include the following:
(c)a partnership that has more than 20 members but does not need to be incorporated or formed under an Australian law because of regulations made for the purposes of subsection 115(2);
(d)a body corporate (other than a body corporate that operates as a time sharing scheme);
(e)a scheme in which all the members are bodies corporate that are related to each other and to the body corporate that promotes the scheme;
(f)    a franchise;
(g)     a statutory fund maintained under the Life Insurance Act 1995;
(h)a regulated superannuation fund, an approved deposit fund, a pooled superannuation trust, or a public sector superannuation scheme, within the meaning of the Superannuation Industry (Supervision) Act 1993;
(i)a scheme operated by an Australian ADI in the ordinary course of its banking business;
(j)    the issue of debentures or convertible notes by a body corporate;
(k)a barter scheme under which each participant may obtain goods or services from another participant for consideration that is wholly or substantially in kind rather than in cash;
(l)    a retirement village scheme operating within or outside Australia:
(i)    under which the participants, or a majority of them, are provided, or are to be provided, with residential accommodation within a retirement village (whether or not the entitlement of a participant to be provided with accommodation derives from a proprietary interest held by the participant in the premises where the accommodation is, or is to be, provided); and
(ii)    which is not a time-sharing scheme;
(m)a scheme that is operated by a co-operative company registered under Part VI of the Companies (Co-operative) Act 1943 of Western Australia or under a previous law of Western Australia that corresponds to that Part;
(n)a scheme of a kind declared by the regulations not to be a managed investment scheme.
The salient elements of this definition will be considered later in these reasons.
Regulation of Managed Investments Schemes
In particular circumstances a managed investment scheme must be registered with ASIC. The registration process is regulated by sections 601EA to 601EE of the Corporations Act. The circumstances in which registration of a managed investment scheme is required are set out in section 601ED which provides:
(1)Subject to subsection (2), a managed investment scheme must be registered under section 601EB if:
(a)     it has more than 20 members; or
(b)     it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or
(c)     a determination under subsection (3) is in force in relation to the scheme and the total number of members of all of the schemes to which the determination relates exceeds 20.
A qualification in section 601ED(2) provides that the requirement to register may not apply if all the interests in the managed investment scheme would not have required the giving of a product disclosure statement under Division 2 of Part 7.9:
A managed investment scheme does not have to be registered if all the issues of interests in the scheme that have been made would not have required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 if the scheme had been registered when the issues were made.
By section 1012E and regulation 7.9.16A, the relevant exemption from the requirement to give a product disclosure statement is the small scale offering of unregistered managed investment scheme interests. Section 1012E relevantly provides:
(2)Personal offers of financial products do not need a Product Disclosure Statement under this Part if:
(a)     all of the financial products are issued by the same person (the issuer); and
(b)     none of the offers results in a breach of the 20 purchasers ceiling (see subsections (6) and (7)); and
(c)     none of the offers results in a breach of the $2 million ceiling (see subsections (6) and (7)).
…
(6)     An offer to issue, or arrange for the issue of, a financial product:
(a)     results in a breach of the 20 purchasers ceiling if it results in the number of people to whom the issuer has issued financial products exceeding 20 in any 12 month period; and
(b)     results in a breach of the $2 million ceiling if it results in the amount raised by the issuer from issuing financial products exceeding $2 million in any 12 month period.
(7)     An offer by a person to sell a financial product:
(a)     results in a breach of the 20 purchasers ceiling if it results in the number of people to whom the person sells financial products issued by the issuer of that financial product exceeding 20 in any 12 month period; and
(b)     results in a breach of the $2 million ceiling if it results in the amount raised by the person from selling financial products issued by the issuer of that financial product exceeding $2 million in any 12 month period.
The number of members in a managed investment scheme is to be calculated in accordance with section 601ED(4). This subsection provides:
(a) joint holders of an interest in the scheme count as a single member; and
(b) an interest in the scheme held on trust for a beneficiary is taken to be held by the beneficiary (rather than the trustee) if:
(i)the beneficiary is presently entitled to a share of the trust estate or of the income of the trust estate; or
(ii)the beneficiary is, individually or together with other beneficiaries, in a position to control the trustee.
A person is prohibited by section 601ED(5) from operating a managed investment scheme required to be registered unless the scheme is so registered:
A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under section 601EB unless the scheme is so registered.

JWA consents to the declarations sought by ASIC being made. Mr West does not consent but does not oppose the declarations being made. It should be noted that in Corporate Affairs Commission (NSW) v Transphere Pty Ltd,[70] Young J gave detailed consideration to the appropriateness of declarations in respect of breaches of the Companies (NSW) Code 1981 dealing with prescribed interests and offers to the public, in circumstances where unrepresented defendants offered no evidence or submissions to the court and did not oppose the making of the declarations sought. His Honour accepted the submission that the law as to declaratory judgments had developed to such a stage that a declaration should be made unless there are proper grounds to the contrary, subject to the proviso that legitimate and powerful factors against the grant would be the possibility of embarrassment in a practical sense to a non-party.[71]
[70] Corporate Affairs Commission of NSW v Transphere Pty Ltd (1988) 15 NSWLR 596.
[71] Corporate Affairs Commission of NSW v Transphere Pty Ltd (1988) 15 NSWLR 596 at 608.
This is not a case in which there exists no proper contradictor. The orders sought directly affect the defendants. Indeed, until the third day of the trial, Mr West was opposing the plaintiff’s claims and resisting the orders sought. Before JWA entered voluntary administration briefly, it had also defended the proceedings. Mr West still has a true interest in opposing the declarations sought. He has merely decided not to oppose the orders sought. In any event, considerations as to whether there is a proper contradictor go only to the Court’s discretion not to exercise its jurisdiction. Silence should not be permitted to defeat the plaintiff’s claims.[72]
[72] Corporate Affairs Commission of NSW v. Transphere Pty Ltd (1988) 15 NSWLR 596 at 605G (Young J), quoting Edwin Borchard, Declaratory Judgments (2nd ed, 1941) at 48.
The declarations sought by ASIC are as follows:
-That from 4 June 2003 Mr West and JWA have contravened section 911A of the Corporations Act, by carrying on a financial services business in this jurisdiction without holding an Australian Financial Services Licence;
-That from 4 June 2003 Mr West and JWA have contravened section 601ED(5) of the Corporations Act by operating a mortgage investment business (“the scheme”), being a managed investment scheme, which was required to be registered under section 601EB of the Corporations Act, but which was not registered;
-That from 4 June 2003 Mr West and JWA have contravened section 1020A of the Corporations Act by making offers relating to the issuing of interests in the scheme, or accepting offers from retail clients to acquire interests in the scheme, when the scheme was required to be registered when it was not registered;
-That from 4 June 2003 Mr West and JWA have contravened section 1012B of the Corporations Act by not providing a product disclosure statement in connection with making offers to issue interests in the scheme to retail clients; or issuing interests in the scheme to retail clients; or receiving offers to acquire interests in the scheme from retail clients; and
-From 17 March 2000 JWA has failed to keep financial records in contravention of section 286 of the Corporations Act.
In the circumstances of the present case, I consider that it is appropriate to make the declarations sought for the following reasons:
-ASIC, in its capacity as the public regulator of the securities and investments markets in Australia, has a real interest in seeking the declarations. The subject of the proposed declarations concerns matters of public interest,[73] and the grant of declaratory relief serves an important law enforcement purpose;[74]
-the proposed declarations are not abstract or hypothetical. They both formally record the conclusion that the Court has reached, on the evidence, as to the legal consequences of specific conduct of the defendants,[75] and mark the Court’s disapproval of the contravening conduct;[76]
-the Court has a substantial body of evidence supporting the findings and conclusions that in turn support the declarations sought by ASIC;[77]
-the defendants engaged in serious and repeated breaches of provisions of the Corporations Act in the conduct of the mortgage investment business and it is right for the Court to so declare.[78] The scheme involved high risks, the extent of which was not disclosed in any proper way to investors. No proper books and records were kept by Mr West and JWA;[79] and
-no embarrassment or legal or practical injustice to non-parties by the declarations being granted has been identified.[80]
[73]       Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596 at 608.
[74]ASIC v. McDougall and others (2006) 229 ALR 158 at [55] (Young J).
[75]ASIC v FUELbanc Australia Ltd (2007) 162 FCR 174 at [50].
[76]ASIC v McDougall and others (2006) 229 ALR 158 at [55]; Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97-99; 106; 110.
[77]       Corporate Affairs Commission of NSW v. Transphere Pty Ltd (1988) 15 NSWLR 596 at 606C.
[78]       Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 597 (Brennan J).
[79]See ASIC v McDougall and others (2006) 229 ALR 158 at [56] (Young J).
[80]       Corporate Affairs Commission of NSW v. Transphere Pty Ltd (1988) 15 NSWLR 596 at 608C.
Permanent Injunctions
Pursuant to section 1101B(1) and section 1324(1) of the Corporations Act, ASIC has sought permanent injunctions against Mr West and JWA (whether by themselves, their servants, agents or otherwise) to restrain:
-Mr West and JWA from further promoting or operating the scheme; and
-Mr West from carrying on any business related to, concerning or directed to be, a managed investment scheme within the meaning of the Corporations Act that requires, in any case, registration under section 601ED if it is not registered; or
-Mr West from being in any way, directly or indirectly, knowingly concerned in or a party to the promotion or establishment of, or the carrying on of the business of, a managed investment scheme within the meaning of the Corporations Act, that requires, in any case, registration under section 601ED if it is not registered.
In ASIC v Sweeney,[81] proceedings sought, inter alia, permanent injunctions under section 1324(1) of the Corporations Law (now the Corporations Act) restraining the defendant from committing further acts in contravention of the Corporations Law. Austin J discussed the scope of the Court’s power to grant permanent injunctions pursuant to section 1324(1) as follows:[82]
S1324(1) of the Corporations Law empowers the Court, on the application of the Commission or a person whose interests have been affected, to grant an injunction restraining a person from engaging in conduct that constitutes a contravention of the Law. S1324(2) empowers the Court to grant a mandatory injunction requiring a person to do something required to be done by the Corporations Law. By s1324(6)(a), the power to grant an injunction restraining a person from engaging in conduct may be exercised whether or not it appears to the Court that the person intends to engage again, or continue to engage, in conduct of that kind. Obviously there will be discretionary considerations for and against the grant of injunctive relief, but there is no doubt about the power to grant the relief, as Cohen J confirmed in Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722, 728.
[81]ASIC v Sweeney [2001] NSWSC 114.
[82] ASIC v Sweeney [2001] NSWSC 114 at [32].
As was recognised by Davies AJ in ASIC v Pegasus Leveraged Options Group Ltd,[83] although the Court has a wide discretion under section 1324(1), the Court should not grant an injunction unless the order is directed to, and appropriate to achieve, an end such as enforcing and giving effect to a relevant statute.
[83]ASIC v Pegasus Leveraged Options Group Ltd (2002) 41 ACSR 561 at [109].
In my view, in the circumstances of this case, it is appropriate to grant permanent injunctions against Mr West and JWA in the form sought by ASIC. Neither defendant opposed the permanent injunctive relief sought. The evidence before the Court indicates that Mr West continued the scheme when on notice of potential contraventions of the Corporations Act and attempted to continue the business in another form in the face of court injunctions prohibiting the scheme’s continued operation. From this it may be concluded that Mr West is susceptible to repeating his contraventions of the Act. The wider form of injunction is warranted and will serve the public interest.[84]
[84]See ASIC v McDougall & Ors (2006) 229 ALR 158 at [72] (Young J).
Costs
There are four matters in contention on the issue of costs: whether ASIC be awarded costs on an indemnity basis; whether it is appropriate to allow the costs of two counsel, including senior counsel; whether Mr West should pay the costs of and incidental to the appointment of the liquidator of JWA; and whether JWA should be exposed to a costs order.
Mr West’s position is that the plaintiff should be awarded costs of the action on a party and party basis. Mr West made no submission on the question of certification for senior counsel. JWA did not make any submissions with respect to the application for indemnity costs or certification for senior counsel, but was not in a position to consent to the applications.
Although the Court has an unfettered discretion with respect to costs,[85] the discretion must be exercised judicially.[86] The ordinary rule is that costs are awarded as between party and party, unless some special or unusual feature of the case justifies departure from the usual rule.[87] As was recognised by Kirby P in Walton v McBride,[88] the power of the Supreme Court to award a special measure of costs is found in the Rules of Court, and the inherent jurisdiction of the Court as a superior court of general jurisdiction. More recently, in Ruhani v Director of Police,[89] Kirby J observed:
It is true that this Court, by its costs order, normally provides only for the party and party costs of a successful litigant. … A larger costs order, whether for indemnity or solicitor and client costs, will not usually be made, … unless some feature of the litigation convinces the Court that the party entitled to costs should have a special order. Instances in which such orders are made include where the opponent’s conduct has been “plainly unreasonable”, pursued for “an ulterior or collateral purpose” [PRCZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24 at [36]], undertaken in an “unmeritorious, deliberate or high-handed” way [NSW Medical Defence Union Ltd v Crawford (1993) 31 NSWLR 469 at 494], or where that opponent has been shown to be guilty of “unreasonable conduct, albeit that it need not rise as high as vexation” [Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616].
[85]Supreme Court Act 1935 (SA), section 40(1); Supreme Court Rules 1987 (SA), rule 101.01 (now rule 263 and rule 264 of the Supreme Court (Civil) Rules 2006 (SA)).
[86]Casley-Smith v Evans & Sons (1989) 148 LSJS 483 at 487; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400; Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 at 288.
[87]Colgate-Palmolive Company & Anor v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234; Eastern Garden Pty Ltd v Sangster (No 2) [2004] SASC 66; Groom v Earthmoving Contractors Association (No 2) [2001] SASC 241; Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151; Casley-Smith v Evans & Sons (1989) 148 LSJS 483 at 487.
[88]Walton v McBride (1995) 36 NSWLR 440 at 446-447.
[89] Ruhani v Director of Police (2005) 222 CLR 489 at [243].
It remains to say that the existence of particular facts and circumstances capable of warranting a special costs order does not mean that a judge is necessarily obliged to exercise the discretion to make an order.[90] The costs are always in the discretion of the judge, provided that discretion is exercised judicially.[91] The question must always be whether the particular facts and circumstances of the case warrant a departure from the usual rule that costs be awarded on a party and party basis.
[90] Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 234.
[91]Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400; Trade Practices Commission v Nicholas Enterprises (1979) 28 ALR 201 at 207.
In support of an award of indemnity costs in this case, ASIC referred to a category of case where the conduct of the unsuccessful party could be characterised as improper, in the sense that there were no prospects of succeeding on a point which had been raised,[92] and where the unsuccessful party must have known that there were no prospects of success, if properly advised.[93] The rationale for awarding costs in cases of this type is that “[i]n such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law”.[94] In such circumstances, the Court is entitled to make a special order for costs in order to mark its disapproval of inappropriate conduct on the part of the party ordered to pay costs.[95]
[92]Sheahan v Northern Australia Land and Agency Co (Unreported, Supreme Court of South Australia; Full Court, Mohr, Olsson and Nyland JJ, 18 December 1995); Walton v McBride (1995) 36 NSWLR 440 at 451.
[93]Casley-Smith v FS Evans & Sons (1989) 148 LSJS 483; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; Sunburst Properties Pty Ltd (in liq) v Agwater Pty Ltd and Ors (No 2) [2005] SASC 393.
[94]Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401.
[95] Sunburst Properties Pty Ltd (in liq) v Agwater Pty Ltd and Ors (No 2) [2005] SASC 393 at [8].
In my view, Mr West’s conduct in the course of the litigation was unreasonable. The evidence disclosed that he had considerable experience as a financial adviser, and at times had held relevant authority to act in regard to managed investment schemes. These experiences made him familiar with the relevant legislation and its requirements. Prior to the issue of proceedings, Mr West had been examined by ASIC and his evidence from those examinations demonstrated a deliberate blurring of contractual arrangements between himself, JWA and the investors involved in his business endeavours. Prior to the issue of proceedings, Mr West must have been well aware of the inadequate and disorganised documentation associated with the business. The evidence disclosed a preparedness to backdate documentation designed to allow Mr and Mrs West to access investor moneys for their own benefit. In particular, I refer to the backdating of promissory notes and the preparation of Sophisticated Investor Certificates on an ad hoc basis. It must and should have been apparent to Mr West prior to the issue of proceedings that he was intermingling the affairs of himself and his wife and associated corporate entities and trusts with the affairs of the investors in the scheme. It must have been obvious to Mr West following the issue of proceedings that all of the above matters would have to be disclosed and would demonstrate a course of conduct in breach of relevant statutory provisions, and in the circumstances conduct that may involve breaches of fiduciary duty.
It became evident early in the proceedings that JWA was hopelessly insolvent, and this must and should have been evident to Mr West prior to the issue of proceedings. Mr West was well aware that there were substantial defaults occurring within the scheme, such that JWA could not continue trading. Once the proceedings were commenced, ASIC sought discovery and production of relevant records. This proved to be a very drawn out process, brought about by a reluctance on the part of Mr West to produce relevant records, including electronic records, in his and JWA’s possession, power or control.
It was necessary for special orders to be made to provide access to computer hardware and software to allow the reconstruction of relevant records to occur. Notwithstanding these efforts, I have been left with the clear impression that the discovery and production was far from complete. All of these matters added substantially to the cost of the proceedings. Ultimately Mr West abandoned any pretence of a defence to the proceedings. At one point Mr West sought to avoid JWA being placed under the control of a provisional liquidator, by appointing a voluntary administrator and seeking to effect a deed of company arrangement. This attempt was predicated on the accepted insolvency of JWA. In these circumstances Mr West’s defence was unreasonable, and it may be inferred that it was pursued for the ulterior or collateral purpose of seeking to avoid full disclosure of the relevant facts and the making of a full assessment of the breaches of the Corporations Act. I consider that Mr West’s conduct was unmeritorious and that in the circumstances a special order for costs should be made.
ASIC sought a certificate that the matter was fit for senior counsel. It is well established that a trial judge has power to certify for senior counsel.[96] The test as to whether fees are to be allowed for senior counsel was laid down by the Full Court in Beasley v Marshall (No 3),[97] as being whether a reasonable litigant at the proper time for the delivery of the brief would consider it necessary or prudent to brief Queen's Counsel for the adequate presentation of his case. King CJ, with whom Prior J agreed, considered that the following factors were relevant to the exercise of the discretion to certify for senior counsel: [98]
[T]he primary considerations are undoubtedly the difficulty of the case, the complexity of the issues of fact or law, and any demands which the case makes for the exercise of special professional skills. But I do not think that the Taxing Master is required to ignore what is at stake for the party in the litigation.
[96]Kroehn v Kroehn (1912) 15 CLR 137; Stanley v Phillips (1966) 115 CLR 470; Beasley v Marshall (No 3) (1986) 41 SASR 321; Pastro v Lombard Insurance Co Ltd (No 2) (1993) 172 LSJS 276.
[97] Beasley v Marshall (No 3) (1986) 41 SASR 321.
[98] Beasley v Marshall (No 3) (1986) 41 SASR 321 at 332.
In my view, given the complexity of the issues arising in the within proceedings, the requirement to assess, marshal and present voluminous evidentiary material, the significant assets involved and the substantial sums of money at stake, the impact of the proceedings on the rights and liabilities of a number of people, and the public interest in the proper conduct of the proceedings, this is an appropriate case in which to certify for two counsel, including senior counsel.
JWA’s conduct in the proceedings was effectively controlled by Mr West until it was placed in provisional liquidation. However, from the time of the appointment of the provisional liquidator, JWA generally supported ASIC’s claims. In the circumstances an order should be made that JWA pay ASIC’s costs on a party and party basis to the date of the appointment of a provisional liquidator.
As earlier observed, Mr West initially sought to have JWA placed in voluntary administration and opposed the appointment of a provisional liquidator. In my view, it is appropriate that Mr West pay the costs of and incidental to the placing of the company in provisional liquidation. These costs should be taxed on a party and party basis.
Conclusion

Having regard to the foregoing reasons, during the course of the trial I ordered that:
-John West & Associates Pty Ltd (ACN 008 156 929) be wound up pursuant to section 461(1)(k) of the Corporations Act;
-Austin Robert Meerten Taylor, official liquidator, of Meertens Chartered Accountants, Level 10, 68 Grenfell Street, Adelaide SA 5000, be appointed liquidator of John West & Associates Pty Ltd;
-The mortgage investment business, being a managed investment scheme, be wound up pursuant to section 601EE of the Corporations Act; and
-Austin Robert Meerten Taylor, official liquidator, of Meertens Chartered Accountants, Level 10, 68 Grenfell Street, Adelaide SA 5000, be appointed liquidator of the managed investment scheme for the purpose of winding it up, and pursuant to section 601EE(2) of the Corporations Act, he shall have the powers and responsibilities that a liquidator would have pursuant to the Act as if the scheme was a corporation, with such modifications as may be necessary.
I now make the following declarations:
-That from 4 June 2003 Jonathan Peter West and John West & Associates Pty Ltd (in liq) have contravened section 601ED(5) of the Corporations Act by operating a mortgage investment business, being a managed investment scheme, which was required to be registered under section 601EB of the Corporations Act, but which was not registered;
-That from 4 June 2003 Jonathan Peter West and John West & Associates Pty Ltd (in liq) have contravened section 1020A of the Corporations Act by making offers relating to the issuing of interests in the managed investment scheme to retail clients, or accepting offers from retail clients to acquire interests in the scheme, when the scheme was required to be registered when it was not registered;
-That from 4 June 2003 Jonathan Peter West and John West & Associates Pty Ltd (in liq) have contravened section 1012B of the Corporations Act by not providing a product disclosure statement in connection with making offers to issue interests in the managed investment scheme to retail clients; or issuing interests in the managed investment scheme to retail clients; or receiving offers to acquire interests in the scheme from retail clients;
-That from 17 March 2000 John West & Associates Pty Ltd (in liq) has failed to keep financial records in contravention of section 286 of the Corporations Act; and
-That from 4 June 2003 Jonathan Peter West and John West & Associates Pty Ltd (in liq) have contravened section 911A of the Corporations Act, by carrying on a financial services business in this jurisdiction without holding an Australian Financial Services Licence.
I now make the following further orders:
-That a permanent injunction be ordered pursuant to section 1324(1) of the Corporations Act restraining Jonathan Peter West and John West & Associates Pty Ltd (in liq), whether by themselves, their servants, agents or otherwise, from further promoting or operating the managed investment scheme;
-That a permanent injunction be ordered pursuant to sections 1101B and 1324(1) of the Corporations Act, restraining Jonathan Peter West, whether by himself, his servants, agents or otherwise, from:
ocarrying on any business related to, concerning or directed to be, a managed investment scheme within the meaning of the Corporations Act; or
obeing in any way, directly or indirectly, knowingly concerned in or a party to the promotion or establishment of, or the carrying on of the business of, a managed investment scheme within the meaning of the Corporations Act
that requires, in any case, registration under section 601ED of the Corporations Act if it is not registered;
-That Jonathan Peter West pay the Australian Securities and Investments Commission its costs of action to be taxed on an indemnity basis;
-That John West & Associates Pty Ltd (in liq) pay the Australian Securities and Investments Commission its costs of action, taxed on a party and party basis with such costs limited to the costs incurred to 30 July 2007 (being the date of the appointment of the provisional liquidator), such costs to be reimbursed out of the property of the company;
-That Jonathan Peter West pay the Australian Securities and Investments Commission its costs of and incidental to the placing of John West & Associates Pty Ltd (in liq) in provisional liquidation; and
-Certified fit for two counsel, including Queen’s Counsel.