Australian Securities and Investments Commission v Xiao
[2012] NSWSC 1210
•27 August 2012
Supreme Court
New South Wales
Medium Neutral Citation: Australian Securities and Investments Commission v Xiao [2012] NSWSC 1210 Hearing dates: 27 August 2012 Decision date: 27 August 2012 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Application dismissed with costs
Catchwords: CORPORATIONS - securities - insider trading investigation - travel restrictions submitted to by first defendant - undertaking given to court by fifth defendant to surrender passport in support of application of first defendant to travel to China - first defendant has not returned from China - fifth defendant seeks to be released from undertaking - nature of undertakings to court - whether utility in continuing undertaking Legislation Cited: (Cth) Australian Securities and Investments Commission Act 2001, s 19 Cases Cited: ASIC v Xiao [2011] NSWSC 1067 Category: Interlocutory applications Parties: Australian Securities and Investment Commission (Plaintiff / Respondent)
Ms Hu (Fifth Defendant / Applicant)Representation: Counsel:
Mr D Stack (Plaintiff / Respondent)
Mr RPL Lancaster SC (Fifth Defendant / Applicant)
Solicitors:
ASIC Legal (Plaintiff/Respondent)
Arnold Bloch Liebler (Fifth Defendant)
File Number(s): 2011/ 285688
Judgment (ex tempore)
HIS HONOUR: By interlocutory process filed on 15 June 2012 the fifth defendant Ms Hu applies for an order that she be released from an undertaking given to the court on 17 November 2011, and that her solicitors Arnold Bloch Leibler be released from their related undertaking given on 29 November 2011.
Ms Hu, along with the first defendant, her husband Mr Steven Xiao, and the other defendants, are the subject of an investigation by the plaintiff Australian Securities and Investments Commission ("ASIC") into insider trading. There have been extensive examinations in this investigation under (Cth) Australian Securities and Investments Commission Act 2001, s 19, over the last six months or so. At one time, Ms Hu was the subject of a travel restriction order prohibiting her leaving Australia; however, ASIC has agreed to the dissolution of that order, and I approach the present application on the basis, which ASIC does not dispute, that it would not succeed on an application at this stage for a travel restriction order in respect of Ms Hu.
The undertakings
On 17 November 2011, Ms Hu gave to the Court an undertaking in the following terms:
That before the first defendant leaves Australia on 21 November 2011 she will surrender her passport to Mr John Mitchell, the solicitor acting for the first and fifth defendants, and that she will not request its return until after the first defendant returns to Australia from China.
On 29 November 2011, Ms Hu, by her solicitors Arnold Bloch Leibler, gave to ASIC an undertaking relevantly in the following terms:
We undertake not to release Ms Hu's passport until the first to occur: (a) Mr Xiao returns to Australia or (b) ASIC releases us from the undertaking or (c) further order of Court releasing us from the undertaking.
The first defendant left Australia, as Ms Hu's undertaking had contemplated, on 21 November 2011. He has not returned.
The undertaking of 17 November 2011 was given against the background of an earlier like undertaking. The proceedings were initially commenced ex parte, when a number of orders, including a travel restriction order in respect of Mr Xiao, were made. That order was due to expire on 12 September 2011, unless renewed or extended. Mr Xiao did not oppose its extension to 22 September, when the matter was due to return to Court, provided that it were modified to allow him to travel to Hong Kong on 13 September, upon an undertaking that he would return on 14 September, and a further undertaking of his wife Ms Hu, that she would surrender her passport to her solicitors before he departed, and not require it to be returned to her until he returned. In acceding to Mr Xiao's application on that occasion [ASIC v Xiao [2011] NSWSC 1067], Barrett J, as his Honour then was, said (at [17]):
The ASIC investigation is at an early stage. No ground of apprehension of likely absconding is shown - indeed, the first defendant, as in the Secured Bond case, has given to the Court an undertaking to return and that undertaking is supported by his wife's undertaking the effect of which is that she will be unable to join him overseas - as, in a practical sense, will his two young children.
Mr Xiao duly left Australia on that occasion, and returned in compliance with his undertaking.
On 11 November 2011, his solicitors wrote to ASIC denying that he was a flight risk, and asserting that he wished to travel to China, for the purposes of completing what appears to be a viva examination in connection with a thesis. In that letter, Mr Xiao's solicitors indicated that he was prepared to travel on the same terms and conditions as those that applied to his trip to Hong Kong - namely, that his wife's and children's passports be surrendered to his solicitors, not to be returned to them until Mr Xiao had returned to Australia. The solicitors observed in their letter that "[w]e note that this regime was acceptable to the Court on the last occasion Mr Xiao sought permission to travel outside Australia". ASIC consented to that course, culminating in the orders of 17 November 2011 to which I have referred, save that it does not seem that the children's passports were surrendered as proposed in that letter, nor that that was required.
As I have said, Mr Xiao left Australia as contemplated on 21 November, but has not returned.
Should Ms Hu be released from the undertaking?
The giving of an undertaking to the Court as a condition of obtaining relief from the Court is a matter of great seriousness. It needs to be borne in mind, when dealing with an application for relief from the consequences of such an undertaking, that the Court would not have granted the relief in question but for the undertaking that was given. Most commonly, for example, this can be seen in the undertaking as to damages given in connection with applications for interim or interlocutory relief, but there are many other examples. The Court will, therefore, not lightly relieve a party from an undertaking it has given in that way. However, ultimately, as with any interlocutory order, the essential question will always be whether it is unjust to hold the party to the undertaking in all the circumstances.
On an application to be relieved from an undertaking, the applicant - that is the party that has given the undertaking - bears the onus of proof. In this case, therefore, it is for the applicant to satisfy the Court that it would be unjust to hold the applicant to the undertaking in all the circumstances. The starting point for that is that this application is made after the benefit of the order made upon the undertaking has been gained by the parties who sought it - namely, the first defendant primarily, in connection with whose application it was made, and the fifth defendant, who gave it in support of her husband's application - but at a time when the burden of the order -namely, to return to Australia - has been repudiated by the fifth defendant. At the outset, that arouses a sense of injustice in enabling the adverse consequences of an undertaking to be evaded when the benefit it procured has been exploited.
Secondly, it is manifest that the undertaking was offered effectively as security for the husband's return to Australia. It is true that Ms Hu did not undertake to procure the husband's return to Australia, nor could she sensibly have done so; but she could offer some form of security for his return, and in this case it is plain that on the previous application, Barrett J was moved by the force of the idea that circumstances which effectively kept Mr Xiao's wife and two young children in Australia could operate as a powerful influence to give confidence of his return. There has been evidence given by Ms Hu, in the course of the s 19 examinations, to the effect that she thought that her relationship with her husband was a good one, and there was, of course, the husband's personal undertaking that he would return. In those circumstances, it seems to me that this undertaking was of enormous practical significance: first, to the decision of Barrett J to make the first order, to which I have referred; and then, on the minds of the parties, in particular ASIC, to consent to the order permitting the husband to go overseas on 17 November 2011.
What has happened since then, is not only that Mr Xiao has not returned, but that as recently as 20 July 2012 - that is to say, well after the present interlocutory application was filed - the one-year-old son of the first and fifth defendants returned to China, according to the fifth defendant's solicitors, "in the company of his paternal grandparents", and assertedly because Ms Hu was unable to care for him herself without assistance from other family members. This means that, despite the position contemplated by Barrett J in September last year, not only the first defendant, but also his youngest son, is now in China. If the order which I am now asked to make is made, there is no obstacle to the fifth defendant, nor their remaining six-year-old child, also returning to China, both of them being citizens of the People's Republic. Thus, by acceding to the present application, the purpose of the regime established by Barrett J, and then later agreed to by the parties, would be totally defeated, and in many ways the Court would be seen as a laughing stock.
It must be noted that there is not before the Court any satisfactory explanation or evidence of why Mr Xiao has not returned to Australia. There is no suggestion on the part of Ms Hu that she did not understand the undertaking she was asked to give. There is no evidence on her part that she gave it under any pressure, undue or otherwise, or other than willingly. There is no evidence of any attempts on her part to secure or influence his return to Australia. That is not to say that she gave an undertaking to do so - I accept that she did not - but, in connection with an application of the present kind, one might expect to see at least some evidence from Ms Hu that she had made an effort to do something to see that the Court's intent in making the orders had been achieved.
There is no evidence of any pressing need for Ms Hu to travel in any event. The highest the evidence in that respect comes is a desire to seek out her husband in China, and to see her one-year-old child there; however, with respect to her child, that is a circumstance that has entirely been brought about by her own concurrence, since this present application was commenced. As to the assertion on the part Ms Hu of an intention to seek out her husband in China, the professed difficulty in doing so, or in communicating with him from Australia - referred to by her in her s 19 examinations - is difficult to accept in the absence of any direct evidence from her in these proceedings, and, more so, when it appears that, despite these supposed difficulties, it was possible to procure his signature to the contract for a sale of property.
It was submitted on her behalf that there was no utility in holding her to the undertaking at this stage, and that it would be sheer speculation to think that the continuation of the undertaking would serve as any influence on the first defendant's mind. I am far from convinced of this proposition. The continued presence in Australia, and inability to leave Australia, of at least his wife and, to some extent, their first child, must operate as some ongoing influence on his mind. Whether or not it is of immediate impact is another matter, but it has not been shown by any means that it will be of no utility. I do not need to resort to speculation, as was suggested, in this respect. The onus is on the applicant to show that there is no ongoing utility in the undertaking, and I am simply not satisfied that that onus has begun to be discharged. As I put in argument, were there evidence to show that, for example - and I offer these only as illustrations - the first defendant was dead, or was incarcerated for a long period in China, or that for some other powerful practical reason it was impossible for him to return to Australia, that might well show that maintaining the undertaking on foot was no longer of any utility, but nothing like that has begun to be shown on the present application.
I also stress that I do not see this in any way as a question of punishment of the fifth defendant for the decamping of her husband, the first defendant. No question of punishment arises. It is no more than holding the fifth defendant to an undertaking that I must assume she knowingly, willingly and freely gave to procure a particular benefit, namely, the ability of her husband to travel. It would operate markedly to the disadvantage of others in a similar position if it were thought that such undertakings could be given and then, when they did not turn out for the better, be dispensed with. If I were to accede to this application, it would be a powerful message that the Court should not even entertain such undertakings in similar circumstances in the future.
In my view, this application must be dismissed.
Order
My order is that the interlocutory process filed 15 June 2012 be dismissed with costs.
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Decision last updated: 11 October 2012
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