Citation Resources Ltd v Landau

Case [2016] FCA 1114

FEDERAL COURT OF AUSTRALIA

Citation Resources Ltd v Landau [2016] FCA 1114

File number(s): WAD 163 of 2016
Judge(s): MCKERRACHER J
Date of judgment: 13 September 2016
Catchwords:

CORPORATIONS – alleged breach of directors duties – where payments allegedly made from bank account without consideration, authority, lawful entitlement and legal liability – where civil proceedings brought by company while ASIC investigation in relation to alleged offences ongoing

DISCOVERY – application for discovery under r 20.14 Federal Court Rules – where privilege against self-incrimination claimed in defence – where ongoing investigation of defendant by ASIC in relation to the alleged offences

PRACTICE AND PROCEDURE – application for a stay of civil proceedings – where ongoing investigation of defendant by ASIC in relation to alleged offences, some of which the subject of these proceedings – whether criminal prosecution is ‘on the cards’ – McMahon v Gould factors

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth) ss 19, 68(3)

Corporations Act 2001 (Cth) ss 1317E, 1317N, 1331, 1349(4)

Federal Court Rules (Cth) r 20.14
Cases cited:

Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2016] FCA 504

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 5) [2013] FCA 369

Australian Securities and Investments Commission v Continental Coal Limited [2016] FCA 416

Australian Securities and Investments Commission v Craigside Company Limited [2013] FCA 201

Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487

Re AWB Ltd (2008) 222 FLR 240

CC Containers Pty Ltd v Lee (No 2) [2012] VSC 149

Gemmell v Le Roi Homestyle Cookies Pty Ltd (in liq) (2014) 46 VR 583

Harman v Secretary of State for the Home Department [1983] 1 AC 280

McMahon v Gould (1982) 7 ACLR 202

Reid v Howard (No 2) (1995) 184 CLR 1

Sorby v Commonwealth (1983) 152 CLR 281

Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 4) [2010] FCA 863

Websyte Corporation Pty Ltd v Alexander (No 2)  [2012] FCA 562

Date of hearing: 2 August 2016
Date of last submissions: 10 August 2016
Registry: Western Australia
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 55
Counsel for the Plaintiff: Mr S Penglis
Solicitor for the Plaintiff: Fletcher Law
Counsel for the Defendant: Mr SJ Lemonis
Solicitor for the Defendant: Lemonis/Tantiprasut Lawyers

ORDERS

WAD 163 of 2016
BETWEEN:

CITATION RESOURCES LTD (ACN 118 710 508)

Plaintiff
AND:

PETER NEIL LANDAU

Defendant

JUDGE:

MCKERRACHER J

DATE OF ORDER:

13 SEPTEMBER 2016

THE COURT ORDERS THAT:

1.The plaintiff’s application for discovery filed 27 June 2016 be dismissed.

2.The defendant’s application for a stay of proceedings filed 6 July 2016 be dismissed.

3.There be no order as to costs. 

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

MCKERRACHER J:

TWO APPLICATIONS

  1. Citation Resources Ltd (ACN 118 710 508) sues Mr Landau for breach of director’s…

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AGLC
Citation Resources Ltd v Landau [2016] FCA 1114
Case
[2016] FCA 1114
Decision Date

CaseChat Overview and Summary

Citation Resources Ltd brought civil proceedings against Landau, a former director, alleging a breach of directors' duties. The dispute centred on payments made from a bank account without consideration, authority, lawful entitlement, or legal liability, which Citation claimed caused detriment to it and benefited Landau and others. The Federal Court was required to decide on two main legal issues: whether Citation was entitled to discovery of specific documents from Landau and whether the civil proceedings should be stayed pending an ongoing investigation by the Australian Securities and Investments Commission (ASIC) into alleged offences related to the disputed payments.

In dismissing both the discovery application and the stay application, the Court found that it was premature to conclude that criminal prosecution was likely, given the ongoing investigation and the limited evidence available at that stage. The Court held that the potential risk to Landau if the civil proceedings continued was not significant, as his defence essentially put Citation to proof. Moreover, the Court emphasised Citation's entitlement to bring its case to court, and the possibility of revisiting the stay question if circumstances changed. Consequently, the applications for discovery and stay were dismissed, and there was no order as to costs.

Orders

Orders of the court

1. The plaintiff’s application for discovery filed 27 June 2016 be dismissed.

2. The defendant’s application for a stay of proceedings filed 6 July 2016 be dismissed.

3. There be no order as to costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Citation also says the payments: were not in its best interest; not made for a proper purpose, caused detriment to it; gained an advantage for those to whom the payments were made; and gained an advantage for Mr Landau as a shareholder of Doull and ICBC. Evidence In support of the discovery application, Citation relies on its solicitor’s affidavit deposing on information and belief from Mr Turco, director of Citation, that Mr Landau used his personal or other non-Citation related email addresses for the purposes of his communication on behalf of Citation with Citation staff and third parties. On that basis, it was believed that Mr Landau would hold documents in his control that had been created or received by him in his capacity as an officer of Citation. On that basis, and because of the involvement with opening and operation of the Westpac account, it is believed that documents were, or have been, in Mr Landau’s possession, custody or control. The belief is also supported by Mr Landau’s involvement in Okap, Doull and ICBC. Citation also relies upon an affidavit from Mr Turco in support of the originating process, who swears that on 23 October 2015, Citation issued a prospectus offering to issue 123,360,894 fully paid ordinary shares to existing shareholders and, to the extent those shares were not taken up, an offer of the balance to the public to raise in total $6,168,045. In addition to that, in June and July 2015, Citation raised funds by way of share placement. The prospectus closed on 6 November 2015, with the public offer under the prospectus being fully subscribed. Mr Turco, relying on information from Mr Eastman, secretary of Citation, believes that investors wishing to pay the subscription money to Citation by way of electronic funds transfer, and who inquired of Citation as to the appropriate account for the transfer, were each advised details of a bank account operated by Citation with Bankwest (Bankwest account). Bank statements for the Bankwest account disclosed $4,542,089 in share subscription funds being deposited to that account following 10 November 2015. In late 2015, Mr Turco discovered that there existed another bank account in the name of ‘Citation Resources Ltd’, namely the Westpac account. He made inquiries of Westpac and obtained copies of bank statements on the Westpac account. On information from Westpac, Mr Turco swore to his belief that the signatories for the Westpac account were, until March 2016, Mr Landau, a former director of Citation and Ms Flegg. Ms Flegg has no role, position or connection with Citation and, to the best of Mr Turco’s knowledge, never has. However, Ms Flegg is a director of Okap. On 29 February 2016, he obtained a copy of the Westpac account statements from Westpac and became concerned that as much as $1.8 million may have been misappropriated from the Westpac account. The Westpac account is now depleted and contains less than $1000. Mr Turco says that from his search of the books and records of Citation, he can find no evidence of any decision or authorisation concerning the Westpac account, including with respect to any withdrawal and application of any funds from it. He swears that on numerous occasions he has requested Mr Landau to provide, amongst other things, the details of the transactions of the Westpac account. On 8 January 2016, Mr Turco received an email from Mr Landau attaching a reconciliation spreadsheet, recording, amongst other things, the deposit of funds by investors in Citation in two tranches in June and July 2015 totalling over $1.7 million and a deposit by the underwriter of the Public Offer, Pac Partners in the sum of $1.3 million.

Decision

Reasons for decision

Despite these factors, I consider it is premature to conclude that criminal prosecution in relation to the matters the subject of the pleaded case is ‘on the cards’ for at least four reasons:(1)The previous reference to the potentiality was in the context of activities involving two other companies in addition to Citation. (2)I am mindful that discovery sought by Citation has been refused by the ruling I have made in these reasons so that in the absence of any positive defence having been pleaded by Mr Landau, and in the absence of giving discovery, it is not apparent at this stage what additional risk he would face if these civil proceedings continue, at least, say, until the time of commencing trial. At that point, if criminal proceedings have commenced in relation to the pleaded matters, then a stay will be automatic. There may, at a later time, also be additional evidence as to the possibility of the specifically pleaded issues being the subject of a criminal prosecution. (3)I am mindful that it is unlikely that Mr Landau would be exposed to significant further costs prior to trial, given the nature of his defence, which, in substance, puts Citation to proof. (4)Finally, it seems to me that whatever decision has been taken in all these cases, a significant factor is the entitlement of Citation to brings its case to court. Should circumstances change, the question of a stay can be revisited, but at present I consider it to be premature. CONCLUSION In those circumstances and for the reasons discussed, each of the applications will be dismissed. Each has consumed a similar amount of time, so it is convenient that there be no order as to costs.

Ratio Decidendi

Legal Principle Established

From the perspective of Mr Landau, there are two affidavits relied upon. His own affidavit of 5 July 2016, as with an affidavit of his solicitors, is essentially in support of the stay application, but is also relevant to the discovery application. Mr Landau makes clear that he applied for a stay on the basis that the subject matter of the proceedings is the same subject matter of an investigation being conducted by ASIC in respect of him, amongst others. He produces a copy of the notice requiring him to attend an investigation to be conducted by ASIC, issued on 26 May 2016 and a further notice on 23 June 2016. The notices list numerous suspected contraventions of the Corporations Act 2001 (Cth) and of the Criminal Code Act Compilation Act 1913 (WA). He attended examinations on 26 May 2016, which took about four hours, and 23 June 2016, which took about three hours. The examinations were conducted under a direction of confidentiality. He was represented by Mr Lemonis at the examinations. The confidentiality direction was varied to enable him to disclose in these proceedings the nature of the investigation in relation to the establishment of, operation of and payments made from the Westpac account. His solicitor produces an ASIC notice of 14 April 2016 requiring Mr Landau to attend an examination on 26 May 2016, which notice was replaced by the notice annexed by Mr Landau to his affidavit. Mr Landau swears to his financial situation, the details of which are unnecessary to record, but suffice it to say, that the information disclosed does not suggest any surplus of assets over liabilities. Okap and Doull have no funds to contribute to legal costs. Doull owns a Volkswagen Amarok vehicle which he drives. It is valued at between $40,000 and $50,000, but there is $37,588 owing on it. Freezing orders have been made by Barker J in relation to Mr Landau’s assets and income and the companies in Federal Court proceedings WAD 717 of 2015. An important part of Mr Landau’s case is the fact that in WAD 717, ASIC, by one of its officers swore an affidavit on 13 April 2016 to the fact that Mr Landau was ‘potentially facing criminal action’ as a result of ASIC’s investigation. That factor was relied upon by ASIC in support of an application for travel restraint orders against Mr Landau. Mr Landau seeks a stay of the proceedings on the basis that:(a)absent a stay, his right of silence will be infringed;(b)the continuation of the proceedings may result in the disclosure of the responses available by him to the matters the subject of the ASIC investigation; and(c)Mr Landau has only limited financial resources available to him and would be substantially prejudiced if required to attend to the defence of this proceeding at the same time as addressing the investigations which ASIC has in place pertaining to him in relation to the same matters.DISCOVERYArguments Citation seeks discovery in electronic format or otherwise of limited specific categories of documents, being the following:(1)All documents relating to the opening of the Westpac account;(2)All documents to relating to the operation of the Westpac account;(3)All documents relating to payments referred to in particular paragraphs of the amended statement of claim; and(4)All documents relating to any agreement, transaction, service or other matter to which any of the payments in the third category relate. There can be no debate that the categories are directly relevant to the pleaded matters.