Re: 53 Rankin Investments Pty Ltd; Australian Securities and Investments Commission v Chester
[2021] QSC 173
•26 July 2021 (delivered orally)
SUPREME COURT OF QUEENSLAND
CITATION:
Re: 53 Rankin Investments Pty Ltd; Australian Securities and Investments Commission v Chester & Anor [2021] QSC 173
PARTIES:
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
(applicant)
v
IAN OMAR CHESTER
(first respondent)
SOPHIE SYLVIA CHESTER
(second respondent)
FILE NO/S:
BS No 7931 of 2021
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
26 July 2021 (delivered orally)
DELIVERED AT:
Brisbane
HEARING DATE:
19 July 2021
JUDGE:
Martin J
ORDER:
1. I will make an order in terms of Schedule “A” of this decision.
CATCHWORDS:
CORPORATIONS – SUPERVISION – AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (AND ITS PREDECESSORS) – OTHER MATTERS – where the applicant seeks an asset preservation order against each respondent – where the first respondent accepts he is a “relevant person” – where the first respondent does not oppose the making of an order in respect of his property – where the second respondent contends she is not a person against whom such an order may be made – where the second respondent contends she is not an “associate of the relevant person” – where the second respondent contends she is not an “associate” “in respect of the matter to which the associate reference relates” – whether the second respondent is an associate for the purposes of these proceedings – whether it is necessary or desirable to make the asset preservation orders sought by the applicant
Corporations Act 2001, s 10, s 15, s 1323
Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577
Bateman v Newhaven Park Stud Ltd (2004) 207 ALR 406COUNSEL: S Cooper QC for the applicant
M Doyle for the first and second respondents
SOLICITORS: Australian Securities and Investments Commission for the applicant
23 Legal Pty Ltd for the first and second respondents
The applicant, Australian Securities and Investments Commission (“ASIC”) seeks an asset preservation order under s 1323 of the Corporations Act 2001 (“the Act”) against each respondent. There is some urgency to this matter. A property which would be the subject of any order made is the subject of a contract of sale which is due to settle on 28 July 2021. ASIC seeks an order, among other things, that the net proceeds of that sale be paid into a solicitor’s trust account and that it be held there subject to further orders.
The first respondent does not oppose the making of an order in respect of his property. There are two issues, then, to be determined:
(a)the terms of any order made against the first respondent, and
(b)whether second respondent is a person against whom such an order may be made.
The application arises from an investigation which ASIC has commenced into potential contraventions of the Act in the course of property development projects undertaken by companies controlled by the first respondent. So far as is relevant, s 1323 provides:
“1323 Power of Court to prohibit payment or transfer of money, financial products or other property
(1)Where:
(a)an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or
(b)a prosecution has been begun against a person for a contravention of this Act; or
(c)a civil proceeding has been begun against a person under this Act;
and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders:
(d)an order prohibiting a person who is indebted to the relevant person or to an associate of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed;
(e)an order prohibiting a person holding money, financial products or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the financial products or other property, to, or to another person at the direction or request of, the person on whose behalf the money, financial products or other property, is or are held;
(f)an order prohibiting the taking or sending out of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person;
(g)an order prohibiting the taking, sending or transfer by a person of financial products or other property of the relevant person, or of an associate of the relevant person:
(i) from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of financial products from a register in this jurisdiction to a register outside this jurisdiction); or
(ii) from a place in Australia to a place outside Australia (including the transfer of financial products from a register in Australia to a register outside Australia);
(h)an order appointing:
(i) if the relevant person is a natural person--a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or
(ii) if the relevant person is a body corporate--a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person; …”
The observations of French J in Australian Securities and Investments Commission (ASIC) v Carey (No 3)[1] about the operation of s 1323 are pertinent:
“[25] The orders that can be made under the section are directed, inter alia, to the preservation of assets against which recovery may be sought in the event that liability to an ‘aggrieved person’ is established on the part of a “relevant person”. The orders are made in circumstances where ‘an investigation is being carried out’, ‘a prosecution has been begun’ or ‘a civil proceeding has been begun’. That is to say the orders can be made before liability is established and indeed before the evidence necessary to establish liability has been collected. While an application under the section is not interlocutory in an existing criminal or civil proceeding, it is interlocutory in a wider sense. It preserves the status quo and the assets of the relevant person pending the outcome of the investigation, prosecution or civil proceedings which are on foot — Corporate Affairs Commission v Lone Star Exploration NL (No 2) at SASR 30; ACLR 504. At the stage an order is sought the court may not be in a position to identify with precision any particular liability owed by the person the subject of the proposed order. This consideration applies to final orders made under the section as well as to interim orders for which it expressly provides in s 1323(3). The final orders made under the section are necessarily of a temporary or holding character rather than finally disposing of the rights and liabilities of the relevant persons affected by them.
[26]The circumstances in which the court may make orders under s 1323(1) are wide as indicated by the words ‘necessary or desirable … for the purpose of protecting the interests of a person …’. There is an element of risk assessment and risk management in the judgment the court is called on to make. It follows, and has been accepted, that there is no requirement on the part of ASIC to demonstrate a prima facie case of liability on the part of the relevant person or that the person’s assets have been or are about to be dissipated — Corporate Affairs Commission v ASC Timber Pty Ltd (1989) 7 ACLC 467 at 476 (Powell J); Australian Securities and Investments Commission v Adler (2001) 38 ACSR 266 ; [2001] NSWSC 451 at [7] (Santow J).” (emphasis added)
[1](2006) 232 ALR 577.
French J also considered the nature of the evidence that may be relied upon in a case such as this and I respectfully agree that:
“[30] Section 1323 does not make any express provision for the nature of the evidence on which the court may act in making orders under it. Applications made under the section have an interlocutory character albeit there are no other specific proceedings to which they may relate. The section does not require concluded findings of fact about liability or whether assets have been dissipated. For the reasons already canvassed the court, in making orders under s 1323 engages in a risk assessment and management process. The logic of the section assumes that the court will not always have before it evidence of the kind that would be necessary and admissible in proceedings to establish definitively the nature and extent of the assets of the persons under investigation and their liability to aggrieved persons.” (emphasis added)
So far as the first respondent is concerned, he accepts that he is a “relevant person” and that there are grounds for making the relevant orders.
The potential liabilities to which the first respondent might become subject arise out of what ASIC says is the apparent misuse of funds, invested by members of the public, with a company called 53 Rankin Investments Pty Ltd (“the company”). The first respondent is the sole director of that company. Investors placed $1,157,000 with the company for use in developing a property situated at 53 Rankin Parade, Main Beach.
For reasons which need not be explored at this stage, no development took place. The property was not acquired but, in spite of that, the funds were retained. It is alleged that there was a transfer of funds from the company into an account held by Metplex Pty Ltd, which was another company of which the first respondent was the sole director. From that account, funds in the order of $846,000 were then transferred to either an account held by the respondents jointly or to an account held by the second respondent as trustee of the Windsor Trust. That trust is alleged to have been established for the benefit of both respondents. ASIC says that some of the investors’ funds transferred from the company appear to have been used to reduce loans to the respondents which had been secured by mortgages over their residence.
On the material which is presently available, it appears that much of the money which was transferred from the company, and which eventually found its way to accounts held by or for the benefit of the respondents has already been disbursed.
“Associate of the relevant person”
The power to make an order with respect to a person other than a “relevant person” requires that ASIC establish that the other person is an “associate of the relevant person”. In the submissions first made on behalf of ASIC, it was contended that the second respondent was, by virtue of being married to the first respondent, his associate for the purposes of the section.
The term “associate” is not defined in s 1323. Chapter 1 Division 2 of the Act has effect for the purpose of interpreting a reference to an associate. Section 10(2) provides that a person is not an associate of the primary person except as provided in Division 2. I was referred to s 15, which relevantly provides:
“15 General
(1)The associate reference includes a reference to:
(a) a person in concert with whom the primary person is acting, or proposes to act; and
(b) a person who, under the regulations, is, for the purposes of the provision in which the associate reference occurs, an associate of the primary person; and
(c) a person with whom the primary person is, or proposes to become, associated, whether formally or informally, in any other way;
in respect of the matter to which the associate reference relates.”
In order to come within one or more of the categories in s 15(1), there are two requirements. First, the person must be someone who acts or proposes to act in concert with the primary person (s 15(1)(a)), or is covered by a regulation (s 15(1)(b)), or is associated formally or informally in any other way (s 15(1)(c)). Secondly, if a person falls into one of those categories then, in order to be an “associate”, the acting or associating etc must be “in respect of the matter to which the associate reference relates”.
What then is the “matter to which the associate reference relates”? This was considered by Barrett J in Bateman v Newhaven Park Stud Ltd.[2] In that case, the first defendant had agreed to buy back shares held by the other defendants and to sell certain real property to them. The Act required a special resolution to be passed approving the buyback. The plaintiff shareholders, who had previously attempted to enter alternative transactions with Newhaven, asserted that the special resolution which had been passed did not meet the statutory requirements. The shareholders sought interlocutory orders restraining the defendants from completing certain transactions. One of the questions which fell to be considered in that decision was whether or not certain persons were “associates” of other shareholders. Section 15(1)(a) was relied upon. As observed by Barrett J, s 10(1) directs attention in the first instance to the primary person, that is, the person whose “associate” is sought for the purpose of interpreting a reference to an associate (that reference being the “associate reference”). In that case, the associate reference was concerned with the part of the Act dealing with share buybacks. Barrett J identified that the task was to identify the matter referred to in s 15(1). In that case, he held that it was the matter of voting on the special resolution approving the terms of the buyback agreement.
[2](2004) 207 ALR 406.
I adopt, with respect, what Barrett J went on to say about family relationships and associates. He said:
“[34] A point to be made at once in relation to these questions is that the mere fact of family relationship should be left to one side. … In the absence of evidence of agreement or dependency or actual influence implying commonality of action, family relationships … of themselves prove nothing relevant to an inquiry such as the present.”
In its oral submissions, ASIC extended the grounds upon which it submitted that the second respondent should be regarded as an “associate of the relevant person”. Section 15(1)(c) was relied upon. It was submitted that the second respondent is associated with the first respondent in respect of the relevant matter, not simply because of the marital relationship, but also because there is evidence that:
(a)the second respondent was authorised to operate the Metplex account which initially received the investors’ funds, and from which those funds were paid out,
(b)the second respondent is a trustee of the Windsor Trust,
(c)the second respondent is the only person who is authorised to operate the bank account of the Windsor Trust,
(d)in those circumstances, she must have been the person who caused the payments to be made from the Windsor Trust account to the joint account and to other recipients, and
(e)the second respondent is a joint owner of the personal bank account or the trust account into which investor funds were paid for her benefit.
It was submitted that the matter to which the associate reference in s 1323 relates is the first respondent’s actual or potential liability arising out of what ASIC, for the purposes of this application, has characterised as the misuse of investor funds paid to the company, and which were then dealt with by transfer to Metplex, thence to the joint account or to the Windsor Trust and from there to the joint account.
The second respondent is the spouse of the first respondent. On her behalf, it was submitted that there is no material which would allow me to draw the conclusion that she is an associate in respect of the matter to which the associate reference relates, that is, the alleged contraventions of the Act in the course of property development projects undertaken by companies controlled by the first respondent.
I cannot, with respect, accept that. I acknowledge that, as French J said in Australian Securities and Investments Commission (ASIC) v Carey (No 3),[3] the evidence is not of the kind which would be required to establish definitively the nature and extent of the liability that exists to aggrieved persons, but the process under s 1323 is one of risk assessment and management. The pathway which was taken by the funds (to which liability may attach) was one which must have been conducted, at least in part, by the second respondent. Dealing with funds in that way comes within the “matter to which the associate reference relates” and the terms used in section 15(1).
[3](2006) 232 ALR 577.
I am satisfied that the second respondent is an associate for the purposes of these proceedings and that is necessary or desirable to make orders of the kind sought by ASIC.
I will hear the parties on the form of the order.
…
As French J said in Australian Securities and Investments Commission (ASIC) v Carey (No 3),[4] the purpose of an application under s 1323 is to preserve the status quo and the assets of the relevant person pending the outcome of the investigation etc. He went on to say that there is an element of risk assessment and risk management in the judgment the Court is called on to make. I accept Mr Doyle’s contention that there may well be reasonable legal expenses which will need to be incurred outside the boundaries of the description which appears in the order. But, given that the nature of this order involves risk management and preservation of assets, I am not inclined to change the draft on that basis.
[4]Ibid.
Mr Doyle’s client, as does ASIC, has liberty to apply on two business days’ notice. If there is a reasonable requirement for the payment of legal expenses other than those referred to in order 4(a)(ii), then that should be done by application. I would imagine that a reasonable request would receive a reasonable response from ASIC and would lead to a consent order. If it did not lead to a consent order, then it would be a matter for either of the respondents to bring it on before this Court, and a failure to respond reasonably by ASIC would have cost consequences there.
…
The applicant seeks its costs of the application. The dispute between the parties was about the liability of the second respondent. The first respondent accepted that an order should be made. There was some debate about the terms of the order. But the bulk of the argument was with respect to the liability of the second respondent. The application was successful. Costs should follow the event.
Order in terms of the draft.
SCHEDULE “A”
THE ORDER OF THE COURT IS THAT:
For the purpose of these Orders:
“Dealing” includes:
(a)removing, causing, procuring, assisting or permitting any Property to be removed from Australia or from the jurisdiction of this Court; and/or
(b)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 any interest under any trust in relation to any Property.
“Property” means all real or personal property, assets or interests in property of any kind, within or outside Australia including, by virtue of subsection 1323(2A) of the Act, any property held otherwise than as sole beneficial owner.
Asset preservation orders
Subject to the terms of paragraphs 3 and 4 below, an order pursuant to section 1323 of the Act that the first respondent, by himself or his servants or agents be restrained from:
(a)removing, or causing or permitting to be removed from Australia all or any of his Property;
(b)selling, charging, mortgaging or otherwise dealing with, disposing of and/or diminishing the value of all or any of his Property;
(c)causing or permitting to be sold, charged, mortgaged or otherwise dealt with, disposed of, or diminished in value, all or any of his Property;
(d)without limiting the terms of sub-paragraphs (a) to (c) above, withdrawing, transferring or otherwise disposing of or dealing with, any monies available in any account with any bank, building society or other financial institution (in Australia and elsewhere), in which he has any legal or equitable interest.
Subject to the terms of paragraphs 3 and 4 below, an order pursuant to section 1323 of the Act that the second respondent, by herself or her servants or agents be restrained from withdrawing, transferring or otherwise disposing of or dealing with, any monies available in any account with any bank, building society or other financial institution (in Australia and elsewhere), in which she has any legal or equitable interest.
An order that the net proceeds of the sale of the respondents’ real property at 1/28 Blondell Avenue, Surfers Paradise, Queensland (being Lot 1 on registered plan SP 286914), after payment of all mortgages upon said property and costs of the sale, be paid:
(a)as to 50% into a new bank account to be opened in the name of the first respondent; and
(b)as to 50% into a new bank account to be opened in the name of the second respondent,
and dealt with in accordance with the terms of these orders.
An order that the orders sought in paragraphs 1 to 3 above, shall not prevent:
(a)either of the respondents from incurring a liability in respect of, or dealing with their Property in order to pay:
(i) ordinary living expenses not exceeding $2,000 per week;
(ii) reasonable legal expenses of and incidental to this Proceeding, or arising from the Applicant’s investigation giving rise to this Proceeding, including:
1.the respondents’ attendance at any record(s) of examination;
2.the respondents’ compliance with any notice(s) issued by the Applicant; and/or
3.the respondents’ defence of any subsequent criminal proceedings;
(iii) reasonable expenses associated with moving home on or before 18 August 2021, not exceeding $6,400;
(iv) in the event that the appointed liquidators of Vested Property Group Pty Ltd (in liquidation), or any secured creditor, take possession of the vehicle currently used by the respondents, for the acquisition of a personal vehicle for an amount not exceeding $20,000, with such vehicle to be held upon purchase in the name of the first respondent and thereafter dealt with in accordance with these orders;
(b)dealings and dispositions in the discharge of obligations bona fide and properly incurred under a contract entered into before the order was made;
(c)bona fide dispositions by the first respondent in an arms-length transaction for fair market value, provided that:
(i) the net proceeds of sale (after discharge of any security over the asset and costs of sale) are paid to the first respondent and dealt with in accordance with these orders; and
(ii) before doing so, the first respondent gives the applicant at least two business days written notice of the particulars of the disposition.
The respondents and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case, the applicant or the respondents must as soon as practicable file with the Court and serve on the other a minute of the proposed consent order recording the variation signed by or on behalf of the applicant and the respondents, and the Court may order that the exceptions are varied accordingly.
Except to the extent that a claim of privilege is made by the first respondent, he shall by 6 August 2021, deliver or cause to be delivered to the applicant an affidavit sworn by him, setting out:
(a)the name and address of any bank, building society or other financial institution at which there is an account in his name or under his control, together with the number of such account, the name of such account and the balance of that account at the date of this order;
(b)the name and address of any person or persons indebted to him at the date of this order and the amount of the indebtedness;
(c)an itemised inventory of his assets (other than clothing and other personal effects) and liabilities;
(d)an itemised inventory of any and all property whether real or personal (other than clothing and other personal effects):
(i) owned by him;
(ii) controlled by him;
(iii) in which he has an interest,
and which includes details of the location of that property; and
(iv) in respect of any of the property referred to in this order, whether that property has been given as security for any debt, and, if so, the nature of the security and the debt so incurred.
In the event that the first respondent refuses to provide in whole or in part the affidavit referred to in paragraph 6 above, based on a claim of privilege he shall by 5 pm on 6 August 2021, file with the court and serve on the applicant, an affidavit specifying the grounds on which the claim is made.
Provided that this order shall not require that the first respondent disclose any information which would otherwise be protected from disclosure in accordance with the privilege which has been claimed.
Other orders
This order has effect up to and including a further hearing in respect of this order before a judge listed in Applications, to occur no later than 21 January 2022.
To the extent necessary, the applicant has leave to give to any bank, building society or other financial institution through which, to the best of the applicant’s belief, any of the respondents operates any account notice of these Orders, by delivering a copy of a minute of the orders to a person apparently in the employ of that entity or person.
This order shall not prevent any bank, building society or financial institution from exercising any right of set-off which it may have in respect of a facility afforded by it to each of the respondents prior to the date of this order.
No bank, building society or other financial institution need inquire as to the application or proposed application of any money withdrawn by the respondents if the withdrawal appears to be permitted by this order.
Anyone served with or notified of this order may apply to the Court at any time to vary or discharge this order or so much if it as affects the person served or notified.
The respondents pay the applicant’s costs of the application to be assessed on the standard basis, if not agreed.
The parties have liberty to apply on two business days’ notice in writing.
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