FEDERAL COURT OF AUSTRALIA

Ann Street Mezzanine Pty Ltd (In Liquidation) (ACN 102 854 866)

v Beck (No 1) [2008] FCA 1021

CORPORATIONS – freezing orders – action by regulator in name of corporation – action brought pursuant to statutory power – claims against directors – breach of duties – claim for interlocutory relief – whether any risk of dissipation of assets – limited freezing order granted – no undertaking required – liberty to apply at short notice to vary or discharge restraint.

Australian Investments and Securities Commission Act 2001 (Cth) s 50

Corporations Act 2001 (Cth) s 9, s 1323

Federal Court of Australia Act 1976 (Cth) s 23

Carey v Australian Securities and Investments Commission [2008] FCA 963 cited

Australian Securities & Investments Commission; In the Matter of Richstar Enterprises Pty Ltd ACN 099 071 968 v Carey (No 14) [2007] FCA 310 cited

ANN STREET MEZZANINE PTY LTD (IN LIQUIDATION) (ACN 102 854 866) v CEDRICK RICHARD PALMER BECK, JOHN NORMAN DIXON, GRAEME JOHN RUNDLE, NORMAN PHILLIP CAREY, LYNETTE ROCHELLE SCHIFTAN, NEEDLERS END NOMINEES PTY LTD (ACN 008 828 304), KEBBEL CAPITAL PTY LTD (ACN 106 196 481) and PALENTIA PTY LTD (ACN 099 289 326)

VID 485 OF 2008

FRENCH J

30 JUNE 2008

PERTH

THE COURT ORDERS THAT:

1.         Except as permitted by paras 5, 6 and 7 below, until trial or further order the Fourth Defendant (whether by himself, his agents or employees, or otherwise) must not:

(1)        remove or cause or permit to be removed from Australia; or

(2)        sell, charge, mortgage or otherwise deal with, dispose of or diminish the value of; or

(3)        cause or permit to be sold, charged, mortgaged or otherwise dealt with, disposed of or diminished the value of;

all or any of his assets whether within or outside Australia (Carey Property), whether held legally or beneficially by him, nor do any act by way of instruction, advice or expression of wishes to any company or third party which has the purpose or is likely to have the effect of reducing the value of any asset owned by him or under his control.

2.         For the purpose of these Orders, 'Carey Property' includes property which falls within any of the following categories:

(1)       property held in the name of the Fourth Defendant;

(2)       property held by the Fourth Defendant as trustee for a trust or on behalf of or on account of another person;

(3)       property held jointly in the name of the Fourth Defendant and one or more persons or entities (Third Party);

(4)       property held jointly in the name of the Fourth Defendant and a Third Party for the express purpose of a joint venture;

(5)       property held by the Fourth Defendant jointly with a Third Party where both the Fourth Defendant and the Third Party hold the property in their capacity as trustees for a trust or on behalf of or on account of another person;

(6)       property held by a Third Party as trustee of a trust or in its own right where the Fourth Defendant is or will become the effective controller or owner of the property;

(7)       property held by a Company as trustee of a trust or in its own right where the First Defendant is or will become the effective controller or owner of the property;

(8)       rights to operate any Carey Bank Account (as that term is defined in para 3 below) and any choses in action in relation to any Carey Bank Account; and

(9)       any future or after acquired property which would, had it been in existence as at the date of these Orders, have been Carey Property by virtue of the application of some other part of this para 2.

3.         For the purpose of these Orders, 'Carey Bank Account' means any account with any bank, building society or financial institution which falls within any of the following categories:

(1)       an account held in the name of the Fourth Defendant including the bank account held in the Fourth Defendant's name with the Home Building Society (being BSB 639-000 A/C No 02538857) (Carey HBS Account);

(2)       an account held by the Fourth Defendant as trustee for a trust or on behalf of or on account of another person;

(3)       an account held jointly in the name of the Fourth Defendant and a Third Party;

(4)       an account held jointly in the name of the Fourth Defendant and a Third Party for the express purpose of a joint venture;

(5)       an account held by the Fourth Defendant jointly with a Third Party where both the Fourth Defendant and the Third Party hold the property in their capacity as trustees for a trust or on behalf of or on account of another person; and

(6)       an account held by a Third Party as trustee of a trust or in its own right where the Fourth Defendant is or becomes the effective controller or owner of the rights to operate or choses in action in relation to the account.

4.         The Fourth Defendant must pay into the Carey HBS Account:

(1)       any wages payable to the Fourth Defendant; and

(2)       any other income, money or proceeds received directly or indirectly by the Fourth Defendant or for the Fourth Defendant's benefit.

5.         These Orders do not prevent the Fourth Defendant from withdrawing from the Carey HBS Account and paying on his behalf only and not for any Third Party:

(1)       reasonable legal, accounting and/or expert fees and disbursements in:

(a)        connection with Federal Court of Australia action WAD 83 of 2006 including implementing or complying with any order of the Court made therein;

(b)       defending the action QBE Insurance (Australia) Ltd v Carey & Anor in the Supreme Court of New South Wales (action No. 50160 of 2006) including the connected action being Carey v Shepard (action No 50239 of 2007);

(c)        defending this action including implementing or complying with any order of the Court made herein;

(d)       making application to the Real Estate and Business Agents Supervisory Board of Western Australia (REBA) for renewal of the Fourth Defendant’s triennial licence under the Real Estate and Business Agents Act 1978 (WA);

(e)        prosecuting an appeal from REBA’s decision to refuse renewal of the Fourth Defendant’s triennial licence under the Real Estate and Business Agents Act 1978 (WA);

(f)        connection with the action Carey v Robinson Cox in the Supreme Court of Western Australia (action CIV 1410 of 2003);

(g)        prosecuting the action Carey v Australian Securities & Investments Commission in the Federal Court of Australia (action VID 57 of 2008);

(h)        dealing with all regulatory authorities (including the Australian Securities & Investments Commission) in connection with any investigation or enquiry into contravention of any law;

(i)         any other proceeding (including civil, penalty or criminal) commenced against the Fourth Defendant relating to or arising out of the Westpoint Group, including the bringing of any cross-claim or counter-claim in those proceedings;

(2)        reasonable legal, accounting and/or expert fees and disbursements in seeking legal advice, and commencing and prosecuting legal proceedings if the legal advice concludes that there are reasonable prospects of success, in respect of:

(a)        Management Liability Policy with American Home Company policy no. 111011 issued on 23 August 2005;

(b)       Investment Managers Insurance Policy with American Home Company policy no. 111323 issued on 31 August 2005;

(c)        any right of indemnity, contribution or subrogation in respect of a guarantee; and

(3)        reasonable legal or accounting fees to obtain advice in connection with requests, queries or demands made of the Fourth Defendant as a director or officer of a company.

6.         These Orders do not prevent the Fourth Defendant from withdrawing from the Carey HBS Account and paying into a solicitors’ trust bank account on his behalf only and not for any Third Party such amounts as his legal representatives reasonably require from time to time on account of anticipated reasonable legal, accounting and/or expert fees and disbursements as referred to in para 5 above.

7.         These Orders do not prevent the Fourth Defendant from withdrawing from the Carey HBS Account and paying ordinary living expenses not exceeding $4,000 per week (or such other amount as is fixed by the Court from time to time.)

8.         The Fourth Defendant must keep and maintain a record of all withdrawals and payments made pursuant to paras 5, 6 and 7 above.  The record is to list:

(1)        for amounts other than living expenses:

(a)        the money withdrawn or paid;

(b)       the date of the withdrawal or payment;

(c)        the person in whose favour the withdrawal or payment was made;

(d)        the purpose of the withdrawal or payment; and

(2)        for living expenses:

(a)        the date on which the withdrawal or payment is made; and

(b)        in respect of any living expenses in an amount of $500 or more:

(i)         the purpose of the withdrawal or payment; and

(ii)        the person in whose favour the withdrawal of payment is made.

9.         By 21 days after the end of each quarter ending 31 March, 30 June, 30 September and 31 December the Fourth Defendant must provide to the plaintiff’s solicitors a copy of the record kept and maintained in accordance with para 8 above.

10.       The Fourth Defendant must keep and maintain:

            (1)        a copy of all invoices for any legal, accounting and/or expert fees and other expenses incurred pursuant to paras 5, 6 and 7 above;

(2)        a copy of all bank statements for the Carey Bank Accounts;

and within 5 business days after written notice make such invoices and bank statements available to the plaintiff for inspection (provided that any portions thereof which are the subject of a claim to privilege may be redacted to preserve confidentiality).

11.       Within 21 days after each 6 month period ending 30 June and 31 December (Relevant Date) the Fourth Defendant must file and serve an affidavit sworn by him verifying as at the particular Relevant Date the Carey Property and his liabilities detailing:

(1)        the nature of each asset;

(2)        the estimated value of the asset;

(3)        the location of the asset;

(4)        the nature of the liability;

(5)        the amount of the liability;

(6)        the person to whom he is liable.

12.       The parties may apply to the Court to vary or discharge the terms of these Orders on short notice.

13.       The interlocutory process is adjourned to 1 August 2008 at 9.00am.

14.       There be no order as to today’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     In these proceedings which were commenced in the Victorian Registry of the Court, the Australian Securities and Investments Commission (ASIC), exercising its powers under   s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), has brought an action in the name of Ann Street Mezzanine Pty Ltd (in liquidation) (Ann Street) against a number of defendants, including Norman Phillip Carey.  The action relates to the raising and application of so called mezzanine finance from retail investors by Ann Street.  The statement of claim asserts against Mr Carey that he was at all material times a director of the company within the meaning of s 9 of the Corporations Act 2001 (Cth) for reasons and on the basis of particulars which are pleaded.  It pleads the process of the raising and application of mezzanine finance, and various breaches by directors of the company, including Mr Carey, of duties owed to Ann Streetand damages said to arise from their breach.  There are also breach of trust claims and allegations of knowing assistance in breaches of fiduciary duty by Mr Carey and others.  This application having in effect been commenced today, I make no comment upon its merits, save to the extent that is necessary for the purposes of this interlocutory application.

2                     These proceedings were commenced following a decision by Finkelstein J in judicial review proceedings in Carey v Australian Securities and Investments Commission, VID57 of 2008, that ASICwas not authorised under s 50 of the ASIC Actto cause previous Federal Court proceedings, VID 351 of 2007, brought in the name of the company in liquidation, and existing Federal Court proceedings, VID 386 of 2007, to be carried on by it in the name of Ann Street: Carey v Australian Securities and Investments Commission [2008] FCA 963.

3                     The decision by Finkelstein J was made at a time that applications for interlocutory freezing orders had been listed for hearing in the Perth Registry of the Court in VID 386 of 2007.  On 27 June 2008, ASICbrought an urgent application in the earlier proceedings WAD 83 of 2006, which had been brought under s 1323 of the Corporations Act, seeking an extension of orders which had been made against Mr Carey and others in those proceedings and which were due to expire today.  Those orders had been made in March of this year.  That application was adjourned to today.  In the meantime, the proceedings presently before the Court were commenced by ASIC in the name of Ann Street pursuant to what is, on Finkelstein J’s judgment, the proper application of ASIC’s powers under s 50.

4                     In that proceeding, VID 485 of 2008, ASIC has brought an interlocutory process in which it seeks Mareva-style relief against various of the defendants and a variety of other entities which are set out in Schedule C, inter alia, to that application, and they are being referred to as “the Carey entities”.  Those are companies which, as I understand it for the most part, have not been served and so I do not propose to make any orders in relation to them.  I have heard debate on the question whether I can make an order under s 1323 of the kind which ASIC seeks or directly under s 23 of the Federal Court of Australia Act 1976 (Cth).

5                     There is a question about whether or not an application for relief under s 1323 can be brought as an interlocutory process in a pending civil proceeding.  Plainly, the power under   s 1323 can be exercised where there is a civil proceeding pending but the structure of the section, which includes provision for interim orders and the absence of any requirement to offer an undertaking as to damages in interim orders in proceedings under that section, rather suggests that it is to be treated as self-contained and collateral to, rather than an element of, the civil proceeding upon which it may rely.  I do not need to give a concluded opinion on that matter.

6                     The argument put by ASIC in relation to the s 1323 element of its application was that I should make an order under s 23 as an incident of my power to make an order under s 1323.  This would be on the basis that I was satisfied that receivers could be appointed under s 1323 and could then resort to s 23 as a fallback position: see Australian Securities & Investments Commission; In the Matter of Richstar Enterprises Pty Ltd ACN 099 071 968 v Carey (No 14) [2007] FCA 310.  I think the preferable course here is to go directly to s 23 and the power it confers in aid of the jurisdiction invoked in these proceedings.  In my opinion, at least for the purposes of making an interim order under s 23 and allowing parties further time to consider their position and also to consider the position of third parties who have not been served, there is sufficient to warrant my making an interlocutory freezing order.

7                     ASIC relies largely upon evidence which it adduced before this Court in WAD 83 of 2006 in relation to Mr Carey. That evidence has been reviewed in previous judgments of the Court in WAD 83 of 2006.  I do not propose again to go through that litany of transactions  described in previous judgments, nor the reference to overseas dealings which were said to have been at first denied by Mr Carey and then falsified by reference to documents that were later obtained as part of the investigative process, ancillary to the proceedings in WAD 83 of 2006.   Itsuffices to say that there is still some risk of a dissipation of assets, if there be assets, under the control of Mr Carey.  I express no concluded view about that, but it is sufficient for me to identify a risk and to say that in this case an order can be structured in such a way that the balance of convenience favours making the order rather than not making it.  The form of the order which is proposed largely accords with existing arrangements which have applied under the s1323 orders made in WAD 83 of 2006.  I will, however, delete the reference to the travel restraint which really only operated in the context of those orders.  I think also, given what has been said about Mr Carey’s capacity to either control or effectively direct or influence the disposition of assets in third party companies, that there should be some restraint imposed in relation to his capacity to do that in a way that might be adverse to the plaintiff as a potential creditor in these proceedings.

8                     I am expressing no concluded view, obviously, about the merits of the proceedings themselves beyond the fact that there is, on the material which I have previously seen, an arguable case in relation to the various causes of action that are raised.  I do not wish to say any more about that.  I do not wish to pre-empt any judgment that might be made on complex, factual questions.

9                     I propose to make an order in terms of the s 23 orders which are sought by ASIC in its interlocutory process relevant to Mr Carey and subject to certain variations.  I will add to para 1, after the words, “all or any of his assets whether within or outside Australia whether held legally or beneficially by him” these words, “nor do any act by way of instruction, advice or expression of wishes to any company or third party which has the purpose or is likely to have the effect of reducing the value of any asset owned by him or under his control.”  Subject to that change and the deletion of the travel restraint, which is not in dispute, and other minor variations, I will make the orders sought.  There will be no order as to costs.  I do not require that ASIC offer an undertaking as to damages.  Relevant to that consideration, is the fact that the proceeding is brought in the exercise of its statutory responsibilities and in the public interest.  Liberty to apply is available at short notice in the event of any apprehension that the freezing order will result in some unexpected and unfair detriment to Mr Carey.

Associate:

Dated:         7 July 2008