FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630

The Court Declares THAT:

1.    From 28 January 2010 onwards Stone Assets Management Pty Ltd ACN 141699854 (formerly Australia AFT Finance Market Pty Ltd) (“the company”) has contravened subs 911A(1) of the Corporations Act 2001 (Cth) (“the Act”) in that it carried on a financial services business in this jurisdiction without holding an Australian financial services licence (“AFSL”) covering the provision of the financial services.

2.    From 28 January 2010 onwards the company has contravened subs 911C(a) of the Act in that it held out that it held an AFSL when that was not the case.

3.    From 28 January 2010 onwards the company has contravened s 1041H of the Act in that, in this jurisdiction, it engaged in the conduct described below, in relation to a financial product or a financial service, that was misleading or deceptive or was likely to mislead or deceive.

Conduct

The company, in promoting financial products, has published false and misleading statements on its website (“the Statements”) that:

(1)    it has headquarters in Adelaide;

(2)    it is authorised and regulated by the Australian Securities and Investments Commission (“ASIC”) and held an AFSL when that was not the case;

(3)    the company’s background was as follows:

(a)    that it was formerly Adelaide Finance Market Co Ltd;

(b)    that it was established in 2001 and specialised in forex trading;

(c)    that in 2003 it became the forex futures trader;

(d)    that in 2009, after merging with a company named Brisbane Financial Securities Co Ltd, it changed its name into AFT Finance Market Holdings Limited; and

(e)    that on the events described in (d) above, it successfully obtained the authority of ASIC.

4.    From 28 January 2010 onwards the company has contravened s 1041F of the Act in that, in this jurisdiction, it induced another person to deal in financial products by making the Statements when it knew, or was reckless as to whether, the Statements were misleading, false or deceptive.

5.    From 28 January 2010 onwards the company has contravened s 1041E of the Act in that:

(1)    it made the Statements that were false in a material particular or were materially misleading; and

(2)    the Statements were likely to induce persons in this jurisdiction to apply for financial products; and

(3)    when the company made the Statements it knew or ought reasonably to have known that the statements were false in a material particular or materially misleading.

The Court orders that:

1.    The company by itself, its servants, agents or employees, be permanently restrained from:

(a)    carrying on business in which it:

1.    facilitates access to, advertises, promotes or markets the financial product known as MetaTrader 4;

2.    provides advice in relation to any financial product, including but not limited to foreign exchange, metals and/or indices contracts for difference; and/or

3.    deals in, or arranges for a person to apply for or acquire any financial product, including but not limited to foreign exchange, metals and/or indices contracts for difference.

(b)    representing that it holds an AFSL or is otherwise authorised or licensed by ASIC.

(c)    transferring or disposing of any funds received or held by it including funds held on deposit by the company at the Commonwealth Bank of Australia in the following accounts:

1.    Foreign Currency Account No 100649252 USD 115601;

2.    Business Account No 062000 13791944.

(d)    receiving funds deposited by clients of the company in connection with the business of the company;

(e)    disposing of, destroying, amending, altering, parting with possession, or causing or procuring the destruction, amendment, alteration or parting with possession, of the books and records of the company evidencing any dealings of the company in relation to its business and any money paid or received in connection with its business.

2.    The company be wound up on the just and equitable ground (subs 461(1)(k) of the Act) and that Ms Hilary Orr be appointed liquidator of the company.

3.    The defendant pay the plaintiff’s costs of the application.

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

REASONS FOR JUDGMENT

Introduction

1    In this proceeding the Australian Securities and Investments Commission (“ASIC”) is the plaintiff and it seeks declarations, injunctions and orders under the Corporations Act 2001 (Cth) (“the Act”) against the defendant. The plaintiff relies on the powers in that Act (that is, paragraph 461(1)(k) and ss 1323 and 1324) and sections 21-23 inclusive of the Federal Court of Australia Act 1976 (Cth). The defendant is Stone Assets Management Pty Ltd, formerly known as Australia AFT Market Finance Pty Ltd.

2    The plaintiff commenced this proceeding on 3 November 2011. The defendant filed a notice of address for service nominating solicitors on 9 November 2011. Those solicitors filed a notice of ceasing to act on 2 February 2012. The defendant did not comply with an order I made on 8 December 2011 that it file a Defence on or before 27 January 2012. Nor did it appear at the hearing. I proceeded to hear the plaintiff’s claims for relief in its absence (Rules 5.23(2) and 30.21) of the Federal Court Rules 2011 (“the Rules”).

3    This proceeding first came before me on 4 November 2011, at which time I granted interim injunctions restraining the defendant from continuing to carry on its business in the manner which forms the subject of this proceeding, or transferring funds from its Australian bank accounts. Those interim orders have continued to the present day.

4    In essence, the plaintiff seeks declarations that the defendant has contravened each of sections 911A, 911C, 1014E, 1041F and 1041H of the Act, injunctions and an order that the defendant be wound up under the just and equitable ground in s 461(1)(k) of the Act. The plaintiff alleges that the defendant has failed to comply with s 201A(1) and contravened s 1308(2) of the Act. The plaintiff, however, does not seek declarations in relation to those breaches, but relies on them to support its application for a winding up order.

The Defendant’s Incorporation and Operations

The persons in charge of the company

5    The company searches annexed to the affidavit of Mr Michael Long, sworn on 10 February 2012 (“the First Long Affidavit”), show that the defendant was incorporated and registered as a company under the Act on 28 January 2010.

6    The records indicate that Ms Qing Liang is the defendant’s sole director. The plaintiff claims that Ms Liang has never entered Australia. The evidence in support of this claim includes the affidavit of Mr Victor Ma, sworn on 10 February 2012, in which he states that he was instructed by an agent of the defendant to provide the South Australian residential address of “33 Compton Street Adelaide” as an interim address for Ms Liang, for the purpose of arranging for the defendant to be incorporated in Australia. Mr Ma states he was advised that Ms Liang would be coming to Australia, although he was aware in January 2010 that the premises at the Compton Street address were being used for student accommodation. There is also evidence by way of records obtained from the Department of Immigration and Citizenship, which indicate that Ms Liang has never lawfully entered or exited Australia on a valid passport. Finally, there is evidence by way of documents that were obtained by the plaintiff from the Commonwealth Bank, pursuant to a subpoena issued on 2 March 2012, which show that the funds received into the bank account of the defendant have substantially been transferred to a Chinese bank account in the name of Qing Liang (see the affidavit of Mr Long, dated 14 March 2012 (“the Third Long Affidavit”). I accept this evidence. I address the relevance of it below.

The business of the company

7    As to the business of the company, the evidence before me includes a series of “web captures” of the company’s website carried out by Ms Leanne Balit, a forensic computer analyst with the plaintiff, which are exhibited to Ms Balit’s affidavit, sworn on 9 February 2012. In general terms, the company conducted a business which facilitated online access to the trading of contracts for difference (“CFDs”) in forex, among other things, via an online trading platform, known as MetaTrader4. The precise nature of what the defendant offered to investors can be seen from the following statements made on the defendant’s website, and reproduced in the web captures:

1.    “Headquartered in Adelaide, [AFT] has subsidiaries in Singapore, the United Arab Emirates and Belgium, and also establishes an office in Shanghai directly under AFT”;

2.    “AFT provides multiple options for the clients to trade with forex, gold, silver, crude oil, stock index and dollar index etc.”;

3.    “AFT is authorised and regulated by the Australia Securities & Investment Commission (ASIC). AFSL No: 141699854”;

4.    “Formerly named Adelaide Finance Market Co. Ltd, AFT was established in 2001 and specialised in forex trading. In 2003, it became the forex futures trader. In November 2009, after merging with a company name Brisbane Financial Securities Co. Ltd, AFT changed its name into AFT Finance Market Holdings Limited and successfully obtained the authority of ASIC”;

5.    “AFT metals products are structured as contracts for difference which allows them to benefit from live tradeable prices and the ability to sell short and buy long”;

6.    “AFT’s MetaTrader 4 is able to trade forex, metals and indices CFD contracts. It has a user friendly front-end trading interface, provides technical analysis, charting and expert advisors to develop own trading strategies”.

8    Further, the website of the defendant describes the features of the MetaTrader4 platform as follows:

1.    “MT4 is a charting and trading tool at the same time. You can see charts, analyse the market and then place orders with the same platform;

2.    You can obtain tools to automate your trades or general trading signals; and

3.    MT4 comes with a programming language and a platform to develop programs with that language. You can develop your own tools to trade automatically, or analyse the market.”

The relevant representations

9     The plaintiff submits that, as a matter of fact, three of the statements referred to in [7] above are false and misleading.

10    The first is that the defendant is “headquartered in Adelaide” (see [7.1] above). During the hearing I was referred to the First Long Affidavit, which describes several searches undertaken by the plaintiff to attempt to locate the company. None of these searches proved fruitful, beyond establishing that the address listed on the plaintiff’s Company Register as the defendant’s principal place of business (that being, 228 Franklin Street, Adelaide) was in fact the premises of “Austro Power & Associates”, the former director of which was Mr Ma. On the evidence, I find that the defendant does not have an office in Adelaide, and as such, its statement that it is “headquartered” in Adelaide, South Australia is false and misleading.

11    Secondly, the plaintiff submits that the defendant’s representation that it is “authorised and regulated by ASIC” (see [7.3] above) is false and misleading. Again, on the evidence I find that the defendant does not hold and, in fact, has never held an AFSL. I therefore find the statement made in these terms on the defendant’s website to be false and misleading.

12    Thirdly, the plaintiff submits that the history of the defendant as set out on the website (see [7.4] above) is false and misleading as none of the companies referred to (that is, “Adelaide Finance Market Co Ltd” and “Brisbane Financial Securities Co Ltd”) have ever existed. Further, contrary to the defendant’s representation, it was not established as a company until 2010. The relevant company searches establish those matters, and on this basis I find the defendant’s statements about these matters to be false and misleading.

The Defendant’s Business and Part 7.6 of the Corporations Act

13    Part 7.6 of the Act deals with the licensing of providers of financial services. Subsection 911A(1) provides as follows:

(1) Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services.

14    Part 7.1 of the Act contains a detailed scheme for defining the terms “financial services business”, “financial service” and “financial product”. Section 766A defines the circumstances in which a person provides a “financial service”. Subsection (1) relevantly provides:

(1)     For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:

(a)    provide financial product advice (see section 766B); or

(b)    deal in a financial product (see section 766C); or

(c)    …

15    The term “financial product” is defined by s 764A(1) of the Act to include specific products including:

(a)    a security;

…

(c)    a derivative;

…

(k)    a foreign exchange contract that is not:

(i)     a derivative (derivatives are covered by paragraph (c)); or

(ii)     a contract to exchange one currency (whether Australian or not) for another that is to be settled immediately.

    …

(l) a margin lending facility.

16    For the purposes of Chapter 7, s 761D of the Act relevantly defines a “derivative” to mean:

(1)    an arrangement in relation to which the following conditions are satisfied:

(a)    under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind or kinds to someone; and

(b)    that future time is not less than the number of days, prescribed by regulations made for the purposes of this paragraph, after the day on which the arrangement is entered into; and

(c)    the amount of the consideration, or the value of the arrangement, is ultimately determined, derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:

(i)      an asset;

(ii)    a rate (including an interest rate or exchange rate);

(iii)    an index;

(iv)    a commodity.

(2)    Without limiting subsection (1), anything declared by the regulations to be a derivative for the purposes of this section is a derivative for the purposes of this Chapter. A thing so declared is a derivative despite anything in subsections (3) and (4).

17    For the purposes of subss 761D(1) and (2), reg 7.1.04 of the Corporations Regulations 2001 (Cth) (“the Regulations”) relevantly provides:

(1)    For paragraph 761D(1) (b) of the Act, the prescribed period is:

    (a)    for a foreign exchange contract — 3 business days; and

    (b)    in any other case — 1 business day.

(2)    For subsection 761D(2) of the Act, and subject to this regulation, an arrangement is declared to be a derivative if the following conditions are satisfied in relation to the arrangement:

    (a)    the arrangement is not a foreign exchange contract;

(b)    under the arrangement, a party to the arrangement must, or may be required to, provide at some future time (which may be less than 1 day after the arrangement is entered into) consideration of a particular kind or kinds to someone;

(c)    the amount of the consideration, or the value of the arrangement, is ultimately determined, derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:

    (i)    an asset;

    (ii)    a rate (including an interest rate or exchange rate);

    (iii)    an index;

    (iv)    a commodity.

18    In the present case, the company’s website promoted and facilitated trade in CFDs. Mr Colin Luxford provided expert evidence by way of an affidavit and in the course of that evidence he described the nature of a CFD as follows:

A CFD is an agreement between two parties to pay the difference in price of a contract between the date on which the contract is agreed to be opened and the date on which it is agreed to be closed. It allows investors to take a position on the change in value of an underlying asset over time.

19    Mr Luxford also said that CFDs may be closed out over a period of seconds, minutes, hours, days, weeks, etc, depending on the conditions in the contract.

20    On the basis of the evidence before me, the CFDs described on the defendant’s website fell within the definition of a derivative within subs 761D(1) and reg 7.1.04(1) or subs 761D(2) and reg 7.1.04(2).

21    Pursuant to paragraph 766A(1)(b) of the Act, a person provides financial services if they “deal in” a financial product. Subsections 766C(1) and (2) of the Act defines “dealing” as follows:

(1)    For the purposes of this Chapter, the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:

(a)    applying for or acquiring a financial product;

(b)    issuing a financial product;

(c)    in relation to securities or managed investment interests--underwriting the securities or interests;

(d)    varying a financial product;

(e)    disposing of a financial product.

(2)    Arranging for a person to engage in conduct referred to in subsection (1) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice.

22    The defendant’s facilitation of their client’s access to the MetaTrader4 platform, which in turn allows the client to acquire CFDs, is sufficient to bring the activity within subs 766C(2), and consequently amount to the provision of “financial services” under s 766A(1) of the Act. Although there is no express evidence that the company has in fact “arranged for a person to acquire” CFDs by using the MetaTrader4, the plaintiff submits that such an inference should be drawn from the defendant’s bank records, obtained upon a notice to produce, from the Commonwealth Bank. The records, which were exhibited to the First Long Affidavit, show a sum totalling $10,397,612.42 was deposited into the defendant’s Foreign Currency Account in the period from 1 April 2010 and 30 December 2011. Although there is no express evidence of the nature of or reason for these deposits, the plaintiff asks me to infer, and I think that it is proper to infer, that these sums were paid by way of commission, charged by the defendant for allowing access to the MetaTrader4. I find that the defendant did “arrange for a person” to apply for or acquire a financial product, namely, the CFDs offered by the MetaTrader4. It follows that the defendant was engaged in the provision of financial services for the purposes of s 766A(1) of the Act.

23    I turn now to consider whether there was the provision of “financial product advice” for the purposes of the Act. Subsection 766B(1) of the Act defines this term in the following way:

(1)    For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

(a)    is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

(b)    could reasonably be regarded as being intended to have such an influence.

24    The plaintiff submits that the features and capabilities of the MetaTrader4 platform, to which there was a direct link from the defendant’s website (as shown by the web captures), were such that the online platform could amount to “financial product advice”. These features were advertised by the company on their website, and are set out above at [8]. Further details of this platform and the full range of trading tools it offered the defendant’s clients were before me in the affidavit of Mr Luxford; however, for present purposes, it is unnecessary to set these out in full. Of particular relevance is the ability of the MetaTrader4 to “automate trades or generate trading signals” and develop tools to “analyse the market”, upon which (it seems the inference must be), clients will base their trading decisions.

25    In fact, in the case of the “expert advisors” trading tool made available by MetaTrader4, it seems that once particular trading rules are selected by a client, the trading orders are generated automatically by the platform. Websites that provide these kinds of trading tools to clients have previously been found to amount to the provision of “financial product advice” for the purposes of s 766B of the Act: ASIC v Online Investors Advantage Inc (2005) 23 ACLC 1929 (“ASIC v Online Investors”); ASIC v Oxford Investments (Tasmania) Pty Ltd (2008) 169 FCR 522 (“ASIC v Oxford Investments”). The decision in ASIC v Oxford Investments similarly involved an online program that made available market analysis information and electronic trading “advisors”. Heerey J found (at 526):

The business which Oxford and Mr Moore carried on involved a recommendation or statement of opinion. The statements they made necessarily implied that Mr Moore held the opinion that application of the Methodology would enable the user to trade profitably. It is not to the point that the defendants did not advise a client as to particular transactions, as for example whether to buy, sell or hold a particular security. It is sufficient that their system would “influence” such a decision, in the sense of making available information, and a system of analysing that information, which would be seen by a recipient as relevant to the making of a decision. (emphasis added.)

His Honour continued (at 527):

In the present case there has been, first, an expression of opinion that, in specified circumstances arising from a particular kind of market analysis, trading in a particular way is likely to be profitable. Secondly, there is the provision of technical aids that assist in identifying those circumstances from day to do. The combined effect is the provision of financial product advice within the meaning of the statute.

26    Similarly, in ASIC v Online Investors at 1943, Moynihan J of the Supreme Court of Queensland found (at 1943) the website in question operated as a form of financial advice in relation to a particular financial product and consequently fell within s 766B of the Act. His Honour described the features of this website as follows (at 1941):

Put shortly, a subscriber to the website gains access to data about US securities and means to organise, analyse and evaluate data to support decisions in respect of buying and selling stock generally and in respect of specific securities. The operation of the website generates recommendations as to the acquisition, holding or sale of categories of securities or securities in terms of the criteria selected by the user and applied by the system.

27    Although the MetaTrader4 does not hold out a particular trading “methodology” as being successful as was the case in ASIC v Oxford Investments, it does in a like way provide trading analysis information, which could be construed as an expression of opinion that trading in a certain way, namely a way that makes use of the “trading indicators” made accessible by the platform (such as market trend, strength and volatility information), is likely to be profitable. The evidence of Mr Luxford explains the MetaTrader4 similarly “generates trading signals” which consequently form the basis of an investor’s trading decision. On this basis I am satisfied that the platform can reasonably be regarded as being intended to influence the trading decisions of clients, and as such, provides “financial advice” within the meaning of s 766B(1) of the Act.

28    It follows from what I have said that the defendant was carrying on a financial services business.

Contraventions of the Corporations Act

29    The defendant has carried on a financial services business in Australia. The fact that the business is carried on in this jurisdiction is established by first, the fact that it has advertised and marketed its business in Australia, the primary website (www.aftfx.com.au) being Australian, and secondly, by the fact the defendant is said to have an Australian phone number (until disconnected as a result of the obtaining of the injunction) and registered office in South Australia. In addition to these matters, the defendant’s banking records show that significant sums have been deposited into its Foreign Currency account, held with the Commonwealth Bank in Sydney. The defendant does not have and never has had an AFSL. The plaintiff has established that the defendant has acted in contravention of subs 911A of the Act.

30    Furthermore, the defendant has held itself out as having an AFSL when that is not the case. The web captures show the defendant has made representations throughout their website that it possesses an AFSL, going so far as to provide what can only be a false AFSL number (set out above at [7.3]). The plaintiff has established that the defendant has contravened paragraph 911C(a) of the Act.

31    Finally, the defendant has failed to comply with subs 201A(1) of the Act, which requires an Australian registered company to have at least one director ordinarily residing in Australia. In addition, it seems clear on the evidence that the company has provided false information to ASIC about Ms Liang’s personal address. Accordingly, it has also contravened subs 1308(2), which forbids the provision of a false or misleading statement in any document required to be lodged with the plaintiff, in this case being the company registration form.

32    The plaintiff also submits that the defendant has contravened ss 1041H, 1041E and 1041F of the Act.

33    Section 1041H deals with misleading or deceptive conduct. It does not require proof of a mental element. What must be established is that the defendant has engaged in conduct in relation to a financial product or service that is misleading of deceptive or is likely to mislead or deceive. Moynihan J in ASIC v Online Investors found (at 1944) in the context of claims under s 1041H that:

Whether I am satisfied to the requisite degree that the statements were made and whether they were misleading or deceptive or capable of being so is a matter of inference drawn from the conduct complained of construed in the light of the evidence of the whole of the circumstances in which it occurred.

34    In the present case I have found at [22] and [27] above that the company engaged in conduct in relation to the offering of financial services or financial product advice, for the purposes of ss 766A and 766B of the Act, in the form of facilitating access to the CFDs and MetaTrader 4 respectively. The evidence establishes the representations made by the company to customers on their website concerning their location, licensing and company history, referred to above at [7], to be false as a matter of fact. It is clear these statements were of a misleading nature and, objectively, had the likely effect of misleading clients of the defendant. On this basis I find the defendant has contravened s 1041H of the Act.

35    Subsection 1041E(1) provides:

(1)    A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if:

a.    The statement or information is false in a material particular or is materially misleading; and

b.    The statement or information is likely:

i.    To induce persons in this jurisdiction to apply for financial products; or

ii.    To induce persons in this jurisdiction to dispose of or acquire financial products; or

iii.    To have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and

c.    When the person makes the statement or disseminates the information,

i.    The person does not care whether the statement or information is true or false; or

ii.    The person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.

36    In contrast to s 1041H, s 1041E requires the person to have known, or that he or she ought reasonably to have known, that the statements made were false in a material particular or materially misleading. The relevant representations were representations of fact, and matters that ought reasonably to have been known to be false by the defendant. This is particularly the case in relation to the statements made concerning the defendant’s corporate history that pre-date the existence of the defendant, and the defendant’s possession of an AFSL.

37    Further, the statements made were of a kind that would install a level of comfort in a potential CFD investor. Representing that the defendant was an Australian-based company with a relatively long history would likely reassure a potential client as to the experience and reliability of the defendant as a service provider, and it ought reasonably to have known that such statements would mislead, with the likely effect that a person would be induced into applying for the financial products on offer. I am satisfied that the evidence before me establishes that the defendant has contravened s 1041E of the Act.

38    Subsection 1041F provides:

(1)    A person must not, in this jurisdiction, induce another person to deal in financial products:

a.    By making or publishing a statement, promise or forecast if the person knows, or is reckless as to whether, the statement is misleading, false or deceptive; or

b.    By a dishonest concealment of material facts; or

c.    By recording or storing information that the person knows to be false or misleading in a material particular or materially misleading if:

i.    The information is recorded or stored in, or by means of, a mechanical, electronic or other device; and

ii.    When the information was so recorded or stored, the person had reasonable grounds for expecting that it would be available to the other person, or a class of persons that includes the other person.

39    This subsection requires, in addition to the finding of misleading, false or deceptive statements (which I have found), evidence that the defendant, in actual fact, induced a person to deal in financial products as a result of false or misleading statements. As I have found above (at [22]), the evidence concerning the defendant’s bank accounts, suggests the payment of client commissions. It seems proper to infer that the defendant has been successful in inducing clients to deal in the financial products – CFDs – offered by the MetaTrader4. In view of this, I find that the defendant has contravened s 1041F of the Act.

RElief

Declaratory Relief

40    The plaintiff is seeking declarations in relation to contraventions of ss 911A(1), 911C(a), 1041H, 1041E and 1041F of the Act. Declaratory relief in this case does not follow immediately as of right, and remains at the discretion of the court. The plaintiff, however, submits that declarations of contravention should be granted in the public interest. Davies AJ in ASIC v Pegasus Leverages Options Group Pty Ltd (2002) 41 ACSR 561 (“ASIC v Pegasus Leverages”) at 571, considered the power of the court to grant such relief at the request of a statutory authority which regulates an industry, and found that when such relief is sought by ASIC, it should be granted if it is in the public interest to do so. In coming to this conclusion, his Honour referred to the decision of Austin J in ASIC v Sweeney [2001] NSWSC 114, where his Honour said (at [30]-[31]):

It is beyond contest that this Court has plenary jurisdiction to make a declaratory order concerning contravention of the Corporations Law, by virtue of s23 and s75 of the Supreme Court Act 1970 (NSW). In Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121, the High Court expressly disagreed with the Court of Appeal of New South Wales, which had declined to grant a declaration with respect to contravention of the 'prescribed interests' provisions of the Companies Act 1961 (NSW) … In Corporate Affairs Commission v Transphere Pty Ltd (1989) 7 ACLC 205, 209, Young J dealt with the question more fully. He observed that, while a declaration will not ordinarily be made that a defendant has committed a crime, there is jurisdiction to do so in a proper case. In his Honour's view, older cases which discouraged a statutory authority from commencing proceedings for declaratory relief are no longer applicable, in view of the changed social climate, and the Court will now grant declaratory relief at the suit of the statutory authority which exists to regulate an industry, in an appropriate case: at 214. In his Honour's view, the fact that the subject matter of the declaration is of public interest is an important consideration in favour of the granting of declaratory relief, even though the order may be of only slight utility: at 213. In that case the Court declined to make a declaratory order, because (inter alia) the declaration would affect investors who were not parties to the proceedings. That consideration is not present here. The approach taken in the Federal Court is very similar: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) 113 ALR 257. (emphasis added.)

41    The Full Court decision in Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) 41 FCR 89 concerned alleged contraventions of the Trade Practices Act 1974 (Cth). Sheppard J considered the breadth of the Federal Court’s power to grant declaratory relief and said that the exercise of the power may be appropriate in certain cases to mark the Court’s disapproval of the contravening conduct in issue (at 100).

42    In the case before me, there is a public interest in this Court expressing its disapproval of corporate behaviour which exhibits such an open disregard for the requirements of the Act. That is particularly so in relation to the contraventions of ss 911A and 911C(a), because the licensing of providers of financial services is a key element in the regime established by Chapter 7 of the Act. A perusal of the sections in Part 7.6 Divisions 3-12 illustrate how important the licensing regime is in ensuring honesty and a level of competency on the part of those providing financial services.

43    Accordingly, it is appropriate to make the declarations sought by the plaintiff.

Winding up on “just and equitable grounds”

44    In addition to declaratory relief, the plaintiff seeks an order for the winding up of the defendant on “just and equitable grounds”, pursuant to s 461(1)(k) of the Act. This provision provides:

    The Court may order the winding up of a company if:

    …

(k)     the Court is of the opinion that it is just and equitable that the company be wound up.

45    The plaintiff has standing to seek the order by reason of ss 462(2) and 464 of the Act.

46    The power of the plaintiff to seek this form of relief on public interest grounds is well established: ASIC v AS Nominees Ltd & Anor (1995) 62 FCR 504. Lander J in ASIC v International Unity Insurance Pty Ltd [2004] FCA 1059 provided a summary of the authorities and principles surrounding the exercise of the courts power under this provision. His Honour said (at [136]-[140]):

There are a number of separate grounds which justify the making of a winding up order under this head. If mismanagement, misconduct or lack of confidence in the conduct and management of the affairs of a company is established, it may be appropriate to wind up the company under this head: Australian Securities Commission v AS Nominees Ltd at 532–533; Australian Securities & Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at 469.

If the plaintiff can establish that there have been breaches of the provisions of the Act, including, but not limited to, breaches of directors’ duties, inadequacy of accounts and inadequacy of record keeping, it may be appropriate to make an order under this head: Australian Securities Commission v AS Nominees Ltd at 532–533; Australian Securities & Investments Commission v ABC Fund Managers at 469.

If there is a need to ensure investor protection, a winding up order may be made under this head: Australian Securities Commission v AS Nominees Ltd and Others at 532–533; Australian Securities & Investments Commission v ABC Fund Managers and Others at 469.

An order may be made if a company has not carried on its business candidly and in a straightforward manner with the public: Australian Securities & Investments Commission v Austimber Pty Ltd [1999] FCA 566; (1999) 17 ACLC 893. Such an order would also be appropriate where the corporation has acted fraudulently or entered into sham transactions.

47    In the present case, I have found that the defendant has engaged in repeated contraventions of the Act, and as such, there is a real risk to actual and potential investors that such breaches will continue. This is particularly so in a case where the defendant has no director present in Australia, against whom any required action could be taken. Further, and perhaps most relevantly, the defendant failed to comply with the interim injunction I made on 8 December 2011, requiring the company to cease publication of its website (www.aftfx.com.au). In addition, the affidavit of Lily Yang, sworn 27 January 2012, and the translation therein contained, shows that the defendant continued to publish a Chinese language version of the website (www.aftfx.com) which persisted in making reference to the possession of an AFSL licence. Such conduct, in clear disregard of the orders of this court, also favours the order sought by the plaintiff. Finally, the overall misconduct and mismanagement of the defendant justifies a finding that there is cause for a lack of confidence in the future conduct and management of the defendant, should it be allowed to continue trading. The defendant does not have a director who ordinarily resides in Australia and appears never to have had such a person (s 201A(1)). It appears to have been prepared to make false or misleading statements contrary to subs 1308(2) in relation to the address of Ms Liang (ss 205B and 205D) and the defendant’s principal place of business in its application for registration as an Australian company. For all these reasons I will make the winding up order sought by the plaintiff under s 461(1)(k) of the Act.

Injunctive relief

48    Finally, the plaintiff seeks a number of permanent injunctions. In view of the fact that I have decided that it is appropriate to make a winding up order, a question arises as to whether the grant of injunctions is necessary or appropriate (ASIC v IP Product Management Group Pty Ltd (2002) 42 ACSR 343). The utility in granting a permanent injunction where a winding up order under s 461(1)(k) of the Act may also be made has been the subject of previous authority. In ASIC v Pegasus Leverages, Davies AJ acknowledged the scope and discretionary nature of the court’s power to grant injunctive relief, referring to Austin J’s decision in ASIC v Sweeney [2001] NSWSC 114. Davies AJ, however, declined to make the permanent injunctions sought by ASIC in that case. His Honour said (at 583-4):

[A]lthough the court has a wide discretion and is relieved by s 1324(6) and (7) from the shackles which would otherwise be imposed by the well understood principles of equity, nevertheless, the court should not grant an injunction simply because it has been requested to do so. An injunction should not be granted unless the order is directed to and appropriate to achieve an end such as enforcing and giving effect to the statute.

In the present case, no purpose would be served by granting an injunction directed to Pegasus. That company will be under the control of a liquidator and it will be in the course of being wound up as from the time the judgment is delivered …

In my opinion, the court’s power to grant an injunction should be exercised only when it appears that the injunction would serve a useful end. In the present case, the grant of an injunction would not do so. An injunction is not the appropriate way to restrain the activities in which Mr McKim [the director] may engage in the future. Only awards of damages, the imposition of penalties, prosecution and punishment are likely to restrain him.

49    However, in the more recent decision of ASIC v West (2008) 66 ACSR 143, Gray J found that the granting of permanent injunctions would serve a useful purpose, despite an order for winding up on the just and equitable ground. His Honour referred to the reasons of Davies AJ, and said of the case before him (at 193):

In my view, in the circumstances of this case, it is appropriate to grant permanent injunctions against Mr West [the director] and JWA [John West & Associates] 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 is 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.

50    In this case the defendant has previously shown a willingness to disregard the orders of this court, namely, the interim injunction. This suggests a stronger and more permanent order of the court is required to restrain the defendant’s conduct. However, there remains the issue of utility, in circumstances where a winding up order is to be made. In the end, I am persuaded by the plaintiff’s submission that the presence of Ms Liang in China has the potential to make a clean handover to any appointed liquidator more difficult, particularly given the defendant’s prior disregard for orders of the court. It may be therefore that as in ASIC v West, the defendant, through its director Ms Liang, is more susceptible to repeating its contraventions of the Act, and on this basis, I find the granting of the permanent injunctions sought by the plaintiff, and unopposed by the defendant, to be warranted in the public interest.

Conclusion

51    I will make the following declarations and orders:

The Court Declares that:

1.    From 28 January 2010 onwards Stone Assets Management Pty Ltd ACN 141699854 (formerly Australia AFT Finance Market Pty Ltd) (“the company”) has contravened subs 911A(1) of the Corporations Act 2001 (Cth) (“the Act”) in that it carried on a financial services business in this jurisdiction without holding an Australian financial services licence (“AFSL”) covering the provision of the financial services.

2.    From 28 January 2010 onwards the company has contravened subs 911C(a) of the Act in that it held out that it held an AFSL when that was not the case.

3.    From 28 January 2010 onwards the company has contravened s 1041H of the Act in that, in this jurisdiction, it engaged in the conduct described below, in relation to a financial product or a financial service, that was misleading or deceptive or was likely to mislead or deceive.

Conduct

The company, in promoting financial products, has published false and misleading statements on its website (“the Statements”) that:

(1)    it has headquarters in Adelaide;

(2)    it is authorised and regulated by the Australian Securities and Investments Commission (“ASIC”) and held an AFSL when that was not the case;

(3)    the company’s background was as follows:

(a)    that it was formerly Adelaide Finance Market Co Ltd;

(b)    that it was established in 2001 and specialised in forex trading;

(c)    that in 2003 it became the forex futures trader;

(d)    that in 2009, after merging with a company named Brisbane Financial Securities Co Ltd, it changed its name into AFT Finance Market Holdings Limited; and

(e)    that on the events described in (d) above, it successfully obtained the authority of ASIC.

4.    From 28 January 2010 onwards the company has contravened s 1041F of the Act in that, in this jurisdiction, it induced another person to deal in financial products by making the Statements when it knew, or was reckless as to whether, the Statements were misleading, false or deceptive.

5.    From 28 January 2010 onwards the company has contravened s 1041E of the Act in that:

(1)    it made the Statements that were false in a material particular or were materially misleading; and

(2)    the Statements were likely to induce persons in this jurisdiction to apply for financial products; and

(3)    when the company made the Statements it knew or ought reasonably to have known that the statements were false in a material particular or materially misleading.

The Court Orders that:

1.    The company by itself, its servants, agents or employees, be permanently restrained from:

(a)    carrying on business in which it:

1.    facilitates access to, advertises, promotes or markets the financial product known as MetaTrader 4;

2.    provides advice in relation to any financial product, including but not limited to foreign exchange, metals and/or indices contracts for difference; and/or

3.    deals in, or arranges for a person to apply for or acquire any financial product, including but not limited to foreign exchange, metals and/or indices contracts for difference.

(b)    representing that it holds an AFSL or is otherwise authorised or licensed by ASIC.

(c)    transferring or disposing of any funds received or held by it including funds held on deposit by the company at the Commonwealth Bank of Australia in the following accounts:

1.    Foreign Currency Account No 100649252 USD 115601;

2.    Business Account No 062000 13791944.

(d)    receiving funds deposited by clients of the company in connection with the business of the company;

(e)    disposing of, destroying, amending, altering, parting with possession, or causing or procuring the destruction, amendment, alteration or parting with possession, of the books and records of the company evidencing any dealings of the company in relation to its business and any money paid or received in connection with its business.

2.    The company be wound up on the just and equitable ground (subs 461(1)(k) of the Act) and that Ms Hilary Orr be appointed liquidator of the company.

3.    The defendant pay the plaintiff’s costs of the application.

Associate:

Dated:    19 June 2012