FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Storm Financial Limited (Receivers and Managers appointed) (in liq) (No 5) [2012] FCA 954

THE COURT ORDERS THAT:

1.    Pursuant to Rule 16.53 of the Federal Court Rules 2011, the fourth defendant have leave to file a defence in the form set out at Annexure A to the fourth defendant’s interlocutory application filed 11 July 2012.

2.    By 6 September 2012 the plaintiff file an affidavit verifying:

(a)    that it has made discovery of the documents in the Ringtail Database (as defined in the 23 September 2011 orders in this proceeding), save for those identified in its letter dated 1 August 2012 as having been withheld from production; and

(b)    the grounds upon which it claims it is entitled to withhold from production the documents identified in paragraphs 2(d)-(k) and 4 of its letter dated 1 August 2012.

3.    The plaintiff is to conduct a reasonable search for and give discovery by 6 September 2012 of any document in its possession that is not the Ringtail Database and which relates to:

(a)    the notice served under section 30 of Australian Securities and Investments Commissions Act 2001 (Cth) by the plaintiff on Storm Financial Limited (Storm) on or about 25 January 2005;

(b)    the notice served under section 912C of the Corporations Act 2001 (Cth) by the plaintiff on Storm on or about 25 January 2005;

(c)    the meeting between the plaintiff and Storm on or about 10 March 2005;

(d)    the plaintiff’s decision to issue an Australian financial services licence (within the meaning of s 911A of the Corporations Act 2001 (Cth)) to Storm in 2003 and to amend the terms of that licence in 2007;

(e)    document INT.179.007.0012, being a document titled “Assessment” and dated 25 September 2009;

(f)    document INT.178.006.0073, being a document titled “Filenote: Disclosure Document Review/Surveillance-Equities” and dated 12 November 2007; and

(g)    document INT.178.002.0099, being a document titled “Meeting Agenda”.

4.    The costs of this application, and any costs incurred as a result of the application being granted, be costs in the cause.

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

REASONS FOR JUDGMENT

1    Macquarie Bank Limited (MBL), the fourth defendant in these proceedings, has applied for leave to further amend its defence to add 11 paragraphs (67 to 77 inclusive) that are variously directed to the relief sought in Pts C and D of the prayer for relief set out at the conclusion of the Australian Securities and Investments Commission’s (ASIC) further amended statement of claim. Those parts of the prayer for relief are as follows:

C    A declaration that each of CBA [Commonwealth Bank of Australia], BOQ [Bank of Queensland], and Macquarie [Macquarie Bank Limited] were knowingly concerned in the contravention by Storm of section 601ED(5) of the [Corporations] Act.

D    An injunction under s 1324(1) of the Act restraining [CBA, BOQ and MBL] from being knowingly concerned in the operation of the Storm Scheme as defined in the Further Amended Statement of Claim in contravention of s 601ED(5) of the Act.

2    To understand how these claims for relief arise, it is necessary to very briefly essay some of the factual background to these proceedings. That can be most conveniently achieved by adapting and repeating a part of the factual background of one of my earlier rulings in these proceedings ([2012] FCA 355 at [2]–[3]):

2.    Until about the time it was placed in liquidation on 26 March 2009, Storm Financial Limited (Storm) operated [an investment scheme or] a number of investment schemes for its customers throughout Australia. [That scheme or] those investments schemes are central to these proceedings. If any one of them was a “managed investment scheme”, as that expression is defined in s 9 of the Corporations Act 2001 (Cth) (the Act), Storm was required to register it under Pt 5C.1 of the Act. If it did not do so, subject to various exclusions and defences contained in the Act, it contravened s 601ED(5) of the Act.

3.    ASIC commenced these proceedings seeking, among other things, a declaration that Storm had contravened s 601ED(5) of the Act. In addition, ASIC also sought injunctions under s 1324(1) of the Act against the (CBA), (BOQ) and (MBL) for being “directly or indirectly, knowingly concerned in, or party to, the contravention by” Storm of s 601ED(5) of the Act.

3    Against this background, MBL’s proposed amendments seek to rely upon a series of facts to claim that (proposed para 77):

(a)    it is not in the public interest for the declaration (in Pt C of ASIC’s prayer for relief) or the injunction (in Pt D of ASIC’s prayer for relief) to be granted; and

(b)    the relief (sought in both Pt C and Pt D) should be refused in the exercise of the Court’s discretion on account of ASIC’s delay in seeking relief and its acquiescence in the conduct of these proceedings.

4    In his written submissions on behalf of MBL, Mr Sheahan SC summarised the new allegations MBL wished to raise by the proposed amendments in the following terms:

(a)    ASIC has at all material times been the public regulator of financial services and managed investment schemes;

(b)    ASIC as the public regulator at no time prior to the commencement of this proceeding adopted the position (by way of warning, advice, public statement, notice or otherwise) that the matters alleged in paragraphs 21 to 32 of the Statement of Claim [which describe the Storm Scheme] constituted a managed investment scheme;

(c)    ASIC adopted this position of inaction when it knew of a series of facts which it now contends are fundamental to its allegation of a managed investment scheme;

(d)    ASIC’s delay and inaction has caused prejudice to MBL which is now being required to defend allegations including allegations as to is its state of mind and concerning events occurring from 2001 to 2008;

(e)    Each of these matters bear upon the exercise of discretion as to whether it is in fact in the public interest for the declarations and injunctions to be made;

(f)    Putting aside any question of public interest, ASIC’s delay and acquiescence bears upon the exercise of discretion.

5    MBL’s application is opposed by ASIC primarily on the ground of futility, but also on the ground it is embarrassing and vexatious. On the former ground, Mr Santamaria QC, for ASIC, submitted that “had the paragraphs … been pleaded in [MBL’s] original defence, they would have been struck out under rule 13.2 (sic – Rule 16.21)”. On the latter ground, Mr Santamaria submitted that the proposed amendments demonstrate “an attempt by MBL to shift the focus of the proceeding from its own conduct to the conduct and decision-making by ASIC to commence the proceeding … [which] matters are irrelevant”. As Mr Sheahan pointed out, this submission appears to involve “the non-legal notion of embarrassment, viz. being disconcerted, abashed or self-conscious”. However, as I understood Mr Santamaria’s submissions, his principal source of concern on this ground was essentially the same as that on the futility ground, viz that the amendment is founded on implied misconduct on the part of ASIC, yet no such misconduct is pleaded. Accordingly, I will proceed to deal with MBL’s application on that basis.

6    It follows that ASIC must show that the proposed amendments disclose no reasonable ground of defence or, in other words, it is “so clearly untenable that [it] cannot possibly succeed”: see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130.

7    It should be noted that, despite the fact that the trial of these proceedings was only two months away at the time MBL filed its application to amend, no question of prejudice is raised by ASIC in opposition to the proposed amendments, nor any Aon considerations (Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27).

8    The substance of ASIC’s claim that the proposed amendments are futile is as follows. Mr Santamaria submitted that the allegations summarised in [3](a)–(b) above imply that ASIC is under certain duties, such that the breach of those duties should disentitle ASIC to the relief that it seeks. He submitted that, despite this, no such duties are alleged in the proposed amendments, nor are any facts alleged that would constitute a breach of such duties. Mr Santamaria submitted that even if such duties were assumed to exist and even if it were assumed they have been breached, the consequences contended for by MBL would not follow. In relation to the allegations summarised in [3](c) and (d) above, Mr Santamaria submitted that the delay and inaction which is described amounts to an allegation of culpability on ASIC’s part and yet nothing amounting to culpability has been pleaded. Further, even if the matters particularised were assumed to be true, it would not be open to the Court to conclude that there had been any relevant delay and inaction in commencing these proceedings.

9    In reply to these submissions, Mr Sheahan was at pains to emphasise that MBL was not alleging any misconduct, breach of duty, or delinquency, on ASIC’s part. To the contrary, he submitted the proposed amendments assumed that ASIC had exercised its functions and powers properly and conscientiously. However, he submitted that even on that basis, MBL should be permitted to rely upon the matters in the proposed amendments because they raise equitable considerations that have been held to be germane to discretionary decisions of the kind involved here. He instanced the following:

(a)    the presence or absence of a prior request by an applicant for a defendant to refrain from engaging in alleged unlawful conduct; and;

(b)    delay and acquiescence on the part of an applicant.

10    Mr Sheahan submitted that these sorts of equitable considerations could be considered by the Court even when the relief sought is a statutory injunction and/or a declaration, and even where the applicant is the Attorney-General, or a statutory body such as ASIC, claiming to act in the public interest. Finally, Mr Sheahan submitted that ASIC’s case against MBL did not allege that MBL had contravened the Corporations Act 2001 (Cth) (the Act), but rather that Storm had committed that contravention and that MBL was knowingly concerned in it. Mr Sheahan submitted this distinction went to the question whether it was in the public interest that the Court order a declaration to signify public disapproval of MBL’s conduct (should that conduct be established) where no other legitimate purpose was to be served by such an order.

11    For the reasons that follow, I consider the matters which MBL seeks to introduce by its proposed amendments going to the exercise of the Court’s discretion to grant the relief ASIC seeks are at least arguable and it should therefore be permitted to raise them in these proceedings.

12    First, it is well-established that both an injunction and a declaration are discretionary remedies. Secondly, while the relief sought by ASIC under s 1324 of the Act is not constrained by equitable principles, that does not mean that it is not at least arguable that regard may be had to the kinds of equitable discretionary considerations identified by Mr Sheahan in deciding whether to grant that relief: see ICI Australia Operations Pty Limited v Trade Practices Commission (1992) 38 FCR 248 at 256–257 per Lockhart J, 266 per Gummow J and at 268 per French J agreeing generally with the reasons of Lockhart J; Australian Securities and Investments Commission v Triton Underwriting Insurance Agency Pty Ltd (2004) 48 ACSR 249; [2003] NSWC 1145 at [25] per Barrett J and Connell v National Companies and Securities Commission (1989) 2 WAR 121 at 134 per Malcolm CJ.

13    Thirdly, and further to the above, nor is it not at least arguable that such discretionary considerations may be considered where ASIC, as the plaintiff, is applying as a regulatory body for relief in the public interest. So much appears from the advice of the Privy Council in Associated Minerals Consolidated Ltd v Wyong Shire Council [1975] AC 538 at 559–560 as follows:

The law on this subject … contains two propositions. First, even in cases where relief is being sought by the Attorney-General in the public interest (and the respondent council, acting under [a statutory power] is placed in a similar position), the granting of an injunction is discretionary …

Secondly, however, it is necessary to take into account that the plaintiff is acting on behalf of the public and in the public interest. It is necessary therefore to base the granting or denial of equitable relief on broader grounds that would normally apply as between citizens. As was said in Attorney-General and County Council of Down v Newry No 1 Rural District Council [1933] NI 50, 71, the courts are somewhat slower to deny the Attorney-General, as the custodian of the public rights, relief on this ground (sc. delay) than in the case of an individual. The injury to the public interest by denial of relief, its extent and degree or irremediability, must be weighed against any loss which the defendant may have sustained by the plaintiff standing by while the defendant incurs expense or, if such is the case, misleading the defendant into supposing that its activities were or would be permitted. …

14    Fourthly, the expression “in the public interest” has been described as importing a broad discretionary value judgment which is to be conducted by reference to the relevant facts: see O’Sullivan v Farrer (1989) 168 CLR 210 at 216–7 per Mason CJ, Brennan, Dawson and Gaudron JJ. Given the breadth of this “public interest” concept, it is at least arguable that the matters identified by Mr Sheahan may be considered in the exercise of the Court’s discretion in deciding whether to grant the relief ASIC has sought.

15    Finally, I should record that, in expressing these views about the arguability of these matters, I should not be taken to be expressing any concluded views about the merits, or lack thereof, of any of the arguments that have been put.

16    In the event that MBL were to be granted leave to make the proposed amendments, the parties have agreed upon a set of draft orders to achieve that end and to address some associated discovery issues. For the reasons given above and having considered those draft orders, I consider it is appropriate for those orders to be made.

Associate:

Dated:    4 September 2012