FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Marco (No 3) [2020] FCA 719
ORDERS
DATE OF ORDER: | 27 May 2020 |
THE COURT ORDERS THAT:
Leave to amend
1. Pursuant to r 8.21 of the Federal Court Rules 2011 (Cth), the plaintiff has leave to file and serve an amended originating process in the form of the proposed amended originating process attached to the Schedule and marked as annexure ‘WJL99’ to the affidavit of Whee-Jong Lim sworn 12 December 2019.
Receiver orders
2. Pursuant to s 1101B(5) of the Corporations Act 2001 (Cth) and until further order, Mr Robert Michael Kirman and Mr Robert Conry Brauer of McGrathNicol, Level 19, 2 The Esplanade, Perth, WA, 6000, be appointed as receivers or trustees (Individual Receivers), without security, of the property (as defined in the Corporations Act), whether within or outside the State of Western Australia, of the first defendant (Individual Property).
3. The Individual Receivers have, in respect of the Individual Property, the following powers:
(a) the power to do all things necessary or convenient to be done for or in connection with, or as incidental to, the identification, preservation and securing of all of the Individual Property for the benefit of potential creditors; and
(b) without limiting the generality of the power in the preceding sub-paragraph, the power to enter into possession and take control of the Individual Property to the extent that the exercise of the power is reasonably necessary to achieve the purposes set out in the preceding sub-paragraph.
4. The preceding powers shall not extend to the sale, letting or encumbering of the Individual Property without prior leave of the Court or the consent of the first defendant.
5. The Individual Receivers shall within 60 days of the date of this order provide to the Court and the parties a report as to the receivership of the first defendant, including:
(a) the identification of the assets and liabilities of the first defendant;
(b) an opinion as to the solvency of the first defendant;
(c) the likely return to creditors, including investors, in the event that any scheme operated by the first defendant were to be wound up; and
(d) any other information necessary to enable the financial position of the first defendant to be assessed.
6. In addition to the powers conferred upon them by order 3 above, the Individual Receivers have the power to investigate and report on the matters set out in paragraph 5 of this order.
7. Pursuant to s 1101B(5) of the Corporations Act and until further order, Mr Kirman and Mr Brauer be appointed as receivers or receivers and managers (Corporate Receivers), without security, of the property (as defined in the Corporations Act), whether within or outside the State of Western Australia, of the second and third defendants (Corporate Property).
8. The Corporate Receivers have, in respect of the Corporate Property, the following powers:
(a) the power to do all things necessary or convenient to be done for or in connection with, or as incidental to, the identification, preservation and securing of all of the Corporate Property for the benefit of potential creditors;
(b) without limiting the generality of the power in the preceding sub-paragraph, the power to enter into possession and take control of the Corporate Property to the extent that the exercise of the power is reasonably necessary to achieve the purposes set out in the preceding sub-paragraph; and
(c) without limiting the generality of the power in sub-paragraph (a) above, the powers set out in ss 420(1), 420(2)(a), 420(2)(e), 420(2)(f), 420(2)(g), 420(2)(k), 420(2)(n), 420(2)(p), 420(2)(q), 420(2)(r), 420(2)(t) and 420(2)(u) of the Corporations Act.
9. The preceding powers shall not extend to the sale, letting or encumbering of the Corporate Property without prior leave of the Court or the consent of the owner of such property.
10. An order that the Corporate Receivers shall within 60 days of the date of this order provide to the Court and the parties a report as to the receivership of the second defendant and third defendant, including:
(a) the identification of the assets and liabilities of each of the second defendant and third defendant;
(b) an opinion as to the solvency of each of the second defendant and third defendant;
(c) the likely return to creditors, including investors, in the event that each of the second defendant and third defendant were to be wound up; and
(d) any other information necessary to enable the financial position of the second defendant and third defendant to be assessed.
11. In addition to the powers conferred upon them by order 8 above, the Corporate Receivers have the power to investigate and report on the matters set out in paragraph 10 of this order.
12. The plaintiff has leave to apply for the payment of and/or reimbursement of the costs associated with the appointment of the Individual Receivers and the Corporate Receivers.
13. The plaintiff is to provide to the Individual Receivers and the Corporate Receivers the following:
(a) all documents the defendants have produced to the plaintiff either voluntarily or in response to notices issued pursuant to ss 19, 30 and 33 of the Australian Securities and Investments Commission Act 2001 (Cth);
(b) all bank statements obtained by the plaintiff during its investigation into the activities of the defendants; and
(c) the affidavits sworn by Mr Marco on behalf of himself and the second defendant both dated 26 November 2018.
14. Until further order, the first defendant is restrained from taking any step to dismiss, discharge or otherwise replace the third defendant as trustee for the AMS Holdings Trust.
15. To the extent necessary, the plaintiff has leave to give to:
(a) the relevant authorities (domestic and overseas) that record, control and regulate the ownership of real property;
(b) the relevant authorities (domestic and overseas) that record, control and regulate the ownership of motor vehicles;
(c) any bank, building society or other financial institution (domestic and overseas) with which, to the best of the plaintiff's knowledge and belief, any defendant operates any account; and
(d) any other person or entity (domestic and overseas) holding or controlling property, which, to the best of the plaintiff's knowledge and belief, belongs to any defendant,
notice of these orders, by delivering a sealed copy of the orders to that entity or person and/or any person apparently in the employ of that entity or person.
Costs
16. Within 7 days of the date of these orders, the parties are to file and serve submissions on the question of the costs of the plaintiff’s application.
Application to intervene
17. The application for leave to intervene by Mr Genovesi is rejected.
Defendants’ interlocutory application filed 31 March 2020
18. Within 7 days of the date of these orders, the parties are to file and serve further submissions on the defendants’ interlocutory application filed on 31 March 2020 (as amended on 24 April 2020 and 7 May 2020) in light of orders 1 to 15 above.
19. There be liberty for any party to apply to the Court on 48 hours' notice.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
TABLE OF CONTENTS
[1] | |
[8] | |
[14] | |
ASIC’s tender of the Marco 2020 and the December 2018 affidavits | [22] |
[72] | |
[83] | |
[91] | |
[104] | |
[108] | |
[128] | |
[160] | |
[183] |
1 The plaintiff, the Australian Securities and Investments Commission (ASIC), seeks the appointment of interim receivers over the assets of the defendants, Mr Chris Marco, AMS Holdings (WA) Pty Ltd (ACN 164 700 485) and AMS Holdings (WA) Pty Ltd (ACN 164 700 485) as Trustee for AMS Holdings Trust.
2 In addition to the orders sought for the appointment of receivers by its interlocutory process filed on 12 December 2019, ASIC also seeks orders for leave to amend its originating process filed on 30 October 2018 in the form set out in the schedule to the interlocutory process pursuant to r 8.21 of the Federal Court Rules 2011 (Cth).
3 The application was listed for a two day hearing on 16 and 17 March 2020. At that time, the Court had resolved to take extensive measures to limit public hearings due to the COVID-19 outbreak. This matter proceeded essentially by the formal presentation of the evidence on 16 March 2020, with the dispute to be resolved on the papers. Provision was made for filing additional material over some weeks following the listed hearing. There was no application for an adjournment of the hearing.
4 At very short notice prior to the hearing, an application to intervene was made by a Mr Genovesi who seeks to make submissions in opposition to ASIC’s proposed relief. I granted leave to the intervener to file further submissions, an affidavit in support of the application and for any party opposing or supporting the application to file materials in response within a limited timeframe.
5 At the hearing of the interlocutory process, ASIC also indicated that it was amending the relief it sought in its interlocutory process largely in response to the nature of the submissions which had been filed for Mr Marco in which he pointed to the unnecessary cost to be borne by creditors by the appointment of a receiver and secondly, to the receivers’ proposed reporting requirements as to possible contraventions by the defendants. The intention to make these amendments was foreshadowed in reply submissions filed by ASIC on 12 March 2020.
6 Two previous judgments have been given in relation to this relatively protracted matter: Australian Securities and Investments Commission v Marco [2019] FCA 466 (ASIC v Marco No 1), which included both reasons for making ex parte freezing orders over the defendants’ assets pursuant to s 1323 of the Corporations Act 2001 (Cth) (the CA) on 1 November 2018 and a variation to those orders by consent in March 2019, and Australian Securities and Investments Commission v Marco (No 2) [2019] FCA 1712 which concerned further variations to the original freezing orders in September 2019.
7 The final form of the relief sought by ASIC is in the following terms:
1. Pursuant to rule 8.21 of the Federal Court Rules, [ASIC] has leave to file and serve an amended originating process in the form of the proposed amended originating process attached to the Schedule and marked as annexure “WJL99” to the affidavit of Whee-Jong Lim sworn 12 December 2019.
2. Pursuant to section 1101B(5) of the [CA] and until further order, Robert Michael Kirman and Robert Conry Brauer of McGrathNicol, Level 19, 2 The Esplanade, Perth, WA, 6000, be appointed as receivers or trustees (Individual Receivers), without security, of the property (as defined in the [CA]), whether within or outside the State of Western Australia, of the first defendant (Individual Property).
3. The Individual Receivers have, in respect of the Individual Property, the following powers:
a. the power to do all things necessary or convenient to be done for or in connection with, or as incidental to, the identification, preservation and securing of all of the Individual Property for the benefit of potential creditors; and
b. without limiting the generality of the power in the preceding sub-paragraph, the power to enter into possession and take control of the Individual Property to the extent that the exercise of the power is reasonably necessary to achieve the purposes set out in the preceding sub-paragraph.
4. The preceding powers shall not extend to the sale, letting or encumbering of the Individual Property without prior leave of the Court or the consent of the first defendant.
5. An order that the Individual Receivers shall within 60 days of the date of this order provide to the Court and the parties a report as to the receivership of the first defendant, including:
a. the identification of the assets and liabilities of [Mr Marco];
b. an opinion as to the solvency of [Mr Marco];
c. the likely return to creditors, including investors, in the event that any scheme operated by [Mr Marco] were to be wound up; and
d. any other information necessary to enable the financial position of [Mr Marco] to be assessed.
6. In addition to the powers conferred upon them by order 3 above, the Individual Receivers have the power to investigate and report on the matters set out in paragraph 5 of this order.
7. Pursuant to section 1101B(5) of the [CA] and that until further order, Mr Kirman and Mr Brauer be appointed as receivers or receivers and managers (Corporate Receivers), without security, of the property (as defined in the [CA]), whether within or outside the State of Western Australia, of [AMS] and [AMS Trust] (Corporate Property).
8. The Corporate Receivers have, in respect of the Corporate Property, the following powers:
a. the power to do all things necessary or convenient to be done for or in connection with, or as incidental to, the identification, preservation and securing of all of the Corporate Property for the benefit of potential creditors;
b. without limiting the generality of the power in the preceding sub-paragraph, the power to enter into possession and take control of the Corporate Property to the extent that the exercise of the power is reasonably necessary to achieve the purposes set out in the preceding sub-paragraph; and
c. without limiting the generality of the power in sub-paragraph (a) above, the powers set out in sections 420(1), 420(2)(a), 420(2)(e), 420(2)(f), 420(2)(g), 420(2)(k), 420(2)(n), 420(2)(p), 420(2)(q), 420(2)(r), 420(2)(t) and 420(2)(u) of the [CA].
9. The preceding powers shall not extend to the sale, letting or encumbering of the Corporate Property without prior leave of the Court or the consent of the owner of such property.
10. An order that the Corporate Receivers shall within 60 days of the date of this order provide to the Court and the parties a report as to the receivership of [AMS] and [AMS Trust], including:
a. the identification of the assets and liabilities of each of [AMS] and [AMS Trust];
b. an opinion as to the solvency of each of [AMS] and [AMS Trust];
c. the likely return to creditors, including investors, in the event that each of [AMS] and [AMS Trust] were to be wound up; and
d. any other information necessary to enable the financial position of [AMS] and [AMS Trust] to be assessed.
11. In addition to the powers conferred upon them by order 8 above, the Corporate Receivers have the power to investigate and report on the matters set out in paragraph 10 of this order.
12. [ASIC] has leave to apply for the payment of and/or reimbursement of the costs associated with the appointment of the Individual Receivers and the Corporate Receivers.
13. [ASIC] is to provide to the Individual Receivers and the Corporate Receivers the following:
a. all documents the defendants have produced to [ASIC] either voluntarily or in response to notices issued pursuant to section 19, 30 and 33 of the Australian Securities and Investments Commission Act 2001 (Cth);
b. all bank statements obtained by [ASIC] during its investigation into the activities of the defendants; and
c. the affidavits sworn by Mr Marco on behalf of himself and [AMS] both dated 26 November 2018.
14. Until further order, [Mr Marco] is restrained from taking any step to dismiss, discharge or otherwise replace [AMS Trust] as trustee for the [AMS Trust].
15. To the extent necessary, [ASIC] has leave to give to:
a. the relevant authorities (domestic and overseas) that record, control and regulate the ownership of real property;
b. the relevant authorities (domestic and overseas) that record, control and regulate the ownership of motor vehicles;
c. any bank, building society or other financial institution (domestic and overseas) with which, to the best of [ASIC’s] knowledge and belief, any defendant operates any account; and
d. any other person or entity (domestic and overseas) holding or controlling property, which, to the best of [ASIC’s] knowledge and belief, belongs the any [sic] defendant,
notice of these orders, by delivering a copy of a minute of the orders to that entity or person and/or any person apparently in the employ of that entity or person.
16. An order that the defendants pay [ASIC’s] costs of, and incidental to, this interlocutory process, and the costs be taxed and reimbursed out of the property of the defendants.
17. An order that there be liberty to any party to apply to the Court on 48 hours’ notice.
18. Such further and other orders as the Court thinks fit.
8 It is necessary to refer to some of the statutory provisions that have been raised, whether or not they ultimately have direct influence on the resolution of this application.
9 By the proposed amended originating process that ASIC seeks leave to rely on, it is alleged that each of the defendants has contravened s 601ED and s 911A of the CA.
10 Section 601ED of the CA relevantly provides:
601ED When a managed investment scheme must be registered
(1) Subject to subsections (2) and (2A), a managed investment scheme must be registered under section 601EB if:
(a) it has more than 20 members; …
…
(5) A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under section 601EB unless the scheme is so registered.
Note: Failure to comply with this subsection is an offence: see subsection 1311(1).
…
11 Section 911A(1) of the CA provides that a person who carries on a financial services business in this jurisdiction must hold an Australian Financial Services Licence (AFSL) covering the provision of the financial services, subject to some 22 exemptions provided by s 911A(2).
12 Section 1101B of the CA provides for the Court to make such order, or orders, as it thinks fit if:
Court’s power to make orders in relation to certain contraventions
(1) The Court may make such order, or orders, as it thinks fit if:
(a) on the application of ASIC, it appears to the Court that a person:
(i) has contravened a provision of this Chapter, or any other law relating to dealing in financial products or providing financial services; …
…
However, the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person.
Note: For examples of orders the Court could make, see subsection (4).
…
Examples of orders the Court may make
(4) Without limiting subsection (1), some examples of orders the Court may make under subsection (1) include:
(a) an order restraining a person from carrying on a business, or doing an act or classes of acts, in relation to financial products or financial services, if the person has persistently contravened, or is continuing to contravene:
(i) a provision or provisions of this Chapter; or
(ii) a provision or provisions of any other law relating to dealing in financial products or providing financial services; or
…
(e) an order restraining a person from acquiring, disposing of or otherwise dealing with any financial products that are specified in the order; and
(f) an order restraining a person from providing any financial services that are specified in the order; and
(g) an order appointing a receiver of property … of a financial services licensee; and
(h) an order declaring a contract relating to financial products or financial services to be void or voidable; and
(i) an order directing a person to do or refrain from doing a specified act, if that order is for the purpose of securing compliance with any other order under this section; and
(j) any ancillary order considered to be just and reasonable in consequence of the making of an order under any of the preceding provisions of this subsection.
Interim orders
(5) Before considering an application to the Court under subsection (1), the Court may make an interim order of the kind applied for to apply pending the determination of the application, if in the opinion of the Court it is desirable to do so.
…
Powers of receivers appointed under Court orders
(8) A person appointed by order of the Court under subsection (1) as a receiver of the property (see subsection (12)) of a financial services licensee:
(a) may require the financial services licensee to:
(i) deliver to the person any property of which the person has been appointed receiver; or
(ii) give to the person all information concerning that property that may reasonably be required; and
(b) may acquire and take possession of any property of which the person has been appointed receiver; and
(c) may deal with any property that the person has acquired, or of which the person has taken possession, in any way in which the financial services licensee might lawfully have dealt with the property; and
(d) has such other powers in respect of the property as the Court specifies in the order.
(Emphasis added.)
13 In addition, s 420 sets out the broad powers that a receiver may exercise. The section is set out below with emphasis added to indicate the powers that ASIC seeks for the interim receivers to be granted in relation to AMS and AMS Trust:
(1) Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed.
(2) Without limiting the generality of subsection (1), but subject to any provision of the court order by which, or the instrument under which, the receiver was appointed, being a provision that limits the receiver’s powers in any way, a receiver of property of a corporation has, in addition to any powers conferred by that order or instrument, as the case may be, or by any other law, power, for the purpose of attaining the objectives for which the receiver was appointed:
(a) to enter into possession and take control of property of the corporation in accordance with the terms of that order or instrument; and
(b) to lease, let on hire or dispose of property of the corporation; and
(c) to grant options over property of the corporation on such conditions as the receiver thinks fit; and
(d) to borrow money on the security of property of the corporation; and
(e) to insure property of the corporation; and
(f) to repair, renew or enlarge property of the corporation; and
(g) to convert property of the corporation into money; and
(h) to carry on any business of the corporation; and
(j) to take on lease or on hire, or to acquire, any property necessary or convenient in connection with the carrying on of a business of the corporation; and
(k) to execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the corporation; and
(m) to draw, accept, make and indorse a bill of exchange or promissory note; and
(n) to use a seal of the corporation; and
(o) to engage or discharge employees on behalf of the corporation; and
(p) to appoint a solicitor, accountant or other professionally qualified person to assist the receiver; and
(q) to appoint an agent to do any business that the receiver is unable to do, or that it is unreasonable to expect the receiver to do, in person; and
(r) where a debt or liability is owed to the corporation—to prove the debt or liability in a bankruptcy, insolvency or winding up and, in connection therewith, to receive dividends and to assent to a proposal for a composition or a scheme of arrangement; and
(s) if the receiver was appointed under an instrument that created a security interest in uncalled share capital of the corporation:
(i) to make a call in the name of the corporation for the payment of money unpaid on the corporation’s shares; or
(ii) on giving a proper indemnity to a liquidator of the corporation—to make a call in the liquidator’s name for the payment of money unpaid on the corporation’s shares; and
(t) to enforce payment of any call that is due and unpaid, whether the calls were made by the receiver or otherwise; and
(u) to make or defend an application for the winding up of the corporation; and
(w) to refer to arbitration any question affecting the corporation.
…
(Emphasis added.)
14 ASIC has advanced a great volume of material going to the conduct of the defendants with a view to making submissions that the totality of the conduct, together with the current state of affairs requires the appointment of an interim receiver to be granted. Specifically, ASIC suggests that this is appropriate in circumstances where:
(a) Mr Marco has accepted that he is required to hold an AFSL because he was dealing in a financial product, but did not hold (and does not hold) such a licence;
(b) there is evidence, including admissions in the investor updates, to suggest that Mr Marco is continuing to operate a financial services business without an AFSL in contravention of s 911A of the CA;
(c) it appears that the scheme operated by Mr Marco has not generated any material investment income, there is a significant asset deficiency and there is no reasonable prospect of him realising any returns to bridge the shortfall;
(d) there are incomplete records of investor entitlements to the funds provided to Mr Marco as a result of incomplete and inadequate record keeping by Mr Marco;
(e) there is evidence of significant related party transactions between each of the defendants and persons related to the defendants, together with evidence that significant personal expenses have been paid out of pooled accounts; and
(f) the interests of investors are likely to be best served by the timely appointment of an interim receiver or trustee with powers to identify, preserve and secure property available for distribution.
ASIC submits that the question of leave to amend should be determined first before determining the question of whether the interim receiver or trustee should be appointed. There was no suggestion the matter should not proceed on that basis.
15 Although the evidentiary material for ASIC focusses considerably upon these topics, ultimately the arguments advanced by the defendants in opposition to ASIC’s relief were directed more to questions of principle and practicality rather than to the extensive detail of transactions and the impugned conduct.
16 Nonetheless, without mapping out the minutiae of the affidavit material, I will refer to its content sufficiently to enable examination of the respective arguments.
17 ASIC relies on affidavits of:
(a) Ms Lim of 12 December 2019, excluding [30.1.1] and annexure WML 109 (Lim 1);
(b) Mr Iriks of 12 December 2019;
(c) Mr Gomm of 12 December 2019 (Gomm 1);
(d) Mr Nguyen of 12 December 2019;
(e) Ms Giubilato of 12 December 2019;
(f) Ms Lim of 11 February 2020 (Lim 2);
(g) Ms Lim of 28 February 2020 (in reply) (Lim 3); and
(h) Mr Gomm of 28 February 2020 (in reply) (Gomm 2);
(i) Ms Lim of 11 March 2020 (Lim 4);
18 From the perspective of the defendants, although Mr Marco filed an extensive affidavit with numerous annexures on 21 February 2020 (the Marco 2020 affidavit), the defendants expressly disavowed reliance upon that affidavit, and rely only upon an affidavit of Ms Sierakowski, a solicitor for the defendants, sworn on 6 March 2020.
19 ASIC indicated that it seeks to rely upon certain paragraphs of the Marco 2020 affidavit as well as parts of an affidavit sworn by Mr Marco on 19 December 2018 (the Marco December 2018 affidavit). ASIC has put forward three separate grounds for the tender of this material, the primary ground being that the affidavits contain admissions that are adverse to Mr Marco’s interests. The defendants opposed the tender of that material. I gave leave to ASIC to file further submissions in relation to precisely which paragraphs it relied upon in relation to admissions or otherwise and why it contended it could rely upon them and, of course, for the defendants to respond to those submissions. It is necessary to deal with this evidentiary dispute and the arguments made by both sides before proceeding to outline the evidence.
20 It should also be noted that in addition to the freezing orders, I also made disclosure orders on 1 November 2018 requiring Mr Marco to file affidavits setting out his personal assets and liabilities as well as those of AMS. Mr Marco filed two affidavits to this effect on 26 November 2018 (together the Marco Disclosure affidavits). The disclosure order was subject to any claim of privilege against self-incrimination or civil penalty and any objection to disclosure on such grounds was to be made in accordance with s 128A of the Evidence Act 1995 (Cth). No such objection was made. Rather, Mr Marco filed a further affidavit on 6 May 2019 to correct and clarify a number of matters in the initial Marco Disclosure affidavits (Marco May 2019 affidavit).
21 Much of ASIC’s evidence relies on the Marco Disclosure affidavits for the purpose of identifying the assets and liabilities of the defendants (independent of the present attempt to tender parts of the Marco December 2018 affidavit and the Marco 2020 affidavit as admissions). Although, the Marco Disclosure affidavits have previously been read by the defendants in support of varying the freezing orders, they have not been read in the present proceeding. However no objection was made to ASIC reading in full, its own affidavits listed above (at [16]). For an abundance of clarity, I am satisfied that ASIC is entitled to refer to admissions made in the Disclosure affidavits in its own evidence having particular regard to the fact that no objection has been raised on this matter. I also have regard to the fact that the Marco Disclosure affidavits indicate assets and liabilities the defendants identify. The content is not relied upon in this application or in these proceedings to establish any self-incrimination or civil penalty.
ASIC’s tender of the Marco 2020 and the December 2018 affidavits
22 In response to the defendants’ objection to the tender of these affidavits, ASIC specified, in its further submissions, the discrete paragraphs of each affidavit that it seeks to tender. The Marco 2020 affidavit was filed in this interlocutory proceeding but not read into evidence by the defendants. The Marco December 2018 affidavit was read by the defendants in a separate interlocutory proceeding for a variation of the freezing orders which was heard on 8 February 2019. ASIC raises three bases on which it says various paragraphs from both affidavits should be admitted:
(a) as admissions under s 81 of the Evidence Act;
(b) as an exception to the hearsay rule because the present application has an interlocutory character: s 75 of the Evidence Act; and
(c) as ‘evidence of a risk or possibility giving rise to a protective order’ relying on observations of French J (as his Honour then was) in Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577 (at [31]).
Section 81(1) of the Evidence Act provides that the hearsay rule does not apply to evidence of an admission. The term ‘admission’ is defined in the dictionary to the Evidence Act as meaning a previous statement that is made by a person who is or becomes a party to a proceeding, including a defendant to a criminal proceeding, and is adverse to the person’s interest in the outcome of the proceeding. A previous representation, in turn, is also defined as being a representation made otherwise than in the course of giving evidence in the proceeding in which the evidence of the representation is sought to be adduced.
23 Mr Marco submits that the Marco 2020 affidavit was clearly filed in opposition to the current interlocutory application and therefore cannot be used for the purposes of the admission exception to the hearsay rule under s 81 of the Evidence Act. Mr Marco says a previous representation cannot come from a statement or document filed in the very proceedings in which it is sought to be used under s 81, and relies on the reasoning in Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (2008) 167 FCR 314 (at [27] to [33]) where Rares J said:
27 I am of opinion that the proper construction of the definition of ‘previous representation’ in the Act requires that the expression ‘in the course of giving evidence in the proceeding in which evidence of the representation is sought to be adduced’ be treated as a reference to the hearing before the judge, as defined, in which the evidence is sought to be adduced. It does not extend to other hearings or phases, including any interlocutory proceeding, in which the parties have been engaged prior to that hearing. Of course, if a matter is part heard, on the resumption of hearing it is the same proceeding for the purposes of the definition of ‘previous representation’. But where one can readily segregate the interlocutory or other phases of a matter from the trial, proceeding or phase in which the evidence is sought to be adduced, I am of opinion that a representation made before the current hearing is capable of being a previous representation within the meaning of that term in the Act.
28 Allphones also argued that the word ‘proceeding’ in the Evidence Act should be given the extended meaning for which it contended by reference to the use of the same term in the Federal Court of Australia Act 1976. There s 4 defines ‘proceeding’ as:
‘Proceeding means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connection with, a proceeding, and also includes an appeal.’
29 The long title of the Evidence Act is ‘An Act About the Law of Evidence and for Related Purposes’. That Act identifies the courts and proceedings to which it is to apply in s 4. Expressions in the Evidence Act such as ‘proceeding’ cannot take their character from that same word used in a different Act, such as the Federal Court of Australia Act. The process of statutory construction requires the Court to have regard to the way in which the Parliament expressed itself with respect to the subject matter with which it is then dealing. The Evidence Act is intended to apply its series of provisions to the conduct of proceedings in a federal court (as defined) in which evidence is sought to be given.
30 Like the Judiciary Act 1903, the Evidence Act takes the courts to which it applies as it finds them. The Evidence Act deals with incidents of a proceeding which it characterises as such. The statutory regime which the Evidence Act itself provides, of course, does not create any civil or criminal proceeding. Rather, it applies the rules of evidence which it lays down for the conduct of civil or criminal proceedings to proceedings of the relevant character when and how they are constituted under other legislation.
31 I am of opinion that the definition of ‘proceeding’ in the Federal Court of Australia Act does not affect the construction of ‘proceeding’ as that term is used in the Evidence Act. I am fortified in this view by the recognition that the Evidence Act itself is procedural in substance. It regulates how evidence is to be received and what is admissible. It does not itself create rights or liabilities. That is why the Act is careful to distinguish between various proceedings and to provide rules for the adducing of evidence in them. In Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Limited [2003] HCA 49; (2003) 216 CLR 161 at 200 [122] and 205 [133] Hayne J (with whom Gleeson CJ and McHugh J agreed) said that the rules governing the admissibility of evidence fall under the expression ‘practice and procedure’. Gummow J, with whom Kirby J agreed on this point, said that more substantive rights were involved: Labrador 216 CLR at 173 [33]. Kirby J referred to the assignment of the burden and identification of a standard of proof as being matters which can be of critical importance to the conduct of a trial. They could thereby partake of certain features of practice and procedure, but he also recognised that each was arguably something more than that because each affected, in a way, the very character of the trial. In that case the provisions of the Excise Act 1901 dealt with how matters might be proved: Labrador 216 CLR at 185 [76].
32 Essentially, whether or not a previous representation amounts to an admission is a question of the law of evidence. That question has the character of a matter of practice or procedure. The Evidence Act regulates the way in which a proceeding is conducted. Of course, the Act applies a particular standard of proof depending on whether the proceedings are civil or criminal and in that way the application of the Act may affect substantive rights. But the substantive operation of the Act applies the practice and procedure apposite to regulate the adducing of evidence on each occasion on which it is tendered. The Act does not create any proceeding in a court. Rather, it provides a procedure to apply to or in an existing cause of action or matter for adducing evidence.
33 Proof of what occurred before Tamberlin J is capable of establishing a fact that occurred on an occasion outside this trial. The interlocutory proceeding was not this trial of the issues between the parties. For these reasons, I am of opinion that what occurred before Tamberlin J did not occur in the course of giving evidence in the proceeding in which it is now sought to tender Mr Lloyd’s affidavit. It follows that Mr Lloyd’s affidavit is capable of being a previous representation and thus capable of falling within the meaning of ‘admission’ as a matter of law.
24 In my view, the contention for Mr Marco is correct and the paragraphs of the Marco 2020 affidavit cannot be tendered by ASIC as admissions.
25 As to the Marco December 2018 affidavit, the facts in Hoy Mobile are procedurally very similar. In that case, a solicitor acting for the respondent had sworn an affidavit which was relied upon to support an assertion of legal professional privilege over certain documents at an earlier interlocutory stage of the matter, the tender of which as admissions was pressed by the applicant at trial. In this case, Mr Marco has sworn an affidavit and relied upon it in support of an earlier interlocutory proceeding, the tender of which is now pressed by ASIC as admissions in the present interlocutory proceeding. For the same reasons that the Marco 2020 affidavit cannot be tendered, by reference to Rares J’s reasons set out in the paragraph above, I am satisfied that the Marco December 2018 affidavit is a previous representation for the purpose of s 81 of the Evidence Act.
26 ASIC seeks to tender seven paragraphs and annexure CM-36 from the Marco December 2018 affidavit in total. Annexure CM-36 is a pro forma version of the ‘Declaration of Trust’ document that Mr Marco executed with investors. The defendants do not oppose its tender. The defendants’ opposition to the tender of the paragraphs is that ASIC has failed to demonstrate that each paragraph is in fact an admission. Rather, the defendants point out that ASIC qualifies its reasoning in relation to most of the paragraphs by stating that they must be read together with other evidence or ‘the totality of the evidence.’ The exception is [23] of the affidavit which is in the following terms:
In conducting my business as a private investor, I have always followed Mr Laqueri’s advice. However, my current lawyers have advised me that some points of Mr Laqueri’s advice are not correct. Relevantly, my current lawyers have advised me that:
(a) if I wish to pool my clients’ funds and invest those funds as I see fit, without interference from my clients in my investment strategy, then it is no appropriate for me to hold those funds on trust for my clients and, accordingly, it is not appropriate for me to be entering into declarations of trust in respect of my clients’ funds;
(b) even though I am not providing any form of financial advice, by investing in my clients’ funds with the intention of generating a financial return for my clients, I am dealing in a financial product and therefore providing a financial service and, accordingly, I am required to hold an [AFSL].
As will be made clear by ASIC’s own evidence set out below, I am satisfied that [23] is a previous representation that is adverse to the defendants’ interests which can therefore be tendered as an admission in this proceeding. I have not had regard to the other paragraphs.
27 But even if this were wrong, as will be seen, the failure to hold an AFSL is clearly established on ASIC’s own evidence.
28 As to the other grounds on which ASIC seeks the tender of the Marco 2020 affidavit and the remaining paragraphs of the Marco 2018 affidavit, the first being reliance on s 75 of the Evidence Act, the general proposition is that (speaking very broadly), in an interlocutory proceeding the hearsay rule will not apply to evidence if the party who adduces it also adduces evidence of its source. Mr Marco submits that the paragraphs which are relied upon by ASIC are not supported by a statement setting out the source of Mr Marco’s information and belief as required by s 75. This may seem a curious submission coming, as it does, from Mr Marco, but nonetheless, I am certainly not satisfied that those statements relied upon under the hearsay rule are reliable for the purposes of this interlocutory application. The statements are of a very general nature.
29 In relation to the risk referred to by French J in Carey (No 3) (at [31]), I also consider that this ground is inapplicable. ASIC contends that by tendering the relevant paragraphs and the introductory wording and jurat in Mr Marco’s affidavit, they have adduced the source of the relevant hearsay evidence. However, the introductory paragraph states that:
The information in this affidavit, save where expressly stated to the contrary, is within my own personal knowledge and belief. In the case of facts obtained from sources identified herein, those facts are true to the best of my knowledge, information and belief.
30 The paragraphs relied upon by ASIC, which are hearsay, do not identify the sources and cannot be accepted as hearsay evidence within the meaning of s 75 of the Evidence Act.
31 To the extent ASIC relies upon Carey (No 3), French J was addressing the issue of the appointment of receivers under s 1323 of the CA after an interim order had already been made by Siopis J (see [16]-[19]). French J needed to assess whether there was a risk of the assets being dissipated. His Honour determined (at [33]) that opinion evidence and hearsay evidence provided by ASIC’s witnesses on affidavit as to the defendant’s financial position in operation in their businesses would be receivable if it was supported by reference to the relevant documents and factual material. I am not satisfied that the content on which ASIC seeks to rely is content adequately supported by reference to relevant documentation and factual material.
32 More importantly, there is a protective order already made in this instance pursuant to s 1323 of the CA and, unless there is clear evidence of breach of that order (and I note that some passing reference to potential breaches having been made, but with no specific clarity), no evidence is before me as to the risk of assets being dissipated.
33 Although documents attached to the affidavits might be sought to be relied upon by way of business records as defined in s 69(1) of the Evidence Act, again, I do not consider that those documents satisfied this description. All but one of the documents were prepared by Mr Marco and his solicitors for the purposes of this litigation. As such, they fall expressly within the specific exception covered by s 69(3) of the Evidence Act.
34 It may be that ASIC has been taken by surprise by Mr Marco choosing not to read or rely upon his extensive 2020 affidavit. But, of course, the mere filing of an affidavit does not mean it will be relied upon in evidence and doubtless a well-reasoned forensic choice was made not to rely upon it in opposition to the relief ASIC seeks. If there are gaps in ASIC’s case (and in any event as will be apparent, I consider there are not), they cannot be filled by material which is not properly in evidence.
35 ASIC has also sought to tender documents received in response to a subpoena issued to Westpac under a notice to produce served on Mr Marco. Mr Marco says that there is nothing in those documents which is relevant to the issues before the Court. I am not satisfied that this material is particularly relevant, but I also do not consider it to add much to the already extensive evidence before me. As will be noted later in these reasons, my conclusions have been reached without regard to this material.
36 I turn then to the material which is clearly in evidence. The first of which is Lim 1, in which Ms Lim, a solicitor with ASIC’s Enforcement Western Australia team, explains her involvement in the conduct of investigations into suspected contraventions of the CA by the defendants. Ms Lim notes that freezing orders were made against the defendants on 1 November 2018 pursuant to s 1323 of the CA (see ASIC v Marco No 1 at [1]-[12] and generally). From time to time those orders have been varied on application by the defendants or by consent of the parties. She outlines the basis upon which ASIC has formed the view that defendants have contravened s 911A of the CA in that they:
(a) have in the past, and continue, to deal in financial products within the meaning of the CA;
(b) have in the past, and continue, to operate a financial services business;
(c) do not, and never have, held an AFSL.
37 ASIC has also formed the view that the defendants have contravened s 601ED(5) of the CA, in that:
(a) the defendants have in the past continued to operate an unregistered Managed Investments Scheme;
(b) the Scheme is an unregistered managed investments scheme with more than 20 members pursuant to which Mr Marco has raised more than $2 million in a 12 month period from the issue of financial products and the number of investors to whom those financial products have been sold in a 12 month period has exceeded 20 and the Scheme should therefore be registered; and
(c) the Scheme is not registered and no steps have ever been taken to register the Scheme.
38 Ms Lim expresses that ASIC is of the view, which I treat as submission, that an interim receiver should be appointed to the assets held by the defendants as:
(a) the role of the interim receivers will be protective in nature to manage the assets of the defendants, to secure and protect the assets of the defendants, to identify any assets that may be available to persons who may advance money to the defendants for investment (investors), to act for the benefit of investors and to act in their interests and to provide a report to the Court;
(b) it will bring an end to ongoing conduct that breaches the CA, being the defendants’ continued dealing in financial products, the defendants continued operation of its financial services business without an AFSL and have continued operation of the Scheme without registration;
(c) it will ensure proper oversight over moneys advanced by the investors to the defendants and the assets of the defendants that could be available to meet the claims of investors in that only proper expenditure would be paid out of investment moneys and investment moneys would not be depleted by the defendants in incurring business and personal expenses with no plausible benefits or expected return. Further, the Court would not be constantly approached to determine what personal operating expenses of the defendants above and beyond the permitted freezing order exemptions should be paid for from investment moneys and the expenses of AMS and AMS Trust. Instead, all assets would be properly accounted for, as would the books and records of the Scheme so as to ascertain the true entitlements of the investors;
(d) it will facilitate the identification of assets held by third parties and related parties that have been acquired with investment moneys and enable all necessary steps to be taken to preserve those assets pending the determination of the substantive relief sought in the proposed amended originating process;
(e) it would ensure the status quo is maintained and no new or additional investment moneys are advanced to the Scheme and no investments moneys are returned to investors pending the determination of the substantive relief sought in the proposed amended originating process; and
(f) it will ensure proper, truthful and accurate communications with investors.
39 Ms Lim expresses the view, again in the nature of a submission, that there is little risk to investors if an interim receiver is appointed to the assets of the defendants as:
(a) the investments by the defendants are unlikely to come to fruition and even if they did, the receiver would be able to appropriately deal with the moneys; and
(b) the proposed terms of the appointment of the receiver prevents the receiver from dissipating the assets of the defendants without the consent of the Court.
40 Much of what Ms Lim says is essentially assertion rather than evidence but to the extent that is so, I treat it only by way of submission. ASIC is also of the view that the Scheme should be wound up for reasons set out in Lim 1, but winding up is not sought in this interlocutory process. Rather, winding up as well as declaratory and injunctive orders form part of ASIC’s claim for final relief in these proceedings. ASIC considers that AMS should ultimately be wound up for similar reasons.
41 Ms Lim explains in Lim 1 that on 6 December 2019, she directed an analyst employed by ASIC to conduct searches in relation to Mr Marco, being a personal name search, a business name search for Coastline Group (a business associated with Mr Marco), and an AFSL Register search. The results of those searches confirms that Mr Marco is not presently, and never has been, the holder of an AFSL. He is a director and shareholder of AMS and Coastline Group (WA) Pty Ltd (ACN 629 326 174). She produces company name searches of those companies and White and Yellow Pages searches for Coastline Group.
42 In respect of AMS, the searches reveal that its directors are Mr Marco and Mr Damon Marco (Mr Marco’s son), that Mr Marco is the sole secretary of AMS and the sole shareholder of AMS (AMS is not and never has been the holder of an AFSL).
43 In relation to AMS Trust, Ms Lim produces a Trust Deed for AMS Trust that was obtained by the issuing of a notice to produce documents on Mr Marco on 1 November 2018 pursuant to s 33 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act).
44 The Trust Deed indicates that in 2013, AMS became the trustee of AMS Trust with Mr Marco, and failing him, Mrs Gaye Marco, as the appointor and guardian. Mr and Mrs Marco are the specified beneficiaries and Mr Marco’s family members are general beneficiaries.
45 ASIC explains that investigations are proceeding in relation to numerous contraventions of provisions of the CA relating to Mr Marco, Coastline Group, AMS, Coastline Group WA, Ms Beverley Marco (Mr Marco’s sister) and Mr Damon Marco. The scope of the investigation covers suspected contraventions in the period from January 2010 onwards. Ms Lim was appointed in April 2019 as the project manager for the civil aspects of the investigation, after another investigator ceased employment with ASIC. Two months later, Mr Kohler, an investigator appointed by ASIC, was appointed as the project manager for the criminal aspects of the investigation. With the assistance of other staff members of ASIC, Mr Kohler and Ms Lim have primary responsibility for the investigation. In that regard, during the course of the investigation, up until the date of Lim 1, compulsory examinations have been conducted of numerous persons, including Mr Marco, Ms Beverley Marco, Ms Talitha Marco (Mr Marco’s daughter), Mr Damon Marco, Mr Rafiek Meyer, Mr Peter Caughey and Ms Linda Marissen. Transcripts of the examinations of Mr Marco, Mr Caughey and Ms Marissen are annexed to various affidavits read by ASIC with the exception that ASIC has expressly disavowed reliance on the transcript of Mr Marco’s examination. In addition to those compulsory examinations, examinations of investors have been conducted pursuant to the reasonable assistance powers under s 19 of the ASIC Act. I do not consider it necessary to name those investors at this stage of the proceedings. There were six such investors as at 12 December 2019.
46 ASIC has also:
(a) conducted a voluntary interview of Mr Marco on 1 November 2018;
(b) issued notices for production of books and records under s 33 of the ASIC Act to several banks, several corporate entities and several individuals, including Mr Marco and a number of his family members as well as seven investors;
(c) issued notices for reasonable assistance under s 19 of the ASIC Act to some 38 investors; and
(d) issued a notice pursuant to s 33 of the ASIC Act for the production of electronic storage devices to Mr Marco on 1 November 2018;
In total, these enquiries had resulted in the issuing of 120 notices, which had produced 80,624 documents as at 12 December 2019 with more documents expected.
47 ASIC has then:
(a) reviewed the financial documents prepared by Mr Marco and undertaken financial analysis, including tracing of funds in respect of the identified bank accounts of Mr Marco, AMS, Mr Damon Marco and Ms Beverley Marco;
(b) engaged forensic accounts, KPMG, to undertake further detailed financial analysis in respect of the identified bank accounts of Mr Marco and AMS;
(c) undertaken an analysis of the investment programmes from which Mr Marco in the Disclosure affidavits deposed he expected to receive returns;
(d) identified investors potentially adversely affected by the conduct of Mr Marco and AMS;
(e) conducted voluntary interviews of nine other investors, who do not need to be named;
(f) contacted approximately 104 investors by telephone or email; and
(g) created and updated a webpage on the ASIC website specific to the investigation and set up a dedicated email address for investors to contact ASIC.
48 As a result of collating that material, Ms Lim’s view is that:
(a) as revealed in the Marco Disclosure Affidavits, 132 investors deposited approximately $240 million into Mr Marco’s personal bank accounts, namely, a nominated Westpac Banking Corporation home loan account and a nominated Westpac eSaver account.
Ms Lim explains that Mr Marco gave a document entitled ‘Declaration of trust’ (the Trust Document) to most of the investors which set out the terms, including a commencement date, maturity date and rate of return. The Trust Document describes the ‘Investment type’ as ‘private placement’. As noted at [26] a pro forma of this Trust Document is annexed to the Marco December 2018 affidavit, the tender of which by ASIC, was not objected to by the defendants. Annexed to Ms Giubilato’s affidavit is the Trust Document executed by Mr Marco and Mr Caughey in 2013. Both documents contain a clause to the effect that Mr Marco:
guarantees to the investor the repayment of the principal sum in the event of an investment loss in accordance with the provisions of this declaration. The collateral for this guarantee is by way of cash held at [Bank details of account in the name of Chris Marco with a minimum amount specified as collateral] should distribution of investment proceeds not be met at the appropriate designated time, within a 30 day period the proceeds will be withdrawn from the above account and deposited into the investor’s nominated account. This guarantee is full and final with each investor and each invested amount.
Other versions of the Trust Document are annexed to Mr Iriks’ affidavit sworn 12 December 2019.
(b) Ms Lim states that Mr Marco purportedly invested the investment moneys in overseas ‘Private Placement Programmes’ that offer high rates of return. Most of the investors were told by Mr Marco that their investment moneys were being invested in ‘Private Placement Programmes’; and
(c) all of the funds provided by investors to Mr Marco were ‘pooled’ and utilised for a variety of purposes. Mr Marco personally invested some of the moneys in real estate and cars, either directly or through AMS or AMS Trust and also transferred moneys to Ms Talitha Marco, Mr Damon Marco and Ms Beverley Marco, who used the moneys to purchase shares, cars and properties or to make improvements to existing properties. A detailed analysis of the receipts and payments recorded in the statements for the defendants’ banks accounts over a six month period, from 30 April 2018 to 30 October 2018 was undertaken by Mr Gomm. Mr Gomm’s analysis is set out in Gomm 1. Mr Marco has communicated to investors that he expects to receive a return of approximately $200 million from investments, but he claims that this has been obstructed by the freezing orders in this proceeding. Since January 2010, the defendants’ bank statements do not show any material deposits being received as a result of the purported investments made by the defendants.
49 ASIC’s investigation into the conduct of Mr Marco and other persons remains ongoing.
50 Ms Lim explains that Mr Marco’s assets and liabilities, by reference to the Marco Disclosure affidavits, were said by Mr Marco to be:
(a) bank accounts holding $6,868,897.82;
(b) personal assets of $10,509,000; and
(c) personal liabilities of $1,407,222.
51 Lim 1 also sets out that Mr Marco deposed in his Disclosure affidavit that he owned the following motor vehicles:
(a) Ford Falcon XY GTHO Phase III (1971);
(b) Datsun 260z Coupe (1975);
(c) Chrysler Charger VH E49 (1972);
(d) Holden Monaro GTS HQ Coupe (1971);
(e) Holden Torana Liftback LX SS A9X (1977);
(f) Holden Torana Bathurst LJ GTR XU-1 (1972);
(g) Holden HSV GTSR W1 (2017);
(h) Mercedes GLC 220D Wagon (2016);
(i) Holden HSV GTR Maloo Ute (2017); and
(j) Chrysler Jeep Trackhawk (2018).
52 As at 11 December 2019, however, Mr Marco only had a Jeep Grand Cherokee 2018 registered in his name, according to an email from the Department of Transport produced by Ms Lim.
53 Ms Lim identifies the following real estate in the name of Mr Marco:
(a) 89 Kalgoorlie Street, Mt Hawthorn, Western Australia;
(b) 90 Kalgoorlie Street, Mt Hawthorn, Western Australia; and
(c) 151 Scarborough Beach Road, Mt Hawthorn, Western Australia.
54 In relation to share holdings, Mr Nguyen, a lawyer employed by ASIC, issued a notice pursuant to s 33 of the ASIC Act seeking books and records in relation to Mr Marco, Mr Damon Marco, AMS and Coastline Group from ASX Settlement Pty Limited. Ms Lim produces copies of the letters from ASX Settlement to ASIC enclosing search results and a non-zero holdings report provided by ASX Settlement and this report reveals no holdings of shares in ASX companies.
55 Ms Lim refers to an increase in Mr Marco’s assets of almost $173,000 in August 2019 which appears to be from a sale of Ms Talitha Marco’s property. She identified the amounts held in various bank accounts exceeding $6 million. The Lim 1 affidavit details Mr Marco’s earnings to which he deposed in the Marco Disclosure affidavits and the assets and liabilities of AMS as there deposed to. Assets of AMS were said to exceed $14 million. Ten real estate properties were identified by ASIC as being held by AMS, but no shares on the Australian Stock Exchange (the ASX) were held. Pursuant to the freezing orders, AMS pays ordinary operating expenses of up to $1750 per week, as well as additional expenditure from time to time by variation of the orders. This has included Mr Marco paying AMS from accounts held in his name amounts totalling almost $222,000 of investment moneys to pay operating expenses for AMS. AMS is receiving minimal income from its rental properties.
56 Ms Lim also lists assets and liabilities held by Mr Damon Marco, including a loan of $1.84 million by Mr Marco, unsecured to his son as revealed in Marco May 2019 affidavit. Mr Damon Marco gave an undertaking he would not dispose of property without the consent of ASIC. As a result, the joinder of Mr Damon Marco to these proceedings was discontinued in November 2019. Similar evidence was given in relation to the assets and liabilities of Ms Talitha Marco and Ms Beverley Marco. As noted above (at [48(a)]) in the Marco Disclosure affidavits, Mr Marco deposed to the fact that he owes $238,478,888 to 132 investors. ASIC has been unable to identify all of the investors, verify the amounts invested, ascertain the investment made by the defendants on behalf of each investor or verify the precise amount owing to investors, including accrued interest.
57 Ms Lim lists funds owed to Mr Marco as deposed to in the Marco Disclosure affidavits (in excess of $12.6 million) and his expectation to receive income from 14 investment programmes, being various large amounts, including ‘USD$25m-$200m from Acapulco Trade & Investment’.
58 No deposits correlating with the anticipated returns on any of the investment programmes have been deposited into Mr Marco’s bank accounts. Based on documents obtained in relation to 20 of Mr Marco’s purported investment programmes, Ms Lim, for reasons expressed in Lim 1, expresses serious concerns in relation to both the potential recoverability and legitimacy of the investments made by Mr Marco detailed in those files. Much of the latter portion of Lim 1 is devoted to explaining why that is so. The evidence at this stage is unchallenged as Mr Marco is not relying upon the affidavit that he swore in opposition to this relief. Ms Lim relies on various google searches to which I obviously attribute very little weight, even at an interlocutory level, given the purpose for which they are apparently advanced and exposing, as they purport to do, references to international investment scams targeting investors and defrauding them. An example is the google search of Acapulco Trade & Investment from which Mr Marco anticipates receiving ‘USD$20-$200 million income’. The search reveals that it does not even have a webpage, other than a Facebook address. Much of this information is of similar quality.
59 From Ms Lim’s review of the investment files, Mr Marco’s bank statements and the transcript of Ms Marissen’s s 19 (ASIC Act) examination, she concludes that from January 2010 to December 2019 when Lim 1 was filed, Mr Marco had not generated any material returns from any of the financial investments listed at [86]-[131] of Lim 1. In other paragraphs of Lim 1, which might properly be regarded as submissions, rather than evidence, she records the view that Mr Marco and AMS have breached s 911A of the CA in the fashion indicated above. She explains the reasons for that view, drawing heavily on the content of ss 761-766C of the CA. She repeats similar material in relation to the failure to register a managed investment scheme.
60 As to the alleged continuing operation of the Scheme, despite the freezing orders, Ms Lim refers to the Gomm 1 affidavit which includes an analysis of the accounts held in Mr Marco’s name for the period 1 November 2018 to 29 November 2019. The analysis suggests that Mr Marco paid the total sum of $575,434 to investors and that communications between Mr Marco and his investors, letters from investors requesting rollovers and Mr Marco’s response to ASIC’s reasonable assistance notice indicate that he is continuing to carry on a financial services business without holding an AFSL.
61 Ms Lim produces various client updates and investor group updates which appear to confirm this position and reiterates the reasons why ASIC wishes to have an interim receiver appointed.
62 Mr Gomm is also an investigator for ASIC. In Gomm 1 he produces 22 folders, each labelled with a folder number and containing various documents, including ‘forthwith notices’ issued by ASIC, the Marco and AMS workbooks obtained under those notices, numerous other notices, bank statements, credit card statements and other related documents. Pursuant to the ‘forthwith notice’, ASIC forensically imaged Mr Marco’s computers. Mr Gomm explains and catalogues all the data obtained in this process. Mr Gomm conducted what might be described as a style of audit of numerous transactions and records in an attempt to verify the accuracy of the various records.
63 Mr Gomm also produces documents obtained under notices issued on Westpac, including account statements, internal working notes and email chains, to indicate that Mr Marco had access to at least on bank account outside of Australia, located in Jersey. Those documents reveal a number of transfers to and from the Jersey account, including a telegraphic transfer of $14 million to Jersey in June 2016 followed in December by a return transfer of $15 million with a description ‘closing expat account’.
64 Mr Gomm is of the view that the overseas accounts operated by Mr Marco in Jersey have since been closed.
65 Mr Nguyen is also an ASIC lawyer involved in the investigation. Annexed to his affidavit of 12 December 2019, he produces a notice issued to an investor pursuant to s 33 of the ASIC Act. In compliance with the notice, the investor produced two email updates, sent by Mr Marco on 22 December 2018 and 23 January 2019, the first being sent to the whole investor group and the second sent personally to this investor. The group update followed substantial earlier publicity concerning these proceedings and Mr Marco was at pains to stress in the update that he was not conducting a Ponzi scheme. In the subsequent personal update, Mr Marco stressed to the investor his commitment to fulfilling the Declaration of Trust and that he had been complying with ASIC’s investigations.
66 Ms Giubilato is another ASIC lawyer involved in the conduct of the investigation of suspected contraventions. Her affidavit refers to a compulsory examination of Mr Caughey conducted by ASIC. Further reference to this material will be made subsequently, but essentially Mr Caughey was formerly employed by the defendants and gave evidence of the promised returns and his role in liaising with investors and providing investor group updates.
67 As noted above (at [18]), the defendants rely solely on an affidavit sworn by Ms Sierakowski on 6 March 2020. She gives evidence to the effect that her principal, Mr Margaretic on about 13 December 2019, emailed ASIC to query the position that ASIC had taken in respect of Mr Marco’s alleged breaches of any applicable law. ASIC indicated that the investigation was ongoing, but ASIC’s concluded view was that Mr Marco had contravened both s 601ED(5) and s 911A of the CA, such that ASIC was seeking the substantive relief in the amended originating process, for the reasons set out in supporting affidavits.
68 This was followed by further correspondence and, on 3 February 2020, a Mr Byrne, an investigator for ASIC made clear that ASIC’s investigation was separated into two parts: civil and criminal. Mr Byrne was in the criminal investigation team. Since ASIC had become involved with Mr Marco in late 2018, the investigation had focussed primarily on the civil side. He said:
The criminal team is currently gathering and examining evidence that will be presented to the Commonwealth Department of Public Prosecutions (CDPP) who will determine if Mr Marco should be criminally charged. As a part of this process we have been contacting investors to ask if they would be willing to provide a witness statement regarding their involvement.
69 In Lim 2 (sworn on 11 February 2020), Ms Lim annexes a substantial body of correspondence between the parties and makes reference to proceedings commenced in the Supreme Court of Western Australia against Mr Marco: Markopoulus and Ors v Marco CIV1431 of 2019 and annexed the pleadings. She said that ASIC was becoming increasingly concerned that it did not have sufficient information to enable it to make an informed decision about whether or not to consent to variations of the asset freezing orders in the best interests of creditors.
70 ASIC’s responsive material, contained in Lim 3 and Gomm 2, seems very much directed to counteracting the accuracy of the assertions advanced by Mr Marco in the Marco 2020 affidavit, which is not relied upon by Mr Marco. As it is not read into evidence, it is now inappropriate to rely upon responsive material, at least in this interlocutory process.
71 In the annexures to Lim 4 (sworn 11 March 2020), Ms Lim makes various minor corrections, including the fact that while the criminal investigation is progressing, no decision has yet been made by ASIC to refer a brief to the Commonwealth Department of Public Prosecutions (the CDPP). She also records that since Lim 1, Mr Marco has made three further applications to vary orders to allow payments to be made from the defendants’ bank accounts. She details those payments which total a few thousand dollars.
72 Mr Genovesi, who seeks leave to intervene and to oppose the relief sought by ASIC, identifies himself as one of Mr Marco’s investors. He says that he became aware of Mr Marco and his investment business in 2016 through his business partner, Mr Ginnasi. He and his wife have invested with Mr Marco in a variety of ways. In summary:
(a) in January 2017, Building Workshop Pty Ltd invested $1 million. Mr Genovesi’s wife is a 50% shareholder in Building Workshop and he is a director;
(b) in July 2018, ‘Building Workshop No. 1 Superannuation Fund’ invested $145,826. He and his wife both old a 25% interest in the fund;
(c) in August 2018, Mr Genovesi and his wife personally invested $1 million;
(d) on 15 October 2018, Glasscurvers Pty Ltd invested approximately $1.3 million. Mr Genovesi is a director of Glasscurvers and his daughter is a 33% shareholder. The remaining shareholding is owned by G & G Constructions Pty Ltd of which Mr Genovesi is a director and 50% shareholder; and
(e) in October 2018, BW Interiors Pty Ltd invested $247,480. Mr Genovesi is a director and his wife a 33% shareholder.
73 Mr Genovesi says that he is ‘aware from speaking with other investors’ that ASIC’s investigations into the defendants has negatively impacted on the investor group. He is concerned that ASIC’s application, particularly the proposed orders which would appoint interim receivers, would not be in the best interests of investors. Since October 2019, he is only aware of ASIC contacting investors once by letter and twice by posting updates on the ASIC website. He is concerned that the matter has gone on so long without complete and transparent information being given to the investors. Of the approximately 50 (unidentified) investors with whom he has communicated, he believes that ‘all of them share [his] views’. I place no reliance on the last statement, which, even at an interlocutory level, is hearsay evidence and completely inadmissible. I treat the balance of the content about ASIC’s role as being largely a matter of submission/argument.
74 In support of his application to intervene and oppose the relief sought by ASIC, Mr Genovesi points to r 9.12(2) of the Rules, which indicates that the Court on an application to intervene may have regard to:
(a) whether the intervener’s contribution will be useful and different from the contribution of the parties to the proceeding; and
(b) whether the intervention might unreasonably interfere with the ability of the parties to conduct the proceeding as the parties wish; and
(c) any other matter that the Court considers relevant.
75 Mr Genovesi argues that a non-party whose interests would be directly affected by a decision in the proceeding, that is one who would be bound by the decision, is entitled to intervene to protect the interests likely to be affected.
76 In Roadshow Films Pty Ltd v iiNet Ltd (2011) 248 CLR 37, per French CJ, Gummow, Hayne, Crennan and Kiefel JJ, citing Brennan CJ in Levy v Victoria (1997) 189 CLR 579 (at 600-605) the High Court said (at [2]-[3]):
2 In determining whether to allow a non-party intervention the following considerations, reflected in the observations of Brennan CJ in Levy v Victoria, are relevant. A non-party whose interests would be directly affected by a decision in the proceeding, that is one who would be bound by the decision, is entitled to intervene to protect the interest likely to be affected. A non-party whose legal interest, for example, in other pending litigation is likely to be affected substantially by the outcome of the proceedings in this Court will satisfy a precondition for leave to intervene. Intervention will not ordinarily be supported by an indirect or contingent affection of legal interests following from the extra-curial operation of the principles enunciated in the decision of the Court or their effect upon future litigation.
3 Where a person having the necessary legal interest can show that the parties to the particular proceedings may not present fully the submissions on a particular issue, being submissions which the Court should have to assist it to reach a correct determination, the Court may exercise its jurisdiction by granting leave to intervene, albeit subject to such limitations and conditions as to costs as between all parties as it sees fit to impose.
(Citations omitted, emphasis added.)
77 Mr Genovesi says that investors have a legitimate interest in the proceedings. The defendants’ assets, which are likely to include funds invested by the intervener and other investors in a like position and who are of a like mind to Mr Genovesi have been preserved since 1 November 2018 by the freezing orders over the defendants’ assets. An effect of the freezing orders has been to prevent both the return of those funds and the return of investment gains to Mr Genovesi and other like investors. The orders have directly affected their rights in and to those funds, which rights are by parity of reasoning with Markopoulus v Marco [2020] WASC 79 per Tottle J (at [49] and [58]), those of a trust-beneficiary relationship, where his Honour said:
Conclusion in relation to trust claims of Mrs Markopoulus and Tonpose
49 I am satisfied that the language the parties used in the Declarations of Trust manifested a clear intention to create an express trust. Central to this conclusion is that the parties chose to execute a document titled 'Declaration of Trust' which provided that the moneys would be held 'in trust' for the 'beneficiaries'. Such language was, to adopt Brereton J's words in Re Courtenay House Capital Trading Group, 'unambiguous and explicit' and is decisive.
…
Conclusion in relation to trust claim advanced by Ms Lockett and Mr Williams
58 The effect of Mr Marco's evidence as to the way in which he operated his business is that 'most' other investors had executed a Declaration of Trust and that he pooled the funds of those who invested with him. Mr Marco's counsel accepted that the terms on which he invested funds for Ms Lockett and Mr Williams were the same as the terms on which he invested funds for Mr Markopoulus. Despite the absence of documentation, it is a reasonable inference that the relationship between Mr Marco and Ms Lockett and Mr Williams was the same as that between Mr Marco and Mrs Markopoulus and Tonpose: that is, it was a relationship of trust. This inference was accepted by Mr Marco's counsel as being a necessary consequence of a finding that the funds of Mrs Markopoulus and Tonpose were held on trust. In effect, Mr Marco relied on the 'same position' that was taken in relation to the Mrs Markopoulus and Tonpose express trusts. For the reasons already stated, Mr Marco is unable to establish a triable issue on the basis of the contentions about his subjective intention and summary judgment should be given for Ms Lockett and Mr Williams.
(Citations omitted.)
78 The intervener argues that:
(a) the initial basis advanced for the freezing orders was that ASIC was conducting an investigation into potential breaches by Mr Marco and AMS of the CA. Concerns were raised about the potential for funds held by them to be dissipated before ASIC could complete its investigation: ASIC v Marco No 1 (at [4]-[17]);
(b) those orders were made 16 months ago. ASIC has not commenced civil penalty or criminal proceedings against the defendants, other than for the relief sought in its amended originating application in these proceedings. ASIC now seeks, not the discharge or variation of the freezing orders to the benefit of investors, but rather the appointment of receivers and in the case of AMS and AMS Trust, receivers and managers for an unspecified duration. That will, insofar as the investors’ interests are concerned, extend the effect of the freezing orders until at least ASIC’s entitlement to final relief is determined;
(c) the amended orders sought by ASIC contemplate, amongst other things, that the unspecified costs of the work of the receivers and managers is to be determined at a later date with that cost potentially being visited on the investors consistent with the original position sought by ASIC. The interests of the investors will be directly affected by any order to that effect. Their equitable and contractual rights to the assets and to a return on their investments are affected by the orders, such that leave to intervene ought be granted to permit an investor voice to be heard now, rather than ‘after the wreck’, to adopt an expression used extra-curially by French J (as his Honour then was) in and address to the Law Society of the Northern Territory on the topic of protective orders under s 1323 of the CA in May 2007;
(d) just as the interests of the investors were and are of significance to any application to vary the freezing orders, particularly freezing orders which have been in place for a considerable length of time, so too are they of significance to ASIC’s application to appoint receivers and managers to the defendants’ assets. That is particularly so where the cost of that exercise may in due course be borne from them.
79 Broadly speaking, if leave were granted, the intervener would make submissions within the following categories:
(a) first, that ASIC’s application to appoint receivers and managers should be refused as it does not advance the interests of the investors;
(b) second, and alternatively, that:
(i) the reporting orders sought by ASIC should be expanded to include a requirement that the receivers and managers report to the investors, as parties directly interested in the subject matter of the proceedings;
(ii) any subsequent application as foreshadowed by ASIC for orders requiring the costs of receivers and managers to be met from preserved assets to the detriment of investors should be refused;
(iii) consideration be given to the order for an account that has already been obtained by the plaintiffs in Markopoulus and whether para 5(c) of ASIC’s amended interlocutory process unnecessarily duplicates that accounting treatment; and
(iv) before any receiver is appointed, ASIC demonstrate that the receiver understands the nature of the defendants’ investment business.
80 The intervener concedes that the submission in the preceding paragraph at (a) is not materially different from the position advanced by the defendants. However, it is said that each of the submissions, including that at (a) will be useful as they will directly put the investors’ views as to the merits or otherwise of ASIC’s application to the Court. They are views that the Court has recognised as material and necessary to have regard to in the context of the freezing orders, they have, however, not been put to the Court in the present matter. Although the Marco 2020 affidavit annexes confidential correspondence with investors, neither that annexure nor any part of that affidavit have been read into evidence. The submission foreshadowed (at (b)(i) above), is said to be of further utility to the Court in that it raises an issue not otherwise tackled by the parties, namely, whether the receivers’ reports should be given not only to the Court and the parties, but to the investors. The submissions at (iii) and (iv) are of a similar character.
81 The intervener argues that, in view of the open-ended position in respect of the receiver costs and the possibility that by the time the question comes to be determined, the costs may be substantial, the investors should be permitted through a grant of leave, an opportunity to address that question. The intervener says that intervention would not prejudice the parties, nor would it interfere unreasonably or otherwise with the ability of the parties to conduct the proceedings, particularly in view of the ‘on the papers’ mode of hearing the interlocutory process. The intervention will be directed at making limited submissions on the evidence and broader submissions about the merits of the orders sought by ASIC. Submissions could be filed and served within 7 days of a grant of leave.
82 Any contention that his intervention would occasion any delay in the proceedings should be rejected, the intervener says. He takes exception with the assertion by ASIC discussed below that there is inherent complexity in the ‘private placement programmes’ which he says sits uncomfortably with the suggestion that the supposed receivers, whose curricula vitae do not reveal any prior experience with private placement programmes, will be capable of dealing with them. The intervener stresses that he has clearly demonstrated his standing to intervene as an investor.
Determination of the intervention question
83 The defendants do not oppose the intervener’s application. ASIC neither consents to, nor opposes, the intervener’s application provided that the costs of the intervention are borne by the intervener. It submits that in the event the application is successful:
(a) any grant of leave should be limited pursuant to r 9.12(3) of the Rules to the categories of submissions set out at [79] of these reasons and there should not be a further opportunity for provision of submissions which would occasion delay; and
(b) the intervener’s views should not be accepted as evidence, other than on the basis of an expression of his belief.
84 I do not consider that there is any basis for inferring any substantial delay as a result of intervention by the intervener, if it were granted. But there is a two-part test. As noted in Roadshow (at [4]), the ‘Court will need to be satisfied … that it will be significantly assisted by the submissions of the amicus and that any costs to the parties or any delay consequent on agreeing to hearing the amicus, is not disproportionate to the expected assistance’. While the intervener makes the point that he is not an amicus, but has a direct legal interest, the balancing considerations are of equally appropriate application. A fundamental question, as is clearly implicit in the High Court’s reasoning in Roadshow (at [2]-[4]), is an expectation that the Court will benefit from some form of assistance if the intervener, or amicus as the case may be, is allowed to join the proceedings.
85 This is reflected in National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377 (at 381), where Mahoney P observed that:
Whether leave to intervene should be granted must be decided having regard to all the circumstances of the instant case. However, ordinarily four matters at least require consideration: whether the intervention is apt to assist the Court in deciding the instant case; whether it is in the parties' interest to allow the intervention; whether the intervention will occupy time unnecessarily; and whether it will add inappropriately to the costs of the proceeding.
86 In this case, the application for intervention was made at a very late stage in the timetabling of the interlocutory hearing. There is no explanation for the delay in bringing the application.
87 I particularly have regard to the question of whether or not the intervener’s submissions and views are likely to be of assistance in resolving this question. The intervener has a special position compared with other investors. He is the director and his wife is a 50% shareholder of Building Workshop, together with other entities. The asset freezing orders have been varied on three occasions to permit payments totalling $798,063.43 to Building Workshop in connection with construction payments apparently related to 151-153 Scarborough Beach Road. Those variations were made on 18 March 2019, 21 May 2019 and 4 July 2019 and put the intervener in an entirely different class from most investors.
88 As noted above (at [73]) there are significant evidentiary problems with the claim in Mr Genovesi’s affidavit that of the approximately 50 investors he has spoken to, he believes that ‘all of them share [his] views’. Mr Genovesi’s evidence is unlikely to assist the Court because it does not:
(a) identify the investors who are said to be of the view that the appointment of receivers is not in the best interests of the investors. The evidence is manifestly inadmissible;
(b) explain whether or not investors’ views were reached on the basis of the orders which ASIC now seeks, including the absence of an order at this stage that the receivers’ costs be paid out of the assets of the defendants; or
(c) make clear whether or not the investors’ views were reached having been appraised of the body of evidence referred to as to the handling of investments generally. I infer to the contrary. Clearly the evidence available to ASIC vastly exceeds evidence available to the average investor. The evidence at [6] and [9] of the intervener’s affidavit cannot be accepted.
89 Further, I have no reason to doubt that the proposed receivers, Messrs Kirman and Brauer, prima facie, have the necessary experience to deal with the nature of the investments, which the defendants have purported to make on behalf of investors. There has been no suggestion that anyone with superior expertise could throw light on the mystery surrounding these supposed investments.
90 In all those circumstances, I do not consider that leave to intervene should be granted. I reject the application.
91 In relation to the application for leave to amend pursuant to r 8.21 of the Rules, ASIC submits that the proposed amendments to the originating process effectively seek to identify the final relief sought against the defendants in circumstances where the matter was commenced on an interim basis to permit ASIC to further investigate the defendants’ affairs. It is submitted that the proposed amendments to the originating process would not give rise to any prejudice.
92 Amongst other final relief, ASIC seeks orders for the appointment of receivers or trustees on a final basis, the winding up of the Scheme operated by Mr Marco and AMS and the return of funds to investors.
93 The current originating process was filed on 29 October 2018, together with an interlocutory process seeking interim freezing orders pursuant to s 1323 of the CA. At that point, ASIC’s investigation was in its early stages. The investigative steps undertaken by ASIC since then have been substantial. As at 12 December 2019, as noted above (at [46]-[47]):
(a) 13 compulsory and 23 voluntary examinations had been conducted;
(b) 48 notices requiring production of books, records and devices had been issued to 12 entities and 12 individuals;
(c) 57 reasonable assistance notices had been issued to one entity and 44 individuals;
(d) 80,624 documents had been produced;
(e) approximately 104 investors had been contacted by telephone or email; and
(f) ASIC had finalised financial documents and engaged forensic accountants.
94 As a result of ASIC’s investigation, it now seeks the final relief set out in the proposed amended originating process.
95 The defendants oppose the amendments. They point to the fact that more than a year after seeking interlocutory freezing orders and without a substantive proceeding having been commenced, ASIC seeks leave to amend to add new prayers for final relief to include declarations, receiver orders under s 1101B of the CA, a winding up order, a refund of investor funds, injunctions and publication orders.
96 The defendants argue that leave to amend under r 8.21 of the Rules should not be granted on the basis that ASIC’s new prayers for relief do not arise out of substantially the same facts alleged in the existing originating process. The orders for the appointment of receivers are unnecessary, undesirable and unfairly prejudicial to the defendants and their creditors as:
(a) the appointment of receivers is unnecessary because ASIC has already obtained freezing orders which secure the defendants’ assets for the benefit of the defendants’ creditors, primarily the investors and is able to investigate matters through its extensive powers already deployed. There is no evidence before the Court to justify the Court taking the extraordinarily drastic step of appointing receivers, especially in view of ASIC’s own delay;
(b) the appointment of receivers is undesirable as ASIC has not demarcated a separation in function between the capacity of any receivers to investigate on the one hand, and to protect assets on the other. Indeed, any investigative function would run counter to the Court’s own function to determine matters and fix on a remedy, if any case is made out and threatens Mr Marco’s privilege against self-incrimination in the face of the continuing prospect of criminal charges; and
(c) the appointment of receivers would be unfairly prejudicial to the defendants’ creditors, particularly the investors, by reason of the substantial cost likely to be incurred by the receivers and which ASIC originally proposed to be paid out of the defendants’ frozen assets.
97 ASIC has stated that it is still pursuing criminal investigations against Mr Marco and may prepare a brief for the CDPP. It is argued for the defendants that a prosecution against Mr Marco is ‘on the cards’ and in those circumstances it would not be appropriate for leave to be granted to amend the originating application in the manner sought by ASIC.
98 The defendants argue that the amendments sought are significant and substantive. They say the amended originating process goes far beyond what is provided for under r 8.21(1)(g) of the Rules and that it raises a very extensive range of relief, which was never sought before.
99 The defendants say the facts which were relied upon to substantiate the original ex parte application in October 2018 under s 1323 of the CA were that ASIC was carrying out an investigation and wished to preserve the defendants’ assets for any aggrieved persons pending the outcome of the investigations. The defendants concede that is an orthodox use of s 1323 of the CA. However, those facts certainly do not support the new relief sought.
100 The defendants argue that the facts relied upon to support the new relief are not new facts that have arisen since the start proceedings. ASIC may have done further investigation, but the facts substantiating the new prayers for relief all occurred before October 2018.
101 If ASIC wishes to pursue proceedings alleging breaches of the various sections of the CA, then the defendants say it should do so in separate proceedings. It is not appropriate to amend the originating process in proceedings which were brought under s 1323 of the CA, which would be an unorthodox approach. Section 1323 allows the Court to preserve assets while ASIC is undertaking investigations or pursuing civil or criminal prosecutions so as to provide a source for the vindication of the rights of persons aggrieved by conduct. The section preserves the status quo pending completion of the investigation or proceedings. That was the effect, the defendants argue, of the observations of French J in Carey (No 3) (at [26]).
102 The defendants say that these proceedings by which the freezing orders were obtained ex parte are not the appropriate proceedings in which to determine whether the defendants have any liability to the aggrieved persons. That must be determined in separate proceedings and not by way of an interim or interlocutory process.
103 Although ASIC relies upon Re Equititrust Ltd (2011) 288 ALR 800 and Australian Securities and Investments Commission v Linchpin Capital Group Ltd [2018] FCA 1104 in support of their application, the defendants argue the circumstances that existed in those cases do not exist in this case. In both cases, final orders for the winding up of the schemes were sought in the originating proceeding and the interim orders for the appointment of receivers were applied for immediately. Although ASIC argues that the power of the Court to make an interim order for the appointment of receivers under s 1101B(5) of the CA pending the determination of the application under s 1101B(1), is a similar power to that provided under s 1323(1), the defendants say the text suggests otherwise. That is because s 1101B(1)(a) provides that the Court may make such order as it thinks fit on the application of ASIC if it appears to the Court that a person ‘(i) has contravened a provision …’. Section 1101B(4) of the CA provides examples of the orders the Court may make, including appointment of receiver ‘of a financial services licensee’ (emphasis added). Section 1101B(5) provides that before considering an application to the Court under s 1101B(1), the Court may make an interim order pending the determination of the application, if in the opinion of the Court it is desirable to do so. Although s 1101B(5) allows the Court to make interim orders in the context of substantive proceedings being brought under s 1101B(1), the defendants say that it is in respect of contraventions in which there may be an ultimate finding of liability. In that regard, the originating process here, which was brought pursuant to s 1323 of the CA is not similar in that there is no necessity under s 1323 for any final finding of liability.
Determination of the amendment question
104 There is nothing particularly unorthodox in the proposed amendment to the originating process to include the proposed orders for final relief. To require ASIC to commence new proceedings to seek such relief would be pointless. Rule 8.21(1)(b) of the Rules provides that one of the matters a party may rely upon in seeking leave to amend an originating application (relevantly in this case an originating process) is to avoid a multiplicity of proceedings. That was the primary reason in Re Equititrust and Linchpin. As noted above, in those cases ASIC sought both interim orders for the appointment of receivers and final orders for the winding up of the schemes. A similar approach was taken by Barret J in Australian Securities and Investments Commission v PJCB International Ltd [2009] NSWSC 34 and Australian Securities and Investments Commission v Idylic Solutions Ltd; Australian Securities and Investments Commission v PJCB. International Ltd [2009] NSWSC 1306.
105 In my view, for the purpose of r 8.21(1)(g), the substantive relief which would be sought does arise out of the same facts leading to the interim relief sought by ASIC, namely, the alleged operation of an unregistered managed investment scheme and an alleged financial services business without an AFSL which, at least prima facie, generated no substantive returns and, at least prima facie, had a substantial deficiency, possibly in excess of $200 million. The only difference between the substratum of facts underlying the proceedings as they initially were and the amendment as it would be proposed is the addition of the claims for relief, but I do not accept that the facts relied upon to substantiate the ex parte application are any different from the facts that would be relied upon to substantiate the final relief, if those facts were established and relief were thought to be appropriate.
106 Shortly put, the fundamental facts giving rise to the issue of proceedings in 2018 are still the same fundamental facts. ASIC has acquired substantial evidence since that time, but that does not affect the fundamental facts.
107 There is no good reason the amendment should not be permitted. To the contrary, there is sound reason to permit the amendment. The requirements of the Rules have been met. The amendment will be permitted.
108 The Court has power to appoint interim receivers or trustees to a person or entity under s 1101B(5) of the CA, which operates pending the Court’s consideration of an application under s 1101B(1). Section 1101B(1)(a)(i) of the CA gives a wide power. The power is relevantly available if it appears to the Court that a person has contravened a provision of Ch 7 of the CA, in this case, s 911A. There is a similar power under s 1101B(1)(a)(vi) of the CA where it appears to the Court that a person is about to do an act with respect to dealing in financial products or providing a financial service that, if done, would be such a contravention.
109 The power to appoint receivers has been made clear in in Re Equititrust per Applegarth J (at [78]) and Linchpin per Derrington J (at [76]). By s 1101B(5) of the CA, the Court may make an interim order to operate pending the determination of the application, if in the opinion of the Court it is desirable to do so. The word ‘desirable’ was considered by French J (as his Honour then was) in the context of s 1323 of the CA in Carey (No 3) where his Honour said (at [26]):
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…
The discretion is conditioned upon, first, uniformity between the relief sought by an application under s 1101B(1) and the interim relief sought under s 1101B(5) and, second, the Court’s satisfaction that the relief sought under s 1101B(5) is desirable. Leave having been granted for ASIC to amend its originating process, the necessary uniformity is established. The real question in this application is the question of ‘desirability’. ASIC relies on the following matters to support the desirability of making the orders sought.
110 The appointment of interim receivers or trustees is undoubtedly a most significant step. However it has been ordered in a number of cases in not dissimilar circumstances or in circumstances which favour the applicant less than those in the present case.
111 In Linchpin (at [61]-[68]), Derrington J approached the question of whether receivers should be appointed in the context of s 1323 which also requires consideration of whether the appointment is ‘desirable.’ By considering the following matters, his Honour helpfully collected a number of the key authorities in a way which I consider, with respect, is entirely correct:
61 The touchstone for the exercise of discretion is whether it is “necessary or desirable” in the circumstances. In Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577, French J described in the following passages the boundaries of that criterion and the consequences of its width (at [26] – [27]):
[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).
[27] The nature and duration of orders made under s 1323(1) can be fashioned by the court to reflect its assessment of any risk of dissipation of the assets of a person under investigation. But their legitimate purposes can go further. The interests of aggrieved persons may be protected not only by orders designed to protect dissipation of assets, but also by orders which create an opportunity for the assets of the person under investigation to be ascertained.
62 Importantly, French J there emphasised the absence of any requirement the Court ascertain that the assets in question are at a risk of dissipation before exercising its power: see also Re HIH Insurance Ltd (in prov liq); Australian Securities & Investments Commission v Adler (2001) 38 ACSR 266, [6]-[7]. That said, the principle that the overriding concern in the exercise of the discretion under s 1323 is the protection of assets for the benefit of those who might become entitled to them, focuses attention on the security of the assets which are subject of the application which, in turn, requires consideration of the manner in which similar assets have been dealt with by the relevant person in the past. It was for this reason that in Adler, Santow J (at [7(b)]) observed that a prior misappropriation of assets supports the appointment of a receiver.
63 In light of the above, the observations of Merkel J in Australian Securities and Investments Commission v Marshall Bell Hawkins Ltd (2002) 43 ACSR 340, [13]-[14] astutely describe the considerations which ought be taken into account when exercising the discretion:
The purpose of the remedies provided in s 1323 is to protect the interests of persons who might have claims against the relevant corporations, irrespective of whether those claims are based on a breach of a law relating to corporations or arise under the general law. That purpose is usually achieved by securing the assets of the relevant corporation against which the claims may lie for the purpose of providing security for those claims or for securing assets for which that corporation may be liable to account in respect of such claims. In considering whether it is necessary or desirable to appoint a receiver and manager the court should recognise the “drastic nature” of such an appointment, which should only be made in exceptional or special circumstances, after careful scrutiny and after less drastic remedies, including a Mareva injunction, have been considered. The circumstances where a receiver and manager may be appointed include where potential or actual claimants are being protected from incompetence, where there have been persistent breaches of trust caused by “an undeveloped sense of trusteeship” or from fraud. Thus, proof of actual or apprehended fraud is not a pre-condition to the appointment of a receiver and manager under s 1323.
Of particular relevance in the present case is the observation by Finn J in AS Nominees at 512 that an appointment of a receiver and manager may be appropriate where there have been serious and persistent breaches of trust and conflicts of interest resulting in the trust funds being subject both to depredation and dissipation.
64 Mr Perry QC for the defendants placed substantial reliance upon the observations of Atkinson J in Australian Securities & Investments Commission v Arafura Equities Pty Ltd (2005) 56 ACSR 429, [33]-[34] and, in particular, her Honour’s observations that, in considering whether it is necessary or desirable in order to protect the interests of creditors, the existence of a substantial shortfall between monies invested in the scheme and monies left in the scheme is a significant factor. Her Honour also acknowledges that the appointment of a receiver is a drastic remedy and will be utilised to protect the interests of persons where a lesser remedy is not adequate. Her Honour, though, did recognise that, if a party was undoubtedly operating an unregistered scheme in contravention of the Act, it ought to be wound up.
Application to this matter
65 In this matter the jurisdictional prerequisites for the exercise of power are satisfied in that:
(a) ASIC has commenced and is carrying out an investigation under the ASIC Act and the investigation is in relation to an act or omission that constitutes, or may constitute, a contravention of the Act.
(b) An application has been made by ASIC for one or more of the orders that may be made under the section.
66 Whilst it is not necessary ASIC establish a prima facie case that the defendants have committed a contravention of the Act, the strength of any case advanced by ASIC is relevant to the discretion. Where a strong case is shown to exist, a Court will more readily exercise the power because it can be satisfied that it is more likely assets in the defendant’s hands are in need of protection. Similar considerations apply in relation to the seriousness of the breach. Technical contraventions of minor provisions are less likely to induce a Court to act than are serious and persistent ones.
67 Here, ASIC has established at least a prima facie case that Linchpin and Endeavour have engaged in contraventions of the Act. In relation to the former it is presently apparent there have been breaches of ss 911A, 911B and 1041H of the Act and s 12DA of the ASIC Act and, in relation to the latter there have been breaches of ss 208 (as modified by s 601LC), 601FC(1)(b), (c), (h) and (k), 912A, 1013(d)(1)(c) and (f), 1013E and 1017B of the Act.
68 In the light of that, receivers ought to be appointed to the property of Linchpin for the following reasons:
(a) Linchpin has engaged in serious breaches of s 911A and 911B by issuing interests in a managed investment scheme without authorisation. It did not hold an AFSL or any relevant authorisation under one. Such a contravention has been admitted in part, however, it appears Linchpin has been committing this breach since the establishment of the fund as at no time whilst it was issuing interests did it hold authorisation to do so.
(b) The contraventions by Linchpin are, of themselves, serious. There exists an extensive licencing regime under the Act for the authorisation of appropriate persons to engage in the management of such schemes. It operates to protect the public and maintain the integrity of the financial services sector. It follows the unauthorised operation of schemes undermines the rigor of that regime.
(c) The underlying nature of the transactions identified by ASIC are very concerning. They involve the making of loans beyond of the scope of those identified in the Information Memorandum in terms of the identity of the entities to whom loans might be made and the terms on which they should be provided. On the material it is likely the loans in question were made in breach of the trust on which the funds were held. It is also likely they were made in breach of the fiduciary duties owed to the members. These apparent contraventions are exacerbated by the fact they appear to have conferred advantages on Linchpin and its subsidiaries.
(d) The improper conduct has been systematic and has involved what appears to be almost the totality of the Unregistered Fund.
…
112 ASIC argues that the following factors are firmly in favour of appointment. First ASIC argues that Mr Marco has made admissions regarding his failure to obtain and hold an AFSL. Putting to one side the Marco 2020 affidavit, in the Marco December 2018 affidavit as noted above (at [26]), Mr Marco conceded that his then current lawyers had advised him that even though he was not providing any form of financial advice, by investing his clients’ funds with the intention of generating a financial return for them, he was dealing in a financial product and therefore providing a financial service and, accordingly, had been required to hold an AFSL. This concession, ASIC says, was inevitable having regard to the terms of s 911A(1) of the CA and relevant ancillary provisions in Ch 1 and Ch 7.
113 On the evidence produced by ASIC (as set out at [36]-[71]), there is no doubt that Mr Marco has operated, and may continue to operate an investment scheme whereby he applied the contributions of investors in order to generate a financial return. The net result of these activities to date is that Mr Marco may be indebted to as many as 132 investors, possibly in an amount exceeding $240 million. Investment contributions were made to Mr Marco, in most cases, by the execution of the Trust Document which purported to specify a rate of financial return on each investment.
114 ASIC contends that by a systematic and repetitive receipt of funds pursuant to the Trust Documents and the intended or actual investment of those funds, Mr Marco was carrying on a financial services business.
115 As to AMS, it derives its income from several properties purchased using pooled funds received by Mr Marco from investors. There is also evidence of related party transactions between the accounts of Mr Marco and AMS. Mr Marco is the director, company secretary and sole shareholder of AMS and the other director is his son, Mr Damon Marco. In relation to the deployment of investor funds in the acquisition of property by AMS, the evidence of related party payments from Mr Marco to AMS and Mr Marco’s involvement in AMS as a director, secretary and sole shareholder, ASIC contends that AMS was also involved in the financial services business operated by Mr Marco or that the business was carried on in conjunction with AMS within the meaning of s 19 and s 20 of the CA.
116 ASIC’s application does not depend on receipt into evidence of material in the unread 2020 affidavit of Mr Marco. I am satisfied that the contentions advanced for ASIC are established adequately for present purposes on its own evidence. The evidence from Ms Lim also confirms that Mr Marco has never held an AFSL and the position is the same with AMS. ASIC contends there is a strong prima facie case (although it is unnecessary to determine this) that Mr Marco and AMS have carried on a financial services business without holding an AFSL in contravention of s 911A of the CA.
117 In addition to this, there is some evidence, ASIC contends, of continuing breaches of s 911A of the CA since commencement of the proceedings. The variation of a financial product amounts to dealing in a financial product for the purposes of s 766C(1) of the CA. ASIC contends that by a pro forma letter sent by a number of investors to Mr Marco requesting rollovers on their investments, that Mr Marco made variations to a financial product. I am not satisfied that ASIC has produced any evidence of such investments actually being rolled over by Mr Marco. There is other evidence however of ongoing activity in that Mr Marco has sent various updates to investors in which he refers to ongoing investment activities. On the evidence referred to above, there are seven such updates:
(a) on 22 December 2018, Mr Marco told investors ‘we are working diligently as possible over the Christmas and New Year period to accumulate funds from as many of our contracts as possible’. He said that ‘when the funds were accumulated, hopefully in January 2019, application would be made to ASIC again through the Federal Court to allow the funds to be released to our investor group’;
(b) on 23 January 2019, Mr Marco told at least one investor that he had a ‘monetisation contract’ that should deliver payment before the end of January and a joint venture agreement that will result in funds being paid monthly over a 40 week period and a contract with another institution resulting in monthly payments being received over a five year period. Indeed, he said that his ‘aim was to have a minimum of AUD$50 million before asking ASIC to begin distribution to our investor groups’. That he thought would be achieved ‘within the next 10 days’;
(c) on 25 March 2019, Mr Marco told investors that ‘we are in progress to receive programme funds towards the end of this week (UK time) and in April for the purpose of investor distribution’. He said that he was attempting to group funds to such a level that monthly disbursements can be made;
(d) on 18 April 2019, Mr Marco told investors that ‘we are continuing to group funds throughout the month of April through private placement, monetisation contracts, various international loans, rental income, interest income and the sale of four family property holdings’. He referred to three private placement and monetisation contracts that were ‘in play’ for assuring investors ‘[v]ery soon we should have enough payments into our account to allow us to go to ASIC and ask for distribution to investors’;
(e) on 7 May 2019, Mr Marco informed investors that there were still significant private placement and monetisation contracts that were current and that once the programmes were realised, they would pay monthly distributions which ‘we intend to send to everyone’. He indicated that he had ‘applied for loan facilities using a complex process of bank instruments security in an attempt to produce funds quickly and distribute to investors’
(f) on 14 June 2019, Mr Marco told investors that the funding arrangements and private placement contracts in place were all current and progressing through to realisation of funding;
(g) on 12 July 2019, he gave investors details of three particular private placement programmes. As to the first, Mr Marco said he had ‘been issued with the activation codes and a method of payment receipt’. As to the second, he said it had ‘commenced trade’. In relation to the third, Mr Marco advised that he had ‘been accepted into this programme and trading is scheduled to commence next week’. Further details were provided of the three alleged funding facilities, Mr Marco stating that all of the providers of programmes and funding facilities were aware of his circumstances and had so far been extremely supportive in assisting him to bring about a result for investors.
118 ASIC contends that the variation to the terms of the investments held by Mr Marco in accordance with the pro forma rollover template and his repeated representations regarding apparent investment activity give rise to serious concerns about further contraventions of s 911A of the CA. I give little weight to the purported evidence that investments were in fact rolled over, as ASIC has only produced a number of letters of rollover requests from investors. However the representations made by Mr Marco and set out in the previous paragraph certainly give rise to concerns that he is at the very least, purporting to continue to arrange returns to investors by various ongoing means.
119 In contrast to these assurances, ASIC says that the evidence establishes that Mr Marco has not achieved any material investment returns and there is presently a significant shortfall between the assets of Mr Marco and AMS on the one hand and Mr Marco’s liability to investors on the other. An analysis of the defendants’ bank statements since January 2010 does not appear to show any material deposits being received as a result of returns on any of the purported investments. ASIC says that during the period from 1 May 2018 to 31 October 2018, Mr Marco obtained investor receipts of $45,291,634 and paid out $35,196,997 to investors as calculated by Mr Gomm. During the same period, Mr Marco received returns of less than $100,000, none of which appeared to be related to his alleged investments in ‘private placement programmes’. No material investment returns were received by AMS during that period, as explained by Mr Gomm, nor were any significant investment returns disclosed in the accounts of Mr Marco or AMS during the period from 1 November 2018 to 29 November 2019.
120 ASIC contends there is no reasonable prospect that any material investment returns are likely to be realised by Mr Marco. It says the Court cannot be satisfied on the evidence before it that the so-called private placement programmes Mr Marco hopes will generate a return to bridge the Scheme’s significant asset shortfall are bona fide investments which are likely to come to fruition. Amongst other matters, ASIC says the Court should have regard to the following five factors:
(a) Mr Marco’s failure to generate any substantive returns from apparent involvement in any such programmes to date;
(b) as the investor updates make clear, Mr Marco has repeatedly assured investors that returns from the so-called ‘private placement programmes’ were imminent. Those repeated assurances were invariably unfulfilled and have become increasingly implausible;
(c) all returns to date that have been paid to investors have been made from funds contributed by other investors;
(d) Mr Caughey explained in his transcript of interview (relied upon by ASIC on the basis similar to that discussed in Carey (No 3) (at [32]-[[33]) that Mr Caughey ceased contact with Mr Marco after he confronted Mr Marco about contradictions in his communications to investors regarding the private placement programmes; and
(e) the commercial terms upon which the private placement programmes were based were inherently improbable and the explanations sought to be provided by Mr Marco are inherently implausible and contradictory.
121 To the extent that ASIC relies upon the Marco 2020 affidavit in relation to this material, I refer to my ruling at [22]-[34] of these reasons. I will not rely at all on that affidavit. Nonetheless it is clear in my view that at this interlocutory level the 5 factors relied upon by ASIC are established on the evidence that I have indicated I will receive.
122 ASIC stresses that regard should be had to a large number of related party transactions involving persons and entities who are related to Mr Marco and the expenditure from Mr Marco’s pooled investor account which is personal in nature. Mr Marco made clear in the Marco Disclosure affidavits that his ‘business’ has expended funds on real property, shares and unsecured notes and a collection of classic cars. Reference to these assets has been made at [50]-[56] of these reasons. ASIC’s evidence indicates that significant volumes of payments have been made from Mr Marco’s accounts, in which investor funds were pooled, for the purposes of Mr Marco’s living expenses and to related parties in respect of properties and motor vehicles.
123 Importantly, ASIC relies upon the absence of records relating to investor entitlements. ASIC’s evidence spells out at some length the absence of adequate records regarding investor entitlements. Ms Marrisen, Mr Marco’s executive assistant, referred to this topic in her compulsory examination when she explained that:
(a) aside from income spreadsheets which reflected the contents of bank statements and hardcopy folders maintained by Ms Marrisen containing declarations of trust, there was no way of identifying how many investors had invested with Mr Marco;
(b) despite being involved in the preparation of income spreadsheets, Ms Marrisen did not recall ever seeing any income from an investment that Mr Marco had made;
(c) investor funds were pooled with funds from private sources into one bank account from which all expenses, including both returns to investors and Mr Marco’s personal expenses were paid; and
(d) Ms Marrisen’s personal investment of $200,000, which was repaid in 2018, was documented by way of a handwritten note.
124 As noted above (at [56]), despite its extensive enquiries, ASIC has been unable to identify all of the investors who have provided funds to Mr Marco and to verify the amount invested by each investor, ascertain the investments made by the defendants on behalf of each of investor or verify the precise amounts owing to each investor, including accrued interest.
125 ASIC argues that the appointment of interim receivers or trustees to the defendants’ property is in the best interests of investors. The orders sought would permit interim receivers to identify property available for distribution to investors, to value that property and take steps to preserve it for distribution in the event that such distribution is ordered. The orders also facilitate the presentation of a report to the Court to inform the question of final relief in the proceedings, although ASIC has now, correctly in my view, stepped away from the need to rely upon any report as to potential CA or related breaches in an amendment to its proposed relief.
126 ASIC contends that in circumstances where it appears that investor funds have been expended on various real property acquisitions, development projects, personal property and related party transactions, there is considerable utility in appointing a specialist receiver now to make informed and professional commercial judgements about the optimal means by which to indemnify and preserve Scheme property. The appointment of an interim receiver would also obviate the need for repeated applications to the Court to seek variations to existing asset freezing orders. A specialist receiver, ASIC says, is well placed to exercise such judgement, especially in a case as factually complex as the present.
127 ASIC also contends that the interim nature of the remedy will preserve the status quo. It says that in the highly unlikely event that any real returns materialise from the various ‘programmes’ to which Mr Marco has made reference, a receiver could preserve the proceeds of any such return. While there is a cost associated with the appointment of interim receivers, ASIC submits that the best interests of investors are served by their appointment and that there is a high probability that work of the kind to be carried out by a receiver will be necessary, in any event, to facilitate the orderly cessation of Mr Marco’s Scheme and the return of funds to investors at some point in the future, at whatever level they may be, having regard to the significant shortfall in assets, the unlikelihood of any investment returns and his admissions regarding his failure to hold an AFSL at [23] of the Marco December 2018 affidavit.
Arguments in opposition to the appointment of receiver
128 Senior counsel for the defendants opposed the appointment of receivers on what might be fairly considered as pragmatic grounds, issues of principle and issues of fairness. The opposition does not engage to any extent with the contentions advanced against the defendants’ former or current practices and, as already noted, no reliance is placed on the extensive evidence and annexures contained in the Marco 2020 affidavit which was not read into evidence.
129 As foreshadowed above, the defendants contend that the appointment of receivers is unnecessary, unjustified and undesirable.
130 The defendants stress that the appointment of receivers has been variously descried as ‘an extraordinary step’, a ‘drastic step’ and ‘the most intrusive order’ that a Court can make in such a situation: Australian Securities & Investments Commission v Adler [2001] NSWSC 451 per Santow J (at [7]), citing with approval the statement by Austin J in Australian Securities & Investments Commission v Burke [2000] NSWSC 694 (at [8]). See also Australian Securities and Investments Commission v Carey (No 5) (2006) 58 ACSR 6 per French J (at [19]-[24]) and Burrup Fertilisers Pty Ltd v Oswal (No 4) [2011] FCA 1503 per McKerracher J (at [29]). This is particularly so where the assets of the defendants are already protected for the benefit of the investors and the creditors by the freezing orders.
131 The defendants contend there is no evidence before the Court that any of the defendants’ assets are currently at risk of either depletion or being removed. Without that evidence, the appointment of receivers simply cannot be justified in light of the current freezing orders.
132 The defendants contend that ASIC’s justification for the appointment of receivers is unconvincing. Reference is made to the arguments that a receiver will:
(a) protect investor interests in the Scheme and AMS;
(b) assist the Court in hearing ASIC’s application for final relief, given that the interim receiver will provide the Court with a report; and
(c) relieve the Court of having to determine what personal and operating expenses should be paid out of investment moneys.
133 With respect to the first of those matters, the defendants argue that the investors’ interests are protected while the asset freezing orders are in place. That protection is afforded without the considerable costs which receivers would impose. In that sense, it is argued that any alleged benefit of the receivers to investors is reduced by the need to cover the costs of such receivers.
134 As to the orders that the receivers produce a report on the defendants to the Court and the parties, ASIC contends that any such report should:
(a) identify the assets and liabilities of the defendants;
(b) provide an opinion as to the solvency of the defendants;
(c) assess the likely return to creditors, including investors, in the event that the Scheme is wound up; and
(d) identify any other information necessary to enable the financial position of the defendants to be assessed.
135 In considering such orders, the defendants argue that the Court must have regard to the already extensive investigations undertaken by ASIC in the 16 months since the freezing orders have been in effect. As noted above, (at [46]-[47]) this has included numerous compulsory and voluntary examinations, the production of some 80,000 documents and the engagement of forensic accountants. In this context, the defendants argue that it is unclear what further benefit a report from the receivers would add. They contend instead, that ASIC is attempting to achieve final relief ‘by the back door’ by pressing for interim receivers to report on the solvency of the defendants and any likely return to investors.
136 A further objection is raised by Mr Marco to the effect that the appointment of a receiver is undesirable because the proposed orders provide that the corporate receivers will have certain powers granted to them under s 420(1) as set out at [13] above and s 420(2) of the CA. The latter, sets out powers the receiver may have ‘for the purpose of attaining the objects for which the receiver was appointed’.
137 It is not clear, the defendants contend, from the application and proposed orders what the objectives of the corporate receiver are except for the provision of a report on the matters noted above. It is not at all clear, they say, what the receiver is to do that ASIC with its vast array of powers could not do. The defendants argue that the orders do not allow the corporate receiver or the individual receiver to sell, let or encumber any of the property. It is not clear what further benefit the receiver can add as the assets are already identified, preserved and secured. Rather, ASIC wants the receiver for the sole purpose of providing a report to the Court as to the assets and liabilities of the defendants and the likely return to creditors. Again, the point is raised that the appointment of receivers is effectively final relief by the backdoor.
138 Mr Marco argues there are other substantial difficulties with the form of the orders sought. There is no provision as to from whom the receivers are to obtain instructions. If the receivers seek legal advice, on whose behalf do they seek the advice? Those intricate issues are not addressed, it is said, by ASIC. If ASIC is to be the receiver’s master, it should not proceed on the ‘watch and see’ basis. That has the prospects of generating unfair outcomes from the perspective of costs incurred in the gathering of material to advance ASIC’s cases both present and foreshadowed.
139 Although ASIC asserts the appointment of receivers and the provision of the report to the Court will provide both the Court and the investors with an ‘independent assessment of the identity, value and location of all assets held by the defendants’ that is not the purpose of proceedings under s 1323 or s 1101B(5) of the CA, the defendants argue. Those sections allow for receivers to be appointed in order to maintain the status quo pending the finalisation of the investigation under s 1323 or the proceedings under s 1101B(1).
140 The defendants also argue that ASIC wrongly characterises the nature of the application originally brought. There was no ‘final relief’ as sought in the current proceedings insofar as the defendants’ liability is concerned. The defendants’ liability should be determined in separate proceedings, according to the defendants. The freezing orders have maintained the status quo as required under s 1323 of the CA and ASIC has had more than enough time, the defendants say, to get its case in order. It should proceed without further depletion of the defendants’ assets. Especially in the present circumstances where Mr Marco argues there is no evidence before the Court that any of the defendants’ assets are currently at risk of depletion or being removed. The defendants also argue that if ASIC requires a report to be provided to the Court to substantiate its applications for final relief, then that report should be provided at ASIC’s cost. It should not be done by a receiver whose costs would be paid out of the defendants’ property. The cost to ASIC for prosecuting any case, civil or criminal, against the defendants should not be a cost borne by the defendants, their creditors or the investors. (On ASIC’s own evidence, the defendants point out that the hourly rates of the proposed receivers are $660 plus GST for a partner, $175 plus GST for ‘administration’ and $180 plus GST for an ‘undergraduate’).
141 The defendants contend that, if despite their opposition, receivers are appointed then the entire cost of that appointment should be borne by ASIC, including the cost of any report. It is noted that in Carey (No 5), French J, who in Carey (No 3) made orders for the appointment of receivers, required the receivers’ remuneration to be met by ASIC, saying (at [7]):
In my opinion the receivers’ remuneration should be met by ASIC for the time being. I am also concerned about the impact that providing for the remuneration of the receivers out of the assets of the defendants may have upon the no doubt already parlous position of creditors of each of the defendants. I will therefore not make the orders sought by ASIC but give it liberty to apply at a later time, if circumstances change, for an order that it be indemnified out of the assets of the defendants for the costs of the receivers. …
(Emphasis added.)
142 The defendants point to the fact that ASIC asserts there is a shortfall in the assets with no reasonably foreseeable prospect of returns to investors. It follows that the most important question is why ASIC wishes to use available moneys to fund receivers to the detriment of investors. The defendants say that whatever inconvenience ASIC may perceive or dislike about the current process of varying the freezing orders cannot validate the appointment of receivers. ASIC should not be allowed to appoint receivers in its quest to pursue a criminal prosecution. Any difficulty asserted by ASIC about challenges in locating records is surprising, the defendants say and, in any event, cannot validate the making of such a drastic order. This is particularly so in circumstances where the assets are being preserved by freezing orders. Again, it is unclear what the receivers would do that ASIC cannot do or has not already done. ASIC shows its true hand in its written submissions, the defendants say, when it asserts that:
the appointment of interim receivers or trustees with the power set out in the proposed orders … would … provide an appropriate reporting mechanism to the Court, … and further costs would not be incurred in making frequent approaches to the Court to vary the ASIC [freezing] orders.
143 In summary, the defendants complain that ASIC is seeking to have private receivers complete the task it began, but has not yet finished and to do so at the expense of the defendants and to force the burden of variations to freezing orders it obtained ex parte entirely onto the defendants. That is not appropriate nor is it desirable, according to the defendants.
144 In terms of the process that is currently in place, the defendants have to date made 23 applications for variations to the original asset freezing orders for payments to be made outside of the terms of the order. Eighteen of those applications have been made with the consent of ASIC. The defendants say that ASIC has shown itself able to proceed reasonably and that this is a process which benefits the defendants’ creditors and the investors. If the receiver took over the conduct of this process, it would be costly and inevitably deplete the defendants’ assets.
145 Mr Marco adds the receivers as part of their normal business terms will likely require an indemnity. The orders do not state who will provide such an indemnity. It cannot be the defendants and the indemnity should not come out of the assets of the defendants. ASIC has not stated it is prepared to provide the receivers with an indemnity.
146 The defendants stress that numerous cases have recognised the prejudicial aspect of the appointment of a receiver. Clearly it can be detrimental not only to the person whose property is subject to the receivership, but also to their creditors. This was acknowledged by French J (as his Honour then was) in Australian Securities and Investments Commission v Carey (No 14) (2007) 158 FCR 92 (at [33]-[34]) and the fact that the appointment of a receiver might inflict significant damage on an ongoing business and to third parties: see also recently Australian Securities and Investments Commission v CFS Private Wealth Pty Ltd [2018] FCA 1070 per Reeves J (at [36]). There is simply no evidence before the Court, it is argued, to substantiate any belief that the defendants’ assets will be turned over or dissipated, even though they are subject to the freezing orders. There is no justification for the additional imposition on the defendants of the appointment of a receiver. The defendants argue, consistently they say, with the observations of Pape J in Waldron v MG Securities A/asia Ltd [1975] VR 508 (at 537-538), that, as it is accepted that the defendants’ property and assets should be available to meet the claims of the investors, the views of the investors should be heard and given weight.
147 In that regard, investors will be unfairly prejudiced, the defendants say. The Court must, for the purpose of s 1101B(5) of the CA, consider, not only whether it is ‘desirable’, but also whether the requirements in s 1101B(1) that the Court must be satisfied that the order would ‘not unfairly prejudice’ any person.
148 Once again, it gets back to the question of costs. If receivers are appointed, the defendants say the costs, according to the orders sought by ASIC are to be taken out of the defendants’ property, which would otherwise be available to the investors and the creditors of the defendants. There is no doubt that to do so would be prejudicial in terms of their likely recoveries from the defendants’ assets. It is unfair because the appointment of receivers would lessen the amount of assets available to pay out the investors.
149 The expression ‘unfairly prejudicial’ has been considered in the context of the Court’s termination of a deed of company arrangement pursuant to s 445D and s 445GA(3) of the CA in Gjergja & Atco Controls Pty Ltd v Cooper [1987] VR 167 in the context of the Companies (Acquisition of Shares) (Vic) Code, where McGarvie J stated (at 173):
The word “prejudice” is used in the sense of disadvantage. I consider the adjective “unfairly” conveys that an order which “prejudices” a person is only to be made if upon taking into account the very circumstances and considerations which is proper to consider in the exercise of discretion, the order is regarded by the Court as providing the fair and just solution. Usually the exercise of a discretion “prejudices” someone. The governing consideration, the essence of a discretion is what the justice of the case requires. In other words, the order to be made is that which the judge regards as being the fairest order having regard to the various interests to be reconciled and the considerations relevant to the exercise of the discretion.
150 With the asset freezing orders already in place, the defendants argue that the appointment of the receivers would further deplete the defendants’ assets available to satisfy investors and so would not be the fairest order.
151 There is another important issue of principle, the defendants say, regarding the other aspect of ASIC’s investigations. Clearly, ASIC is still investigating the possibility of criminal proceedings. Ms Lim explains in Lim 1 that the current ASIC investigation is in respect of a suspected contravention of s 409 of the Criminal Code Act Compilation Act 1913 (WA) and s 373 of the Code. Ms Lim states that investigations by ASIC into the conduct of Mr Marco and other persons, which it suspects may also give rise to contraventions of the CA is ongoing. The defendants argue that the Court should be reluctant to allow civil proceedings to continue against a party who is or may be subject to a criminal prosecution which is ‘on the cards’, an expression adopted by Finkelstein J in Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd (2007) 164 FCR 487 (at [58]-[59]) and adopted in a number of subsequent cases, including Citation Resources Ltd v Landau [2016] FCA 1114 per McKerracher J (at [39]-[41] and [46]). The reluctance of the Court will be particularly marked where the civil proceeding seeks declarations in respect of the same impugned conduct. The expression ‘on the cards’ has been interpreted to mean something reasonably possible or a reasonable possibility. It does not matter that a decision has not already been made to send a brief to the CDPP: see Citation Resources (at [49]-[50]).
152 A number of these factors were considered in Citation Resources (at [52]-[54]), I considered in the circumstances of that case, that a criminal prosecution was ‘on the cards’. Adopting that approach to this matter, the defendants say there are a number of factors indicating criminal prosecution as against Mr Marco is certainly ‘on the cards’:
(a) ASIC has been investigating the matter for two years;
(b) ASIC obtained and has maintained freezing orders for the last 16 months;
(c) ASIC has conducted detailed investigations into Mr Marco relating to the same subject matter as these proceedings. The investigation is into a number of suspected contraventions constituting criminal offences, not merely regulatory offences;
(d) examinations in relation to those topics have consumed substantial time;
(e) over 80,000 documents have been obtained by ASIC;
(f) the allegations made in these proceedings, as with the investigations by ASIC, are serious allegations; and above all
(g) an ASIC officer has said, in an email annexed to Ms Sierakowski’s affidavit, that they are conducting a criminal investigation seeking to obtain witnesses and that they are gathering and examining evidence that will be presented to the CDPP, who will determine whether Mr Marco should be criminally charged.
153 There is a real possibility, the defendants say, of criminal prosecution being brought against Mr Marco. If the amendments to the originating process are permitted, as I have ruled they should be, Mr Marco would be entitled to apply to stay such proceedings. In those circumstances leave should not be granted to ASIC, the defendants say, to amend its originating application, at least until a decision has been made by ASIC as to whether or not it will proceed with a criminal prosecution. In any event, it may be seen that the appointment of receivers has the capacity to erode or complicate, to much disadvantage, Mr Marco’s privilege against self-incrimination.
154 ASIC argues that such privilege has been waived by Mr Marco’s previous affidavits and submissions filed in this and other proceedings in the Supreme Court. As noted above (at [21]-[22]), affidavits and submissions in this Court have been made in support of applications to vary the freezing orders brought under s 1323 of the CA and as required by the disclosure orders I made at the time of the freezing orders. ASIC contends that Mr Marco has not advanced any evidence of prejudice against him if these civil proceedings are expanded in the manner in which they now seek to expand them. Mr Marco points out that he, of course, does not need to state the specific matters or prejudice before seeking a stay of the civil proceedings. To require him to do so ‘would be to make the risk of prejudice a reality by requiring him to reveal information about his defence, the very situation which an order for a stay seeks to avoid’: Commissioner of the Australian Federal Police v Zhao (2015) 255 CLR 46 per French CJ, Hayne, Kiefel, Bell and Keane JJ (at [43]). Mr Marco argues the contours of the criminal case are not known. Especially when the criminal proceedings have not yet been brought, but are ‘on the cards’. Mr Marco is not able to articulate the prejudice he will or may suffer if these proceedings are amended to allow for the substantive relief now sought.
155 The defendants argue that although ASIC contends there is no overlap between the final relief sought in the amended originating process and the offences in respect of which Mr Marco is being investigated, the fact that the same relief is not sought in the civil and criminal proceedings is not relevant, Mr Marco contends. Even in those cases where the accused in criminal proceedings is not the defendant in the civil proceedings, a stay has been ordered because the prejudice to the party facing the criminal prosecution is brought about by having to give evidence at the civil proceedings: see for example, Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd [2019] FCA 964 (ANZ) per Moshinsky J (at [60]) and Ransley v Federal Commissioner of Taxation [2016] FCA 778 per Jagot J (at [21]-[30]). Mr Marco repeats the test as being whether the civil and the criminal proceedings arise out of the same or similar conduct, a question to which I referred in Citation Resources (at [40]); see also Re AWB Ltd (2008) 222 FLR 240 per Robson J (at [58]). The question is also whether there is an overlap between them in terms of the factual issues: ANZ (at [77]). The overlap is apparent here and stretches over the conduct of Mr Marco in regard to the procurement of funds from third parties for the purposes of entering into the private placement programmes. Mr Marco says that the determinative question is whether he may have to give evidence in these proceedings while facing the potential criminal proceedings. Mr Marco argues that it is not relevant why ASIC wishes to progress these proceedings, but rather whether he may be prejudiced in the defence of these criminal proceedings because of the requirement for him to give evidence and defend these proceedings, being the primary defendant and the controlling mind and will of AMS and AMS Trust.
156 The appointment of a receiver can readily be seen, Mr Marco says overall, to be undesirable from the perspective of the proper and fair operation of the privilege against self-incrimination.
157 Section 1101B(5) of the CA provides that before considering an application to the Court under s 1101B(1), the Court may make an interim order pending the determination of the application, if, in the opinion of the Court, is ‘desirable’ to do so. Mr Marco continues to stress that the proposed receivers come at a substantial cost and that such use of the funds available is not desirable. Although ASIC does not now seek an order that the receivers’ costs be met out of the defendants’ assets, it is clear that it has reserved the right to apply subsequently for such an order. The fact that ASIC is unprepared at this stage to say it will not seek such an order at all is a particularly relevant consideration, Mr Marco argues. But a further reason for the undesirability of the appointment is the pending criminal prosecution which ASIC does not deny is ‘on the cards’. ASIC argues that this point is premature because the Court has not been invited to make declarations of contravention at this stage.
158 Mr Marco stresses that ASIC’s suspicions that there are funds owed which do not appear to have been included in Mr Marco’s identification of assets or that the rental income is significantly less than rental income actually received prior to making the asset freezing orders is no proper basis for the appointment of receivers, Mr Marco says. ASIC has been investigating the matter for over two years and has wide and extensive powers.
159 The substantive argument for Mr Marco is that the fundamental question for the Court is whether it is desirable now at this stage of the proceedings to appoint a receiver and substantially amend the proceedings in the manner sought by an application which comes far too late in the context of criminal proceedings hanging over Mr Marco’s head and without any evidence that freezing orders have not been effective. To appoint a receiver now would incur costs which, more likely than not, in time would only diminish the funds available and expose Mr Marco to the risk of prejudice to his privilege against self-incrimination.
160 Shortly stated, the defendants’ original opposition based upon the costs of the receiver necessarily falling on the creditors and on the inappropriateness in this case of a report being prepared for the Court as to possible contraventions were sound reasons to question the appropriateness of the relief sought. As will be seen, ASIC has adjusted its relief to accommodate those objections, such that the defendants’ arguments carry less weight.
161 In reaching my decision, I have not had regard to the Marco 2020 affidavit nor the Marco December 2018 affidavit except for [23] and annexure CM-36 even though that evidence is available elsewhere.
162 The unanswered facts tend to suggest (not that a prima facie case is required):
(a) there is a potentially $200 million shortfall;
(b) there are no material returns to date;
(c) there is a real question of whether there will be any returns for investors in the future, despite repeated assurances by Mr Marco;
(d) there is an apparently quite incomplete record of current investor entitlements;
(e) there is quite inadequate record keeping generally;
(f) there is uncertainty as to the extent of the assets available to satisfy investors’ entitlements;
(g) there is unsatisfactory use of investors’ funds for the benefit of related parties and the acquisition of unconventional ‘investments’, such as motor vehicles;
(h) Mr Marco is still holding himself out as operating a financial services business in his assurance to his investors, yet is doing so without an AFSL and is doing so notwithstanding the asset freezing orders;
(i) there is an absence of any objective reporting to investors at an individual level as to their current position and what prospect they have to recover a return on their respective investments.
163 Senior counsel for the defendants has quite understandably chosen to argue opposition to the appointment of receivers on other points of principle, but given the change in position by ASIC on costs and reporting as to potential breaches, in that ASIC no longer seeks an order that the receivers’ costs be borne out of the defendants’ property or that they report on contraventions of the CA, the argument for the defendants is much more difficult.
164 The defendants complain that ASIC is seeking an interim receiver to be appointed so that the receiver can do the work that ASIC should have done. I can accept that there is some appearance of this objective, but that does not mean that the appointment of interim receivers would not also be for the benefit of investors, as well as – albeit to a lesser extent – ultimately the Court. Given the great volume of evidentiary material on which ASIC has relied in support of this application, it seems improbable that it is dependent in an evidentiary sense on investigations and conclusions reached by the receiver.
165 Of course, a very important question in this evaluation exercise is whether Mr Marco, or AMS for that matter, would be in some way prejudiced in terms of his or its right to silence in relation to any criminal investigation. It is difficult to see what form such prejudice might take in the present situation. As the defendants are at pains to stress, this investigation has been carried on for an extensive period of time and ASIC has apparently had access to all materials and has wide powers to enable it to gather such material. As is clear, the process of further enquiry is ongoing. But Mr Marco has already chosen to put on a very significant body of material for the defendants in this Court and the Supreme Court. Having regard to his decision to have taken that course and the substantial body of evidence that ASIC has gathered, it is unclear how the appointment of an interim receiver in proceedings which do not seek to establish a contravention or impose a pecuniary penalty would somehow expose Mr Marco to a risk as to his right to silence. The relief now sought does not require him to commit to any course which might jeopardise that right. No doubt, as is often the case, should that circumstance arise, it will be appropriately addressed by Mr Marco, his advisers and the Court. Until such time, the making of the orders sought by ASIC does not relevantly give rise to any such risk.
166 The functions of receivers at this stage where a very substantial body of the material has already been collected is quite different from an information gathering exercise for the purpose of preparing a brief to the CDPP. Further, in light of the changed reporting proposals advanced by ASIC and the fact that there is a separate ASIC team dealing with the criminal prospects, if I am sufficiently satisfied that the circumstances require the appointment of a receiver to protect the interests of investors as a whole, then the safeguards proposed by ASIC are sufficient in the circumstances to conclude that the appointment of the receivers will not expose the defendants to prejudice in relation to potential criminal proceedings. I will say more on this shortly.
167 The fundamental purpose of the appointment of interim receivers and the provision of their report on fiscal and property matters to the Court is that it will provide the Court and investors with an independent assessment of the nature, description, value and location of assets held by the defendants that would be potentially available to investors, including assets acquired with funds provided by investors, that may be held in the name of related family members and acquaintances. They will also be able to assess the position of offshore investments as well as the potential for recovery, reconciliation of the amounts owed to investors, and an opinion as to solvency and the likely returns to investors.
168 That there is a strong need for this independent assessment is apparent from the highly uncertain nature of the investment activities undertaken by Mr Marco and what appears to be a repeated failure over a lengthy period of time to generate material returns for most investors. There is also a serious concern, based on ASIC’s evidence, that the pooling of investor funds without adequate record keeping has meant that payment of some ‘returns’ to investors have come from contributions made by subsequent investors such that there now appears to be a shortfall in excess of $200 million between assets held by the defendants and amounts stated to be owed to investors. Despite this significant deficit and the freezing orders in place since 1 November 2018, Mr Marco continues to provide assurances to investors as disclosed in his investor updates and ongoing communications which, on the face of the current evidence, appear to be very dubious.
169 Although the defendants have not sought a stay of these proceedings in their current or amended form, I am not satisfied that the fact that a criminal prosecution against Mr Marco is ‘on the cards’ would of itself entitle the defendants to a stay of the present proceedings in the circumstances of this litigation. As I say, the defendants have not sought a stay, but do rely upon authorities referrable to a stay to support opposition to the appointment of receivers on the basis that, assuming a prosecution against the defendants is ‘on the cards’, the interim receivers should not be appointed. Accepting for the purpose of this argument that the possibility of a criminal prosecution is ‘on the cards’, a court will not grant a stay of civil proceedings purely because related charges have been brought against an accused and criminal proceedings are pending: Zhao (at [35]), Construction, Forestry, Mining and Energy Union v Australian Competition and Consumer Commission (2016) 242 FCR 153 per Dowsett, Tracey and Bromberg JJ (at [22]) (CFMEU), Gypsy Fire v Truth Newspapers Pty Ltd (1987) 9 NSWLR 382 per Hunt J (at 386-387) and McMahon v Gould (1982) 7 ACLR 202 per Wootten J (at 206-207). At this stage, there is a criminal investigation ensuing. ASIC has not determined whether it will provide a brief for a prospective criminal prosecution to the CDPP. Nonetheless, I accept that it is ‘on the cards’. As pointed out in Zhao (at [47] and [50]) and CFMEU (at [22] and [60]-[63]), the risk of prejudice identified by an applicant must be weighed against the prejudice that a stay of the civil proceeding would occasion. Matters relevant to the exercise of discretion are not rigid or closed and the factors identified in the authorities are not proscriptive or exhaustive, nor is a weight to be attached to them: ANZ per Moshinsky J (at [63]) and Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2016] FCA 504 per Middleton J (at [51]).
170 As noted, in these civil proceedings, no civil penalties are sought against the defendants. The relief sought is directed to ensuring that investors’ interests are protected and the assets acquired by the defendants with their funds are distributed expeditiously. It follows that the question of any criminal proceedings that may be brought against Mr Marco are fundamentally different to the objective of this civil proceeding. They would be different also to subsequent civil penalty proceedings. Mr Marco has not exercised a right to silence in this proceeding. He has filed numerous affidavits, most of them have been read and are now in evidence. Only the Marco 2020 affidavit has not been read. In the circumstances of this case, given the need to protect the investors, it is difficult to see how Mr Marco’s rights could be eroded, either in respect of prospective criminal proceedings or in these proceedings. This case is similar in nature to the circumstances on which Austin J commented in Burke (at [8]), cited with approval by French J in Carey (No 3) (at [29]) in which Austin J commented that the extraordinary step of appointing a receiver may be justified even though a mareva order is already in place (such as the present freezing orders). His Honour said:
where there is real doubt about the existence and location of assets, such as investments, and about the number and identity of claimants and the nature of their claims and in circumstances where the defendants are engaged in business activities entail that any mareva order must allow assets to be turned over in the course of business. Those matters in combination, and especially where there are allegations of serious fraud involved, may lead the Court to conclude that a mareva order or freezing order is insufficient to ensure the preservation, protection and identification of assets for the benefit of investors.
171 I am not satisfied that leave to amend or the appointment of interim receivers should be refused on the basis that there is an ongoing criminal investigation or that criminal charges are ‘on the cards’. In this proceeding, the Court is not being invited to make declarations of contraventions at this stage. Secondly, neither the amendment of the originating process nor the appointment of an interim receiver compels Mr Marco to give any evidence. He has, within his rights, declined to do so in this application. But, in any event, he has previously relied upon extensive affidavit evidence at previous stages of these proceedings without raising the question of any potential privilege and without raising a risk as to his privilege against self-incrimination.
172 As to the appointment of an interim receiver, when asset freezing orders are already in place, there is no material distinction as to the timing of the asset freezing orders. In each of the cases adverted to on behalf of Mr Marco, the same argument would apply. There was an asset freezing order in place which would mean that the risk would be mitigated. There is, however ample precedent for the appointment of interim receivers when asset freezing orders are still in place, notably Carey (No 3) per French J (at [26]-[29]), Burke per Austin J (at [8]), Linchpin (at [60]-[63]) and as noted by Merkel J in Australian Securities & Investments Commission v Marshall Bell Hawkins Ltd (2002) 43 ACSR 340 (at [13]), adopted by Derrington J in Linchpin (at [63]):
… The circumstances where a receiver and manager may be appointed include where potential or actual claimants are being protected from incompetence, where there have been persistent breaches of trust caused by ‘an undeveloped sense of trusteeship’ or from fraud.
173 In my view, these observations are particularly apposite to the present circumstances, as is clear from the poor record keeping, the ongoing assurances to investors in circumstances where such assurances are manifestly misplaced, the usage of investors’ funds in non-arms-length transactions and the use of investors’ funds in unconventional purchases such as ‘classic cars’.
174 The only inference open on the evidence at the moment is that there is likely to be a substantial shortfall between promises made by Mr Marco and funds available to meet those promises. These conclusions can easily be reached on the strength of ASIC’s own material and affidavits previously read in these proceedings. In particular, Lim 1 reveals that:
(a) Mr Marco paid significant deposits to offshore entities in an attempt to pursue private placement programmes’;
(b) Mr Marco has to date apparently been unable to recover those deposits and has not received any of the returns that have been represented in the documents; and
(c) this is contrary to Mr Marco’s expectation in the Marco Disclosure affidavits that he would receive income from each of the investment programmes in the 12 months following the date those affidavits were sworn, being 26 November 2018.
175 There is a significant body of material from which the only real inference can be that investors are likely to lose a substantial portion of their funds from which it might be inferred that the investments have been poorly placed, including into funds which cannot be described as legitimate or bona fide ‘private placement programmes’, such as the McArthur River Mine Agreement and the supposed Acapulco Trade & Investment Instrument. ASIC’s evidence also reveals that the rental income was significantly less than rental income received prior to the making of the asset freezing orders and significantly less than rental income forecast by Mr Marco and AMS.
176 There is some evidence that Mr Marco’s preferred course appears to be to continue to engage in the carrying on of a financial services business through investment activities as opposed to taking reasonable steps to seek to recover investments made prior to the making of the assets freezing orders. Again, evidence on this topic has been set out above from the ASIC affidavits, rather than any purported admissions on which ASIC would seek to rely. His own investor updates produced in evidence from ASIC have revealed that Mr Marco’s attempts to realise any of the alleged private placement programmes have been unsuccessful and that he is continuing to operate a financial services business. They also show that there are communications to investors which have not presented any realistic assessment of a likelihood of recovery on investments. Mr Marco has continued to paint a blue sky picture to investors in his communications.
177 In making these observations, I do not rely upon any of the material produced by Westpac under subpoena. It is apparent from the extensive material relied upon in ASIC’s own evidence.
178 Against this unhappy backdrop, there is also, evidence of very poor record keeping and serious deficiencies in the allocation of investors’ entitlements as detailed in Mr Iriks affidavit of 12 December 2019.
179 As noted by Tottle J in Markopoulus, there appears to be a serious dispute between some investors and Mr Marco as to the nature of the obligations he assumed with respect to each of the investments. The content of that judgment supports a suggestion that the appointment of interim receivers is necessary and desirable. The judgment and orders were obtained notwithstanding the existence of the asset freezing orders.
180 The ASIC evidence from within Mr Marco’s ‘own camp’ as to the inherent complexity and ambiguity in the ‘private placement programmes’ is highlighted by the evidence from Mr Caughey and concerns he raised with Mr Marco about the explanations Mr Marco had given to him.
181 It is desirable, in my view, to appoint interim receivers in a circumstance where, in the period from 1 November 2018 to 30 November 2019, notwithstanding the freezing orders, the balance of the account maintained by the defendants reduced from AUD$1,829,915.69 subject only to a net receipt of USD$1472.59, according to the evidence in Gomm 1. There is reason to infer from the amendments to the freezing orders, particularly those made on 18 March 2019, 21 May 2019 and 7 July 2019, that the defendants have continued be particularly active in commercial transactions, including, as an example, construction payments with respect to 151-153 Scarborough Beach Road of some $798,063.43 to Building Workshop.
182 An independent receiver appointed on an interim basis would be better placed than Mr Marco to undertake commercial decision-making with respect to such payments, having regard to the interests and benefit of all investors.
183 Orders will be made largely in accordance with ASIC’s amended minute. I have not yet made provision for costs of this application despite ASIC seeking that they be paid by the defendants from their assets. I will hear the parties further on that topic in light of the reasoning herein. That issue will be determined on the papers.
184 I should emphasise that one of the significant factors in my reasoning in reaching this conclusion is the fact that the costs of the receivers would be met by ASIC, rather than the defendants and I anticipate any indemnity sought by the receivers would be given by ASIC. Should ASIC subsequently apply for the payment of such costs to be refunded, it should be borne in mind that, at least as far as my assessment of the matter is concerned at this stage, there would have been doubt as to the desirability of the appointment of an interim receiver if the receiver’s costs were to be, in effect, borne by the investors through reduction in the value of the assets of the defendants.
185 There is one final matter. In a separate interlocutory application filed after this interlocutory application was heard, the defendants have sought a variation of the freezing orders to permit payment of certain not insubstantial legal costs incurred in association with defence of the proceedings in the Supreme Court. The application is opposed by ASIC. I would ask the parties to take into account the orders accompanying these reasons in considering the appropriateness or otherwise of the variation orders that are sought.
I certify that the preceding one hundred and eighty-five (185) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. |
Associate:
