Federal Court of Australia

Australian Securities and Investments Commission v NGS Crypto Pty Ltd (No 3) [2024] FCA 822

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory orders sought in paragraphs 1, 2, 3, 4, 5 and 6 of the interlocutory application filed on 27 May 2024 be refused.

2.    Costs be reserved.

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

REASONS FOR JUDGMENT

COLLIER J:

1    Before the Court is an interlocutory application filed on 27 May 2024 by the third and fifth defendants (interlocutory application) filed in QUD 178 of 2024 Australian Securities and Investments Commission v NGS Crypto Pty Ltd ACN 624 825 065 & Ors. The third defendant, NGS Group Ltd (HK Company Number 19639490) (NGS Group HK) and its sole director, Mr Mark James Ten Caten (Mr Ten Caten) jointly filed the interlocutory application seeking to set aside or vary the Orders made on 10 April 2024 by Meagher J, which themselves were varied on 30 April 2024 by Derrington J.

Background

2    The matter first came before the Court by an originating application filed on 9 April 2024. The plaintiff, Australian Securities and Investments Commission (ASIC) urgently sought orders ex parte against six defendants pursuant to ss 1101B, 1323 and 1324 of the Corporations Act 2001(Cth) (Corporations Act), and ss 19, 21, 23, 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act).

3    The matter was heard by Meagher J on 9 April 2024. On 10 April 2024 her Honour made interim receiver and asset preservation orders appointing

Anthony Norman Connelly, Katherine Sozou and William James Harris of McGrath Nicol… as joint and several receivers and/or receivers managers (Receiver), without security, over the Digital Currency Assets, whether within or without the State of Queensland, for the purpose of identifying and securing the Digital Currency Assets.

4    Further orders were made by her Honour ex parte in the nature of short service orders, asset preservation orders, asset disclosure orders, travel restraint orders on the fourth defendant, service orders on third parties, non-publication orders and non-party access orders.

5    Her Honour published reasons for Judgment referable to those orders in Australian Securities and Investments Commission v NGS Crypto Pty Ltd [2024] FCA 373.

6    On 22 April 2024, the sixth defendant (the sole director of the second defendant) filed an interlocutory application seeking a variation to the 10 April Orders, to allow him limited access to the Digital Currency Assets to meet his day-to-day living expenses, his legal expenses in relation to the proceedings before the Court, and to complete a property transaction.

7    On 30 April 2024 Derrington J made Orders allowing for variation of the Orders of Meagher J, relevantly including:

35    The method of allowing access to the funds is that Mr Brown must apply to the receivers for payment of the $6,000 a month and for the $135,000 necessary to complete the contract for the purchase of the land. In relation to obtaining funds for his legal expenses, Mr Brown should submit to the receivers his legal bills as and when they arise, and the receivers, using their professional judgement, can determine whether the amount in question is reasonable. Any dispute about any payment can be brought back to the Court.

8    Further background details to the present proceedings were set out by Derrington J in Australian Securities and Investments Commission v NGS Crypto Pty Ltd (No 2) [2024] FCA 521 at [5] – [11].

THe Application of the third and fifth defendants

9    The third and fifth defendants primarily sought orders from this Court rescinding or discharging the Orders made on 10 April 2024 by Meagher J, as varied on 30 April 2024 by Derrington J (the existing orders). They primarily sought relief in the following terms:

1.    Pursuant to the general jurisdiction of this Honourable Court to control its own processes rescind and fully discharge the orders made by the Court on 10 April 2024, and varied on 30 April 2024 (Freezing Orders).

2.    Further or alternatively, pursuant to section 1101B(11) of the Corporations Act, the Freezing Orders be rescinded.

3.    Further or alternatively, pursuant to section 1323(5) of the Corporations Act, the Freezing Orders be discharged.

4.    With effect from 6:00am on 12 June 2024, the appointment of the jointly and severally receivers and/or receiver managers, Anthony Norman Connelly, Katherine Sozou and William James Harris of McGrath Nicol, Level 15, 175 Eagle Street, Brisbane in the State of Queensland (Receivers) cease.

5.    Within 7 days of the date of this order, the Receivers deliver up to each relevant Defendant all material, documents, devices and information provided by any Defendant under orders 9, 13, 14, 16 and 17 of the Freezing Orders and do all such things necessary to ensure that no information provided by any Defendant is retained by the Receivers or the Plaintiff.

6.    To the extent necessary, the Plaintiff give a copy of the authenticated orders made this day to a person apparently in the employ of:

(a)    any bank, building society, cryptocurrency exchange, or other financial institution through which, to the best of the Plaintiff’s belief, Digital Currency Assets belonged to the Defendants;

(b)    any other person or entity, holding or controlling Digital Currency Assets, which, to the best of the Plaintiff’s belief, belonged to the Defendants;

(c)    the relevant authorities that issue and control passports;

(d)    the Australian Border Force; and

(e)    the Receiver.

7.    The costs and expenses of the Receivers be paid by ASIC.

…

19.     If orders sought in paragraphs 1 to 7 are made (discharging or rescinding the interim Freezing Orders), the Plaintiff pay the Defendants their costs in the proceeding.

10    In the alternative, the third and fifth defendants sought variation to the existing orders in the following terms:

8.     Alternatively, the Orders made on 10 April 2024, as varied on 30 April 2024 be further varied under section 1101B(11) of the Corporations Act 2001 (Cth) and/or section 1323(5) of the Corporations Act as set out in paragraphs 9 to 20 below.

9.    The definition of “Australian Member” be removed and the following definition be inserted:

Australian Member: includes any person, whether as an individual or a body corporate, based or registered in Australia, who prior to 10 April 2024 had entered into any agreement (however described) with the third defendant to invest in Block Chain Mining.

10.     The definition of “Business” be varied by the removal of “and” after sub-clause (b)(a) and the removal of sub-clause (b)(b).

11.     The definition of “Digital Currency” be removed and the following definition be inserted:

Digital Currency: means a digital representation of that can be digitally traded and functions as:

a medium of exchange; and/or

a unit of account; and/or

a store of value,

but excludes e-money (fiat).

12.     The definition of “Digital Currency Assets” be removed and the following definition be inserted:

Digital Currency Assets: means Digital Currency held or controlled by any Defendant in Australia.

13.     The definition of “Investor Funds” be varied by the removal of “and” after sub-clause (b)(a) and the removal of sub-clause (b)(b).

14.     A new definition, “Overseas Customers” be inserted:

Overseas Customers excludes any Australian Member and includes any person, whether as an individual or a body corporate not based in Australia or registered in Australia.

15.     Order 9 be removed and the following clause 9 be inserted:

The Defendants shall immediately deliver up to the Receiver all books, records and things, which relate to the Digital Currency Assets including, but not limited to:

(a)    all relevant credentials and passwords for access to any Digital Currency in Australia held by any Defendant, including but not limited to, the public and private access keys and/or addresses of any hot or cold wallet held or controlled by any Defendant.

(b)    any or all authentication devices within Australia required to facilitate access, operation or control of any Digital Currency held by any Defendant in Australia.

(c)    all relevant credentials and passwords for access to the authentication devices or systems held in Australia, including emails, SMS or mobile apps, that facilitate access, operation or control of Digital Currency held or controlled by any Defendant in Australia;

(d)    any hard wallet device in Australia containing Digital Currency held by any Defendant together with the device’s access code,

other than such books, records and things relating to the Digital Currency Assets of any Overseas Customer.

16.    Order 13 be removed and the following clause 13 be inserted:

Subject to Order 14 below, pursuant to sections 1101B(1) and 1323 of the Corporations Act, until further order, each Defendant, by themselves and their servants, agents and employees are restrained from:

(e)    removing or causing or permitting to be removed from Australia, any Digital Currency Assets;

(f)    selling, charging, mortgaging or otherwise dealing with, disposing of and/or diminishing the value of the Digital Currency Assets within Australia;

(g)    causing or permitting to be sold, charged, mortgaged or otherwise dealt with, disposed of or diminished in value, any Digital Currency Asset within Australia; and

(h)    without limiting the terms of (a) to (c) above, withdrawing, transferring or otherwise disposing of any Digital Currency Asset available in any bank, building society, cryptocurrency exchange, hot or cold crypto wallet, recorded in any blockchain or other financial institution in Australia.

17.     A new Order 13A be inserted:

To assist in the preservation of the value of the Digital Currency, the Third Defendant, as the sole director of the Fifth Defendant and the Receiver, will work co-operatively to promptly unstake any Digital Asset relating to any Australian Member, as and when the Fifth Defendant requests.

18.    Order 14 be removed and the following clause 14 be inserted:

Order 13 does not prevent:

(i)    any bank, building society or financial institution from exercising any right of set-off whih it may have in respect of a facility afforded by it to any Defendant prior to the date of this Order;

(j)    the First, Second or Third Defendant from authorising the payment of any monies including Digital Currency, to the account of a hot or cold crypto wallet of an Australian Member or Overseas Customer, representing any returns with that person’s investment;

(k)    upon request by an Australian Member or Overseas Customer to divest from or cease their investment in accordance with the terms of the agreement between the First, Second or Third Defendant and any requesting Australian Member or Overseas Customer, the First, Second or Third Defendant paying to that Australian Member or Overseas Customer any money or Digital Currency representing that Australian Member’s or Overseas Customer’s investment sum and interest associated with their investment.

…

20.    Alternatively, if the orders sought 8 to 18 are made (varying the interim Freezing Orders), the plaintiff pay the costs of and incidental to the application.

11    At the hearing I heard the parties only in respect of proposed orders 1-7, on the basis that if the third and fifth defendants were unsuccessful in respect of that relief, the parties would return to Court to be heard in respect of the balance of the interlocutory application.

EVIDENCE

Evidence of the third and fifth defendants

12    In support of their interlocutory application the third and fifth defendants relied on the affidavit of their lawyer Mr Kazem El Kheir filed 27 May 2024. Much of Mr El Kheir’s evidence was referable to instructions he had received from the third and fifth defendants, noting that the fifth defendant (who is the director of the third defendant) is currently not in Australia.

13    Section 75 of the Evidence Act 1995 (Cth) provides:

Exception: interlocutory proceedings

In an interlocutory proceeding, the hearsay rule does not apply to evidence if the party who adduces it also adduces evidence of its source.

14    ASIC made a number of objections to the evidence of Mr El Kheir concerning whether he had identified the source of his evidence. Mr El Kheir appeared before the Court as a witness to address those objections, and many objections were resolved. Following Mr El Kheir’s cross-examination, ASIC called for the production of email material to which Mr El Kheir referred as the source of his instruction from his clients.

15    Following the hearing, an email was sent to my chambers from the lawyers for ASIC. Relevantly that email was as follows:

On 12 June 2024, ASIC called for production of emails between Mr Elkheir and the Fifth Defendant sent while preparing the affidavit of Mr Elkheir sworn 27 May 2024. We refer to the transcript of the day, at p21, lines 17-21, when ASIC made the following call:

Your Honour, given the witness’s answer that the instructions were taken primarily by email, ASIC wishes to call on those documents…to the extent they are not privileged.

While the third and fifth defendants dispute ASIC’s summation that the deponent’s instructions were taken primarily by email, emails were produced by Mr Elkheir to Ashurst on the evening of 13 June 2024 in response to the call. A claim for privilege has been asserted over attachments to these emails (subject to one exception). The relevant parties have subsequently exchanged correspondence with respect to those documents. The position of the third of the third and fifth defendants is that the call has been answered and legal client privilege has been claimed.

In the circumstances, ASIC's submissions on the weight to be given to the affidavit evidence on behalf of the third and fifth defendants remains as was pressed at the hearing by Ms Forrest. The third and fifth defendants respectfully submit that the Court accepts the oral submissions made by Senior Counsel for the third and fifth defendants in respect of the affidavit evidence.

We otherwise confirm that the Plaintiff and the Third and Fifth Defendant do not require any further hearing on this matter.

(errors in original)

16    Mr El Kheir appeared as a witness at the hearing to identify the source of his evidence. Further, I understand that he has subsequently provided copies of emails containing instructions to the lawyers for ASIC. For the purposes of the interlocutory application I am satisfied that Mr El Kheir has identified the source of his evidence. I am therefore satisfied that the evidence in his affidavit filed 27 May 2024 is admissible.

17    Turning now to Mr El Kheir’s affidavit, his evidence in summary is as follows.

    He was instructed that prior to the 10 April Orders, NGS Group HK had repaid various 'investors' their 'investment sum' with profits over various different periods, these repayments were made pursuant to (and in accordance with) the terms of the particular mining agreement an 'investor' entered into with NGS Group HK, and NGS Group HK had not received any complaints about how their funds were used and managed.

    He was instructed that the 10 April Orders had had adverse commercial consequences on the NGS Group HK, because it had been unable to generate any new investments or continue to operate.

    He was instructed that prior to the 10 April 2024 and 30 April 2024 Orders being made, NGS Group HK had approximately 150 wallets staked with various different cryptocurrencies and for various different terms; that the 10 April 2024 and 30 April 2024 prevented NGS Group HK from 'un-staking' the staked tokens and digital assets. As a result, the Digital Currency Assets and tokens that had previously been staked were at risk of loss, dissipation in value and slashing.

    The third defendant sought to vary the Asset Preservation orders contained within the 10 April 2024 and 30 April 2024 Orders to allow them to 'un-stake' any tokens and digital currency assets that had previously been staked at the relevant time. This was for the purpose of preserving the Digital Currency Assets and to mitigate any risks of having the previously staked tokens dissipated in value or slashed.

    He was instructed that if the existing orders were not struck out but were varied to enable the NGS Group HK to 'unstake' Assets, to preserve those Assets, Mr Ten Caten would undertake for NGS Group HK that he would not sell, transfer or otherwise dispose or transfer such Assets to any other wallets. That is, he would, as the “sole director of NGS Crypto”, simply 'un-stake' or unlock the Digital Currency Assets to preserve them.

    He was instructed that the funds of Offshore Members were contained in various wallets held by the third defendant that also contained the 'investment funds' held by Australian members; that the 10 April and 30 April 2024 Orders prevented NGS Group HK from being able to deal with the funds of the Offshore Customers and continue operating and trading internationally; and that the third and fifth defendants sought to vary the 10 April and 30 April 2024 Orders to allow NGS Group HK to continue trading with the Offshore Customers specifically and trading outside the Australian jurisdiction generally.

    He was instructed that if the existing orders were varied so that they were confined to investments made by investors based in Australia, and did not include Offshore Customers, NGS Group HK would need to isolate the 'investment' and digital tokens of the Offshore Customers in the wallets under the control of the Receivers.

Evidence of ASIC

18    ASIC relied on material which was before Meagher J and Derrington J at their respective hearings. In addition to submissions read, relevant evidence was:

    Affidavit of Peter James Connor sworn 9 April 2024.

    Affidavit of Peter James Connor sworn 10 April 2024.

    Affidavit of Peter James Connor sworn 6 June 2024.

    Affidavit of Alex James Lynch sworn 9 April 2024.

    Affidavit of Kristina Matia Hiratos sworn 9 April 2024.

    Affidavit of Katie Nicholas Loizou affirmed 4 April 2024.

    Affidavit of Kaan Finney affirmed 5 April 2024.

19    Much of this evidence was summarised by Meagher J in her Honour’s judgment of 10 April 2024 at [8]-[30]. In particular I note the following comments of her Honour:

19.    Included within documents produced responsive to that request was a spreadsheet entitled “Member Subscription Details” or “NGS Member Subscription List”. From reviewing that list, Mr Connor, in his earlier affidavit, drew the following conclusions at paragraph 123:

The member subscription list appears to contain a list of individuals who have invested with NGS Group or NGS Digital in the period of 27 November 2017 to 28 December 2023. After reviewing the information contained within the NGS Member Subscription List, I concluded in the period between 27 November 2017 to 28 December 2023 the following.

(a)     there were, in total 501 investors, with a combined investment of US$41,433,385.80 or U$60,447,166.54 using the exchange rate of 28 December 2023 of 1.4589;

(b)     there were 464 investors from Australia who invested a total of US$40,379,819.25 or AU$58,910,118.30 using the exchange rate of 28 December 2023 of 1.4589;

(c)     227 investors were SMSFs, all of which were Australian investors;

(d)     in the period 1 January 2023 to 28 December 2023, 183 Australian residents invested a total of US$14,531,494.15 or AU$21,199,996.81 using the exchange rate of 28 December 2024 of 1.4589;

(e)     the next country with the high number of investors/amount invested was Indonesia with 11 investors, investing a total of US$610,207.95.

20.    While the investigation is still at an early stage, Mr Connor deposed to having reviewed the affidavit of Mr Lynch regarding analysis undertaken by him with respect to the known digital assets of the defendants during the relevant period. Mr Lynch deposes to the manner in which he undertook the analysis at [22], including:

On about 21 March 2024, I was further tasked by Goran Veljanoski, Investigator of ASIC, to prepare an affidavit in these proceedings. The purpose of the affidavit is to communicate the results of my analysis of material obtained in the ASIC Investigation as to the following:

(a)     Sum of investor amounts being transferred to identified ‘NGS on-ramp addresses’ as listed on NGS Group client investment agreements.

(b)     Identifying the flow of funds, including in the form of digital assets from the NGS on-ramp addresses.

(c)     Tracing of a sample of investors to identify:

    i. The date and amount of the funds transferred from the relevant DCE to the NGS on-ramp addresses. A list of relevant DCEs is at paragraph below26 [sic];

    ii. The date and balance of the NGS on-ramp addresses at time of the transfer of funds;

    iii. The flow of funds to subsequent addresses including the amount, date, and balance of the receiving address at the time of transfer; and

    iv. The recipient of the funds including the amount, date and if the recipient of the funds is another investor in the Blockchain Product, the identity of that investor.

21.    Mr Lynch also deposes to the Blockchain Explorer websites, investigation aid and documentation upon which he relied in conducting the analysis. His evidence was also that he prepared flowcharts reflecting the flow of digital asset transactions, using particular software in relation to a number of investors drawn from a sample of same identified by ASIC.

22.    Mr Lynch’s affidavit sets out the process he followed at paragraph 29 as follows:

I conducted an analysis of digital asset transactions made by the NGS companies and related parties. The following process was used to identify relevant transactions.

(a)     A series of addresses to which investors were initially instructed to send their digital assets were identified from investor documents, specifically documents titled ‘Mining Investment Agreement’ or from the document ‘NGS Member Subscription List’. These have been named by the ASIC investigation as ‘on-ramp addresses’.

(b)     An analysis of digital assets received and sent from the NGS on-ramp addresses was conducted using the Blockchain Explorer website.

(c)     This analysis identified a series of further addresses to which digital assets in the NGS on-ramp addresses had been sent to including:

    i. Four account addresses on the Ethereum network, and

    ii. Two public addresses on the Bitcoin network,

    (together, NGS operational addresses).

(d)     An analysis of the NGS Operational Addresses was conducted using Blockchain Explorer websites. That analysis identified further account addresses:

    i. from which digital assets were sent to the NGS Operational Addresses; and

    ii. which received digital assets from the NGS Operational Addresses.

(e)     Compulsory ASIC notices were issued to DCEs for the production of books related to the accounts identified in the analysis of the NGS on-ramp addresses and the NGS Operational Addresses.

(f)    The books produced by the DCEs then validated the source account addresses of relevant transactions.

23.    In turn, Mr Connor deposes in his earlier affidavit at [139] as to Mr Lynch’s analysis:

From my review of Mr Lynch’s affidavit and documents and information obtained from the consumers referred above at paragraphs 103 and 118 above, I make the following comments regarding the movement of digital assets when a consumer invests in the Blockchain Mining Product:

(a)     consumers are provided in a schedule to their Investment Mining Agreement instructions on where to transfer their digital assets, for example see the Nelson Investment Agreement at paragraph 108 above;

(b)     consumers then exchange their fiat currency to cryptocurrency and transfer said cryptocurrency to the nominated addresses, which has been termed as ‘on-ramp’ addresses. To date ASIC has identified numerous on-ramp addresses. Many of these addresses are also listed in the NGS Member Subscription List as referred to in paragraph 122 above in column S;

(c)     from the on-ramp addresses consumers funds are transferred to an NGS controlled address which the investigation team has termed ‘NGS Operational Address’. To date ASIC has identified 6 main NGS Operational Addresses, which have been labelled NGS Operational Addresses 1 to 6, with additional account [sic] still pending further analysis; and

(d)     From the NGS operational addresses consumer funds are used for the purpose of, among other things, to purchase various ERC20 tokens, stablecoins and pay NGS staff and Investors.

24.    Mr Lynch states in his affidavit, at [39] – [41], in respect of the analysis that he has undertaken:

Unlike determining who controls a bank account, it is not a straightforward to attribute who owns or controls a particular account or public address.

Although some account address may appear to be attributed to NGS companies based on documents productions ASIC has received under compulsion, that does not mean that corporate defendants actually own or control those addresses. It is possible that those account addresses are actually controlled by natural defendants, including Mr Ten Caten, Mr Brown, and Mr Mendham.

Further investigation work is required in order to determine exactly which persons the various accounts are attributable to.

25.    Mr Connor, in his earlier affidavit, refers to analysis undertaken with respect to several of the investors identified, and notes concerns that their investment funds were not applied, all or in part, for blockchain mining as per the relevant agreements. Further, Mr Connor deposes that funds of one investor were applied to return the investment of another. He also deposes with respect to one of the investors referred to the transcript of the section 19 examination of Mr Bown, annexed to the affidavit of Mr Finney and referred to above, and noted, with respect to one of the bank accounts that:

(a)     Mr Brown was the sole signatory and person authorised to operate the NGS Digital Heritage account, see pages 140 to 141;

(b)     In some cases there were surplus funds and mining equipment was already readily available through NGS Group and the capital didn’t need to be transferred, see pages 143 to 144;

(c)     Mr Ten Caten would give the instructions to Mr Brown by phone call whether to transfer investors’ funds to NGS Group for investment or whether NGS Group ‘did not need it’ due to surplus machines, see page 147.

26.    Mr Lynch’s analysis specifically dealt with the investment of an investor in respect of which it would appear that some of his investment could be traced to the National Australia Bank account of Zenoz Enterprises. It also dealt with investments of an investor in respect of which it would appear that some of, the digital assets passed through the account or CoinSpot account of Mr Mendham. Further analysis undertaken by Mr Lynch suggests digital assets passed through Mr Brown’s account and that the investment of one investor was comingled with that of another. The analysis also indicates that investments are not made into the assets as specified in the mining agreements.

27.    As to whether the NGS companies require or have an AFS licence, Mr Connor in his earlier affidavit, deposes that he had caused searches to be undertaken and none of the defendants in this matter currently hold an AFS licence. With respect to Crypto, it was an authorised representative of an AFS licence holder between 19 January 2023 and 31 July 2023. Other than that, none of the defendants have been the holders of or authorised representatives of holders of an AFS licence. Mr Connor also deposes that, on 14 February 2024, Mr Ten Caten and Mr Mendham were appointed directors and secretaries of a company which holds an AFS licence. However, there is an application currently before ASIC to limit the licence held which has not been resolved. No notification of a change of ownership of an AFS licensee has been received by ASIC, nor have any of the defendants been sub-authorised by that company to be authorised representatives under its AFS licence.

28.    In summary, Mr Connor sets out, at [169] – [170] of his earlier affidavit, the concerns which ASIC has with respect to the defendants:

Based on the documents and information obtained during ASIC’s investigation to date, as listed in paragraphs 25 to 162 above, I am concerned that:

(a)     NGS Group has engaged in unlicenced conduct by:

    i. providing financial product advise; and/or

    ii. dealing in a financial product in issuing the Blockchain Mining Product; and/or

    iii. arranged for the acquisition of a beneficial interest in an SMSF.

(b)     NGS Crypto has engaged in unlicenced conduct by:

    i. providing financial advice; and/or

    ii. dealing in a financial product in issuing the Blockchain Mining Product unlicenced; and/or

    iii. arranged for the acquisition of a beneficial interest in an SMSF.

(c)     NGS Digital, was involved in the above conduct by, amongst other things, operating the Australian bank accounts of the operation costs of NGS Crypto and NGS Group in Australia.

(d)     I am further concerned that NGS Crypto and NGS Group are misrepresenting to consumers that:

    i. NGS Group invests consumers’ funds towards the acquisition of mining hardware and related matters;

    ii. the mining takes place in Batam, Indonesia;

    iii. such investments are ‘safe’, ‘secure’ or ‘like investing in the ownership of an ATM of EFTPOS machine’;

    iv. Profits of up to 16 per cent per annum are generated through the service fees charged through the facilitating of blockchain transactions;

    v. These profits are paid to consumers NGS Group accounts daily; and

    vi. Consumers capital is returned at the end of the investment agreement.

(e)     When in fact:

    i. Upon receipt of consumer funds, at least a portion of investors funds are comingled in the NGS operational addresses and are either being:

    A. transferred to pay operating costs of NGS Crypto and NGS Digital including wages;

    B. are converted into Tokens for the purpose of staking, which has a higher risk factor than blockchain mining;

    C. are transferred to the personal accounts of Mr Mendham and/or Mr Brown, potentially for their own personal use; or

    D. transferred to other consumers to pay for their ‘profit’ on investments or return or capital at the end of their investment agreement.

In light of the withdrawals made from the NGS Digital Heritage Bank Account and the movement of investors funds in the NGS Operational Addresses in the Relevant Period, I am concerned that some or all of the defendants may have dissipated, and may be continuing to dissipate funds invested by consumers for the Blockchain Mining Product.

Submissions of the Third and Fifth Defendants

20    In respect of the present interlocutory application, the third and fifth defendants provided written submissions which were in summary as follows:

    It is common ground that NGS Group HK is domiciled in the Hong Kong Special Administrative Region of the People’s Republic of China and that Mr Ten Caten is a resident, if not domiciled, in the Republic of Indonesia.

    The ex parte process has miscarried and ASIC obtained relief which it should not have obtained.

    ASIC did not make proper candid disclosure to the Court on 9 and 10 April before Meagher J. If ASIC had, the Court ought not have exercised its discretion to grant the freezing orders and appoint the receiver pursuant to the Orders of 10 April 2024.

    The freezing orders should be set aside for one of more of the following grounds:

(a)     The Court exercised its original powers under s 19 of the FCA Act beyond the element, “in this jurisdiction” as that term is prescribed in s 1041H of the Corps, s 12DA of the ASIC Act and s 1041G of the Corps Act (as identified in the Connor Affidavit at [11] – [13]);

(b)     ASIC has previously conceded that cryptocurrency is not a financial product within the meaning of that term in s.763A of the Corps Act (Concession), thus ASIC’s defined term “Business” in the Freezing Orders is flawed.

(c)     “crypto mining” is not a financial product within the meaning of that term in s.763A of the Corps Act, as:

(i)     it is not cryptocurrency, as defined in the term “Business” in the Freezing Orders;

(ii)     it does not other satisfy the definition of financial product.

(d)     Cryptocurrency is not property within the meaning of that term in s 9 of the Corps Act. Therefore the defined term, “Digital Currency” in the Freezing Orders is flawed. Further, no Australian authority supports that cryptocurrency is property (see Web3), yet each defined term in the Freezing Orders assumes so. The Court was not informed of those two fundamental matters.

(e)     ASIC breached its duty of candour by failure to make material disclosure during its ex parte application heard on 9 and 10 April 2024.

(as in original)

    On 9 April, ASIC made bald assertions that there was a “real prospect” that the defendants’ activities amounted to the giving of financial product advice, within the meaning of s 766B of the Corporations Act without identifying any evidence or authority for that submission.

    ASIC alleged further contraventions of the Corporations Act and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) that were not included in the statement of claim or concise statement without reference to where in approximately 2,500 pages of affidavit material was material substantiating those alleged contraventions against the defendants.

    ASIC’s counsel did not indicate the existence of any defences which any of the defendants might have had to the alleged contraventions, nor did they attempt to invite the Court to disregard the wider case not before the Court.

    The inclusion of additional matters provided irresponsible colour to support the making of orders on an interim ex parte basis which should not have been sought or made.

    There was no consideration given in submissions to any prejudice to NGS Group HK despite to the limitation provided in s 1101B(1)(a) that the Court must be satisfied that the order would not unfairly prejudice any person. The existing orders, at the least, prejudice non-Australian parties who had mining agreements with NGS Group HK.

    There was no exploration by ASIC of whether cryptocurrencies constituted property under Australian law for the purposes of the Corporations Act.

    Candour issues arises from three relevant assertions made by ASIC before Meagher J, namely that:

(a)    There was a need to address the immediate risk of dissipation of the funds;

(b)    There was a need for the making of asset preservation orders to assist in preventing the loss or relocation of investors’ funds; and

(c)    The disclosure orders would ensure that the receivers were provided the proper information.

    There was no evidence of complaints against the NGS Group HK, and funds have been returned in full when requested.

    There was no explanation by ASIC why an examination and investigation process commenced almost two years ago had suddenly become urgent.

    There was no evidence to support ASIC’s assertions that the Digital Currency Assets were extremely liquid or that they could be easily transferred or dissipated.

    Pejorative language was used by Counsel for ASIC when referring to the business of the defendants and there was no counterpoint or evidence of proven loss provided to the Court, such that the necessary candour was lacking.

    Counsel for ASIC made submissions about meaning and effect of the mining agreements without expressing any possibility of alternative construction or meaning of those agreements, such that the submissions lacked candour and failed to properly convey to the Court the limitations in ASIC’s case against the third and fifth defendants.

    ASIC falsely asserted that the funds had actually been dissipated, however there was no proper evidence to support such an assertion and the mining agreements plainly permitted the intermingling of funds and delegated the right to use those funds for a specified purpose and to decide how much was to be applied to any specified coin at any given time.

    Had Counsel for ASIC taken the Court to Mr Mendham’s explanation of the business model, the matters would have appeared commercially sensible and beyond reproach or suspicion.

21    In oral submissions, Counsel for the third and fifth defendants further submitted that:

    The jurisdiction has a very specific, localised, geographical meaning. There is a contest as to whether any managed investment scheme was relevantly operating in the jurisdiction. ASIC failed to bring these shortcomings to the attention of Meagher J at the ex parte hearing and is a material matter as to whether the funds subject of those managed investment schemes were investor funds that were the subject of ASIC’s oversight.

    Fiat currency was to be deposited in one of two bank accounts, one account in Australia held by NGS Digital, and therefore not conducted or operated by the third defendant, or one account in Indonesia held by PT NGS Corp Indonesia, and therefore not conducted or operated in the jurisdiction. Simply because an investor is Australian, does not mean that any alleged managed investment scheme was operating in the jurisdiction relevant to the question of need for protection and to engage the interim protective measures contained in ss 1323 and 1101B of the Corporations Act.

    Care needs to be taken in delineating NGS Group HK and NGS Digital. The form of orders which sought to freeze the assets of three organisations (which on the evidence were not one and the same) is extreme. There is no basis to suggest that the defendants operated a “Ponzi scheme” together.

    NGS Group HK cooperated with Hong Kong authorities to provide a list of members pursuant to ASIC’s request.

    ASIC relied on evidence that 464 of 501 investors were Australian investors, but there was a lack of particularity to indicate whether that referred to the nationality of those investors or whether the investment was made by a person within the jurisdiction, i.e. Australia.

    There was a balancing exercise required in respect of whether ex parte restraining orders should be made, where there were parties offshore, funds offshore, and operations offshore, but there were Australian investors investing in a scheme and there was no financial services licence held in Australia. The lack of candour on the part of ASIC skewed that balance towards the concerns of the regulator when the matter was before Meagher J.

    Liberty to apply was insufficient where the assets of the relevant entities were entirely frozen and certain transactions were defined as being within or outside of the jurisdiction.

    Where freezing orders were made ex parte, the applicants bore the onus of establishing that the existing orders should be continued.

    No interim relief was sought against the fourth, fifth, and sixth defendants. Despite being named as parties to the action, they are not relevant persons engaged by s 1323 of the Corporations Act as they are not a persons who are or may become liable to pay money. ASIC failed in its duty of candour by omitting to bring to the attention of the Court that unless the fourth, fifth and sixth defendants were relevant persons, no freezing orders could be made against them under s 1323, and ASIC did not present any accessorial evidence or liability against those defendants and could not, given no final relief was sought against those defendants.

    The issue of proportionality was relevant, in that the evidence before the Court did not identify the third or fifth defendants as having received investor money from this jurisdiction, making it difficult to conceive why asset disclosure orders in respective bank accounts held by those defendants were proportionate or unobtrusive orders.

    ASIC ought to have brought to the attention of the Court the practical limits imposed on the receiver where Mr Ten Caten lived in Indonesia and the NGS Group HK is domiciled in Hong Kong and is therefore beyond the jurisdictional reach of the Court’s power.

    The failure on the part of ASIC need not rise as high as breach of duty of candour for the onus to fall on ASIC to prove that the existing orders remain necessary. A material non-disclosure would be sufficient.

    The submissions before Meagher J were of such a tone that they drew her Honour into a false understanding that the position was uniform across all of the defendants, which was not the case. The distinct circumstances of each defendant was not made clear.

    There was a material failure in the making of the Orders of Meagher J in the form that they were made.

    Section 5 is not engaged in relation to ss 601ED, 1041H, 1041G and 1323 as they contain the “in this jurisdiction” limitation.

    Although conduct can occur outside Australia, the offence or contravention needs to have been completed in Australia. In the present case, there was no suggestion that the activities of an entirely offshore entity was such as to attract the liability in the form that the orders can be made.

    No alternatives to the asset preservation orders were proposed to Meagher J.

Submissions of ASIC

22    ASIC provided written submissions which were in summary as follows:

    The existing orders served a necessary protective function for possible ‘aggrieved persons’ while ASIC had an ongoing investigation into potential breaches of the Corporations Act. It is not necessary for the Court to be satisfied that any of the defendants in fact contravened the Corporations Act.

•    It is not necessary for ASIC to demonstrate a prima facie case of liability against a relevant person nor that assets had been dissipated or dissipation was imminent. It was merely that there was a risk of dissipation.

•    The existing orders were made on an interim basis and as such carried the implication that the Court was not required to decide a valid and contested point of law on a final basis.

•    ASIC relied only on s 1323 of the Corporations Act, not s 1101B in seeking the existing orders.

    The evidence before the Court was sufficient to establish that it was necessary and desirable for orders to be made appointing receivers and placing restrictions on the use of the defendants’ Digital Currency Assets.

    There was no relevant lack of candour on the part of ASIC. The Court was taken through extensive evidence and submissions, and no submission was made that was inconsistent with the evidence or established authority.

    ASIC brought the relevant facts and circumstances to the Court’s attention and if it failed to bring certain alleged facts and circumstances to the Court’s attention, those matters were insufficiently important or material to justify the setting aside or variation of the existing orders.

•    It was apparent from the transcript of the ex parte hearing and the reasons of Meagher J that Counsel for ASIC properly drew her Honour’s attention to matters adverse to ASIC’s application or that the defendants may have raised if they were present.

•    The submission of the third and fifth defendants that the alleged contraventions were not limited to the first three defendants or confined to ss 911A(1) and 911A(5B) and that there was no attempt to invite Meagher J to disregard the wider case not presently before the Court, was a mischaracterisation of the extent that those matters are relevant in support of an application for ‘necessary or desirable’ orders to be made under s 1323.

•    The affidavit of Alex Lynch and previous judgments supported the assertion that cryptocurrency is liquid.

•    The absence of complaint or loss by clients of the defendants was not relevant to the question of whether the 10 April Orders were necessary or desirable to be made for the benefit of aggrieved persons.

•    The alleged manifest limitations of ASIC’s case were neither apparent as at 9 and 10 April 2024, nor did they emerge from the material relied on by the third and fifth defendants.

•    ASIC has never conceded that cryptocurrency was not a financial product within the meaning of the Corporations Act.

    The third and fifth defendants had not discharged their onus of satisfying the Court that the existing orders should be discharged or varied.

    Any alleged breach by ASIC of its duty of candour would not justify rescinding, discharging or varying the existing orders as any such failure would be inadvertent, the application was made in good faith by ASIC, the evidence supports ASIC’s concerns regarding the potential movement and dissipation of investor funds, and there is a strong case that contraventions of s 911A of the Corporations Act have occurred.

    There has been no demonstrated material change to the circumstances since 10 April 2024 which provides any comfort about the third and fifth defendants’ digital currency assets and their sufficiency to meet their liabilities.

    ASIC does not allege that cryptocurrency or crypto mining is a financial product.

•    The Mining Agreements for the blockchain mining products are a facility through which a person makes a financial investment and are therefore a financial product under s 763A(1)(a) of the Corporations Act. Neither crypto currency nor crypto mining was alleged to be a financial product.

•    The first, second and third defendants may have provided financial services by arranging investors to establish self-managed superannuation funds, pursuant to s 766C of the Corporations Act.

•    ASIC did not make a concession in ASIC v Web3 Ventures Pty Ltd [2024] FCA 64 (Web3), rather it recognised that the issue of whether relevant cryptocurrencies were a financial product was not an issue to be determined in that proceeding.

    ASIC’s case does not rely on cyber currencies being ‘property’ under the Corporations Act. In any event, cryptocurrency has been held to be property by the English Court of Appeal and in other jurisdictions, and ASIC has previously obtained similar orders for the appointment of receivers over digital currency assets.

    The alleged issues of jurisdiction do not arise as ASIC is investigating possible contraventions of ss 1041H and 1041G of the Corporations Act and s 12DA of the ASIC Act, the focus of the existing orders were primarily on Australian investors and ensuring their investments are not dissipated (regardless of location), and the existing orders are not founded on a finding of liability.

23    In oral submissions, Counsel for ASIC further submitted that:

    Ultimately the reference to s 1101B of the Corporations Act was removed when the Orders of Meagher J were varied by Derrington J, so the Court should regard only s 1323 of the Corporations Act for the purposes of the present application.

    A material non-disclosure is not sufficient to shift the onus to ASIC, the onus would only shift if ASIC had failed in its duty of candour. ASIC has not failed in either manner.

    It was not necessary for ASIC to demonstrate a prima facie case of liability against the relevant persons, being the individual defendants, only the mere risk of dissipation. Further, evidence in the affidavit of Mr Hiratos identified Mr Brown, Mr Mendham and Mr Ten Caten.

    There was a risk of dissipation of funds. The fact that overseas investors’ funds might be affected due to the way in which the business was set up, is not a reason for the existing orders to be discharged or varied.

    Pursuant to ss 5(4) and 5(7) of the Corporations Act, each provision of that Act, according to its tenor, can apply outside the jurisdiction. This is supported by Waller v Freehills [2009] FCAFC 89 at [53]. Further, a clear intention would be required in a provision to say that a provision in the Corporations Act would not operate extraterritorially. Section 1323 is not limited in that way and there are strong policy considerations for it to have extraterritorial effect, given its protective purpose.

    The reason for urgency and a request for a return date were put squarely before Meagher J by ASIC.

    The risk of dissipation is still live, as the third and fifth defendants have only partially complied with paragraph 9 of the freezing orders on the best evidence before the Court to date.

    The business of the defendants is operating in Australia. This is indicated by factors including that the investors entered into the agreements in Australia, the business has employees in Australia, the business is operating from premises in Australia, and the governing law of the agreements is Australian law.

    The affidavit of Alex Lynch sworn 9 April 2024, which was before Meagher J, supports the assertion that cryptocurrency is liquid.

    The absence of a complaint against the third and fifth defendants was not a relevant question before Meagher J in determining whether it was necessary or desirable for the benefit of aggrieved persons to make the existing orders.

consideration

24    In my view the arguments of the third and fifth defendants in seeking to have rescinded or discharged the Orders of 10 April 2024 (as varied on 30 April 2024) can be conveniently divided into two categories:

    Whether ASIC made proper candid disclosure of key issues and evidence to the Court on 9 and 10 April 2024 before Meagher J; and

    Whether the Court went beyond its powers under s 19 of the Federal Court in making the existing orders.

25    It is convenient to deal with each of these issues in turn. I note however that there was overlap both in respect of the arguments put and the material on which the parties relied in respect of these issues.

Duty of Candour and Adducement of Evidence by ASIC

26    In circumstances where an applicant seeks ex parte freezing orders, relevant principles of disclosure are clear. As Henry J explained in Tyche Asset Management Pty Ltd v Flyland Development Group Pty Ltd [2021] NSWSC 1283;

37     As applicants for ex parte freezing orders, the plaintiffs had an obligation to make full and frank disclosure to the Court of all facts that are material to the determination of their entitlement to the orders, which includes disclosure of possible defences and facts adverse to and known to them. Utmost good faith is required and it is no excuse for an applicant to say that they were not aware of the importance of those facts: Papas v Grave [2013] NSWCA 308 at [71] (Emmett JA, Basten JA and Sackville AJA agreeing); Thomas A Edison v Bullock [1912] HCA 72; (1912) 15 CLR 679 at 682; [1912] HCA 72.

38     The non-disclosure must be material in the sense that it is information that is relevant to the Court’s determination and a matter of substance in the decision-making process. It is sufficient if it could be expected that the opposing party would have wanted to bring the information to the Court’s attention and the Court would have wanted to consider it before making the order: Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639; [2005] VSCA 213 (Savcor) at [35] (Gillard AJA, Ormiston and Buchanan JJA agreeing); Principal Financial Group Pty Ltd v Vella [2011] NSWSC 327 at [17].

39     A failure to bring forward all the material facts which the absent party would presumably have brought forward in their defence to the application will ordinarily warrant discharge of the ex parte order made and lead to it being set aside: Aristocrat Technologies Australia Pty Ltd v Allam (2016) 327 ALR 595; [2016] HCA 3 at [15]; Mineralogy Pty Ltd v Western Australia [2020] QSC 344 (Mineralogy) at [86]–[89].

40     However, non-disclosure or error in presenting material facts to the Court on an ex parte application does not necessarily lead to automatic discharge of the orders. The Court retains a discretion to nevertheless continue the order or make a new order on the same or different terms. The Court may treat the non-disclosure as leading to discharge and then require the party to make a further application for freezing orders or similar relief at the hearing or at a later time: see, for example, Hayden v Teplitzky (1997) 74 FCR 7; Cenric Group Pty Ltd v Bundanoon Sandstone Pty Ltd (No 2) [2018] NSWSC 1878; Nutek Constructions Pty Ltd v Slotwinski [2017] NSWSC 1795 at [23].

41     The exercise of the discretion whether to set aside or continue the ex parte orders takes into account all of the circumstances, including the importance and materiality of the statements and the non-disclosure, the merits of the case, the practical effect of setting aside the orders, and whether the applicant acted culpably in the sense that the non-disclosure was deliberate: Gold Ribbon (Accountants) Pty Ltd (in liq) v Sheers [2003] 1 Qd R 683; [2002] QSC 400 at [51]–[54]; Savcor at [33]–[35]; Nexdius Pty Ltd v Exposure Scientific LLC [2017] NSWSC 1608 at [83]–[93].

27    See also for example Walter Rau Neusser Oel Und Fett AG v Cross Pacific Trading Ltd [2005] FCA 955 at [38] and Deputy Commissioner of Taxation v Binetter [2013] FCA 670 at [4]-[8].

28    The third and fifth defendants contended that there had been a failure on ASIC’s part to make full and frank disclosure to the Court in respect of a number of specific issues. In respect of those specific issues, I find as follows.

29    First, I note Annexure A to the written submissions of ASIC filed in the present interlocutory proceedings on 10 June 2024. In that document ASIC set out, in detail, relevant affidavit evidence, its written submissions before Meagher J, and the transcript of the hearing before her Honour, referable to alleged defaults in disclosure by ASIC concerning:

    The existence of possible defences to alleged contraventions of the Corporations Act by the third and fifth defendants claimed by ASIC, which ASIC contended underpinned the relief ASIC sought;

    Alleged “colour” in the tone of ASIC’s submissions relating to the breadth of the claims against the defendants;

    Whether cryptocurrency assets were “liquid”;

    The absence of complaint by or loss to investors; and

    The limitations of ASIC’s case against the defendants.

30    In that document, ASIC explained its responses to those alleged defaults in disclosure, and the material indicating that these issues were raised before her Honour by ASIC. It is appropriate that I have regard to the document in determining whether ASIC was appropriately candid in its submissions to Meagher J on 9 April 2024.

31    Second, the third and fifth defendants submitted that there was insufficient evidence put to her Honour indicating the immediacy of the dissipation of funds. However, as ASIC submitted, Meagher J was required to find only that there was a risk of dissipation of funds rather than a conclusive finding. Her Honour was provided evidence of dispersion of funds and commingling of funds. It was open to her Honour to find that there was a risk of dissipation as ASIC alleged, warranting the orders ASIC sought at that time.

32    Third, the third and fifth defendants submitted that the use of pejorative language by Counsel for ASIC at the hearing before Meagher J provided negative “colour” to the facts alleged by ASIC, detrimental to the defendants, in the context of ASIC’s claim. I agree with the submission of ASIC this issue is immaterial. I find that in all likelihood, her Honour would have disregarded such language in analysing the application before her.

33    Fourth, the third and fifth defendants submitted that ASIC failed to put alternative constructions of the meaning and effect of the relevant cryptocurrency mining agreements to Meagher J. It appears however from the judgment of her Honour that mining agreements were included in the evidence before the Court. Her Honour was at liberty to construe such agreements as she considered appropriate, and did so.

34    Fifth, the third and fifth defendants submitted that ASIC failed to put to her Honour the explanation of the defendants’ business model by the fourth defendant, Mr Brett Mendham. However, as is clear from her Honour's judgment at [7], on 19 January 2023 Mr Mendham attended an examination pursuant to s 19 of the ASIC Act, and her Honour had regard to the transcript of that examination including Mr Mendham’s evidence. It is also plain from the transcript of proceedings before her Honour that ASIC took her Honour to the examination of Mr Mendham.

35    Sixth, the third and fifth defendants submitted that ASIC did not inform her Honour as to whether the fifth defendant was a “relevant person” for the purposes of s 1323 of the Corporations Act. However, as is clear from the transcript of the hearing before Meagher J, submissions were made by ASIC to her Honour that the fifth defendant was “the central figure of the operation in that he has the ultimate control of how funds are distributed, the funds are refunded, whether certain purchases should be made”. It is also clear that, at the hearing, ASIC took Meagher J to evidence of the fourth and sixth defendants concerning the centrality of the role of the fifth defendant in respect of the operation of the defendant businesses.

36    Seventh, the third and fifth defendants submitted that ASIC failed to provide adequate evidentiary justification to her Honour that the matter required an urgent ex parte hearing and determination. In my view, however, Meagher J was at liberty to decide for herself, on the material brought to the Court, whether the matter required urgent ex parte hearing and determination. Her Honour plainly thought the matter required that attention.

37    Finally, I accept ASIC’s submission that no concession (as alleged by the third and fifth defendants was made by ASIC in Web3) that cryptocurrency is not a financial product within the meaning of that term in s.763A of the Corporations Act. As such, I am satisfied that ASIC did not mislead Meagher J in failing to bring this alleged concession to her Honour’s attention.

38    In my view, ASIC discharged their duty of candour to the Court in respect of the orders sought and made on 10 April 2024 as varied on 30 April 2024.

Jurisdictional basis

39    The existing orders were made pursuant to s 23 of the Federal Court Act and s 1323 of the Corporations Act. Section 1323 relevantly provides:

Power of Court to prohibit payment or transfer of money, financial products or other property

(1) Where:

(a) an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or

(b) a prosecution has been begun against a person for a contravention of this Act; or

(c) a civil proceeding has been begun against a person under this Act;

and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders:

(d) an order prohibiting a person who is indebted to the relevant person or to an associate of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed;

(e) an order prohibiting a person holding money, financial products or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the financial products or other property, to, or to another person at the direction or request of, the person on whose behalf the money, financial products or other property, is or are held;

(f) an order prohibiting the taking or sending out of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person;

(g) an order prohibiting the taking, sending or transfer by a person of financial products or other property of the relevant person, or of an associate of the relevant person:

(i) from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of financial products from a register in this jurisdiction to a register outside this jurisdiction); or

(ii) from a place in Australia to a place outside Australia (including the transfer of financial products from a register in Australia to a register outside Australia);

(h) an order appointing:

(i) if the relevant person is a natural person--a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or

(ii) if the relevant person is a body corporate--a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person;

(j) if the relevant person is a natural person--an order requiring that person to deliver up to the Court his or her passport and such other documents as the Court thinks fit;

(k) if the relevant person is a natural person--an order prohibiting that person from leaving this jurisdiction, or Australia, without the consent of the Court.

…

(3) Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application.

…

(5) Where the Court has made an order under this section on a person's application, the Court may, on application by that person or by any person affected by the order, make a further order discharging or varying the first - mentioned order.

(6) An order made under subsection (1) or (2) may be expressed to operate for a specified period or until the order is discharged by a further order under this section.

(7) Nothing in this section affects the powers that the Court has apart from this section.

…

40    The interlocutory relief granted by the existing orders was made against the background of the substantive relief sought by ASIC against the defendants, namely orders sought pursuant to ss 1101B, 1323 and 1324 of the Corporations Act or ss 19, 21, 23 , 37AF and 37AG of the Federal Court Act that the defendants had contravened s 911A(1) and 911A(5B) of the Corporations Act by carrying on a financial services business “in this jurisdiction” without holding an Australian financial services licence.

41    It is not in dispute that the defendants do not have an Australian financial services licence referable to the business conducted by NGS Group HK.

42    Chapter 7 of the Corporations Act deals with financial services and markets. Section 760A provides, inter alia, that the main object of the Chapter is to promote:

(a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and

(aa) the provision of suitable financial products to consumers of financial products; and

(b) fairness, honesty and professionalism by those who provide financial services; and

(c) fair, orderly and transparent markets for financial products; and

(d) the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.

43    “Financial service” is the subject of Chapter 7 Division 4. It is defined by s 766A of the Corporations Act. Section 766A(1) provides:

(1) Subject to paragraph (2)(b), a person provides a financial service if they:

(a) provide financial product advice; or

(b) deal in a financial product; or

(c) make a market for a financial product; or

(d) operate a registered scheme; or

(da) operate the business and conduct the affairs of a CCIV; or

(e) provide a custodial or depository service; or

(ea) provide a crowd - funding service; or

(eb) provide a claims handling and settling service; or

(ec) provide a superannuation trustee service; or

(f) engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.

44    “Financial product” is the subject of Subdivision B of Division 3 of Chapter 7 of the Corporations Act. In particular, s 763A provides:

Meaning of financial product

(1) A financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:

(a) makes a financial investment;

(b) manages financial risk;

(c) makes non - cash payments.

This has effect subject to section 763E.

(2) A particular facility that is of a kind through which people commonly make financial investments, manage financial risks or make non - cash payments is a financial product even if that facility is acquired by a particular person for some other purpose.

(3) A facility does not cease to be a financial product merely because:

(a) the facility has been acquired by a person other than the person to whom it was originally issued; and

(b) that person, in acquiring the product, was not making a financial investment or managing a financial risk.

45    “Financial investment” for the purposes of s 763A is defined by s 763B as follows:

Meaning of makes a financial investment

A person (the investor ) makes a financial investment if:

(a) the investor gives money or money's worth (the contribution ) to another person and any of the following apply:

(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor;

(ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

(iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and

(b) the investor has no day - to - day control over the use of the contribution to generate the return or benefit.

Note 1: Examples of actions that constitute making a financial investment under this subsection are:

(a) a person paying money to a company for the issue to the person of shares in the company (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day - to - day affairs of the company); or

(b) a person contributing money to acquire interests in a registered scheme from the responsible entity of the scheme (the scheme uses the money to generate financial or other benefits for the person and the person, as a member of the scheme, does not have day - to - day control over the operation of the scheme).

Note 2: Examples of actions that do not constitute making a financial investment under this subsection are:

(a) a person purchasing real property or bullion (while the property or bullion may generate a return for the person, it is not a return generated by the use of the purchase money by another person); or

(b) a person giving money to a financial services licensee who is to use it to purchase shares for the person (while the purchase of the shares will be a financial investment made by the person, the mere act of giving the money to the licensee will not of itself constitute making a financial investment).

46    Section 1101B of the Corporations Act also gives the Court power to make orders as follows:

(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; or

(ii) has contravened a condition of an Australian market licence, Australian CS facility licence, Australian derivative trade repository licence or Australian financial services licence; or

(iii) has contravened a provision of the operating rules, or the compensation rules (if any), of a licensed market or of the operating rules of a licensed CS facility; or

(v) has contravened a condition on an exemption from the requirement to hold an Australian market licence or an Australian CS facility licence; or

(vi) 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; or

(b) …

(c) …

    (d) …

However, the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person.

…

…

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

(iii)…

(v) …

(vi) …

(b) …

(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 (see subsection (9)) 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.

(6) However, if ASIC, a market licensee or a CS facility licensee applies for an order under subsection (1), the Court must not require the applicant, or any other person, to give any undertakings as to damages as a condition of making an interim order under subsection (5).

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.

Duty to comply with order

(10) A person must not, without reasonable excuse, contravene:

(a) an order under this section; or

(b) a requirement imposed under paragraph (8)(a) or (8)(d) by a receiver appointed by order of the Court under subsection (1).

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

Power to rescind or vary order

(11) The Court may rescind or vary an order made by it under this section or suspend the operation of such an order.

(12) In this section:

"property" , in relation to a financial services licensee, includes:

(a) money; or

(b) financial products; or

(c) documents of title to financial products; or

(d) other property;

entrusted to, or received on behalf of, any other person by the financial services licensee or another person in the course of, or in connection with, a financial services business carried on by the financial services licensee.

47    Finally, I note the definition of “property” of a company in s 9 of the Corporations Act which includes:

(a) any PPSA retention of title property of the company; and

(b) any other property used or occupied by, or in the possession of, the company.

48    Turning now to the contentions of the third and fifth defendants concerning the jurisdiction of the Court invoked by ASIC, I find as follows.

49    First, the third and fifth defendants submitted that ASIC failed to draw to Meagher J’s attention the limitation in s 1101B(1) that the Court should only make a relevant order if satisfied that the order would not unfairly prejudice any person. I note previous authorities considering s 1101B, including Australian Securities & Investments Commission v AMP Financial Planning Pty Ltd (No 2) [2020] FCA 69; 377 ALR 55 where Lee J observed that the provision affords the Court a broad discretionary power. I further note the comment of Brereton J in In the matter of Vault Market Pty Ltd [2014] NSWSC 1641 at [83], adopted by Anderson J in Australian Securities and Investments Commission v M101 Nominees Pty Ltd (No 3) [2021] FCA 354 at [289] that the context and content of s 1101B indicates that its purpose is protective and remedial, rather than deterrent, in nature, and that it contemplates (inter alia) an injunction to restrain ongoing misconduct, or to remove the risk of future misconduct when such a risk is suggested by a history of persistent past misconduct.

50    In the present case at [42] her Honour noted the submission that the orders sought were intrusive, however her Honour at [51] accepted the submissions of ASIC that the case was one where there was a great risk of dissipation of assets, where there was a difficulty in tracing assets, and that there were a large number of investors with large amounts of money involved and commingled (including superannuation monies). While the third and fifth defendants submitted that no arguments were put to her Honour concerning prejudice to non-Australian clients of the defendants, I am satisfied that, to the extent possible, her Honour was cognisant of prejudice which would be occasioned to defendants and their clients by the orders made on 10 April 2024 but was satisfied that the prejudice would not be unfair in circumstances where there was an apparent risk of dissipation of assets by the defendants.

51    Second, to the extent that the third and fifth defendants submitted that there was no attempt by ASIC to draw the Court’s attention to the limitation of the meaning of “property” in the Corporations Act, and whether cryptocurrencies constituted “property” under Australian law, I am satisfied that, at an interlocutory level, the definitions of financial service, financial product, financial investment and property in the Corporations Act are sufficiently broad to encompass cryptocurrency assets in appropriate circumstances, and the orders made by her Honour (as subsequently varied). I am fortified in respect of this conclusion, and the correctness of her Honour’s findings consistent with that conclusion, by the recent paper by Jackman J entitled “Is cryptocurrency property” delivered on 21 June 2024 to the Commercial Law Association (https://www.fedcourt.gov.au/digital-law-library/judges-speeches/justice-jackman/jackman-j-20240621), where his Honour noted inter alia:

    cryptocurrency was in effect assumed to be property in the two cases which might have analysed the issue (Commissioner of the Australian Federal Police v Bigatton [2020] NSWSC 245 (Cavanagh J); Chen v Blockchain Global Limited (2022) 66 VR 30 (Attiwill J)) and

    the analysis of Gendall J in the High Court of New Zealand in Ruscoe v Cryptopia Limited (in liq) [2020] 2 NZLR 809, where the Court held that the cryptocurrencies in question were a species of intangible personal property which were without question capable of being the subject matter of a trust, and not simply a form of information.

52    Third, the third and fifth defendants contended that the Court lacked power to make the existing orders because the defendants were not carrying on business “in this jurisdiction” for the purposes of ss 1041G and 1041H of the Corporations Act and s 12DA of the ASIC Act. All three provisions concern dishonest or misleading or deceptive conduct in the course of carrying on a financial services business “in this jurisdiction”.

53    Section 911A of the Corporations Act relevantly provides:

Need for an Australian financial services licence

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

…

54    Section 911D of the Corporations Act provides:

When a financial services business is taken to be carried on in this jurisdiction

(1) A financial services business is taken to be carried on in this jurisdiction by a person if, in the course of the person carrying on the business, the person engages in conduct that is:

(a) intended to induce people in this jurisdiction to use the financial services the person provides; or

(b) is likely to have that effect;

whether or not the conduct is intended, or likely, to have that effect in other places as well.

(2) This section does not limit the circumstances in which a financial services business is carried on in this jurisdiction.

55    “This jurisdiction” is defined by s 9 of the Corporations Act as follows:

"this jurisdiction" means the geographical area that consists of:

(a) each referring State (including its coastal sea); and

(b) each Territory (including its coastal sea, if any); and

(d) also, for the purposes of the application of a provision of Chapter 7 or an associated provision (as defined in section5) -- any external Territory in which the provision applies because of subsection 5(9) (but only to the extent provided for in that subsection).

56    In Anchorage Capital Partners Pty Limited v ACPA Pty Ltd [2018] FCAFC 6 the Full Court considered circumstances where a company was alleged to be carrying on business in Australia, and observed:

99.    Whether a company is carrying on business in Australia is a question of fact: Luckins (Receiver & Manager of Australian Trailways Pty Ltd) v Highway Motel (Carnarvon) Pty Ltd [1975] HCA 50; (1975) 133 CLR 164 at 186. While it is correct to say that a company may be found to carry on business in Australia even though it does not maintain an office in Australia or the bulk of its business is carried on outside Australia, it does not follow that such a company will be found to carry on business in Australia merely because it has engaged in a small number of isolated transactions. Each case will depend on its own facts.

57    Further, I note the observation of Dodds-Streeton J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 1) [2012] FCA 1519 that:

47.    Provided that there are acts within Australia which are part of the company's business, the company will be doing business in Australia (see Gebo Investments at [41], citing Actiesselskabet Dampskib “Hercules” v Grand Trunk Pacific Railway Co [1912] 1 KB 222) although the bulk of its business is conducted elsewhere (see Edwards at [39]) and it maintains no office in Australia (Bray v F Hoffman-La Roche Ltd [2002] FCA 243; (2002) 118 FCR 1 at [63]).

58    More recently, in respect of a company incorporated in Australia (whose sole shareholder was a Seychelles registered corporation), Charlesworth J made the following findings in Australian Securities and Investments Commission v Gallop International Group Pty Ltd, in the matter of Gallop International Group Pty Ltd [2019] FCA 1514:

143.    I find that between 24 May 2017 and 9 November 2017, GIG carried on a financial services business in this jurisdiction without holding an AFSL covering the financial services in question by:

(1) publishing, on the GIG website, material that was intended to induce people in this jurisdiction to use financial services provided by GIG, namely trading in foreign exchange, precious metals, derivatives and contracts for difference and investments into other investment products including the Bonus Plan;

(2) providing, by the GIG website, a platform facilitating investments by users of the websites in the financial services provided by GIG;

(3) arranging for investors to acquire or dispose of financial products through the MT4 trading platform made available on the GIG website; and

(4) receiving more than $4 million from investors into the GIG Deposit Account in connection with the provision of the financial services promoted on the GIG website (as to which see [208] below).

59    It is not in dispute that there were Australian investors as well as foreign investors in the businesses conducted by the defendants. I am satisfied at this interlocutory stage that the Court had the power to make the existing orders on the basis that the defendants were carrying on business in this jurisdiction.

CONCLUSION

60    I am not satisfied that orders should be made in terms of paragraphs 1-7 inclusive of the interlocutory application. It follows that, at this stage, I will not order rescission or discharge of the Orders made on 10 April 2024 and varied on 30 April 2024.

61    It is appropriate that the Court should proceed to hear the parties in respect of the balance of the interlocutory application as soon as possible. I will hear the parties in respect of appropriate timetabling orders to bring the matter to hearing in that regard.

62    In respect of costs, it is appropriate that costs be reserved until I hear and determine the balance of the interlocutory application.

Associate:

Dated:    25 July 2024

SCHEDULE OF PARTIES