Australian Securities and Investments Commission v Honey Investments Inc & Ors [2001] QSC 364

42151 ~- I 6;~ i/ 1-<,. State Reporting Bureau (~ Queensland Governm·;;;T--·--- ~~ DepJrtment of fustlce and Attomcy-G~neral sc..ot. 36t\- Transcript of Proceedings Copyrigh! in this tran~cript is ves!ed in the C:rown. Copies thereof must not be made or sold without the wntten authonty of the Director, State Reporting Bureau. SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION MACKENZIE J No 8719· of 2001 REVISED COPIES ISSUED State Reporting Bureau Date/ 3 / q I 0( AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant and HONEY INVESTMENTS INC First Respondent and ANGLO PACIFIQUE INC Second Respondent and ANGLO PACIFIQUE LTD Third Respondent and GLOBAL FINANCE (MANAGEMENT) AUSTRALIA PTY LTD (ACN 082 399 433) TRADING AS GREENWICH COMMUNICATIONS INTERNATIONAL Fourth Respondent and BRETT ASHLEY McGRATH and RAY JOHNSON BRISBANE .. DATE 12/09/2001 JU°DGMENT Floor, The Law Courts, George Street, Brisbane, a. 4000 Fifth Respondent Sixth Respondent Telephone: (07) 3247 4360 Fax: (07) 3247 5532 1 I -- 1 of 14 -- 13092001 T1/PAF23 M/T 1/2001 (Mackenzie J) HIS HONOUR: Section 1324 of the Corporations Act permits the Court to grant an injunction restraining a person from engaging in conduct where the person has engaged, is engaging or is proposing to engage in conduct which constituted a contravention of the Act, or other more remote forms of involvement in contraventions. It also permits the Court to require a person to do any act or thing if, in the opinion of the Court, it is desirable to do so. The applicant applies for an ex parte interim injunction in relation to what is alleged to be a managed investment scheme within the meaning of the Corporations Law. Section 1114 gives certain powers to make orders specifically 1 10 20 relating to dealings in securities. A managed investment 30 scheme is a scheme which has the following features: 1. People contribute money or moneys worth as consideration to acquire rights to benefits produced by the scheme; 2. Any of the contributions are to be pooled or used in the common enterprise to produce financial benefits for the members who hold interests in the scheme; and 3. The members do not have day to day control over the operation of the scheme. 40 . 50 A managed investment scheme must be registered if, amongst other things, it has more than 20 members or it was promoted 60 2 JUDGMENT -- 2 of 14 -- 13092001 T1 /PAF23 M/T 1 /2001 (Mackenzie J) by a person who was, when the scheme was promoted, in the business of promoting managed investment schemes. Those correspond with paragraphs (a) and (b) of subsection 601ED. There is a prohibition on operating a managed investment scheme required to be registered unless it is registered. It is also provided in section 601ED(6) that a person is not operating a scheme merely because they are acting as an agent or employee of another person. In addition to relying on contravention of section 601ED the applicant also relies on engaging in misleading or deceptive conduct. It is a contravention of the Act under section 995 1 10 20 to do so in any dealing in securities of which a managed 30 investment scheme interest is one species. Applying ex parte for an injunction is undoubtedly justifiable where the evidence is cogent and there is a demonstrated degree of urgency. However, where the investigation is not fully developed, as in this case, and proof of key elements of a 40 case depends on, at best, inferences from evidence which itself is not precise, it is necessary for the Court to exercise considerable caution in making an order on an ex parte basis. In this category of case it is particutarly important for applicants to ensure that the evidence is presented openly without ambiguity and in a manner which spells out, with precision, the facts relied on. While it may be that this is a case where the haste in trying to bring the matter to 3 JUDGMENT . 50 60 -- 3 of 14 -- 13092001 T1/PAF23 M/T 1/2001 (Mackenzie J) Court is the explanation for the concerns that I had, uncertainties must not be glossed over or disguised by ambiguous expressions, and opinions should not masquerade as facts. It is also important that sources of information and grounds for beliefs be stated as required by rule 430(2) of UCPR. One of the concerns in the present case has been that rule 1 10 430 was not adequately complied with initially and the 20 resolution of the application has been delayed because of the need to obtain clarification of a number of matters in the initial affidavit. One of the matters left unclear on the evidence before me was whether or not there was evidence that, if there was a scheme, it had more than 20 members. It became apparent that the effect of the evidence was that an informant had given the applicant a list of 94 names of people who may be in the scheme. Upon pressing during oral argument it was conceded that the state of the evidence was that it was unknown how many of those persons named had in fact become parties to it. None of them have been interviewed nor has the fifth respondent who could, no doubt, throw light on the question. I am not satisfied that there is evidence that there are more than 20 members on the assumption that other criteria are satisfied. This difficulty illustrates the need not to 4 JUDGMENT 30 40 . 50 60 -- 4 of 14 -- 13092001 T1/PAF23 M/T 1/2001 (Mackenzie J) come to Court for relief prematurely. More haste may mean less speed. 1 Another ambiguity in the evidence which required exploration 10 concerned the impression created initially that there was a chain of transactions from which movement of moneys from scheme members to the first respondent to the account of the third respondent in an off-shore bank could be traced. Upon pressing during oral submissions, all that could be 20 established was that there were about 30 transactions in which money was deposited into the third respondent's accounts, but there was no evidence that any of the moneys came from the first respondent. Also there was no evidence that the only possible source of moneys paid to the third 30 respondent's accounts was the first respondent. A further difficulty, so far as the fourth and fifth respondents are concerned, is that there is no evidence of their precise role and, in particular, that they were more 40 than mere agents or conduit pipes for the first respondent. The evidence establishes that information, apparently generated for distribution to members, included that cheques made out to the first respondent be forwarded to it care of the business name used by the fourth respondent. The fifth respondent is the sole director of the fourth respondent, but since the fifth respondent has not been interviewed it is speculative as to what his precise role is and, in particular, whether he and the fourth respondent are more 5 JUDGMENT . 50 60 -- 5 of 14 -- 13092001 T1/PAF23 M/T 1/2001 (Mackenzie J) than agents. Insofar as the application is based on section 601ED(1)(a), it fails. Reliance was also placed on section 601ED(1)(b) which requires a managed investment scheme to be registered if it is promoted by a person who was, when the scheme was promoted, in the business of promoting managed investment schemes. The scheme in this case, according to the 1 10 evidence, is involved with motor vehicles and it is deposed 20 on information and belief, based on information from an informant, that an unspecified number of persons have participated in it. The way in which the scheme is supposed to operate is as follows: People wishing to acquire a motor vehicle approach a consultant who identifies a suitable vehicle. Finance is arranged to allow the transaction to proceed. The client is offered a discount and provided with information about an 30 auto lease bond which would provide for payment of loan 40 instalments and for other financial benefits. A client who decides to enter into this arrangement is told to send a bank cheque to Honey Investments Inc, care of Greenwich Communications International, which has an office at Robina. A document with Honey Investments Inc letterhead explains · 50 that moneys received by Honey Investments Inc will be invested in high return/high security funds. The company profile section of the document describes Honey Investments Inc as "formerly a large family investment company ... acquired by Anglo Pacifique Ltd in 2000 11 • It is said that 6 JUDGMENT 60 -- 6 of 14 -- 13092001 T1/PAF23 M/T 1/2001 (Mackenzie J) 1 the company remains headed by its CEO, Charles Honey, who, in the document relating to Anglo Pacifique Ltd, is described as a third generation, full time investor and Anglo Pacifique Ltd's investment manager. It is also stated 10 that Honey International Inc, now a subsidiary of Anglo Pacific Ltd, is utilised to offer many of Anglo Pacifique Ltd's investment products. Anglo Pacifique Limited is said to have evolved from being 20. the funds management arm of an unnamed private merchant bank into a separate entity. Its accounts were transferred to a bank in St Vincent and the Grenadines in the Windward Islands and its operations to the United Kingdom. I shall also note that there are in evidence copies of a certificate of incorporation and a certificate of tax 30 exemption which, on their face, show that a company Anglo Pacifique Inc, not Anglo Pacifique Limited, was incorporated under the International Business Companies Act of St Vincent 40 and the Grenadines. There is no evidence that the entity under this name has done anything or from which an inference can be drawn that it has commonality with the first respondent. Accordingly, there is no basis upon which an order can be made against that respondent, the second · 50 respondent. None of Anglo Pacifique Inc, Anglo Pacifique Limited or Honey Investments Inc are incorporated or registered in 7 JUDGMENT 60 -- 7 of 14 -- 13092001 T2/MUM8 M/T 1/2001 (Mackenzie J) Australia and neither Anglo Pacifique Limited or Honey Investments Inc is incorporated or registered in England. There is a company called Honey Investments Ltd registered in England but it is not apparent that it is connected with Honey Investments Inc. Its directors and officers are British citizens with names suggesting ancestry in the Indian subcontinent. Its registered office is different from Honey Investments Inc. The latter's registered office appears to be a residential address according to the evidence. Neither Anglo Pacifique Limited nor Honey Investments Inc is registered as a fund manager in the United Kingdom. The question is whether there was an obligation to register the fund because it was promoted by a person in the business of promoting managed investment schemes. There is in the documentation and other evidence sufficient, in my view, to 1 10 20 30 satisfy the three criteria for a managed investment scheme 40 referred to earlier. There is a basis in the evidence for drawing a prima facie inference that Honey Investments Inc is in the business of promoting managed investment schemes. The scheme is, · so therefore, required to be registered. By not registering it, Honey Investments Inc is prima facie in contravention of the Act. Honey Investments Inc is, on the face of the documents, a subsidiary of Anglo Pacifique Limited. Inclusion of promotional information concerning Anglo 8 JUDGMENT 60 -- 8 of 14 -- 13092001 T2/MUM8 M/T 1/2001 (Mackenzie J) Pacifique Limited in the documents provided to investors establishes prima facie that APL is a party to the contravention in, at least, an indirect way having regard to 1 the relationship of the two companies. There are no 10 apparent reasons why the applicant should not be entitled to appropriate relief on this basis. I will return to the form of the relief later. With respect to the sixth respondent, it was accepted after 20 searching analysis and discussion of the evidence as it presently stands that there was no evidence that he had personally done anything within the jurisdiction making him a party to a contravention of the Act. There is, therefore, no basis upon which he may be included in any restraint. 30 Since relief is being given on a separate basis and is as wide as I would be prepared to give in any event it is, therefore, not necessary to finally determine whether the submission that misleading or deceptive conduct was engaged in is sustainable. Four specific matters were relied on in oral submissions. As I understood them there were, in summary, the following: 1 . Because of uncertainty concerning the incorporation of Anglo Pacifique Limited and particularly the fact that it is not registered in Australia or England it was misleading or deceptive to say that its operations had been transferred to the UK. 9 JUDGMENT 40 . 50 60 -- 9 of 14 -- 13092001 T2/MUM8 M/T 1 /2001 (Mackenzie J) 2. Failure to name the private merchant bank from which Anglo Pacifique Limited which was its investment arm was hived off as a separate entity might have lead members of the public to assume that there had been a merchant bank containing the words "Anglo Pacifique". 3. The failure to provide information which would have been available had the managed investments scheme been registered, and 4. Silence as to where Anglo Pacifique Limited was incorporated, which was probably a subcategory of other specific matters as the matter developed in oral submissions. In the written submissions, there are other aspects of category three mentioned a moment ago. There is also a submission that international business companies are often 1 10 20 30 used as a vehicle for fraud by suspect entities. I do not 40 think that that submission is of particular weight since it seems to me that it involves the logical fallacies of begging the question and composition. After argument I also formed a clear view that there was no · 50 basis upon which the second aspect of this submission could be sustained. It is not necessary to finally resolve the others which are not without difficulty, having regard to what I said at the commencement of my discussion of this aspect of the matter. 60 1 0 JUDGMENT -- 10 of 14 -- 13092001 T2/MUM8 M/T 1 /2001 (Mackenzie J) With respect to the relief to be granted it will be interim and therefore for short duration so that those enjoined may, if they wish, appear to set aside the interim orders. I 1 propose to grant relief against the first and third 10 respondents in the form of modifications of paragraphs 1 (a) to (c) of the draft order presented to me on the material before me. The proposed prohibitions in paragraphs 1 (d) to (g) of the 20 draft are too wide, and I will not grant them on the evidence before me. Paragraph 2 will be refused for reasons relating to the failure to establish the fifth respondent's role in a way which renders him liable on the present state of the evidence. Paragraph 3 will be granted against the first and third respondents in modified form. Paragraph 4 will be refused for reasons given earlier concerning lack of evidence in satisfactory form that moneys paid to Anglo Pacifique Limited's accounts are necessarily derived from this scheme. Paragraph 5 will be refused as drafted. It is extremely wide and covers records beyond the ambit of the present scheme and records anywhere in the world. Further the relief is interim. Other mechanisms exist for obtaining documents if contraventions are suspected. They have not been exhausted. 1 1 JUDGMENT 30 40 . 50 60 -- 11 of 14 -- 13092001 T2/MUM8 M/T 1 /2001 (Mackenzie J) 1 Substituted service on the first and third respondents will be allowed. The injunction will remain in force until 5 p.m. on 21 September. That is a little longer than I might otherwise have contemplated but the combination of the 10 logistics of overseas parties and the state of the list earlier in that week have induced me to allow that amount of time. Costs will be reserved. I should conclude by repeating, lest it be thought that the 20 outcome is less satisfactory than the applicant may have wished, the observations made earlier about the hazards of bringing applications of this kind prematurely when investigations are at a stage where the picture is insufficiently developed and necessary evidentiary links are 30 not satisfactorily made. Injunctive relief of the extent sought can only be granted on a proper evidentiary basis. Fact, not theory, suspicion and speculation, is necessary if the full ambit of relief is to be achieved. So far as the formal orders are concerned, they will be in the following form and I take it that you are relying on the non-obligation to give an undertaking as to damages, are you? MR COBURN: Yes. HIS HONOUR: You are? All right. The orders will be in this form, that until 5 p.m. on 21 September 2001 the first 1 2 JUDGMENT 40 . 50 60 -- 12 of 14 -- 13092001 T2/MUM8 M/T 1 /2001 (Mackenzie J) and third respondents by themselves, their servants and/or agents be prohibited and/or restrained from: 1 (a) Speaking about, publishing in any way, distributing or 10 disseminating within the jurisdiction to any member of the public and/or corporation any information or promotional material concerning Anglo Pacifique Limited and Honey Investments Inc in connection with the "auto lease bond program". (b) Within the jurisdiction, soliciting for and/or receiving and/or arranging the receipt or transfer of any money or other securities from members of the 20 public in respect of the "auto lease bond program". 30 (c) Within the jurisdiction, undertaking any step in the furtherance of the receipt and/or transfer of money and/or securities of members of the public in relation ·to the "auto lease bond program". The new paragraph 2, which was 3 in the draft will be: 40 Until 5 p.m. on 21 September 2001 or earlier order the first and third respondents, their servants and/or agents not operate, receive, transfer or otherwise deal with funds held. SO in Australia on behalf of or by the first and/or third respondents concerning the "auto lease bond program". 60 13 JUDGMENT -- 13 of 14 -- 13092001 T2/MUM8 M/T 1 /2001 (Mackenzie J) 1 The new number 3, which was paragraph 6 in the original draft, will be: The application and affidavits of Peter Ross, and the order of the Court ("the documents") may be served by way of substituted service on the first and third 10 respondents by sending them forthwith to their e-mail addresses, [email protected] and [email protected] and by leaving a copy of the documents to Harrington Road, Leytonstone, London, 114QW, United Kingdom, and also sending the documents via facsimile 20 to 44 207 900 1548. And the next paragraph, which is paragraph 4, formerly paragraph 7, will be: The application be adjourned to 21 September 2001; and paragraph 5, costs of and incidental 30 to the application for interim relief be reserved. That is what I order. 40 . 50 60 1 4 JUDGMENT -- 14 of 14 --