Citation: ASIC v Mauer-Swisse Securities Ltd and Anor [2002] NSWSC 684
Court: Supreme Court of New South Wales (Equity Division)
Date: 2 August 2002
Judge(s): Palmer J
Background
ASIC commenced an urgent investigation into what appeared to be a large-scale fraudulent investment scheme targeting Australian investors. A significant number of Australians had been induced, through telephone solicitations, to purchase shares in a Canadian company at prices that quickly collapsed. The scheme involved a New Zealand company, Mauer-Swisse Securities Ltd (MSS), which had publicly announced it would sell those shares to Australian retail and institutional clients, despite never holding any financial services licence in Australia.
The sole director of MSS, a South African national with permanent New Zealand residency, was present in Australia at the time ASIC commenced its investigation. ASIC served him with a notice under s.33 of the ASIC Act requiring production of documents. He resisted that notice, arguing ASIC had no jurisdiction to compel a New Zealand company to produce documents.
ASIC moved urgently before the Supreme Court for ex parte orders preventing the director from leaving Australia and requiring him to surrender his passport. The director contested those orders, arguing the Court had no power under s.1323 of the Corporations Act to detain a person in Australia merely to assist ASIC in its investigations.
Legal Issues
- Whether s.1323(1) of the Corporations Act empowers the Court to order a person's detention in Australia for the purpose of facilitating an ongoing ASIC investigation, rather than only to preserve assets or protect identified creditors.
- Whether the purposes of s.1323(1), described as protecting the interests of "aggrieved persons," extend to holding a foreign national in Australia to assist ASIC in identifying the full scope of a possible fraud.
- Whether there was a sufficient evidentiary basis, at an interim stage, to continue orders requiring the director to surrender his passport and not depart from Australia.
Decision
Palmer J held that the power conferred by s.1323(1) is not confined to the preservation of assets or the direct protection of identified creditors. The protection of "aggrieved persons" within the meaning of that provision encompasses detaining a person in Australia to assist ASIC in investigating a potentially fraudulent scheme affecting Australian investors. The Court acknowledged that this power is extraordinary and coercive and must not be exercised lightly, citing the approach taken by Hamilton J in ASIC v Australian Investors Forum Pty Ltd [2001] NSWSC 1180.
On the facts, Palmer J found strong prima facie evidence of a wide-scale fraud perpetrated or connived at by a foreign national whose voluntary return to Australia, were he permitted to leave, was doubtful. The company had no real administrative infrastructure in New Zealand, the director gave contradictory evidence about staffing, the company had never held an Australian financial services licence, and its public representations about its business were wholly false. In those circumstances, the Court held it could not decline to exercise the power.
The orders made were interim orders under s.1323(3) only, consistent with the early stage of ASIC's investigation. Palmer J made clear the orders would be kept under close review and would continue only so long as useful examination of the director remained possible and he had not given all the cooperation with the investigation that was reasonably possible, including procuring MSS to produce its own documents to ASIC.
Orders Made
- The interim order under s.1323(1)(j) requiring the director to deliver up his passport to the Court was continued, subject to review.
- The interim order under s.1323(1)(k) prohibiting the director from leaving Australia without the Court's consent was continued, subject to review.
- The matter was adjourned for further hearing, with the duration of the orders to be reassessed depending on the progress of ASIC's examination and the production of documents by MSS.
- The Court indicated it would extend orders until the director had given all cooperation reasonably possible, including procuring MSS to deliver its documents to ASIC.
Key Takeaways
- Section 1323(1) of the Corporations Act extends to orders detaining a person in Australia for the purpose of facilitating an ASIC investigation into a potentially fraudulent scheme, not only to freeze assets or protect already-identified creditors.
- The concept of protecting "aggrieved persons" under s.1323(1) is interpreted broadly enough to encompass Australian investors who may have been defrauded, even where the investigation is at an early stage and the full extent of loss is not yet established.
- A court exercising the s.1323 detention power must treat it as extraordinary and coercive, applying it only where the evidence of fraud is strong and the risk of the subject not returning to Australia voluntarily is real.
- Where a foreign national presents contradictory evidence, operates through an entity with no apparent legitimate infrastructure, and the risk of flight is real, those factors collectively may ground interim detention orders under s.1323(3).
- Interim orders of this kind are subject to close ongoing supervision: the Supreme Court signalled that continued detention is appropriate only for as long as cooperation with the investigation remains possible and productive.
Legislation and Cases Referenced
Legislation:
- Corporations Act 2001 (Cth), ss.79, 911A, 1041F, 1041G, 1041H, 1041I, 1323(1), 1323(3), 1324(1), 1324(4)
- Australian Securities and Investments Commission Act 2001 (Cth), s.33
- Sharebrokers Act 1908 (NZ)
Cases:
- ASIC v Australian Investors Forum Pty Ltd [2001] NSWSC 1180 (Hamilton J)