FEDERAL COURT OF AUSTRALIA Australian Brinton Group Recovery Association v Brinton Group [2002] FCA 1224 THE AUSTRALIAN BRINTON GROUP RECOVERY ASSOCIATION v THE BRINTON GROUP & ORS W 171 of 2002 CARR J 1 AUGUST 2002 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W171 OF 2002 BETWEEN: THE AUSTRALIAN BRINTON GROUP RECOVERY ASSOCIATION Applicant AND: THE BRINTON GROUP & ORS Respondent JUDGE: CARR J DATE OF ORDER: 1 AUGUST 2002 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The applicant's motion, filed today, be adjourned indefinitely. 2. The applicant have liberty to apply to relist the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W171 OF 2002 BETWEEN: THE AUSTRALIAN BRINTON GROUP RECOVERY ASSOCIATION Applicant AND: THE BRINTON GROUP & ORS Respondent JUDGE: CARR J DATE: 1 AUGUST 2002 PLACE: PERTH EX TEMPORE REASONS FOR JUDGMENT 1 The Court has before it a motion on notice which, in its finally amended form, seeks the following orders: "(1) An injunction restraining the first to the seventeenth respondents and each of them, their agents, servants or employees, from demanding or receiving any funds from accounts held by the Standard Chartered Bank Hong Kong, including without limitation any funds held in the account specified in schedule 1 hereto. (2) An injunction restraining the first to seventeenth respondents and each of them, their agents, servants or employees, from demanding or receiving any funds from accounts held with Hong Kong Shanghai Banking Corporation Limited, including without limitation any funds held in the account specified in schedule 2 hereto". 2 In schedule 1 there are 14 specified accounts identified by account numbers and by reference to what I assume to be the name in which the account is maintained. The names in which the various accounts in schedule 1 are maintained correspond broadly with the various corporate respondents. 3 In schedule 2 there is a like schedule, but in respect of a lesser number of accounts, some being foreign bank accounts, again in the name of the respondents. 4 The final order sought is that the applicants have leave to serve the originating process in these proceedings outside the Commonwealth. 5 The notice of motion was filed earlier today and since then has taken three different forms. Initially the motion was in terms seeking orders against the Standard Chartered Bank Hong Kong and the Hong Kong Shanghai Corporation Limited restraining them from paying any funds from accounts maintained with them on behalf of the respondents. For reasons which at this stage it is not necessary for me to go into, the injunctions sought have been recast in the terms to which I have just referred. 6 The material before me, such as it is, indicates that there may be up to as much as $A295,000,000 in those accounts. The matter is extremely urgent because on the material before me it would appear, in the circumstances which I will come to in a moment, that there is a significant risk that those funds will be made available to the respondents within the next few hours. I turn next to the principal application, that is, the application pursuant to which these proceedings were initiated. 7 The application is said to be under sections 52, it says 75D but it must be 75B, 80, 82 and 87 of the Trade Practices Act 1974 (Cth) ("the Act"). The relief sought by the applicants is: "(1) Damages pursuant to section 82 in respect of conduct of the respondents in respect of investments or prospective investments made by the applicants said to be contrary to section 52 of the Trade Practices Act; (2) Further, and in the alternative, pursuant to section 87 of the Act and pursuant to section 21 of the Federal Court of Australia Act, a declaration in relation to the entitlement of the applicants to funds held in bank accounts by the respondents, and a declaration in relation to alleged breaches of the Trade Practices Act; (3) Further and in the alternative, pursuant to sections 22 and 32(1) of the Federal Court of Australia Act, damages for deceit in relation to statements made by the respondents, and further and in the alternative, damages for fraudulent conduct of the 18th to 23rd respondents". 8 No statement of claim has been filed. The material before the Court comprises five affidavits and three other documents which I will describe and summarise in a moment. So far as identifying the applicants is concerned, that cannot be done simply by reference to the application as filed. But it emerges from a list of names which forms the last annexure to an affidavit sworn by Mr Gregory Browne today, and also from what I was told from the bar table, that that list of 26 parties sets out and identifies the applicants in these proceedings. 9 In due course if there is any procedural irregularity in identifying the applicants in that manner, such irregularity can be rectified later. 10 At this stage I should interpolate that the intent of the injunctions is said to be not to trace the moneys into the bank accounts and freeze them in that manner. The injunctions are sought as being in the nature of Mareva injunctions, that is on the basis that there is a real risk that the respondents will deal with the moneys in the bank accounts in such a way that if the applicants are successful they will not enjoy the fruits of their victory. 11 The evidence, as I have said, comprises some five affidavits to which I will very briefly refer. First, there is the affidavit of Mr Peter White of 31 July 2002 in which Mr White deposes to the fact that from about March 2000 until about September last year he paid moneys at the direction of an investment scheme operator to overseas bank accounts. It would seem that by September 2000 Mr White at least became concerned that he had become the victim of fraud. 12 Mr White describes how, shortly after 7 September 2000, Thai authorities conducted raids on numerous "cold call" scheme operators, including The Brinton Group. Cold calling, as appears from the materials, is the alleged practice of telephoning investors around the world, in this case many investors in Australia, and persuading them to take up shares in companies and to deal with those shares when, on the material before me either those companies were spurious or they were not what they were represented to be. The money derived by the Brinton Group as a result of its cold calling operations is said to have ended up eventually in the bank accounts to which I have referred earlier. 13 Mr White says that he initially had hired an investigating company but in April 2002 he engaged Mr Greg Browne, a consultant, to continue the investigations to try and trace the operators of the scheme and his funds. He describes the formation of what is called The Australian Brinton Group Recovery Association which, he says, has approximately 25 members. Later in his affidavit Mr White gives some evidence that the losses of the people that he has contacted in the course of setting up The Australian Brinton Group Recovery Association range from $A20,000 to $A1,000,000. He gives his understanding that at least 700 victims have contacted the regulatory authorities in Australia. 14 Finally, Mr White refers to press releases from the Australian Securities and Investments Commission ("ASIC") to the effect that some $A400,000,000 has been lost. 15 Next I refer to the affidavit of Mr Gregory Browne sworn yesterday, 31 July, in which Mr Browne says that he has seen telegraphic transfers from the victims of the Brinton Group scheme to various accounts in the Hong Kong and Shanghai Banking Corporation and the Standard Chartered Bank in Hong Kong. He gives evidence, on a hearsay basis, that a significant portion of the moneys paid into those accounts remains in those accounts and that he has been informed by Thai authorities, he having been both to Thailand and to Hong Kong recently, that there could be up to $A295,000,000 remaining in those accounts. 16 Mr Browne then refers to a police raid in Bangkok when 84 suspects were arrested, with six of those continuing to be held on money laundering charges. As a result of these arrests, as I understand the evidence, the Thai Economic Police were able to use an Interpol protocol to enlist the aid of the Hong Kong authorities to put restraining orders on the moneys in the two banks in Hong Kong. However, Mr Browne says that while he was in Thailand last week, he was told by the Deputy Attorney-General of Thailand that a direction to release the funds had been sent through the Thai consulate in Hong Kong by diplomatic bag on 21 July 2002. This was a result of the Thai authorities having dropped the charges which I have just mentioned and the individuals having been released. 17 Mr Browne further deposes to the fact that he received information from the Hong Kong police yesterday that the Thai consulate in Hong Kong had verbally informed them that they had received the notification from Thailand to direct the Department of Justice in Hong Kong to lift the restraining order on the moneys and that the notification would be delivered soon. There is evidence, again from Mr Browne, in the form of an email from Hong Kong, confirming that it is likely that upon receipt of that notification the Hong Kong authorities will authorise the release of the funds from the two banks. Hence the degree of urgency of this application and hence the need for the delivery of an extempore judgment and reasons. 18 The next affidavit is one from Mr Kevin Bailey sworn today. Mr Bailey is not an applicant, but he gives some evidence about the manner in which the Brinton Group have treated him. I am prepared to infer from Mr Bailey's affidavit and from other evidence tendered by the applicants that the pattern is basically along the following lines. An applicant would receive an unsolicited telephone call from an officer of the Brinton Group. The call would be made to, and I use an example, an applicant inviting an investment in what is described as a very desirable stock, often accompanied by a suggestion of some inside information relating to a merger or other structural reorganisation from which it might be expected a share might rise in price. From the materials it appears that the Brinton Group hire persuasive persons, not necessarily stockbrokers by profession but persuasive salesmen and women, to carry out what is called cold calling. 19 The callers appear to have been remarkably successful in persuading even very careful applicants to part with their money, not just once in the case of Mr Bailey, for example. Mr Bailey is not an applicant at this stage but presumably it is likely that he will join, because he appears to have made a series of investments through the Brinton Group, well in excess of a total of $100,000. Having been persuaded to sell some of those shares and reinvest them in other investments, it very much looks, from Mr Bailey's evidence, that the money eventually disappeared and his calls for payment of those moneys turned out to have been made in vain. 20 Then there is another affidavit of Mr Gregory Browne sworn today which gives some further information concerning his dealings with the Hong Kong authorities, to which I do not need to refer. Mr Browne lists some exchanges of emails and also exhibits a list of unlicensed overseas cold callers which he has obtained from the Australian Securities and Investments Commission Web site. 21 Amongst the names listed there is the Brinton Group, from which I infer that is a reference to the first, seventh, eighth and thirteenth respondents, to a company called Benson Dupont International which is the tenth respondent and Transglobal Consultants Ltd which is the fifteenth respondent. As I have mentioned, Mr Browne also lists the 26 parties which are applicants. 22 Finally, there is a further affidavit from Mr Peter White sworn today, the purpose of which is simply to exhibit or annex a series of communications which I gather have been sent to him from various - and I use the term loosely - investors around Australia which recite a similar pattern of experiences. Not all of those correspondents are applicants, but some four of them are, and not all of them name respondents, but some of them do. 23 Then, on the resumption of the hearing earlier this afternoon three documents were passed up in court which I received into evidence in the motion. They comprised an email dated 11 July 2002 between two firms of solicitors in Hong Kong, a copy letter dated 18 July 2002 from the ASIC to Mr Browne which contained some useful information of ASIC's perception of what has been happening and what ASIC has been able to do, and also an email from ASIC to Mr Browne. 24 Earlier today I had some jurisdictional concerns which I took up with Mr Clifford, counsel for the applicants, as a partial consequence of which I infer that the notice of motion has been re-amended. One potential jurisdictional problem which I raised arose out of s 5(3) of the Act. Section 5(3) provides as follows: "5(3) Where a claim under section 82 is made in a proceeding, a person is not entitled to rely at a hearing in respect of that proceeding on conduct to which a provision of this Act extends by virtue of subsection (1) or (2) of this section except with the consent in writing of the Minister." 25 I thought that this hearing might be defective without the consent of the Minister. However, Mr Clifford now puts his case not under the extraterritorial reach of the Act, but on the basis that the conduct of the respondents was contrary to s 52 of the Act and took place in Australia. That is, that the relevant part of the telephone conversations took place in Australia in the case of each of the applicants. I approach the matter on that basis and not on the basis that there is a potential problem, or any problem, under s 5(3) of the Act. 26 I have referred to The Brinton Group Ltd's role. I should say something about the other respondents. The other respondents are, on the face of it, what I would describe as "issuing companies", that is, that they are the companies in whose securities the applicants were persuaded by The Brinton Group Ltd and their representatives to "invest", if that is the right word for what happened. The evidence in relation to the issuing companies, in my view, is not sufficiently strong to show a serious question to be tried that they were parties to the contraventions of the Act or parties to the relevant deceit or fraud. It may be that evidence will emerge later to show that they were more closely linked to The Brinton Group or perhaps even just part and parcel of what the applicants say was a major fraud. 27 Likewise, there does not appear to be, on the materials before me, much evidence about the roles of the eighteenth to twenty-third respondents. But in view of the terms of the injunction sought, that does not matter. 28 It is virtually impossible on the materials before me to discern how much money is in the bank accounts of the Brinton Group companies which would be affected by the injunctions sought in the amended notice of motion. That is quite important, in my view, because, as I have mentioned, there is some evidence that the amount could be as much as $A295 million. 29 I now turn to various factors which I have considered in reaching my decision in relation to this motion. They are not in the order which they might have been if I had had an opportunity to reserve judgment for a reasonable time and they are not, for that reason, in any order of descending importance. I turn to the question of an undertaking as to damages. None has been given yet. I could make injunctions conditional upon the execution by the applicants of an undertaking as to damages, but the practicalities of the matter are that the applicants want the injunction immediately, given that as each hour ticks past the probability of the moneys becoming available to the respective respondents increases. Another factor I have taken into account in relation to the undertaking as to damages is that there is no evidence of the financial capacity of the applicants to satisfy such an undertaking if they were called upon to do so. 30 I now turn to the question of delay. There has been, in my view, a degree of delay, understandable as it might have been in human terms. For a start, since the arrest of the individuals in Bangkok, the applicants appear to have relied upon the administrative arrangements between the two police forces, that is, the Thai police and the Hong Kong police, pursuant to which the funds were frozen. The applicants have not brought these proceedings until today, although copies of the documents were faxed through to the court late yesterday. I therefore take into account that the applicants have, (as I say, possibly for understandable human reasons) relied upon administrative police measures to protect whatever interests they might have had in obtaining what is in essence a Mareva injunction. 31 On the question of delay, about three weeks ago the individual respondents were released and the charges against them were dropped. It might be thought, I think with a degree of justification, that the applicants should by then have been aware of the risk of these funds becoming, as it might be put, "unfrozen". I take into account that there is material before me that the parties considered the possibility of proceedings in Hong Kong to obtain interlocutory relief by claiming equitable interests in the moneys in the bank account through a tracing exercise. The evidence is that that was considered around about 11 July 2002, but I note that it does not appear that that action has been taken. 32 I now turn to what the applicants seek to achieve. As I understand it from what I was told from the bar table this afternoon the applicants seek to obtain these interlocutory injunctions and serve them in Thailand on the respondents. 33 There is in my perception a degree of futility in that step. If the allegations made by the applicants are correct, these respondents are fraudsters and criminals. It is unlikely that they would obey an Australian injunction served on them in Thailand by refraining from exercising their contractual rights to move the money out of the bank accounts in Hong Kong. 34 The only way in which those orders would not be futile, as I see it, in the event that the injunctions were contravened, would be either if assets were discovered in Australia belonging to the respondents and could be sequestrated, and there is no evidence of the likelihood of that, or that the individual respondents might present themselves in Australia, having contravened these injunctions, and thus expose themselves to contempt proceedings. So I have regard to the fact that there is a degree of futility in the injunctions sought against the respondents. 35 The second advantage which the applicants seek, as I understand it from what I was told from the bar table, is that they wish to serve notice of the injunctions on the banks in the hope that the banks would not pay out the money and also in the expectation that it might be possible to use the injunctions in support of proceedings in Hong Kong to obtain orders freezing the moneys. 36 I have regard to the traditional factors, namely whether there is a serious question to be tried. I think in respect of the respondents other than what I have called the issuing companies there is a serious question to be tried, based upon some prima facie evidence which has been tendered. I am unable at this stage to assess how strong the case is, but I am prepared to find that there is a serious question to be tried in respect of the non-issuing respondents. 37 On the question of the balance of convenience, which is sometimes referred to in more helpful terms as being the degree of risk if the injunctions are not granted of an injustice to the applicants, compared to the degree of risk of injustice to the respondents if the injunctions are granted I take into account that the materials before me to date suggest that the moneys in the respective bank accounts are probably the proceeds of fraudulent activities. But if there is some $A295,000,000 in those accounts, that is a very much larger amount than the evidence to date before me suggests has been invested by those who are currently applicants in these proceedings. 38 After considering and balancing the factors for and against the motion and in the exercise of my discretion I do not consider that, on the materials before the court at present, it is appropriate to grant the relief sought. 39 The orders will be: 1. Motion adjourned indefinitely. 2. Liberty to the applicants to apply to re-list the motion. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr. Associate: Dated: 1 October 2002 Counsel for the Applicant: Mr P G Clifford with Mr A P Rumsley Solicitor for the Applicant: Messrs McKie & Associates Date of Hearing: 1 August 2002 Date of Judgment: 1 August 2002