FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2015] FCA 1112 Citation: Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2015] FCA 1112 Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v OSTRAVA EQUITIES PTY LTD, OSTRAVA ASSET MANAGEMENT PTY LTD, OSTRAVA SECURITIES PTY LTD, VANESSA MARIA ASH and BRADLEY JOHN GRIMM File number: VID 201 of 2015 Judge: DAVIES J Date of judgment: 23 October 2015 Catchwords: COSTS – where orders made under s 1323 of the Corporations Act 2001 (Cth) against the defendants – where orders made without power and subsequently discharged – application by defendants for certain costs of application under s 1323 on an indemnity basis – relevant principles – costs order made on the party-party basis Legislation: Corporations Act 2001 (Cth) ss 1323, 1335(2) Federal Court of Australia Act 1976 (Cth) s 37M Federal Court Rules 2011 (Cth) r 40.02 Cases cited: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225; [1993] FCA 801 Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166 Hamod v New South Wales [2002] FCA 424 Australian Securities and Investments Commission v Carey (No 14) (2007) 158 FCR 92; [2007] FCA 310 Date of hearing: 24 August 2015 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 16 Counsel for the Plaintiff: J P Moore QC with C Van Proctor Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the Defendants: S Rubenstein Solicitor for the Defendants: Minter Ellison Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 201 of 2015 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: OSTRAVA EQUITIES PTY LTD First Defendant OSTRAVA ASSET MANAGEMENT PTY LTD Second Defendant OSTRAVA SECURITIES PTY LTD Third Defendant VANESSA MARIA ASH Fourth Defendant BRADLEY JOHN GRIMM Fifth Defendant JUDGE: DAVIES J DATE OF ORDER: 23 October 2015 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The plaintiff pay fifty percent of the defendants' costs of the plaintiff's application pursuant to s 1323 of the Corporations Act 2001 (Cth). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 201 of 2015 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: OSTRAVA EQUITIES PTY LTD First Defendant OSTRAVA ASSET MANAGEMENT PTY LTD Second Defendant OSTRAVA SECURITIES PTY LTD Third Defendant VANESSA MARIA ASH Fourth Defendant BRADLEY JOHN GRIMM Fifth Defendant JUDGE: DAVIES J DATE: 23 October 2015 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 4 May 2015, the defendants applied to discharge interim asset restraint and travel restriction orders made on 17 April 2015 and renewed on 21 April 2015. Both orders were made on an application by ASIC pursuant to s 1323(3) of the Corporations Act 2001 (Cth) ("the Corporations Act"). The defendants succeeded in their application in relation to the asset restraint orders but not in relation to the travel restriction orders. The defendants have now applied pursuant to r 40.02 of the Federal Court Rules 2011 for an order that the plaintiff pay the defendants' costs "caused by" the asset restraint orders, including the costs of seeking to set aside those orders. The defendants also seek an order that such costs be paid on an indemnity basis. The defendants otherwise contend that there should be no order as to costs on ASIC's s 1323 application. ASIC resists the order for costs against it sought by the defendants and contends that the appropriate order is that each party should bear their own costs in relation to the s 1323 application. 2 The defendants argued that there are a number of factors that support a costs order in their favour on an indemnity basis. 3 First, it was submitted that the asset restraint orders were made without power and, thus, the plaintiff's application for those orders was in disregard of the law, hopeless and doomed to fail. 4 Secondly, it was submitted that ASIC was aware that the Court did not have the power to make those orders, having conceded on numerous occasions in other proceedings that the Court had no jurisdiction under s 1323 to make asset restraint orders against the defendants of the kind sought, absent an application for an order under s 1323(1)(h) for the appointment of a receiver. It was submitted that ASIC nonetheless invited the Court to make the asset restraint orders with the knowledge that it was beyond power. It was submitted that in so doing, ASIC sought to avoid having to give the usual undertaking as to damages that would ordinarily have been required, had the Court's jurisdiction been properly invoked: see s 1323(4) of the Corporations Act. 5 Thirdly, it was submitted that when the defendants brought this to the attention of the Court, ASIC sought to argue without proper foundation in law that the Court could nonetheless make such orders. As an alternative, ASIC then sought to amend its application to add a claim for relief under s 1323(1)(h) that ASIC never intended to press, as it only intended to rely on that section to found the Court's jurisdiction to make the asset restraint orders sought. This was said to be patently and transparently an abuse of process. 6 Fourthly, it was contended that ASIC failed to make full and fair disclosure and to meet the high degree of candour required by parties seeking an asset restraint order on an ex parte application in that, it was said, ASIC had only selectively disclosed certain material when it had other information available to it which should have been disclosed. It was submitted that in failing to disclose that information, ASIC presented a one-sided account to the Court and, in doing so, understated the motive for harm on the part of the complainants, elevated the seriousness of its concerns and deprived the Court of the explanatory material on behalf of the defendants which indicated that they challenged the version of events on which the investigation was based. 7 Fifthly, it was stated that at its core, ASIC's case for asset restraint orders was weak and ASIC approached the Court on incomplete material, tailored to present a case of serious misconduct and risk of transfer of assets overseas. It was submitted that upon the defendants filing significant affidavit material directed at addressing ASIC's concerns about assets being transferred overseas and client money being misappropriated, and strong evidence of the adverse impact of the asset restraint orders, ASIC ultimately conceded that it could not contest the defendants' evidence that they did not transfer or have access to money overseas. It was submitted that at that point ASIC, acting reasonably, should have agreed to the discharge of the asset restraint orders rather than arguing for those orders to be maintained. 8 Finally, it was submitted that the defendants had invited ASIC to agree to the discharge of the asset restraint orders and the defendants reasonably sought to convince ASIC that the application for those orders should not proceed. ASIC was put on notice that an application for indemnity costs would be made if ASIC sought to maintain the orders. It was submitted that ASIC did not act reasonably or in accordance with the overarching purpose in s 37M of the Federal Court of Australia Act 1976 (Cth) in proceeding with the application. 9 ASIC contends that there should be no order as to costs of its s 1323 application on the basis that each party had limited success in relation to the s 1323 application. It was submitted that the Court held on each occasion that ASIC had made out a case that it was desirable for the protection of present and former clients that the fourth and fifth defendants remain in Australia. ASIC maintained that in those circumstances, it could not be said that ASIC was the unsuccessful party in respect of its s 1323 application nor that ASIC's application under s 1323 was unwarranted or unreasonable in all of the circumstances known to ASIC at the relevant time. Additionally, it was submitted, ASIC's claims against the defendants have not yet been finally determined and the substantive proceeding remains on foot. 10 Whether any costs order should be made is a matter for the Court's discretion: s 1335(2) of the Corporations Act. In my view, there should be an award of costs in the defendants' favour. The defendants successfully argued that the Court lacked the power to make the asset restraint orders and in those circumstances, it is reasonable, in my view, that ASIC should therefore be ordered to pay some of the defendants' costs. As the issues concerning the asset restraint orders were not wholly separate and distinct from the issues relating to the defendants' application to discharge the travel restriction orders, which ASIC was successful in maintaining, I consider it appropriate to order that ASIC pay a proportion of the defendants' costs. An appropriate apportionment is fifty percent of the defendants' costs given that the issues relating to the interim sets of orders were fairly evenly balanced. 11 The next issue is whether an order for payment of costs on an indemnity basis should be made. The usual rule is that if an order is made for payment of the costs of one party to litigation by another party, the costs are on a party/party basis. To order the payment of costs on an indemnity basis, some special or unusual feature in the case must justify departure from the ordinary practice: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 230–234; Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166 at [1102]. The submissions on behalf of the defendants do not persuade me that this is such a case. 12 Indemnity costs serve the purpose of compensating a party fully for costs incurred when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs: Hamod v New South Wales [2002] FCA 424 at [20]. In the present case the Court found, after a contested hearing, that the asset restraint orders were made without power. However, it cannot be said, in my view, that the application was doomed to fail or had no prospects of success. Nor do I consider that the application was an abuse of process, as asserted by the defendants. 13 In this respect, it is clear from the conduct of the contested hearing that ASIC considered that the Court did have the relevant power to make the asset restraint orders in an application made under s 1323 and, if there was any doubt, that it should have leave to amend its application specifically to plead relief under s 1323(1)(h), thereby conferring power in the Court to make such orders on a fresh application by ASIC. There is clear authority that the Court has the power to make an asset restraint order in an application under s 1323 in aid of the exercise of jurisdiction under s 1323(1)(h), namely the appointment of a receiver to the whole or some part of the property of a "relevant person": Australian Securities and Investments Commission v Carey (No 14) (2007) 158 FCR 92; [2007] FCA 310, [34]–[36]. Moreover, it is clear that had ASIC specifically relied upon s 1323(1)(h) as the source of the Court's power, it was open to the Court to make the asset restraint orders in lieu of appointing a receiver. It cannot be said that ASIC had other than a genuine belief that it was within the power of the Court to make asset restraint orders on an interim basis under s 1323(3), having brought its application under s 1323. I would not impute that ASIC acted in wilful disregard of the law in making the application nor impute that ASIC was motivated to make the application in the way in which it did in order to avoid giving the usual undertaking as to damages: see s 1323(4). Furthermore, there was no abuse of process by ASIC in seeking to amend its application to include relief under s 1323(1)(h), foreshadowing that it would seek asset restraint orders in lieu of the appointment of a receiver if the grounds were made out. 14 As to the claim that ASIC failed to make full and fair disclosure of the facts in its possession, it has not been shown that the matters which the defendants claim that ASIC should have disclosed either materially bore upon the decision that was made or were such serious omissions from the evidence that the Court was misled, thereby justifying an order for costs on an indemnity basis. 15 I also do not consider that the defendants have made out the case that ASIC acted unreasonably in seeking to maintain the asset restraint orders after receiving the defendants' affidavit material in opposition to an extension of those orders. As matters transpired, ASIC only sought an extension of the orders for a two week period pending hearing on the substantive application as to whether such orders should be made on an ongoing basis. Whilst ASIC accepted that it did not then have evidence to challenge the defendants' affidavit material, it does not follow that it was unreasonable for ASIC to seek the short extension of the asset restraint orders. 16 Accordingly, the application for indemnity costs is refused. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 23 October 2015