SOLOMON v CORPORATE AFFAIRS COMMISSION SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL PRIESTLEY JA, HANDLEY and CRIPPS JJ 23 September 1992, 4 December 1992 [1992] NSWCA 234 The appellants claimed that the trial judge denied them natural justice in respect of orders made on 6 April 1989 restraining the appellants from doing acts in contravention of Div 6 Pt4 of the companies Code and Pt4 of the Securities Industries Code. It is also claimed certain interlocutory orders should be set aside. First: as to the interlocutory orders it was claimed that a receiver appointed over the appellants' companies was wrongfully appointed. It was also claimed the Court erred in not authorising the receiver to release funds to enable the appellant to pay legal fees. Held: It was not shown that any of the judges had erred in applying the principles required to be applied in appointing a receiver under s573 of the Companies Code. The Court had not denied natural justice to the appellants in not ordering a release of funds for the payment of legal fees. Apart from anything else, the appellants' money had become intermingled and inseparable from the funds of investors, together with a shortfall of investor money. Second: it is claimed the trial judge erred in holding that the scheme in question involved an offer or invitation to the public. Held: There was evidence to support the judge's conclusions.It was clear the information in question was not intended for the exclusive use of the reader or subscriber. No one was ever refused the opportunity to invest. The details of the scheme show that investors came to the appellants either through the purchase of the book or subscription to the newsletter and not from some other relationship with the appellants. Companies (NSW) Code 1981: s459, s573, s574, s5(4) Securities Industries (NSW) Code 1990: d 14 Securities Industries Act 1980: s97 Corporate Affairs Commission v Transphere Pty Ltd (1988) 13 ACLR 187 Corporate Affairs Commission (SA) v Australian Central Credit Union (1985) 157 CLR 201 Australian Softwood Forests Pty Ltd v Attorney General (NSW) (1973) 130 CLR 103 Hurst v Vestcorp Ltd (1988) 12 NSWLR Priestley JA I agree with Cripps JA. Handley JA I agree with Cripps JA. Cripps JA This is an appeal from final orders of Young J in two proceedings, Nos: 2917/84 and 3576/87. The ten appellants in the two matters are Mr Eddie Solomon, his wife, Judith, and eight companies controlled by Mr Solomon, one of which was incorporated in the Cayman Islands and another in the Turks and Caicos Islands. The third and fourth appellants were dissolved pursuant to s459 of the comPanies (New South Wales) Code 1981 ("the Code'). They were reinstated by the court during the hearing. The respondents in each case are the Corporate Affairs Commission (the first respondent) and Mr MacIntosh (the second respondent), a receiver appointed by the court pursuant to s573 of the Code. The proceedings were heard by Young J in November and December 1988. The orders the subject of the appeals were made on 6 April 1989. There were seven defendants in matter No: 2917/84 and ten in matter No: 3576/87. The appellants are all the defendants in matter No: 2917/84 and four in matter No: 2 UNREPORTED JUDGMENTS 3576/87 being Eddie Solomon, Judith Solomon, Northland Finance Limited and Eddie Solomon Holdings Inc. The effect of the orders of Young J was to restrain all defendants from undertaking activities contravening Division 6 of Pt4 of the Companies Code 1981 and the provisions of Pt4 of the Securities Industries (NSW) Code. The prohibitory orders restraining breaches of the Companies Code were made pursuant to s574 of the Code. The orders restraining breaches of the Securities Industries (NSW) Act 1990 were made, I assume, pursuant to s14 of the Act. The appellants' principal submission is that Young J denied them natural justice or procedural fairness with the result that his final orders should be set aside. Acceptance of their submission depends, in part at least, upon the correctness or otherwise of a number of interlocutory orders made by Kearney J, Needham J and Young J during the period 1984 to 1988. Between 1984 and 1987, Mr MacIntosh was appointed receiver of all the property of the appellants pursuant to the provisions of s573 of the Companies Code. In 1987 and, possibly, in 1988, applications made on behalf of one or more of the appellants that the receiver be authorised to release funds for payment of legal fees and expenses in the subject proceedings were dismissed. I have said "possibly" with respect to the year 1988 because, although no formal application was made during that year, it is submitted that, by implication at least, an application was made to and refused by Young J. The appellants submitted that Young J was in error in holding that the scheme the subject of the proceedings involved an offer or invitation to the public as that expression must relevantly be understood. (It was earlier alleged, but later abandoned, that he was in error in determining that the offer or invitation to the public was of a "prescribed interest" as defined in the Code.) It was submitted that the prohibitory orders were too wide, not supported by the evidence and, with respect to two appellants at least, defective because of lack of any relevant nexus between the persons to whom they were directed and the State of New South Wales. It was somewhat faintly submitted that the repeal of the Companies Code since the hearing of the suit necessarily meant that the orders should now be discharged even if, contrary to the appellants' submission, they were unimpeachable when made. It was submitted that the suit was not properly constituted because of the absence of necessary parties: being the investors who had lodged money with Mr Solomon and/or other appellants under his control. The appellants submitted that the orders made appointing the receiver were, in each case, not authorised by law. With respect to some appellants, it was alleged that the prerequisite conditions set out in s573(1)(a),(b),(c) were not, or were not adequately, established. For example, it was submitted that Mrs Solomon and certain offshore companies were not persons to whom s573 applied and, in any event, there was no relevant nexus between the property of those persons in Switzerland and the State of New South Wales. It is submitted that some (or perhaps all) of the orders appointing the receiver were too wide because provision was not made for the "relevant persons" to have available ordinary living expenses and to defend proceedings. It is relevant to mention that McLelland J, in 1985, determined that the orders made under s573 were capable of encompassing and in fact encompassed, after acquired property. McLelland J's determination was not the subject of challenge in the appeal. It was referred to by Mr Rares on behalf of the appellants for the purpose of demonstrating what was said to be the impermissibly wide and unauthorised nature of the interlocutory orders. URJ SOLOMON v CORPORATE AFFAIRS COMMISSION (Cripps JA) 3 In his judgment in December 1988, Young J characterised the appointment orders as being relevantly "final" orders. I shall return to this matter later. It is relevant to mention that although submissions have been made with respect to orders appointing Mr MacIntosh receiver and to applications to the Court with respect to his authority to deal with funds under his control, it was never submitted (or, indeed, maintained in this appeal) that the orders appointing Mr MacIntosh should not have been made because no undertaking for damages was given by the Commission. Where an application is made under s573(1A) by the Commission, the court cannot require the Commission or any other person as a condition of the granting of an interim order to give an undertaking as to damages. In April 1989, Young J did not make an order for the appointment of a receiver. He made prohibitory orders and said that he declined to make declaratory orders. He directed that, in each case, the receiver formulate a proposal for the consideration of the Court as to the disposition and distribution of the assets the subject of the receivership. The second respondent (the receiver) entered a submitting appearance and did not appear on the appeal. The first respondent (the Commission) maintained the correctness of the orders the subject of appeal and by notice of contention sought to argue that Young J erred in declining to make declaratory orders of the type asked for. It was conceded by the Commission at the hearing that if it wished that matter to be raised, it should have cross appealed. Leave was asked for and granted. The activities of Mr Solomon and companies under his control first came to the attention of the Commission in 1983. In the judgment on 5 December 1988, Young J found: "From 1982, Mr Solomon had widely publicised the fact in the print media and in the electronic media that he wrote a book which originally was called 'Financial Independence' and later on 'The Eddie Solomon Money Encyclopaedia'. Interested persons could purchase that book for a modest sum and it would appear that approximately 20,000 did so. The book tells people that they may subscribe to a publication called "The Eddie Solomon Report' in which they would get legal, moral and ethical advice as to investment. Again many people subscribed to this publication. Mr Solomon then circulated the people who had purchased his book or subscribed to his newsletter and others as well with pro forma letters which may be construed to have solicited moneys. As a result of these activities, large sums of money came into the possession of Mr Solomon or one or other of the defendant companies". Throughout the relevant period about 800 people invested approximately $1.8 million with Mr Solomon or one of his companies. The sums invested, by each person, were, generally speaking, relatively small. In December 1988, the funds in the receiver's hands amounted to approximately $750,000. S573 of the Companies Code provides: "573.(1) Where (a) an investigation is being carried out under this Code in relation to any act or omission by a person, being an act or omission that constitutes or may constitute an offence against this Code: (b) a prosecution has been instituted against a person for an offence against this Code; or 4 UNREPORTED JUDGMENTS (c) a civil proceeding has been instituted against a person under this Code, and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of any persons to whom the person referred to in para(a), para(b) or para(c), as the case may be (in this section referred to as the 'relevant person'), is liable or may be or may become liable to pay any moneys, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for any securities or other property, the Court may, on application by the Commission, make one or more of the following orders: (d)... (e)... (f)... (g)... (h) an order appointing (i) where 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) where 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; Gj). (k)... (1A) Where an application is made to the Court for an order under subs(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. (1B) Where the Commission makes an application to the Court for the making of an order under subs(1), the Court shall not require the Commission or any other person, as a condition of granting an interim order under subsection (1A), to give any undertakings as to damages. (2) Where the Court has made an order under this section, the Court may, on application by the Commission or by any person affected by the order, make a further order rescinding or varying the first mentioned order. (3) An order made under subs(1) or subs(2) may be expressed to operate for a period specified in the order or until the order is rescinded by a further order under this section..... " S573(1)(d), (e), (f) and (g) authorise the making of orders for the protection of persons who may have enforcement rights and to prevent the dissipation of assets by the person against whom those rights can or might be enforced. Similar provisions appear in the Securities Industries Act 1980 (see s14 which, however, does not have a provision, in terms, similar to s573(1A)). In August 1984, Powell J made a Mareva type order with respect to certain funds under the control of Mr Solomon and his companies (proceedings No: 2917/84). The note on the Court file reveals that on 12 September 1984 Mr Solomon consented to an order for the appointment of a receiver over all the property of the defendants but Powell J appointed a receiver over the property in five separate funds, each of which was vested in one of the appellants. Later, in 1984, other restraining orders were made by McLelland, Holland and Cohen JJ. In November 1984, Holland J extended the orders made by Powell J. On 30 November 1984, at a time when all the appellants who were the defendants in No: 2917/84 were then before the Court and were represented, Holland J made URJ SOLOMON v CORPORATE AFFAIRS COMMISSION (Cripps JA) 5 a Mareva type order which permitted Transphere Pty Ltd, Eddie Solomon Pty Ltd and Eddie Solomon to make such payments out of the assets the subject of the order as were required in the ordinary course of business including payments to their solicitors and, in the case of Mr Solomon, to meet reasonable living expenses for himself and his family. On 11 December 1984, Mr MacIntosh was appointed receiver over all other identified funds. In matter No: 2917 of 1984, the Commission also sought declarations that the activities of Mr Solomon and/or his companies contravened the Companies Code. As Young J observed in his judgment in December 1988, the orders made in 1984 did not do much to inhibit Mr Solomon's activities. He merely changed his modus operandi. A second set of proceedings commenced in 1987 (No: 3576 of 1987). Again, declarations were sought that certain trust funds were "prescribed interests" within the meaning of Division 6 of Pt4 of the Code and that the interests of persons participating in each of the classes of funds (referred to as "trust funds") were relevantly "securities" within the meaning of the Securities Industries Act 1980 and in contravention of s97 of the Securities Industries Act 1980. As in proceedings No: 2917/84, the Commission also sought prohibitory orders restraining all defendants in that action from continued involvement with what were said to be unlawful schemes. As I have said, in May 1985, McLelland J determined that the orders in proceedings No: 2917 of 1984 appointing a receiver were capable of encompassing, and in fact encompassed, after acquired property. In 1986 he made a direction to the effect that the orders made included property held on trust. In June 1985, he considered how to reconcile the existence of the orders appointing a receiver over all the property of the then appellants and the injunctive order which provided that it would not be a breach of the order restraining disposal or removal of assets from the jurisdiction of the court if payments were made in the ordinary course of business, for expenses for legal proceedings and, in the case of Mr Solomon, for living expenses for himself and his family. McLelland J concluded that the receiver would be justified in acting on the basis that payments made in terms of the abovementioned proviso to the prohibitory order could be made from the property of the relevant appellants in his hands as receiver. On | August 1985, Young J appointed a receiver expressed, in terms, to be pursuant to s573(1A) over the property of the Eddie Solomon Banking Corporation (West Indies Ltd) and the Eddie Solomon Bank and Trust Corporation Inc (now the ninth and eighth appellants). Young J referred to the melancholy but typical case of a Tasmanian depositor who had invested about $3000 in the Eddie Solomon Trust and then authorised its withdrawal and reinvestment in a separate fund because he believed Mr Solomon who had said that he was subject to "continued harassment" by the New South Wales Corporate Affairs Commission. On 24 August 1987, Needham J in proceedings No: 3576 of 1987 made an order appointing a receiver over the property of, inter alia, Eddie Solomon Holdings Inc, Judith Ann Solomon, Mr Solomon's wife, Mr Solomon and Northland Finance Limited. He made interlocutory orders against Mr Solomon and his company, Eddie Solomon Holdings Inc, restraining them from inviting the public to invest. He made an interlocutory order against Mrs Solomon restraining her from dealing with funds in a Swiss bank account. He also made an order appointing a receiver over a number of other entities said to be controlled by Mr Solomon. The Commission's action was prompted by the 6 UNREPORTED JUDGMENTS discovery in a numbered Swiss bank account of approximately $1 million Swiss francs. The account was in the name of Mrs Solomon. Needham J was of the opinion that a substantial question arose to be determined, viz the origin of the money. He thought that the fact that it was not Mrs Solomon's money lent credence to the view that it came from Mr Solomon's operations. Of relevance to these proceedings is the circumstance that Needham J considered the question of hardship caused by the orders he proposed to make. Bearing in mind that Mr Solomon did not say the money was his and, on the evidence, Needham J could not conclude that it belonged to Mrs Solomon, his Honour expressed the view "if that money does belong to investors then it is imperative that it be secured by being placed in the hands of the receiver". He expressly left it open to the then defendants to move the Court on two days notice to have any of the orders discharged. He did not make any proviso to the order whereby the receiver was authorised to make funds available for certain purposes. Throughout 1986 and 1987, a number of actions were commenced by Mr Solomon against the Commission. It is unnecessary for me to set out the details. On 8 May 1987, he was declared a vexatious litigant at the suit of the Attorney-General. The material tendered to the Court during the hearing of the appeal demonstrates that Mr Solomon and/or his companies were represented by lawyers in all the proceedings except, of course, where ex parte orders were made. Sometime prior to 1987, Mr Solomon and others were charged with a number of serious offences of dishonesty, including conspiracy to defraud and fraudulent misappropriation arising out of the abovementioned activities. Mr Solomon stood trial in August 1987. He was convicted and later sentenced to five years imprisonment with a specified non parole period of three years. He went to gaol. He was granted bail by the Supreme Court on 16 August 1988 it being said by a medical practitioner that he was suffering from a condition of paranoid schizophrenia. The Court of Criminal Appeal heard his appeal on 15 November 1989. A new trial was ordered. Thereafter, the matter went to the High Court and came back to the Court of Criminal Appeal. Of relevance in these proceedings is the circumstance that in April 1988 Mr Solomon was in custody and in December 1988 he was on bail. During his trial, Mr Solomon applied to Young J in September 1987 to vary McLelland J's order of 3 June 1985 and to authorise the receiver to pay to Mr Solomon, out of the frozen funds, moneys for his legal expenses of the trial then running before the District Court. The application was refused. Young J referred to the existence of the Swiss bank account, to bank accounts in London, Hawaii and other parts of the United States and to the use by Mr Solomon of a number of aliases. He noted that Mr Solomon was not frank in his disclosure to the Court concerning his affairs and observed that Mrs Solomon was then renting an apartment and paying rent in excess of $500 per week. It has not been shown that any of Young J's findings were not open. On 13 November 1987, Young J vacated the hearing date of both suits due, in part, to what he perceived to be the shocked state of Mr Solomon who had just been found guilty by the jury. The matters were listed to be heard before Young J in April 1988. Mr Solomon was in custody in April 1988. He appeared before Young J representing himself. He said he did not have all the documents that he needed if he were to appear for himself. He said he was not legally qualified to conduct his own case and if he did conduct it he would need to bring witnesses to support URJ SOLOMON v CORPORATE AFFAIRS COMMISSION (Cripps JA) 7 his defence and he could not do that while he was in custody. He said to Young J: "T will leave it in your hands just for you to make a decision." He said he was "prepared to attend court if the Corporate Affairs Commission or his Honour needed him". He was excused from further attendance at his own request. At the conclusion of the three day hearing, Young J declined to make the declarations sought. He noted that the matter had proceeded ex parte, there was no appearance by any investors and, in any event, doubted the propriety in the one set of proceedings of seeking substantial relief and also the appointment of a receiver. No orders were made except orders that the proceedings stand over until a further date. His Honour said: "So long as the chances of investors receiving some moneys in the near future is preserved, I cannot see any prejudice that can be caused to any of the defendants or the public by making such an order and, accordingly, I do so." The decision of Young J in April 1988 and his reasons are to be found in Corporate Affairs Commission v Transphere Pty Ltd (1988) 13 ACLR 187 at 190. The matter came on for hearing again before Young J on 9 November. By that time Mr Solomon was on bail. He told Mr Justice Young that the matters were so complex he could offer no assistance. The matter proceeded and, on 5 December 1988, Young J published a judgment and orders were made in April 1989 which are the subject of the present appeal. Apparently the receiver was authorised to pay legal fees by Cohen J on 5 February 1990. In September 1990 the receiver sought and obtained an order that he was justified in making no payments to Mr Solomon. The basis of his application, which was accepted by the Court, was that Mr Solomon had improperly, and it would seem, unlawfully, obtained almost $40,000 from bank accounts under the control of the receiver and that this had occurred about six weeks before he swore an affidavit alleging impecuniosity in February 1990. Before turning to the grounds of appeal, I note that funds have been made available to Mr Solomon to contest the appeal. Some time in 1992 an order was made authorising funds to be made available to Mr Solomon to allow lawyers to present his appeal. A submission appeared to be made that if it were proper for the court in 1992 to authorise the receiver to make moneys available to Mr Solomon, it should be inferred that it was improper or wrong for it to have declined to do so at some earlier time. I make no comment about applications before judges of the Equity Division in 1992. They have not been investigated and no information has been made available other than that authorisation was given and, presumably, some money was made available. The orders made in 1992 are irrelevant to the issues before the Court. It is alleged that the effect of the orders made appointing a receiver over all the property of the appellants and the refusal of judges to authorise the receiver to make moneys available to the appellants denied to the appellants the right to defend themselves in the civil proceedings, that right being, presumably, to retain the lawyers of their choice. The principal submission appears to be that the denial of natural justice arose from the orders of Needham J and Young J in 1987 and by Young J in 1988 when they refused to make orders directing the receiver to make funds available to the appellants. It was submitted that this refusal denied the appellants "their basic human and/or constitutional right of equality before the law and of not being denied justice or right in breach of Magna Carta c 29". 8 UNREPORTED JUDGMENTS In my opinion, it has not been demonstrated that either Needham J or Young J erred in declining to order funds to be made available to Mr Solomon and/or his companies to defend the proceedings. If there was any separate property in the hands of the receiver belonging to any one of the appellants, it had become, as Mr Solomon conceded to the investigators, intermingled with investment funds. The effect of the submission on behalf of the appellants is that they were denied natural justice because judges of the Equity Division would not make available to them funds which belonged or might well belong in equity to the investors to fund their defence in the civil proceedings. I do not propose to speculate on what might be the outcome of a complaint of a denial of natural justice where separate property of a litigant is withheld with the result that the litigant is unable to defend himself in civil proceedings. In the present case, it has not been shown that the receiver had under his control any moneys the separate property of the appellants. If there were separate moneys, they were, according to a statement made by Mr Solomon, intermingled with investors' funds. I do not think the judges erred in not authorising the release of investors' funds to the appellants. For present purposes, I leave to one side the fact that Mr Solomon had legal representation for the hearings before 1988. I also leave to one side that each judge to whom Mr Solomon made application concluded, as they were entitled to, that his evidence was unreliable. I will assume that, in 1988, Mr Solomon had no money available to him to retain lawyers in the civil proceedings. Why, the question can be asked rhetorically should the Court have authorised the giving to him of what was or might well be someone else's money? It would seem to me, therefore, that even if it were established (and, as will be seen, it has not) that the orders appointing Mr MacIntosh as receiver were orders that should not have been made or should have been made in different terms, it would not follow that the appellants have made out a case of denial of natural justice with respect to the proceedings before Young J in November and December 1988. At the time the application was made to authorise the receivers to make funds available, it was established that there was a large shortfall between the amount of investors' funds in the hands of the receiver and the amount which had actually been lodged by the investors. It was submitted by the appellants that their allegation of denial of natural justice was bolstered by observations made by Young J in his judgment. At 3 of the judgment, Young J referred to Mr Solomon's statement to the effect that the matters to be debated were so complex "that he could offer no assistance". After referring to the fact that the Solicitor General for New South Wales appeared he said: "The only advocate for the other side was Mr Solomon who very properly said he could not assist and that he would leave it to me. I will return to the significance of these comments later". Later he said he was not prepared to conclude that "the defendants have deliberately not defended the proceedings in order to stultify" the making of declarations. These references do not advance the appellants' argument that someone else's funds should be made available to them to conduct civil proceedings. In any event, my reading of the judgment leads me to the conclusion that the observations were not directed to Mr Solomon's ability to understand whether what he was doing was in breach of the relevant legislation. They were directed to whether declaratory orders should be made. If, however, Young J was expressing the opinion that he did not think Mr Solomon understood the allegations that were being made, then I am bound to say, on the information before me, I would not reach the same conclusion. It would seem to me, with URJ SOLOMON v CORPORATE AFFAIRS COMMISSION (Cripps JA) 9 respect, that Mr Solomon knew as well as most lawyers that the activity of the type engaged in by him was prohibited under the Code. The manner by which he sought to attract investment convinces me that he well understood what was alleged against him and that what he was doing was in breach of the Code. At the very least it has not been demonstrated to me that he did not have that understanding. In my opinion, the allegation that the appellants were denied natural justice should be rejected. Thave already referred to the terms of s573 of the Code and to the orders made. It has not been demonstrated that any of the judges who made orders misunderstood the principles upon which a court is required to act upon applications under s573 for the appointment of a receiver over all the property of a person or corporation. These principles are conveniently set out at 697 of the third edition of Meagher, Gummow and Lehane Equity: Doctrines and Remedies 3rd Ed (1992). All the judges well know that orders of the type made are not made unless the Court is convinced they are necessary. In the present case, with one exception, all the orders the subject of challenge were expressed to be interim orders. The one exception appears to be the second order made on 11 December 1984 when a receiver was appointed over the property of the two offshore companies which property had been the subject of an interim order on the same day. Young J, in his judgment in December 1988, characterised the earlier orders as "final". It is not entirely clear to me, with respect, what he meant by that. It would seem to me that orders of the type made under s573 are necessarily interim orders. But however that may be, it is, in my opinion, too late to challenge the making of the orders appointing Mr MacIntosh receiver. Not all the orders were the subject of challenge. For example, the orders made by McLelland J concerning the power of the Court to appoint a receiver over all the property and to the effect that in the present case it extended to property held on trust and after acquired property have not been challenged. No applications have been made to vary or rescind any of the orders made. There was some debate as to whether, as against Mr Solomon, for example, the prosecution was relevantly a prosecution for "an offence against the Code". There was an investigation being carried out under the Code and it was open to the judge to conclude that that investigation related to acts or omissions of Mr Solomon and the corporations he controlled. It was submitted that so far as Mrs Solomon is concerned, she was not the subject of an investigation and that there had been no prosecution against her. However, proceedings had commenced against her and all other appellants seeking declarations and prohibitory orders. It may be, as Young J observed, that an application for declaratory orders is not relevantly a "civil proceeding" under the Code. However, an application for prohibitory orders under s574 is. It was submitted that the court lacked any jurisdiction to make an order against Mrs Solomon because there was no relevant nexus between the Swiss bank account and the State of New South Wales. Further, it was submitted that it had not been demonstrated before Needham J that there was any nexus between the activities of Mrs Solomon and the money in the Swiss bank account. As to the first submission, the relevant nexus, in my opinion, was established by reason of the activities of Mrs Solomon, Mr Solomon and companies under his control. Further, in my opinion, it was open to Needham J to conclude, as he did, that there was a serious question to be determined whether the money in the Swiss bank account belonged to investors. The circumstance that it may have been determined in 1988 that it did not (if that, indeed, is what has happened) does not 10 UNREPORTED JUDGMENTS affect the validity of the order made by Needham J. His order was not challenged until after the final order made by Young J in April 1989. Young J's orders did not include any order with respect to receivers other than the one I have mentioned. If circumstances change requiring a variation or rescission of the order the appropriate application can be made. Indeed, applications have been made since the institution of the appeal and, at least two, have resulted in a variation of earlier orders. I do not think it was beyond the power of the Court to make a conditional order for the appointment of a receiver of the type made by Needham J. McLelland J's reconciliation of the orders made has not been challenged. I have already referred to the description by Young J of Mr Solomon's activities. He advertised in newspapers that interested persons could buy his book for about $15. The book told people that they could subscribe to the "Eddie Solomon Report" for advice as to investments. More than 20,000 people subscribed. Thousands of circulars were ordered and distributed between 1984 and 1988. Mr Solomon's book was available at newsagencies. Mostly, the appellants received investment funds from people who purchased the book or the newsletter. However, there was at least one investor, Mr Hodgkin, who had heard about the offer from a friend. A typical invitation from the appellants solicited investments and guaranteed a minimum return of 25% per annum compound interest. Bill paying facilities were offered. The circulars asked the recipients to introduce friends, relatives or business associates to the appellants. On behalf of the appellants, Mr Rares relied on statements in Mr Solomon's publication to the effect that the information in the books was for "the exclusive use of the reader" and statements to the effect that what it offered is "not an invitation to the public to subscribe in securities". S5(4) of the New South Wales Code provides: "A reference in this Code to, or to the making of, an offer to the public or to, or to the issuing of, an invitation to the public shall, unless the contrary intention appears, be construed as including a reference to, or to the making of, an offer to any section of the public or to the issuing of, an invitation to any section of the public, as the case may be, whether selected as clients of the person making the offer or issuing the invitation or in any other manner and notwithstanding that the offer is capable of acceptance only by each person to whom it is made or that an offer or application may be made pursuant to the invitation only by a person to whom the invitation is issued, but a bona fide offer or invitation shall not be taken to be an offer or invitation to the public if it..." (and there followed a number of exceptions.) In my opinion, there was ample evidence entitling Young J to conclude that there was an issue or invitation to the public. It was proved that investors came from members of the public who had no connection or relationship with Mr Solomon or the other appellants other than by reason of the purchase of the book and newsletter and the circular which followed. The publication and sale of the books and newsletters was the first step in the scheme. The second step were the letters and invitations sent to the purchasers of the book and subscribers to the newsletters. In Corporate Affairs Commission (SA) v Australian Central Credit Union (1985) 157 CLR 201 at 208, Mason ACJ, Wilson, Deane and Dawson JJ said: "The question whether a particular group of persons constitutes a section of the public for the purposes of s5(4) of the Code cannot be answered in the abstract. For some purposes and in some circumstances, each citizen is a member of the URJ SOLOMON v CORPORATE AFFAIRS COMMISSION (Cripps JA) 11 public and any group of persons can constitute a section of the public. For other purposes and in other circumstances, the same person or the same group can be seen as identified by some special characteristic which isolates him or them in a private capacity and places him or them in a position of contrast with a member or section of the public. In a case where an offer is made by a stranger and there is no rational connexion between the characteristic which sets the members of a group apart and the nature of the offer made to them, the group will, at least ordinarily, constitute a section of the public for the purpose of the offer. If, however, there is some subsisting special relationship between the offerer and members of a group or some rational connection between the common characteristic of members of a group and the offer made to them, the question whether the group constitutes a section of the public for the purpose of the offer will fall to be determined by reference to a variety of factors of which the most important will ordinarily be: the number of persons comprising the group, the subsisting relationship between the offerer and the members of the group, the nature and content of the offer, the significance of any particular characteristic which identifies the members of the group and any connexion between that characteristic and the offer." (See also Australian Softwood Forests Pty Ltd v Attorne Y-General (1981) 148 CLR 121.) The word "offer" is not used in its strict contractual sense (Ibid p 134); (see also The Mutual Home Loans Fund of Australia v Attorney-General (NSW) (1973) 130 CLR 103). Mr Rares has submitted that Young J misunderstood the appropriate test to be applied because, at page 35 of his judgment, he said: "The only contact between the Eddie Solomon companies were because of the purchase of a book, hardly a basis for an intimate personal or commercial relationship". I do not think that Young J was saying that unless it was proved there was an intimate personal or commercial relationship between Mr Solomon and members of the public to whom the letters were sent it followed that he was making an "offer to the public". So much is made plain by the other reasons he gave for saying that he was satisfied that there was an invitation to members of the public. For example, he pointed to the large number of circulars that were printed and sent out and to the fact that there was no record of any member of the public being refused an opportunity to invest. For these reasons, I have come to the conclusion that it has not been demonstrated that Young J erred in his conclusion that there had been an invitation to members of the public. The investors were not parties to the proceedings. In his decision in December 1988, Young J noted that between April 1988 and November 1988 the Commission sent circulars to approximately 450 investors to see if they wished to become involved in the proceedings. Ninety five could not be located. Young J was told that "the vast majority" did not wish to become involved. He was told that some consented to be involved if their costs were guaranteed. In my opinion, the circumstances that one or more could have been joined in the proceedings does not make them necessary parties. The issue between the Commission and the appellants viz whether the appellants were in breach of the relevant legislation could be litigated without any of the people who invested moneys being made parties. As I have said before, no declarations were made. It follows, therefore, that I am of the opinion that the appeal must be dismissed. 12 UNREPORTED JUDGMENTS It was also submitted that the repeal of the Companies Code and its replacement by the Corporation Law 1989 necessarily had the effect that the orders made by Young J should be discharged even if, contrary to the appellants' submission, they were unimpeachable when made. I do not think the submission was pressed with much force. In any event, it is rejected. The activities the subject of the restraining order are still unlawful under the Corporations Law and there is provision under that law (s1323) to make orders of the type made. For the above mentioned reasons, I am of the opinion the appeal should be dismissed. Cross Appeal Ihave earlier referred to the reasons given by Young J why he would not make the declarations sought. In my opinion, it has not been demonstrated that his discretion miscarried or that he misunderstood his powers. He did not say he had no jurisdiction to make declaratory orders. He noted that there was no contradictor, investors were not parties and that the making of declarations might lead to complications in the future by reason of the decision of this Court in Hurst v Vestcorp Ltd (1988) 12 NSWLR 394. These reasons entitled Young J to refuse to make declaratory orders. Furthermore, it is not obvious to me why it was thought necessary by the Commission that declaratory orders should be made bearing in mind that prohibitory orders were made and reasons were given for the making of those orders. In my opinion, the cross appeal should be dismissed. I would propose the following orders: 1. Appeal dismissed. 2. Cross appeal dismissed. 3. The appellant to pay the respondents' costs of the appeal. The respondents to pay the appellant's costs of the cross appeal. Counsel for the Appellant: SD Rares, GA Sirtes, Instructed by: Farrell Lusher, Wagga City Agents: Turner Whelan and Wells Counsel for the Respondent: RS McColl, ME Burke, Instructed by: Corporate Affairs Commission RH Wagstaff