New South Wales Supreme Court CITATION : Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2007] NSWSC 434 HEARING DATE(S) : 12/04/07, 19/04/07, 20/04/07 JUDGMENT DATE : 4 May 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Fourth defendant's notice of motion filed on 12 March 2007 dismissed. CATCHWORDS : PROCEDURE - application for summary dismissal - whether evidence capable of making allegations plausible - special considerations where multiple defendants - PROCEDURE - application for separate trial of case against fourth defendant - civil penalty proceedings to be conducted under rules for civil matters - trial of claims against all defendants together consistent with such rules - no basis shown for separate trial Corporations Act 2001 (Cth), ss.9, 206C, 206E, 1317E, 1317L LEGISLATION CITED : Evidence Act 1995, s.136 Uniform Civil Procedure Rules 2005, Rules 6.19(1), 13.4 Australian Securities and Investments Commission v Vines (2003) 48 ACSR 282 General Steel Industries Inc v Commissioner for Railways (1965) 112 CLR 125 CASES CITED : R v Patsalis (1999) 107 ACrimR 432 Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 Webb v The Queen (1994) 181 CLR 41 Wickstead v Browne (1992) 30 NSWLR 1 Australian Securities and Investments Commission - Plaintiff Sydney Investment House Equities Pty Ltd - First Defendant Sydney Investment House Capital Ltd - Second Defendant Edwin James Goulding - Third Defendant Stephen Geagea - Fourth Defendant PARTIES : Sydney Investment House Pty Ltd - Fifth Defendant Sydney Investment House (Newcastle) Pty Ltd - Sixth Defendant Sydney Investment House (Beaconsfield) Pty Ltd - Seventh Defendant Melbourne Investment House Pty Ltd - Eighth Defendant Melbourne Investment House (Hawthorn) Pty Ltd - Ninth Defendant Melbourne Investment House (Collingwood) Pty Ltd - Tenth Defendant FILE NUMBER(S) : SC 2941/06 Mr A.J. McInerney - Plaintiff COUNSEL : Third defendant in person Mr P.E. King - Fourth Defendant Kim Turner, Solicitor for Australian Securities and Investments Commission SOLICITORS : Third defendant in person Fourth defendant in person IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY, 4 MAY 2007 2941/06 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v SYDNEY INVESTMENT HOUSE EQUITIES PTY LTD & 9 ORS JUDGMENT 1 The fourth defendant's notice of motion filed on 12 March 2007 sought an order that the plaintiff's case as a whole be summarily dismissed. Subsequently, the application was amended so that, having regard to rule 13.4 of the Uniform Civil Procedure Rules 2005, it became an application for an order that the proceedings be dismissed in relation to certain claims. The claims to which the application came to relate are those in paragraphs 12 to 24, 40, 46, 51, 67, 73, 74, 79, 80, 85 to 88, 91 to 95 and 100 to 239 of the third further amended statement of claim. 2 In substance, the application is, as stated in the written submissions of counsel for the fourth defendant dated 21 April 2007, an application for summary dismissal in respect of "all causes of action relying on paragraph 9 as further amended of the third further amended statement of claim". 3 Paragraph 9 of the third further amended statement of claim is as follows: "At all material times on or after May 2003 and October 2003 respectively, the Fourth Defendant: (a) provided marketing and sales services to the First and Second Defendants; and (b) was an officer of the First and Second Defendants by reason of the fact that he was a person who participated in the making of decisions that affect a substantial part of the business of the First and Second Defendants; and (c) acted as a director of the First and Second Defendants." 4 Causes of action or claims based on these central allegations are advanced in the several parts of the pleading to which the summary dismissal claim relates. 5 It is contended on behalf of the fourth defendant that "there is no utility in such matters going to trial". It is said that the documentary evidence the plaintiff has served does not prove that the fourth defendant "made any decision qua Equities" (that is, the first defendant). It is also said that none of the documentary evidence (in respect of which, according to the fourth defendant, the plaintiff "has given notice under Ev Act s.69 [business records provision]") is "in admissible form" and such evidence should be rejected. The fourth defendant further says, as I understand the submission, that there is no evidence that he held himself out as a director of the first defendant or second defendant or acted as a director. 6 The fourth defendant also regards as doomed to failure the claims based on the proposition that he was an "officer" of the first defendant or the second defendant. 7 The plaintiff contends that there is ample evidence of instances in which the fourth defendant described himself as a director of the first defendant. It refers to at least seven loan agreements between the first defendant and other persons signed apparently on behalf of the first defendant by the fourth defendant describing himself as "director" (these are detailed at paragraph 12 of the written submissions of 28 March 2007). It draws attention to the signature of the fourth defendant on his affidavit sworn on 12 March 2007 and to its apparent correspondence with the signatures on the loan agreements. The plaintiff also points to a power of attorney given to the fourth defendant by the third defendant (an acknowledged director) empowering the fourth defendant to act for the third defendant as a director. 8 As to the second defendant (Capital), the plaintiff refers at paragraph 14 of the written submissions of 28 March 2007 to loan agreements of January 2005 to which the second defendant was party and in which the fourth defendant appears to have participated, as well as a company search and documents purporting to be minutes of meetings of the directors of the second defendant indicating that the fourth defendant was a director of the second defendant. 9 An application such as the present is not the occasion for final rulings on objections to the admissibility of evidence. The documents on which the plaintiff will seek to rely appear prima facie to be admissible – or, to put this another way, they cannot be said to be obviously and unarguably inadmissible. In addition, those documents, in conjunction with the affidavits (as described in submissions of counsel for the plaintiff), appear capable of making plausible the allegation that, in relation to the first defendant (Equities), the fourth defendant was a shadow director or a de facto director and within either or both of paragraph (a) and paragraph (b) of the definition of "officer" (as it relates to a corporation) in s.9 of the Corporations Act 2001 (Cth). In relation to the second defendant (Capital), there is evidence making plausible the allegation that the fourth defendant was, for some period at least, a de jure director; also that he may have been a de facto or shadow director at other times. The "officer" allegation has support from the same sources. 10 The fourth defendant puts some store by the proposition that he was, at material times, an employee of the first defendant and was acting within the scope of his employment when providing marketing and sale services. This proposition is put forward as fatal to any case based on an allegation that, in providing those services, the fourth defendant was aiding, abetting, counselling, procuring or knowingly concerned in certain statutory contraventions by the first defendant. On this, it is sufficient to say that the existence of any relationship of employer and employee is not fundamentally inconsistent with any such allegation. An employee is not, because an employee, incapable of aiding, abetting, procuring or counselling conduct of his or her employer and being knowingly concerned in such conduct. 11 The case the plaintiff seeks to advance upon the claims to which the fourth defendant's application relates is, quite simply, not "so obviously untenable that it cannot succeed": General Steel Industries Inc v Commissioner for Railways (1965) 112 CLR 125. It cannot be said that there is, in those respects, absence of a triable issue. 12 As submissions made on behalf of the plaintiff emphasise, there is another powerful consideration against any form of summary dismissal at this point. There are ten defendants, of whom two (the third and fourth) are natural persons. On the view the fourth defendant takes, the third defendant was a more prominent actor than he was. The interests of the third and fourth defendants by no means coincide. The following observation of Handley and Cripps JJA in Wickstead v Browne (1992) 30 NSWLR 1 (at pp.11-12) is therefore pertinent: "However for another reason, which was first raised by the Court, the respondent as one of a number of defendants cannot be entitled to summary dismissal before trial because of evidentiary deficiencies in the plaintiff's case. If at the close of the plaintiff's case at the trial there was no evidence against this respondent he would not be entitled at that stage to judgment if any of the other defendants intended to go into evidence: see Menzies v Australian Iron & Steel Ltd (1952) 52 SR (NSW) 62; 69 WN (NSW) 68. The effect of this rule is now embodied in Supreme Court Rules Pt 34, r 7(6) and r 8(5). The reason for the rules is clear and was explained in the decision referred to. At the close of the plaintiff's case there may be evidence against some defendants but not against others. The court will not entertain a motion for judgment by some only of the defendants because any gaps in the plaintiff's case against those defendants may be filled when the other defendants go into evidence. In particular one or more of the defendants going into evidence may seek to exculpate themselves by inculpating defendants against whom the plaintiff had no admissible evidence at the close of his case. If the respondent would not be entitled to succeed on a no evidence point at the trial until all the evidence has been called, including that from other defendants, it is clear that there can be no such entitlement on an application by one of several defendants for summary dismissal." 13 It is quite conceivable that some scenario such as that described in this passage could unfold in this case. 14 The fourth defendant's application for summary dismissal will not be granted. 15 The notice of motion filed on 12 March 2007 advances an alternative claim, namely, a claim for an order that the plaintiff's case against the fourth defendant "be heard separately and on a different date from the hearing of the plaintiff's case against all other named defendants as currently listed or otherwise". 16 In pursuing this alternative claim, counsel for the fourth defendant sought to draw parallels with criminal proceedings. In the course of submissions on 12 April 2007, counsel referred to the plaintiff's pleading as "one seeking a criminal penalty". On 19 April, he referred to the fourth defendant as "a person who faces criminal penalties" and "a defendant who faces criminal sanctions". He sought to rely on "the criminal analogy". He even went to the extent of describing the proceedings as involving "a matter of liberty … going to the rights of every Australian". 17 It is, of course, wrong to regard the proceedings as criminal proceedings. The plaintiff seeks relief against the fourth defendant under ss.1317E, 206C and 206E of the Corporations Act. The proceedings are therefore governed by s.1317L: "The Court must apply the rules of evidence and procedure for civil matters when hearing proceedings for: (a) a declaration of contravention; or (b) a pecuniary penalty order." 18 The plaintiff submits, and I accept, that there is no occasion to apply criminal law concepts regarding the trial of several accused persons. Rather, s.1317L has the effect that the guiding principle is that reflected in rule 6.19(1) of the Uniform Civil Procedure Rules: "Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the originating process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined." 19 Having regard to the plaintiff's case as pleaded – which relates to a course of activities involving the corporate defendants in which the third and fourth defendants were the human actors – the circumstances are such as to be within paragraph (a) of this rule, as well as within that part of paragraph (b) that refers to "the same … series of transactions". Joinder of both the third and fourth defendants in a single action entailing a single trial is thus consistent with the rules. 20 One matter advanced by the fourth defendant in support of the application for separate trial is that evidence admitted against the third defendant will stand as evidence against the fourth defendant. He fears that he will suffer from and be prejudiced by "continual suggestions of association with" the third defendant whose level of activity and involvement he regards as greater than his own. 21 The answer to this is twofold. First, there will be no jury. The facts will be found by a judge well able to distinguish the activities of one person from the activities of the other. The judge will make findings in relation to a particular defendant solely on the basis of evidence relevant to the case against that defendant. Second, while evidence that is admitted will be admitted for all purposes, any demonstrated danger of unfair prejudice arising from its use against a particular defendant will be capable of resolution pursuant to s.136 of the Evidence Act 1995: see Australian Securities and Investments Commission v Vines (2003) 48 ACSR 282 at [24]. That, as the plaintiff submits, is something best dealt with by the trial judge in the course of the trial, should the need arise. 22 I would add that, even if the criminal analogy were regarded as being of some use (cf Rich v Australian Securities and Investments Commission (2004) 220 CLR 129), it would indicate that all persons allegedly concerned in one course of criminal activity should be tried together, particularly where each seeks to cast blame on the other (Webb v The Queen (1994) 181 CLR 41 at pp.88-89); and that separate trials should be ordered only where "positive injustice" would otherwise occur: R v Patsalis (1999) 107 ACrimR 432. The apprehensions to which the fourth defendant points (as already mentioned) fall demonstrably short of this. 23 There is no basis on which separate trials should be ordered. 24 The fourth defendant's notice of motion filed on 12 March 2007 is accordingly dismissed. 25 As to costs, the hearing of this particular motion became intertwined with the hearing of the plaintiff's motion to amend the statement of claim. The plaintiff was initially unsuccessful on that, but was later granted leave to amend in a different way, as well as being granted leave to amend again in the course of the hearing of the current motion. In those circumstances, the appropriate course is that the costs in relation to both motions should be reserved. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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