Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (No 4) [2017] FCA 505

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (No 4) [2017] FCA 505 File number: NSD 383 of 2016

Judge: ALLSOP CJ

Date of judgment: 12 May 2017

Catchwords: PRACTICE AND PROCEDURE – application for determination of separate question – utility of separate question – defendants not participating as contradictors – costs of separate question

Legislation: Corporations Act 2001 (Cth) ss 1041A, 1041B Criminal Code Act 1995 (Cth) Federal Court Rules 2011 (Cth) r 30.01

Cases cited: Gore v Australian Securities and Investments Commission [2017] FCAFC 13; 341 ALR 189 Tax Practitioners Board v HP Kolya Pty Ltd [2015] FCA 472; 232 FCR 34

Date of hearing: 11 May 2017

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Category: Catchwords

Number of paragraphs: 17

Counsel for the Plaintiff: Mr JA Halley SC and Mr IJM Ahmed

Solicitor for the Plaintiff: Australian Securities and Investments Commission

Counsel for the Defendants: Mr RG McHugh and Mr L Livingston

Solicitor for the Defendants: Thompson Eslick Solicitors

ORDERS NSD 383 of 2016

IN THE MATTER OF WHITEBOX TRADING PTY LTD (ACN 139 567 598)

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff

AND: WHITEBOX TRADING PTY LTD ACN 139 567 598 First Defendant

JOHANNES HENDRIK BOSHOFF Second Defendant

JUDGE: ALLSOP CJ DATE OF ORDER: 12 MAY 2017

THE COURT ORDERS THAT:

1. Pursuant to Rule 30.01 of the Federal Court Rules 2011 (Cth) the following question arising in the proceeding be heard separately from any other questions: "In proceedings brought for the imposition of a civil penalty for a contravention of s 1041A or s 1041B of the Corporations Act 2001 (Cth) is the Criminal Code being the Schedule to the Criminal Code Act 1995 (Cth) engaged?" 2. The separate question be heard by a Full Court. 3. The plaintiff pay on an indemnity basis the costs of the defendants incurred in relation to the preparation for and hearing of: (a) the plaintiff's interlocutory application dated 20 April 2017 seeking the determination of a separate question (Gore separate question) and a referral of the Gore separate question to the Full Court; and (b) the Gore separate question before the Full Court. 4. Subject to Order 5 below, the plaintiff pay such costs in accordance with Order 3 above within 28 days of receipt from the defendants' solicitor of a statutory declaration sworn by such solicitor certifying: (a) the amount of costs incurred to the date of the statutory declaration which is the subject of Order 3 above; (b) that the subject costs have been properly and reasonably incurred in his or her opinion; (c) that the subject costs relate solely to the matter as identified in Order 3 above; and (d) that the subject costs have been paid by the defendants to the defendants' solicitors. 5. If the plaintiff wishes to challenge the costs so identified, at the conclusion of the separate hearing, the Court or one of the judges constituting the Court will decide on a lump sum basis the appropriate amount of costs to be paid. 6. The plaintiff to arrange for solicitors and appropriate senior counsel to act as amicus curiae and contradictor in relation to the separate question. 7. The Court notes the undertaking by the plaintiff in terms referred to in para [10] of these reasons. 8. The separate question is set down for hearing before a Full Court on a date to be fixed in a range between 6 and 9 June 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ALLSOP CJ: 1 In these proceedings the plaintiff, the Australian Securities and Investments Commission (ASIC), seeks declarations and the imposition of civil penalties in respect of asserted contraventions of ss 1041A and 1041B of the Corporations Act 2001 (Cth) against the defendants, Whitebox Trading Pty Ltd and Mr Johannes Boshoff. 2 The concise statement filed with the application describes the claims of ASIC. Mr Boshoff is said to be an experienced index arbitrage trader and in control of Whitebox. It is said that on five successive trading days between April and October 2012, Whitebox and Mr Boshoff caused the National Australia Bank to trade arbitrage positions in a period leading up to the conclusion of the opening single price auction on the ASX in circumstances that amounted to contraventions of the above sections. 3 It is unnecessary to deal in any detail with the allegations by ASIC or the details of the defence. 4 Sections 1041A and 1041B deal with market manipulation, and false trading and market rigging – creating a false or misleading appearance of active trading etc, respectively. The prohibited conduct set out in ss 1041A and 1041B is the foundation of two alternative possible remedies. The first is the civil penalty regime, the second is a charge alleging a criminal offence. 5 These proceedings are civil penalty proceedings. 6 Earlier this year in an appeal, Gore v Australian Securities and Investments Commission [2017] FCAFC 13; 341 ALR 189 a Full Court of this Court considered (by way of obiter dicta) that in circumstances where ASIC proceeds by the civil penalty route and not by laying a criminal charge, nevertheless, the Criminal Code, being the schedule to the Criminal Code Act 1995 (Cth), applied and governed the conduct and resolution of the proceedings. In Gore, ASIC argued that this was not the case. In Gore, the question arose after argument by the parties at the instance of the Court and later written submissions were filed. 7 These proceedings involving Whitebox and Mr Boshoff are set down for hearing in early September. ASIC has filed an interlocutory application for the framing and resolution of a separate question to be heard before the proceedings and as soon as possible to decide whether or not the Criminal Code is engaged. 8 Justice Foster is the trial judge and the case managing docket judge. He is on leave and I have case managed the matter since his departure and am dealing with the interlocutory application. 9 The defendants opposed the separate question on the grounds that it may interfere with the trial date in September which they wish to keep and because of the additional cost to them. The defendants also said that they did not propose to contradict ASIC in its view that the Criminal Code was not engaged. They therefore said that there was no utility in the separate issue, because it would be a decision without a contradictor. 10 These grounds of opposition can be dealt with. ASIC has undertaken to the Court and to the defendants that, in the event that the Full Court answers the separate question the subject of the application in the affirmative, ASIC will not seek any adjournment of the commencement of the proceedings tentatively fixed for 4 September 2017 on the basis that it is not ready to proceed with the hearing on that date by reason of the affirmative answer to the separate question. 11 Further, at the case management hearing today, 11 May 2017, I required as a matter of case management that should ASIC be of the view that any affirmative answer to the separate question would lead to further evidence being led, it was to notify the defendants of that matter forthwith, even if the evidence was not yet prepared. 12 As to costs, the parties put forward alternative regimes to protect the defendants for costs. I am satisfied that the defendants can be protected as to costs in the way that the orders that I will make do so. Although the defendants do not wish to contest the matter, they are of the view that they should be present at the argument and I think there is a reasonable basis for that position. 13 I have required ASIC to arrange and fund a contradictor. At the case management hearing this morning, I was informed that a contradictor has been arranged through a firm of solicitors who will brief appropriate counsel. 14 I raised with the parties this morning the question of utility, given that any Full Court will be sitting in the original jurisdiction of the Court and Gore was decided by a Full Court sitting in the appellate jurisdiction. I had caused my Associate to correspond with the parties concerning possible doubts as to the utility of a Full Court in the original jurisdiction disagreeing (if that be the case) with the Full Court in the appellate jurisdiction. This question of precedent is novel at one level. Justice Foster himself in Tax Practitioners Board v HP Kolya Pty Ltd [2015] FCA 472; 232 FCR 34 at 55-57 [101]-[104] expressed the view that a single judge should follow a Full Court sitting in the original jurisdiction. Without seeking to throw doubt on the views of Foster J in that case, I would reserve my position on that matter, although it has, if I may respectfully say, evident force. 15 I think there is utility in the framing and early disposition of a separate question. The consequences to ASIC (and, indeed, other regulators where this position may obtain, that is, an identified body of conduct giving rise to separate and distinct civil and criminal remedies) are significant. Civil penalty cases would need to be prepared, bearing in mind and taking into account, the various physical and mental elements and the structure of such laid down by the Criminal Code. 16 There is utility in a Full Court dealing with this matter on a basis of full argument. The significance of the consequences of the question warrant the separate hearing. 17 For these reasons, I propose to make orders in the following terms: 1. Pursuant to Rule 30.01 of the Federal Court Rules 2011 (Cth) the following question arising in the proceeding be heard separately from any other questions: "In proceedings brought for the imposition of a civil penalty for a contravention of s 1041A or s 1041B of the Corporations Act 2001 (Cth) is the Criminal Code being the Schedule to the Criminal Code Act 1995 (Cth) engaged?" 2. The separate question be heard by a Full Court. 3. The plaintiff pay on an indemnity basis the costs of the defendants incurred in relation to the preparation for and hearing of: (a) the plaintiff's interlocutory application dated 20 April 2017 seeking the determination of a separate question (Gore separate question) and a referral of the Gore separate question to the Full Court; and (b) the Gore separate question before the Full Court. 4. Subject to Order 5 below, the plaintiff pay such costs in accordance with Order 3 above within 28 days of receipt from the defendants' solicitor of a statutory declaration sworn by such solicitor certifying: (a) the amount of costs incurred to the date of the statutory declaration which is the subject of Order 3 above; (b) that the subject costs have been properly and reasonably incurred in his or her opinion; (c) that the subject costs relate solely to the matter as identified in Order 3 above; and (d) that the subject costs have been paid by the defendants to the defendants' solicitors. 5. If the plaintiff wishes to challenge the costs so identified, at the conclusion of the separate hearing, the Court or one of the judges constituting the Court will decide on a lump sum basis the appropriate amount of costs to be paid. 6. The plaintiff to arrange for solicitors and appropriate senior counsel to act as amicus curiae and contradictor in relation to the separate question. 7. The Court notes the undertaking by the plaintiff in terms referred to in para [10] of these reasons. 8. The separate question is set down for hearing before a Full Court on a date to be fixed in a range between 6 and 9 June 2017. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.

Associate: Dated: 12 May 2017