ASIC v Loiterton

[2004] NSWSC 172

CITATION:	Australian Securities and Investments Commission v John Barrie Loiterton & Ors [2004] NSWSC 172 revised - 14/05/2004
HEARING DATE(S):	20, 21, 24, 25, 26, 27, 28 and 31 March 2003 1, 2, 3, 4, 7, 8, 9, 10, 11, 14 and 15 April 2003 1, 5, 6, 7,12, 13, 14, 15, 20, 21, 22, 23, 26, 27, 28 and 29 May 2003 2, 3, and 4 June 2003 31 July 2003 15 September 2003 9 December 2003
JUDGMENT DATE:	1 April 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Bergin J
DECISION:	See par. 586
CATCHWORDS:	[CORPORATIONS] - Civil penalty proceedings under the Corporations Law as it existed in 1996 and 1997 relating to the preparation and publication of the statutory accounts of a public company and its subsidiaries - Application of sections 232, 318, 292, 295A, 298 and 1002G - Standing of the Australian Securities and Investments Commission to commence civil proceedings in its own name for an alleged breach of section 1002G. -Whether expert evidence required as to the 'materiality' of inside information for the purposes of section 1002G - [PRACTICE AND PROCEDURE] - Prosecutorial fairness in civil penalty proceedings against unrepresented defendants - Whether fairness achieved in prosecuting a claim for alleged contraventions of both section 232 (5) and section 1002G in respect of share trading - Application of Briginshaw standard in one but not the other case - Whether plaintiff's failure to provide a copy of transcript of a voluntary interview of a witness called by first defendant before witness was called rendered unfair the reliance on evidence in cross-examination admittedly inconsistent with that interview - [DIRECTORS] - Whether directors' conduct dishonest - Whether directors exercised appropriate degree of care and diligence - Whether circumstances existed to alert executive and non-executive directors to make further enquiry - Whether reliance can be placed on others in circumstances where there is knowledge that profits not real and/or there are circumstances that should have caused further enquiry as to nature of certain fees and profits.
LEGISLATION CITED:	Companies (New South Wales) Code 1980 Companies Act 1961 (NSW) Companies Act 1961 (Vic) Corporations Act 2001 (Cth) Corporations Law
CASES CITED:	Adler & Anor v ASIC; Willaims v ASIC (2003) 46 ACSR 504 ASIC v Parkes (2001) 38 ACSR 355 ASIC v Sweeney [2001] NSWSC 114 Australian Growth Resources Corporation Pty Ltd (Rec and Mgrs appted) v Van Reesema & Ors (1988) 6 ACLC 529 Australian Securities Commission v Fairlie (1993) 11 ACLC 669 Briginshaw v Briginshaw (1938) 60 CLR 336 Chew v The Queen (1991) 173 CLR 626 Corporate Affairs Commission (NSW) v Transphere Pty Ltd & Eddie Solomon Holdings Inc (1988) 7 ACLC 205 Daniels & Ors (formerly practicing as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438 Duke Group Ltd (in liq) v Pilmer (1998) 27 ACSR 1 Glover v Australian Ultra Concrete Floors Pty Ltd [ 2003] NSWCA 80 In re Smith & Fawcett Ltd [1942] 1 Ch 304 Marchesi v Barnes and Keogh [1970] VR 434 Marra Developments Ltd v BW Rothe Pty Ltd [1977] 2 NSWLR 616 Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116 R v Byrnes & Hopwood (1995) 183 CLR 501 R v Rivkin [2004] NSWCCA 7 R v Towey (1996) 21 ACSR 46, (1996) 132 FLR 434 Rankin v Cooper (1907) 149 F 1010 Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler & Ors (2002) 41 ACSR 72 Rich and Silbermann v ASIC (2003) 48 ACSR 6 R v Apostilides (1984) 154 CLR 563 White v Overland [2001] FCA 1333
PARTIES :	Australian Securities and Investments Commission (Plaintiff) John Barrie Loiterton (First Defendant) Ian Robert Hall (Second Defendant) Ian Sapier (Third Defendant) Peter James Loiterton (Fourth Defendant)
FILE NUMBER(S):	SC 3724/00
COUNSEL:	F P Carnovale and D J Price (Plaintiff) John Barrie Loiterton (In Person) Ian Robert Hall (In Person) R J Brender (Third Defendant)
SOLICITORS:	Australian Securities and Investments Commisssion (Plaintiff) Gillis Delaney Brown (Third Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN J

1 APRIL 2004

3724/00 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v JOHN BARRIE LOITERTON and ORS

Introduction

1 These proceedings relate to the conduct and involvement of John Barrie Loiterton (JBL), the first defendant, Ian Robert Hall (Hall), the second defendant, Ian Sapier (Sapier), the third defendant and JBL’s son, Peter James Loiterton (PJL), the fourth defendant, in and surrounding the preparation and publication of the accounts of Clifford Corporation Limited (CCL) and the Clifford Group of companies (Clifford) in 1996 and 1997.

2. The plaintiff, the Australian Securities and Investments Commission (ASIC), commenced these proceedings by originating process filed on 25

August 2000. The proceedings were case managed by Austin J and were continued on pleadings. The pleadings upon which the matter proceeded at trial were the plaintiff’s Second Further Amended Statement of Claim filed on 7 April 2003 (SC) and the defendants’ defences as filed prior to the SC but understood by all parties to apply to the SC.

2 The trial of the matter commenced before Austin J in March 2003, but was aborted on the morning of the third day by reason of a conflict having arisen. I commenced a new trial on the afternoon of the day the trial before Austin J was aborted and heard evidence over a 40 day period in March to June and September 2003. Written submissions were filed and final oral submissions were made on 9 December 2003 when I reserved my judgment. Mr FP Carnovale of counsel, leading Mr DJ Price of counsel, appeared for the plaintiff. JBL and Hall were not represented and conducted their own defences. Mr RJ Brender, of counsel, appeared for Sapier. PJL was unrepresented and did not take part in the trial.

3 At the commencement of the hearing before me all defendants taking part in the trial agreed that they did not wish to re-argue objections and were content to abide the rulings on objections made by Austin J prior to the first trial being aborted.

4 The plaintiff’s allegations of contravention of the Corporations Act 2001 (the Act) by the defendants relate to the 1996/1997 accounts of Clifford and its subsidiaries. In general, the plaintiff alleges that one or more of the defendants failed to act honestly as a director in breach of s. 232(2) (dishonesty); failed to exercise appropriate care and diligence as a director in breach of s. 232 (4) (lack of care and diligence); made improper use of information acquired as a director in breach of ss. 232(5) & 1002G (insider trading); made improper use of their positions as directors in breach of s 232 (6) (improper use of position); and, in breach of s. 318(1) (failure to take reasonable steps/knowingly cause default), failed to take all reasonable steps to comply with, or to secure compliance with, or were knowingly the cause of default under ss. 292, 295A & 298 [such provisions relating respectively to causing the preparation of a profit and loss account that gives a true and fair view of the profit or loss of a company for an accounting period, causing the preparation of a consolidated profit and loss account that gives a true and fair view of the consolidated profit or loss of a group of companies for an accounting period and ensuring that accounts comply with applicable accounting standards].

5 The SC sought orders against the defendants including the imposition of pecuniary penalties (S. 1317EA(3)(b)), prohibitions on the defendants from managing a corporation (s. 1317EA(3)(a)) and the payment of compensation (s. 1317HA). On 26 May 2003 the claims for compensation against JBL, Hall and PJL were abandoned. This abandonment arose after the plaintiff conceded that it needed to seek leave to proceed against JBL, Hall and PJL in respect of those claims for compensation by reason of their bankruptcies. Sapier is not bankrupt and the claim for compensation against him is maintained.

6 Neither JBL nor Hall raised any issue as to whether the plaintiff needed leave to proceed against them (and PJL) otherwise than for compensation, however I asked the plaintiff to provide submissions in that regard in any event. JBL was made bankrupt on 12 July 2002. Hall was made bankrupt on 16 May 2002 and PJL was made bankrupt on 10 February 2003.The relevant claim in this regard is a claim for a pecuniary penalty and it is submitted that by reason of the provisions over the relevant years from 1996, as carefully outlined in a detailed written submission dated 26 May 2003, any pecuniary penalty order that might be made in the proceedings would be taken to be made under s 1317G of the Act and, by reason of s 82(3AA) of the Bankruptcy Act 1966 (Cth), would not be a provable debt. If that is right then leave is not needed. At this stage of the proceedings I am only considering whether the defendants have contravened the Act and any question of whether a pecuniary penalty might be imposed must await the outcome of this aspect of the case and be subject to further submissions. However I am able to indicate that subject to those matters I am of the view that the plaintiff’s submissions are correct and it is entitled to proceed to make a claim for the imposition of pecuniary penalties without having to seek leave to proceed.

7 A further matter that arose during the trial, once again not at the behest of JBL and Hall, was a possible issue in respect of whether these proceedings were stayed by reason of certain criminal proceedings that have been commenced against JBL and Hall. On this aspect, JBL was represented by Mr GF Jauncey, of counsel, on 15 September 2003 when submissions were made, with which the plaintiff agreed, that these proceedings were not stayed because the criminal proceedings related to matters that were not substantially the same as the matters before me. Hall did not make submissions against that position. I agreed with the submissions put by Mr Jauncey and the plaintiff on the basis of the evidence before me and the matter proceeded.

8 On the final day of the hearing of this matter, 9 December 2003, Mr R Newlinds SC appeared to inform the Court that he appeared for CCL in liquidation, to seek an order for compensation against Sapier in respect of dividends that were paid by CCL in 1997. It then became apparent that on 3 May 2002 Austin J had made an order sought in an Interlocutory Process filed on 20 March 2001, that “Clifford Corporation Limited (in liquidation) (ACN 000 750 103) be granted leave to intervene in these proceedings”. Mr Newlinds SC was advised that the application was premature as it depended upon the finding that there had been a contravention of the relevant provision of the Act and that the application should await the outcome of this part of the proceedings.

The applicable statutory provisions

9 The defendants’ conduct, the subject of these proceedings, occurred in 1996 and 1997. The provisions of the Corporations Law (CL) pursuant to which the plaintiff pleaded its cases were repealed prior to the Corporations Act 2001 (the Act) coming into force on 15 July 2001. The Act is “taken to include” the provisions of the CL pursuant to which the plaintiff makes allegations of contraventions against each of the defendants: s 1401(2). All parties have proceeded upon that basis and addressed the content of the CL sections in force as at 1996 and 1997. The references to the sections of the Act are therefore references to the CL provisions.

10 Each of the sections the plaintiff alleges the defendants have contravened, except s 1002G (although subsequently included as a civil penalty provision), is a civil penalty provision: s. 1317D. The standard of proof is the civil standard of proof on the balance of probabilities and in hearing and determining the application for a civil penalty order, for which the declaration of contravention is a pre-requisite, the Court applies the rules of evidence and procedure that it applies in hearing and determining civil matters: s. 1317ED(1): Adler & Anor v ASIC; Williams v ASIC (2003) 46 ACSR 504; Rich and Silbermann v ASIC (2003) 48 ACSR 6. I intend to approach the matter on the basis that in civil penalty proceedings the standard of proof is that referred to in Briginshaw v Briginshaw (1938) 60 CLR 336.

11 Section 232(2) provides:

232 (2) [Officer to act honestly] An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office.

12 The provisions of s. 232(2) were in all material respects the same as s 229(1) of the Companies (New South Wales) Code 1980 and s. 124(1) of the Companies Act 1961 (NSW). It is uncontroversial that s 232(2) required directors to act bona fide in the interests of the company and for a proper and not collateral purpose: In re Smith & Fawcett Ltd [1942] 1 Ch 304 per Lord Green MR at 306. Conflicting approaches arose as to whether the section meant that for the purposes of establishing a breach, it was necessary to prove conduct in disregard of a consciousness that the subject conduct was not in the best interests of the company: Marchesi v Barnes and Keogh [1970] VR 434; or conduct contrary only to an objective standard of honesty and purpose as determined by the Court: Australian Growth Resources Corporation Pty Ltd (Recs & Mgrs apptd) v Van Reesema & Ors (1988) 6 ACLC 529, per King CJ at 539. In ASIC v Parkes (2001) 38 ACSR 355, Austin J (at [23]) noted the difference of opinions in these two cases and referred to the observation made in the text of which his Honour is an author, Butterworths Ford’s Principles of Corporations Law, (at [8.300]) that the latter approach is more likely to prevail now that s 232(2) is a civil penalty provision. In that case Austin J did not find it necessary to attempt a resolution of the conflicting authorities.

13 It appears that the genesis of the differing opinions was the penal nature of the predecessors to s 232(2) and the change in structure of the section over the years; such as s 124(1) of the Companies Act 1961 (Vic) as considered by Gowans J in Marchesi, and s 229(1) of the Code as considered by the Full Court of South Australia in Australian Growth Resources; see also Duke Group Ltd (in liq) v Pilmer (1998) 27 ACSR 1 at 300-303.

14 This analysis is somewhat academic because in this case the plaintiff has elected to conduct the trial on the basis that to prove a breach of s 232(2) it must establish that the defendants had a consciousness that the conduct alleged was not in the interests of the relevant company and was deliberate conduct in disregard of that consciousness. The defendants have therefore conducted their defences on that basis and the matter must, in those circumstances, be decided on that basis.

Lack of care and diligence – s.232(4)

15 Section 232(4) provides:

232 (4) [Care and diligence] In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances.

16 A director is required to acquire at least a rudimentary understanding of the business of the company. If there is reason to awaken suspicion or put a prudent person on guard in respect of the affairs of the company directors may not “shut their eyes to what is going on around them”: Rankin v Cooper (1907) 149 F 1010 at 1013. A director is charged with the obligation of protecting the company and must maintain a general monitoring of the company’s affairs and policies, regularly review its financial reports and make inquiries where matters revealed by the reports call for inquiry: Daniels & Ors v Anderson (1995) 37 NSWLR 438 at 502- 503 per Clarke JA & Sheller JA.

17 A director may usually rely upon the judgment, information and advice of company executives and other employees appropriately entrusted. In Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler and Ors (2002) 41 ACSR 72 Santow J said at [par 372]:

(10) at general law, a director is entitled to rely without verification on the judgment, information and advice of management and other officers appropriately so entrusted. However, reliance would be unreasonable where directors know, or by the exercise of ordinary care should have known, any facts that would deny reliance on others; (Daniels t/as Deloitte Haskins &Sells at ACSR 665-6;)
(11) although reasonableness of the reliance or delegation must be determined in each case, the following may be important in determining reasonableness:
(a) the function that has been delegated is such that “it may properly be left to such officers”: Re City Equitable Fire Insurance Co Ltd, above, per Romer J ;
(b) the extent to which the director is put on inquiry, or given the facts of a case, should have been put on inquiry; Re Property Force Consultants Pty Ltd, above, per Derrington J, at ACLC 1060;
(c) the relationship between the director and delegate, must be such that the director honestly holds the belief that the delegate is trustworthy, competent and someone on who reliance can be placed. Knowledge that the delegate is dishonest or incompetent will make reliance unreasonable: Dempster & Biala Pty Ltd v Mallina Holdings Ltd (1994) 13 WAR 124; 15 ACSR 1 at 62;
(d) the risk involved in the transaction and the nature of the transaction; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109; 14 ACSR 109 (although in this case the Chief Executive Officer in question also had a conflict of interest);
(e) the extent of steps taken by the director, for example, inquiries made or other circumstances engendering “trust”;
(f) whether the position of the director is executive or non-executive Permanent Building Society (in liq) v Wheeler per Ipp J, though in Daniels v Anderson , above, the majority have moved away from this distinction;

18 The majority in Daniels v Anderson observed at 505:

We are of opinion that a director owes to the company a duty to take reasonable care in the performance of the office. As the law of negligence has developed no satisfactory policy ground survives for excluding directors from the general requirement that they exercise reasonable care in the performance of their office. The director’s fiduciary obligations do not preclude the common law duty of care. Modern statutory company law points to the existence of the duty. In some circumstances the duty will require action. The concept of a sleeping or passive director has not survived and is inconsistent with the requirements of current company legislation such as, at the relevant time, s 229 and s 269 of the Companies (New South Wales) Code . …
A person who accepts the office of director of a particular company undertakes the responsibility of ensuring that he or she understands the nature of the duty of a director is called upon to perform. The duty will vary according to the size and business of the particular company and the experience or skills that the director held himself or herself out to have in support of appointment to the office. None of this is novel. It turns upon the natural expectations and reliance placed by the shareholders on the experience and skill of a particular director. The duty is a common law duty to take reasonable care owed severally by persons who are fiduciary agents bound not to exercise the powers conferred upon them for private purpose of for any purpose foreign to the power and placed, in the words of Ford and Austin, Ford’s Principles of Corporations Law, 6th ed (1992), at 429, at the apex of the structure of direction and management.

19 In assessing whether reliance is appropriately placed on others, it is necessary to have regard to the relevant circumstances at the time it is claimed that reliance on others was appropriate and that no further inquiry was necessary. In the case of non-executive directors, it is important to assess not only their actual knowledge but also the occurrence of relevant events which called for further inquiry and when such events became known to those directors: Daniels v Anderson at 508.

Improper use of inside information – s.232(5); and insider trading s 1002G

20 Section 232(5) provides:

232 (5) [No improper use of inside information] An officer or employee of a corporation, or a former officer or employee of a corporation, must not, in relevant circumstances, make improper use of information acquired by virtue of his or her position as such an officer or employee to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation.

21 Section 1002G provides relevantly:

SECTION 1002G PROHIBITED CONDUCT BY PERSON IN POSSESSION OF INSIDE INFORMATION
1002G(1) [Application of section] Subject to this Division, where:

(a) a person (in this section called the “ insider ”) possesses information that is not generally available but, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of securities of a body corporate; and

(b) the person knows, or ought reasonably to know, that:
i) the information is not generally available; and
ii) if it were generally available, it might have a material effect on the price or value of those securities;
the following subsections apply.
1002G(2) [No purchase or sale etc of securities] The insider must not (whether as principal or agent):
(a) subscribe for, purchase or sell, or enter into an agreement to subscribe for, purchase or sell, any such securities; or
(b) procure another person to subscribe for, purchase or sell, or to enter into an agreement to subscribe for, purchase or sell, any such securities.

22 The plaintiff pleaded contraventions by JBL and Hall of both of these sections. Section 232(5) is a civil penalty provision and applies to, inter alia, directors of a company. At the time of the alleged contraventions, s 1002G was not a civil penalty provision and it applied to persons who may or may not be directors.

23 The plaintiff submitted that to prove a breach of s 232(5) it is not required to prove that an advantage was obtained, but is required to prove that the conduct occurred for the purpose of gaining an advantage: Chew v The Queen (1991) 173 CLR 626. I agree with that submission. The test of whether the use of the information was improper is an objective test. A breach occurs if the director’s conduct breaches the standards of conduct expected by reasonable persons of a person in the director’s position with knowledge of the duties, powers and authority of the position and the circumstances of the case. The directors consciousness of impropriety is irrelevant to whether a breach has occurred: R v Byrnes & Hopwood (1995) 183 CLR 501; R v Towey (1996) 21 ACSR 46.

24 The elements to be established for a declaration of contravention of s 232(5) are: (1) that the person was at the relevant time an officer of the company; (2) that the person acquired the relevant information, such information being the sort of information that equity would protect by injunction or, as alleged in this case, information that was not, but should have been generally available to the market; (3) that the information was acquired by virtue of the person’s position as an officer of the company; (4) that the person made improper use of the information, such element being judged objectively by reference to the commercial context of the conduct; and (5) that the improper use was made of the information in order to gain, directly or indirectly, an advantage for that person or some other person.

25 The plaintiff submitted that if the director of a publicly listed company had information to the effect that the published financial accounts or reports materially overstated its financial results, but the overstatement was not generally known, the director would be obliged to correct the accounts. If the director does not do so but uses the information for the purpose of gaining an advantage for another person, by causing, inducing or encouraging that person to sell shares or options in the company, it was submitted that such director makes improper use of the information. There was no contrary submission made by the defendants.

26 The plaintiff’s case in this regard is that the information was that the profits of the company were overstated, that the defendants acquired that information by reason of their positions as directors, that they used that information improperly by causing others to sell shares in the company at a time when the information was not generally available to the market, to gain an advantage for those other persons.

27 Contravention of s 1002G was also pleaded and in this regard the defendants made detailed submissions on the elements to be established for a breach of this section. I have dealt with the elements to be proved in relation to a contravention of s 1002G later in this judgment. Although the insider trading provisions of the Act are now civil penalty provisions (ss 1043A & 1317E), it is fairly clear that s 1002G was not a civil penalty provision at the time of the conduct alleged to amount to a contravention of the section. There is nothing in the legislation providing for the insider trading provisions, now s 1043A, to be civil penalty provisions to suggest that there should be retrospective application to the previous differently numbered s 1002G: Financial Services Reform Act 2001.

28 The standing of the plaintiff to bring proceedings for recovery consequent upon contravention of the section appears to have been limited to doing so “in the name of, and for the benefit of” a “body corporate” that was itself entitled to bring an action for the recovery of an amount pursuant to the Act: s 1013(5) & 1013(6). The plaintiff did not bring the action in that manner. It proceeded against the relevant defendants in its own name and originally sought orders that JBL and Hall pay amounts to CCL. However on 3 May 2002 Austin J made orders granting CCL leave to intervene to seek compensation its own right.

29 The utilization by the plaintiff of s 1002G combined with s 232(5) in these proceedings has clouded the issues to the point where it seems to me to have been quite inappropriate for the unrepresented defendants to have had to meet the allegations in respect of the share and option trading. The plaintiff’s written submissions of 12 August 2003 focussed heavily on the provisions of s 1002G with little or no detail of any difference between the elements to be proved in relation to the two sections. I accept that the plaintiff’s additional written submissions dated 24 September 2003 outlined various aspects of the elements of s 232(5), however those submissions referred back to the written submissions of 12 August 2003 as “submissions as to the contraventions of s 232(5)”. In neither of these submissions or in the original outline in respect of share and option trading handed up by Mr Carnovale to Austin J on 18 March 2003 and relied upon again before me in the opening of the plaintiff’s cases have the specific elements of s 1002G been detailed or compared to the elements to be proved for contravention of s 232(5).

30 In those circumstances it is understandable that the defendants have dealt with the allegations of contraventions with detailed focus on the elements of s 1002G, albeit that both submissions recognised that the two sections were being relied upon by the plaintiff.

31 I listed the matter for further submissions on 30 March 2004. On that date Mr Carnovale submitted that the plaintiff had always proceeded on the basis that s 1002G was not a civil penalty provision. He referred to the SC and contrasted the paragraphs dealing with the civil penalty provisions and the paragraph referring to s 1002G (pars 18 & 20 and par 21). It is true that the former paragraphs state that the sections are civil penalty provisions and the latter paragraph does not make such a statement. Mr Carnovale submitted that the plaintiff is seeking a declaration of contravention of s 1002G pursuant to s 75 of the Supreme Court Act 1970 rather than seeking to deploy any of the sections of the Act. It was submitted that it was entitled to such a declaration for the protection of the public interest. I should say that this was the first time that this had been suggested since the commencement of the hearing before me. Hall, who advised that JBL would not be appearing on 30 March 2004, submitted that he had not read section 75 and did not understand what was being put.

32 In support of this submission Mr Carnovale relied upon Austin J’s decision in Australian Securities & Investment Commission v Sweeney [2001] NSWSC 114 in which his Honour referred to Young J’ decision in Corporate Affairs Commission v Transphere Pty Ltd (1989) 7 ACLC 205 at 209-210. In Sweeney, Austin J said:

30 It is beyond contest that this Court has plenary jurisdiction to make a declaratory order concerning contravention of the Corporations Law, by virtue of ss 23 and 75 of the Supreme Court Act 1970 (NSW). In Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121, the High Court expressly disagreed with the Court of Appeal of New South Wales, which had declined to grant a declaration with respect to contravention of the ‘prescribed interests’ provisions of the Companies Act 1961 (NSW). Gibbs CJ remarked that it was proper to grant a declaration in that case although it had been agreed that an injunction was not an appropriate remedy (at 125).
31 In Corporate Affairs Commission v Transphere Pty Ltd (1989) 7 ACLC 205, 209, Young J dealt with the question more fully. He observed that, while a declaration will not ordinarily be made that a defendant has committed a crime, there is jurisdiction to do so in a proper case. In his Honour's view, older cases which discouraged a statutory authority from commencing proceedings for declaratory relief are no longer applicable, in view of the changed social climate, and the Court will now grant declaratory relief at the suit of the statutory authority which exists to regulate an industry, in an appropriate case: at 214. In his Honour's view, the fact that the subject matter of the declaration is of public interest is an important consideration in favour of the granting of declaratory relief, even though the order may be of only slight utility: at 213. In that case the Court declined to make a declaratory order, because (inter alia) the declaration would affect investors who were not parties to the proceedings. That consideration is not present here. The approach taken in the Federal Court is very similar: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) 113 ALR 257.
32 Section 1324 (1) of the Corporations Law empowers the Court, on the application of the Commission or a person whose interests have been affected, to grant an injunction restraining a person from engaging in conduct that constitutes a contravention of the Law. Section 1324 (2) empowers the Court to grant a mandatory injunction requiring a person to do something required to be done by the Corporations Law. By s 1324 (6) (a), the power to grant an injunction restraining a person from engaging in conduct may be exercised whether or not it appears to the Court that the person intends to engage again, or continue to engage, in conduct of that kind. Obviously there will be discretionary considerations for and against the grant of injunctive relief, but there is no doubt about the power to grant the relief, as Cohen J confirmed in Permanent Trustee Australia Ltd v Perpetual Trustee Co Ltd (1994) 15 ACSR 722, 728.
33 No submissions were directed to the availability of relief by way of disqualification order under the provision that was s 230 of the Corporations Law at the relevant time. I have no reason to think that such relief could not be granted, if appropriate facts are established. Again, the grant of relief at the final hearing will depend upon discretionary considerations.
34 The present proceedings have been brought by the public regulator to enforce the corporations and securities legislation. According to s 1 (2) of the Australian Securities and Investments Commission Act 1989 (Cth), in performing its functions and exercising its powers, the plaintiff must strive to achieve various objectives, including:
· to promote the confident and informed participation of investors and consumers in the financial system;
· to administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and
· to take whatever action it can take, and is necessary, in order to enforce and give effect to the laws that confer functions and powers on it.
35 These provisions imply that it is appropriate for the Commission to take civil proceedings for declaratory and injunctive relief in respect of past events, even if there is no risk of repetition, where the outcome may establish that the conduct complained of was wrongful (and thereby mark the Court's and the community's disapproval of it) and may deter other wrongdoers. It is appropriate for the Court to take these matters into account in the exercise of its discretion to grant or refuse such relief.

33 Without debating the approach adopted by Austin J, I should say immediately that this case is different. Here there is a raft of civil penalty provisions in respect of which the plaintiff seeks declarations of contravention for the purpose of seeking banning orders, monetary penalties and in the case of the only defendant who is not bankrupt, compensation. There is then the claim for a declaration of contravention of s 1002G. Mr Carnovale submitted that such a claim has always been made “in the alternative” (tr. 2236). Having regard to that submission, the history of the plaintiff’s claims in reliance upon s 1002G requires analysis.

34 In the Originating Process the plaintiff claimed that JBL had contravened “each of Sections 232(5) and 1002G” (par 1.3). In the Statement of Claim annexed to the supporting affidavit filed in August 2000, the claim was made that JBL had contravened s 232(5) (par 53) and that “further” he had contravened s 1002G (par 54). The Statement of Claim sought declarations that JBL had contravened “each of Sections 232(5) and 1002G in relation to Clifford Corporation” (par 1.3). The plaintiff also sought orders “pursuant to 1005 and 1013(5) and (6)” that JBL pay to Clifford Corporation such amount by which the price at which the shares were sold was greater than the price at which they would have been likely to have been sold at the time of the sales if the Inside Information had been generally available (the share price). The Act required the plaintiff to bring such a claim “in the name of, and on behalf of” Clifford Corporation. As I have said that was not done and CCL was granted leave to intervene in 2002.

35 In the Amended Statement of Claim the plaintiff introduced a similar claim against Hall and in that pleading and in all subsequent pleadings including that upon which the parties went to trial in March 2003 the claims were that JBL and Hall contravened “each” of sections 232(5) and s 1002G and declarations are sought for contravention of each of those sections. The second Further Amended Statement of Claim was filed in Court during the trial on 7 April 2003 and the plaintiff abandoned its claims for orders pursuant to s 1013(5) against JBL and Hall that they pay the share price. (This amendment arose out of a question I raised in respect of leave being necessary to proceed against bankrupts rather than any matter relating to whether the proceedings in respect of the claims for those orders were properly constituted.)

36 With this history in mind it is very difficult to see how Mr Carnovale could have submitted on 30 March 2004 that “it has always been made clear” that the claims in respect of alleged contraventions of s 232(5) and s 1002 “were alternatives”. It was simply not the case. Mr Carnovale submitted that his written submissions made it clear and relied on paragraph 1 of his submissions on Share trading dated 12 August 2003. That written submission did not make such position clear at all. It stated that the share trading “occurred in circumstances giving rise to contraventions” by JBL and Hall “of the insider trading provisions of s 1002G or the directors’ duties provisions of s 232(5), or both” (emphasis added). The written submissions, consistently with the pleadings, sought declarations of contraventions of both sections (see page 14).

37 Section 75 of the Supreme Court Act 1970 has only ever been mentioned in the section in the Originating Process dealing with the “Details of the Application” and then only in a paragraph where it was suggested “orders” would be sought in the most vague way. It has not been mentioned again until Mr Carnovale made his oral submissions on 30 March 2004. Even assuming that the original claims for orders under s 1013(5) & (6) were properly constituted, about which I have some real doubt, once the claims for those orders were abandoned, the plaintiff’s approach was never made clear, and certainly there was no mention of section 75. On 30 March 2004 Mr Carnovale made the following submission:

I wonder if I can add this your Honour, if I may; the reason, of course, why ASIC relied in the alternative on section 232 (5), three alternatives; section 1002G, or both. The reason for that is the recognition, of course, that there were no consequential penalties available in these proceedings if ASIC succeeded on 1002G only. All ASIC would ever get was a declaration.
232(5), of course, was relied on in recognition that it is a civil penalty provision and that if conduct which might be common to both provisions was proved, then that does attract a civil penalty and whilst the unrepresented defendants may not have appreciated that, that indeed was the reason. Section 232(5) wasn’t pleaded as part of the share trading just for something to do, it was there because it provided a civil penalty consequence if we succeeded on it.
It has always been made clear that they were alternatives and therefore there can be nothing unfair. Should you Honour find that ASIC can’t rely on the 1002G, there can be nothing unfair about its reliance on the other provision, given the way it has pleaded and submitted all the way through. (emphasis added)

(tr. 2236)

38 I do not accept that it has “always been made clear” that these claims were alternative claims. I have referred to the concept of prosecutorial fairness in civil penalty proceedings later in this judgment in dealing with the Origin Fee. As I have said the plaintiff accepts that it has a duty of fairness to the defendants in civil penalty proceedings. This has been a long trial with aspects to it (as described in the Introduction) that impeded the exposure of this problem until all submissions were in and under consideration. Notwithstanding that the defendants have not raised this question, I am not satisfied that it was fair to them to have had to meet these two claims together in the way in which they have developed. In proceedings where litigants are unrepresented, particularly in civil penalty proceedings, care needs to be taken to ensure that the prosecution case has clarity and is fair. It is clear from the defendants’ written submissions that they did not understand that the plaintiff was seeking a declaration pursuant to s 75, nor that the claims against them for contravention of s 232(5) and s 1002G were in the alternative. There was also a blurring of the elements of the two sections in a manner that was unfair to the defendants.

39 The Court’s approach to civil litigation has developed to the extent that where a party perceives that an opponent may misapprehend the issues then it is necessary to dispel that misapprehension. It is a “cards on the table” approach to litigation: Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116; White v Overland [2001] FCA 1333; Glover v Australian Ultra Concrete Floors [2003] NSWCA 80. In civil penalty proceedings clarity of approach takes on more significance. What has happened in this aspect of the plaintiff’s claims is that it has sought to prove the elements in relation to s 1002G, that does not require the Briginshaw standard to be applied, and then sought in what I regard as a rather confused way, to have a back up claim pursuant to s 232(5), to which the Briginshaw standard does apply for, as Mr Carnovale put it, “conduct that might be common to both provisions” (tr. 2236).

40 In these circumstances I am satisfied that the appropriate way to deal with this aspect of the plaintiff’s cases against JBL and Hall for alleged contraventions in respect of Shares and Options trading is to deal with the allegations in detail under that heading later in this judgment but to refuse to make any declarations.

Improper use of position – s.232(6)

41 Section 232(6) provides:

232 (6) [No gain by improper use of position] An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation.

42 The impropriety to be proved for a breach of this section in this civil penalty proceeding is to be judged objectively: Robins v Incentive Dynamics Pty Ltd(in liq) (2003) 21 ACLC 1030, per Mason P (with whom Giles and Stein JJA agreed); and there may be a finding of contravention even if no actual gain was obtained. In R v Chew, Mason CJ, Brennan, Gaudron and McHugh JJ held at 633:

It is a corollary of the interpretation which we favour that the accrual of an advantage or the suffering of a detriment is not an element of the offence. Thus, an officer who makes improper use of his or her office in order to gain an advantage is guilty of an offence, even if his or her purpose be thwarted as , for example, the grant of an injunction preventing execution of an instrument or implementation of a transaction.
…
[o]nce one concludes that there is a purposive element in the offence, it is necessary to establish not merely that the accused intended that a result should ensue, but also that the accused believed that the intended result would be an advantage for himself or herself or for some other person or a detriment to the corporation.

Failure to take reasonable steps – s 318(1)

43 Section 318 relevantly provides:

318 (1) [Contravention] Subject to this section, if a director of a company fails to take all reasonable steps to comply with, or to secure compliance with, or has knowingly been the cause of any default under, any of the provisions of this Part (including any of those provisions as applying by virtue of section 1058) other than Divisions 1 and 2 and section 317, the director contravenes this subsection.

318 (2) [Civil penalty provision] Subsection (1) is a civil penalty provision as defined by section 1317DA, so Part 9.4B provides for civil and criminal consequences of contravening it, or of being involved in contravention of it.

318(3) [Defence] In any proceedings against a person for failure to take all reasonable steps to comply with, or to secure compliance with, the provisions of this Part relating to the form and content of the accounts or consolidated accounts of a company by reason of an omission from the accounts or consolidated accounts (including any of those provisions as applying by virtue of section 1058), it is a defence if it is proved that the information omitted was immaterial and did not affect the giving of a true and fair view of the matters required by Division 4 or 4A to be dealt with in the accounts all consolidated accounts, as the case may be.

44 The test to be applied in deciding whether a director took reasonable steps to comply with, or to secure compliance with the relevant provisions of the Act, is an objective test but one that is to be applied by reference to the particular circumstances of the case: Australian Securities Commission v Fairlie (1993) 11 ACLC 669 at 681.

45 The sections that are relevant to the allegations made by the plaintiff that the directors failed to take reasonable steps to comply with or caused a failure of compliance with the provisions of the Act, are as follows:

Part 3.6 Corporations: Division 4 – Accounts of a company
SECTION 292 PROFIT AND LOSS ACCOUNT
292 Subject to section 293A, a company’s directors shall, before the deadline after an accounting period, cause to be made out a profit and loss account for that accounting period that gives a true and fair view of the company’s profit or loss for that accounting period.
SECTION 293A SECTIONS 292 AND 293 DO NOT APPLY TO HALF-YEAR OF CHIEF ENTITY

293A(1) [Half-year of chief entity] Sections 292 and 293 do not apply to a half year of a company if the company is a chief entity in relation to that half-year.

293A(2) [Application of sec 294(2)-(4)] However, subsections 294(2), (3) and (4) apply to that half-year:

(a) as if the reference in subsection 294(1) to a company’s accounts being made out under sections 292 and 293 in relation to an accounting period were instead a reference to the company’s directors causing to be made out a consolidated profit and loss account and consolidated balance-sheet under sections 295A and 295B in relation to that half-year; and
(b) subject to such modifications (if any) as are prescribed.

SECTION 294 STEPS TO BE TAKEN BEFORE ACCOUNTS MADE OUT

294(1) [Steps to be taken] This section shall be complied with before a company’s accounts are made out under sections 292 and 293 in relation to an accounting period.
294(2) [Bad and doubtful debts] The directors shall take reasonable steps:
(a) to find out what has been done about writing off bad debts and making provision for doubtful debts; and
(b) to cause all known bad debts to be written off and adequate provision to be made for doubtful debts.
294(3) [Current assets] The directors shall take reasonable steps to find out whether any current assets, other than bad or doubtful debts, are unlikely to realise (whether directly or indirectly) in the ordinary course of business their value as shown in the company’s accounting records and, if so, to cause:

(a) the value of those assets to be written down to an amount that they might be expected so to realise; or
(b) adequate provision to be made for the difference between their value as so shown and the amount that they might be expected so to realise.

294(4) [Non-current assets] The directors shall take reasonable steps:
(a) to find out whether the value of any non-current asset is shown in the company’s accounting records at an amount that, having regard to the asset’s value to the company as a going concern, exceeds the amount that it would have been reasonable for the company to spend to acquire the asset as at the end of the accounting period; and
(b) unless adequate provision for writing down the value of that asset is made – to cause to be included in the accounts such information and explanations as will prevent the accounts from being misleading because of the overstatement of the value of that asset.
Pt 3.6 Corporations: Division 4A – Consolidated accounts of a company and the entities it controls
SECTION 295A CONSOLIDATED PROFIT ANS LOSS ACCOUNT
295A(1) [Consolidated profit and loss account to be made] The company’s directors must cause to be made out, before the deadline after that accounting period, a consolidated profit and loss account that gives a true and fair view of the profit or loss, for that accounting period, of the economic entity constituted by the company and the entities it controlled from time to time during that accounting period (even if the company did not control the same entities throughout that accounting period).

295A(2) [Entity not controlled throughout accounting period] To avoid doubt, if the company did not control a particular entity throughout that accounting period, the consolidated profit and loss account must relate to the entity’s profit and loss for each part of that accounting period throughout which the company controlled the entity, but not to the entity’s profit or loss for any other part.
Section 298 Financial statements to comply with applicable accounting standards
298(1) [Directors to ensure compliance with accounting standards] Subject to section 297, a company’s directors shall ensure that the company’s financial statements for an accounting period are made out in accordance with applicable accounting standards.

46 The plaintiff makes allegations against the defendants that they caused default in compliance or that they failed to take reasonable steps to secure compliance with the accounts provisions of the Act. It is necessary to decide what steps were in fact necessary to secure compliance with the accounts provisions of the Act and what steps ought reasonably to have been taken to secure compliance. The tests are objective and in the latter respect the test is applied by reference to the particular circumstances of the case. What is reasonable to expect from a director in securing compliance will depend on all such circumstances: ASC V Fairlie (1993) 11 ACLC 669 at 681-682.

47 The allegations in this case do not require a lengthy analysis of the meaning of the term a “true and fair view” of the profit or loss of the relevant company. This is not a case in which sophisticated arguments have been advanced as to whether particular accounting methods or practices affected the “true and fair view” of the profit or loss. This case is in the main based on whether the transactions, the subject of the allegations, from which profits were brought to account, were real or fictitious and, in relation to those directors who were not directly involved in the creation of the alleged fictitious profits, whether there was information or circumstances that should have alerted them to the existence of those fictitious profits or the need to make further enquiry in relation to those profits.

The Corporate Structure

48 It is important to understand the corporate structure of Clifford to assess the nature of the allegations the plaintiff makes against the defendants. This structure is set out in a diagram attached to this judgment however the following is a narrative form of the structure during the relevant period.

49 Clifford Minerals Limited was incorporated on 13 January 1970 and was a listed company until 13 January 1993 when its Australian Stock Exchange (ASX) listing was suspended. Clifford Minerals Limited changed its name to Clifford Corporation Limited (CCL) on 1 December 1994. At that time its principal activity was restricted to minor mineral exploration and its liabilities greatly exceeded its assets with accumulated losses in excess of $5 million.

50 CCL subsequently acted only as a holding company and the principal activities were carried out through its subsidiaries. It derived income from charging administration and management fees to the subsidiaries and from dividends paid to it by the subsidiaries. The largest shareholders in CCL in the relevant period were Leisuremark Pty Limited, formerly Leisuremark Limited, (Leisuremark); Leisuremark Australia Pty Limited (Leisuremark Australia); Notretoil Investments Pty Limited (Notretoil) and The Store of Knowledge, formerly Delostar Pty Limited (Store of Knowledge). JBL, Hall and Sapier were directors of CCL in the relevant period.

51 The shareholders of Leisuremark in the relevant period were JBL, Hall, PJL, Notretoil and The Store of Knowledge. The directors were JBL, Hall and PJL and the secretaries were from time to time Sapier, Craig John Ellis (Ellis) and JBL. The shareholders of Leisuremark Australia during the relevant period were JBL and Notretoil and the directors were JBL, Hall and PJL.

52 The shareholders of Notretoil during the relevant period were JBL and Mrs Loiterton and the directors were JBL and Mrs Loiterton. Hall was secretary from 1993 to 1996 and JBL became secretary on and from 1996. The Store of Knowledge shareholders and directors during the relevant period were Hall and members of his family.

53 In December 1994, CCL acquired all the issued shares in Signature Group Australia Limited (Signature) which carried on the business of acquiring leasehold interests in central business district office premises, fitting out the premises and sub-letting the premises to a broad range of tenants. The acquisition of Signature was funded by a public share issue and CCL was listed on the ASX on 4 August 1995. The shareholders of Signature in the relevant period were Leisuremark Australia, Notretoil, Store of Knowledge and Barford Estate Pty Limited, a company associated with JBL. JBL, Hall and PJL were directors of Signature from 18 May 1994 to 1 November 1996 and all of the defendants were directors of Signature between 1 November 1996 and 17 November 1998.

54 Interior Design Construction Pty Ltd (IDC) of which the sole shareholder was Leisuremark was incorporated in 1995. It worked for Signature in completing the fit-out of the leased premises. The leases for the premises were held by private companies which were subsidiaries of Signature.

55 On 28 June 1996, CCL acquired all the issued shares in Ansair Pty Limited (Ansair) which later became known as Saydair Commercial Seating Pty Limited. Ansair carried on a large scale manufacturing business producing buses and airline and railway seats. JBL, Hall and Sapier, with others, were the directors of Ansair during the relevant period and Ellis and Sapier were the secretaries.

56 On 14 October 1996, CCL acquired all the issued shares in JRA Limited (JRA), later known as Austral Pacific Group Limited (APG). It also carried on a large scale manufacturing business producing buses, coaches and fire engines. From about 1996 JBL, Hall and Ellis were the directors and Sapier and Ellis were the secretaries.

57 In June 1996, Austchas Pty Ltd (Austchas) was purchased as a shelf company. It was 100% owned by CCL and its sole purpose was to hold property at 75 Marigold Street, Revesby (the Revesby property) acquired as part of the acquisition of JRA by CCL on 14 October 1996. The directors included JBL, Hall and Sapier.

58 An administrator was appointed to APG on 26 November 1998 and to CCL on 9 December 1998. A liquidator was appointed to Signature and Austchas on 4 May 1999.

Overview

59 The plaintiff relies upon six areas of facts, matters and circumstances from which it is alleged the contraventions of the Act arise. Those six areas have been identified and referred to in the proceedings as (1) Pre-acquisition Fees; (2) Signature Exclusivity Fees; (3) Origin Fee; (4) Revesby profit; (5) Share and Option trading; and (6) Dividends.

Pre-acquisition fees

60 Clifford’s 1995/96 consolidated accounts and CCL’s 1995/96 accounts, dated 29 September 1996 and signed by JBL and Hall on behalf of the board, included as part of Clifford’s consolidated income for the year and CCL’s income for the year, an amount of $737,000 purportedly charged by CCL to Ansair as fees for “management and consultancy services” purportedly provided by CCL to Ansair prior to CCL’s acquisition of Ansair on 28 June 1996 (the 1995/96 pre-acquisition fee). The plaintiff does not rely on the 1995/96 pre-acquisition fee as a contravention of the Act by the defendants. It is relied upon only as relevant background to the pre-acquisition fees, referred to below, that were brought to account in the 1996/97 year. I will deal with this aspect of the plaintiff’s approach later when considering the pre-acquisition fees in detail.

61 The plaintiff alleges that the invoice for the 1995/96 pre-acquisition fee of $737,000 was backdated to 28 June 1996, a date prior to the acquisition of Ansair by CCL. That fee was included as income in CCL’s 1995/96 accounts and was not eliminated in Clifford’s consolidated accounts because it was treated as arising from a transaction between the companies when Ansair was not part of Clifford. The plaintiff claims that during the acquisition period there was no agreement with and no request by Ansair for CCL to provide services to it.

62 The plaintiff alleges that three pre-acquisition fees were inappropriately brought to account and are relied upon as contraventions of the Act by the defendants. These pre-acquisition fees were included in Clifford’s December 1996 half-year consolidated accounts, dated 26 June 1997, signed by JBL and Hall on behalf of the board and were also included as part of Clifford’s consolidated income in Clifford’s 1996/97 consolidated accounts, dated 10 October 1997 and signed by Hall and Sapier on behalf of the board. The pre-acquisition fees purportedly charged were: $1,450,000 charged by CCL to JRA (the CCL fee), $800,000 charged by Ansair to JRA (the Ansair fee) and $252,300 charged by Signature to JRA (the Signature fee). The plaintiff alleges that these three pre-acquisition fees contributed $2,502,300 to Clifford’s half-year consolidated revenue of $33.771 million and consolidated after-tax profit of $8.405 million and contributed $2,502,300 to Clifford’s 1996/97 consolidated revenue of $85.227 million and consolidated after-tax profit of $11.511 million.

63 The plaintiff also alleges that CCL’s 1996/97 accounts included the pre-acquisition fee of $1,450,000 charged by CCL to JRA as part of CCL’s income for the year and contributed to CCL’s 1996/97 revenue of $8.223 million and after-tax profit of $4.120 million.

64 The plaintiff alleges that all the pre-acquisition fees were fictitious and the defendants knew, or ought to have known, that they were fictitious. The plaintiff alleges that in allowing these pre-acquisition fees to be brought to account in the manner referred to above, each of the defendants, except for PJL, contravened the Act. I will deal with the specific contraventions alleged against each of the defendants later in this judgment when I am considering the pre-acquisition fees contravention allegations in detail.

Signature Exclusivity Fees

65 Clifford’s December 1996 half-year consolidated accounts, dated 26 June 1997 and signed by JBL and Hall on behalf of the board, included amounts totalling $1,541,000 purportedly derived by Signature from IDC for the grant to IDC of the exclusive right to carry out the fit-out and refurbishment of Signature’s leasehold properties (the Exclusivity fees). The inclusion of those fees contributed $1,541,000 to Clifford’s half-year consolidated revenue of $33.771 million and consolidated after-tax profit of $8.405 million. Clifford’s 1996/97 consolidated accounts, dated 10 October 1997 and signed by Hall and Sapier on behalf of the board, included as part of the consolidated income for the year, Exclusivity fees totalling $2,801,100. Those fees contributed $2,801,100 to Clifford’s full-year consolidated revenue of $85.227 million and consolidated after-tax profit of $11.511 million.

66 The plaintiff claims that the Signature Exclusivity fees had no connection with IDC being Signature’s exclusive fit-out contractor and that the defendants did not intend the fees to have such a connection. The plaintiff also alleges that the defendants did not intend the fee to encourage IDC to perform work on time or to penalise IDC for late performance. It is alleged that the defendants’ sole intention was to create documents and to cause the making of entries in accounting records so as to increase the reported, but not the real, profits of Signature and consolidated profits of Clifford. The plaintiff makes an alternative submission that if the fees were charged as consideration for the grant, or continued grant, of the exclusive right to do the fit-out work, and if IDC had the capacity to pay, the fees were nevertheless manifestly excessive by commercial standards.

67 The plaintiff alleges that all defendants contravened the Act in causing or allowing the Signature Exclusivity fees to be brought to account in the manner outlined above. I will deal with the specific allegations against each of the defendants later in this judgment when I am considering the Signature Exclusivity fees contravention allegations in detail.

Origin fee

68 Clifford’s 1996/97 consolidated accounts, dated 10 October 1997 and signed by Hall and Sapier on behalf of the board, included as part of Clifford’s consolidated income for the year, an amount of $770,000 received by Signature from Origin Telecommunications Pty Limited (Origin). The Origin fee was received pursuant to a purported agreement for a grant by Signature to Origin of the exclusive right to provide Signature, CCL and JRA/APG with telephone services for five years. That fee contributed $770,000 to Clifford’s 1996/97 consolidated revenue of $85.227 million and consolidated after-tax profit of $11.511 million. Origin was a company associated with JBL’s brother, Phillip Loiterton (PL).

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Last Modified: 05/14/2004