Australian Prudential Regulation Authority v Holloway - [2000] FCA 579

FEDERAL COURT OF AUSTRALIA
Australian Prudential Regulation Authority v Holloway [2000] FCA 579
SUPERANNUATION – alleged contravention of s 85 of Superannuation Industry (Supervision) Act 1993 (Cth) – years of income prior to 1998-99 – whether there can be a contravention of s 85 concerning market value ratio of in-house assets of regulated superannuation fund for years of income prior to 1998-99 – s 83 of Act prohibits acquisition of in-house assets of a fund if a certain market value ratio results from that acquisition – whether s 83 concerning acquisition of assets applies to years of income prior to 1998-99.
SUPERANNUATION – alleged contravention of s 85 of Superannuation Industry (Supervision) Act 1993 (Cth) – artificial reduction in market value ratio of in-house assets of regulated superannuation fund – ss 76-80 impose restrictions on historical cost ratio of in-house assets of fund for years of income 1994-95 to 1997-98 – whether scheme to avoid provisions of the Act concerning historical cost ratio of in-house assets of fund may contravene s 85.
SUPERANNUATION – alleged contravention of s 85 of Superannuation Industry (Supervision) Act 1993 (Cth) – in-house asset – investment by regulated superannuation fund in units in unit trust where investments by unit trust controlled by trustees of superannuation fund and directors of employer-sponsor unit trust lends monies from such investment to employer-sponsor – whether investment in units in unit trust an “in-house asset” of superannuation fund – whether investment in units a loan to or an investment in employer-sponsor within s 71(1).
SUPERANNUATION – alleged contravention of s 85 of Superannuation Industry (Supervision) Act 1993 (Cth) – in-house asset – investment by regulated superannuation fund in units in unit trust where investments by unit trust controlled by trustees of superannuation fund and directors of employer-sponsor – unit trust lends monies from such investment to employer-sponsor – whether investment in units an “in-house asset” of superannuation fund – whether investment in units result of agreement for purpose of achieving result that loan to or investment in employer-sponsor would be made – whether “in-house asset” by operation of s 71(2)(c).
SUPERANNUATION – alleged contravention of s 85 of Superannuation Industry (Supervision) Act 1993 (Cth) – meaning of “scheme” in s 85(4) – whether requirement for mutual obligations – whether requirement for proscribed intention on part of two or more persons to contravene s 85(1) – whether necessary to show intention to artificially reduce market value ratio of in-house assets of fund or whether sufficient to show intention to carry out or cause to be carried out acts which had that effect – whether necessary intention established.
SUPERANNUATION – alleged contravention of s 85 of Superannuation Industry (Supervision) Act 1993 (Cth) – investment by regulated superannuation fund in units in unit trust pursuant to agreement for purpose of achieving result that money so invested would be paid to employer-sponsor to reduce indebtedness of unit trust to employer sponsor – whether loan to or investment in employer-sponsor – whether investment by superannuation fund an “in-house asset” of superannuation fund in those circumstances.
Acts Interpretation Act 1901 (Cth) s 13 and s 48
Australian Prudential Regulation Authority Act 1998 (Cth) Pt 8 and Pt 21
Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 (Cth)
Foreign Acquisitions and Takeovers Act1975 (Cth)
Income Tax Assessment Act 1936 (Cth) ss 26AAB, 38A, 121C, 177A
Occupational Superannuation Standards Act 1987 (Cth)
Superannuation Entities (Taxation) Act 1987 (Cth) s 7(1)
Superannuation Industry (Supervision) Act 1993 (Cth) ss 2(4), 66, 70, 71, 74, 75, 76-80, 81, 82, 83, 85, 193, 196(3)(4), 194, 199(1), 221, 285, Div 2 and Div 3 of Pt 8
Trade Practices Act 1974 (Cth) s 45
Occupational Superannuation Standards Regulations regs 16A(1), 16A(8), 16A(17), 16B
Securities Industry Act 1970 (NSW) s 70
Briginshaw v Briginshaw (1938) 60 CLR 336 applied
Trevisan (Trustees of the Forli Pty Ltd Superannuation Fund) v Federal Commissioner of Taxation (1991) 29 FCR 157 applied
Silk Bros Pty Ltd v State Electricity Commission (Vic) (1943) 67 CLR 1 applied
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 applied
Bevanere Pty Ltd v Lubidineuse (1985) 59 ALR 334 applied
Chalmers v Thompson (1913) 30 WN (NSW) 161 distinguished
K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 distinguished
Oyston v Blaker [1996] 2 All ER 106 applied
Inglis v Robertson [1898] AC 616 applied
Knight v Lambrick Contractors Ltd [1957] 1 QB 562 referred to
Elliott v Grey [1960] 1 QB 367 referred to
Qualter Hall & Co Ltd v Board of Trade [1961] 3 WLR 825 referred to
Fisher v Raven [1964] AC 210 referred to
Tolley v Giddings [1964] 2 QB 354 referred to
Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 referred to
The Wik Peoples v The State of Queensland (1996) 187 CLR 1 referred to
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 applied
Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 referred to
Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) 24 FLR 286 referred to
Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 2) (1979) 40 FLR 83 referred to
Morphett Arms Hotel Pty Ltd v Trade Practices Commission (1980) 30 ALR 80 referred to
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 referred to
Trade Practices Commission v Service Station Association Ltd (1993) 44 FCR 206 applied
R v The Associated Northern Collieries Ltd (1912) 14 CLR 387 at 400 referred to
McGraw-Hinds (Aust) Pty Ltd v Smith (1979) 24 ALR 175 at 178 referred to
Accident Towing and Advisory Committee v Combined Motor Industries Pty Ltd [1987] VR 529 referred to
Commonwealth v Baume (1905) 2 CLR 405 applied
Victorian Chamber of Manufacturers v Commonwealth (1943) 67 CLR 335 applied
Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359 cited
CPH Property Pty Ltd v Federal Commissioner of Taxation (1998) 98 ATC 4983 cited
Grollo Nominees Pty Ltd v Commissioner of Taxation (1997) 73 FCR 452 cited
Peabody v Federal Commissioner of Taxation (1993) 40 FCR 531 cited
Canwest Global Communications Corporation v Treasurer of the Commonwealth of Australia (1997) 147 ALR 509 cited
Commissioner for Taxation v Spotless Services Pty Ltd (1996) 186 CLR 404 applied
North v Marra Developments Ltd (1981) 148 CLR 42 considered
Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd (1998) 28 ACSR 58 cited
Australian Securities Commission v Nomura International PLC (1999) 89 FCR 301 considered
Bishop v Smyrna & Cassaba Railway Co [1895] 2 Ch 265 referred to
Bond v Barrow Haematite Steel Co [1902] 1 Ch 353 referred to
Re Spanish Prospecting Co Ltd [1911] 1 Ch 92 referred to
Apand Pty Ltd v Kettle Chip Co Pty Ltd (1999) 162 ALR 505 referred to
Lees & Leech Pty Ltd v Commissioner of Taxation (1997) 73 FCR 136 referred to
AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY v ANTHONY PHILIP HOLLOWAY and HOLLOWAY & CO PTY LTD (ACN 008 074 306)
SG 111 of 1998
MANSFIELD J
12 MAY 2000
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

SG 111 OF 1998

BETWEEN:

AUSTRALIAN PRUDENTIAL REGULATION
AUTHORITY
Applicant

AND:

ANTHONY PHILIP HOLLOWAY
First Respondent

HOLLOWAY & CO PTY LTD
(ACN 008 074 306)
Second Respondent

JUDGE:

MANSFIELD J

DATE:

12 MAY 2000

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

These reasons are lengthy. To facilitate understanding of the reasons, and for ease of reference to particular topics, they are divided into the following sections:
A.Introduction
(i)        The parties and the impugned conduct  pars 2 - 12
(ii)       The general nature of the transactions  pars13 - 16
(iii) The structure of Part 8 of the Act pars 17 - 20
(iv)      Observations about the witnesses  pars 21 - 30
(v)       The grounds of defence  pars 31 - 34
B.Can the impugned conduct contravene s 85?
(i)The operation of ss 76-80 pars 35 - 41
(ii)The operation of s 83 pars 42 - 71
C.       The All Sweat transaction – findings  pars 72 - 85
D.Was the investment by All Sweat SBF in Bino an in-house
asset in the circumstances?
(i)The contentions  pars 86 - 89
(ii)The operation of s 71(1) pars 90 - 100
(iii)The operation of s 71(2) pars 101 - 107
E. Was there a contravention of s 85(1) by the All Sweat transaction?
(i) The construction of s 85 pars 108 - 118
(ii)       The nature of the scheme alleged  pars 119 - 127
(iii)      The findings about the scheme  pars 128 - 139
(iv)      The findings about the intention of Mr Holloway  pars 140 - 160
F.The other transactions – s 71(1)
(i)        The Dalgleish transaction – findings  pars 161 - 173
(ii)       The three Pishas transactions – findings  pars 174 - 190
(iii)      The two Fyreguard transactions – findings  pars 191 - 228
(iv)      The six Anaequip transactions – findings  pars 229 - 286
(v)       The two Hyde Park transactions – findings  pars 287 - 314
(vi)      The Holloway & Co transaction – findings  pars 315 - 325
(vii)     The Andrew Holloway transaction – findings                pars 326 - 336
(viii)     The Longlat transaction – findings  pars 337 - 356
(ix)      The Pride Consultants transaction – findings  pars 357 - 374
(x)The two Statewide transactions – findings  pars 375 - 398
(xi)The two Driving Centre transactions – findings              pars 399 - 423
(xii)The three Eden transactions – findings  pars 424 - 446
(xiii)The two Kino transactions – findings  pars 447 - 466
(xiv)The two Transport Drivers transactions – findings  pars 467 - 494
(xv)The Saw Works transaction – findings  pars 495 - 510
(xvi)The Unley Glass transaction – findings  pars 511 - 529
G. Section 85 and the other transactions pars 530 - 547
H.    Conclusions  pars 548 - 550
A.       Introduction
(i)        The parties and the impugned conduct
The Superannuation Industry (Supervision) Act 1993 (Cth) (“the Act”) has the object of making provision for the prudent management of certain superannuation funds and other funds and trusts, and for their supervision by the Australian Prudential Regulatory Authority (“APRA”) and the Australian Securities Investment Commission (“ASIC”). As the Act states, those funds and trusts are subject to regulation but, in exchange, they may become eligible for concessional taxation treatment. This case concerns regulated superannuation funds under the Act.
APRA is established under the Australian Prudential Regulation Authority Act 1998 (Cth). It has responsibility for the general administration of much of the Act including Pts 8 and 21 of the Act which are particularly relevant for present purposes. That responsibility devolved upon it following the Financial Sector Reform (Amendments and Transitional Provisions) Act 1998 (Cth).
The respondent Anthony Phillip Holloway (“Mr Holloway”) is a practising accountant. He is a “principal” in Holloway & Co Pty Ltd (“Holloway & Co”), the accounting firm through which he conducted his practice, as well as being a director and shareholder of that company. Holloway & Co was registered on 30 June 1988. Its directors at material times have been Mr Holloway and Catherine Mary Holloway (“Ms Holloway”). I refer to Mr Holloway and to Holloway & Co together in these reasons as “the respondents”.
Mr Holloway and Holloway & Co are each alleged by APRA to have breached s 85 of the Act. It provides:
“(1)A person must not enter into, commence to carry out, or carry out, a scheme if the person entered into, commenced to carry out, or carried out the scheme or any part of the scheme with the intention that:
(a)the scheme would result, or be likely to result, in an artificial reduction in the market value ratio of the fund’s in-house assets; and
(b)that artificial reduction would avoid the application of any provision of this Part to the fund.
(2)Subsection (1) is a civil penalty provision as defined by section 193, and Part 21 therefore provides for civil and criminal consequences of contravening, or being involved in a contravention of, that subsection.
(3)A contravention of subsection (1) does not affect the validity of a transaction.
(4)In this section:
scheme means:
(a)any agreement, arrangement, understanding, promise or undertaking:
(i)whether express or implied; or
(ii)whether or not enforceable, or intended to be enforceable, by legal proceedings; and
(b)any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.”
The scheme or schemes alleged concern arrangements between the respondents and Super Benefit Pty Ltd (“Super Benefit”) or its directors including Berndt Glaser (“Mr Glaser”) for the establishment for the clients of the respondents by Super Benefit or by Glaser and Associates (an entity of Mr Glaser) of a regulated superannuation fund and a unit trust, with Super Benefit as the nominal trustee but with the affairs of the unit trust being determined by the respondents and their clients. The carrying out of the scheme, apart from the establishment of those entities, involves the respondents procuring the movement of funds from an employer company (being an employer-sponsor as defined under the Act) to a superannuation fund regulated under the Act, and in turn by the superannuation fund to a unit trust, and then by the unit trust back to the employer-sponsor. In due course, the Annual Return to the Insurance and Superannuation Commission would be prepared by, and submitted by, Holloway & Co which would declare that the in-house assets of the superannuation fund would be declared as nil. It is convenient to record at this point that in respect of each of the transactions referred to hereunder, it is clear that Holloway & Co in due course did prepare and lodge a return to the Insurance and Superannuation Commission for each of the superannuation funds in question declaring the total assets of the fund and the in-house assets of the fund. Each such return, as relevant to the transactions the subject of this proceeding, declared the in-house assets to be “nil”. Those returns were each signed by the trustees of the relevant fund, but it was not alleged by APRA that any of them intended to present incorrect or misleading information on those returns. It will be necessary to refer in detail to the transactions. I note that Mr Glaser worked also as an accountant and tax agent through Glaser and Associates Pty Ltd (“Glaser Associates”) at material times. APRA accepts that it is not a sufficient agreement arrangement understanding promise or undertaking for the purposes of subs (4)(a) of s 85 that the only parties to that arrangement are the respondents.
By way of alternative, APRA alleges that the scheme or schemes concern arrangements between the respondents on the one part and the trustees of the various regulated superannuation funds on the other to effect the movement of funds broadly in the manner described. It should be noted also that it is not alleged that the various trustees of the regulated superannuation funds in respect of which evidence has been adduced in these proceedings had the intention to which s 85(1)(a) and (b) of the Act refers. It is alleged only that the respondents had that intention.
Each transaction is a little different. There are thirty-two transactions in all. It is alleged that the respondents carried out each of those transactions as part of the carrying out of a scheme with the intention specifically referred to in s 85(1)(a) and (b) of the Act. It was a foundational fact for the purposes of APRA’s claim that each superannuation fund had acquired an in-house asset in contravention of a provision of Div 2 or Div 3 of Pt 8 of the Act. Although s 85(1)(a) is expressed in terms of an intention which would, or would be likely to, result in a certain consequence, APRA in its amended statement of claim and in submissions has accepted in this case that it must in fact show the acquisition of an in-house asset in contravention of a provision of the Act by the superannuation fund concerned. The amended applications seek declarations that there were artificial reductions in the market value ratio of the in-house assets of the nineteen superannuation funds by each of the thirty-two transactions in question. It is not part of APRA’s case in this matter to argue that there may have been an infringement of s 85 by the respondents without there having been the acquisition of an in-house asset by a superannuation fund contrary to another provision of the Act.
Section 85 is a civil penalty provision: s 193. Mr Holloway, as a person alleged to be involved in the contravention of s 85(1) is taken to have contravened that provision himself if the contravention is made out: s 194. On the application, the Court is to apply the rules of evidence and procedure that it applies in a hearing and determination in civil matters: s 199(1). The parties accept that the onus of proof on APRA is therefore the civil onus, that is on the balance of probabilities. It is nevertheless appropriate that the Court have regard to the nature of the allegations and their seriousness, and the consequences of those allegations: Briginshaw v Briginshaw (1938) 60 CLR 336 esp per Dixon J at 362-363.
If the Court is satisfied that the respondents have contravened s 85(1), then s 196(2) of the Act provides:
“The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified superannuation entity, but need not so declare if such a declaration is already in force under Division 4”.
There is no declaration in force under Div 4. The Court is also empowered by s 196(3) and (4) to order that the respondents pay to the Commonwealth a monetary penalty, but only if it is satisfied that the contravention is a serious one.
Section 221 also applies to these proceedings. Section 221(2) provides:
“If, in eligible proceedings against a person, it appears to the Court that the person has, or may have, contravened a civil penalty provision but that:
(a) the person has acted honestly; and
(b)having regard to all the circumstances of the case, the person ought fairly to be excused for the contravention;
the Court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.”
The respondents have not pleaded reliance upon s 221(2) in their defence nor sought to do so in submissions. Having regard to the state of mind which APRA must prove against them under s 85(1)(a) and (b), if that state of mind is proved, there would appear to be little room for s 221(2) to operate.
(ii) The general nature of the transactions
The thirty-two transactions which are particularised as involving contraventions by the respondents of s 85 of the Act are in some respects different. The overall theme (as represented by the most simple of those alleged transactions) is an uncomplicated one.
On the advice of the respondents, an employer-sponsor established both a superannuation fund and a unit trust. The superannuation fund became a regulated superannuation fund so as to gain the benefit of the taxation concessions available. The employer-sponsor would then pay an amount by way of superannuation payment to the superannuation fund. The directors of the employer-sponsor would be the trustees of the superannuation fund. They would also, in a practical sense, control investments of the unit trust. The payment by the employer-sponsor would represent a taxation deduction for the purposes of determining the taxable income of the employer-sponsor, and so represent a deduction from the taxable earnings which would otherwise be payable generally at the corporate rate. The superannuation fund would receive that payment by way of income and pay taxation on it at the concessional rate of fifteen cents in the dollar. That rate was much less than the corporate rate. It would also benefit by the concessional taxation rate in respect of other earnings by the superannuation fund upon that capital sum as invested. The superannuation fund was unable to borrow, or “gear” its investments.

The superannuation fund would then invest the amounts so received in units in the unit trust. The unit trust was generally established with an independent trustee, Super Benefit, but (it is alleged) Super Benefit was to delegate the investment making decisions of the unit trust to the directors of the employer-sponsor/trustees of the superannuation fund. That would enable the unit trust through its trustee (but practically speaking through the same persons) to borrow monies to invest in real estate or other investments, so as potentially to increase the earnings of the superannuation fund to be received as dividends distributed to unit holders. It also of course carried the risk, which the superannuation fund itself was not able to undertake, of exposing the assets of the superannuation fund to the exigencies of such borrowings. None of that is alleged to be in contravention of the Act.
However, it was also contemplated that the unit trust would then be able to use the monies available to it through the superannuation fund’s subscription for units to lend those monies back to the employer-sponsor. This was in fact done. The lending would be on a commercial basis. Instead of interest being paid to a commercial lending institution, interest would be paid to the unit trust and in turn passed back to the superannuation fund by way of dividend on the units. The unit trust would also be able to use those funds to purchase plant and equipment, which it could then lease to the employer-sponsor. So long as those activities did not infringe the Act, there would be no difficulty. They would not infringe the Act, unless, in the case of a regulated superannuation fund, the provisions of Pt 8 of the Act were infringed.
(iii) The structure of Part 8 of the Act
Part 8 of the Act controls the extent to which “in-house” asset rules apply to regulated superannuation funds. The objective is to restrict the extent to which superannuation funds may “reinvest” in the employer-sponsor so that those monies which attract a taxation concession are invested in a way which does not put them at risk.
It will be necessary to refer in some detail to the provisions in Pt 8 of the Act in due course. At this point it is convenient to note that there are various stages of evolution of the legislative control of in-house asset percentages or ratios of a regulated superannuation fund. Sections 76-80 control the “historical cost ratio” of a superannuation fund’s in-house assets. The term “in-house assets” is defined in s 71 of the Act. Section 74 defines the historical costs ratio to be the percentage which the cost of the in-house assets of a superannuation fund bears to the total cost of the assets of the fund. The permitted historical cost ratio was, effectively, 10 per cent for the years of income for 1994-95 to 1997-98. Thereafter, instead of controlling the in-house asset ratio by reference to historical cost of assets, ss 81 and 82 control the in-house asset ratio by reference to the market value of assets at the end of the year of income. The “market value ratio” is defined in s 75 to be the percentage which the market value of the in-house assets of a superannuation fund bears to the total market value of the assets of the fund. The permitted market value ratio for the years of income 1998-99 and 1999-2000 is 10 per cent and thereafter is 5 per cent.
There is another provision which featured large in the present proceedings, namely s 83 of the Act. It provides:
“(1) This section applies to a regulated superannuation fund.
(2)If the market value ratio of the fund’s in-house assets exceeds 5%, the trustee of the fund must not acquire an in-house asset.
(3)If the market value ratio of the fund’s in-house assets does not exceed 5%, the trustee of the fund must not acquire an in-house asset if the acquisition would result in the market value ratio of the funds in-house assets exceeding 5%.”
That section is in Div 3 of Pt 8 of the Act, containing also ss 81 and 82, and headed “Market value ratio of fund’s in-house assets”. It is significant because the proscription contained in s 85(1) of the Act expressly relates to an intention for the scheme to result in an artificial reduction in the market value ratio of the in-house assets of a regulated superannuation fund. But for s 83, the concept of market value ratio of in-house assets did not apply until the 1998-99 year of income. The transactions alleged by APRA concern the 1994-95, 1995-96 and 1996-97 years of income. It is contended by APRA that s 85 nevertheless operated in respect of those earlier years of income, at least back to the 1994-95 year of income, in part by reason of s 83. In other words APRA contended that s 83 was one provision of Pt 8 of the Act the application of which was intended to be avoided by Mr Holloway and Holloway & Co contrary to s 85.
(iv) Observations about the witnesses
Evidence was given by a number of persons who were directors of employer-sponsors and trustees of superannuation funds, and persons who were also involved in decision making on behalf of unit trusts, about the setting up of the particular superannuation fund with which they were involved and the setting up of the particular unit trust with which they were involved and the respective operations of the superannuation fund and the unit trust. They gave evidence as to who was involved in the investment decisions made by each of those entities, and about the circumstances in which the transactions occurred which are said by APRA to underlie the contraventions of s 85 of the Act.
Each impressed me as an honest witness, endeavouring reliably to describe those events. It is not necessary separately to address their reliability as witnesses, except in a few limited respects. The thorough and painstaking documentary trail, established by APRA’s investigations, confirmed the detailed nature of the transactions. Although there was some cross-examination of those witnesses on behalf Mr Holloway and Holloway & Co to test their reliability, they did not submit that I should reject any of those witnesses as untruthful or as mistaken in any significant respect. Mr Holloway gave evidence. He dealt only a little with the particular transactions. I have borne in mind the cross-examination of those witnesses, where any aspects of their evidence were tested, and any evidence of Mr Holloway in relation to the particular transactions. I have also borne in mind the final submissions in reaching my findings of fact about those matters. Although I may not have addressed each issue of conflict in detail, I have had regard to all the evidence in reaching my findings in respect of the transactions.
Certain of the communications between Mr Holloway and those persons, or of dealings with them, may touch upon the assessment of Mr Holloway’s reliability as a witness. His credibility is one of the critical issues of the defence. It will be necessary to make findings about his evidence for that reason.
Evidence was also given by other officers of the Insurance and Superannuation Commission and of the Australian Federal Police. In some cases, affidavits were tendered without cross-examination. This evidence was to show what occurred on the execution of certain search warrants. I accept that evidence. It was not challenged by the respondents. Ultimately, the matter of main significance from that evidence was that, on 24 March 1997 whilst a search warrant was being executed at the premises of Holloway & Co, there was then seen a copy letter from Holloway & Co to Anaequip Pty Ltd dated 8 February 1995. I find that copy letter was then seen at the Holloway & Co premises. It was copied at the time of the search. The original letter obtained from Anaequip Pty Ltd is also in evidence. Its contents, and the allegation that it was absent from the Holloway & Co files at a later stage, was contended by APRA to be relevant to Mr Holloway’s state of mind at material times. I shall refer to its content later in these reasons.
Mr Glaser gave evidence. So too did Trevor Parker (“Mr Parker”) an accountant who was a director of Super Benefit from 1993. Peter Lombardi (“Mr Lombardi”) also became a director of Super Benefit on 27 September 1995. He did not give evidence, but the transcript of his examinations conducted under s 296 of the Act was tendered. For reasons which appear in that section of this judgment, under the heading “Was there a contravention of s 85(1) by the All Sweat transaction”, I accept Mr Glaser was generally speaking a reliable witness. I also find that Mr Parker was a truthful witness, and that his evidence was reliable. He became a director of Super Benefit when one of his clients authorised the establishment of a superannuation fund and a unit trust similar to those established for clients of Holloway & Co. Super Benefit was the trustee of that unit trust. He felt it desirable to take on that directorship to look after that client’s interests. He largely left the day to day running of Super Benefit to Mr Glaser. He was called upon to sign documents in his capacity as a director of Super Benefit from time to time, and had limited contact with certain clients of Mr Holloway in that manner. He gave his evidence in a straightforward and impressive way. Mr Lombardi completed his studies in 1992, and from November 1994 worked as an accountant for Glaser Associates. In 1995, when Mr Parker started to work more from other premises, his availability to sign documents for Super Benefit as required diminished. Mr Glaser therefore asked Mr Lombardi to become a director of Super Benefit so he could be available to sign documents for Super Benefit, and he agreed. He had relatively few dealings with Mr Holloway, although he too had some contract with clients of Holloway & Co also in relation to “their” unit trusts. I see no reason to reject any of that evidence presented through the tender of the transcript of his examinations.
The principal witness for APRA was Renate Tonks (“Ms Tonks”). She is the Assistant Manager of the Adelaide Office of APRA. Since 12 June 1997, she has been the officer principally charged with the conduct of the investigations into the respondents’ conduct. She obtained a Certificate in Superannuation Management from Macquarie University in 1990, an Associate Diploma in Accounting from the South Australian Technical and Further Education College in 1993, and a Diploma in Superannuation Management from Macquarie University in 1998.
Ms Tonks described the course of the investigation, including the fact that the copy letter of 8 February 1995 from Holloway & Co to Anaequip Pty Ltd was produced by Mr Holloway in response to a notice under s 255 of the Act in early 1997. She also gave evidence that on 31 March 1998 and 1 April 1998 many files then held by Holloway & Co were inspected and copied by APRA officers with the consent of Mr Holloway. She was unable then to locate the copy letter from Holloway & Co to Anaequip of 8 February 1995. She also suggested that, generally, Mr Holloway was not very responsive to inquiries made or steps taken in the course of the investigation, and that that fact was relevant to the assessment of his credit. I am not prepared to take that step. The compliance or non-compliance by Mr Holloway with requirements of the investigation, whether voluntary or compulsory, was not directly in issue. Non compliance with a requirement made under the Act constitutes an offence: s 285. To accept the submission involves accepting such non-compliance when it is but a peripheral issue. I think in the circumstances that it would be unfair to do so. Mr Holloway has not been called upon to answer that allegation in the context of s 285, which creates the offence of intentionally or recklessly refusing or failing to comply with a requirement of an authorised person under the Act. I have not heard all the evidence which might be led on these questions.
I am also not prepared to use the apparent absence from the premises of Holloway & Co of the copy letter of 8 February 1995 from Holloway & Co to Anaequip Pty Ltd as impinging upon Mr Holloway’s credit. Section 286 makes it an offence punishable by imprisonment to conceal or destroy a record relating to a matter being investigated with intent to delay or obstruct the investigation. That is, in essence, what APRA wants me to find about that copy letter. I am not prepared to make that finding, when the issue arises only indirectly in the current proceedings. Mr Holloway disputed that he had removed or concealed that letter. There would seem to be little point in him doing so, when he could readily have realised the investigation might well seek information from the trustees of the funds or the employer-sponsors. It is, of course, very difficult to prove the fact that the letter was not located in the files of Holloway & Co in any event. It could have been misfiled by Mr Holloway’s staff, or indeed by the officer of APRA who first copied it, although there is no particular reason to think that occurred. On the state of the evidence, I would not find in any event that Mr Holloway endeavoured to conceal that letter. Other than those matters, the course of the investigation was not of particular moment. I do not need to refer to it further.
I accept Ms Tonks as a reliable and honest witness. The manner of the presentation of her evidence, its content, and the fact that the respondents in cross-examination did not really challenge her evidence all lead me to that conclusion. She obviously pursued her inquiries with great commitment. As I indicate later in these reasons, I have found that the calculations she made about the market value ratio and the historical cost ratio of the in-house assets of the funds are not directly applicable in the circumstances, although their accuracy as a matter of arithmetic is not challenged by the respondents. I have found that her assembly of material in relation to each transaction provides a reliable and helpful basis for considering whether a provision of the Act has been avoided or sought to have been avoided, contrary to s 85(1) of the Act.
APRA also called Christopher Malkin (“Mr Malkin”) to give evidence. He was an independent accountant engaged by APRA. His evidence consisted largely of general and individual reports he had prepared all dated 3 February 1999 about the nineteen superannuation funds under consideration. His evidence related to the value and cost of the assets and the in-house assets of the superannuation funds, their market value and historical cost ratios, whether the Annual Returns to the Insurance and Superannuation Commission were accurate, the existence and nature of the alleged in-house assets of the funds, and whether there was “from an accounting perspective” an artificial reduction in the market value ratio of the in-house assets of the funds. Upon reflection, I am not sure that it was correct to admit as much of his written reports as I did. It emerged that the foundation for much of his reports was either the views or practices of those practising in the area of giving superannuation advice, about how the Act is intended to operate, or his own views on that matter. Also, much of his evidence simply confirmed Ms Tonks’ calculations of in-house asset ratios. For reasons set out later in this judgment, I have not found those calculations to be directly applicable. In the event, I have not placed any real weight upon his evidence.
(v) The grounds of defence
There were three aspects to the defence. No distinction was drawn between the positions of Holloway & Co and of Mr Holloway. It is not necessary in those circumstances for me to do so. They contended:
(1)Section 85 applies only with respect to schemes to avoid the application of the market value ratio of the in-house assets of the superannuation fund. The allegation that the respondents contravened s 85 in respect of the financial years 1994-95, 1995-96, and 1996-97 years of income is misconceived. For those years of income, ss 76 and 80 impose the relevant cost ratios, namely historical cost ratios, with respect to regulated superannuation funds. They are the only years to which the alleged transactions relate. Sections 81 and 82 introduce market value ratios for in-house assets for regulated superannuation funds, but only for the years of income 1998-99 and thereafter.
The respondents dispute that s 83 may apply to periods prior to 1 July 1998, that is prior to the time when the market value ratio for in-house asset limits applied under s 81 and later s 82. They contend that s 83 is intended to apply to the transition from the 10 per cent restriction on the market value ratio for in-house assets applying for the years of income 1998-99 and 1999-2000 under s 81 to the 5 per cent restriction thereafter under s 82.
Consequently, they contend that there has been no contravention as alleged.
(2)Neither the loan by a unit trust to an employer-sponsor of funds available to the unit trust by a regulated superannuation fund acquiring units in the unit trust, nor the investment by a regulated superannuation fund in units in a unit trust, are loans to, or investments in, a standard employer-sponsor under the definition of “in-house asset” in s 71. The respondents contend that they were not in-house assets of the superannuation fund. Consequently, the in-house asset rules were not breached in any event. The definition of in-house assets is contained in s 71 of the Act. It provides (so far as the parties have identified as relevant):
“(1)For the purposes of this Part, an in-house asset of a superannuation fund is an asset of the fund that is a loan to, or an investment in, a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund, …
(2) If:
(a)apart from this subsection, an asset of a fund consists of a loan, or an investment, other than an in-house asset; and
(b)the loan or investment was made as the result of entering into or carrying out an agreement; and
(c)any of the persons who entered into or carried out the agreement did so for the purpose, or purposes that included the purpose, of achieving the result that a loan or investment would be made to or in, or to or in an associate of, a standard employer-sponsor of the fund;
then:
(d)the asset is taken, for the purposes of this Part to be a loan to, or an investment in, the standard employer-sponsor, or the associate of the employer-sponsor, as this case requires and
(e) …”
An associate of an employer-sponsor is defined in s 70 of the Act by reference to the definition of associate in s 26AAB(14) of the Income Tax Assessment Act 1936 (Cth).
It is said that the monies paid by the employer-sponsor to the superannuation fund in each case were invested in the unit trust for units in the unit trust. That is the relevant investment of the superannuation fund. It did not represent an in-house asset under s 71. Reliance was placed upon the decision in Trevisan (Trustees of the Forli Pty Ltd Superannuation Fund) v Federal Commissioner of Taxation (1991) 29 FCR 157 (“Trevisan”).
(3)Section 85 requires, for its contravention, that the respondents entered into, commenced to carry out, or carried out, the schemes with the intention that
(a)the schemes would result, or be likely to result, in an artificial reduction in the market value ratio of the particular fund’s in-house assets, and
(b)that artificial reduction would avoid the application of any provision of Pt 8 of the Act to the fund.
APRA originally identified those provisions of Pt 8 of the Act the application of which had been avoided as ss 76, 80 and 83, but it became clear in final submissions that it was mainly s 83 which was relied upon, as s 76 and s 80 relate to the historical cost ratio rather than to the market value ratio.
There were three legs to this element of the defence. First, it was submitted that Mr Holloway did not have the requisite intention. Next, it was contended, as a matter of fact, that any scheme which existed was not one, even if carried out with the intention of Mr Holloway as alleged by APRA, would, or was likely to, result in, the consequence to which s 85(1) refers. Finally, it was submitted that, for such a scheme to be established, Mr Glaser must also have had the intention to bring about the result to which s 85(1) refers and that he is not shown to have had that intention.
Mr Holloway gave evidence. He accepted that he, and he alone, was the mind of Holloway & Co. His evidence was that he did not think that the transactions in which he or officers working under him played a part were improper. His intention, in giving the advice which he gave, was to put in place a superannuation fund to better secure the future of his clients, and to put in place a unit trust which (whether wisely or unwisely) would enable the superannuation fund’s assets to be invested in units in that unit trust, so that they could be used to support borrowing to increase the potential investment (and risk), and in the belief that the unit trust could advance monies to the employer-sponsor without contravening any provision of the Act. He did not believe that the structure led to the creation of in-house assets. Put simply, the respondents contended that APRA had not established the intention required by s 85(1).

The respondents did not dispute that, on the assumption that the transactions did concern in-house assets of the superannuation funds, in each instance the calculations made by APRA through Ms Tonks, as to the percentages which those assumed in-house assets bore to the gross assets of the superannuation fund in each instance were correct.
As indicated, I generally accept Ms Tonks’ evidence about the nature of the thirty-two transactions in issue. In the case of each individual transaction I have recorded my findings separately based upon her evidence, and the other material proved in evidence. I have not found it necessary to discuss her methodology in any detail. As appears, I have found in some instances that the documentary evidence discloses a transaction a little different from that which she described. In most instances, that difference is not material. In addition, because I have formed the view that the only provision of Pt 8 of the Act which is directly relevant to consideration of s 85(1)(b) in respect of the particular transactions in question is s 83 of the Act, it has been necessary to make findings about the market value of the assets of the nineteen superannuation funds under consideration at the time of the investments which are claimed to constitute in-house assets. Ms Tonks’ calculations were made only at 30 June in each year, that is at the end of the year of income. I have not, therefore, directly adopted her calculations as to the historical cost ratio of in-house assets as at those dates.
I have dealt at some length with a number of the transactions to explain my findings and the process of reaching my conclusions. There are variations in each transaction which require individual consideration. There are also aspects of certain transactions which are of some significance in the overall assessment of Mr Holloway’s credit. I have discussed them in more detail in relation to each transaction. The first transaction alleged concerned All Sweat & Co Pty Ltd Superannuation Benefit Fund (“the All Sweat transaction”). It is in the group of transactions where three payments illustrate the most typical of the transactions alleged, namely on the same day a payment in the same amount from the employer-sponsor to the superannuation fund, from the superannuation fund to the unit trust, and from the unit trust back to the employer-sponsor. Before referring to that transaction in detail, it is convenient to refer to the first ground of the defence.
B. Can the impugned conduct contravene s 85?
(i)The operation of ss 76-80
As counsel for the respondents rightly contended, s 85 prohibits persons from entering into, commencing or carrying out a scheme (as defined) with the intention that the scheme would result, or be likely to result, in an artificial reduction in the market value ratio of the in-house assets of a regulated superannuation fund, and that that artificial reduction would avoid the application of any provision of Pt 8 of the Act to the fund. Its focus is upon a scheme which may artificially reduce the market value ratio of the in-house assets. It does not relate to the historical cost ratio of the in-house assets of a superannuation fund.
APRA nevertheless contends that s 85 may apply, even if s 83 does not operate with respect to transactions prior to 1 July 1998, in the following way. Section 85 is not expressly limited in time as to its operation. Although s 85(1)(a) refers to an intention to artificially reduce the market value ratio of the in-house assets of a superannuation fund, s 85(1)(b) applies to that artificial reduction if it would avoid the application of any provision of Pt 8 to the fund. The expression “any provision” encompasses the provisions in Div 2 dealing with historical cost ratio, as well as the provisions in Div 3 dealing with market value ratio (including s 83), and the provisions in Div 4. That contention is said to be fortified firstly because the definition of the market value ratio of the in-house assets of a fund in s 75 of the Act was in force from the commencement of the Act on 1 December 1993. It is also fortified because, APRA submits, otherwise there has been “a blanket amnesty” for persons intending to achieve artificial reductions of the in-house assets of regulated superannuation funds until 30 June 1998.
The contention, if correct, would mean that a scheme which was carried out:
(a)with the intention that it would result in an artificial reduction of the market value ratio of a fund’s in-house assets, at a time when there was no provision of the Act which prescribed a maximum market value ratio other than (arguably) s 83; and
(b)with the intention that that artificial reduction would avoid the application of a provision of the Act which prescribed a maximum historical cost ratio for a scheme’s assets
would amount to a contravention of s 85(1) of the Act.
Subparagraph (b) of s 85(1), by the use of the word “that”, makes it clear that it is the artificial reduction in the market value ratio of a fund’s in-house assets which is to constitute the avoidance of the application of a provision of Pt 8 to the fund. The word “that” is used to introduce a defining relative clause in s 85(1)(b).
APRA nevertheless contends that, in circumstances where the market value of the fund’s in-house assets corresponds with the cost of those assets and where the market value of all the assets of the fund happens to correspond with the cost of those assets, there is no difficulty in treating the artificial reduction in the market value of the fund’s in-house assets as also being an artificial reduction in the historical cost of those in-house assets, so that the second element of the intention in s 85(1)(b) can operate in respect of Div 2, ss 76–80, of the Act.
I do not accept that contention. In my view, the focus in s 85(1)(b) of the Act is upon the intention to avoid the application of a provision of the Act to a fund by the artificial reduction in the market value ratio of the fund’s in-house assets, that is upon the intention referred to in s 85(1)(a). I consider that that is the clear effect of the two elements of the intention expressed in s 85(1). The use of the word “that” at the start of s 85(1)(b) emphasises that intention. The consequence of APRA’s contention, if correct, would be to expose persons to contravention of s 85 in respect of the avoidance of ss 76–80 dealing with historical cost ratio depending upon the nature of the assets in the fund, in particular (as APRA acknowledged) upon the coincidence of historical cost and market value at a particular moment in time. Historical cost and market value do not necessarily coincide; they are different concepts. I do not consider that it was intended by the legislature to expose persons to having contravened s 85 in respect of the avoidance of ss 76–80 by the accidental coincidence of two different concepts for valuation of the assets of a fund. Moreover, as ss 81–83 indicate, the market value ratios prescribed are to be satisfied at the end of a financial year or at the time of the acquisition of an asset. Sections 76–80 prescribe historical cost ratios to be satisfied at all times during the financial year. The legislature has clearly recognised the significance of the change from the readily identified historical cost of the assets of a fund to the more realistic, but more elusive, concept of the market value of those assets. That is why Div 3 ss 81–83 specify a particular point in time at which the market value is to be determined. Given that recognition, if the legislature had intended s 85 to operate so as to implicate through s 85(1)(b) the intention to avoid the application of the provisions of ss 76–80 concerning historical cost ratios when, in s 85(1)(a) it has identified the relevant intention as relating to market value ratios, it could and would clearly have expressed that intention.
Accordingly, in respect of all the transactions under consideration, I do not consider that the respondents carried out a scheme within the meaning of s 85(1) of the Act with the intention that the scheme would result in, or be likely to result in, an artificial reduction in the market value ratio of the in-house assets of any of those funds, so that that artificial reduction would avoid the application of the provisions of ss 76-80 of Pt 8 of the Act.
(ii)The operation of s 83
There remains the question whether there can be a contravention of s 85 if the artificial reduction of the market value ratio of the in-house assets of a regulated superannuation fund operated in the years of income 1994-95 to 1996-97. In other words, the question is whether s 83 of the Act applied during those years of income.
APRA contended that s 83 applies in respect of the whole of the period from the commencement of Pt 8, including during the 1994-95, 1995-96 and 1996-97 years of income (the years during which the transactions under consideration occurred). It therefore applies to the acquisition of any in-house asset by a fund during that period. It imposes the maximum market value ratio of 5 per cent upon funds in respect of the acquisition of an asset by a fund over that whole period, so s 85 then operates in respect of each of the transactions. The respondents contend that s 83 only operates, upon its proper construction, in and after the 1998-99 financial year. They place reliance upon the fact that s 81 is in Div 3 of Pt 8 of the Act, upon the heading to Div 3, and that s 83 follows sections which also deal with market value ratios and which operate only in relation to the 1998-99 year of income and thereafter.
As noted earlier, Div 2 of Pt 8 (containing ss 76–80) prescribes historical cost ratio limits for in-house assets for the years of income between 1994-95 and 1997-98. Section 83 is in Div 3 of Pt 8 (containing ss 81–82). Sections 81 and 82 prescribe market value ratio limits for in-house assets for the years of income from 1998-99 onwards. Section 81 prescribes the maximum market value ratio for in-house assets of a fund for the years of income 1998-99 and 1999-2000 as 10 per cent and s 82 prescribes the maximum market value ratio for in-house assets of a fund for the years thereafter as 5 per cent. Each operates with respect to the end of each year of income, rather than continuously through the year of income or at other points of time during the years of income.
Division 4 of Pt 8 (s 84) obliges the trustee of a fund to take all reasonable steps to ensure that Divs 2 and 3 are complied with. It provides that the failure to do so is a civil penalty provision as defined in s 193, so as to attract consequences for its contravention. Division 5 of Pt 8 (s 85) is concerned with schemes intended to contravene any provision of Pt 8 of the Act, although I have found that the reference in s 85(1)(a) to market value ratio and the absence of any reference in s 85(1) to historical cost ratios has the consequence that it will only have effect with respect to schemes which are intended to contravene a provision of Pt 8 which imposes market value ratio limits upon a fund.
Section 13 of the Acts Interpretation Act 1901 (Cth) may be relevant. It directs that the headings of Parts and Divisions (but not of sections) of an Act are deemed to be part of the Act.
In Silk Bros Pty Ltd v State Electricity Commission (Vic) (1943) 67 CLR 1 Latham CJ said at 16:
“The headings in a statute or in Regulations can be taken into consideration in determining the meaning of a provision where that provision is ambiguous, and may sometimes be of service in determining the scope of a provision …”
A provision which is unambiguous will not (necessarily) be read down by a heading which might otherwise suggest a more limited meaning: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 225; Bevanere Pty Ltd v Lubidineuse (1985) 59 ALR 334 at 341; Pearce and Geddes in Statutory Interpretation in Australia (4ed, 1996, Butterworths, at 120) state:
“The other context in which problems occur is where a section expressed in general terms is included in a Part headed in a way that could limit its operation and it is clear that other sections in that Part fall within the description contained in the heading. This causes greater difficulty as prima facie it would appear that the general section should be confined by its context.”
In each of Chalmers v Thompson (1913) 30 WN (NSW) 161 and K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 (“K & S Lake City Freighters”), the heading did not limit the scope of the particular provisions because of the legislative history of the section and the context of the Act.
In considering the significance of a heading, as K & S Lake City Freighters shows, it is appropriate to have regard to the fact that the heading’s function is to serve as a brief guide to the provisions which fall within it: see Henry LJ in Oyston v Blaker [1996] 2 All ER 106 at 114; Bennion, Statutory Interpretation, 3ed, Butterworths 1997, at 574, s 255. The heading is necessarily brief, and may therefore be inaccurate or incomplete. It may survive despite amendment to the sections in the course of the passage of the Bill.
The section in the group of sections under a heading must be read in connection with the words of the heading and interpreted in the light of them: Inglis v Robertson [1898] AC 616, 630. See also Knight v Lambrick Contractors Ltd [1957] 1 QB 562 at 566; Elliott v Grey [1960] 1 QB 367 at 372; Qualter Hall & Co Ltd v Board of Trade [1961] 3 WLR 825 at 832, 835; Fisher v Raven [1964] AC 210; Tolley v Giddings [1964] 2 QB 354 at 358.
APRA contends that, despite s 83 being in Div 3 of Pt 8 of the Act, it is intended to operate in respect of all in-house assets acquired after the commencement of the Act. It relies upon the apparently unlimited wording of s 83, and upon s 2(4) of the Act. Section 2(4) provides that
“The remaining provisions [of the Act, including Pt 8] commence on 1 December 1993, but do not apply to a fund, scheme or trust in relation to a year of income of the fund scheme or trust earlier than the 1994-95 year of income.”
Section 83(1) provides that the section applies to a regulated superannuation fund. It is not limited in time. In conjunction with s 2(4), it is contended that it is clear that s 83 therefore applies from 1 December 1993 in respect of all years of income from the 1994-95 of income.
I do not consider that s 2(4) is of special significance. It is clear s 83 commenced its operation on 1 December 1993. But that does not indicate whether the scope of its operation extends to the years of income from 1994-95. Section 69 of the Act, which is the first provision in Pt 8, describes the object of Pt 8 as “to set out rules about the level of the in-house assets of regulated superannuation funds.” The difficult question is whether those rules, as embodied in s 83, apply to the years of income before the 1998-99 year of income.
Neither the Second Reading Speech by the Parliamentary Secretary to the Treasurer on the Superannuation Industry (Supervision) Bill 1993 (“the Bill”), nor the Explanatory Memorandum of the Treasurer are of any particular assistance in resolving that question. They each make clear that the Bill was part of a package of seven cognate bills, which together were intended substantially to increase the level of prudential protection provided to the superannuation industry, including the protection of the rights of superannuation fund members. The Explanatory Memorandum referred to cl 78 of the Bill (which appears to have become s 83 of the Act) as follows:
“This clause provides that, if at any time the market value of a regulated superannuation fund’s in-house assets exceeds 5 per cent of all of its assets, the fund is prohibited from any acquisitions of in-house assets. Further, where the market value does not exceed 5 per cent, any acquisition that would take the market value over 5 per cent is prohibited.”
It does not expressly refer to the ambiguity which the respondents claim to exist, namely whether it was intended to apply in respect of the years of income prior to the imposition of year end market value ratio limits on the in-house assets of a fund.
Of great significance, in my judgment, are the provisions of the Occupational Superannuation Standards Act 1987 (Cth) (“the OSS Act”). It was, at least in part, the legislative predecessor of the Act. Its purpose also was to provide operating standards for certain superannuation funds. It too was part of a legislative package which included the Superannuation Entities (Taxation) Act 1987 (Cth) (“the SET Act”). Under the SET Act, the Occupational Superannuation Standards Regulations (“the OSS Regulations”) were made by Statutory Rules 1987, No 322 and amended from time to time. The OSS Regulations were amended by the Superannuation Industry (Supervision) (Transitional Provisions) Regulations (1993, No 352 and amended by 1995, No 157) and the Superannuation Industry (Supervision) Regulations (1994, No 57 and amended by 1995, No 159) under the Act. The significance of that complicated history is that, by Statutory Rules 1990, No 150 and No 185, there was added to the OSS Regulations reg 16A. Regulation 16A appears to have been the first occasion upon which in-house asset ratios were prescribed for superannuation funds. For the purposes of s 7(1) of the SET Act [which made available certain taxation concessions to certain superannuation funds], reg 16A(17) defined the applicable standard (other than for public superannuation funds as defined) as being the cost of all in-house assets of the fund at not more than 10 per cent for the cost of all the assets of the fund. That standard applied to any fund established after 12 March 1985 (there were somewhat different standards applying to funds which were established before 12 March 1985 up to the years of income commencing 1 July 1995). By amendment (Statutory Rules 1993, No 14) reg 16B was added. It provided:
“(1)For the purposes of subsection 7(1) of the Act, the standard in subregulation (2) is prescribed in relation to the investment of the assets of a superannuation fund.
(2)Investment of the assets of a fund in an in-house asset must not be made if:
(a)the market value of in-house assets of the fund already exceeds 5% of the market value of all assets of the fund; or
(b)in consequence of the investment, the market value of in-house assets of the fund would exceed 5% of the market value of all assets of the fund.”
There were also then introduced provisions in the OSS Regulations which, so far as relevant, reflect the structure of Pt 8 of the Act: there is a definition of “in-house asset” in reg 16A(1), and an extended definition to encompass assets held by associates in reg 16A(8). There is no predecessor of s 85.
There are no provisions in the OSS Regulations which mirror the effect of ss 81–82 of the Act. That is, the OSS Regulations prescribe by reg 16A(17) an in-house asset ratio limit by reference to the cost of the assets. They do not prescribe an in-house asset ratio limit by reference to the market value of those assets. Regulation 16B was therefore introduced, clearly, to apply an additional in-house asset ratio control by reference to the market value of the assets of the fund, to operate from its commencement on gazettal: Acts Interpretation Act 1901 (Cth) s 48. The gazettal occurred on 29 January 1993. The legislature clearly intended that that prescription would operate as an additional and independent control on the ratio of in-house assets of the fund from that time.
In light of that prescription, there seems little reason to think that the legislature nevertheless intended s 83 to operate only from 1 July 1999. The words of s 83 are unrestricted in point of time. It is only the place in the Act which suggests a contrary conclusion. Further, despite the argument of the respondents to the contrary, the heading to Div 3 “Market value ratio of fund’s in-house assets” does not point to a legislative intent that all the provisions in Div 3 should operate only from the time when s 81 starts to apply, that is from the 1998-99 year of income.

In Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574 at 613 Gummow J said that the
“… fundamental object of statutory construction … is the ascertainment of the legislative intention by reference to considerations including the existing state of the law, other statutes in pari materia, and the mischief which one may discern the statute was intended to remedy.”
See also per Gummow J in The Wik Peoples v The State of Queensland (1996) 187 CLR 1 at 171.
The process of construction must always begin by examining the content of the provision that is being construed: McHugh, Gummow, Kirby and Hayne JJ in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381.
In K & S Lake City Freighters, the question was whether s 133 of the Motor Vehicles Act 1959 (SA) applied to a contract for the carriage of goods. Section 133 provided that any contract whereby a person contracts in advance out of the right to claim damages for negligence of any other person in driving a motor vehicle was, to that extent, void. It was unrestricted in its terms. It was, however, in a Part of that Act headed “Third Party Insurance” which had as its principal purpose the effectuation of a scheme to ensure that the entitlement to damages in respect of death or personal injury caused by or arising out of the use of a motor vehicle was properly exercisable. It was argued that that context meant that the apparently unrestricted words in s 133 should be read down to refer only to contracts concerning liability for death or bodily injury.
Gibbs CJ said at 312:
“The words of any statutory provision must be first read in the context provided by the statute as a whole [references omitted] but ‘if, when so read, the meaning of the section is literally clear and unambiguous, nothing remains but to give effect to the unqualified words’ [references omitted]”.
Mason J disagreed in the result, but said on the matter of principle at 315:
“Problems of legal interpretation are not solved satisfactorily by ritual incantations which emphasize the clarity of meaning which words have when viewed in isolation, divorced from their context. The modern approach to interpretation insists that the context be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity might be thought to arise.”
Brennan J said at 319:
“In choosing between a primary, broader meaning of words in a section and a secondary, narrower meaning that corresponds with the subject-matter dealt with in surrounding sections, it is relevant to consider whether the particular section has an operation independent of the operation of the surrounding sections or whether the operation of the particular section affects or is affected by the operation of the surrounding sections.”
Dawson J at 325 also agreed with Gibbs CJ and Deane J. His Honour found that there was nothing “sufficiently compelling to require a departure from the plain meaning of the words used in s 133”. At 321 Deane J acknowledged that the words of s 133 must be read in their context in the Act, but then found that the provisions of the section were plain on their face.
There is nothing within the words of s 83 to indicate that its operation is dependent upon interaction with, or the practical commencement of the operation of, some other sections (other than Div 1: the definitions). They are complete on their face. There is no suggestion of ambiguity in the words. There is no language in the section which would warrant confining its plain words. The section goes beyond, but does not contradict, the purpose of the other provisions of Div 3: ss 81–82. It does not bring about a result that would be inconvenient, improbable or unjust. The words are clear and unambiguous. The heading to Div 3 does not indicate the limited operation contended for. Section 83 sits comfortably within that Division because it deals with market value ratios, albeit that ss 81–82 operate only in respect of particular years of income. The predecessor to s 83 (or its contemporaneous co-provision in the OSS Regulations: reg 16B) was introduced only shortly before the Act. There is no reason to think that the considerations which gave rise to reg 16B of the OSS Regulations were not equally applicable to the control of regulated superannuation funds under Pt 8 of the Act including s 83.
For those reasons, I conclude that s 83 applied to the years of income 1994-95, 1995-96 and 1996-97 notwithstanding that it follows ss 81 and 82 in Div 3 of the Act, and that those sections impose restrictions on the market value ratio of assets at the end of the years of income commencing with the 1998-99 year of income.
Accordingly, subject to considering the particular circumstances of each of the alleged transactions, I reject the first ground of defence of the applicants.
The second general ground of the respondents’ defence is that the investment by a superannuation fund in units in a unit trust, even where the unit trust then advances the funds so subscribed to the employer-sponsor, cannot constitute an in-house asset of the fund. In my view, it is more convenient to consider that contention by reference to a particular transaction. I shall use the All Sweat transaction.
C. The All Sweat transaction - findings
All Sweat & Co Pty Ltd (“All Sweat”) was registered on 17 March 1995. Its directors at material times were Truc Cong Ho (“Mr Ho”), Hien Nguyen Ho (“Mrs Ho”) and Jacqueline Dawn Swanson (“Ms Swanson”).
On 16 March 1995, the All Sweat & Co Pty Ltd Superannuation Benefit Fund (“All Sweat SBF”) was established. Its trustees were Mr Ho and Mrs Ho. It became a regulated superannuation benefit fund under the Act from that date.
On 16 March 1995 the Bino Private Property Unit Trust (“Bino”) was established. Its trustee was Super Benefit.
On 30 June 1995 All Sweat drew a cheque on its bank for $40,000 payable to All Sweat SBF and paid that amount to All Sweat SBF. At the same time, All Sweat SBF drew a cheque for $40,000 to subscribe for 40,000 $1 units in Bino. It is not clear when those units were in fact issued. At the same time Bino drew a cheque for $40,000 payable to All Sweat and paid that amount to All Sweat. It was recorded as, and was, a loan by Bino to All Sweat.
Mr Ho and Mrs Ho ran the All Sweat business of garment manufacturers. They had been clients of Holloway & Co since 1989, and Mr Holloway attended to their accounting affairs. In about early March 1995, they asked Mr Holloway to establish a corporate entity to run that business rather than for it to continue to operate as a partnership. They were moved to that action, at least in part, by their obligation to pay provisional tax.
At that interview with Mr Ho and Mrs Ho, I find that Mr Holloway recommended that they establish a superannuation fund. He may have also mentioned setting up a unit trust. It is unclear whether they then accepted that advice. Mr Ho’s evidence was that he did not then instruct Mr Holloway to proceed beyond arranging for the establishment of All Sweat. There may have been some misunderstanding on his part, or a lack of full appreciation on his part, of what was proposed by Mr Holloway. Soon after that interview, it is clear that Mr Holloway by telephone suggested setting up both a superannuation fund and a unit trust. He explained the relative taxation rates applicable to All Sweat and to monies paid by All Sweat into a superannuation fund. He also explained that a unit trust could own the assets used by All Sweat in its business and lease them to All Sweat. He was instructed to proceed. Mr Holloway then arranged for the registration of All Sweat, and the establishment of All Sweat SBF and Bino.
At a further interview in late March 1995, Mr Holloway explained in more detail the entities established for Mr Ho and Mrs Ho, and the way in which he contemplated that they would interact. He advised Mr Ho to establish bank accounts in the name of All Sweat SBF and Bino and to produce to his bank the two trust deeds for those entities. Mr Ho attended his bank at Greenacres to do so. The bank manager, Mr Peremiczko, confirmed in a telephone conversation with Mr Holloway what was intended to be done. On Mr Holloway’s advice, Mr Peremiczko completed the appropriate forms describing Mr Ho and Mrs Ho as trustees of Bino, and as alternate signatories on its account. Mr Peremiczko did not himself read the trust deed for Bino which clearly indicated the trustee was Super Benefit. Neither Super Benefit nor Mr Glaser were mentioned to him.
The three cheques for $40,000 all drawn on 30 June 1995 were prompted by Mr Holloway. He rang Mr Ho about that date and told him to write the three cheques on the one day, and the sequence of those cheques: payment by All Sweat to All Sweat SBF, payment by All Sweat SBF to Bino, and payment by Bino to All Sweat. Mr Ho said that All Sweat did not have $40,000, but Mr Holloway told him that if all the cheques were presented in sequence on the same day there would not be a problem. Mr Ho did not then fully understand the reason for the proposed transactions. He was concerned about All Sweat writing a cheque without sufficient funds. He attended his bank and spoke to Mr Peremiczko about his concern. Mr Peremiczko then spoke to Mr Holloway by telephone. He accepted Mr Holloway’s advice to proceed, and then assisted Mr Ho in effecting the three payments (including completing the appropriate deposit and payment records). Immediately before those payments, All Sweat had a credit balance of only $5,712 in its bank account.
Mr Ho remained uneasy about the transactions. He had another meeting with Mr Holloway to get him to explain further the purpose of the entities and of the three payments. Ms Swanson, to whom Mr Ho was proposing to issue some shares in All Sweat, was also present. Her evidence accorded with that of Mr Ho. The meeting took place soon after 30 June 1995. As the discussion took place, Mr Ho progressively drew a representation of what he understood he was being told, and progressively confirmed its accuracy with Mr Holloway. Mr Holloway explained the entities, and that the benefits of the structure included that Mr Ho and Mrs Ho would not be liable for the debts of All Sweat, and that if Bino owned the plant and equipment used in the business of All Sweat, that plant and equipment would not be an asset of All Sweat available to All Sweat’s creditors in the event that it failed. He also explained that the tax rate on All Sweat’s profits would be likely to be 39 per cent but, in respect of contributions by All Sweat to All Sweat SBF the effective tax rate would be 15 per cent. He also explained that the structure enabled Mr Ho and Mrs Ho to start planning to support themselves for their retirement.
At that meeting, Mr Holloway also explained that the payment of $40,000 to All Sweat SBF which was then made available to Bino would enable Bino to purchase the plant and equipment used in the business (which had an estimated value of $40,000) from Mr Ho and Mrs Ho and could be leased to All Sweat. All Sweat would then pay lease payments of $500 per month and Bino would “pay a dividend” to All Sweat SBF for the long term benefit of Mr Ho and Mrs Ho.
I accept Mr Ho’s evidence that he was told by Mr Holloway that the trustees of Bino were Mr Ho and Mrs Ho. Mr Holloway also told them about Super Benefit, and its directors Mr Glaser, Mr Lombardi and Mr Parker. That was the first time Mr Ho had heard of Super Benefit. Mr Ho’s notes of the meeting record it as an entity at “arm’s length” some how relating to Bino. It was to “keep an eye on” Bino. He was not told by Mr Holloway, either in a technical or simplified way, of any rules about “in-house asset rules” concerning All Sweat SBF or any rules restricting All Sweat SBF from advancing funds to All Sweat. He had not then met any of the directors of Super Benefit. He met Mr Glaser some time later.
The evidence does not disclose the existence of any minutes of Bino to buy and lease the plant and equipment. It does not show the issue of any units to All Sweat SBF at about that time. Mr Holloway accepted that his records may have been deficient, and that he did not check that Mr Glaser or Super Benefit had issued any unit certificates. On 1 June 1996 Super Benefit resolved to issue 40,000 units in Bino to All Sweat SBF.
Holloway & Co prepared the financial accounts of All Sweat, All Sweat SBF and Bino for the financial year ended 30 June 1995. All Sweat had a small operating loss, after payment of $41,141.40 for superannuation and paying wages (presumably to Mr Ho and Mrs Ho) was taken into account. Its deferred liabilities on its balance sheet include $40,000 as “Loan-Trusts”. All Sweat SBF had income from the payment of the $40,000 only, and that asset was represented by “Investments (At Cost)”. The balance sheet of Bino shows unit holders funds of $40,100 (the $100 is the settlement sum), and its assets as including a loan to All Sweat of $40,000. That latter fact emerges only from the 30 June 1996 balance sheet containing figures for the previous year, as the 30 June 1995 balance sheet was not in evidence. In fact, Bino’s bank account was not formally opened until 3 July 1995. The $40,000 is recorded as deposited from “Super Fund” and then paid “to personal account” on that day. Given the evidence of Mr Peremiczko, which I accept, those payments were each made on 30 June 1995. The respondents did not contend that I should find otherwise.
Section 76(2) of the Act requires that, at all times to 30 June 1995 while All Sweat SBF was in existence, the historical cost ratio of its in-house assets must not exceed 10 per cent. Section 74 determines how the historical cost ratio is to be assessed. In this instance, the only real asset of All Sweat SBF to 30 June 1995 was the payment of $40,000 from All Sweat, and its only investment was in units in Bino. There is no suggestion that those units were worth less than $40,000. Provided that the investment in units in Bino was an in-house asset, the application of s 74 therefore means that the historical cost ratio of All Sweat SBF’s in-house assets at 30 June 1995 was 100 per cent. For the same reasons, in the particular circumstances, as at 30 June 1995 the market value ratio of the All Sweat SBF in-house assets determined under s 75 of the Act was also 100 per cent. That is because I find that the value of the in-house assets of All Sweat SBF, that is the units in Bino (or monies subscribed for units in Bino), were of the same value as all the assets of All Sweat SBF at that date.
D.Was the investment by All Sweat SBF in Bino an in-house asset in the circumstances?
(i) The contentions
The provisions of s 71 are set out above. APRA contends that the subscription of $40,000 by All Sweat SBF for units in Bino on 30 June 1995 fell within s 71(1) of the Act as
“… a loan to, or an investment in, a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund …”
APRA alternatively submitted that that investment fell within the extended definition of an in-house asset under s 71(2) of the Act. It was contended that the investment was made as the result of entering into or carrying out an agreement, in circumstances where s 71(2)(c) applied, so that the investment is taken to be a loan to or an investment in All Sweat for the purposes of Pt 8 of the Act. Section 71(2)(c) applies if, or requires that,
“any of the persons who entered into or carried out the agreement did so for the purposes, or for purposes that included the purpose, of achieving the result that a loan or investment would be made to or in, or to or in an associate of, a standard employer-sponsor of the fund;”
In the course of final submissions, I invited APRA to make further written submissions on the proper operation of s 71 of the Act in the circumstances of the transactions under review. Counsel for the respondents was then given the opportunity to make a further written submission in reply. In reply, the respondents submitted that APRA’s submissions in response to that invitation (which were very detailed) should be ignored because they “attempt to develop a new case which has not been pleaded or put”. As I understand that submission, the respondents complain that APRA’s case initially was that the unit trusts established at the direction of Mr Holloway were really no more than mere conduits or shams, whereas it is now sought to be argued that the unit trusts were “owned” by the directors of the employer-sponsors so as to enliven s 71(2) of the Act.
I do not consider that the significance of the unit trusts, as now formulated in detail by APRA, is a new case or one which it would be unfair to the respondents for me to consider. No particular unfairness was identified in that reply. It was not submitted that the course of evidence would have been different, or that any evidence admitted would not have been admitted. It was not suggested that the respondents would have led any additional evidence, or would have cross-examined any witness differently. The need for APRA to establish that investments made by superannuation funds were “in-house assets” was always recognised as an issue which it had to confront. Indeed, counsel for the respondents at a relatively early stage of the proceedings indicated that one point raised by way of defence, based upon Trevisan, was that the investment by a superannuation fund to a unit trust by the subscription for units in the unit trust, and not an “in-house asset” as defined.
(ii) The operation of s 71(1)
Trevisan concerned s 121C of the Income Tax Assessment Act 1936 (Cth) (“the ITAA”), introduced by the Taxation Laws Amendment Act (No 2) 1985 (Cth). Section 121C set out rules imposing a taxation detriment on certain superannuation funds which lent money to the employers who had set them up, or which otherwise invested in those employers. It was, apparently, a forerunner of the scheme under Pt 8 of the Act by which only certain superannuation funds are eligible for concessional taxation treatment. It too had the object of protecting the benefit for members of superannuation funds by encouraging the restriction of investments in sponsoring employers.
The facts in Trevisan bear a close resemblance to those in the case of All Sweat. The company in issue, Forli Pty Ltd (“Forli”), was a trading company, but trading as trustee of a family trust. The directors of Forli were trustees of the Forli Superannuation Fund. There was also in existence the Forli Property Trust, a unit trust in which all the units were held by the Forli Superannuation Fund, and of which Forli was the trustee. The issue was whether the units held by the Forli Superannuation Fund in the Forli Property Trust were “in-house assets of the fund” within the meaning of s 121C(5) of the ITAA. The relevant expression of the definition of “in-house assets” in s 121C(1) is almost on all fours with s 71(1) of the Act. It posed the question whether the acquisition of the units was “an investment in an employer-sponsor of the fund or an associate of an employer-sponsor of the fund”.
Burchett J had little difficulty in holding that the acquisition of units in the property trust was not an investment in the employer-sponsor. The fact that Forli was trustee of the Forli Property Trust as well as trustee of the employer-sponsor family trust (a circumstance which does not arise in respect of any of the transactions alleged in this proceeding) did not affect that conclusion. It was clear that the acquisition of units in the Forli Property Trust was an investment in the property of the property trust, and not in the company Forli which happened to be its trustee: see Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 at 609.

On 4 September 1995, Mr Parker and Mr Glaser authorised Mr McPherson and Ms McPherson to be signatories to the bank account entitled ‘Super Benefit Pty Ltd ATF The Jast Private Property Unit Trust’. The account was opened on that day. That was a fixed interest loan account, established to partly finance the purchase of the property.
The relevant transaction the subject of APRA’s allegations occurred in June 1995.
In late June 1995, Ms McPherson was told by Mr Holloway to arrange a series of payments each of $20,000 from Unley Glass to Unley Glass SBF, then to Jast, and then back to Unley Glass. Ms McPherson queried whether Unley Glass could do that as it did not have $20,000 available, but Mr Holloway told her to proceed.
She arranged those sequence of payments. On 29 June 1995, she signed a cheque for Unley Glass paying $20,000 to Unley Glass SBF. Unley Glass SBF by bank cheque then paid $20,000 to the Holloway & Co Trust Account on account of Jast (as Jast did not then have a bank account) and Holloway & Co Trust Account paid Unley Glass $20,000 on account of Jast. It was deposited into the Unley Glass account on that day. On 30 June 1995, Ms McPherson deposited into the Unley Glass account the $20,000 cheque from Holloway & Co trust account drawn in favour of Unley Glass.
The annual return of Unley Glass SBF to Insurance and Superannuation Commission for 1994-95, lodged by Holloway & Co, showed the total assets of Unley Glass SBF to be $54,954 and its in-house assets as nil. For the 1995-96 year of income those figures were $131,525 and nil respectively.
The financial statements of Unley Glass SBF at 30 June 1995 show its total assets as $54,954 made up of:
cash at bank  $18,129
listed shares at cost                  $ 4,919
unlisted shares at cost               $ 8,094
loan  $23,812.
Its income was $12,407 for the year, made up of interest of $501 and “other income” of $11,906. There are no notes to those accounts. The trial balance indicates that the unlisted shares at cost were purchased for $20,000. I find that was for 20,000 units in Jast, but there is a credit entry of $11,906 to produce the net figure of $8,094. There is then a loan of $11,906. So far as I can determine, the loan of $23,812 is made up of the $11,906 notionally distributed by Jast to Unley Glass SBF being Jast’s profit for the year but with the money lent back to Jast, and $11,906 of the $20,000 paid for units in Jast of which only $8,094 has been applied for that purpose and the balance held as a loan. That was presumably a misunderstanding of the purpose for paying the $20,000.
The Jast financial statements show its profit for the year ended 30 June 1996 was $11,906. That has nominally been distributed to Unley Glass SBF, as appears above but is recorded as undistributed income in Jast’s accounts. They also record that $20,000 units have been issued. The accounts of Jast do not reconcile with the accounts of Unley Glass SBF in those respects. Consequently, Jast is recorded as having no loan liabilities to Unley Glass SBF, although its trial balance records a loan from Unley Glass SBF of $11,906. It has assets recorded at $31,906 made up of
fixed assets $16,478
loan to Unley Glass $16,228.
The loan to Unley Glass is shown by the trial balance to reflect three advances of $7,440, $7,440 and $20,000 (which I find was the payment by Jast to Unley Glass on 29 June 1996) and a repayment of $18,252. The advances of $7,440 each are for equipment hire not yet paid by Unley Glass.
The Unley Glass financial statements to 30 June 1996 record that indebtedness of $16,228 to Jast. It made superannuation contributions of $38,181.
Consistently with my reservations about the usefulness of unit certificates issued by Super Benefit generally, it has issued two unit certificates to Unley Glass SBF. Each records the date of issue as 13 June 1995, before any subscription for units. One certificate is for 20,000 units; the other is for 40,919.40 units (in words) or 4,919.40 (in figures). The unit register suggests the correct figure is 4,919.40 units. That number corresponds with the “listed shares at cost” of Unley Glass SBF in its balance sheet.
I find, on the basis of all the evidence, that Unley Glass SBF made an investment of $20,000 for units in Jast on 29 June 1995. The fact that the payments to Jast passed into the Holloway & Co Trust Account rather than an account in the name of Jast is of no significance. Holloway & Co Trust Account clearly received and held that money for Jast, and applied it according to Jast’s wishes. I also find that that investment was made as the result of carrying out an agreement between Unley Glass SBF and Jast, each made through Ms McPherson, for purposes that included achieving the payment of $20,000 by Jast to Unley Glass. No doubt Ms McPherson did so on the basis of Mr Holloway’s advice. As Unley Glass did not have the funds available to make the contribution of $20,000, this is one of the instances where it is clear that the whole series of payments would not have occurred unless it were clear that the $20,000 would be returned to Unley Glass. In my judgment, that payment to Unley Glass was, at least in part, a loan to Unley Glass. I am prepared to find that at least one, and probably both, of the amounts of $7,440 due for equipment hire had accrued prior to 29 June 1995. Even in that event, whenever the payment of $18,252 was made by Unley Glass to Jast, there was nevertheless necessarily some part of the $20,000 which was to constitute a loan to Unley Glass. If either of those lease or hire payments accrued after 29 June 1995, there would still be some element of loan in the payment of $20,000. Consequently, I find that the investment by Unley Glass SBF of $20,000 for units in Jast on 29 June 1995 was an in-house asset of Unley Glass SBF, by virtue of s 71(2) of the Act.
Although I have reservations about the reliability of the financial statements of each of Unley Glass SBF and Jast, for the reasons expressed above, I am satisfied that that investment by Unley Glass SBF in units in Jast on 29 June 1995 contravened s 83 of the Act. The only one of its assets at 30 June 1996 which would have a market value much different from their cost would be the “Listed Shares at cost” of $4,919.40. If they were in fact units in Jast, and if those units were acquired prior to 29 June 1996, then at the time of the subject investment those units would not have been greatly different in market value than their cost. If that were the case, there is further no evidence to suggest that the investment by which such units were procured was an in-house asset of Unley Glass SBF. If those assets were truly shares in listed public companies, then they would have had to have had a dramatically different market value for the subject investment not to result in the market value ratio of the Unley Glass SBF in-house assets exceeding 5 per cent. I am satisfied that, whatever the nature of those assets, and whether they were acquired prior to or after 29 June 1995, the subject investment contravened s 83(3) of the Act.
It will therefore be necessary to consider whether, in the light of those findings, the respondents have contravened s 85 of the Act in respect of this transaction.

G. Section 85 and the other transactions

The findings above, other than those concerning the All Sweat transaction with which I have dealt, require consideration of the application of s 85 of the Act to the following transactions:
·the Dalgleish transaction
·the Pishas transactions (two of the three)
·the six Anaequip transactions
·the two Hyde Park transactions
·the Holloway & Co transaction
·the Andrew Holloway transaction
·the two Driving Centre transactions
·the two Kino transactions
·the Unley Glass transaction.
The allegations as to the nature of the “scheme” in each instance are largely parallel to those concerning the All Sweat transaction. Upon the evidence and findings to which I have already referred, I conclude in respect of each of the superannuation funds to which those transactions relate other than the two Hyde Park transactions that there was an arrangement between Holloway & Co and Mr Holloway of the one part and Glaser Associates of the other part made in 1993 or thereabouts for the establishment of a superannuation fund and a unit trust for clients of Holloway & Co, with Super Benefit to be the trustee of the unit trust but so that the trustees of the superannuation fund would effectively manage and control the affairs of the unit trust. I do not consider that it was part of that arrangement that the unit trust could and would be used as a conduit for superannuation contributions back to the employer-sponsor; I have found Mr Glaser did not have such a plan.
In the case of each of those transactions, I also find that, at about the time the instructions were given by the clients of Holloway & Co for the establishment of the superannuation fund and the unit trust in each case, an arrangement was entered into between Holloway & Co and Mr Holloway of the one part and the proposed trustees of the superannuation fund of the other part for the establishment of a superannuation fund and a unit trust, with Super Benefit as trustee of the unit trust but so that the trustees of the superannuation fund would effectively manage and control the affairs of the unit trust. I do not consider that it was part of any of those arrangements that the unit trust would be used principally or solely for the purpose of the funds invested by the superannuation fund being in turn invested in, or lent to, the employer-sponsor although that possibility was one course of action which was in the minds of the parties to each of those arrangements. In the case of each of the proposed trustees, their state of mind was that such an investment, or loan, would not be improper under the Act, based upon the advice of Mr Holloway.
In the case of the Dalgleish transaction, the six Anaequip transactions, the Holloway & Co transaction, the two Driving Centre transactions, the two Kino transactions, and the Unley Glass transaction, I also find that Mr Holloway, at about the time that the respective superannuation funds and units trusts were established or soon thereafter, formed or had in mind the plan that it would be possible for, and helpful to, his clients for the superannuation contributions available to the superannuation funds made by the employer-sponsor or contributions otherwise available to the funds to be invested in the respective unit trusts for units, with the intent that those invested funds would then be lent back to the employer-sponsor.
That plan of Mr Holloway and of Holloway & Co, together with the arrangements with Glaser Associates and Super Benefit, or with the arrangements of the proposed trustees of the respective superannuation funds, each constituted a “scheme” under s 85(4) of the Act. That part of those schemes involving a series of payments in respect of those thirteen transactions was then carried out by the respondents by giving to the trustees of the respective superannuation funds the instructions to undertake those series of payments. In each case, the transactions were undertaken at Mr Holloway’s direction. They would not have occurred but for that direction. The Dalgleish transaction, the two Driving Centre transactions, and the Unley Glass transactions each occurred when it was clear that the monies the subject of the transactions would be returned to the employer-sponsor because it did not in fact have funds available to initiate the “circle of cheques”.
In the case of the two Pishas transactions, involving investments by Pishas SBF in Angelou Trust of $3,000 and $30,000 on 30 June and 23 July 1996 respectively and of $30,000 on 25 June 1997, the evidence is that the transactions were directed by Mr Dalgleish and not Mr Holloway. Mr Holloway identified these transactions as ones in which he played no immediate part. He was present at the meeting when it was discussed that superannuation contributions made to Pishas SBF would be invested in Angelou Trust and then onlent to Pishas. I find that at about that time he formed the plan that that course of action could be used for Pishas SBF in due course. I find further that that plan, together with the arrangement with Glaser Associates and Super Benefit, or together with the arrangement with Mr Pishas and Ms Pishas, constituted a “scheme” under s 85(4) of the Act.
Mr Dalgleish gave evidence that, generally speaking, he gave directions such as those provided to Mr Pishas to carry out the Pishas transactions only under the supervision and control of Mr Holloway. Mr Holloway did not gainsay that evidence. There is, however, no evidence that Mr Dalgleish sought from Mr Holloway his explicit instructions to direct the undertaking of the Pishas transactions. I am not satisfied that he did so. Mr Dalgleish did not say that he spoke to Mr Holloway in about June 1996 or June 1997 to decide whether to direct that those transactions take place. Mr Dalgleish may well have given those directions on his understanding of Mr Holloway’s earlier comments at the earlier meeting when the establishment of Pishas SBF and Angelou Trust was discussed. I am therefore not prepared to find that Mr Holloway carried out the scheme or part of the scheme consisting of the Pishas transactions.
Section 85(1) however operates more extensively than that. It also prohibits a person from entering into a scheme if that person did so with the intention to which s 85(1)(a) and (b) refer. I am satisfied that Mr Holloway entered into the scheme referred to above with the intention that, at about the end of each financial year, transactions such as the two Pishas transactions now under consideration would take place. It follows, given the role of Mr Holloway in Holloway & Co, that Holloway & Co also entered into that scheme with that intention.
The Andrew Holloway transaction presents somewhat different problems of proof for APRA. Having considered the evidence of Mr Andrew Holloway carefully, I am not prepared to find that Holloway No 2 SBF or Lotus were established upon the advice of Mr Holloway, or that the Andrew Holloway transaction took place at his behest or upon his advice, either explicitly or upon some understanding of Mr Andrew Holloway of what was to happen. That may well have been the case. However, as I observed earlier, I did not find Mr Andrew Holloway’s evidence very helpful; it was vague in significant respects. He was unable to recall events which he might have been expected to recall. He was unable to identify signatures on documents, such as cheques, which might have thrown light on how and why the Andrew Holloway transaction took place. He did describe how Lotus was used for other investments on his behalf, clearly independently of Mr Holloway and Holloway & Co. He also described a not inconsiderable degree of contract with Mr Glaser at material times without the involvement of Mr Holloway. Mr Holloway’s evidence did not indicate any role in the establishment of Holloway No 2 SBF or Lotus. I am not prepared to make findings adverse to Mr Holloway because he was settlor of the Holloway No 2 SBF trust deed, or because of the nature of the Andrew Holloway transaction, or because Holloway & Co was the signatory to the Holloway No 2 SBF accounts or to its return to the Insurance and Superannuation Commission.
I have also considered whether, even if Mr Holloway himself was not involved, Holloway & Co through Mr Andrew Holloway may have been party to a scheme under s 85(4) involving the plan on the part of Holloway & Co to use Holloway No 2 SBF and Lotus as the means of returning to Holloway & Co the superannuation contributions it made to Holloway No 2 SBF on behalf of Mr Andrew Holloway. I am not prepared to make that finding. The evidence is consistent with Mr Andrew Holloway taking the opportunity whilst in the employment of Holloway & Co of making that sort of decision on his own behalf, perhaps emulating what he had seen occur in respect of other superannuation funds of clients of Holloway & Co.
Accordingly, I do not consider that a contravention of s 85(1) of the Act by the respondents has been established by virtue of, or in relation to, the Andrew Holloway transaction.
The two Hyde Park transactions also require separate consideration because Mr Kitto refused to have Super Benefit appointed as trustee of Hypa. On the evidence, I find that Hyde Park SBF and Hypa were established pursuant to an arrangement made between Holloway & Co and Mr Holloway of the one part and Mr Kitto and Ms Kitto of the other, whereby Holloway & Co would procure Glaser Associates to establish those entities, so that Mr Kitto and Ms Kitto would be trustees of both Hyde Park SBF and Hypa. Although it was not the primary intention of the parties to that arrangement to use Hypa as a channel for superannuation contributions made by Hyde Park to Hyde Park SBF being returned to Hyde Park by way of loan, that possibility was within the contemplation of Mr Holloway and Mr Kitto at the time. In the case of Mr Kitto, he did not intend thereby to contravene or avoid the application of any provision of Pt 8 of the Act.
At about that time, or soon thereafter, I find that Mr Holloway did form the plan (as he had for other clients) that superannuation contributions by Hyde Park could be made to Hyde Park SBF, that Hyde Park SBF could then invest those contributions or other monies available to it by the rollover of monies from other funds in Hypa, and that Hypa could lend those monies back to Hyde Park. That plan, together with the arrangement with Mr Kitto and Ms Kitto, constituted a “scheme” within the meaning of s 85(4) of the Act.
That scheme was then carried out, or part of that scheme was then carried out, by Holloway & Co through Mr Holloway by directing the two Hyde Park transactions. I accept Mr Kitto’s evidence that it was Mr Holloway who gave those directions. In the case of the transaction involving Hyde Park SBF investing $40,000 in Hypa on 28 June 1996, it is clear that Hyde Park did not have the cash resources to make the superannuation contribution and would not have done so if it was not assured of the immediate repayment of most of those contributions by way of loan. Mr Kitto described that he departed from Mr Holloway’s instructions to the extent of Hypa lending $38,000 rather than $30,000 to Hyde Park of the investment by Hyde Park SBF to ensure Hyde Park’s continuing liquidity.
There are then seventeen transactions, in addition to the All Sweat transaction, which APRA has established as involving the respondents entering into or carrying out a scheme, or part of a scheme, within s 85(4) of the Act. When considering the All Sweat transaction, I explained why I rejected Mr Holloway’s evidence that he believed that his role in procuring the All Sweat transaction did not involve any contravention of any provision of the Act. I also indicated why I made the finding that Mr Holloway and Holloway & Co did have the intention in entering into or carrying out the scheme or part of it that
(a)the scheme would result, or be likely to result, in an artificial reduction in the market value ratio of the in-house assets of Pishas SBF, and
(b)that artificial reduction would avoid the application of a provision of Pt 8 of the Act.
Mr Holloway’s evidence did not identify any particular considerations peculiar to one or more of the seventeen transactions which requires a separate detailed consideration of the reliability of his evidence in relation to one or more of them. Nor did his evidence, or the submissions, indicate particular considerations peculiar to one or more of the seventeen transactions which requires a separate detailed consideration of whether APRA has established in relation to each of them, and the conduct about which I have made findings concerning each of them, the intention to which s 85(1)(a) and (b) refers.

I have considered those matters separately in relation to each of the seventeen transactions. In relation to each of them, for the same general reasons as I made findings in respect of the All Sweat transaction, I find that Holloway & Co and Mr Holloway in entering into or carrying out the several schemes of which the particular seventeen transactions were part intended that
(a)the scheme would result, or be likely to result, in an artificial reduction of the market value ratio of the in-house assets of the particular superannuation funds, and
(b)that artificial reduction would avoid the application of a provision of Pt 8 of the Act.
In respect of those seventeen transactions, s 83 was the particular provision in Pt 8 of the Act the application of which was avoided by the artificial reduction.
Accordingly, I find that in respect of those seventeen transactions, as well as the All Sweat transaction, the respondents contravened s 85(1) of the Act.

Conclusions

The application sought extensive declarations and orders. I think it is more appropriate at this point simply to publish my reasons for decision, which record my findings. I then propose to give the parties an opportunity to be heard as to what orders should be made in the light of those findings. It is also appropriate to give the parties the opportunity of adducing evidence and making submissions on APRA’s claim for a monetary penalty.
At this point, therefore, by way of summary, I record my findings that Holloway & Co and Mr Holloway have each contravened s 85(1) of the Act by entering into or carrying out a scheme in relation to the regulated superannuation funds set out below in respect of the investments by those funds in the unit trusts set out below upon the dates set out below:
Fund  Unit Trust  Date
All Sweat SBF            Bino  30 June 1995
Dalgleish SBF  Life Enjoyment            28 June 1996
Pishas SBF  Angelou Trust  30 June and 23 July 1996
Pishas SBF  Angelou Trust  25 June 1997
Feeney SBF  Herney  13 February 1994
Herreen SBF  Herney  13 February 1994
Feeney SBF  Herney  28 June 1996
Herreen SBF  Herney  28 June 1996
Feeney SBF  Herney  27 June 1997
Herreen SBF  Herney  27 June 1997
Hyde Park SBF  Hypa  28 June 1996
Hyde Park SBF  Hypa  6 August 1996
Holloway SBF  Katon  28 June 1996
Driving Centre SBF                 Marrlth  30 June 1996
Driving Centre SBF                 Marrlth  21 April 1997
Kino SBF  Onik  22 June 1995
Kino SBF  Onik  20 June 1996
Unley Glass SBF  Jast  29 June 1995
As indicated, I will hear the parties as to what orders should now be made and as to the future course of these proceedings.

I certify that the preceding five hundred and fifty (550) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.
Associate:
Dated: 12 May 2000

Counsel for the Applicant: S Maharaj
and
R Chrzaszcz

Solicitors for the Applicant: Gretsas Chrzaszcz

Counsel for the Respondents: M Hoile

Solicitors for the Respondents: Hume Taylor & Co

Dates of Hearing: 12, 13, 14, 27, 28, 29, 30 April 1999,
3, 4, 5, 6, 11, 12 May 1999,
23, 24, 25 June 1999,
31 August 1999

Date of Judgment: 12 May 2000

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 111 OF 1998

JUDGE:	MANSFIELD J
DATE:	12 MAY 2000
PLACE:	ADELAIDE

Counsel for the Applicant:	S Maharaj and R Chrzaszcz
Solicitors for the Applicant:	Gretsas Chrzaszcz
Counsel for the Respondents:	M Hoile
Solicitors for the Respondents:	Hume Taylor & Co
Dates of Hearing:	12, 13, 14, 27, 28, 29, 30 April 1999, 3, 4, 5, 6, 11, 12 May 1999, 23, 24, 25 June 1999, 31 August 1999
Date of Judgment:	12 May 2000