Australian Securities and Investments Commission v Adler and 4 Ors

[2002] NSWSC 268

Reported Decision: (2002) 20 ACLC 723

New South Wales

Supreme Court

CITATION:	ASIC v Adler & 4 Ors [2002] NSWSC 268 revised - 09/04/2002
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2753/01
HEARING DATE(S):	21/03/02, 25/03/02, 27/03/02
JUDGMENT DATE:	27 March 2002
PARTIES :	In the matter of HIH Insurance Limited (in provisional liquidation) ACN 008 636 575 and HIH Casualty and General Insurance Limited (in provisional liquidation) ACN 008 482 291 Australian Securities & Investments Commission (Plaintiff) Rodney Stephen Adler (First Defendant) Raymond Reginald Williams (Second Defendant) Dominic Fodera (Third Defendant) Adler Corporation Pty Ltd (ACN 054 924 373) (Fourth Defendant) Lynda Sharon Adler (Fifth Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	P Durack/ A Abadee (Plaintiff) C Platford (Sol.)/ A King (Sol.) (First and Fourth Defendants) P Crutchfield/ B Hammond (Sol.) (Second Defendant) J E Sexton, SC/ W Jacobs (Sol.) (Third Defendant)
SOLICITORS:	Jan Redfern, Solicitor for ASIC (Plaintiff) Gilbert & Tobin (First and Fourth Defendant) Arnold Bloch Leibler (agent: Sparke Helmore) (Second Defendant) Dibbs Crowther & Osborne (Third Defendant) Speed and Stracey (Fifth Defendant)
CATCHWORDS:	CORPORATIONS - Procedure - Equity - s1317E(2) of Corporations Act - What degree of particularity required for a declaration of "conduct" under that provision as a prerequisite to imposing a civil penalty - Nature of declaration of right in equity - Effect if any of Statute.
LEGISLATION CITED:	Corporations Act s1317E(2); s1317F; s1317G Corporate Law Economic Reform Program Act 1999 Corporations Law Reform Act 1992 (Cth)
CASES CITED:	ASC v Donovan and Another (1998) 28 ACSR 583 Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd and Others (1999) 39 ACSR 339 Australian Securities Commission v Spencer (1997) 25 ACSR 143 Tannous v Mercantile Mutual Insurance Co Ltd [1978] 2 NSWLR 331 Re Tasmanian Spastic Association; Australian Securities Commission v Nandan (1997) 23 ACSR 743
DECISION:	Declarations made.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SANTOW J

In the matter of HIH INSURANCE LIMITED (in provisional liquidation) ACN 008 636 575 and HIH CASUALTY AND GENERAL INSURANCE LIMITED (in provisional liquidation) ACN 008 482 291
AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
Plaintiff

RODNEY STEPHEN ADLER
First Defendant
RAYMOND REGINALD WILLIAMS
Second Defendant
DOMINIC FODERA
Third Defendant
ADLER CORPORATION PTY LTD (ACN 054 924 373)
Fourth Defendant
LYNDA SHARON ADLER
Fifth Defendant

JUDGMENT - ex tempore
27 March 2002

(revised 9 April 2002)

OBSERVATIONS

1 Following the handing down of my judgment dated 14 March 2002 and as foreshadowed in that judgment, it is necessary that I make declarations giving effect to that judgment broadly in the manner foreshadowed at para 775 thereof.

2 The declarations in question are made pursuant to s1317E(2) of the Corporations Act, which I quote as follows:

“(2) A declaration of contravention must specify the following:
(a) the court that made the declaration;
(b) the civil penalty provision that was contravened;
(c) the person who contravened the provision;
(d) the conduct that constituted the contravention;
(e) the corporation or registered scheme to which the conduct related.”

3 The effect of such a declaration of contravention is that it is “conclusive evidence” of the matters referred to in s1317E(2); see s1317F.

4 Such a declaration is thus an essential condition, though not the only condition, for a court to order a pecuniary penalty; see s1317G of the Corporations Act.

5 The history of s1317E is that it finds its recent origin in the discrete civil penalty regime introduced by the Corporations Law Reform Act 1992 (Cth), in turn further refined by the 1999 CLERP reforms. I quote from the summation of that history conveniently set out by A Black, T Bostock, G Golding and D Healey in “CLERP and the New Corporations Law” 2nd ed (Butterworths, 2000) at 174:

“The civil penalty regime was introduced by the Corporate Law Reform Act 1992 (Cth) which adopted recommendations made by the Senate Standing committee on Legal and Constitutional Affairs, that breaches of the duties of care, diligence and good faith should be subject to civil penalties, if no dishonesty or intent to deceive existed. The CLERP Act amends Pt 9.4B, which sets out that regime. The provisions in former Pt 9.4B apply to a contravention of a civil penalty provision which occurred prior to the commencement of the CLERP Act. The new civil penalty provisions, introduced by the CLERP Act, apply to a contravention of the civil penalty provisions which occurred after the commencement of the CLERP Act: s1473.
Certain provisions are designated as civil penalty provisions for the purposes of Pt 9.4B, following the commencement of the CLERP Act: s1317E. Sections 180(1), 181(1)-(2), 183(1)-(2), which deal with duties owed by directors and officers to a company, are civil penalty provisions. Section 209(2) (related parties rules), ss254L(2), 256D(3), 259F(2) and 260D(2) (share capital transactions), s344(1) (requirements for financial reports), s588G(2) (insolvent trading), and ss601FC(1), 601FD(1), 601FE(1), 601FG and 601JD(1) (duties of responsible entity in respect of a managed investment scheme) are also civil penalty provisions.”

6 Under the later 1999 CLERP reforms, the current version of s1317E(2) was introduced by the Corporate Law Economic Reform Program Act 1999. It replaced the 1992 formulation to be found in s1317EA(2) which read as follows:

“(2) The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified corporation, but need not so declare if such a declaration is already in force under Division 4.”

7 Thus the current drafting, which is repeated in the Commonwealth Corporations Act without any particular explanation that I have been able to find, differs principally by substituting the word “conduct” for the previous “a specified act or omission”. Specification of that “conduct” is however still required. Other matters for specification are also set out in s1317E(2), as sub-clauses (a) through (e).

8 Ford’s “Principles of Corporations Law” anticipates the difficulty for courts in drafting such declarations with the appropriate level of particularity when [at 3.400] it is stated that

“A difficulty for the courts will be to specify the conduct that constituted the contravention with sufficient but not too much particularity. Presumably the legislature had in mind a statement of fact rather than a statement applying the law to facts.”

9 However, in answering the question, what degree of specification or particularity is required, it is important to bear in mind that the judicial act is still a “declaration”. That imports well settled principles applicable to declarations of right, though now in the present statutory context. Thus in Tannous v Mercantile Mutual Insurance Co Ltd [1978] 2 NSWLR 331 Reynolds JA (with whom Hutley JA agreed) stated (at 335E) that precision is essential in granting declaratory relief. He also stated that:

“…a declaration of right should be self-contained and intelligible. A declaration which attributes legal consequences to “events occurring” at a certain place on a certain date is wholly unintelligible without reference to other material, and even then is of little or no value.”

10 To put that statement in context, in that case, the claimants had sought a declaration that an insurer was or might become liable under a policy of insurance to indemnify them in relation to events occurring on 23 June 1974 at their premises. The claimants were being sued for damages for alleged personal injury in the nature of burns suffered by a child whilst on their premises on that date.

11 Tannous is cited at [1932] in Meagher RP, Gummow WMC, Lehane JRF, “Equity Doctrines & Remedies” 3rd ed. (Butterworths, 1992). So far as my researches have gone there is however no discussion of the issue of degree of particularity in other textbooks such as Young PW, “Declaratory Orders” 2nd ed. (Butterworths, 1984); Zamir I, “The Declaratory Judgment” (Sweet & Maxwell, 1962); Tilbury MJ, “Civil Remedies” (Butterworths, 1990).

12 Thus research has yielded no decided case resolving the difficulty of the degree of particularity required. The approach I would adopt recognises that the declaration must still perform its traditional function of being self-contained and intelligible and avoid attributing legal consequences to “events occurring”, without specific delineation. That said, fairness to the Defendants, as well as the mandatory direction given by s1317E(2), requires a reasonable degree of specification of the relevant conduct, based upon the facts found and conclusions reached.

13 In searching for guidance as to what is reasonable, I have reviewed a number of examples of declarations made under predecessor provisions to s1317E. These are appended to this judgment as a convenient reference point. They illustrate that the current judicial practice is to identify in fairly concise terms the substantive conduct which constitutes the relevant contravention and also the civil penalty provision contravened. The way in which I have framed the relevant declarations has been in accord with that approach, in setting out the relevant conduct. I have however included in that statement, in response to the Defendants’ request for greater particularity, express reference to “the facts and matters under ‘the Conclusion’” contained in the specified paragraph (or occasionally paragraphs) of the judgment. But I do so only insofar as the quoted conclusion(s) from the judgment set out at a level of generality the facts and matters “pertaining to” the relevant defendant’s “involvement” in the specified conduct.

14 I shall, for illustration purposes quote the first of these declarations in relation to Mr Adler but without repeating the relevant appended conclusions:

“As against the First Defendant:
1. A declaration, pursuant to section 1317E(1) of the Corporations Act 2001, that the First Defendant, Rodney Stephen Adler, whilst being a director of HIH Insurance Ltd and an officer of HIH Casualty and General Insurance Limited, contravened section 209(2) of the Corporations Law by reason of conduct in so far as described in the facts and matters referred to under “the Conclusion” in paragraphs (3) and (8) of the Recapitulation of Conclusions of the Court, commencing at page 278 of the Reasons for Judgment, dated 14 March 2002 attached hereto (“the Conclusions”), pertaining to Mr Adler’s involvement in having instigated and caused the payment of $10 million by HIH Casualty and General Insurance Limited to Pacific Eagle Equities Pty Limited on or about 15 June 2000, in circumstances where such payment involved contraventions by HIH Insurance Ltd and HIH Casualty and General Insurance Limited of section 208 of the Corporations Law .”

15 I was invited by the First and Fourth Defendants to go even further and have those appended conclusions also incorporate reference to all of the detailed paragraphs of the judgment which underpin the conclusions. However, that course would have the fundamental difficulty that one would then confuse specification of conduct in broad terms, with the detailed evidence and legal analysis. Neither is appropriate for a declaration. There is nothing in the statutory context which would justify such a course. Fairness to the Defendants is already achieved through a reasonable level of particularity, by the course I have adopted.

16 It might be said that the level of articulation of conduct in a well drawn set of particularised pleadings provides some analogy. That is broadly correct, though that specification of conduct may sometimes need additional articulation, if only to give greater specificity to the findings.

17 A copy of the declarations presently made is to be found in the file. I have however appended the declarations made in other cases on earlier versions of s1317E(2).

APPENDIX A

· In Re Tasmanian Spastic Association; Australian Securities Commission v Nandan (1997) 23 ACSR 743 the following declaration was made (at 753):

The court declares, pursuant to s1317EA(2) of the Corporations Law, that the respondent has by the specified acts set out in the schedule to the Application dated 5 August 1996 as amended, contravened s232(6) of the Corporations Law in relation to the corporation previously named the Tasmanian Spastics Association and now named cerebral palsy Association of Tasmania.

· In Australian Securities Commission v Spencer (1997) 25 ACSR 143 the following declaration was made (at 145):

There will be a declaration pursuant to s1317AE(2) of the Corporations Law that the respondent has by the specified act set out below contravened s232(6) of the Corporations Law in relation to Harq Nominees Pty Ltd (in liq):
In or about June 1995 Michael Geoffrey Spencer devised and implemented a scheme whereby a director of Harq Nominees Proprietary Limited caused that company to assign its register of insurance clients to the AMP Society in order to satisfy a personal debt of $230,500 owed by the director to the AMP Society.

· In ASC v Donovan and Another (1998) 28 ACSR 583 the following declaration was made (at 609):

By causing or permitting the Good Life Company and Friends Pty Ltd to continue between November 1995 and October 1996 to sell growerships and quota to Kefir growers in the absence of any market and in disregard of contrary expert advice, the respondents have contravened s232(4) of the Corporations Law in relation to the said corporation.

· In Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd and Others (1999) 39 ACSR 339 the following declaration was made (at 352):

(1) Declare pursuant to s1317EA of the Corporations Law that the third respondent has contravened each of ss232(2), (4) and 588G(2)(b) of the Corporations Law in relation to the first respondent by the following acts and omissions:
(a) procuring the solicitation and acceptance on behalf of the first respondent from members of the public of substantial sums of money in the form of pre-payments for the sale of computer equipment, when the first respondent did not have any such equipment available to it nor the financial resources to obtain that equipment
(b) by failing to prevent the first respondent from incurring debts to Australia and New Zealand Banking Group Ltd, Alfa Computers Pty Ltd and Also Technology Pty Ltd, when a reasonable person in the third respondent’s position would have been aware that there were reasonable grounds for suspecting that the first respondent was insolvent; and
(c) by procuring the diversion to the second respondent of the amount of $80,158.67 out of funds provided by Advance Leasing Ltd for the sale to Advance Leasing Ltd of computer equipment, being the subject of a hire-purchase agreement between the first respondent and Advance Leasing Ltd.

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Last Modified: 02/25/2005