Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed)
[2014] FCA 1308
•2 December 2014
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) [2014] FCA 1308
Citation: Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) [2014] FCA 1308 Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (ACN 095 474 436) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (CONTROLLERS APPOINTED), WILLIAM LIONEL LEWSKI, MARK FREDERICK BUTLER, KIM JAQUES, MICHAEL RICHARD LEWIS WOOLDRIDGE and PETER CLARKE File number: VID 594 of 2012 Judge: MURPHY J Date of judgment: 2 December 2014 Catchwords: CORPORATIONS – multiple contraventions of Corporations Act 2001 (Cth) – civil penalty provisions – the approach to dealing with multiple contraventions – the course of conduct principle
CORPORATIONS – directors – officers – application for relief from liability – scope of relief available – factors to be considered in exercising discretion to grant relief
CORPORATIONS – directors – officers – sentencing – determination of appropriate penalties – disqualification orders – pecuniary penalties – declarations of contravention – factors to be considered in imposing penalties – seriousness of contraventions – protection of the public through personal and general deterrence – evidence of character and contribution to society – understanding of the proper role of a director – contrition – hardship – balancing hardship of penalty against the public interest – totality principle – parity principleLegislation: Corporations Act 2001 (Cth)
Trade Practices Act 1974 (Cth)Cases cited: Agricultural Land Management Ltd v Jackson and Others (2014) 98 ACSR 615
Attorney-General v Tichy (1982) 30 SASR 84
Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited and Others (No 2) (2002) 190 ALR 169
Australian Competition and Consumer Commission v High Adventure Pty Ltd [2006] ATPR 42-091
Australian Competition and Consumer CommissionvNeighbourhood Energy Pty Ltd [2012] FCA 1357
Australian Competition and Consumer Commissionv Pepe’s Ducks Ltd [2013] FCA 570
Australian Competition and Consumer Commission v Telstra Corporation Ltd (2010) 188 FCR 238
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (No 2) [2012] FCA 629
Australian Ophthalmic Supplies Pty Ltd v McLary-Smith (2008) 246 ALR 35
Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers appointed) (No 3) [2013] FCA 1342
Australian Securities and Investments Commission v Beekink and Others (2007) 238 ALR 595
Australian Securities and Investments Commission v Citrofresh International Ltd (ACN 064 551 426) and Another (No 3) (2010) 268 ALR 303
Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209
Australian Securities and Investments Commission v Healey & Ors (2011) 196 FCR 291
Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430
Australian Securities and Investments Commission v Lindberg (2012) 91 ACSR 640
Australian Securities and Investments Commission v Loiterton and Others (2004) 50 ACSR 693
Australian Securities and Investments Commission v Macdonald and Others (No 12) (2009) 259 ALR 116
Australian Securities and Investments Commission v Plymin (No 2) (2003) 21 ACLC 1237
Australian Securities and Investments Commission v Rich (2003) 44 ACSR 341
Australian Securities and Investments Commission v Sydney Investments House Equities Pty Ltd and Others (2009) 253 ALR 616
Australian Securities and Investments Commission v Vines and Others (2005) 65 NSWLR 281
Australian Securities and Investments Commission v Vizard (2005) 145 FCR 57
Australian Securities and Investments Commission v White and Others (2006) 58 ACSR 261
Australian Securities and Investments Commission v Whitlam (No 2) (2002) 42 ACSR 515
Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd and Others (1999) 30 ACSR 339
AWA Ltd v Daniels trading as Deloitte Haskins & Sells and Others (1992) 7 ACSR 759
Chew v The Queen (1992) 173 CLR 626
Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205
Commonwealth Bank of Australia v Friedrich and Others (1991) 5 ACSR 115
Construction, Forestry, Mining and Energy Union and Another v Cahill (2010) 269 ALR 1; [2010] FCAFC 39
Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503
Daniels and Others (Formerly Practicing as Deloitte Haskins & Sells) v Anderson and Others (1995) 37 NSWLR 438
Deputy Commissioner of Taxation v Dick (2007) 242 ALR 152
Dominion Insurance Company of Australia Limited (In Liq) and Another v Finn (1989) 7 ACLC 25
Elliott v Australian Securities and Investments Commission (2004) 10 VR 369
Gamble and Another v Hoffman and Another (1997) 24 ACSR 369
Gillfillan v Australian Securities and Investments Commission (CA 2012/194766) (2012) 92 ACSR 460
Hall and Others v Poolman and Others (2007) 65 ACSR 123; [2007] NSWSC 1330
Hillsdown Holdings Plc v Pensions Ombudsman & Others [1997] 1 All ER 862
James Hardie Industries NV v Australian Securities and Investments Commission (2010) 247 ALR 85
Johnson v The Queen (2004) 205 ALR 346
Lasscock’s Nurseries Ltd (In Liq) v Lyons & Leader Ltd [1940] SASR 251
Links Golf Tasmania Pty Ltd v Sattler and Another (2012) 292 ALR 382
MacDonald v Australian Securities and Investments Commission (2007) 73 NSWLR 612
Maelor Jones Investments (Noarlunga) Pty Ltd and Others v Heywood-Smith (1989) 54 SASR 285
Magnus v Queensland National Bank (1888) 37 Ch 466
Manpac Industries Pty Ltd v Ceccatini (2002) 20 ACLC 1304
Markarian v The Queen (2005) 228 CLR 357
McLellan (in his capacity as liquidator of The Stake Man Pty Ltd ) and Another v Carroll (re The Stake Man Pty Ltd) (2009) 76 ACSR 67
Morley v ASIC (No 2) (2011) 83 ACSR 620
Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
Pacific Acceptance Corporation Ltd v Forsyth (1970) 92 WN (NSW) 29
Permakraft (NZ) Ltd (In Liq) v Nicholsonand Others (1982) 1 ACLC 488
Ponzio v B & P Caelli Constructions Pty Ltd and Others (2007) 158 FCR 543
R v Byrnes (1995) 183 CLR 501
Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance (in prov liq); Australian Securities and Investments Commission v Adler and Others (2002) 42 ACSR 80
Re Idyllic Solutions Pty Ltd; Australian Securities and Investments Commission v Hobbs & Others (2012) 93 ACSR 421
Re One.Tel Ltd (In liq); Australian Securities and Investments Commission v Rich and Others [2003] 44 ACSR 682
Re Property Force Consultants Pty Ltd (in liq) [1997] 1 Qd R 300
Re Turner Barker v Ivimey [1897] 1 Ch D 536
Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129
RJ Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93
Robins and Others v Incentive Dynamics Pty Ltd (in liq) and Another (2003) 175 FLR 286
Royer v Western Australia [2009] WASCA 139
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249
Stewart (in his capacity as liquidator of Newtronics Pty Ltd (in liq) and Another v Atco Controls Pty Ltd (in liq) (2014) 93 ACSR 421
Trade Practices Commission v CSR Ltd (1991) ATPR 41-076
Vines v Australian Securities and Investments Commission (2007) 62 ACSR 1
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484Date of hearing: 28-31 July 2014 Place: Melbourne Division: GENERAL Category: Catchwords Number of paragraphs: 588 Counsel for the Plaintiff: Mr I D Martindale QC, Mr R D Strong and Mr S J Maiden Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the First Defendant The First Defendant did not appear Counsel for the Second Defendant: Mr P J Bick QC and Mr M Osborne QC Solicitor for the Second Defendant: SBA Law Counsel for the Third Defendant: Ms C Pierce Solicitor for the Third Defendant: Millens Lawyers Counsel for the Fourth Defendant: Mr A T Strahan Solicitor for the Fourth Defendant: DLA Piper Australia Counsel for the Fifth Defendant: Mr R G Craig Solicitor for the Fifth Defendant: Norton Gledhill Counsel for the Sixth Defendant: Mr D J Williams SC Solicitor for the Sixth Defendant: Maddocks Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 594 of 2012
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (ACN 095 474 436) (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (CONTROLLERS APPOINTED)
First DefendantWILLIAM LIONEL LEWSKI
Second DefendantMARK FREDERICK BUTLER
Third DefendantKIM JAQUES
Fourth DefendantMICHAEL RICHARD LEWIS WOOLDRIDGE
Fifth DefendantPETER CLARKE
Sixth Defendant
JUDGE:
MURPHY J
DATE OF ORDER:
2 DECEMBER 2014
WHERE MADE:
MELBOURNE
IN RELATION TO THE FIRST DEFENDANT, AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (RECEIVERS AND MANAGERS APPOINTED)(IN LIQUIDATION)(CONTROLLERS APPOINTED), THE COURT DECLARES THAT:
1.The first defendant, Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers Appointed) (APCHL), contravened s. 601FC(5) of the Corporations Act 2001 (Cth) (the Act) by reason of it having contravened s. 601FC(1)(b) of the Act, in that, in its capacity as responsible entity (the Responsible Entity) of the Prime Retirement and Aged Care Property Trust ARSN 097 514 746 (the Prime Trust), it failed to exercise the degree of care and diligence that a reasonable person would have exercised in the Responsible Entity’s position, in that on 22 August 2006 its board of directors (the Board) passed a resolution (the Lodgement Resolution) to lodge with the Australian Securities and Investments Commission (ASIC) an amended constitution of the Prime Trust (the Amended Constitution), in circumstances where a reasonable person in the Responsible Entity’s position would not have attempted to cause the amendments contained in the Amended Constitution (the Amendments) to take effect, because the Amendments purported to create rights in APCHL the purported exercise of which would result in a diminution in the assets of the Prime Trust, without providing any, alternatively any equivalent, benefit to members of the Prime Trust (the Members).
2.The first defendant, APCHL, contravened s. 601FC(5) of the Act, by reason of it having contravened s. 601FC(1)(c) of the Act, in that, in its capacity as Responsible Entity, it failed to act in the best interests of the Members and failed to give priority to the Members’ interests over its own interests, by the Board resolving on 22 August 2006 to lodge the Amended Constitution with ASIC in circumstances where:
(a)it did not give any consideration to whether the Lodgement Resolution was in the best interests of the Members;
(b)the Lodgement Resolution was not in fact in the best interests of the Members;
(c)a responsible entity in the position of APCHL could not reasonably have believed that the Lodgement Resolution was in the best interests of the Members; and
(d)there was a conflict between:
(i) the interests of APCHL in being paid the additional fees provided for by the Amendments and the interests of the Members in paying only the fees under the existing constitution of the Prime Trust (the Existing Constitution); and
(ii) the interests of APCHL in being paid the additional fees and its duties to act in the Members’ best interests.
3.The first defendant, APCHL, contravened s. 601FC(5) of the Act, by reason of it having contravened s. 601FC(1)(m) of the Act, in that, in its capacity as Responsible Entity, it failed to comply with the duty imposed on it by the Existing Constitution not to vary or attempt to vary the Existing Constitution in a manner that was in favour of or resulted in any benefit to APCHL, by the Board resolving to lodge the Amended Constitution with ASIC in circumstances where the Amendments were in favour of or resulted in a benefit to APCHL.
4.The first defendant, APCHL, contravened s. 601FC(5) of the Act, by reason of it having contravened s. 601FC(1)(c) of the Act, in that, in its capacity as Responsible Entity, it failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in that it, by the Board:
(a)passed a resolution on 26 June 2007 in the following terms:
“the Listing fee be taken by the Responsible Entity as Units in the Trust of which approximately ten per cent is to be issued to the Responsible Entity at the time of allotment and official quotation of Prime Trust’s units on the ASX. The balance of the listing fee will be deferred and payable in tranches”; and
(b)passed a resolution on 27 July 2007 to the effect that APCHL would take the first tranche of the ‘listing fee’ ostensibly payable pursuant to the Amendments (the Listing Fee) as units;
in circumstances where:
(c)it did not give any consideration to whether payment of the Listing Fee was in the best interests of the Members;
(d)payment of the Listing Fee was not in fact in the best interests of the Members;
(e)a responsible entity in the position of APCHL could not in the circumstances reasonably have believed that payment of the Listing Fee was in the best interests of the Members; and
(f)each proposed payment of the Listing Fee gave rise to a conflict between the interests of APCHL and the interests of the Members which should have been resolved in favour of the Members by APCHL deciding not to make the payment.
5.The first defendant, APCHL, contravened s. 601FC(5) of the Act, by reason of it having contravened s. 601FC(1)(k) of the Act, in that, in its capacity as Responsible Entity, it failed to ensure that all payments out of the scheme property of the Prime Trust (Scheme Property) were made in accordance with the constitution of the Prime Trust, by:
(a)on 3 August 2007, causing to be issued to itself in its personal capacity ordinary units in the Prime Trust with a value of $3,293,994 as and by way of a 10 per cent instalment of the Listing Fee (the First Scrip Instalment);
(b)on 13 March 2008, transferring $329,399 of the monies held by it as Trustee of the Prime Trust to itself in its personal capacity in respect of GST on the First Scrip Instalment,
(collectively, the First Instalment) notwithstanding that, as a matter of law, the payment of the First Instalment and each component of it was not provided for in the constitution of the Prime Trust.
6.The first defendant, APCHL, contravened s. 601FC(5) of the Act, by reason of it having contravened s. 601FC(1)(c) of the Act, in that, in its capacity as Responsible Entity, it failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in that it:
(a)by the Board, passed a resolution on 7 April 2008 to amend the 26 June 2007 resolution such that:
“[i]n the event of the removal of the Responsible Entity or if there is a restructure of the Responsible Entity such that interests associated with Bill Lewski cease to control the Responsible Entity (for example, by way of a stapling arrangement) prior to the end of the Deferral Period the unpaid balance will become immediately payable in cash to the Responsible Entity”;
(b)by the Board, on or about 24 April 2008, approved the execution of a document entitled “Heads of Agreement - APCHL Restructure” (the Heads of Agreement);
(c)on 28 April 2008, executed the Heads of Agreement; and
(d)by the Board, passed a resolution on 27 June 2008 approving the execution by APCHL of a ‘Deed of Acknowledgement of Listing Fee Payment’ (the Deed of Acknowledgment)
in circumstances where:
(e)it did not give any consideration to whether payment of the Listing Fee was in the best interests of the Members;
(f)payment of the Listing Fee was not in fact in the best interests of the Members;
(g)a responsible entity in the position of APCHL could not in the circumstances reasonably have believed that payment of the Listing Fee was in the best interests of the Members; and
(h)each proposed payment of the Listing Fee gave rise to a conflict between the interests of APCHL and the interests of the Members which should have been resolved in favour of the Members by APCHL deciding not to make the payment.
7.The first defendant, APCHL, contravened s. 601FC(5) of the Act, by reason of it having contravened s. 601FC(1)(k) of the Act, in that, in its capacity as Responsible Entity, it failed to ensure that all payments out of Scheme Property were made in accordance with the constitution of the Prime Trust, by:
(a)on 27 June 2008, causing to be issued to Carey Bay Pty Ltd 9,020,386 units in the Prime Trust valued at $5,000,000; and
(b)on 30 June 2008, transferring $27,610,548.30 of the monies held by it as trustee of the Prime Trust to itself in its personal capacity,
(collectively, the Second Instalment) notwithstanding that, as a matter of law, the payment of the Second Instalment and each component of it was not provided for in the constitution of the Prime Trust.
IN RELATION TO THE SECOND DEFENDANT, WILLIAM LIONEL LEWSKI, THE COURT DECLARES THAT:
8.The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(b) of the Corporations Act 2001 (Cth) (the Act), in that, in his capacity as a director of Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers Appointed) (APCHL) in its capacity as the responsible entity (the Responsible Entity) of the Prime Retirement and Aged Care Property Trust ARSN 097 514 746 (the Prime Trust), he failed to exercise the degree of care and diligence that a reasonable person would have exercised if he or she were in Mr Lewski’s position, by acting as follows. On 22 August 2006, at a meeting of the board of directors of APCHL (the Board), Mr Lewski voted in favour of a resolution (the Lodgement Resolution) to lodge with the Australian Securities and Investments Commission (ASIC) an amended constitution of the Prime Trust (the Amended Constitution) to cause the amendments in the Amended Constitution to take effect (the Amendments). The Amendments that were the subject of the Lodgement Resolution purported to create rights in APCHL that, if exercised, would result in a diminution of the assets of the Prime Trust without providing any or any equivalent benefit to the Members of the Prime Trust (the Members). In so doing, Mr Lewski on 22 August 2006:
(a)failed to consider and understand, and be satisfied that the Board had considered and understood, the effect of a deed of variation dated 22 August 2006, which contained the Amendments;
(b)failed to consider whether, and be satisfied that, there was a legitimate reason for the Responsible Entity to make the Amendments;
(c)failed to be satisfied that the Board had considered:
(i) legal advice that the Amendments, if made without the approval of the Members, would comply with the Act and the existing constitution of Prime Trust (the Existing Constitution); or
(ii) judicial advice that the Responsible Entity would be justified in making the Amendments without the approval of the Members;
(d)failed to consider, and be satisfied that the Board had considered, whether the Amendments if made without the approval of the Members would comply with the Act and the Existing Constitution;
(e)failed to consider, and be satisfied that the Board had considered, the effect of the Amendments on the rights and interests of the Members;
(f)failed to be satisfied that the Board had considered the effect of the Amendments on the interests of APCHL, Mr Lewski and entities related to and associated with Mr Lewski; and
(g)failed to consider and be satisfied that the Board had considered how, if at all, the conflict between the interests of the Members and the interests of APCHL could be resolved in favour of the Members.
9.The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances where:
(a)he did not give any consideration to whether making the Amendments was in the best interests of the Members;
(b)the Amendments were not in fact in the best interests of the Members;
(c)a director of APCHL in the position of Mr Lewski could not reasonably have believed that the Amendments were in the best interests of the Members; and
(d)there was a conflict between:
(i) the interests of APCHL in being paid the additional fees provided for by the Amendments and the interests of the members in paying only the fees under the Existing Constitution; and
(ii) the interests of APCHL in being paid the additional fees and its duties to act in the Members’ best interests.
10.The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act and so contravened s. 601FD(1)(e) of the Act, in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an advantage to APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances including the following:
(a)the Lodgement Resolution advantaged APCHL, because the Amendments purported to create rights in APCHL that would, if exercised, benefit APCHL;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c)the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the following (collectively, the Five Principal Factors):
(i) the fees to be payable pursuant to the Amendments were payable to APCHL in its personal capacity (and through it to Mr Lewski) and were to come from property held on trust by APCHL for the members. APCHL was acting as a trustee;
(ii) consideration of the Amendments created self-evident conflicts:
(A)between APCHL’s interest in becoming entitled to the additional fees through the Amendments and the Members’ interests in having APCHL perform its services as Responsible Entity for the fees in the Existing Constitution; and
(B)between APCHL’s interest in becoming entitled to the additional fees payable pursuant to the Amendments and its statutory duty to act in the best interests of the Members and to give priority to their interests;
(iii) the nature of the proposed additional fees was that:
(A)APCHL was given contingent rights to take multiple fees to the value of 2.5% of the gross assets of the Prime Trust out of Prime Trust funds. Absent the Amendments the Members had the right to the services of APCHL as Responsible Entity without the additional fees;
(B)the listing fee payable pursuant to the Amendments (the Listing Fee) imposed a fee if the Prime Trust was listed, in circumstances where under the Existing Constitution the Members were entitled to expect listing to occur without a fee if the directors considered that listing was in the Members’ best interests (as they did);
(C)the ‘removal fee’ payable pursuant to the Amendments imposed a fee for the exercise of the Members’ right to remove APCHL as Responsible Entity, which the Members could require without a fee under the Existing Constitution;
(D)the ‘takeover fee’ payable pursuant to the Amendments (the Takeover Fee) substantially increased the fee payable on a third party acquiring shares over certain thresholds;
(E)the Takeover Fee could be payable on multiple occasions; and
(F)the fees payable pursuant to the Amendments could be payable notwithstanding that another of the fees had previously been paid;
(iv) the fees payable pursuant to the Amendments were substantial, each having a value of between about $11.25 million and $21.6 million at the time of the Amendments (which was in the order of 6.7% of the net scheme property of the Prime Trust after borrowings were taken into account); and
(v) the fees payable pursuant to the Amendments were gratuitous in the sense that no, or no equivalent, countervailing benefit was provided to the Members in return for them -
could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit the Amendments to become effective.
11.The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(e) of the Act in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an indirect advantage to those persons who would benefit from the fees payable pursuant to the Amendments, in that:
(a)the Amendments purported to create rights in APCHL that would, if exercised, by their benefit to APCHL benefit those with an ownership interest in APCHL or rights to share in or receive a proportion of its profits or revenue, namely Mr Lewski, several of his family members and companies associated with him;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c)the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the Five Principal Factors, could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit them to become effective.
12.The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Lewski’s position to ensure that APCHL complied with the constitution of Prime Trust and the Act, in that:
(a)in purporting to make the Amendments, APCHL did not comply with the Existing Constitution;
(b)in purporting to make the Amendments, APCHL did not comply with s. 601FC(1)(m) of the Act; and
(c)Mr Lewski voted in favour of the Lodgement Resolution:
(i) intending to make the Amendments effective;
(ii) without being satisfied that the Board had considered clear legal advice that in making the Amendments without the approval of the Members, the Responsible Entity would comply with the Act and the Existing Constitution;
(iii) without taking any steps to cause APCHL to obtain judicial advice as to whether APCHL was empowered to make, and justified in making, the Amendments without the approval of the Members;
(iv) without seeking the approval of the Amendments by the Members; and
(v) without giving any consideration on 22 August 2006 to the Board’s power to make the amendments or the need for proper legal advice or judicial advice.
13.The second defendant, William Lionel Lewski, contravened s. 209(2) of the Act (as modified by Part 5C.7 of the Act) by being involved (as that term is used in s. 79 of the Act) in a contravention by APCHL of s. 208 of the Act as modified by Part 5C.7 of the Act, as follows:
(a)APCHL contravened s. 208 of the Act as modified by Part 5C.7 of the Act, in that:
(i)on 3 August 2007, it caused to be issued to itself in its personal capacity ordinary units of the Prime Trust with a value of $3,293,994 as and by way of a 10 per cent instalment of the Listing Fee (the First Scrip Instalment);
(ii)on 13 March 2008, it caused to be transferred $329,399 of the monies held by it as Trustee of Prime Trust to itself in its personal capacity in respect of GST on the First Scrip Instalment,
(collectively, the First Instalment);
(iii)on 27 June 2008, it caused to be issued to Carey Bay Pty Ltd 9,020,386 units in the Prime Trust valued at $5,000,000; and
(iv)on 30 June 2008, it transferred $27,610,548.30 of the monies held by it as trustee of Prime Trust to itself in its personal capacity,
(collectively the Second Instalment),
without obtaining the approval of the Members and notwithstanding that, as a matter of law, the First Instalment and the Second Instalment and each component of them were not provided for in the constitution of Prime Trust;
(b)Mr Lewski participated in the meetings of the Board on 26 June 2007 and 27 July 2007 and assented to the resolutions passed at those meetings that authorised the payment of the First Instalment to APCHL in circumstances where he knew that:
(i)payment of the First Instalment was “a financial benefit” (as that expression is used in s. 208(1) of the Act);
(ii)the First Instalment was given by APCHL as Responsible Entity;
(iii)the First Instalment was given out of the scheme property of Prime Trust (Scheme Property);
(iv)the First Instalment was given to APCHL itself; and
(v)APCHL did not obtain the Members’ approval for the payment of the First Instalment.
(c) Mr Lewski:
(i)on 28 April 2008 executed the Heads of Agreement;
(ii)participated in the meeting of the Board on 27 June 2008 and the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
when he knew that:
(iii)payment of the Second Instalment was “a financial benefit” (as that expression is used within s. 208(1) of the Act);
(iv)the Second Instalment was given by APCHL as Responsible Entity;
(v)the Second Instalment was given out of Scheme Property;
(vi)the Second Instalment was given partly to APCHL itself and partly to Carey Bay which was a related party of APCHL; and
(vii)APCHL did not obtain the Members’ approval for the payment of the Second Instalment.
14.The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in that he:
(a)voted in favour of or otherwise assented to the resolution on 26 June 2007 in the following terms:
“the Listing fee be taken by the Responsible Entity as Units in the Trust of which approximately ten per cent is to be issued to the Responsible Entity at the time of allotment and official quotation of Prime Trust’s units on the ASX. The balance of the listing fee will be deferred and payable in tranches”; and
(b)voted in favour of or otherwise assented to the resolution on 27 July 2007 to the effect that APCHL would take the first tranche of the Listing Fee ostensibly payable pursuant to the Amendments as units; and
(c)participated in making the decision to pay the balance of the Listing Fee by:
(i)executing the Heads of Agreement on 28 April 2008;
(ii)attending in the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
(collectively the decisions to pay the Listing Fee) in circumstances where:
(d)he did not give any consideration to whether making payment of the Listing Fee gave rise to any conflict of interest;
(e)a director of APCHL in the position of Mr Lewski would have been alive to APCHL’s conflict of interests and conflict of interest and duty, and would have considered and sought to resolve these conflicts in favour of the members before making a decision to pay the Listing Fee;
(f)payment of the Listing Fee was not in fact in the best interests of the Members;
(g)a director of APCHL in the position of Mr Lewski could not in the circumstances reasonably have believed that payment of the Listing Fee was in the best interests of the Members; and
(h)the proposed payment of the Listing Fee gave rise to a conflict between the interests of APCHL and the interests of the Members which should have been resolved in favour of the Members by APCHL deciding not to make the payment.
15.The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Lewski’s position to ensure that APCHL complied with the Act, in that he participated in making the decisions to pay the Listing Fee by:
(a)voting in favour of or otherwise assenting to the resolutions on 26 June 2007 and 27 July 2007;
(b)executing the Heads of Agreement on 28 April 2008;
(c)attending the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
in circumstances where:
(d)a reasonable person in his position would not have done so without obtaining:
(i)clear legal advice or a judicial direction that the Amendments had been effective, that APCHL had a right to be paid the fee under the constitution of Prime Trust and the Act, and that payment of the fee would not contravene s. 208 of the Act (as amended by s. 601LC of the Act); or
(ii)the approval of the Members for payment of the fee to be made; and
(e)he did not take any step towards obtaining further legal advice or a judicial direction as to the Amendments or towards obtaining the Members’ approval for the payment of the Listing Fee.
IN RELATION TO THE THIRD DEFENDANT, MARK FREDERICK BUTLER, THE COURT DECLARES THAT:
16.The third defendant, Mark Frederick Butler, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(b) of the Corporations Act 2001 (Cth) (the Act), in that, in his capacity as a director of Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers Appointed) (APCHL) in its capacity as the responsible entity (the Responsible Entity) of the Prime Retirement and Aged Care Property Trust ARSN 097 514 746 (the Prime Trust), he failed to exercise the degree of care and diligence that a reasonable person would have exercised if he or she were in Mr Butler’s position, by acting as follows. On 22 August 2006, at a meeting of the board of directors of APCHL (the Board), Mr Butler voted in favour of a resolution (the Lodgement Resolution) to lodge with the Australian Securities and Investments Commission (ASIC) an amended constitution of the Prime Trust (the Amended Constitution) to cause the amendments in the Amended Constitution to take effect (the Amendments). The Amendments that were the subject of the Lodgement Resolution purported to create rights in APCHL that, if exercised, would result in a diminution of the assets of the Prime Trust without providing any or any equivalent benefit to the Members of the Prime Trust (the Members). In so doing, Mr Butler on 22 August 2006:
(a)failed to consider and understand, and be satisfied that the Board had considered and understood, the effect of a deed of variation dated 22 August 2006, which contained the Amendments;
(b)failed to consider whether, and be satisfied that, there was a legitimate reason for the Responsible Entity to make the Amendments;
(c)failed to be satisfied that the Board had considered:
(i) legal advice that the Amendments, if made without the approval of the Members, would comply with the Act and the existing constitution of Prime Trust (the Existing Constitution); or
(ii) judicial advice that the Responsible Entity would be justified in making the Amendments without the approval of the Members;
(d)failed to consider, and be satisfied that the Board had considered, whether the Amendments if made without the approval of the Members would comply with the Act and the Existing Constitution;
(e)failed to consider, and be satisfied that the Board had considered, the effect of the Amendments on the rights and interests of the Members;
(f)failed to consider the effect of the Amendments on the interests of APCHL;
(g)failed to consider the effect of the Amendments on the interests of the second defendant (Mr Lewski) and entities related to and associated with Mr Lewski;
(h)failed to be satisfied that the Board had considered the effect of the Amendments on the interests of APCHL, Mr Lewski and entities related to and associated with Mr Lewski; and
(i)failed to consider and be satisfied that the Board had considered how, if at all, the conflict between the interests of the Members and the interests of APCHL could be resolved in favour of the Members.
17.The third defendant, Mark Frederick Butler, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances where:
(a)he did not give any consideration to whether making the Amendments was in the best interests of the Members;
(b)the Amendments were not in fact in the best interests of the Members;
(c)a director of APCHL in the position of Mr Butler could not reasonably have believed that the Amendments were in the best interests of the Members; and
(d)there was a conflict between:
(i) the interests of APCHL in being paid the additional fees provided for by the Amendments and the interests of the members in paying only the fees under the Existing Constitution; and
(ii) the interests of APCHL in being paid the additional fees and its duties to act in the Members’ best interests.
18.The third defendant, Mark Frederick Butler, contravened s. 601FD(3) of the Act and so contravened s. 601FD(1)(e) of the Act, in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an advantage to APCHL, in voting favour of the Lodgement Resolution on 22 August 2006, in circumstances including the following:
(a)the Lodgement Resolution advantaged APCHL, because the Amendments purported to create rights in APCHL that would, if exercised, benefit APCHL;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c)the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the following (collectively, the Five Principal Factors):
(i) the fees to be payable pursuant to the Amendments were payable to APCHL in its personal capacity (and through it to Mr Lewski) and were to come from property held on trust by APCHL for the members. APCHL was acting as a trustee;
(ii) consideration of the Amendments created self-evident conflicts:
(A)between APCHL’s interest in becoming entitled to the additional fees through the Amendments and the Members’ interests in having APCHL perform its services as Responsible Entity for the fees in the Existing Constitution; and
(B)between APCHL’s interest in becoming entitled to the additional fees payable pursuant to the Amendments and its statutory duty to act in the best interests of the Members and to give priority to their interests;
(iii) the nature of the proposed additional fees was that:
(A)APCHL was given contingent rights to take multiple fees to the value of 2.5% of the gross assets of the Prime Trust out of Prime Trust funds. Absent the Amendments the Members had the right to the services of APCHL as Responsible Entity without the additional fees;
(B)the listing fee payable pursuant to the Amendments (the Listing Fee) imposed a fee if the Prime Trust was listed, in circumstances where under the Existing Constitution the Members were entitled to expect listing to occur without a fee if the directors considered that listing was in the Members’ best interests (as they did);
(C)the ‘removal fee’ payable pursuant to the Amendments imposed a fee for the exercise of the Members’ right to remove APCHL as Responsible Entity, which the Members could require without a fee under the Existing Constitution;
(D)the ’takeover fee’ payable pursuant to the Amendments (the Takeover Fee) substantially increased the fee payable on a third party acquiring shares over certain thresholds;
(E)the Takeover Fee could be payable on multiple occasions; and
(F)the fees payable pursuant to the Amendments could be payable notwithstanding that another of the fees had previously been paid;
(iv) the fees payable pursuant to the Amendments were substantial, each having a value of between about $11.25 million and $21.6 million at the time of the Amendments (which was in the order of 6.7% of the net scheme property of the Prime Trust after borrowings were taken into account); and
(v) the fees payable pursuant to the Amendments were gratuitous in the sense that no, or no equivalent, countervailing benefit was provided to the Members in return for them -
could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit the Amendments to become effective.
19.The third defendant, Mark Frederick Butler, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(e) of the Act in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an indirect advantage to those persons who would benefit from the fees payable pursuant to the Amendments, in that:
(a)the Amendments purported to create rights in APCHL that would, if exercised, by their benefit to APCHL benefit those with an ownership interest in APCHL or rights to share in or receive a proportion of its profits or revenue, namely Mr Lewski, several of his family members and companies associated with him;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c) the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the Five Principal Factors, could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit them to become effective.
20.The third defendant, Mark Frederick Butler, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Butler’s position to ensure that APCHL complied with the constitution of Prime Trust and the Act, in that:
(a)in purporting to make the Amendments, APCHL did not comply with the Existing Constitution;
(b)in purporting to make the Amendments, APCHL did not comply with s. 601FC(1)(m) of the Act; and
(c)Mr Butler voted in favour of the Lodgement Resolution:
(i) intending to make the Amendments effective;
(ii) without being satisfied that the Board had considered clear legal advice that in making the Amendments without the approval of the Members, the Responsible Entity would comply with the Act and the Existing Constitution;
(iii) without taking any steps to cause APCHL to obtain judicial advice as to whether APCHL was empowered to make, and justified in making, the Amendments without the approval of the Members;
(iv) without seeking the approval of the Amendments by the Members; and
(v) without giving any consideration on 22 August 2006 to the Board’s power to make the amendments or the need for proper legal advice or judicial advice.
21.The third defendant, Mark Frederick Butler, contravened s. 209(2) of the Act (as modified by Part 5C.7 of the Act) by being involved (as that term is used in s. 79 of the Act) in a contravention by APCHL of s. 208 of the Act as modified by Part 5C.7 of the Act, as follows:
(a)APCHL contravened s. 208 of the Act as modified by Part 5C.7 of the Act, in that:
(i)on 3 August 2007, it caused to be issued to itself in its personal capacity ordinary units of the Prime Trust with a value of $3,293,994 as and by way of a 10 per cent instalment of the Listing Fee (the First Scrip Instalment);
(ii)on 13 March 2008, it caused to be transferred $329,399 of the monies held by it as Trustee of Prime Trust to itself in its personal capacity in respect of GST on the First Scrip Instalment,
(collectively, the First Instalment)
(iii)on 27 June 2008, it caused to be issued to Carey Bay Pty Ltd 9,020,386 units in the Prime Trust valued at $5,000,000; and
(iv)on 30 June 2008, it transferred $27,610,548.30 of the monies held by it as trustee of Prime Trust to itself in its personal capacity,
(collectively the Second Instalment)
without obtaining the approval of the Members and notwithstanding that, as a matter of law, the First Instalment and the Second Instalment and each component of them were not provided for in the constitution of Prime Trust;
(b)Mr Butler participated in the meetings of the Board on 26 June 2007 and 27 July 2007 and assented to the resolutions passed at those meetings that authorised the payment of the First Instalment to APCHL in circumstances where he knew that:
(i)payment of the First Instalment was “a financial benefit” (as that expression is used in s. 208(1) of the Act);
(ii)the First Instalment was given by APCHL as Responsible Entity;
(iii)the First Instalment was given out of the scheme property of Prime Trust (Scheme Property);
(iv)the First Instalment was given to APCHL itself; and
(v)APCHL did not obtain the Members’ approval for the payment of the First Instalment;
(c)Mr Butler on 24 April 2008 approved the execution on behalf of APCHL of the document entitled Heads of Agreement - APCHL Restructure (the Heads of Agreement) under which APCHL agreed to pay the Second Instalment when he knew that:
(i)payment of the Second Instalment was “a financial benefit” (as that expression is used within s. 208(1) of the Act);
(ii)the Second Instalment was given by APCHL as Responsible Entity;
(iii)the Second Instalment was given out of Scheme Property;
(iv)the Second Instalment was given partly to APCHL itself and partly to Carey Bay which was a related party of APCHL; and
(v)APCHL did not obtain the Members’ approval for the payment of the Second Instalment.
22.The third defendant, Mark Frederick Butler, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in that he:
(a)voted in favour of or otherwise assented to the resolution on 26 June 2007 in the following terms:
“the Listing fee be taken by the Responsible Entity as Units in the Trust of which approximately ten per cent is to be issued to the Responsible Entity at the time of allotment and official quotation of Prime Trust’s units on the ASX. The balance of the listing fee will be deferred and payable in tranches”; and
(b)voted in favour of or otherwise assented to the resolution on 27 July 2007 to the effect that APCHL would take the first tranche of the Listing Fee ostensibly payable pursuant to the Amendments as units;
(c)participated in making the decision to pay the balance of the Listing Fee by approving on 24 April 2008 the execution on behalf of APCHL of the Heads of Agreement under which APCHL agreed to pay the Second Instalment
(collectively the decisions to pay the Listing Fee) in circumstances where:
(d)he did not give any consideration to whether making payment of the Listing Fee gave rise to any conflict of interest;
(e)a director of APCHL in the position of Mr Butler would have been alive to APCHL’s conflict of interests and conflict of interest and duty, and would have considered and sought to resolve these conflicts in favour of the members before making a decision to pay the Listing Fee;
(f)payment of the Listing Fee was not in fact in the best interests of the Members;
(g)a director of APCHL in the position of Mr Butler could not in the circumstances reasonably have believed that payment of the Listing Fee was in the best interests of the Members; and
(h)the proposed payment of the Listing Fee gave rise to a conflict between the interests of APCHL and the interests of the Members which should have been resolved in favour of the Members by APCHL deciding not to make the payment.
23.The third defendant, Mark Frederick Butler, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Butler’s position to ensure that APCHL complied with the Act, in that he participated in making the decisions to pay the Listing Fee by:
(a)voting in favour of or otherwise assenting to the resolutions on 26 June 2007 and 27 July 2007;
(b)approving on 24 April 2008 the execution on behalf of APCHL of the Heads of Agreement under which APCHL agreed to pay the Second Instalment
in circumstances where:
(c)a reasonable person in his position would not have done so without obtaining:
(i)clear legal advice or a judicial direction that the Amendments had been effective, that APCHL had a right to be paid the fee under the constitution of Prime Trust and the Act, and that payment of the fee would not contravene s. 208 of the Act (as amended by s. 601LC of the Act); or
(ii)the approval of the Members for payment of the fee to be made; and
(d)he did not take any step towards obtaining further legal advice or a judicial direction as to the Amendments or towards obtaining the Members’ approval for the payment of the Listing Fee.
IN RELATION TO THE FOURTH DEFENDANT, KIM JAQUES, THE COURT DECLARES THAT:
24.The fourth defendant, Kim Jaques, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(b) of the Corporations Act 2001 (Cth) (the Act), in that, in his capacity as a director of Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers Appointed) (APCHL) in its capacity as the responsible entity (the Responsible Entity) of the Prime Retirement and Aged Care Property Trust ARSN 097 514 746 (the Prime Trust), he failed to exercise the degree of care and diligence that a reasonable person would have exercised if he or she were in Mr Jaques’s position, by acting as follows. On 22 August 2006, at a meeting of the board of directors of APCHL (the Board), Mr Jaques voted in favour of a resolution (the Lodgement Resolution) to lodge with the Australian Securities and Investments Commission (ASIC) an amended constitution of the Prime Trust (the Amended Constitution) to cause the amendments in the Amended Constitution to take effect (the Amendments). The Amendments that were the subject of the Lodgement Resolution purported to create rights in APCHL that, if exercised, would result in a diminution of the assets of the Prime Trust without providing any or any equivalent benefit to the Members of the Prime Trust (the Members). In so doing, Mr Jaques on 22 August 2006:
(a)failed to consider and understand, and be satisfied that the Board had considered and understood, the effect of a deed of variation dated 22 August 2006, which contained the Amendments;
(b)failed to consider whether, and be satisfied that, there was a legitimate reason for the Responsible Entity to make the Amendments;
(c)failed to be satisfied that the Board had considered:
(i) legal advice that the Amendments, if made without the approval of the Members, would comply with the Act and the existing constitution of Prime Trust (the Existing Constitution); or
(ii) judicial advice that the Responsible Entity would be justified in making the Amendments without the approval of the Members;
(d)failed to consider, and be satisfied that the Board had considered, whether the Amendments if made without the approval of the Members would comply with the Act and the Existing Constitution;
(e)failed to consider, and be satisfied that the Board had considered, the effect of the Amendments on the rights and interests of the Members;
(f)failed to consider the effect of the Amendments on the interests of APCHL;
(g)failed to consider the effect of the Amendments on the interests of the second defendant (Mr Lewski) and entities related to and associated with Mr Lewski;
(h)failed to be satisfied that the Board had considered the effect of the Amendments on the interests of APCHL, Mr Lewski and entities related to and associated with Mr Lewski; and
(i)failed to consider and be satisfied that the Board had considered how, if at all, the conflict between the interests of the Members and the interests of APCHL could be resolved in favour of the Members.
25.The fourth defendant, Kim Jaques, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances where:
(a)he did not give any consideration to whether making the Amendments was in the best interests of the Members;
(b)the Amendments were not in fact in the best interests of the Members;
(c)a director of APCHL in the position of Mr Jaques could not reasonably have believed that the Amendments were in the best interests of the Members; and
(d)there was a conflict between:
(i) the interests of APCHL in being paid the additional fees provided for by the Amendments and the interests of the members in paying only the fees under the Existing Constitution; and
(ii) the interests of APCHL in being paid the additional fees and its duties to act in the Members’ best interests.
26.The fourth defendant, Kim Jaques, contravened s. 601FD(3) of the Act and so contravened s. 601FD(1)(e) of the Act, in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an advantage to APCHL, in voting favour of the Lodgement Resolution on 22 August 2006, in circumstances including the following:
(a)the Lodgement Resolution advantaged APCHL, because the Amendments purported to create rights in APCHL that would, if exercised, benefit APCHL;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c)the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the following (collectively, the Five Principal Factors):
(i) the fees to be payable pursuant to the Amendments were payable to APCHL in its personal capacity (and through it to Mr Lewski) and were to come from property held on trust by APCHL for the members. APCHL was acting as a trustee;
(ii) consideration of the Amendments created self-evident conflicts:
(A)between APCHL’s interest in becoming entitled to the additional fees through the Amendments and the Members’ interests in having APCHL perform its services as Responsible Entity for the fees in the Existing Constitution; and
(B)between APCHL’s interest in becoming entitled to the additional fees payable pursuant to the Amendments and its statutory duty to act in the best interests of the Members and to give priority to their interests;
(iii) the nature of the proposed additional fees was that:
(A)APCHL was given contingent rights to take multiple fees to the value of 2.5% of the gross assets of the Prime Trust out of Prime Trust funds. Absent the Amendments the Members had the right to the services of APCHL as Responsible Entity without the additional fees;
(B)the listing fee payable pursuant to the Amendments (the Listing Fee) imposed a fee if the Prime Trust was listed, in circumstances where under the Existing Constitution the Members were entitled to expect listing to occur without a fee if the directors considered that listing was in the Members’ best interests (as they did);
(C)the ‘removal fee’ payable pursuant to the Amendments imposed a fee for the exercise of the Members’ right to remove APCHL as Responsible Entity, which the Members could require without a fee under the Existing Constitution;
(D)the ‘takeover fee’ payable pursuant to the Amendments (the Takeover Fee) substantially increased the fee payable on a third party acquiring shares over certain thresholds;
(E)the Takeover Fee could be payable on multiple occasions; and
(F)the fees payable pursuant to the Amendments could be payable notwithstanding that another of the fees had previously been paid;
(iv) the fees payable pursuant to the Amendments were substantial, each having a value of between about $11.25 million and $21.6 million at the time of the Amendments (which was in the order of 6.7% of the net scheme property of the Prime Trust after borrowings were taken into account); and
(v) the fees payable pursuant to the Amendments were gratuitous in the sense that no, or no equivalent, countervailing benefit was provided to the Members in return for them -
could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit the Amendments to become effective.
27.The fourth defendant, Kim Jaques, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(e) of the Act in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an indirect advantage to those persons who would benefit from the fees payable pursuant to the Amendments, in that:
(a)the Amendments purported to create rights in APCHL that would, if exercised, by their benefit to APCHL benefit those with an ownership interest in APCHL or rights to share in or receive a proportion of its profits or revenue, namely Mr Lewski, several of his family members and companies associated with him;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c)the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the Five Principal Factors, could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit them to become effective.
28.The fourth defendant, Kim Jaques, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Jaques’s position to ensure that APCHL complied with the constitution of Prime Trust and the Act, in that:
(a)in purporting to make the Amendments, APCHL did not comply with the Existing Constitution;
(b)in purporting to make the Amendments, APCHL did not comply with s. 601FC(1)(m) of the Act; and
(c)Mr Jaques voted in favour of the Lodgement Resolution:
(i) intending to make the Amendments effective;
(ii) without being satisfied that the Board had considered clear legal advice that in making the Amendments without the approval of the Members, the Responsible Entity would comply with the Act and the Existing Constitution;
(iii) without taking any steps to cause APCHL to obtain judicial advice as to whether APCHL was empowered to make, and justified in making, the Amendments without the approval of the Members;
(iv) without seeking the approval of the Amendments by the Members; and
(v) without giving any consideration on 22 August 2006 to the Board’s power to make the amendments or the need for proper legal advice or judicial advice.
29.The fourth defendant, Kim Jaques, contravened s. 209(2) of the Act (as modified by Part 5C.7 of the Act) by being involved (as that term is used in s. 79 of the Act) in a contravention by APCHL of s. 208 of the Act as modified by Part 5C.7 of the Act, as follows:
(a)APCHL contravened s. 208 of the Act as modified by Part 5C.7 of the Act, in that:
(i)on 3 August 2007, it caused to be issued to itself in its personal capacity ordinary units of the Prime Trust with a value of $3,293,994 as and by way of a 10 per cent instalment of the Listing Fee (the First Scrip Instalment);
(ii)on 13 March 2008, it caused to be transferred $329,399 of the monies held by it as Trustee of Prime Trust to itself in its personal capacity in respect of GST on the First Scrip Instalment,
(collectively, the First Instalment)
(iii)on 27 June 2008, it caused to be issued to Carey Bay Pty Ltd 9,020,386 units in the Prime Trust valued at $5,000,000; and
(iv)on 30 June 2008, it transferred $27,610,548.30 of the monies held by it as trustee of Prime Trust to itself in its personal capacity,
(collectively the Second Instalment)
without obtaining the approval of the Members and notwithstanding that, as a matter of law, the First Instalment and the Second Instalment and each component of them were not provided for in the constitution of Prime Trust;
(b)Mr Jaques participated in the meetings of the Board on 26 June 2007 and 27 July 2007 and assented to the resolutions passed at those meetings that authorised the payment of the First Instalment to APCHL in circumstances where he knew that:
(i)payment of the First Instalment was “a financial benefit” (as that expression is used in s. 208(1) of the Act);
(ii)the First Instalment was given by APCHL as Responsible Entity;
(iii)the First Instalment was given out of the scheme property of Prime Trust (Scheme Property);
(iv)the First Instalment was given to APCHL itself; and
(v)APCHL did not obtain the Members’ approval for the payment of the First Instalment.
(c) Mr Jaques:
(i)on 23 April 2008 approved the execution on behalf of APCHL of the document entitled Heads of Agreement - APCHL Restructure (the Heads of Agreement) under which APCHL agreed to pay the Second Instalment;
(ii)participated in the meeting of the Board on 27 June 2008 and the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
when he knew that:
(iii)payment of the Second Instalment was “a financial benefit” (as that expression is used within s. 208(1) of the Act);
(iv)the Second Instalment was given by APCHL as Responsible Entity;
(v)the Second Instalment was given out of Scheme Property;
(vi)the Second Instalment was given partly to APCHL itself and partly to Carey Bay which was a related party of APCHL; and
(vii)APCHL did not obtain the Members’ approval for the payment of the Second Instalment.
30.The fourth defendant, Kim Jaques, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in that he
(a)voted in favour of or otherwise assented to the resolution on 26 June 2007 in the following terms:
“the Listing fee be taken by the Responsible Entity as Units in the Trust of which approximately ten per cent is to be issued to the Responsible Entity at the time of allotment and official quotation of Prime Trust’s units on the ASX. The balance of the listing fee will be deferred and payable in tranches”; and
(b)voted in favour of or otherwise assented to the resolution on 27 July 2007 to the effect that APCHL would take the first tranche of the Listing Fee ostensibly payable pursuant to the Amendments as units;
(c)approving on 23 April 2008 the execution on behalf of APCHL of the Heads of Agreement under which APCHL agreed to pay the Second Instalment;
(d)attending in the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
(collectively the decisions to pay the Listing fee) in circumstances where:
(e)he did not give any consideration to whether making payment of the Listing Fee gave rise to any conflict of interest;
(f)a director of APCHL in the position of Mr Jaques would have been alive to APCHL’s conflict of interests and conflict of interest and duty, and would have considered and sought to resolve these conflicts in favour of the members before making a decision to pay the Listing Fee;
(g)payment of the Listing Fee was not in fact in the best interests of the Members;
(h)a director of APCHL in the position of Mr Jaques could not in the circumstances reasonably have believed that payment of the Listing Fee was in the best interests of the Members; and
(i)the proposed payment of the Listing Fee gave rise to a conflict between the interests of APCHL and the interests of the Members which should have been resolved in favour of the Members by APCHL deciding not to make the payment.
31.The fourth defendant, Kim Jaques, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Jaques’s position to ensure that APCHL complied with the Act, in that he participated in making the decisions to pay the Listing Fee by:
(a)voting in favour of or otherwise assenting to the resolutions on 26 June 2007 and 27 July 2007;
(b)approving on 23 April 2008 the execution on behalf of APCHL of the Heads of Agreement under which APCHL agreed to pay the Second Instalment;
(c)attending in the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;
in circumstances where:
(d)a reasonable person in his position would not have done so without obtaining:
(i)clear legal advice or a judicial direction that the Amendments had been effective, that APCHL had a right to be paid the fee under the constitution of Prime Trust and the Act, and that payment of the fee would not contravene s. 208 of the Act (as amended by s. 601LC of the Act); or
(ii)the approval of the Members for payment of the fee to be made; and
(e)he did not take any step towards obtaining further legal advice or a judicial direction as to the Amendments or towards obtaining the Members’ approval for the payment of the Listing Fee.
THE COURT DECLARES IN RELATION TO THE FIFTH DEFENDANT, MICHAEL RICHARD LEWIS WOOLDRIDGE, THAT:
32.The fifth defendant, Michael Richard Lewis Wooldridge, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(b) of the Corporations Act 2001 (Cth) (the Act), in that, in his capacity as a director of Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers Appointed) (APCHL) in its capacity as the responsible entity (the Responsible Entity) of the Prime Retirement and Aged Care Property Trust ARSN 097 514 746 (the Prime Trust), he failed to exercise the degree of care and diligence that a reasonable person would have exercised if he or she were in Dr Wooldridge’s position, by acting as follows. On 22 August 2006, at a meeting of the board of directors of APCHL (the Board), Dr Wooldridge voted in favour of a resolution (the Lodgement Resolution) to lodge with the Australian Securities and Investments Commission (ASIC) an amended constitution of the Prime Trust (the Amended Constitution) to cause the amendments in the Amended Constitution to take effect (the Amendments). The Amendments that were the subject of the Lodgement Resolution purported to create rights in APCHL that, if exercised, would result in a diminution of the assets of the Prime Trust without providing any or any equivalent benefit to the Members of the Prime Trust (the Members). In so doing, Dr Wooldridge on 22 August 2006:
(a)failed to consider and understand, and be satisfied that the Board had considered and understood, the effect of a deed of variation dated 22 August 2006, which contained the Amendments;
(b)failed to consider whether, and be satisfied that, there was a legitimate reason for the Responsible Entity to make the Amendments;
(c)failed to be satisfied that the Board had considered:
(i) legal advice that the Amendments, if made without the approval of the Members, would comply with the Act and the existing constitution of Prime Trust (the Existing Constitution); or
(ii) judicial advice that the Responsible Entity would be justified in making the Amendments without the approval of the Members;
(d)failed to consider, and be satisfied that the Board had considered, whether the Amendments if made without the approval of the Members would comply with the Act and the Existing Constitution;
(e)failed to consider, and be satisfied that the Board had considered, the effect of the Amendments on the rights and interests of the Members;
(f)failed to consider the effect of the Amendments on the interests of APCHL;
(g)failed to consider the effect of the Amendments on the interests of the second defendant (Mr Lewski) and entities related to and associated with Mr Lewski;
(h)failed to be satisfied that the Board had considered the effect of the Amendments on the interests of APCHL, Mr Lewski and entities related to and associated with Mr Lewski; and
(i)failed to consider and be satisfied that the Board had considered how, if at all, the conflict between the interests of the Members and the interests of APCHL could be resolved in favour of the Members.
33.The fifth defendant, Michael Richard Lewis Wooldridge, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances where:
(a)he did not give any consideration to whether making the Amendments was in the best interests of the Members;
(b)the Amendments were not in fact in the best interests of the Members;
(c)a director of APCHL in the position of Dr Wooldridge could not reasonably have believed that the Amendments were in the best interests of the Members; and
(d)there was a conflict between:
(i) the interests of APCHL in being paid the additional fees provided for by the Amendments and the interests of the members in paying only the fees under the Existing Constitution; and
(ii) the interests of APCHL in being paid the additional fees and its duties to act in the Members’ best interests.
34.The fifth defendant, Michael Richard Lewis Wooldridge, contravened s. 601FD(3) of the Act and so contravened s. 601FD(1)(e) of the Act, in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an advantage to APCHL, in voting favour of the Lodgement Resolution on 22 August 2006, in circumstances including the following:
(a)the Lodgement Resolution advantaged APCHL, because the Amendments purported to create rights in APCHL that would, if exercised, benefit APCHL;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c)the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the following (collectively, the Five Principal Factors):
(i) the fees to be payable pursuant to the Amendments were payable to APCHL in its personal capacity (and through it to Mr Lewski) and were to come from property held on trust by APCHL for the members. APCHL was acting as a trustee;
(ii) consideration of the Amendments created self-evident conflicts:
(A)between APCHL’s interest in becoming entitled to the additional fees through the Amendments and the Members’ interests in having APCHL perform its services as Responsible Entity for the fees in the Existing Constitution; and
(B)between APCHL’s interest in becoming entitled to the additional fees payable pursuant to the Amendments and its statutory duty to act in the best interests of the Members and to give priority to their interests;
(iii) the nature of the proposed additional fees was that:
(A)APCHL was given contingent rights to take multiple fees to the value of 2.5% of the gross assets of the Prime Trust out of Prime Trust funds. Absent the Amendments the Members had the right to the services of APCHL as Responsible Entity without the additional fees;
(B)the listing fee payable pursuant to the Amendments (the Listing Fee) imposed a fee if the Prime Trust was listed, in circumstances where under the Existing Constitution the Members were entitled to expect listing to occur without a fee if the directors considered that listing was in the Members’ best interests (as they did);
(C)the ‘removal fee’ payable pursuant to the Amendments imposed a fee for the exercise of the Members’ right to remove APCHL as Responsible Entity, which the Members could require without a fee under the Existing Constitution;
(D)the ‘takeover fee’ payable pursuant to the Amendments (the Takeover Fee) substantially increased the fee payable on a third party acquiring shares over certain thresholds;
(E)the Takeover Fee could be payable on multiple occasions; and
(F)the fees payable pursuant to the Amendments could be payable notwithstanding that another of the fees had previously been paid;
(iv) the fees payable pursuant to the Amendments were substantial, each having a value of between about $11.25 million and $21.6 million at the time of the Amendments (which was in the order of 6.7% of the net scheme property of the Prime Trust after borrowings were taken into account); and
(v) the fees payable pursuant to the Amendments were gratuitous in the sense that no, or no equivalent, countervailing benefit was provided to the Members in return for them -
could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit the Amendments to become effective.
35.The fifth defendant, Michael Richard Lewis Wooldridge, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(e) of the Act in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an indirect advantage to those persons who would benefit from the fees payable pursuant to the Amendments, in that:
(a)the Amendments purported to create rights in APCHL that would, if exercised, by their benefit to APCHL benefit those with an ownership interest in APCHL or rights to share in or receive a proportion of its profits or revenue, namely Mr Lewski, several of his family members and companies associated with him;
(b)by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and
(c) the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the Five Principal Factors, could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit them to become effective.
36.The fifth defendant, Michael Richard Lewis Wooldridge, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Dr Wooldridge’s position to ensure that APCHL complied with the constitution of Prime Trust and the Act, in that:
(a)in purporting to make the Amendments, APCHL did not comply with the Existing Constitution;
I am not persuaded that Mr Jaques properly understands and accepts the seriousness of his wrongdoing. In my view he cannot have the benefit of any concession that a proper display of contrition might have brought him.
The need to balance personal hardship against the public interest
I accept that the proceeding and the findings in the liability judgment have had a serious effect on Mr Jaques, and that he has suffered severe reputational damage through the adverse media reports. While I take this into account, his personal hardship is less important than public protection and deterrence when determining whether to impose disqualification, and if so, for what duration: Matcham (No 2) at [165].
In my view Mr Jaques will suffer little personal hardship through disqualification as he has no intention of returning to work as a director.
Factors relevant to Pecuniary Penalty
Punishment
My remarks regarding punishment in relation to Dr Wooldridge are also applicable to Mr Jaques. He is 67 years old and I accept that he has no intention to return to the role of director. The disqualification order will have no great consequence for him and a pecuniary penalty assumes a greater significance in achieving the punitive purpose: Adler at [126](iv).
Personal Deterrence
There is no requirement to impose a pecuniary penalty on Mr Jaques in order to deter him from similar conduct. He has no intention of returning to that role, and in any event he is unlikely to reoffend.
General Deterrence
I reiterate the views I expressed as to the importance of general deterrence in relation to Dr Wooldridge’s conduct, which are equally applicable to Mr Jaques. While the disqualification imposed will have a deterrent effect, a court-ordered pecuniary penalty will send an appropriately strong further message to deter other directors from similar conduct.
A pecuniary penalty is also necessary because of the matters I set out at [481] above. It is essential that other directors be discouraged from a similarly careless approach to a director’s obligations.
Hardship/incapacity to pay
Mr Jaques’ financial position is poor. He is 67 years old and he has very limited prospects of again obtaining employment. He lost the bulk of his life savings when Prime Trust collapsed and he has negligible savings other than a joint self-managed superannuation fund with his wife to the value of about $300,000. The family home has been in his wife’s name for many years, but some of the joint superannuation funds were recently spent on renovations and a change of home. His wife works as a nurse earning in the order of $75,000 per annum.
Mr Jaques will have difficulty in paying a pecuniary penalty but, as I have said, personal hardship is less important than public protection and deterrence when determining a penalty.
Contrition
I reiterate my remarks at [487]-[489].
Mr Jaques’ penalties
Having regard to the considerations above I have disqualified Mr Jaques from managing corporations as follows:
(a)three years and nine months for the Lodgement Resolution Contraventions; and
(b)six months for the Decisions to Pay Contraventions.
For the reasons given in relation to the other Directors I consider that half of the disqualification for the Decisions to Pay Contraventions should be served concurrently with the disqualification for his Lodgement Resolution conduct. This reduces the effective disqualification period to four years.
Mr Jaques’ Lodgement Resolution conduct and its context is similar to that of Dr Wooldridge and, as I said in relation to Dr Wooldridge, his conduct is more serious than the criteria in Santow J’s “shortest disqualifications” category of up to three years. In fact he meets some of the criteria for a longer period of disqualification.
I did not though disqualify him for a longer period because he was not motivated by personal gain in committing the contraventions, he made no personal gain, these are his first contraventions, he is now 67 years old, he has no desire to again be a director, and given the effect of the proceedings on him it is unlikely that he will reoffend. In my view the disqualification is sufficient to serve the purpose of general deterrence.
I have imposed only a short disqualification for his Decisions to Pay Contraventions for the same reason as with Dr Wooldridge.
Taking into account the disqualification order, his age, his limited employment prospects and his poor financial position I consider that pecuniary penalties are also appropriate as follows:
(c)$17,500 for his Lodgement Resolution Contraventions; and
(d)$5000 for his Decisions to Pay Contraventions.
For the same reasons as I set out in relation to disqualification half of the pecuniary penalty for the Decisions to Pay Contraventions should be paid concurrently with the pecuniary penalty for the Lodgement Resolution conduct. This reduces the effective pecuniary penalty to $20,000.
Weighing all the relevant factors in the balance, in combination with the disqualification order, I consider the pecuniary penalty is sufficient to serve the punitive purpose and deter other directors from similar conduct, while also taking account of Mr Jaques’ financial difficulties. Although his personal hardship is less important than the need to protect the public I do not impose a higher pecuniary penalty because of the difficulty he faces in paying such a penalty. It is impossible to be precise in balancing the need for deterrence against his personal hardship but I concluded that a moderate pecuniary penalty was appropriate.
I will allow liberty to apply so that Mr Jaques may seek time to pay should that be necessary.
Totality
I have conducted a final check on the aggregate penalties imposed on Mr Jaques and I am satisfied that the penalties imposed for each course of conduct and for his contravening conduct overall are just and appropriate in all the circumstances.
MR CLARKE
On the question of penalties Mr Clarke reiterates the same submissions he made in relation to exoneration (set out at [258]-[261]) and I will not reiterate them.
Factors relevant to Disqualification Order
Seriousness of the contraventions
Mr Clarke’s conduct and it context is materially different and less culpable to that of the other Directors.
He was not present at the 19 July 2006 Board meeting, he had only been a Director for one day by the 22 August 2006 Board meeting, he had not read the Board papers for that meeting, and he did not see the Madgwicks Advice. Importantly, he had no knowledge about how inadequately the other Directors had undertaken their consideration of the Amendments at the earlier Board Meeting.
As he had not read the Board papers for the 22 August 2006 meeting, not considered and understood the Lodgement Resolution, not read or understood the Amendments which the Lodgement Resolution brought into effect, and did not ask the other Directors for any explanation of the Amendments or the Lodgement Resolution, he could not have had a proper understanding of what was being achieved by the Board’s approval of the pre-prepared Lodgement Resolution.
One can accept that confronted with such a resolution a new director is likely to be reticent to question the earlier decision of the Board to pass the Amendments in the first place. But if Mr Clark was to properly participate in the Board meeting on 22 August 2006 he was obliged to read the Board papers, consider and understand the Lodgement Resolution, consider and understand the Amendments which the Lodgement Resolution brought into effect, and if he did not understand he was obliged to ask the other Directors.
That is, it may be expecting too much to expect a new director, in his first meeting, to question an earlier Board decision, but there is no doubt that when Mr Clarke took none of the steps that I describe he was obliged, at least, to abstain. What he could not do was approve the resolution without giving any attention whatsoever to the resolution or the facts underpinning it, which is what he did.
Mr Clarke’s submissions that:
(a)“he believed that he had abstained”;
(b)he “honestly… thought he was abstaining”; and
(c)the finding that he was a passive participant in the 22 August 2006 Board meeting “is entirely consistent with an intention to abstain (even if that intention failed when measured objectively)”;
cannot be accepted. He did not give evidence nor did he submit in the liability hearing that he thought he was abstaining from the Lodgement Resolution, only that he was a passive participant at the meeting. He did not even accept that the Lodgement Resolution was before the meeting.
His position is akin to that of the US directors in Gillfillan in that he failed to take steps to consider and understand the resolution before the Board and he just waved it through without troubling himself to consider what effect it had. He took that approach when he had just been appointed a Director of a large responsible entity with gross assets of $568 million and had assumed important duties to the Members.
The seriousness of his conduct can be seen in the magnitude of the additional fees that were provided through the wrongful conduct and the importance of the statutory fiduciary duties that he breached. Although his Lodgement Resolution conduct was different from the other Directors the result was the same. Approval of the resolution allowed a $33 million breach of trust to occur.
His Decisions to Pay conduct is less serious for the same reasons as with Dr Wooldridge, Mr Butler and Mr Jaques.
Protection of the public including through personal deterrence
ASIC contends that a disqualification order is necessary because Mr Clarke has demonstrated no understanding of the nature or seriousness of his conduct and because he is not a suitable person to act as a company director. It submits that Mr Clarke should be disqualified for such period of time that permits him to consider the meaning of the judgment so that if he were subsequently to act in the office of a director he will understand the need to act with much greater care and prudence.
ASIC submits, and I accept, that Mr Clarke made no effort to understand the nature and effect of the Lodgement Resolution, simply went along with the decision of the other Directors, and failed to bring his own independent mind to the decision. In respect to the Decisions to Pay ASIC contends that he again did no more than go along with the decisions of the others.
While ASIC’s contentions have merit, I am not satisfied that there is any real need to protect the public against the risk of Mr Clarke committing similar breaches in the future, or so as to deter him from similar conduct in the future.
I say this, first, because Mr Clarke now accepts that during his tenure as a director of APCHL he did not have sufficient training or experience to properly equip him to deal with the type of governance issues which are the subject of this proceeding. He had not previously served on the board of an entity which was listed or proposing to list and he had no experience of entities where there was the potential for substantial conflicts of interest to arise in a way which was not clearly flagged by advisors or staff. He says that he now realises that he should not have accepted the invitation to become a director of APCHL.
Second, he accepts that he was insufficiently prepared for his first Board meeting, that he did not appreciate the significance of the Lodgement Resolution including that he did not understand that the effect of it was to confer a substantial benefit on Mr Lewski.
Third, contrary to ASIC’s submission, Mr Clarke’s expression of remorse and contrition is unqualified.
Fourth, he has suffered a great deal of adverse media attention through the proceeding and the liability judgment. This has caused severe damage to his reputation, and distress and embarrassment to him and his family.
Fifth, I do not accept ASIC’s contention that his evidence in the hearings shows that he is unfit to be a director. While I criticised aspects of his evidence in the liability judgment my remarks were directed at the unreliability of those parts of his evidence rather than to suggest that the subject conduct was dishonest. In my view his failures were honest, but serious, mistakes.
Sixth, he had no intention to make a personal gain from the relevant conduct and he did not.
Seventh, I have little doubt that Mr Clarke will exercise care before he accepts an appointment as a director in the future, or that he will accept appointment only after deciding that it is within his experience and expertise.
I have no reason to doubt Mr Clarke’s honesty and his frank acceptance of his insufficient experience, the severe reputational damage he has suffered, his embarrassment and financial loss, and his unqualified contrition, mean that he is quite unlikely to make the same mistakes again.
General deterrence
I do not accept Mr Clarke’s contention that, because of the particular circumstances of his case, deterrence would not be undermined if no penalty is imposed. It is critical that other directors be put off taking such a careless approach to the business of a corporation, particularly of a large responsible entity like APCHL. It would provide a poor lesson to other directors, particularly of responsible entities, if a director who gave no proper attention to the business of a meeting and approved a resolution that allowed a $33 million breach of trust to occur and thereby caused a substantial loss, did not suffer a penalty.
There is a strong need to deter other directors from similar conduct to that of Mr Clarke. It is important too that persons who are appointed as company directors on the strength of their technical or commercial acumen, as Mr Clarke suggests he was, are strongly reminded of the need to also satisfy the important obligations of a director, and the real risks they face if they do not.
In my view the real question is whether it is necessary to achieve general deterrence through disqualification of Mr Clarke or whether it can be achieved by a pecuniary penalty.
Evidence of character and contribution to society
Mr Clarke has given a great deal of honorary service to the community over many years and has held many prominent positions within community organisations, local government and not-for-profit groups. His commitment to the community is especially apparent through his work as a councillor and Mayor of the City of Heidelberg, as a councillor of the City of Melbourne, as Co-Chair of the Docklands Co-ordination Committee, on the boards of major public hospitals, and with the YMCA and other community groups.
He has given substantial pro bono time to a large number of advisory committees, task forces and reference groups in the fields of planning, architecture and urban renewal at Federal, State and city council levels over several decades.
The following witnesses provided affidavits as to Mr Clarke’s character, capacity and contribution to society:
(a)Hector Davis OAM JP, a retired former company director, served for many years as a councillor on the Heidelberg City Council including three terms as Mayor, and has also been a Commissioner of the City of Manningham. He has held a large number of honorary community positions. He has observed Mr Clarke at close quarters since he was a young man, and says he is dedicated to his religious beliefs and deeply committed to the community. He says that Mr Clarke gave outstanding service to the Heidelberg community, which led to his appointment to the Board of the Austin Hospital and the Board of the Heidelberg Repatriation Hospital. He describes Mr Clarke as a dedicated person who would always act honestly and in the best interests of the people with whom he is associated.
(d)Brian Shanahan OAM, Community Relations and Migration Consultant, has held many positions and has been very active in the community, including holding senior offices in a variety of well-known community groups and associations. He served for eight years as a councillor of the City of Melbourne was also a councillor and Mayor of the City of Essendon. He has known Mr Clarke since November 2004 when they were both elected to Melbourne City Council and he describes him as a conscientious and honest councillor who devoted a great deal of time and energy to his constituents and to less fortunate members of the community. He says that when Mr Clarke was elected to the position of Chair of the Melbourne City Council Planning Committee he performed that role with great skill, impartiality and respect for all sides.
The character evidence, together with the roles Mr Clarke has successfully undertaken in local government, on important advisory committees, task forces and reference groups in the fields of planning, architecture and urban renewal, on public hospital boards, as Co-Chair of the Docklands Co-ordination Committee and as Chairman of Places Victoria, tend to show that he is an honest, intelligent, capable and hard-working person.
He has given great service to the community and in my view this mitigates the applicable penalty.
Understanding of the proper role of a director
It is plain that Mr Clarke did not properly understand the role of a director at the time of the contraventions. It was unacceptable for him to attend and participate in the 22 August 2006 Board meeting in the way that he did, and this points to a need to protect the public by disqualifying him from managing corporations in the future.
Against this, I note that the subject contraventions are the only stain on Mr Clarke’s record as a director or in his other work. While Mr Davis and Mr Shanahan were not in a position to speak to Mr Clarke’s understanding of the role of company director the thrust of their evidence is that he is honest, intelligent, capable and hard-working. Mr Clarke’s successful work in the areas and roles I have described also tends to show that he is an honest, intelligent, capable and hard-working person.
It is significant that Mr Clarke now frankly accepts that at that time of the contraventions he was insufficiently experienced and ill-equipped to act as a director of APCHL and that he was insufficiently prepared for the 22 August 2006 Board meeting. The breaches occurred at his first meeting of the APCHL Board. It would be surprising if his understanding of the role of a company director has not advanced substantially as a result of the proceedings.
Mr Clarke gives an unqualified statement of remorse and contrition. I consider his recognition of his own wrongdoing and his apology for it indicates a capacity for reform.
It is likely in my view that Mr Clarke now understands the role of a company director.
Contrition
Mr Clarke says that he has been personally devastated by coming to realise that he fell short of what was required of him and that he failed to represent the unitholders in the best possible way. He deposes that:
I never deliberately acted against the interests of the unitholders, or for any personal gain, or indeed to provide a windfall gain to Mr Lewski or his associated entities. I supported what I understood to be lawful determinations reviewed and supported by legal advice. However in hindsight it is clear that I needed to do more than that, and specifically I should have either actively opposed the relevant resolutions, or explicitly abstained from voting on them.
I apologise to the unitholders for not fulfilling my duties and meeting their expectations. (Emphasis added.)
His statement of remorse and contrition operates to mitigate his penalty.
The need to balance personal hardship against the public interest
Mr Clark has suffered intense adverse media reports as a result of the proceeding and the liability judgment. This has had a significant effect on Mr Clarke’s reputation and upon his family.
He has also suffered significant damage in his involvement in the Liberal Party, and damage to his possible political career. He has been actively involved in politics throughout his adult life and has served in various honorary positions in the Liberal Party, including Victorian State Vice-President.
Since commencement of the Supreme Court proceedings his political contacts, including current state and federal Ministers, have been careful about their relationships with him and have kept their distance. Although he understands the reasons for their approach this has been hurtful to him. Further, until the proceedings he considered that he had a good chance of being preselected by the Liberal Party for the State seat of Eltham and believed he had a good chance of entering Victorian State Parliament at the election just held. As he is now 58 years old he says that election was his last realistic chance of commencing a parliamentary career.
Mr Clarke has also suffered significant financial loss including:
(a)He was appointed to the role of Chairman of Places Victoria in 2011 on a five-year term being paid about $80,000 per annum. As a result of the Supreme Court proceedings he was required to step down in August 2012 and he formally resigned his position in February 2013. He has suffered a loss of income of about $300,000 over the three years and eight months balance of his term.
(b)He was invited to join the board of a not for profit entity named Ethan Affordable Housing (“Ethan”) on a remunerated basis, with a view to potentially becoming its Chairman. As a result of the Supreme Court proceedings the invitation was withdrawn.
(c)Ethan also planned to purchase an existing aged care facility and Mr Clarke was asked to assist in obtaining the necessary regulatory approvals with a view to becoming its Chief Executive Officer if and when it was approved. Because of the legal proceedings the Federal Department of Aged Care refused to consider Mr Clarke as a suitable person and refused to accept him as a consultant rather than as CEO.
(d)Following his resignation from APCHL he commenced to provide full-time consultancy services to an aged care provider and retirement village company, Arton Pty Ltd (“Arton”), and be became a director of its related entity Cumberland View Aged Care Services Pty Ltd. He was earning about $300,000 per annum through this work. .Following the Supreme Court proceedings Arton terminated his consultancy services and required his resignation from the related entity.
The evidence is that Mr Clarke now has only month to month consultancies in the property industry and some other minor ad hoc advisory work. There is no continuity to his employment and his ability to participate at a senior level in the aged care and retirement village industry where he has worked over the past 15 years has been severely inhibited.
Mr Clarke no longer holds any directorship and given the reputational damage he has suffered it cannot be known whether he will be able to return to his former positions, or obtain new ones. However, he has previously shown an ability to earn about $380,000 per annum and if he is disqualified he must continue to suffer a significant loss of income.
The personal hardship he will suffer through disqualification must be balanced against the public interest.
Factors relevant to Pecuniary Penalty
Punishment
ASIC contends that the Court should impose a pecuniary penalty on Mr Clarke in light of the seriousness of his contraventions and the quantum of the harm done to the Trust. Any penalty must reflect the punitive purpose of the civil penalty regime. I note again that such a penalty need not go beyond the level necessary to deter Mr Clarke or other directors from acting contrary to the required standards of behaviour.
Personal Deterrence
As I said at [519]-[529] there is no real need to deter Mr Clarke from committing similar breaches in the future as he is quite unlikely to reoffend.
General Deterrence
I reiterate my remarks at [530]-[531]. There is a strong need to deter other directors from conduct similar to that of Mr Clarke and it is important to remind other directors appointed to company boards because of their technical or commercial acumen that their obligations do not end there.
Hardship/incapacity to pay
Mr Clarke seeks that his financial position be kept confidential but I cannot meet his request. I am unable to properly set out my reasons without going to the detail of his financial circumstances.
He filed a statement of financial position which did not record any real estate under his name and did not advise whether he and his wife have a family home, even if it is in his wife’s name. Putting that issue to one side, the statement shows that his savings are exhausted and his liabilities exceed his assets by about $620,000, mostly as a result of unpaid legal expenses. His current month to month consultancies yield approximately $20,000 gross per month.
His financial position is poor and in my view Mr Clarke will have real difficulty meeting his debts and in paying any pecuniary penalty. Although the public interest is more important than his incapacity to pay, his incapacity is a factor to be weighed in the balance.
Contrition
I reiterate my remarks at [543].
Mr Clarke’s penalties
In all the circumstances I have decided not to disqualify Mr Clarke from managing corporations.
Centrally this is because his Lodgement Resolution conduct and its context is materially different to and less culpable than that of the other Directors. Importantly, he had no knowledge about the inadequacy of the other Directors’ consideration of the relevant issues at the 19 July 2006 Board meeting and he was never provided the deficient Madgwicks Advice.
His failures were different as on 22 August 2006 he had only been a Director for one day and he had not read the Board papers. He had no understanding whatsoever about the Amendments or the Lodgement Resolution to bring them into effect, and unlike the other Directors he did not understand that he was dealing with APCHL’s and Mr Lewski’s conflict of interest.
Of course, his lack of understanding arose from his own failure to give any attention to the business of the meeting but in all the circumstances I am not satisfied that he should be disqualified from managing corporations.
His waving through the Lodgement Resolution is likely to have seemed an insignificant act at the time, yet he has experienced severe damage to his reputation, his career in the aged care and retirement industry has suffered enormously, and he has lost income of about $380,000 per annum. In my view he is an intelligent, capable and hard-working man of good character, there is no requirement for personal deterrence as he is quite unlikely to reoffend, he now properly understands the role of a Director, and he is contrite. There is force to his contention that he has already paid enough for his failure on his first day as a Director.
Provided the objective of general deterrence is served there is no purpose in disqualifying him. I consider that the need for general deterrence dictates that he must suffer a sufficient penalty to discourage other directors from similar conduct, but a pecuniary penalty will suffice in the particular circumstances of his breaches.
I consider that a pecuniary penalty is appropriate as follows:
(e)$17,500 dollars for his Lodgement Resolution Contraventions; and
(f)$5000 for his Decisions to Pay Contraventions.
For the same reasons as with the other Directors I consider that half of the pecuniary penalty for the Decisions to Pay Contraventions should be served concurrently with the pecuniary penalty for his Lodgement Resolution conduct. This reduces the effective penalty to $20,000.
As I did not disqualify Mr Clarke I closely considered imposing a higher pecuniary penalty. I did not do so largely because he is unlikely to be able to pay such a penalty. He will have difficulty in paying the penalty set. He is 58 years old, he has no assets, he currently owes more than $400,000, he is engaged on month-to-month consultancies and there is no continuity to his employment, and his income is insufficient to even pay off his existing debts.
It is impossible to be precise in weighing the public interest in general deterrence and punishment against questions of personal hardship and incapacity to pay, although it is plain that the public interest is more important. In Mr Clarke’s particular circumstances I consider a pecuniary penalty of $20,000 represents the appropriate balance.
I will hear him on the question of time to pay if that is necessary.
Totality
I have conducted a final check on the aggregate penalties imposed on Mr Clarke and I am satisfied that the penalties imposed for each course of conduct and for his contravening conduct overall are just and appropriate in all the circumstances.
H. PARITY
Equal justice requires that where other things are equal, persons involved in the same contravention should receive the same sentence. Where other things are not equal, the differences in sentence must be rational and fair, so that no justifiable sense of grievance may arise. That is, there must be due proportion between the sentences imposed on co-offenders.
Mr Lewski contends that his contravening conduct and its context is the same as the other Directors. He argues that the fact that he sought payment of the Listing Fee does not make his contraventions more serious than those who, like him, failed to discharge their duties as directors by approving the Lodgement Resolution and making the Decisions to Pay.
Although Mr Lewski seems to accept the obvious differences in Mr Clarke’s conduct and its context he contends that, subject to the personal mitigating factors applying to the other Directors, any pecuniary penalty and disqualification order imposed on the Directors should be the same.
I reject the contention that Mr Lewski’s conduct and its context is the same as that of the other Directors. His submissions on parity are misconceived and his much greater culpability requires that he suffer substantially greater penalties.
I have given the requirement for due proportion between the penalties imposed on Mr Lewski and the other Directors careful, indeed anxious, consideration. I set Mr Lewski’s penalties significantly higher because, amongst other things:
(a)he was central to both courses of conduct as he instigated and then orchestrated the breaches, and no other Director played a similar role;
(b)he took advantage of his position of influence and breached his statutory fiduciary duties for personal gain, and no other Director’s Lodgement Resolution conduct was motivated by personal gain;
(c)penalties aimed at deterring other directors from self-enrichment at the expense of the Members are necessary for his conduct, and not for any other Director’s conduct;
(d)penalties aimed at deterring him from similar conduct are necessary for him, whereas the other Directors are unlikely to reoffend;
(e)he has shown no contrition or even any understanding or acceptance of his serious wrongdoing, whereas Mr Clarke showed real contrition and remorse and the other Directors showed qualified contrition;
(f)he put on no evidence or submissions that he is unable to pay or that personal hardship must mitigate the penalty, whereas Mr Butler, Mr Jaques and Mr Clarke did;
(g)he adduced no evidence of character, whereas Dr Wooldridge, Mr Butler and Mr Clarke did;
(h)he has retained the benefit of $33 million wrongfully received, whereas the other Directors received no financial benefit from the contraventions (except for Mr Butler who received $30,000); and
(i)Mr Clarke was not present and was not a Director when the Madgwicks Advice was considered and the Amendments passed at the 19 July 2006 meeting, and had no knowledge of the inadequacy of Mr Lewski’s (and the other Directors’) consideration of the relevant matters.
I consider his significantly higher penalties are in just proportion with the penalties imposed on the other Directors.
The conduct of Dr Wooldridge, Mr Butler and Mr Jaques and its context are broadly similar. While there are some differences they are not important in my view.
The differences include that, as Chairman, Dr Wooldridge was in control of the process of the meetings and had a responsibility to see that Mr Lewski did not participate in Board meetings when he had a conflict of interest, and that the Board gave proper consideration to the relevant issues: see AWA Ltd v Daniels trading as Deloitte Haskins & Sells and Others (1992) 7 ACSR 759 at 867 per Rogers CJ. In Australian Securities and Investments Commission v Rich and Others (2003) 44 ACSR 341 at [61] Austin J sought to confine Rogers CJ’s remarks to the chairmen of publicly listed companies, but I respectfully disagree with his Honour’s approach. I can see no reason in principle why a chairman of a responsible entity of a registered managed investment scheme, particularly a large responsible entity such as APCHL, should not have similar responsibilities to a chairman of a listed company.
However, ASIC pleaded and ran its case on the basis that the non-executive directors all had the same care and responsibility and the parts played by Dr Wooldridge, Mr Butler and Mr Jaques in the contraventions were essentially the same. It did not suggest that the particular responsibilities of Dr Wooldridge as Chairman were specifically relevant to the contraventions. In Healey (No 2) at [193]-[194] confronted with similar circumstances Middleton J declined to apply a differential treatment to the Chairman. I do not consider it appropriate to differentiate Dr Wooldridge’s culpability by reference to his responsibilities as Chairman.
Dr Wooldridge seeks (lightly) to differentiate his conduct from Mr Butler and Mr Jaques on the basis that he took more care at the 19 July 2006 Board meeting. I accept that he did so but I give it little significance when his consideration of the relevant issues was quite inadequate.
Another difference is that Mr Butler had a material conflict of interest at the time he participated in the Decisions to Pay in April 2008 which makes his conduct more culpable than Dr Wooldridge and Mr Jaques. However, it makes little difference in differentiating the penalties because, first, ASIC did not suggest that Mr Butler’s Decisions to Pay in 2008 were motivated by a desire to obtain his bonus and I accept that he genuinely believed the Listing Fee was validly included in the Constitution at that time. Second, the penalties imposed for the Decisions to Pay Contraventions are relatively small.
It is the different personal and mitigating circumstances of Dr Wooldridge, Mr Butler and Mr Jaques which largely underpin the differences in their penalties.
For example, Dr Wooldridge, Mr Butler and Mr Jaques have suffered disqualifications for different periods even though their conduct was similar.
I disqualified Mr Butler and Mr Jaques for four years because that period was appropriate for their conduct, and provided no reduction because they will suffer little damage to their business career and little financial loss through disqualification. Neither currently holds a directorship. Mr Jaques no longer seeks to be a company director and it will be difficult for Mr Butler to return to that role.
I disqualified Dr Wooldridge for only two years for similar conduct because he will suffer damage to his business career and loss of income of more than $328,000 through loss of his existing directorships. He intends to continue his career as a company director and it may be some time after his disqualification ceases before he can regain his existing directorships or replace them with others. I also took into account his exemplary character and his significant contribution to the community in imposing a shorter disqualification.
Another different circumstance is that Mr Butler and Mr Jaques are in a parlous financial state and their financial difficulties are likely to continue. I imposed moderate pecuniary penalties upon them because of, amongst other things, their incapacity to pay. Dr Wooldridge received the same penalty as Mr Butler and Mr Jaques even though his financial position is strong. Notwithstanding his stronger financial circumstances I consider a moderate pecuniary penalty is also appropriate for Dr Wooldridge because of the substantial financial loss he will suffer through disqualification compared to Mr Butler and Mr Jaques.
In my view the penalties for Dr Wooldridge, Mr Butler and Mr Jaques are in due proportion.
I have also given careful consideration to the requirement for due proportion between the penalties imposed on Mr Clarke and the other Directors. As I have said, his conduct is materially different and less blameworthy than the other Directors. In his particular circumstances there is no requirement for disqualification, and the pecuniary penalty imposed will suffice to serve the need for punishment and general deterrence. In not imposing disqualification I also took into account Mr Clarke’s honesty and service to the community.
I. COSTS
I am aware of no reason why costs should not follow the event and accordingly I have ordered that the Defendants pay the plaintiff’s costs. I am though unaware as to whether there is any requirement to divide the costs between each Defendant or whether a particular form of costs order is preferable to the parties. I have granted liberty to apply in relation to the form of the orders and generally.
I certify that the preceding five hundred and eighty-eight (588) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy. Associate:
Dated: 2 December 2014
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