Australian Securities and Investments Commission v Forge

[2007] NSWSC 1489

CITATION:	Australian Securities and Investments Commission v Forge [2007] NSWSC 1489
HEARING DATE(S):	19-22/03/07
JUDGMENT DATE :	21 December 2007
JURISDICTION:	Equity
JUDGMENT OF:	White J
DECISION:	See para 213 of judgment.
CATCHWORDS:	CORPORATIONS - Civil penalty orders - multiple declarations of contravention - Application of Pearce v R (1998) 194 CLR 610 to civil penalty orders considered - banning orders prohibiting personal defendants from managing corporations - pecuniary penalties.
LEGISLATION CITED:	Corporations Act 2001 (Cth) Corporations Law Crimes Act 1900 (NSW)
CASES CITED:	Australian Securities and Investments Commission v Forge [2002] NSWSC 760 Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574; 52 ACSR 1; 23 ACLC 1010 Forge & Ors v Australian Securities and Investments Commission [2006] HCA 44; (2006) 229 ALR 223; 80 ALJR 1606; 59 ACSR 1 Forge v Australian Securities and Investments Commission (No. 2) [2007] NSWCA 42 Forge v ASIC [2004] NSWCA 448 R v Pepper [1921] 3 KB 167 R v Martin [1981] 2 NSWLR 640 Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 Marchesi v Barnes [1970] VR 434 Ngurli Ltd v McCann (1953) 90 CLR 425 Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 Re One.Tel Limited (in liq); Australian Securities and Investments Commission v Rich (2003) 44 ACSR 682 Pearce v R (1998) 194 CLR 610 Vines v Australian Securities and Investments Commission (2007) 25 ACLC 867; (2007) 63 ACSR 505 Environment Protection Authority v Barnes [2006] NSWCCA 246 Mill v R (1988) 166 CLR 59 Thomas, Principles of Sentencing, 2nd ed, 1979 Rahme v R (1989) 43 A Crim R 81 Australian Securities and Investments Commission v Loiterton (2004) 58 ACSR 693 Clark v R; Forge v R (2004) 50 ACSR 592 Briginshaw v Briginshaw (1938) 60 CLR 336
PARTIES:	Australian Securities and Investments Commission v William Arthur Forge & 5 Ors
FILE NUMBER(S):	SC 2338/01
COUNSEL:	Plaintiff: D R Stack Defendants: J Glissan QC, M R Ellicott
SOLICITORS:	Plaintiff: Solicitor for ASIC Defendants: Ken Cush & Associates

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Friday, 21 December 2007

2338/01 Australian Securities and Investments Commission v William Arthur Forge & 5 Ors

JUDGMENT

1 HIS HONOUR: This judgment concerns civil penalty orders sought against the defendants following declarations made by Foster AJ on 28 August 2002 that the defendants had contravened certain provisions of the Corporations Law. Foster AJ went on to make orders that the individual defendants be prohibited from managing corporations for specified periods and imposed pecuniary penalties (Australian Securities and Investments Commission v Forge [2002] NSWSC 760).

2 The declarations of contravention were made pursuant to s 1317EA(2) of the Corporations Law. The orders prohibiting the individual defendants from managing corporations and imposing pecuniary penalties were made pursuant to s 1317EA(3) of the Corporations Law.

3 An appeal to the Court of Appeal was partially successful. The appeals against the making of declarations of contravention were dismissed. However, the Court of Appeal held that the defendants had been entitled to a separate hearing on penalty after the outcome of the application for declarations of contravention was known. The Court of Appeal held that the defendants had not been allowed the right to elicit evidence and make submissions on the issue of penalty. The proceedings were remitted to the Equity Division for a separate penalty hearing (Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574; 52 ACSR 1; 23 ACLC 1010 at [410]-[427]).

4 Following the judgment of the Court of Appeal, the defendants instituted separate proceedings in the Supreme Court and in the High Court, and sought special leave to appeal to the High Court. They challenged the validity of Foster AJ’s appointment as an acting judge. They challenged the validity of the transitional provisions of the Corporations Act 2001 (Cth), and the Court of Appeal’s construction of those provisions. On 5 September 2006, the High Court refused special leave to appeal, upheld demurrers to the defendants’ fresh proceedings, and answered the questions as to the validity of Foster AJ’s appointment and as to the construction and validity of the transitional provisions of the Corporations Act adversely to the defendants (Forge & Ors v Australian Securities and Investments Commission [2006] HCA 44; (2006) 229 ALR 223; 80 ALJR 1606; 59 ACSR 1).

5 The leading judgment in the Court of Appeal was given by McColl JA, with whom Handley & Santow JJA agreed. In her reasons for judgment, McColl JA recorded that counsel for the defendants (the then appellants) had submitted that a separate penalty hearing should be conducted by a judge different from the primary judge. On 12 October 2006, the defendants filed an interlocutory process seeking orders that the imposition of civil consequences be dealt with by Foster AJ and that if Foster AJ was unable to deal with such contraventions, then the proceedings be stayed until the contraventions were reheard de novo by another judge. On 13 October 2006, that interlocutory process was dismissed. The defendants then accepted that it was not open to a single judge to make the orders sought, because the Court of Appeal had remitted the matter to the Equity Division for hearing on penalty only. On 27 February 2007, the Court of Appeal dismissed an application to vary the orders made on 7 December 2004 to substitute an order for a general rehearing (Forge v Australian Securities and Investments Commission (No. 2) [2007] NSWCA 42).

Background

6 There were six defendants to the proceedings. The first defendant, Mr Forge, the second defendant, Mr Joszef Endresz, and the third defendant, Mrs Endresz, were directors of CTC Resources NL (“CTC”). The fourth defendant, Mr Allan Endresz, was held to be an officer of CTC. Allan Endresz is the son of Mr Joszef and Mrs Dawn Endresz. The fifth defendant, Kamanga Holdings Pty Ltd (“Kamanga”), was the trustee of the Allan Endresz family trust. It was wound up and proceedings against it were stayed. After it was wound up, it was removed as trustee of the Endresz family trust. The sixth defendant, Bisoya Pty Ltd (“Bisoya”), was the trustee of the Forge family trust.

7 CTC was formerly called Emu Hill Gold Mines NL. At relevant times, it had about 1,200 shareholders. It was listed on the Australian Stock Exchange on 16 August 1984. It was delisted on 18 December 1990. On 20 December 1990, Joszef Endresz and Allan Endresz were appointed as directors of CTC. A related entity of Joszef and Allan Endresz, CTC Nominees Pty Ltd, held 51 per cent of the issued shares in the company.

8 Mrs Endresz was appointed as a director of CTC in April 1991. On 11 June 2003, Allan Endresz was convicted and fined for offences against subs 124(1) and s 125 of the Securities Industry Code, and of offences against the Company (Acquisition of Shares) Code. As a result of those convictions, he was prohibited for a period of five years from managing a corporation, without the leave of the Court (Corporations Law s 229(3)). The prohibition extended to him being in any way (whether directly or indirectly) concerned in or taking part in the management of a corporation (Corporations Law s 91A(2)).

9 Allan Endresz ceased to be a director of CTC and Kamanga on 11 June 1993.

10 Mr Forge was appointed as a director of CTC on 9 September 1994. At relevant times, he was a director of Bisoya.

11 According to CTC’s financial statements for the year ended 30 June 1991, its principal activities during that year were the maintenance of an investment portfolio in the shares of mining and related industries. The same statement of principal activities appears in 1992 and in subsequent years.

12 CTC’s financial statements for the year ended 30 June 1997, adopted by a resolution of its directors on 21 January 1998, showed that the company then had a deficiency of assets to liabilities of $1,427,273. This was substantially funded by financial accommodation provided by Kamanga. The audited accounts for that year show that Kamanga was then owed $1,101,657. This debt was secured by a fixed and floating charge over the company’s assets. That charge had been registered in 1992. The company had accumulated losses of $9,391,820. The operating losses from 1989 to 1997 are summarised in paragraph [94] of McColl JA’s judgment in the Court of Appeal.

The Transactions that led to the Declarations of Contravention

13 On 20 April 1998, CTC received $6,000,000 from the Commonwealth of Australia as a subscription for 600,000 shares described as “redeemable convertible non-cumulative ‘A’ Class preference shares at an issue price of ten dollars each (comprising $0.01 par value and $9.99 premium).” By a letter signed by Joszef Endresz addressed to the Department of Finance and Administration and dated 17 April 1998, CTC stated that the preference shares were issued on terms which included that they were redeemable for $10 cash four years from the date of issue (“the Redemption Date”); that the Redemption Amount would be Capital Guaranteed on the Redemption Date; and that they would each be entitled to an annual non-cumulative preferential dividend of 6.5 per cent paid annually.

14 There was evidence that a meeting of CTC’s directors was held on 20 April 1998. A document which purported to be minutes of that meeting was in evidence. Foster AJ said (at [124]) that he was left in some degree of doubt as to whether the meeting was actually held or “whether the minutes were simply constructed to give effect to arrangements otherwise concluded.” The minutes record that a resolution was passed (when Mr Joseph Endresz had retired from the meeting) to accept an invoice issued by Kamanga for past management fees totalling $2,205,000, calculated as to $245,000 per annum over nine years. The minute records a resolution that “this represented the enormous management contribution provided by Kamanga over the company’s most difficult and turbulent years in its corporate history.” The minutes also record a resolution that a Management Retainer be entered into with Kamanga on the basis of a minimum sum of $245,000 per annum, being paid to Kamanga for a period of five years. This was “to ensure that the Company retains Kamanga and its professional staff for such a minimum period”.

15 According to the minutes, after these resolutions were passed, Mr Joszef Endresz rejoined the meeting. Mr Forge then retired from the meeting. According to the minutes, a resolution was passed to accept an invoice issued by Bisoya for past management fees totalling $260,000, being fees calculated as to $65,000 per annum over four years. The minutes record a further resolution to execute a Management Retainer with Bisoya on the basis of paying a minimum of $65,000 per annum to Bisoya for a period of five years.

16 Between 1990 and 1997 “management fees” were paid to Kamanga, or to CTC Nominees Pty Ltd, a trustee company of which Joszef and Mrs Endresz were directors. From 1991 the financial statements recorded that the fees were paid for the provision of office services and facilities. The amounts paid were:

1990 -	$6,500
1991 -	$38,730
1992 -	$21,275
1993 -	$66,875
1994 -	$107,800
1995 -	$11,717
1996 -	$850
1997 -	$1,000

Eight Impugned Transactions

17 Declarations of contravention were made in respect of eight separate payments made by CTC. They were as follows:

1. $2,205,000 paid to Kamanga on 20 April 1998;
2. $260,000 paid to Bisoya on 22 April 1998;
3. $40,833.34 paid to Kamanga on or about 28 May 1998;
4. $10,833.34 paid to Bisoya on or about 28 May 1998;
5. $250,000 paid to Kamanga on 28 October 1998;
6. $100,000 paid to Kamanga on 30 October 1998;
7. $75,000 paid to Bisoya on 30 October 1998; and
8. $150,000 paid to Kamanga on or about 13 November 1998.

18 Subsections 232(2), 232(4), 232(6) and 243ZE(1)-(3) of the Corporations Law provided as follows:

“232(2) An officer of a relevant body corporate shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office.
…
(4) An officer of a relevant body corporate shall at all times exercise a reasonable degree of care and diligence in the exercise of his or her powers and the discharge of his or her duties.
…
(6) An officer or employee of a relevant body corporate shall not make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the body corporate.
243ZE(1) [Contravention of sec 243H(1),(2)] This section applies if:
(a) a related party of a public company receives a financial benefit from the public company, or from a child entity of the public company; and
(b) the public company contravenes subsection 243H(1), or the child entity contravenes subsection 243H(2), by giving the benefit.
(2) [Contravention by related party] The related party contravenes this subsection.
...
(3) [Contravention by other persons involved] Subject to subsection (4), a person contravenes this subsection if the person:
(a) is involved (as defined in section 79) in; or
(b) is, by act or omission, directly or indirectly, recklessly concerned in, or party to; the contravention of subsection 243H(1) or (2), or the contravention of subsection (2) of this section. ”

19 On 20 April 1998, a cheque for $2,445,000 was drawn by CTC in favour of Kamanga. On 22 April 1998, a cheque for $260,000 was drawn by CTC in favour of Bisoya. The payment of $2,445,000 to Kamanga included payment of $2,205,000 for management fees for services allegedly provided by Kamanga to CTC for nine years from 1989 to 1998 at $245,000 per annum.

20 These two payments were the first two transactions in respect of which declarations of contravention of provisions of the Corporations Law were made against Mr Forge, Joszef Endresz, and Mrs Endresz. Declarations of contravention were made against Allan Endresz in respect of the first transaction. In relation to the payment of $2,205,000 to Kamanga, (the first transaction), Foster AJ made declarations pursuant to s 1317EA(2) of the Corporations Law that each of Mr Forge, Joszef Endresz, Mrs Endresz and Allan Endresz contravened subss 232(2), 232(4) and 232(6) of the Corporations Law. His Honour declared that by being involved in, or being recklessly concerned in, or by being party to the payments by CTC of $2,205,000 to Kamanga, they each contravened subs 243ZE(3) of the Corporations Law in relation to CTC (declarations 1-4).

21 His Honour declared that each of Mr Forge, Joszef Endresz and Mrs Endresz, (but not Allan Endresz) as an officer of CTC, contravened subss 232(2), 232(4), and 232(6) of the Corporations Law by approving, permitting or allowing CTC to pay $260,000 to Bisoya. His Honour held that each of Mr Forge, Joszef Endresz and Mrs Endresz, (but not Allan Endresz), by being involved in, or being recklessly concerned in, or being a party to that payment, also contravened subs 243ZE(3) of the Corporations Law in relation to CTC.

22 A declaration was made that by receiving $260,000 from CTC, Bisoya contravened subs 243ZE(2) of the Corporations Law in relation to CTC.

23 The third transaction was the payment of $40,833.34 by CTC to Kamanga on or about 28 May 1998. This payment was made pursuant to the management agreement entered into on 28 April 1998 between CTC and Kamanga. Under that agreement, Kamanga agreed to provide “consultancy services”, being “advisory services including strategic and business planning, marketing, financial and organisational services”, and to carry out the role of public officer of CTC. Kamanga agreed that from 6 June 1998, Allan Endresz would devote such time and attention to Kamanga’s duties as Kamanga considered to be necessary for Kamanga to adequately discharge its duties under the agreement.

24 Foster AJ declared that each of Mr Forge, Joseph Endresz, Mrs Endresz and Allan Endresz, as an officer of CTC, contravened subss 232(2), 232(4), and 232(6) of the Corporations Law in relation to CTC, by approving, permitting or allowing CTC to make that payment to Kamanga. His Honour also declared that each of them contravened subs 243ZE(3) of the Corporations Law in relation to CTC by being involved in, or by being recklessly concerned in, or being party to CTC’s payment.

25 The fourth impugned transaction was the payment of $10,833.34 made by CTC to Bisoya on or about 28 May 1998. This payment was made pursuant to the management agreement entered into on 20 April 1998 between CTC and Bisoya. Under the agreement, Bisoya undertook to provide CTC with “management services” in relation to the conduct of CTC’s business. The “management services” were defined differently from the “consultancy services” which Kamanga agreed to provide. They were expressed to included providing effective and efficient management of the operational aspects of CTC’s activities, including managing financial, administrative and marketing aspects of its business functions. There was a long description of the management services Bisoya was to provide to which it is unnecessary to refer. Foster AJ declared that each of Mr Forge, Joszef Endresz and Mrs Endresz (but not Allan Endresz) as officers of CTC, contravened subs 232(2), 232(4), and 232(6) of the Corporations Law by approving, permitting or allowing CTC to make the payment of $10,833.34 to Bisoya. His Honour declared that each of them contravened subs 243ZE(3) in relation to CTC by being involved in, or being recklessly concerned in, or being party to the payment. His Honour declared that Bisoya contravened subs 243ZE(2) of the Corporations Law by receiving the payment.

26 There were four further transactions about which declarations of contravention were made. They concerned the making of unsecured loans by CTC to Kamanga and Bisoya. On 27 October 1998, Joszef Endresz, on behalf of Kamanga, wrote to the directors of CTC, confirming acceptance of a loan of $350,000 to be made on that day. The loan was to carry simple interest at 7 per cent per annum and was to be for a term of twelve months. On that day, the directors of CTC resolved to “confirm and ratify” the loan agreement. Joszef Endresz absented himself from the discussion of that business. Pursuant to that loan agreement, CTC paid Kamanga $250,000 on 28 October 1998, and $100,000 on 30 October 1998. The payment of $250,000 was the fifth impugned transaction. The payment of $100,000 was the sixth impugned transaction. In relation to each of those payments, Foster AJ declared that Mr Forge, Joszef Endresz, Mrs Endresz and Allan Endresz, as officers of CTC, contravened subss 232(2), 232(4), and 232(6), by approving, permitting or allowing CTC to make the payments. His Honour also declared that each of them contravened subs 243ZE(3) of the Corporations Law by being involved in, or being recklessly concerned in, or being party to each of the payments.

27 The seventh impugned transaction was a payment of $75,000 made by CTC to Bisoya. The moneys were debited to CTC’s account on 30 October 1998. Bisoya entered into a loan agreement with CTC on 27 October 1998 to borrow $75,000 at simple interest of 7 per cent per annum. The term was for twelve months. A meeting of directors of CTC held on 27 October 1998 resolved to confirm and ratify the loan agreement. Mr Forge absented himself whilst that business was conducted. Foster AJ held that Mr Forge, Joszef Endresz and Mrs Endresz (but not Allan Endresz) had each, as officers of CTC, contravened subss 232(2), 232(4) and 232(6) of the Corporations Law by approving, permitting or allowing CTC to make that payment. His Honour also declared that each of them contravened subs 243ZE(3) of the Corporations Law by being involved in, or being recklessly concerned in, or by being party to the payment. A declaration was also made that Bisoya contravened subs 243ZE(2) of the Corporations Law by receiving the payment.

28 The eighth and last impugned transaction was a loan of $150,000 made by CTC to Kamanga on or about 13 November 1998. The loan was to be for a period of ninety days with interest at 7 per cent per annum. The board of CTC resolved to enter into the agreement on 13 November 1998. Again, Joszef Endresz absented himself whilst the business was discussed. Foster AJ held that each of Mr Forge, Joszef Endresz, Mrs Endresz and Allan Endresz, as officers of CTC, contravened subss 232(2), 232(4) and 232(6) of the Corporations Law by approving, permitting or allowing CTC to make the payment to Kamanga. His Honour also held that each of them contravened subs 243ZE(3) of the Corporations Law by being recklessly concerned in or being party to the payment.

29 The declarations made by Foster AJ are set out at Forge v ASIC [2004] NSWCA 448 at [405].

Evidence Before Foster AJ

30 In written submissions made before the commencement of the hearing, the defendants foreshadowed that they would seek to challenge the admissibility of all of the evidence relied upon by the plaintiff before Foster AJ, including all of the affidavits read, all of the documentary exhibits and the transcript of the evidence.

31 That objection was not pressed. The defendants accepted that the penalty hearing was a continuation of the same proceedings as had commenced before Foster AJ and the evidence had already been admitted. No question arose of the re-tender of the evidence. In the same way, where a judge dies after an accused is convicted but before sentence is passed, sentence may be passed by a new judge on the basis of the materials at the trial with such further materials as might be adduced at the hearing on sentence, and with the accused being entitled to be heard before sentence is pronounced (R v Pepper [1921] 3 KB 167 at 168).

Findings of Fact Made by Foster AJ and the Court of Appeal

32 The first question is the extent to which in determining penalty I am bound by the findings of Foster AJ or the Court of Appeal. Foster AJ made various credit findings leading to his rejection of evidence led by the defendants, and credit findings leading to a finding of contravention. By way of illustration, his Honour said (at [100]):

“100 I gained the very strong impression from the evidence of Mr and Mrs Endresz that, in their capacity as directors of CTC, they were very reliant upon the advice and assistance of their son. I do not think it unfair to Allan Endresz to find that, upon his being disqualified to act as a director in 1993, he adopted the role of commercial advisor in relation to CTC which, in truth, was no more than an artifice to avoid the consequences of his disqualification. For him to adopt such a role would be entirely consistent with what I perceive to be his general attitude to regulatory restrictions. Rather than seeking to comply with the law, he would search for ways of avoiding it. This was clearly the view of Mr Walsh, who had ample opportunity to observe and assess him in a commercial setting.”

33 The finding that Allan Endresz had a general attitude that he would search for ways to avoid regulatory restrictions, rather than seeking to comply with the law, would be highly material to a determination as to the period for which Allan Endresz should be prohibited from managing a corporation. However, the Court of Appeal decided that Allan Endresz was not given the opportunity which he ought to have been given to make submissions and to adduce evidence on the questions of penalty. If such a finding were binding on me, the opportunity for Allan Endresz to be heard on the question of penalty would be much curtailed. It would be unfair. That finding is not binding on me.

34 However, findings of fact which provided the basis for the declarations of contravention are in a different category. In a criminal proceeding where there is a jury, and where the reasons for the verdict are not known, a trial judge may have to form his or her own view as to the facts which gave rise to the conviction, provided that the findings are consistent with the charge, the verdict, and the way the case was presented at trial. A judge is not required to assume that the jury made findings most favourable to the accused consistent with their verdict (R v Martin [1981] 2 NSWLR 640). The problem arises in those cases because it is not possible to ascertain precisely what it is the jury has accepted (R v Martin at 643). In the present case, the findings of fact which led to the making of the declarations of contravention are known. Those facts were arrived at after the hearing at which the defendants had the opportunity to present evidence and be heard on what findings should be made relevant to the declarations of contravention.

35 In my view, I am required to decide the questions of penalty (including whether any banning order should be made and, if so, for what period), on the basis of the declared contraventions found by Foster AJ and upheld in the Court of Appeal, and the findings of fact made by Foster AJ, or the Court of Appeal, as the basis upon which the declarations of contravention were made. As the defendants are entitled to make submissions and to adduce evidence on the question of penalty (including whether any banning order should be made and, if so, for what period), they are entitled to be heard as to whether the evidence led before Foster AJ, or the further evidence adduced in the Court of Appeal, warranted the adverse findings made by Foster AJ and the Court of Appeal, (whether as to credit or facts other than credit), provided that they do not thereby seek to impugn the findings of fact which were the basis for the declared contraventions. The defendants are also entitled to adduce further evidence on the question of penalty, but such further evidence could not be relied upon to seek to impugn the findings of fact which are the basis of the declared contraventions.

36 I give the following examples as to how I have applied this approach. Foster AJ said of Allan Endresz that he had deliberately disregarded the Court’s prior directions in a way calculated to achieve an advantage for the defendants (at [66]). His Honour said that Allan Endresz’ decision not to obtain legal representation for himself and the other defendants bespoke a “strangely arrogant attitude” which did not reflect well upon his credit (at [69]). His Honour said (at [107]) that the very fact of Allan Endresz acting for the other defendants in the proceedings bespoke their dependence upon him and his underlying and pervasive managerial role of the affairs of CTC. As I have said, his Honour concluded that Allan Endresz had a general attitude of seeking to avoid regulatory restrictions rather than comply with the law.

37 Whilst these findings of credit no doubt informed the approach taken by Foster AJ in making findings of fact, they are not themselves findings of fact which provide the basis for the declarations of contravention. (I am not suggesting that these are the only findings which fall in that category.) Allan Endresz is entitled to submit both that the findings are unwarranted on the evidence before Foster AJ, and in any event, should not be made having regard to further evidence which was adduced before me.

38 By contrast, Foster AJ made findings which the Court of Appeal held amounted to findings of subjective dishonesty (at [247]). On the basis of those findings, the Court of Appeal held that it did not have to determine whether subs 232(2) of the Corporations Law “embodies a concept analogous to constructive fraud, a species of dishonesty which does not involve moral turpitude” (Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 272), or whether it could only be contravened if the officer was conscious that what was being done was not in the interests of the company and acted deliberately in disregard of that knowledge (Marchesi v Barnes [1970] VR 434 at 438).

39 Foster AJ followed King CJ in Australian Growth Resources Corporation Pty Ltd v Van Reesema in holding that it was not necessary for ASIC to establish that the defendants were conscious that they were acting improperly, in order to establish that they had breached their duty to act honestly pursuant to s 232(2) of the Corporations Law. In the Court of Appeal, the defendants argued that the correct test to apply was the test enunciated in Marchesi v Barnes. The Court of Appeal did not decide that question. Rather, McColl JA said (at [247]) that:

“Assuming in the appellants’ favour that the Marchesi v Barnes test requiring the demonstration of subjective dishonesty to attract liability under s 232(2) is correct, in my opinion the primary judge’s findings demonstrate that he did find the appellants to be subjectively dishonest in relation to the impugned transactions.”

40 The particular findings of Foster AJ which were identified as leading to this conclusion were that:

“ [135] I am left with the overwhelming impression from the evidence of these four defendants that, in circumstances where CTC had had no significant income for many years, the receipt of the $6 million was seen as a golden opportunity for the payment to the director -related entities of Kamanga and Bisoya of significant sums of money for the benefit, ultimately, of the defendants themselves. I am of the view that the claims made in their affidavit and oral evidence that payments were made for the benefit of the company and its shareholders are no more than colourable after-thoughts. I do not accept their evidence in this regard. In particular, I am totally unpersuaded that any of these matters of justification for the payments were in the minds of the first, second and third defendants at the time the resolutions of 20 April 1998 were passed if, in fact, they were passed at a properly constituted meeting.”

and

“ [144] In my opinion, the contraventions are amply demonstrated. In general terms, I am satisfied that the first, second, third and fourth defendants simply regarded the acquisition by CTC of the amount of $6 million on 20 April 1998 as amounting, virtually, to a provision of funds for their own private use. The amounts covered by the transactions were paid out, in the form of fees or loans to related entities, without regard to the fact that the $6 million itself was subject to repayment and also carried with it obligations to pay interest. Despite protestations in the case that shareholder approval was not required because of the attitude of shareholders in the past, I am of the view that the question of shareholder approval was not even considered in relation to any of these payments or loans. All that mattered was their own perceived entitlement to payment for past and future services.”

41 McColl JA held (at [248]) that those findings demonstrated that:

“ the primary judge was clearly of the view that the appellants’ approval of the transactions was not bona fide and that the approved the transactions knowing that what they were doing was not in the interests of CTC. ”

42 I am bound to determine questions of penalty arising from the contraventions of s 232(2) of the Corporations Act, on the basis of these findings.

43 Before the Court of Appeal, the defendants argued that the breaches of duty found by Foster AJ had been subsequently ratified by the shareholders. That argument was rejected on a number of grounds. One of the grounds upon which it was held that the ratification was ineffective was because the shareholders did not exercise their voting power for the benefit of the company as a whole in the sense referred to in Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 at 438 (at [376]). In reaching this conclusion, McColl JA said:

“ [371] The primary judge’s conclusion that the transactions resulted from the appellants taking advantage of the ‘golden opportunity’ afforded by the receipt of the $6m was tantamount to a conclusion that they had misappropriated the moneys the subject of the transactions.
…
[376] In my view the ratification resolutions were ineffective because they sought to cure the appellants’ wrongful taking of CTC’s resources. Further, the shareholders did not exercise their voting power for the benefit of the company as a whole in the sense referred to in Ngurli Ltd v McCann . The Commonwealth either remained a preference shareholder or was a creditor of CTC if it had validly rescinded the preference share allotment. The shareholders were not asked to take into consideration the interests of the Commonwealth either as a preference shareholder or as a creditor in recouping its $6m . Indeed they were encouraged to focus on the claims CTC had against the Commonwealth. ”

44 The reference to the primary judge’s conclusion of the defendants having taken advantage of a “golden opportunity” was to Foster AJ’s finding extracted at [40] above.

45 The findings at [135] and [144] of Foster AJ’s judgment were findings of fact which provided the basis both for his Honour’s findings of contravention, and the Court of Appeal’s finding that the defendants were subjectively dishonest. In determining penalty, I am bound to proceed on the basis of the findings of fact made by Foster AJ, and by the Court of Appeal’s determination that those findings amount to a finding of subjective dishonesty.

46 I do not regard the McColl JA’s statement at [371] that Foster AJ’s findings were tantamount to a finding of misappropriation of the moneys the subject of the transactions, as going beyond the primary findings of fact made by Foster AJ.

47 In the last sentence of paragraph [144] of his judgment, Foster AJ impliedly accepted that the defendants perceived themselves to be entitled to payment for past and future services. That finding was not disturbed by the Court of Appeal. In upholding Foster AJ’s findings in paragraphs [135] and [144], McColl JA observed (at [248]) that:

“It is hardly remarkable that his Honour took the view that the appellants’ versions of events were ‘no more than colourable after-thoughts’ particularly in light of the fact that their explanations had not emerged during the stream of the correspondence between CTC and Ernst & Young.”

This could not have been a reference to the defendants’ asserting that they were entitled to payment for past and future services, as that assertion was made vigorously in the correspondence between CTC and the auditors.

48 In my view, it is possible to reconcile the findings that the defendants believed they were entitled to be paid for past and future services, with the findings that they did not bona fide believe that the making of the payments was in the best interests of the company. (No question of reconciling these findings arises in relation to the loans which are the fifth to eighth impugned transactions.) In the case of the payment of retrospective and prospective management fees, I take the findings to be that the defendants did not believe in good faith that in approving, making or allowing the payments, they were acting in the interests of CTC, but they did believe that Kamanga and Bisoya were entitled to be paid, at least morally, for past services, and were entitled to be paid management fees prospectively pursuant to the management agreements.

49 Kamanga and Bisoya had no legal entitlement to be paid further management fees for past services. It is consistent with the defendants believing that Kamanga and Bisoya were morally entitled to be paid additional remuneration for past services that they did not have an honest belief that the making of the payments was in the interests of CTC. There is no conflict between those positions.

50 Had there been no finding by Foster AJ as to whether the defendants perceived themselves to be entitled to payment for past and future services, I may well not have accepted their assertions that they had such beliefs. However, it appears to me that where Foster AJ made findings favourable to the defendants, I should act on such findings. The implicit finding in the last sentence of paragraph [144] is such a finding.

51 I have some difficulty in reconciling the finding of Foster AJ (not disturbed by the Court of Appeal) that the defendants perceived themselves to be entitled to payment for future services, with the finding of the Court of Appeal that the defendants knew that the making of such payments was not in the interests of CTC. Those findings can only be reconciled on the basis that the defendants knew that the entry into the management agreements, pursuant to which the third and fourth payments were made, was not in the interests of CTC. Foster AJ said that the fees paid to related entities were paid without regard to the fact that the $6,000,000 was subject to repayment and carried obligations to pay interest, and that whilst the payments were made to related parties, the defendants did not even consider whether shareholder approval should be sought. No express finding was made that the entry into the management agreements, as distinct from the making of the impugned payments under the management agreements, was not considered by the defendants in good faith to be in the best interests of CTC. I consider that to be a necessary implication from the findings in relation to the impugned payments under those agreements. Considered in this light, there is no inconsistency between the findings of the Court of Appeal and Foster AJ.

52 Foster AJ found in relation to Mrs Endresz that “she did not have any significant grasp of the business affairs of CTC and was very much reliant on her son and husband for any knowledge of the company, its affairs or its relationship with Kamanga or Davis Samuel.” (at [133]). Insofar as this finding is of benefit to Mrs Endresz on a penalty hearing, as it mitigates the finding of subjective dishonesty, she is entitled to that benefit.

Were the Loans the Subject of the Fifth to Eighth Transactions Repaid?

53 In the Court of Appeal, McColl JA observed (at [280]-[292]) that the defendants contended that Foster AJ had overlooked what was called undisputed evidence that the loans in transactions five, six, seven and eight were repaid. Her Honour did not accept that there was undisputed evidence to that effect, but found it unnecessary to determine whether the evidence demonstrated that the loans had been repaid. Her Honour said that even if that were the case, it did not affect the conclusions that the loans were made in contravention of the Corporations Law (at [291]). Her Honour said that if the loans had been repaid, that might be relevant to the question of penalty.

54 The $75,000 loan to Bisoya was not repaid. Bisoya did not have the means to repay it. On 1 March 2002, Bisoya produced an “account statement” said to be a reconciliation of monthly account movements between the Forge family trust and CTC. The statement showed that a balance of $93,250.13 was owed by CTC to the Forge family trust as at 1 February 2002 and that further consultancy fees had been incurred of $5,416.67 up to 1 March 2002. The “current account balance” was made up of unpaid management fees payable under the management agreement of 20 April 1998. There were set off against these sums the advance of $75,000 and interest at 7% from 27 October 1998 to 1 March 2002. This showed a balance owed by CTC to the Forge family trust of $6,133.24.

55 Accordingly, the purported repayment of the loan to Bisoya was in truth a set-off of debts. However, it inevitably follows from the finding that the payments of management fees made under the management agreements were made in breach of the directors’ statutory duties, that the entry into the management agreements was itself a breach of their duties. The alleged repayment of the loan by way of set-off is not a mitigating circumstance.

56 The defendants also claimed that the loan of $350,000 to Kamanga was repaid. On 4 May 2001, shortly after ASIC commenced proceedings, Kamanga produced an invoice addressed to CTC being a purported reconciliation of account movements between Kamanga and CTC. It showed that as at 27 October 1999, the outstanding principal was $320,000. It is not clear how $30,000 of the loan was repaid, but the financial statements of CTC for the year ended 30 June 1999, signed by the directors on 2 June 2003, disclosed that as at 30 June 1999, CTC had made an unsecured loan of $320,000 to the Allan Endresz family trust (which was said to have been subsequently repaid in full with interest).

57 The accounts were audited, but the audit was heavily qualified. The auditors said they were unable to, and did not express an opinion as to whether the report gave a true and fair view of the company’s financial position as at 30 June 1999.

58 Mr Forge and the other defendants were cross-examined upon Kamanga’s invoice. However, it was not suggested to them in cross-examination that the loan had not been reduced by $30,000. There was no evidence to show how and when the repayment of $30,000 was made. Whilst the evidence is very slight, I accept that the loan was reduced by $30,000.

59 The invoice of 4 May 2001 set off against the outstanding principal of the loan, and accrued interest from 27 November 1998 to 4 May 2001 of $54,496.44, amounts of $266,583.41 and $125,000. The set-off of $266,853.41 was described as the “current account balance owed by CTC to Kamanga 3rd May 2001.” This was a reference to the debt purportedly owed by CTC to Kamanga under the management agreement. For the reasons previously given, such a set-off is not a mitigating circumstance.

60 The set-off of $125,000 was said to be for audit fees paid by Kamanga on behalf of CTC. A letter of 3 May 2001 from Kamanga to Mr Brennan of Ernst & Young recorded that an agreement had been made for Ernst & Young to accept a transfer of shares held by Kamanga in a company called Finngold Resources NL, in satisfaction of outstanding audit fees and in prepayment of audit fees for CTC’s financial statements for the years ended 30 June 1998, 1999, 2000 and 2001. ASIC did not contend that no agreement as asserted had been made. It did not contend that Kamanga had not effectively paid audit fees to the value of $125,000. In the absence of other evidence, I accept that such a “payment” was made by Kamanga for the benefit of CTC which can properly be regarded as a partial repayment of the advances. Accordingly, of the loan of $350,000, there were repayments, or transactions which had the same effect as repayments, of $30,000 in 1999 and $125,000 in 2001. Such repayments do not affect the culpability of the defendants in approving, permitting or allowing CTC to make the loans totalling $350,000. However, the repayments are a mitigating factor. CTC did not keep the entirety of the amounts advanced. Nonetheless, there still remained $195,000, and interest, which was unpaid.

61 The third loan transaction, and the last of the eight impugned transactions, was the loan of $150,000 made on or about 13 November 1998. A letter from Kamanga to the directors of CTC dated 15 February 1999 set out what was said to be an “update” as to that loan. The letter was sent by Joszef Endresz. It asserted that two payments, each of $60,000, had been made on 26 November 1998 and 4 February 1998 (presumably a misprint for 4 February 1999). Neither party sought to tender the bank statements of CTC or Kamanga, or the cash books of CTC or Kamanga, either to confirm or deny that the payments had been made. The index to the exhibits which formed part of the appeal books which were used at the penalty hearing include what was described as a copy of Kamanga’s cash payments/receipt journal. Whilst it recorded Kamanga’s receipts up to 30 June 1999, so far as I could determine from the photocopy, it did not include a record of Kamanga’s payments for the relevant periods.

62 The letter of 15 February 1999 also recorded that Kamanga had paid accounts for Michell Sillar McPhee of $8,686.45. It also asserted a set-off of consultancy fees for January and February 1999 totalling $40,833.34.

63 CTC’s financial statements for the year ended 30 June 1999 do not disclose any unpaid balance for the loan of $150,000.

64 In the absence of any attempt to rebut the statements in the letter of 15 February 1999, including by tendering either CTC’s or Kamanga’s cash books or bank statements for the period, I accept that repayments of $120,000 of the $150,000 was made, and, in addition, that Kamanga paid debts of CTC to Michell Sillar McPhee of $8,686.45 which were set off against the loan. The balance of the set-off being for consultancy fees purportedly owed under the management agreements is not a mitigating circumstance.

Compensation Orders

65 ASIC did not seek a compensation order pursuant to s 1317HA(1) of the Corporations Law. Nor did CTC intervene to apply for compensation.

Relevant Principles for Making Banning Orders and Ordering Pecuniary Penalties

66 In Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80, Santow J (as his Honour then was) enunciated fifteen propositions that can be derived from cases dealing with disqualification orders. His Honour said (at [56]):

“ [56] The cases on disqualification gave orders ranging from life disqualification to 3 years. The propositions that may be derived from these cases include:
(i) Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards: Australian Securities and Investments Commission v Hutchings (2001) 38 ACSR 387 at 395 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339 at 349–50 Australian Securities Commission v Donovan (1998) 28 ACSR 583 at 602 Australian Securities Commission v Roussi (1999) 32 ACSR 568 at 570–1 Re Strikers Management Pty Ltd; Australian Securities Commission v Dimitri (unreported, Fed C of A, Burchett J, No NG 3789 of 1996, 7 May 1997, BC9702133) Re Tasmanian Spastics Association; Australian Securities Commission v Nandan (1997) 23 ACSR 743 at 751.
(ii) The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office: Australian Securities Commission v Roussi , above, at 570; Re Gold Coast Holdings Pty Ltd; Australian Securities and Investments Commission v Papotto (2000) 35 ACSR 107 at 112.
(iii) Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors: Australian Securities Commission v Roussi at 570; Re Gold Coast Holdings Pty Ltd , above, at 112; Re Tasmanian Spastics Association , above, at 751.
(iv) The banning order is protective against present and future misuse of the corporate structure: Australian Securities Commission v Donovan , above, at 603.
(v) The order has a motive of personal deterrence, though it is not punitive: Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd , above; Australian Securities Commission v Donovan at 607; Re Tasmanian Spastics Association at 751.
(vi) The objects of general deterrence are also sought to be achieved: Australian Securities Commission v Donovan at 602.
(vii) In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company: Australian Securities Commission v Donovan at 607.
(viii) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty: Australian Securities Commission v Donovan at 605–7.
(ix) In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public: Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd ; Australian Securities and Investments Commission v Parkes (2001) 38 ACSR 355 at 386; Australian Securities Commission v Forem-Freeway Enterprises ; Australian Securities Commission v Roussi at 570–1.
(x) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct: Australian Securities Commission v Donovan at 607; Australian Securities and Investments Commission v Parkes , above, at 386.
(xi) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming: Australian Securities Commission v Forem-Freeway Enterprises at 351.
(xii) The eight criteria to govern the exercise of the court's powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 have been influential. It was held that in making such an order it is necessary to assess:
• character of the offenders;
• nature of the breaches;
• structure of the companies and the nature of their business;
• interests of shareholders, creditors and employees;
• risks to others from the continuation of offenders as company directors;
• honesty and competence of offenders;
• hardship to offenders and their personal and commercial interests; and
• offenders’ appreciation that future breaches could result in future proceedings.
Australian Securities Commission v Roussi at 570–1; Re Gold Coast Holdings Pty Ltd at 111;
(xiii) Factors which lead to the imposition of the longest periods of disqualification (that is disqualifications of 25 years or more) were:
• large financial losses;
• high propensity that defendants may engage in similar activities or conduct;
• activities undertaken in fields in which there was potential to do great financial damage such as in management and financial consultancy;
• lack of contrition or remorse;
• disregard for law and compliance with corporate regulations;
• dishonesty and intent to defraud;
• previous convictions and contraventions for similar activities.
Australian Securities and Investments Commission v Hutchings ; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd ; Australian Securities Commission v Parkes ;
(xiv) In cases in which the period of disqualification ranged from 7–12 years, the factors evident and which lead to the conclusion that these cases were serious though not “worst cases”, included:
• serious incompetence and irresponsibility;
• substantial loss;
• defendants had engaged in deliberate courses of conduct to enrich themselves at others’ expense, but with lesser degrees of dishonesty;
• continued, knowing and wilful contraventions of the law and disregard for legal obligations;
• lack of contrition or acceptance of responsibility, but as against that, the prospect that the individual may reform;
Australian Securities Commission v Forem-Freeway Enterprises ; Australian Securities Commission v Donovan ; Australian Securities Commission v Roussi ; Re Strikers Management Pty Ltd ; Re Gold Coast Holdings Pty Ltd .
The difficulty with Roussi's case is that disqualification for 10 years was ordered, as this was the period of disqualification that the ASC had sought. Had a longer period been applied for, Einfeld J may have considered giving a longer period: Australian Securities Commission v Roussi at 571;
(xv) The factors leading to the shortest disqualifications, that is disqualifications for up to 3 years were:
• although the defendants had personally gained from the conduct, they had endeavoured to repay or partially repay the amounts misappropriated;
• the defendants had no immediate or discernible future intention to hold a position as manager of a company;
• in Donovan's case, the respondent had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings;
Australian Securities Commission v Donovan ; Re Tasmanian Spastics Association .“

67 In Rich v Australian Securities and Investments Commission (2004) 220 CLR 129, McHugh J observed (at 155) that:

“ … the factors taken into account in the criminal jurisdiction – retribution, deterrence, reformation, contrition and protection of the public – are also central to determining whether an order of disqualification should be made under the Corporations Act and, if so, the appropriate period of disqualification. ”

68 McHugh J cited with approval the observations of Bryson J (as his Honour then was) in Re One.Tel Limited (in liq); Australian Securities and Investments Commission v Rich (2003) 44 ACSR 682 that only limited guidance can be obtained from other decisions with respect to disqualification orders and the period for disqualification, because each decision is related to its own facts, which are usually complex, and the circumstances of each defendant are special and vary greatly.

69 In Re HIH Insurance Ltd (in prov liq); ASIC v Adler, Santow J enunciated the following propositions as providing guidance in relation to the imposition of pecuniary penalties. His Honour said (at 114-116, [126]):

“[126] Following a review of the relevant cases, I have attempted to summarise the propositions that may be derived. I recognise that, as with banning orders, there is no simple mechanical process for quantifying the appropriate penalty but some guidance can be derived from the principles and factors that are identified below. I should add that in a context where honesty or propriety of purpose is involved, the sphere of discourse applicable to economic legislation such as antitrust law is wholly distinct from corporations law with its emphasis on proper purpose and honesty; see more generally the discussion by ALRC in “Securing Compliance — Civil and Administrative Penalties in Australian Federal Regulation” discussion paper 65, April 2002 esp Ch 18. These propositions have guided me in the present case:
(i) the pecuniary penalty has a punitive character, but it is principally a personal and general deterrent to prevent the corporate structure from being used in a manner contrary to commercial standards. The penalty should be no greater than is necessary to achieve this object: Australian Securities Commission v Donovan at 608;
(ii) to determine whether compensation is to be paid and in what amount it is necessary to consider the prospect of the respondent paying such compensation and the hardship to the defendant from such payment. Compensation has been ordered for an amount less than that lost even though there was little prospect of any of it being recovered: Australian Securities Commission v Forem-Freeway at 351;
(iii) the capacity of the defendant to pay is a relevant consideration in determining a pecuniary penalty: Australian Securities Commission v Forem-Freeway at 351–2;
(iv) in assessing a pecuniary penalty it is important to consider the consequences of an associated disqualification order for the defendant. If the making of such an order has significant consequences, they may operate as a factor in favour of a lesser penalty. Where the disqualification order does not have significant consequences for the defendant, the prohibition order is likely to be only marginally relevant: Re Tasmanian Spastics Association at 751–2;
(v) it is important to assess whether the order will prejudice the rehabilitation of the defendant: Australian Securities Commission v Forem-Freeway at 352;
(vi) the size of the penalty is a question of discretion. The circumstances of one case should not dictate the size of the penalty on another case: Australian Securities Commission v Donovan at 608;
(vii) in Australian Securities Commission v Forem-Freeway civil compensation of $200,000 was ordered. This amount was lower than the losses to the company concerned. This amount was ordered, even though it was highly unlikely that the amount would ever be paid as the respondent was bankrupt. In this case it was held that precision in the amount was therefore unnecessary: Australian Securities Commission v Forem-Freeway at 351;
(viii) a fine was not ordered in Australian Securities Commission v Forem-Freeway . However the ASC was given liberty to apply at a later stage in relation to this matter. The court held that the personal hardship to the respondent, the unintended punitive consequences of the other orders and the lack of capacity to pay, justified such order: Australian Securities Commission v Forem-Freeway at 351–2;
(ix) Factors leading to the order of a penalty in the range of $20,000–$40,000 included:
• defendant was aware of impropriety of actions;
• no intention to deprive company permanently of funds;
• amounts in question not large;
• no deliberate falsification of accounts;
• cases classed as being serious misconduct, but not worst cases.
Re Tasmanian Spastics Association at 752; Australian Securities Commission v Donovan at 609.
(x) relevant factors leading to the court to order the lower range penalties in the range of $4000–$5000 included:
• remorse and contrition shown;
• efforts to repay misappropriated funds;
• acted upon the advice of professionals;
• did not contest the proceedings, or sought to save costs in proceedings;
• tended to not involve dishonesty, but negligence or carelessness;
• previous unblemished character;
• further contraventions unlikely.
Australian Securities Commission v Donovan at 609; Australian Securities Commission v Spencer (1997) 25 ACSR 143 at 144–5.”

70 In deciding whether to make a pecuniary penalty order, and if so, in what amount, I will take into account that a banning order will already operate as a penalty.

71 Section 1317EA of the Corporations Law provided that the section applied if the Court was satisfied that a person “has contravened a civil penalty provision”. In the present case, the defendants contravened multiple civil penalty provisions in relation to each transaction. Mr Forge, Joszef Endresz and Mrs Endresz were each found to have contravened four provisions of the Corporations Law in relation to the eight separate transactions. Hence, there were thirty-two contraventions of civil penalty provisions for each of those defendants. Allan Endresz was found to have committed twenty contraventions of the Corporations Law. In my view, the fifth and sixth transactions, being the advances of $250,000 and $100,000 by CTC to Kamanga pursuant to a loan agreement under which CTC agreed to lend $350,000 to Kamanga, should, for the purposes of assessing penalty, be considered as two aspects of the one transaction, namely, the making of a $350,000 loan in two tranches.

72 Subsection 1317EA(3) provides that the Court may, as well as making a declaration of contravention, make against the person concerned “either or both of the following orders in relation to the contravention”. The orders provided for are an order prohibiting the person from managing a corporation for a specified period, and an order that the person pay a pecuniary penalty of an amount that does not exceed 2,000 penalty units.

73 In ASIC v Rich, McHugh J emphasised the similarities between the imposition of a disqualification order and sentencing for a criminal conviction (at [48], [56]). In Pearce v R (1998) 194 CLR 610, the majority of the High Court (McHugh, Hayne and Callinan JJ) said that a judge required to pass sentence on an offender convicted of more than one offence, containing separate elements, arising from the same incident, was required to fix an appropriate sentence for each offence, and then consider questions of cumulation or concurrence as well as questions of totality (at [45]). There, an offender broke into a house and beat the victim. He was charged with an offence under s 33 of the Crimes Act 1900 (NSW) of maliciously wounding or inflicting grievous bodily harm with the intent to do grievous bodily harm. He was also charged with an offence under s 110 of the Crimes Act of breaking and entering into a dwelling house, and there inflicting grievous bodily harm. Both offences carried a penalty of penal servitude for twenty-five years. The offender was sentenced to a period of twelve years penal servitude for each offence to be served concurrently. The majority said (at [45]-[49]):

202 Whilst I have concluded that Allan Endresz has a greater culpability and should be subjected to a longer banning period than Joszef Endresz in respect of the first (and therefore third) transactions, that is not so in the case of the loans which are the fifth, sixth and eighth transactions. In respect of those transactions the banning periods for Allan Endresz should be a little less than those for Joszef Endresz, but, in any event, should also be served cumulatively with the banning period in respect of the first transaction.

203 In relation to each of the declared contraventions of Allan Endresz, I would make an order under s 1317EA(3)(a) for the periods specified below. In respect of the first transaction I would make such an order:

a. In relation to the contravention of s 232(2) – sixteen years
b. for the contravention of s 232(4) – eight years;
c. for the contravention of s 232(6) – ten years;
d. for the contravention of s 243ZE(3) – twelve years.

204 I would make such an order in relation to each declared contravention in relation to the third transaction (to be served concurrently) for the following periods:

a. for the contravention of s 232(2) – eight years
b. for the contravention of s 232(4) – four years;
c. for the contravention of s 232(6) – five years;
d. for the contravention of s 243ZE(3) – six years.

205 I would make such an order in relation to each declared contravention in relation to the fifth and sixth transactions for the following periods (to be served concurrently with each other and with the other orders):

a. for the contravention of s 232(2) – eleven years
b. for the contravention of s 232(4) – five years;
c. for the contravention of s 232(6) – eight years;
d. for the contravention of s 243ZE(3) – nine years.

206 I would make such an order in relation to each declared contravention in relation to the eighth transaction for the following periods (to be served concurrently with the other periods):

a. for the contravention of s 232(2) – five years
b. for the contravention of s 232(4) – two years;
c. for the contravention of s 232(6) – three years;
d. for the contravention of s 243ZE(3) – four years.

207 As all of the periods of banning would be served concurrently, and as I have articulated the banning orders I would make in relation to each contravention, it is only necessary to make a banning order in respect of the first declared contravention. Pursuant to s 1317EA(3)(a), I will order that Allan Endresz be prohibited from managing a corporation for a period of 13 years, 8 months and 20 days from the date of these orders. That period will expire at midnight on 10 September 2021.

Pecuniary Penalty Orders Against Allan Endresz

208 As with the other defendants, in fixing pecuniary penalties in relation to the fifth and sixth transactions, I have treated the transaction as a single transaction and divided the penalty in two. Allan Endresz bears a significantly higher degree of culpability in relation to the first transaction and the third transaction than the other defendants. That is not the case in relation to the fifth, sixth and eighth transactions. I already have given my reasons as to why the pecuniary penalties to be payable by Allan Endresz should not be reduced to reflect claimed financial hardship. I will make orders under s 1317EA(3)(b) that Allan Endresz pay to the Commonwealth pecuniary penalties in relation to the declared contraventions of s 232(2) as follows:

a. for the contravention in relation to the first transaction - $120,000;
b. for the contravention in relation to the third transaction - $8,000;
c. for the contravention in relation to the fifth transaction - $13,000;
d. for the contravention in relation to the sixth transaction - $13,000;
e. for the contravention in relation to the eighth transaction - $2,000;

Pecuniary Penalty Orders Against Bisoya

209 Foster AJ declared that Bisoya contravened s 243ZE(2) of the Corporations Law on three occasions by receiving the sums of $260,000 on or about 20 April 1998 (declaration 9), by receiving the sum of $10,833.34 on or about 28 May 1998 (declaration 18), and by receiving the sum of $75,000 between about 27 October and 30 October 1998 (declaration 31). These were the second, fourth and seventh transactions. It contravened the provision because it was a related party of CTC and received a financial benefit from it, where CTC contravened the prohibition in s 243H(1) against a public company giving a financial benefit to a related party except as permitted by Pt 2E.4 or 2E.5.

210 The contraventions by Bisoya were serious and would ordinarily warrant a substantial penalty. However, Bisoya acted through Mr Forge. Bisoya was the trustee of the Forge family trust. Bisoya owns a one-third interest in the property in Albury in which Mr Forge has a two-thirds interest. Mr Forge gave unchallenged evidence that the assets of the Forge family trust have been dissipated in failed business investments and in meeting legal and other expenses associated with various proceedings. Shares held by Bisoya in CTC were sold for $30,000 to meet legal costs.

211 It was because of Mr Forge’s conduct that Bisoya received the payments. I have imposed no separate penalty on Mr Forge for his contravention of s 243ZE(3) in being involved in or being recklessly concerned in or being a party to the payments by CTC to Bisoya. However, the reason for not doing so is that he is sufficiently penalised in respect of the same acts for his contravention of s 232(2). Given that Bisoya acted through Mr Forge and that Mr Forge is being penalised for his actions, and given that Mr Forge, along with his wife, are the parties interested in Bisoya, there is an element of double punishment if substantial penalties were awarded against Bisoya, because it will be Mr Forge, along with his wife, who will suffer the financial impact of such an order against Bisoya. In considering the financial hardship which Mr Forge would suffer from pecuniary penalty orders against him, I have treated Bisoya’s assets as assets available to him, but have nonetheless concluded that the penalties should be modified to reflect the financial hardship he would suffer.

212 In these circumstances, I do not consider it appropriate to make pecuniary penalty orders against Bisoya. The effect of doing so would be to increase the financial hardship to Mr Forge. General deterrence is sufficiently served by the personal orders against Mr Forge. I decline to make such orders against Bisoya.

Conclusion

213 For these reasons, I make the orders set out below. The references to the numbered declarations are to the declarations set out at para [405] of the Court of Appeal’s reasons in Forge v ASIC [2004] NSWCA 448. In these orders the expression “managing a corporation” has the meaning defined in s 91A of the Corporations Law.

1. In relation to the contraventions the subject of declarations 1 and 5, the first defendant be prohibited up to and including 27 August 2014 from managing a corporation.

2. In relation to the contravention the subject of declaration 1, the first defendant pay to the Commonwealth a pecuniary penalty of $60,000.

3. In relation to the contravention the subject of declaration 5, the first defendant pay to the Commonwealth a pecuniary penalty of $50,000.

4. In relation to the contravention the subject of declaration 10, the first defendant pay to the Commonwealth a pecuniary penalty of $1,000.

5. In relation to the contravention the subject of declaration 14, the first defendant pay to the Commonwealth a pecuniary penalty of $1,000.

6. In relation to the contravention the subject of declaration 19, the first defendant pay to the Commonwealth a pecuniary penalty of $6,000.

7. In relation to the contravention the subject of declaration 23, the first defendant pay to the Commonwealth a pecuniary penalty of $6,000.

8. In relation to the contravention the subject of declaration 27, the first defendant pay to the Commonwealth a pecuniary penalty of $15,000.

9. In relation to the contravention the subject of declaration 32, the first defendant pay to the Commonwealth a pecuniary penalty of $1,000.

10. In relation to the contravention the subject of declaration 1 and 5, the second defendant be prohibited up to and including 27 August 2016 from managing a corporation.

11. In relation to the contravention the subject of declaration 1, the second defendant pay to the Commonwealth a pecuniary penalty of $96,000.

12. In relation to the contravention the subject of declaration 5, the second defendant pay to the Commonwealth a pecuniary penalty of $54,000.

13. In relation to the contravention the subject of declaration 10, the second defendant pay to the Commonwealth a pecuniary penalty of $6,000.

14. In relation to the contravention the subject of declaration 14, the second defendant pay to the Commonwealth a pecuniary penalty of $3,000.

15. In relation to the contravention the subject of declaration 19, the second defendant pay to the Commonwealth a pecuniary penalty of $15,000.

16. In relation to the contravention the subject of declaration 23, the second defendant pay to the Commonwealth a pecuniary penalty of $15,000.

17. In relation to the contravention the subject of declaration 27, the second defendant pay to the Commonwealth a pecuniary penalty of $9,000.

18. In relation to the contravention the subject of declaration 32, the second defendant pay to the Commonwealth a pecuniary penalty of $3,000.

19. In relation to the contraventions the subject of declarations 1 and 5, the third defendant be prohibited up to and including 27 August 2012 from managing a corporation.

20. In relation to the contravention the subject of declaration 1, the third defendant pay to the Commonwealth a pecuniary penalty of $64,000.

21. In relation to the contravention the subject of declaration 5, the third defendant pay to the Commonwealth a pecuniary penalty of $36,000.

22. In relation to the contravention the subject of declaration 10, the third defendant pay to the Commonwealth a pecuniary penalty of $4,000.

23. In relation to the contravention the subject of declaration 14, the third defendant pay to the Commonwealth a pecuniary penalty of $2,000.

24. In relation to the contravention the subject of declaration 19, the third defendant pay to the Commonwealth a pecuniary penalty of $10,000.

25. In relation to the contravention the subject of declaration 23, the third defendant pay to the Commonwealth a pecuniary penalty of $10,000.

26. In relation to the contravention the subject of declaration 27, the third defendant pay to the Commonwealth a pecuniary penalty of $6,000.

27. In relation to the contravention the subject of declaration 32, the third defendant pay to the Commonwealth a pecuniary penalty of $2,000.

28. In relation to the contravention the subject of declaration 1, the fourth defendant be prohibited up to and including 10 September 2021 from managing a corporation.

29. In relation to the contravention the subject of declaration 1, the fourth defendant pay to the Commonwealth a pecuniary penalty of $120,000.

30. In relation to the contravention the subject of declaration 10, the fourth defendant pay to the Commonwealth a pecuniary penalty of $8,000.

31. In relation to the contravention the subject of declaration 19, the fourth defendant pay to the Commonwealth a pecuniary penalty of $13,000.

32. In relation to the contravention the subject of declaration 23, the fourth defendant pay to the Commonwealth a pecuniary penalty of $13,000.

33. In relation to the contravention the subject of declaration 32, the fourth defendant pay to the Commonwealth a pecuniary penalty of $2,000.

Costs

214 Orders for costs were made by Foster AJ and in the Court of Appeal. If any party seeks an order for costs in relation to the hearing before me, I give liberty to apply on not less than 14 days’ notice and by arrangement with my associate. Any party making such an application should specify the order sought and provide an outline of submissions in support of the orders sought. If no such application is made pursuant to the liberty to apply by 1 February 2008, there will be no order as to costs in relation to the penalty hearing before me.

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