Australian Securities and Investments Commission v Heydon Park Ltd

[2005] FCA 1583

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Heydon Park Ltd [2005] FCA 1583

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v HEYDON PARK LTD & ORS

NSD822 OF 2004

EMMETT J
13 SEPTEMBER 2005
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 822 OF 2004

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PLAINTIFF

AND:

HEYDON PARK LTD
FIRST DEFENDANT

ALLAN JOHN MASON
SECOND DEFENDANT

DOUGLAS JAMES CRAGO
THIRD DEFENDANT

PETER ALEXANDER KINNAIRD
FOURTH DEFENDANT

HARRY JEONG RHEE
FIFTH DEFENDANT

ANDRE STEPHAN BACKHAUS
SIXTH DEFENDANT

PANAX GINSENG WHOLESALERS PTE LTD
SEVENTH DEFENDANT

JUDGE:

EMMETT J

DATE OF ORDER:

13 SEPTEMBER 2005

WHERE MADE:

SYDNEY

BY CONSENT THE COURT:
A.       THE FIRST GINSENG SCHEME:

The misleading nature of the documentation:

1.Declares that between about 23 July 2002 and 1 April 2004, Heydon Park, through Mr Mason, Mr Crago, Mr Kinniard and Mr Backhaus solicited (‘the First Ginseng Scheme Solicitations’) members of the Australian public with a view to encouraging them to invest in the First Ginseng Scheme (‘the First Ginseng Scheme’), as defined in paragraph 25 of the Statement of Claim.

2.Declares that in carrying out the First Ginseng Scheme Solicitations and with a view to inducing investors to invest in the First Ginseng Scheme, Heydon Park, through Mr Mason, Mr Crago, Mr Kinniard and Mr Backhaus, provided potential investors with the First Ginseng Scheme Documentation (‘the First Ginseng Scheme Documentation’), as defined in paragraph 49 of the Statement of Claim.

3.Declares that the First Ginseng Scheme Documentation contained material which conveyed the following (‘the First Panax Ginseng Representations’):

(a)the Seventh Respondent (‘Panax Ginseng’) was a foreign corporation unrelated to Heydon Park;

(b)Panax Ginseng was controlled by Tan Hang Song and Yak Siew Kim;

(c)Panax Ginseng was a company with a history of trading in the acquisition and sale of ginseng;

(d)Panax Ginseng had representative offices in Korea, Hong Kong and China;

(e)Panax Ginseng had entered into a Ginseng Supply and Purchase Agreement on 1 June 2002 which was legally binding and enforceable;

(f)The Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 December 2002 was a commercial contract negotiated at arms length;

(g)Panax Ginseng had entered into commercial, arms length contracts to on-sell the ginseng which it was required to purchase from Heydon Park;

(h)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird did not know the full financial position of Panax Ginseng;

(i)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird believed that Panax Ginseng had the financial capacity to purchase all ginseng roots produced pursuant to the First Ginseng Scheme at a fixed price of $186.75 per kilogram;

(j)Panax Ginseng, independently of the people involved in the First Ginseng Scheme, had significant experience in assessing and determining the suitability of cultivation methods for the cultivation of ginseng;

(k)Panax Ginseng had, independently of the people involved in the First Ginseng Scheme, assessed and determined the cultivation methods to be used by Heydon Park and had formed the opinion that the ginseng to be produced pursuant to the First Ginseng Scheme would be of the ‘highest quality’; and

(l)Because of its agreement with Panax Ginseng, investors in the First Ginseng Scheme would receive a guaranteed price of $186.75 per kilogram for all ginseng produced.

4.Declares that each of the First Panax Ginseng Representations was untrue, false, incorrect, misleading and deceptive.

Contravention of section 601FD (1) & (3):

5.Declares, pursuant to section 1317E of the Corporations Act, that each of Mr Mason, Mr Crago, Mr Kinnaird and Mr Backhaus contravened sections 601FD (1) (a), (b) and (f) and (3) of the Corporations Act, in respect of the First Ginseng Scheme, as defined in paragraph 25 of the Statement of Claim:

(a)by preparing and participating in the preparation of the First Ginseng Scheme Documentation;

(b)in the case of Mr Mason, Mr Crago and Mr Kinnaird only, by certifying the First Disclosure Statement (‘First Disclosure Statement’), as defined in paragraph 30 of the Statement of Claim, and the Second Disclosure Statement (‘Second Disclosure Statement’), as defined in paragraph 39 of the Statement of Claim; and

(c)by providing or allowing the provision of the First Ginseng Scheme Documentation in the course of carrying out the First Ginseng Scheme Solicitations,

in circumstances where the First Ginseng Scheme Documentation contained material which conveyed the First Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

Contravention of sections 1041E & 1041H of the Corporations Act and section 12DA of the ASIC Act:

6.Declares that each of Mr Mason, Mr Crago, Mr Kinnaird and Mr Backhaus contravened:

(a) section 1041E (1) of the Corporations Act;

(b) section 1041H (1) of the Corporations Act; and

(c) section 12DA of the Australian Securities & Investments Commission Act,

in respect of the First Ginseng Scheme:

(d)by preparing and participating in the preparation of the First Ginseng Scheme Documentation;

(e)in the case of Mr Mason, Mr Crago and Mr Kinnaird only, by certifying the First Disclosure Statement and the Second Disclosure Statement; and

(f)by providing or permitting or allowing the circulation of the First Ginseng Scheme Documentation in the course of carrying out the First Ginseng Scheme Solicitations,

in circumstances where the First Ginseng Scheme Documentation contained material which conveyed the First Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

Contravention of sections 1041F & 1041G of the Corporations Act:

7.Declares that each of Mr Mason and Mr Crago contravened:

(a) section 1041F (1) of the Corporations Act; and

(b) section 1041G (1) of the Corporations Act,

in respect of the First Ginseng Scheme by:

(c)preparing and participating in the preparation of the First Ginseng Scheme Documentation;

(e)by certifying the First Disclosure Statement and the Second Disclosure Statement; and

(f)providing or permitting or allowing the circulation of the First Ginseng Scheme Documentation in the course of carrying out the First Ginseng Scheme Solicitations,

in circumstances where they knew that the First Ginseng Scheme Documentation contained material which conveyed the First Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

Contravention of section 180 (1):

8.Declares, pursuant to section 1317E of the Corporations Act, that each of Mr Mason, Mr Crago, Mr Kinnaird, in their capacity as officers of Heydon Park, contravened section 180 (1) of the Corporations Act, by:

(a)preparing and participating in the preparation of the First Ginseng Scheme Documentation;

(b)certifying the First Disclosure Statement and the Second Disclosure Statement; and

(c)providing or allowing the provision of the First Ginseng Scheme Documentation in the course of carrying out the First Ginseng Solicitations,

in circumstances where the First Ginseng Scheme Documentation contained material which conveyed the First Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

B.       THE SECOND GINSENG SCHEME:

The misleading nature of the documentation:

9.Declares that between about 7 January 2004 and about 24 May 2004, Heydon Park, through Mr Mason, Mr Crago, Mr Kinniard and Mr Backhaus solicited (‘the Second Ginseng Scheme Solicitations’) members of the Australian public with a view to encouraging them to invest in the Second Ginseng Scheme (‘the Second Ginseng Scheme’).

10.Declares that in carrying out the Second Ginseng Scheme Solicitations and with a view to inducing investors to invest in the Second Ginseng Scheme, Heydon Park, through Mr Mason, Mr Crago, Mr Kinniard and Mr Backhaus, provided potential investors with the Second Ginseng Scheme Documentation (‘the Second Ginseng Scheme Documentation’), as defined in paragraph 99 of the Statement of Claim.

11.Declares that the Second Ginseng Scheme Documentation contained material which conveyed the following (‘the Second Panax Ginseng Representations’): 

(a)Panax Ginseng was a foreign corporation unrelated to Heydon Park;

(b)Panax Ginseng was controlled by Ms Kim;

(c)Panax Ginseng was a company with a history of trading in the acquisition and sale of ginseng;

(d)Panax Ginseng had representative offices in Korea, Hong Kong and China;

(e)Panax Ginseng had entered into a Ginseng Supply and Purchase Agreement on 1 December 2002 which was a commercial contract negotiated at arms length;

(f)Panax Ginseng had entered into commercial, arms length contracts to on-sell the ginseng which it was required to purchase from Heydon Park;

(g)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird did not know the full financial position of Panax Ginseng;

(h)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird believed that Panax Ginseng had the financial capacity to purchase all ginseng roots produced pursuant to the Second Ginseng Scheme at a fixed price of $186.75 per kilogram;

(i)Panax Ginseng, independently of the people involved in the First Ginseng Scheme, had significant experience in assessing and determining the suitability of cultivation methods for the cultivation of ginseng; and

(j)Because of its agreement with Panax Ginseng, investors in the Second Ginseng Scheme would receive a guaranteed price of $186.75 per kilogram for all ginseng produced.

12.Declares that each of the Second Panax Ginseng Representations was untrue, false, incorrect, misleading and deceptive.

Contravention of section 601FD (1) & (3) of the Corporations Act:

13.Declares, pursuant to section 1317E of the Corporations Act, that each of Mr Mason, Mr Crago, Mr Kinnaird and Mr Backhaus contravened sections 601FD (1) (a), (b) and (f) and (3) of the Corporations Act, in respect of the Second Ginseng Scheme:

(a)by preparing and participating in the preparation of the Second Ginseng Scheme Documentation;

(b)in the case of Mr Mason, Mr Crago and Mr Kinnaird only, by certifying the Third Disclosure Statement (‘the Third Disclosure Statement’), as defined in paragraph 95 of the Statement of Claim; and

(c)by providing or allowing the provision of the Second Ginseng Scheme Documentation in the course of carrying out the Second Ginseng Scheme Solicitations,

in circumstances where the Second Ginseng Scheme Documentation contained material which conveyed the Second Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

Contravention of sections 1041E & 1041H of the Corporations Act and section 12DA of the ASIC Act:

14.Declares that each of Mr Mason, Mr Crago, Mr Kinnaird and Mr Backhaus contravened:

(a) section 1041E (1) of the Corporations Act;

(b) section 1041H (1) of the Corporations Act; and

(c) section 12DA of the Australian Securities & Investments Commission Act,

in respect of the Second Ginseng Scheme:

(d)by preparing and participating in the preparation of the Second Ginseng Scheme Documentation;

(e)in the case of Mr Mason, Mr Crago and Mr Kinnaird only, by certifying the Third Disclosure Statement; and

(f)by providing or permitting or allowing the circulation of the Second Ginseng Scheme Documentation in the course of carrying out the Second Ginseng Scheme Solicitations,

in circumstances where the Second Ginseng Scheme Documentation contained material which conveyed the Second Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

Contraventions of section 1041F & 1041G of the Corporations Act:

15.Declares that each of Mr Mason and Mr Crago contravened:

(a) section 1041F (1) of the Corporations Act; and

(b) section 1041G (1) of the Corporations Act,

in respect of the Second Ginseng Scheme by:

(c)preparing and participating in the preparation of the Second Ginseng Scheme Documentation;

(d)certifying the Third Disclosure Statement; and

(e)providing or permitting or allowing the circulation of the Second Ginseng Scheme Documentation in the course of carrying out the Second Ginseng Scheme Solicitations,

in circumstances where they knew that the Second Ginseng Scheme Documentation contained material which conveyed the Second Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

Contravention of section 180 (1) of the Corporations Act:

16.Declares, pursuant to section 1317E of the Corporations Act, that each of Mr Mason, Mr Crago and Mr Kinnaird, in their capacity as officers of Heydon Park, contravened section 180 (1) of the Corporations Act by:

(a)preparing and participating in the preparation of the Second Ginseng Scheme Documentation;

(b)certifying the Third Disclosure Statement; and

(c)providing or permitting or allowing the circulation of the Second Ginseng Scheme Documentation in the course of carrying out the Second Ginseng Scheme Solicitations,

in circumstances where the Second Ginseng Scheme Documentation contained material which conveyed the Second Panax Ginseng Representations which were untrue, false, incorrect, misleading and deceptive.

C.       THE ORDERS:

The Banning Orders:

17.Orders, pursuant to sections 206C (1) and 206E (1) of the Corporations Act, that Mr Mason is disqualified from managing corporations for a period of five (5) years commencing on and from seven (7) days after the making of these orders.

18.Orders, pursuant to sections 206C (1) and 206E (1) of the Corporations Act, that Mr Crago is disqualified from managing:

(a)public corporations for a period of five (5) years commencing on and from seven (7) days after the making of these orders; and

(b)private corporations for a period of three (3) years commencing on and from seven (7) days after the making of these orders

19.Orders, pursuant to sections 206C (1) and 206E (1) of the Corporations Act, that Mr Kinniard is disqualified from managing corporations for a period of two (2) years commencing on and from seven (7) days after the making of these orders.

20.Orders, pursuant to sections 206C (1) and 206E (1) of the Corporations Act, that Mr Backhaus is disqualified from managing corporations for a period of two (2) years commencing on and from seven (7) days after the making of these orders.

The costs orders:

21.Orders that all costs orders made prior to these Orders are vacated.

22.Orders that Mr Mason pay the Plaintiff’s costs as agreed in the sum of $10,000.

23.Orders that Mr Crago pay the Plaintiff’s costs as agreed in the sum of $10,000.

24.Orders that Mr Kinniard pay the Plaintiff’s costs as agreed in the sum of $10,000.

25.Orders that as between the Plaintiff and Heydon Park, Mr Rhee, Mr Backhaus and Panax Ginseng, there is no order as to costs.

The disposal of proceedings orders:

26.Orders that all current interlocutory orders are dissolved.

27.Orders that the Proceedings are otherwise dismissed.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 822 OF 2004

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PLAINTIFF

AND:

HEYDON PARK LTD

FIRST DEFENDANT

ALLAN JOHN MASON

SECOND DEFENDANT

DOUGLAS JAMES CRAGO

THIRD DEFENDANT

PETER ALEXANDER KINNAIRD

FOURTH DEFENDANT

HARRY JEONG RHEE

FIFTH DEFENDANT

ANDRE STEPHAN BACKHAUS

SIXTH DEFENDANT

PANAX GINSENG WHOLESALERS PTE LTD
SEVENTH DEFENDANT

JUDGE:	EMMETT J
DATE:	13 SEPTEMBER 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 19 August 2004, the applicant, the Australian Securities and Investments Commission (‘the Commission), filed a statement of claim in the proceeding.  The statement of claim made detailed and particularised allegations against the seven defendants.  In general, the allegations are that the defendants engaged in conduct that contravened the Corporations Act 2001 (Cth) (‘the Corporations Act’), and in one respect the Australian Securities and Investments Commission Act 2001 (Cth) (‘the ASIC Act’).

2. The first defendant, Heydon Park Ltd (‘Heydon Park’), is a company.  Heydon Park is presently in liquidation.  The seventh defendant, Panax Ginseng Wholesalers Pte Ltd (‘Panax Ginseng’), is a Singapore company that has no assets in Australia and may have minimal assets in Singapore. The second, third, fourth, fifth and sixth defendants are individuals, Messrs Allan Hohn Mason, Douglas James Crago, Peter Alexander Kinnaird, Harry Jeong Rhee, and Andre Stephan Backhaus. 

3. The allegations made in the statement of claim relate to the Heydon Park Ginseng Project Number One (‘the First Ginseng Scheme’), the Heydon Park Ginseng Project Number Two (‘the Second Ginseng Scheme’), and the Panax Ginseng website (‘the Website’).  The two projects involved investment in schemes promoted by Heydon Park.

4. The general allegation made in the statement of claim is that, in connection with the two projects and the Website, representations were made with a view to inducing members of the Australian public to invest in the schemes.  It is alleged that those representations were false and misleading and in some cases false and misleading to the knowledge of certain of the defendants.

5. I have managed the proceeding since shortly after its commencement and the proceeding was fixed for a hearing to commence on 12 September 2005, estimated to last approximately three weeks.  However, I was informed by counsel for the Commission, some days before the trial was due to commence, that negotiations were well advanced for the compromise of the proceeding, on the basis that the Court would be asked to make Orders agreed to by the Commission and the individual defendants.  The intention was that the Commission and those defendants would agree on a statement of facts that would form the foundation for the proposed orders.

6. A statement of agreed facts has been signed by each of the individual defendants.  The statement of agreed facts is set out in the Schedule to these reasons.

7. It is agreed that, between 23 July 2002 and 1 April 2004, Heydon Park solicited members of the Australian public with a view to encouraging them to invest in the First Ginseng Scheme.  In carrying out those solicitations, Heydon Park provided potential investors with various documents and information. By the documents and information, Heydon Park and the individual defendants made certain representations, which were untrue and incorrect to the knowledge of the defendants. 

8. Between 27 February 2004 and 24 May 2004, Heydon Park solicited members of the Australian public with a view to encouraging them to invest in the Second Ginseng Scheme.  In carrying out those solicitations, Heydon Park provided potential investors with further documents and information.  By providing those documents and information, Heydon Park and the individual defendants made further representations, which were untrue and incorrect to the knowledge of the defendants.

9. Between September 2002 and May 2004, Panax Ginseng operated the Website, on which various statements were made that amounted to representations.  The representations were accessible throughout Australia and were untrue and incorrect.

1. In connection with the First Ginseng Scheme and the Second Ginseng Scheme, Heydon Park was required to keep the assets of each of the schemes separate.  Heydon Park failed to do so.  Heydon Park was also required, by a condition of its Australian Financial Services licence, to maintain professional indemnity insurance.  It failed to do so on and after 30 June 2004.

2. The Commission alleges that, by the conduct that I have briefly described, details of which are accepted by the defendants in the agreed statement of facts, there were contraventions of ss 601FD(1) and (3), 1041E and 1041H, 1041F and 1041G and 180(1) of the Corporations Act and s 12DA of the ASIC Act.

3. Section 601FD(1) of the Corporations Act provides:

   ‘An officer of the responsible entity of a registered scheme must:

   (a)act honestly; and

   (b)exercise the degree of care and diligence that a reasonable person would exercise if they were in the officer’s position; and

   (c)act in the best interests of the members and, if there is a conflict between the members’ interests and the interests of the responsible entity, give priority to the members’ interests; and

   (d)not make use of information acquired through being an officer of the responsible entity in order to:

   (i)gain an improper advantage for the officer or another person; or

   (ii)cause detriment to the members of the scheme; and

   (e)directly or indirectly, an advantage for themselves or for any other person or to cause detriment to the members of the scheme; and

   (f)take all steps that a reasonable person would take, if they were in the officer’s position, to ensure that the responsible entity complies with:

   (i)this Act; and

   (ii)any conditions imposed on the responsible entity’s Australian financial services licence; and

   (iii)the scheme’s constitution; and

   (iv)the scheme’s compliance plan.’

4. Section 601FD(3) provides:

   ‘A person who contravenes or is involved in a contravention of [section 601FD(1)] contravenes [section 601FD].’

5. Section 1041E(1) of the Corporations Act provides:

   ‘A person must not …make a statement, or disseminate information, if:

   (a)the statement or information is false in a material particular or is materially misleading; and

   (b)       the statement or information is likely:

   (i)to induce persons in this jurisdiction to apply for financial products; or

   (ii)to induce persons in this jurisdiction to dispose of or acquire financial products; or

   (iii)to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and

   (c)when the person makes the statement, or disseminates the information:

   (i)the person does not care whether the statement or

   (ii)information is true or false; or

   (iii)the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.’

6. Section 1041H(1) provides:

   ‘A person must not… engage in conduct in relation to a financial product or financial service that is misleading or deceptive is likely to mislead or deceive.’

7. Section 1041F(1) provides:

   ‘A person must not… induce another person to deal in financial products:

   (a)by making or publishing a statement, promise or forecast if the person knows, or is reckless as to whether, the statement is misleading, false or deceptive;

   …’

8. Section 1041G(1) provides:

   ‘A person must not… in the course of carrying on a financial services business… engage in dishonest conduct in relation to financial product or financial service.’

9. Section 12DA(1) of the ASIC Act provides:

   ‘A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.’

10. Section 180(1) of the Corporations Act provides:

    ‘A director …of a corporation must exercise [the director’s] powers and discharge [the duties of a director] with the degree of care and diligence that a reasonable person would exercise if they:

    (a)were a director …of a corporation in the corporation’s circumstances; and

    (b)occupied the office held by, and had the same responsibilities within the corporation as, the director …’

11. Part 9.4B of the Corporations Act deals with certain civil consequences of contravening civil penalty provisions. Section 1317E(1)(a) relevantly provides:

    ‘If a court is satisfied that a person has contravened section 180(1) the court must make a declaration of contravention.’

12. Similarly, under section 1317E(1)(g):

    ‘If a court is satisfied that a person has contravened section 601FD(3) the court must make a declaration of contravention.’

13. Section 1317E(2) provides:

    ‘A declaration of contravention must specify the following:

    (a)      the Court that made the declaration

    (b)      the civil penalty provision that was contravened

    (c)       the person who contravened the provision

    (d)      the conduct that constituted the contravention

    (e)if the contravention is of a corporation/scheme civil penalty provision- the corporation or registered scheme to which the conduct related.’

14. Section 206C of the Corporations Act provides:

    ‘On application by [the Commission], the Court may disqualify a person from managing corporations for a period that the Court considers appropriate if:

    (a)a declaration is made under section 1317E…that the person has contravened a corporation/scheme civil penalty provision; and

    (b)      the Court is satisfied that the disqualification is justified.’

15. Section 206E(1) provides:

    ‘On application by [the Commission], the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if:

    (a)      the person:

    (i)has at least twice been an officer of a body corporate that has contravened this Act while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or

    (ii)has at least twice contravened this Act while they were an officer of a body corporate; or

    (iii)has been an officer of a body corporate and has done something that would have contravened subsection 180(1) … if the body corporate had been a corporation; and

    (b)      the Court is satisfied that the disqualification is justified.

16. The orders that the parties now ask the Court to make include declarations pursuant to s 1317E concerning the misleading nature of the documentation referred to above, and declarations of contraventions of the provisions of the Act, referred to above, by various of the individual defendants. The parties also ask the Court to make orders, pursuant to ss 206C and 206E, disqualifying the defendants for various periods from managing either corporations generally or public corporations or private corporations.

17. Finally, the parties ask the Court to make orders for the payment of costs by three of the individual defendants.  The parties have agreed that there be no order as to the costs against Heydon Park, Messrs Rhee and Backhaus and Panax Ginseng.  However, the parties have agreed that each of Messrs Mason, Crago and Kinnaird will pay the sum of $10,000 towards the costs of the Commission, making a total of $30,000.

18. I am satisfied that each of the five individual defendants has agreed to the statement of agreed facts and consents to the orders that the Court is now asked to make. It is, of course, the responsibility of the Court to determine the appropriate penalty to be imposed in respect of contraventions of the Corporations Act. However, determining what penalty is appropriate is not an exact science. The views of one judicial officer may differ from those of another. Nevertheless, so long as the penalty is within a permissible range, one particular penalty is not more appropriate than another.

19. There is, without question, a public interest in promoting settlement of litigation, particularly lengthy and costly litigation.  It is appropriate, therefore, that, where a regulator and a contravener reach agreement as to the appropriate penalty they should present to the Court a statement of facts and opinions as to the effect of those facts, together with joint submissions as to the appropriateness of the agreed penalty.  While the view of the Commission, as a specialist body, is relevant, it is not determinative of the question of appropriateness.

20. In determining whether a proposed penalty is appropriate, the Court must examine all the circumstances of the case and, where the parties have put forward an agreed statement of facts, the Court may act on that statement.  When considering a jointly proposed penalty, the question is whether the penalty is, in the Court’s view, appropriate in the circumstances of the case.  In answering that question the Court will not necessarily reject the proposed penalty simply because it would have been disposed to impose a different penalty.  If the penalty is within the permissible range it is appropriate but, of course, not compulsory, for the Court to accept the proposed penalty.

21. A rationale for giving weight to a joint proposal on penalty is the saving in resources both for the regulator and the Court.  I regard that as a very significant rationale and if the Court is satisfied that competent legal advice has been afforded to a regulator and that the contraveners have understood and consented to the orders proposed, the Court should be disposed to accept the submissions as to penalty.  Of course, if the Court considers that the evidence or information before it is inadequate to form a view as to whether the proposed penalty is appropriate, the parties may be requested to provide additional evidence or information, or verify the information provided.

22. Mr Mason is regarded as having greater culpability than the other parties. Therefore, it is proposed that Mr Mason be disqualified for managing corporations for a period of five years, commencing on and from seven days from the making of the orders. Mr Crago is to be disqualified from managing public corporations for a period of five years, commencing on and from seven days from the making of the orders, and from managing private corporations for a period of three years, commencing on and from seven days after the making of the orders. Each of Messrs Kinnaird and Backhaus is to be disqualified from managing corporations for a period of two years, commencing from seven days after the making of the orders. Mr Rhee is regarded as having only marginal involvement and is not penalised with any period of disqualification.  Since there is no utility in pursuit of Heydon Park or Panax Ginseng, it is proposed that there be no orders against those companies.  I am satisfied that the orders, including the declarations and banning orders, together with the orders for costs, are appropriate in all the circumstances.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:            8 November 2005

Counsel for the Applicant:	Mr D Stack
Solicitor for the Applicant:	Australian Securities and Investments Commission
Date of Hearing:	13 September 2005
Date of Judgment:	13 September 2005

SCHEDULE

IN THE FEDERAL COURT OF AUSTRALIA  No.  N822 of 2004
DIVISION:  GENERAL
REGISTRY:  NEW SOUTH WALES

IN THE MATTER OF: HEYDON PARK LTD (ACN 082 041 076)

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Applicant

Heydon Park Ltd
ACN: 082 041 076

First Respondent

Allan John Mason

Second Respondent

Douglas James Crago

Third Respondent

Peter Alexander Kinnaird

Fourth Respondent

Harry Jeong Rhee

Fifth Respondent

Andre Stephan Backhaus

Sixth Respondent

PANAX GINSENG WHOLESALERS
Pte Ltd Reg No 200105484G

Seventh Respondent

STATEMENT OF AGREED FACTS

THIS STATEMENT CONTAINS ALL OF THE FACTS AGREED BETWEEN THE PLAINTIFF AND THE SECOND TO SEVENTH RESPONDENTS TO SUPPORT THE ORDERS WHICH THE COURT IS ASKED TO MAKE:

A.       THE PARTIES AND OTHER ENTITIES:

The Commission:

1.The Applicant (“the Commission”) is, pursuant to section 8 of the Australian Securities and Investments Commission Act, a body corporate entitled to sue in its corporate name.

2.The Commission is, pursuant to section 1 of the Australian Securities and Investments Commission Act, charged with a statutory responsibility to perform its functions and to exercise its powers so as to promote the confident and informed participation of investors and consumers in the financial system.

Heydon Park:

3.The First Respondent (“Heydon Park”) was incorporated in Australia on 20 March 1998, and is liable to be sued in its corporate name.

4.At all material times, the directors of Heydon Park included:

(a)the Second Respondent (“Mr Mason”), who was appointed on 6 October 1998;

(b)the Third Respondent (“Mr Crago”), who was appointed on 31 March 2002; and

(c)the Fourth Respondent (“Mr Kinnaird”), who was appointed on 31 March 2002.

5.At all material times, Heydon Park was a wholly owned subsidiary of Ausforest Limited (“Ausforest”).

Ausforest:

6.        Ausforest was incorporated in Australia on 27 November 2001.

7.        At all material times, the directors of Ausforest included:

(a)       Mr Mason, who was appointed on 20 February 2002;
(b)       Mr Crago, who was appointed on 27 November 2001; and
(c)       Mr Kinnaird, who was appointed on 27 November 2001.

Tasmanian Panax:

8.Tasmanian Panax Ginseng Pty Ltd (“Tasmanian Panax”) was incorporated in Australia on 15 October 1998.

9.        At all material times, the directors of Tasmanian Panax included:

(a)The Second Respondent ("Mr Mason) who was appointed on 16 March 2002;

(b)the Fifth Respondent (" Mr Rhee") who was appointed on 16 March 2002; and

(c)the Sixth Respondent, ("Mr Backhaus”), who was appointed on 15 October 1998.

10.      At all material times, Tasmanian Panax was owned, in part, by:

(a)AMM Investments Pty Ltd, which owned 17% of the issued share capital and which was owned or controlled by Mr Mason.  Mr Mason is the sole shareholder of AMM Investments Pty Ltd and was its sole Director from 3 February 1998 until 14 May 2004.  The sole Director since 14 May 2004 is Marsha Mason.  AMM Investments was known as Rousety and Co (NSW) Pty Ltd from 3 February 1998 until 2 December 1998.

(b)K. L. Crago Pty Ltd, which owned 17% of the issued share capital and which was owned or controlled by Mr Cargo;

(c)Mr Backhaus, who owned 25% of the issued share capital;

(d)Mr Rhee, who owned 25% of the issued share capital; and

(e)Aaron Serieka, who owned 16% of the issued share capital.

Scimax:

11.      Scimax Pty Ltd (“Scimax”) was incorporated in Australia on 15 December 2000.

12.In November 2003 Ausforest bought Scimax to secure tea tree sales as Scimax had a sales distribution network for tea tree oil and products. 

13.      The directors of Scimax from 20 November 2003 included:

(a)       Mr Mason, who was appointed on 20 November 2003;
(b)       Mr Crago, who was appointed on 20 November 2003; and
(c)       Mr Kinnaird, who was appointed on 20 November 2003.

14.Since November 2003, in the company records held by the Australian Securities and Investments Commission ("ASIC") Scimax is recorded to be a wholly owned subsidiary of Ausforest.

The employees:

15.      At all material times, each of Mr Rhee and Mr Backhaus were:

(a)   persons who participated in the development of the ginseng growing proposal that became the Heydon Park Ginseng project; and

(b) “officers” of Scimax within the meaning of sections 9, 180, 181 and 182 of the Corporations Act; and

(c) "employees of Heydon Park within the meaning of sections 601FE of the Corporations Act,  primarily involved in the establishment and operations of the ginseng farm in Tasmania. 

Panax Ginseng:

Incorporation:

16.The Seventh Respondent, Panax Ginseng Wholesalers Pte Ltd, (“Panax Ginseng”) is a limited exempt private company which was incorporated in the Republic of Singapore on 18 August 2001 and is liable to be sued in its corporate name.

17.On 12 March 2003, Panax Ginseng changed its name from Decourt Trading Pte Ltd to Panax Ginseng Wholesalers Pte Ltd.

Office holders and controllers:

18.In or about September 2002, when Heydon Park became aware that Panax Ginseng Wholesalers had not been incorporated, Pioneer Corporate Services Pte Ltd (“Pioneer”), were instructed by Mr Mason on behalf of Heydon Park, to establish a company the directors of which were to include Mr Backhaus and Mr Rhee and Pioneer acquired Decourt Trading as a shelf company, from FMG Corporate Services Pte Ltd, the name being later changed to Panax Ginseng Wholesalers.

19.      The persons recorded as the directors of Panax Ginseng:

(a)Mr Rhee, who was appointed on 1 December 2002;

(b)Mr Backhaus, who was appointed on 1 December 2002; and

(c)Ms Yak Siew Kim (“Ms Kim”), who was appointed on 1 December 2002, but who was only appointed as a nominee resident director following a request made by Pioneer to fulfill the requirements of Singapore Law that a corporation have one of its directors resident in Singapore. 

20.      Mr Mason:

(a)caused the issued share capital in Panax Ginseng to be acquired in the name of an entity created in the Netherlands known as “Stichting Capricorn Investments” (“Capricorn Investments”);

(b)did not have legal authority to act on behalf of Capricorn Investments, although, Mr Mason believed he had such authority to act;

(c)did not have legal authority to sign documents on behalf of Capricorn Investments, although Mr Mason believed he had the authority to sign documents;

(d)did not have any legal authority to acquire shares in Panax Ginseng on behalf of Capricorn Investments, although Mr Mason believed he had the authority to acquire such share;

(e)instructed Pioneer in relation to Panax Ginseng.

Financial position:

21.      As at 31 December 2002:

(a)       the paid up share capital of Panax Ginseng was Singaporean $2.00; and
(b)       the total value of the assets of Panax Ginseng was Singaporean $2.00.

22.      As at 31 December 2002, Panax Ginseng did not:

(a)       carry on any or any proper business activity; or
(b)       engage any employee.

23.      As at 31 December 2002:

(a)       the paid up share capital of Panax Ginseng was Singaporean $2.00; and
(b)       the total value of the assets of Panax Ginseng was Singaporean $2.00.

24.As at 31 December 2002, Panax Ginseng did not have any existing or contingent liability. 

25.Any activities associated with the trading activities proposed for Panax Ginseng were conducted by Stephan Backhaus and Harry Rhee.

B.       HEYDON PARK GINSENG PROJECT NO 1:

Licence Application to operate the managed Investment Scheme

26.On 4 April 2002, the Commission received from Heydon Park an application (the Application“”) for a licence variation to enable Heydon Park to operate a managed investment scheme entitled "Heydon Park Ginseng project".

27.The Application included a document (“the Rhee Document”) entitled "Statement of personal information for Harry Jeong Rhee in support an application for an Australian financial services licence (AFSL) for Heydon Park Ltd…".

28.The Rhee Document stated that Mr Rhee had been employed:

(a)in Korea from 1987 to 1991, by Daesung Industrial Co Ltd in marketing of electronics;

(b)in Korea from July 1991 to March 1996, by Chonggu & Housing Construction Co Ltd  in various roles in a construction company;

(c)in Australia from March 1996 to February 1998, by Chonggu Australia Pty Ltd, a subsidiary of Chonggu & Housing Construction Co Ltd, in the management of a golf course development in Queensland; and

(d)in Australia from February 1998, by a variety of enterprises in various marketing roles.

29.The Application also included a letter dated 15^th March 2002  from Mr Backhaus, in his capacity as a director of Scimax, entitled "To Whom It May Concern" and stating "I have known Harry Rhee for approximately 3 years while we have been carrying out research into growing ginseng in Australia.". 

30.On 3 May 2002, an officer of the Commission, who was assessing the Application, contacted Mr Mason and requested that further information be provided to the Commission relating to Mr Rhee's involvement in Southern Ginseng Plantation Co Ltd and Tasmanian Panax Ginseng grower in order to allow the Commission to determine Mr Rhee’s experience and length of involvement in the ginseng industry.  

31.On 6 May 2002, the Commission received a letter dated 6 May 2002 from Mr Mason, as managing director of Heydon Park, which enclosed a 3 page document entitled “Hae (Harry) J Rhee” (“the Rhee CV”) which purported to be a CV for Mr Rhee.

32.The Rhee CV included the following statements (“the Rhee CV Statements”):

"Experience & Employment  Southern Ginseng Plantation – Korea 
  (Ginseng grower 1990-1996)
  AND
  Southern Ginseng Plantation Co (No1) Limited
  (Ginseng grower 1996-2002)"

"The Southern Ginseng Plantation Company was established in Korea in 1990."

"The directors of the company in Korea are Dr Hoon Park and Mr Suk Do Chang and Mr Harry Rhee. The company has close association with the Korean Ginseng Institute of which Dr park and Mr Rhee are consulting lecturers. Mr Rhee has been associated with the company since 1990."

"Mr Rhee's functions in Korea from 1990 until 1996 were as follows:

(a)   To oversee the acquisition of the existing plantations;

(b)   To investigate and plan the establishment of new ginseng plantations;

(c)   To project manage the establishment of new ginseng plantations;

(d)   To assist and control all contractors employed by the company in both the establishment phase and the operational phase of the new plantations;

(e)   To generally oversee the agricultural side of the company."

"Australian Operations

After completion of the above Mr Harry Rhee was sent to Australia in 1996 to perform the following tasks on behalf of the company:

(a)   To investigate various sites for appraisal as to their suitability for growing ginseng.

(b)   Find a suitable site for the growing of ginseng outside of Korea.

(c)   To commence trials for growing ginseng outside of Korea.

(d)   To send ginseng plants back to Korea for chemical analysis on the saponin content.

(e)   To investigate the funding of new plantations in Australia.

(f)     To establish a project that would supply ginseng roots to the company's current markets for ginseng roots."

33.      In fact, the Rhee CV Statements were incorrect and untrue.

34.On 8 May 2002, the Commission received a letter dated 6 May 2002 signed by Mr Backhaus as Director of Tasmanian Panax. Included in the letter are the following statements (“the Rhee CV Further Statements”):

"Hae (Harry) Rhee has been employed by our Korean Holding company Southern Ginseng Plantation since March 1990. He transferred to Australia in June 1996 to establish our Australian ginseng operations. His duties in Korea from 1990 to 1996 were to:

a) To oversee the acquisition of the existing plantations;

b) To investigate and plan the establishment of new ginseng plantations;

c) To project manage the establishment of new ginseng plantations;

d) To assist and control all contractors employed by the company in both the establishment phase and the operational phase of the new plantations;

e) To generally oversee the agricultural side of the company."

When he transferred to Australia his duties from June 1996 until the present involve:

-     Finding a suitable site outside of Korea which eventually became Tasmania

-     To do trials on the growing of ginseng outside of Korea

-     To chemically test the ginseng roots to ensure conformity with industry standards.

-     To identify funding opportunities.

-     To commence a project capable of supplying the needs of our associated overseas companies"

35.      In fact, the Rhee CV Further Statements were incorrect and untrue.

Registration of the First Ginseng Scheme:

36.On 9 July 2002, Mr Mason, in his capacity as a director of Heydon Park, lodged with the Commission an Application for Registration of a Managed Investment Scheme (“the First Application”)  known as “Heydon Park Ginseng Project No 1” (“the First Ginseng Scheme”) together with the following documents:

(a)a Constitution (“the First Constitution”) for the First Ginseng Project dated 4 June 2002; and

(b)a Compliance Plan (“the First Compliance Plan) for the First Ginseng Project dated 4 June 2002.

37.The First Ginseng Scheme involved inviting members of the Australian public to participate in a managed investment scheme which involved the cultivation of ginseng roots for commercial sale and profit.

38.The constitution and the Product Disclosure Statements stated that the land upon which the ginseng roots were to be cultivated pursuant to the First Ginseng Scheme was owned by Tasmanian Panax.

39.Contrary to the statements in the product Disclosure Statements and the Constitution the land was never owned by Tasmanian Panax Ginseng Pty Ltd. The Land was and still is owned by Gabriel Casimaty with registered mortgages held by the Commonwealth Bank and Perpetual Trustees Tasmania Limited. Tasmanian Panax Ginseng held a lease over the land with a sub-lease to Heydon Park.

40.Pursuant to the terms of the First Constitution, Heydon Park was appointed as both the Manager and the Responsible Entity for the First Ginseng Scheme and was the holder of the requisite Australian Financial Services Licence.

41.On 23 July 2002, the Commission registered the First Ginseng Scheme pursuant to Part 5C.1 of the Corporations Act, 2001.

The Product Disclosure Statements:          

The First Disclosure Statement:

42.On 23 July 2002, Heydon Park issued a Product Disclosure Statement (“the First Disclosure Statement”) in respect of the First Ginseng Scheme, a copy of which had been lodged with the Commission. 

43.On about 23 July 2002, Mr Mason, Mr Crago and Mr Kinnaird certified that each of them had made reasonable inquiries to ensure that:

(a)there was no material statement in the First Disclosure Statement which was false or misleading; and

(b)there was no material omission from the First Disclosure Statement.

44.      The First Disclosure Statement included the following:

(a)a statement on page 10, in the following terms:

“How do I know that I can sell the product from my Modules?

The Manager has entered into a Sales Contract with Panax Ginseng Wholesalers Pte Ltd (PGW) for the sale of the Ginseng roots produced from the Project.  This agreement is reproduced in full from page 27.

PGW will purchase all roots supplied by the Manager, subject to the roots being supplied at an acceptable quality, indicated pricing will be as per their letter of 1^st March 2002 reproduced as at page 25”

(b)a statement on page 11, in the following terms:

“Some of the merits of participation are:

.guaranteed sale of produce.”

(c)at pages 25 to 26, a copy of a letter from Panax Ginseng to Heydon Park dated 1 June 2002, purportedly signed by Mr Tan Hang Song; and

(d)at pages 27 to 29, a copy of a Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 June 2002.

45.      In fact, as at the date of the First Disclosure Statement:

(a)Panax Ginseng had not issued and/or signed any letter to Heydon Park dated 1 June 2002;

(b)Panax Ginseng had not issued and/or signed a Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 June 2002;

(c)Panax Ginseng was still known as Decourt Trading Pte Ltd; and

(d)“Tan Hang Song" was not a director of Panax Ginseng.   

The First Stop Order:

46.On 19 August 2002, the Commission, pursuant to section 1020E of the Corporations Act, issued an interim stop order (“the First Stop Order”) to Heydon Park in respect of the First Disclosure Statement.

47.The Commission, in the First Stop Order identified a number of “areas of concern” including areas concerning the statements made in respect of Panax Ginseng.

48.On about 21 August 2002, Mr Mason, in his capacity as a director Heydon Park, wrote to the Commission and included the following statement:

“We are unsure how to cover the PanaxGinseng Wholesalers side.  This is a substantial company to our knowledge.  Being Asian based we would find it very difficult to ask for their financial statements, as face to them is everything.  We know they have established markets for Ginseng and in fact they have already obtained contracts for the on sale through their own group.  We have sighted some of these contracts, but of course they would not give them to us as it would breach confidentiality.  They may think we want to cut them out.

They have played an active role in site selection, they have also sourced seed which is to be supplied to us (as cost) for planting.  They have arranged for some agricultural people (Koreans) to come to Australia to help in the germination and planting,  Hence we have a  very close liaison with the purchasers.  They are not simply buyers who have executed a buy contract. …”

49.On about 28 August 2002, Mr Mason, in his capacity as a director Heydon Park, submitted to the Commission a Supplementary Product Disclosure Statement (“the First Supplementary Statement”) dated 27 August 2002 on the basis that that document addressed the “issues of concern” raised by the Commission in the First Stop Order.

50.      The First Supplementary Statement included statements:

(a)on page 1, in the following terms:

“The full financial position of PGW is not known.  The assumptions within the PDS are based on PGW having the financial capacity to complete the purchase and pay the amount payable for the sale of Ginseng roots by the Project.”

(b)on page 1, in the following terms:

“PGW have contracted to purchase the entire crop as produced from the Project.  PGW is a commodity based company with a number of related companies as part of its group in various countries.  They have representative offices in Korea, Hong Kong and China.  They have assisted the Manager in the formation of this project and have been involved in the site selection and the supply of Korean seed.  They have arranged for the seed to be procured from Korea and its export to Australia when required.  The Project will only use seed approved of by PGW for the Project.  In respect of the agronomic side of the operation, while HPL will perform the duties involved PGW have already assigned personnel to visit the plantation at various critical times to ensure the operations are being conducted in accordance with their requirements.  This will ensure the roots produced are the best possible.  PGW have advised that they have in place sales for the roots produced by the Project and it is vital that the Project is able to produce the quantity and quality required to satisfy its own commitments.”

(c) on pages 1 to 2, in the following terms:

“… the Supply & Purchase Agreement … It is confirmed that the agreement has been executed and is accordingly legally binding and enforceable.”

51.On 30 August 2002, the Commission, following its receipt and acceptance of the First Supplementary Statement, revoked the First Stop Order.

The Second Disclosure Statement:

52.On 1 March 2003, Heydon Park issued a further Product Disclosure Statement (“the Second Disclosure Statement”) in respect of the First Ginseng Scheme.  A Notification of Use Notice for the second PDS was lodged with the Commission on 14 April 2003 and subsequently a copy was obtained by the Commission. 

53.On about 1 March 2003, Mr Mason, Mr Crago and Mr Kinnaird certified that each of them had made reasonable inquiries to ensure that:

(a)there was no material statement in the Second Disclosure Statement which was false or misleading; and

(b)there was no material omission from the Second Disclosure Statement.

54.      The Second Disclosure Statement included: 

(a)       a statement on page 9, in the following terms:
           “How do I know that I can sell the product from my Modules?

The Manager has entered into a Sales Contract with Panax Ginseng Wholesalers Pte Ltd (PGW) for the sale of the Ginseng roots produced from the Project.  This agreement is reproduced in full from page 23.

PGW will purchase all roots supplied by the Manager, subject to the roots being supplied at an acceptable quality, indicated pricing will be as per their letter of 1^st December 2002 reproduced as at page 22”

(b)       a statement on page 9, in the following terms:
           “Some of the merits of participation are:
           .          guaranteed sale of produce.”
(c)       a statement on page 10, in the following terms:

“PGW is a commodity based company with a number of related companies as part of its group in various countries.  They have representative offices in Korea, Hong Kong and China.  They have assisted the Manager in the formation of this project and have been involved in the site selection and the supply of Korean seed.  They have arranged for the seed to be procured from Korea and its export to Australia.  The Project will only use seed approved of by PGW for the Project.  In respect of the agronomic side of the operation, while HPL will perform the duties involved PGW have already assigned personnel to visit the plantation at various critical times to ensure the operations are being conducted in accordance with their requirements.  This will ensure the roots produced are the best possible quality.  PGW have advised that they have in place sales for the roots produced by the Project and it is vital that the Project is able to produce the quantity and quality required to satisfy commitments made by PGW to its customers.”

(d)      a statement on page 19, in the following terms: 
           “Agricultural Management and Consultants:

Mr Harry Rhee BA-IT will have the responsibility, as the Project Manager, to run the ginseng plantation and all agricultural activities, plantation development and security. … He is Korean with a complete understanding of the production of Panax Ginseng.”

(e)       on page 20, in the following terms:
           “Best Estimate Parameters:

The Manager prepared its estimates based on current prices and estimated yields as confirmed by the independent expert reports contained within this PDS.  These best estimates are based on the following parameters:

.The price per kilo for Ginseng roots will be as per the contract of   sale and is fixed at $186.75 per kilo to be paid for harvest in year         5.

.The full financial position of PGW is not known.  The assumptions within the PDS are based on PGW having the financial capacity to complete the purchase and pay the amount payable for the sale of Ginseng roots by the Project.”

(f)at page 22, a copy of a letter from Panax Ginseng to Heydon Park dated 1 December 2002, purportedly signed by Ms Yak Siew Kim.

(g)at pages 23 to 24, a copy of a Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 December 2002.

55.      In fact, as at the date of the Second Disclosure Statement:

(a)Ms Yak Siew Kim did not issue and/or sign a letter on behalf of Panax Ginseng to Heydon Park dated 1 December 2002;

(b)Ms Yak Siew Kim did not issue and/or sign a Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 December 2002; and

(c)Panax Ginseng was still known as Decourt Trading Pte Ltd.

The Land Representations:

56.The Product Disclosure Statement dated 1 March 2003, included the following statements (“the Land Statements”):

(a)On page 8: "Tasmanian Panax Ginseng Pty Ltd ACN 084 767 519 (TGP) will own the land on which the project will be conducted. The Land will be made available to the Project and therefore the Growers through a lease to the Manager."; and

(b)On page 10: "Land Risk. …(a) the Compliance Plan provides that no monies may be released from the Application Bank Account until a lease is granted by the Land holder to the manager which will be registered at the Land Titles Office."

57.      In fact:

(a)the land referred to in the Land Statements was not owned by Tasmanian Panax, but was owned by Gabriel Casimaty who had granted registered mortgages in favour of the Commonwealth Bank and Perpetual Trustees Tasmania Limited;

(b)Tasmanian Panax held a lease over the land referred to in the Land Statements; and

(c)Tasmanian Panax had granted a sub-lease over the land referred to in the Land Statements in favour of Heydon Park.

The Tax Ruling Representations:

58.Heydon Park, through the First Disclosure Statement, the Second Disclosure Statements and in other promotional material, represented (“the Tax Ruling Representations”) that Australian Taxation Office Product Ruling Number Ruling 2002/97 applied to the First Ginseng Scheme

59.In fact, Australian Taxation Office Product Ruling Number Ruling 2002/97 only applied to investments in the First Ginseng Scheme made up to 30 June 2003.

60.On 7 November 2003, the Commission, pursuant to section 1020E of the Corporations Act, issued an interim stop order (“the Tax Ruling Stop Order”) to Heydon Park in respect of the First Disclosure Statement.

61.The Commission, in the Tax Ruling Stop Order identified a number of “areas of concern” including that Australian Taxation Office Product Ruling Number Ruling 2002/97 only applied to investments in the First Ginseng Scheme made up to 30 June 2003.

62.Heydon Park continued to make the Tax Ruling Representation to investors in the First Ginseng Scheme after 30 June 2003 and after the issue of the Tax Ruling Stop Order.

The Second Stop Order:

63.On 7 November 2003, the Commission pursuant to s1020E(5) of the corporations Act 2001 issued an Interim Stop Order to Heydon Park in respect of the second PDS. On 26 November 2003, the Commission, pursuant to section 1020E(6) of the Corporations Act, issued an interim stop order to Heydon Park in respect of the second PDS (“the Second Stop Order”) and in respect of certain advertising.

64.The Commission, in the letter to Heydon Park enclosing the Interim Stop Order dated 7 November 2003 identified a number of “areas of concern” with the PDS.

65.On about 8 December 2003, Piper Alderman Lawyers, acting on behalf of Heydon Park submitted to the Commission a Draft Supplementary PDS dated 3 December 2003.  On 11 December 2003, Piper Alderman forwarded an Amended  Supplementary PDS dated 11 December 2003.  And on 30 December 2003 Alan Jessup of Piper Alderman emailed a further Supplementary PDS (“the Second Supplementary Statement”) dated 23 December 2003 on the basis that the document addressed the issues of concern raised by the Commission in the second Stop Order.

66.The Second Supplementary Statement amended the Second Disclosure Statements with, relevantly, the following statements: 

(a)On page 6 the statement:  "at page 9 of the PDS in the section

How do I know that I can sell the product from my Modules?

replace the following paragraph:

PGW will purchase all roots supplied by the Manager, subject to the roots being supplied at an acceptable quality, indicated pricing will be as per their letter of 1^st March 2002 reproduced as at page 22.

With:

PGW will purchase all roots supplied by the Manager, subject to the roots being supplied at an acceptable quality, indicated pricing will be as per their letter of 1^st March 2002 reproduced as at page 22.  Provided at least 10,000 Ginseng Plants have been planted in the Project, PGW will purchase the entire production from the Project at the agreed price up to a total of 375 tonnes.”

(b)On page 6 the statement:

"On the last line of page 9 of the PDS, in the section
What are some of the benefits of investing in the project?
replace the following bullet point:

·     guaranteed sale of produce

·     with:

·     the entire future production from the Project pre-sold under contract for pre-agreed price, subject to certain quality criteria.”

67.On 24 March 2004, the Commission, following a number of hearings and undertakings by Heydon Park to offer to obtain private tax rulings for investors who invested after 30 June 2003, revoked the Second Stop Order for the sole purpose of enabling those offers to be made.

Final stop order:

68.On 31 March 2004, the Commission, pursuant to section 1020E of the Corporations Act, issued a Stop Order (“the Final Stop Order”) to Heydon Park in respect of the Second Disclosure Statement and certain advertising.

Investments accepted after the Second Stop Order:

Application made by David Wallace on 28^th November 2003

69.In or about October 2003, David Wallace (“Mr Wallace”) received in his letterbox a leaflet regarding the Heydon Park Ginseng project. Following an inquiry he received  a letter dated 27 November 2003 under the name  Douglas Crago, Marketing Director.

70.The leaflet included the statement "One of our representatives will shortly be visiting your area..".

71.On 28 November 2003, a representative of Heydon Park, Frank Clementson, attended the home of and met with, Mr Wallace. At the conclusion of that meeting, Mr Wallace signed an application form to invest in the First Ginseng Scheme.

72.On 28 November 2003, after signing the application form, Mr Wallace transferred $11,000 to Heydon Park.

73.Shortly after 8 December 2003, Mr Wallace received a letter from Heydon Park dated 8 December 2003, confirming his investment in the First Ginseng Scheme.

Application made by Michael Aslanis on 15^th March 2004

74.On 15 March 2004, Michael Aslanis (“Mr Aslanis”) signed an application to invest $22,000 in the First Ginseng Scheme and delivered the application and a cheque for $22,000 to a representative of Heydon Park.

75.Shortly after 16 March 2004, Mr Aslanis received a letter from Heydon Park dated 16 March 2004, confirming his investment in the First Ginseng Scheme as well as the following documents:

(a)        a Tax Invoice numbered 521 dated 1 July 2003 in the amount of $22,000;

(b)        a management agreement dated 1 July 2003; and

(c)        a Ginseng Module Certificate dated 1 July 2003.

76.After the affidavit of Michael Aslanis was made known in these proceedings, Michael Aslanis received a visit from Douglas Crago and later received his money back.

The solicitation of investors in the First Ginseng Scheme:

77.Between about 23 July 2002 and 1 April 2004, Heydon Park, through its directors, officers, servants and agents, solicited (“the First Ginseng Scheme Solicitations”) members of the Australian public with a view to encouraging them to invest in the First Ginseng Scheme.

78.In carrying out the First Ginseng Scheme Solicitations and with a view to inducing investors to invest in the First Ginseng Scheme, Heydon Park, through its directors, officers, servants and agents, provided potential investors with some or all of the following documents and information (“the First Ginseng Scheme Documentation”):

(a)the First Disclosure Statement;

(b)the First Supplementary Statement;

(c)the Second Disclosure Statement;

(d)the Second Supplementary Statement;

(e)information (“the Power Point Information”) in a “power point” presentation, a copy of which forms exhibit “GMD-16” to the affidavit of Mr Donovan sworn on 17 May 2004;

(f)a document (“the Offer at a Glance document”) entitled “Offer at a Glance”, a copy of which forms exhibit “GMD-17” to the affidavit of Mr Donovan sworn on 17 May 2004;

(g)a document (“the Questions Asked document”) entitled Frequently Asked Questions, a copy of which forms exhibit “GMD-21” to the affidavit of Mr Donovan sworn on 17 May 2004; and

(h)a document (“the Ginseng Brochure”) entitled Ginseng – King of All Herbs Reigns in Australia, a copy of which forms exhibit “GMD-22” to the affidavit of Mr Donovan sworn on 17 May 2004;

79.The Power Point Information included a statement on page 3, in the following terms:

“Why we can sell at $186.75 per kilo

“Strong advertising and promotional activity is being undertaken to develop a consumer demand for Australian ginseng product …”

“A major increase in consumer awareness and demand for pure ginseng roots has already been generated, which is being met by the increase in supply of Ginseng from Tasmania.”

“Ginseng grown in Tasmania is expected to be of a higher quality than Korean, Chinese and American ginseng roots.”

“We are prepared to purchase your ginseng roots at $186.75 per kilo”

Tan Hang Song director Panax Ginseng Wholesalers Pte Ltd, Singapore.”

80.The Offer at a Glance document included calculations based upon the sale of ginseng roots at $186.75 per kilogram.

81.      The Questions Asked document included a statement in the following terms:

“Q:Isn’t the rate of return of 36% rather high ?

A:… Participants in this first project will receive an excellent return in 2007, when ALL Ginseng roots produced by the project will be taken up immediately, and for a pre-determined fixed price, in accordance with our contract with Panax Ginseng Wholesalers Pte Ltd, a Singapore-based commodity trader.”

82.      The Ginseng Brochure included a statement in the following terms:

“Rare Pre-Purchase Agreement
“… This is a single-harvest project and the entire crop has been pre-purchased for a guaranteed $186.75 per kilo.

Panax Ginseng Wholesalers (PGW) Pte Ltd, a Singapore-based commodity trading company specializing in ginseng, has developed a strong interest in obtaining Tasmanian-grown Korean Panax ginseng and on-selling it into the Asian market where high quality product is in increasing demand.  The company only deals in top end product of the type that contains the highest levels of saponins – the active component desired in the ginseng root.  PGW has already recognised the quality of the ginseng to be grown in Tasmania as one of the highest in the world.  As they have already supplied the seed for this project, their confidence in its success is such that they are prepared to offer a purchase-guaranteed price for the entire production.
For a minimum $1100 (inc GST) investors can expect a return of $4,160 in year 5.  This translates to an internal rate of return of 41% and an average rate of return of 61%.”   

83.      As a consequence of the First Ginseng Scheme Solicitations, approximately 560 members of both the Australian and New Zealand public invested approximately $5.3 million in the First Ginseng Scheme.

The First Panax Ginseng Representations:

84.Through the First Ginseng Documentation, Heydon Park, Mr Mason, Mr Crago, Mr Kinnaird, Mr Rhee, Mr Backhaus and Panax Ginseng represented (“the First Panax Ginseng Representations”) that:

(a)Panax Ginseng was a foreign corporation unrelated to Heydon Park;

(b)Tan Han Song and Yak Siew Kim were involved in the management and control of Panax Ginseng and had written the letters to Heydon Park that appeared in the respective product disclosure statements and that they had full knowledge of the matters stated in the letters;

(c)Panax Ginseng was a company with a history of trading in acquisition and sale of Ginseng;

(d)Panax Ginseng had representative offices in Korea, Hong Kong and China;

(e)Panax Ginseng had entered into a Ginseng Supply and Purchase Agreement on 1 June 2002 which was legally binding and enforceable;

(f)The Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 June 2002 was a commercial contract negotiated at arms length;

(g)Panax Ginseng had entered into commercial, arms length contracts to on-sell the ginseng which it was required to purchase from Heydon Park;

(h)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird did not know the full financial position of Panax Ginseng;

(i)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird believed that Panax Ginseng had the financial capacity to purchase all ginseng roots produced pursuant to the First Ginseng Scheme at a fixed price of $186.75 per kilogram;

(j)Panax Ginseng had significant experience in assessing and determining the suitability of cultivation methods for the cultivation of ginseng,  independent of the people involved in the Heydon Park Project;

(k)Panax Ginseng had, independently of people involved in the Heydon Park Ginseng Project, assessed and determined the cultivation methods to be used by Heydon Park and had formed the opinion that the ginseng to be produced pursuant to the First Ginseng Scheme would be of the “highest quality”;

(l)Panax Ginseng was not investing money, independently of the people involved in the Heydon Park Project, in the First Ginseng Scheme and was not, as an independent company supplying ginseng seed.

(m)Because of its agreement with Panax Ginseng, investors in the First Ginseng Scheme would receive a guaranteed price of $186.75 per kilogram for all ginseng produced.

85.      In fact, each of the First Panax Representations was untrue and incorrect in that:

(a)Panax Ginseng was controlled by Stephan Backhaus and Harry Jeong Rhee and instructions for its establishment in Singapore were given by Mr Mason;

(b)Tan Hang Song was never a director of Panax Ginseng and did not control that company;

(c)Ms Kim was only appointed as a nominee resident director of Panax Ginseng who acted in accordance with the wishes of the instructions given to Pioneer and who was not otherwise involved in the activities of Panax Ginseng and who had no knowledge of the letter that was published and which was attributed to her in the PDS;

(d)Panax Ginseng was not a company with a history of trading in the acquisition and sale of ginseng;

(e)Panax Ginseng did not have representative offices in Korea, Hong Kong and China. Scimax had use of an office in Hong Kong;

(f)Panax Ginseng did not enter into a Ginseng Supply and Purchase Agreement on 1 June 2002 and it was not otherwise legally binding or enforceable;

(g)The Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 December 2002:

(i)        had not been negotiated at arms length; and

(ii)       was not, in truth, a commercial contract.

(h)Panax Ginseng had not entered into any or any bona fide contract to on-sell the ginseng which it was to purchase from Heydon Park. In September 2002 Heydon Park was given a document alleged to be agreement between Panax Ginseng and Scimax Asia ;

(i)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird knew or ought to have known the full financial position of Panax Ginseng;

(j)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird knew or ought to have known that Panax Ginseng did not have the financial capacity to purchase all ginseng roots produced pursuant to the First Ginseng Scheme at a fixed price of $186.75 per kilogram;

(k)Panax Ginseng did not have, independently of the people involved in the Heydon Park Project, significant experience in assessing and determining the suitability of cultivation methods for the cultivation of ginseng;

(l)Panax Ginseng had not, independently of the people involved in the Heydon Park Project, assessed and determined the cultivation methods to be used by Heydon Park and had not formed the opinion that the ginseng to be produced pursuant to the First Ginseng Scheme would be of the “highest quality”;

(m)Panax Ginseng was not investing money, independently of the people involved in the Heydon Park Project, in the First Ginseng Scheme and was not, as an independent company supplying ginseng seed. Harry Rhee and Stephan Backhaus supplied 300kg of seed that they had personally acquired in August 2000. Additional seed was purchased by Heydon Park on an invoice from Panax Ginseng in August 2002;

(n)the Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 December 2002, did not mean that investors in the First Ginseng Scheme would receive a guaranteed price of $186.75 per kilogram for all ginseng produced.

86.At all material times, each of Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird, Mr Rhee, Mr Backhaus and Panax Ginseng knew or ought to have known of the First Panax Ginseng Representations and that they were incorrect and untrue.

C.       HEYDON PARK GINSENG PROJECT NO 2:

Registration:

87.On 7 January 2004, Mr Mason, in his capacity as a director of Heydon Park, lodged with the Commission an Application for Registration of a Managed Investment Scheme (“the Second Application”)  known as “Heydon Park Ginseng Project No 2” (“the Second Ginseng Scheme”) together with the following documents:

(a)a Constitution (“the Second Constitution”) for the Second Ginseng Project dated 30 November 2003; and

(b)a Compliance Plan (“the Second Compliance Plan) for the Second Ginseng Project dated 30 November 2003.

88.The Second Ginseng Scheme involved inviting members of the Australian public to participate in a managed investment scheme which involved the cultivation of ginseng roots for commercial sale and profit.

89.The land upon which the ginseng roots were to be cultivated pursuant to the Second Ginseng Scheme was owned by Tasmanian Panax.

90.Pursuant to the terms of the Second Constitution, Heydon Park was appointed as both the Manager and the Responsible Entity for the Second Ginseng Scheme and was the holder of the requisite Australian Financial Services Licence.

91.On about 29 January 2004, the Commission registered the Second Ginseng Scheme pursuant to Part 5C.1 of the Corporations Act, 2001.

The Product Disclosure Statement:            

92.On 27 February 2004, Heydon Park issued a Product Disclosure Statement (“the Third Disclosure Statement”) in respect of the Second Ginseng Scheme which had been lodged with the Commission. 

93.On about 27 February 2004, Mr Mason, Mr Crago and Mr Kinnaird certified that each of them had made reasonable inquiries to ensure that:

(a)there was no material statement in the Third Disclosure Statement which was false or misleading; and

(b)there was no material omission from the Third Disclosure Statement.

94.      The Third Disclosure Statement included: 

(a)a statement on page 10, in the following terms:

“How do I know that I can sell the product from my Modules?

The Manager has entered into a Sales Contract with Panax Ginseng Wholesalers Pte Ltd (PGW) for the sale of the Ginseng roots produced from the Project.  This agreement is reproduced in full from page 27.

PGW will purchase all roots supplied by the Manager, subject to the roots being supplied at an acceptable quality, indicated pricing will be as per their letter of 2^nd December 2003 reproduced as at page 25.  Provided at least 10,000 Ginseng Plants have been planted in the Project, PGW will purchase the entire production from the Project at the agreed price up to a total of 375 tonnes.”

(b)a statement on page 11, in the following terms:

“What are some of the benefits of investing in the Project?

It should be noted that:

.Some of the merits of participation are:

.the entire future production from the Project pre-sold under contract for pre-agreed price, subject to certain quality criteria.”

(c)a statement on page 12, in the following terms:

“PGW is a commodity based company with a number of related companies as part of its group in various countries.  They have representative offices in Korea, Hong Kong and China.  They have assisted the Manager in the formation of this Project and have been involved in the site selection and the supply of Korean seed.  They have arranged for the seed to be procured from Korea and its export to Australia.  The Project will only use seed approved of by PGW for the Project.  In respect of the agronomic side of the operation, while HPL will perform the duties involved PGW have already assigned personnel to visit the plantation at various critical times to ensure the operations are being conducted in accordance with their requirements.  This will ensure the roots produced are the best possible quality.  PGW have advised that they have in place sales for the roots produced by the Project and it is therefore important that the Project is able to produce the quantity and quality required to satisfy commitments made by PGW to its customers.”

(d)a statement on page 22, in the following terms: 

“Agricultural Management and Consultants:

Mr Harry Rhee BA-IT will have the responsibility, as the Project Manager, to run the ginseng plantation and all agricultural activities, plantation development and security. … His Korean background and experience provided him with a complete understanding of the production of Panax ginseng.”

(e)on page 23, in the following terms:

“Best Estimate Parameters:

The Manager prepared its estimates based on current prices and estimated yields as confirmed by the independent expert reports contained within this PDS.  These best estimates are based on the following parameters:

.The price per kilo for Ginseng roots will be as per the contract of   sale and is fixed at $186.75 per kilo to be paid for the harvest.

.The full financial position of PGW is not known.  The assumptions within the PDS are based on PGW having the financial capacity to complete the purchase and pay the amount payable for the sale of Ginseng roots by the Project.”

(e)at pages 25 to 26, a copy of a letter from Panax Ginseng to Heydon Park dated 2 December 2003, purportedly signed by Ms Kim.

(f)at pages 27 to 29, a copy of a Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 June 2002.

The solicitation of investors in the Second Ginseng Scheme:

95.Between about 27 February 2004 and 24 May 2004, Heydon Park, through its directors, officers, servants and agents, solicited (“the Second Ginseng Scheme Solicitations”) members of the Australian public with a view to encouraging them to invest in the Second Ginseng Scheme.

96.In carrying out the Second Ginseng Scheme Solicitations, Heydon Park, through its directors, officers, servants and agents, provided potential investors with the following documents and information (“the Second Ginseng Scheme Documentation”):

(a)the Third Disclosure Statement;

(b)a document (“the Heydon Park Brochure”) entitled “Heydon Park – Ginseng”, a copy of which forms exhibit “GMD-32” to the affidavit of Mr Donovan sworn on 17 May 2004;

(c)a document (“the Second Offer at a Glance document”) entitled “Offer at a Glance”, a copy of which forms exhibit “GMD-33” to the affidavit of Mr Donovan sworn on 17 May 2004.

97.      The Heydon Park Brochure included a statement on page 2, in the following terms:

“One very important factor that sets this project apart from all others is that we have achieved a presold purchase agreement for an attractive $186.75 per kilo so you already know the outcome of your investment.  We look forward to creating wealth for you … naturally.”

98.The Offer at a Glance document included calculations based upon the sale of ginseng roots at $186.75 per kilogram.

99.As a consequence of the Second Ginseng Scheme Solicitations, investments were made for approximately 7,870 modules each of 3.3 metres square.

The Second Panax Ginseng Representations:

100.Through the Second Ginseng Documentation, Heydon Park, Mr Mason, Mr Crago, Mr Kinnaird, Mr Rhee, Mr Backhaus and Panax Ginseng represented (“the Second Panax Ginseng Representations”) that:

(a)Panax Ginseng was a foreign corporation unrelated to Heydon Park;

(b)Ms Kim was involved in the management and control of Panax Ginseng and wrote the letter that was published in the PDS bearing her name;

(c)Panax Ginseng was a company with a history of trading in the acquisition and sale of ginseng;

(d)Panax Ginseng had representative offices in Korea, Hong Kong and China;

(e)Panax Ginseng had entered into a Ginseng Supply and Purchase Agreement on 1 December 2002 which was legally binding and enforceable and which was a commercial contract negotiated at arms length;

(f)Panax Ginseng had entered into commercial, arms length contracts to on-sell the ginseng which it was required to purchase from Heydon Park;

(g)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird did not know the full financial position of Panax Ginseng;

(h)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird believed that Panax Ginseng had the financial capacity to purchase all ginseng roots produced pursuant to the Second Ginseng Scheme at a fixed price of $186.75 per kilogram;

(i)Panax Ginseng had significant experience, independent of people involved in the Heydon Park Ginseng Project, in assessing and determining the suitability of cultivation methods for the cultivation of ginseng;

(j)Panax Ginseng, independently of the people involved in the Heydon Park Ginseng Project, was investing money in the Second Ginseng Scheme through the supply of ginseng seed;

(k)Panax Ginseng, independent of people involved in the Heydon Park Ginseng Project,  had been and would continue to be involved in the Second  Ginseng Scheme so as to ensure that the ginseng to be produced would be of the “best possible quality”; and

(l)Because of its agreement with Panax Ginseng, investors in the Second Ginseng Scheme would receive a guaranteed price of $186.75 per kilogram for all ginseng produced.

101.     In fact, each of the Second Panax Representations was untrue and incorrect in that:

(a)Panax Ginseng was controlled by Stephan Backhaus and Harry Rhee and the instructions for its establishment was issued by Mr Mason.;

(b)Ms Kim was only appointed as a nominee resident director of Panax Ginseng who acted in accordance with the instructions issued to Pioneer and who was not otherwise involved in the activities of Panax Ginseng and had no knowledge of the letter that was published in the PDS bearing her name;

(c)The Ginseng Supply and Purchase Agreement dated 1 December 2002, if legal and enforceable, it:

(i)had not be negotiated at arms length; and

(ii)was not, in truth, a commercial contract;

(d)Panax Ginseng had not entered into any or any bona fide contract to on-sell the ginseng which it was to purchase from Heydon Park, In September 2002 Heydon Park was given a document alleged to be an agreement between Panax Ginseng and Scimax Asia;

(e)Panax Ginseng was a not company with a history of trading in the acquisition and sale of ginseng;

(f)Panax Ginseng did not representative offices in Korea, Hong Kong and China. Scimax had use of an office in Honk Kong;

(g)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird knew or ought to have known the full financial position of Panax Ginseng;

(h)Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird knew or ought to have known that Panax Ginseng did not have the financial capacity to purchase all ginseng roots produced pursuant to the Second Ginseng Scheme at a fixed price of $186.75 per kilogram;

(i)Panax Ginseng did not, independently of the people involved in the Heydon Park Ginseng Project, have significant experience,  in assessing and determining the suitability of cultivation methods for the cultivation of ginseng;

(j)Panax Ginseng, independently of the people involved in the Heydon Park Ginseng Project was not investing money in the Second Ginseng Scheme and was not supplying ginseng seed; and

(k)Panax Ginseng, independently of the people involved in the Heydon Park Ginseng Project, had no capacity to be involved in the Second Ginseng Scheme; and

(l)the Ginseng Supply and Purchase Agreement between Heydon Park and Panax Ginseng dated 1 December 2002, did not mean that investors in the First Ginseng Scheme would receive a guaranteed price of $186.75 per kilogram for all ginseng produced.

102.At all material times, each of Heydon Park, Mr Mason, Mr Crago and Mr Kinnaird, Mr Rhee, Mr Backhaus and Panax Ginseng knew or ought to have known of the Second Panax Ginseng Representations and that they were incorrect and untrue.

D.       THE PANAX GINSENG WEBSITE:

103.Between about September 2002 and May 2004, Panax Ginseng operated an internet website (“the Panax Ginseng Website”) located at The Panax Ginseng Website contained the following statements:

(a)“Panax Ginseng Wholesales Pte Ltd is a commodity wholesaling company that is dedicated to sourcing and proving bulk quantities of the finest natural products”;

(b)“Last year the various operations of the associated companies within the group had a combined turnover in excess $US80 million.”;

(c)“Panax Ginseng Wholesalers was initially formed by a partnership of Korean and other interests in order to create a centrally-located Asian distribution point for supplies of Korean panax ginseng roots being outside Korea.”; and

(d)“Primary Trading & Associate companies:

Scimax Co Ltd

Scimax USA Inc

Scimax Europe”

105.Through the Panax Ginseng Website and, in particular, but without limitation to, the statements pleaded in the preceding paragraph, each of Panax Ginseng, represented (“the Website Representations”) that:

(a)Panax Ginseng was a large multinational company which specialized in the acquisition and sale of ginseng;

(b)Panax Ginseng owned and controlled companies located in Korea, the United States of America and Germany;

(c)Panax Ginseng and its group of companies had an annual turnover of in excess of $US80 million; and

(d)Panax Ginseng and its group of companies had significant assets.

106.     The Website Representations were made because the website was accessible:

(a)       throughout Australia; and
(b)       in trade and commerce within the meaning of:

(i)the Trade Practices Act, 1974 (Cth);

(ii)the Corporations Act, 2001 (Cth);

(iii)the Australian Securities and Investments Commission Act, 2001 (Cth); and

(iv)the Fair Trading Act, 1987 (NSW).

107.     In fact, each of the Website Representations was untrue and incorrect in that:

(a)Panax Ginseng was not a company experienced in the acquisition and sale of ginseng;

(b)Panax Ginseng did not own and control companies located in Korea, the United States of America and Germany.  The associated companies did not have the directors and offices published in the website;

(c)Panax Ginseng and its associated companies listed in the website as a group did not have an annual turnover of in excess of $US80 million; and

(d)Panax Ginseng and its associated companies listed in the website as a group of companies did not have significant assets.

108.The website was not promoted to prospective investors and records indicate that there were only a small number of visitors to the site. 

109.The website was created in about June 2003 by a website designer introduced by Heydon Park.  On the 16th of June 2003 the web page was hosted for reviewing by the web designer. On the17th June 2003 Harry Rhee requested changes to the web pages and removal of the CV's for himself and Dr. Park. 

110.For whatever reason the website continued to contain the contents until at least they were accessed by ASIC in  May 2004.

111.     The Panax Ginseng Website has now been removed.

E.       INVESTORS FUNDS PAID TO AUSFOREST:

112.The Statement of Financial Position for Heydon Park for the financial period ending 30 June 2004, records an account titled “Ausforest Limited”.  The journal for this account records in excess of 240 entries which have been summarised by the Liquidator of Heydon Park in the following way:

"(a) transactions totaling $88,075.44 being payment by Heydon park Limited of various lease and hire purchase obligations on behalf of Ausforest Limited;

(b) journal entries totaling $62,688.96 which appear to partially reverse transactions described in paragraph (a). Narrations accompanying those journal entries are recorded in the accounting system in the following terms: "adjustments to the leasing charges";

(c) transactions totaling $15,605.46 being various liabilities incurred by heydon park limited on behalf of Ausforest Limited;

(d) transactions totaling $2,638,523.01 being cash payments made by Heydon park Limited either to Ausforest Limited directly or to third parties on behalf of Ausforest Limited; and

(e) Transactions totaling $25,000 being cash received by Heydon Park Limited from Ausforest Limited; and

(f)various journal entries (both debits and credits to the Ausforest Limited loan account) the net effect of which is to increase the amount owing by Ausforest Limited by $249,890.33"

113.The Report as to the Affairs (“the RATA”) provided by the Receivers and Managers of Heydon Park to the Provisional Liquidator for Heydon Park shows as an asset of Heydon Park, a receivable of $1,986.707 owing by Ausforest Limited.

114.The RATA prepared by the Directors of Heydon Park setting out the company's financial position as at 30 November 2004 also shows as an asset of Heydon Park, a receivable of $1,352,457 owing by Ausforest.

115.It is extremely unlikely that Heydon Park will receive any payment from Ausforest as its assets are unlikely to be sufficient to satisfy the debts of Ausforest’s secured creditors.

116.Heydon Park was required by clause 11 of its Compliance Plan to maintain separation of scheme assets for each of the managed investment schemes for which it was a Manager and Responsible Entity and which included the First Ginseng Scheme, the Second Ginseng Scheme and the Heydon Park Olive Project.

117.Scheme bank accounts were operated and used in respect of application money paid by investors into the various project. Application money was firstly paid into an application account and then when the application was accepted it was paid into a specific scheme account.  Heydon Park then prepared an invoice and the funds we paid into it general account in satisfaction of the invoice.

118.Heydon Park was required by condition 18 of its Australian Financial Services Licence to maintain Professional Indemnity insurance.

119.Heydon Park failed to maintain Professional Indemnity insurance on and after 30 June 2004.  

120.In about September 2002, Heydon Park commissioned Adviser Edge Pty Ltd (“Adviser Edge”) to prepare an independent report (“the First Adviser Edge Report”) on the First Ginseng Scheme.

121.In the course of preparing the First Adviser Edge Report, Mr Mason provided Adviser Edge with a letter dated 19 September 2002 which included the following statement:

"RE: Panax Ginseng Wholesales Pty Ltd (PGW)

The establishment of this project was originally conceptualized by the people involved with PGW, who have been involved in Ginseng production for approximately 30 years."

"We have sighted back to back agreements between PGW and their customers in Asia that specify the supply of quantities of ginseng in excess of that to be supplied by the Heydon Park project…"

122.Further, the letter referred to in the preceding paragraph, also included a statement that Dr Hoon Park and Mr Suk Do Chang were involved in the operations of Panax Ginseng.

123.The First Adviser Edge Report contained a number of serious reservations about the First Ginseng Scheme and gave that scheme a poor rating. One of the major concerns expressed in the First Adviser Edge Report was the capacity of Panax Ginseng to fulfill its obligations under its “agreement” with Heydon Park.

124.Notwithstanding the reservations referred to in the preceding paragraph, Heydon Park mailed a leaflet to households which contained the following statements in support of the First Ginseng Scheme:

"Shortest term project ever seen" independent report Adviser Edge

"Highest rate of return for this type of investment" independent report Adviser Edge.

125.Heydon Park again commissioned Adviser Edge to prepare an independent report (“the Second Adviser Edge Report”) on the Second Ginseng Scheme.

126.On the 15 April 2004, Shane Kelly, an officer of Adviser Edge, in the course of preparing the Second Adviser Edge Report, sent an email to Mr Crago which included the following: 

"6.Majella asked Steve to provide information on Panax ginseng Wholesalers. Can you please chase Steve up to see how he is progressing."

127.On the 15 April 2004, Adviser Edge received a letter from Mr Backhaus which included the following statements:

"1. Panax Ginseng Wholesalers Pte Ltd is a commodity wholesaling company that is dedicated to sourcing and providing bulk quantities of the finest natural products….Last year various operations of the associated companies within the group had a combined turnover in excess of $US80 million.

2. As Heydon Park is not privy to how PGW finances their different ventures, it is very hard to comment on the way they will finance the purchase of the ginseng roots….

The principal partners in PGW have considerable financial strength and business operations in this field…."

128.On the 28 April 2004, Shane Kelly, an officer of Adviser Edge, in the course of preparing the Second Adviser Edge Report, sent an email to Mr Crago which included the following:

"1. The lack of information for PGW remains a pivotal issue for us. We do not support the use of a fixed price contract for this project and note the 2^nd crop option for sourcing a buyer elsewhere. Our primary issue revolves around the involvement of a company on a significant level without any mechanism available to determine their financial capacity to fund the purchase of what will be a significant amount of ginseng.

In 2003 the price of a ginseng module was $100. In 2004, this increased to $125. This is an effective increase of 25% or from $300,000 to $375,000. In this regard, I will quote a section of the Lonsec report provided by you…
Heydon Park has assumed an IRR of 25% down from 36% for the last years offering. The return of 25% is reflective of the level of risk of the project. On questioning management as to the reduced IRR from the previous offering, Heydon Park indicated that they had increased the entry price as they were queried on the forecast return of 36% by planners and investors. Heydon park also indicated that the increased entry cost did not reflect increased costs of managing the project, hence the increased entry price for this offering can be assumed to be promoter profit."

F.        RECEIVERSHIP & LIQUIDATION OF AUSFOREST & HEYDON PARK:

129.On 3 September 2004, Paul Billingham of Grant Thornton was appointed as the Receiver and Manager to Ausforest and certain subsidiaries, by a secured creditor.

130.On 1 December 2004, Paul Billingham of Grant Thornton was also appointed Receiver and Manager to Heydon Park by the secured creditor.

131.On 8 December 2004, the Supreme Court of New South Wales, on the application of a number of creditors, ordered that Ausforest to be wound up and appointed Gregory Hall of Price Waterhouse Coopers as Liquidator.

132.On 17 December 2004, on the application of the Commission, the Federal Court appointed Mr David John Frank Lombe and Mr Peter George Yates of Deloitte Touche Tohmatsu Provisional Liquidators to Heydon Park.

133.On 15 June 2005, the investors in the First Ginseng Scheme and in the Second  Ginseng Scheme, resolved to remove Heydon Park as responsible entity to those schemes.

134.On 17 June 2005, on the application of the Commission, the Federal Court ordered that Heydon Park be wound up and appointed Mr David John Frank Lombe and Mr Peter George Yates of Deloitte Touche Tohmatsu as Liquidators.

135.On 24 June 2005, the Federal Court appointed Australian Hardwood Management Pty Limited, Temporary Responsible Entity of the First Ginseng Scheme and the Second Ginseng Scheme.