Australian Securities and Investments Commission v Loiterton - [2004] NSWSC 897

No judgment structure available for this case.

Reported Decision:
50 ACSR 693

Supreme Court

CITATION: Australian Securities and Investments Commission v John Barrie Loiterton & Ors [2004] NSWSC 897

HEARING DATE(S): 29 April 2004
17 May 2004

JUDGMENT DATE:
30 September 2004

JURISDICTION:
Equity Division

JUDGMENT OF: Bergin J

DECISION: See paragraphs [122] - [129]

CATCHWORDS: [IMPOSITION OF PENALTIES] - Whether consequent upon declarations of contravention of the Corporations Act the defendants should be prohibited from managing a corporation for a period - whether pecuniary penalties should be imposed. - [COMPENSATION] - Whether compensation should be awarded for loss and damage to the corporation resulting from the contravening conduct.

LEGISLATION CITED: Bankruptcy Act 1966 (Cth)
Corporations Act 2001
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004

CASES CITED: Adler & Anor v ASIC; Williams v ASIC (2003) 46 ACSR 504
ASIC v Forem-Freeway Enterprises Pty Ltd & Ors (1999) 30 ACSR 339
ASIC v Loiterton & Ors [2004] NSWSC 172
ASIC v Rich (No.3) 2003 45 ACSR 305
Re British Gold Fields of West Africa Ltd [1899] 2 Ch 7.
Re Hedge: ex parte Goddard & Anor (1994) 50 FCR 421
Re HIH Insurance Ltd (in prov liq): ASIC v Adler (2002) 42 ACSR 80
Rich & Anor v ASIC [2004] HCA 42
Rich & Anor v ASIC (2003) ACSR 6
Segenhoe Ltd v Atkins (1990) 1 ACSR 691

PARTIES :
Australian Securities and Investments Commission (Plaintiff)
John Barrie Loiterton (First Defendant)
Ian Robert Hall (Second Defendant)
Ian Sapier (Third Defendant)
Peter James Loiterton (Fourth Defendant)

FILE NUMBER(S): SC 3724/00

COUNSEL: F P Carnovale and D J Price (Plaintiff)
John Barrie Loiterton (In Person)
Ian Robert Hall (In Person)
R G Forster SC and R J Brender (Third Defendant)
Peter James Loiterton (in person)

SOLICITORS: Australian Securities and Investments Commission (Plaintiff)
Gillis Delaney Brown (Third Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN J

30 SEPTEMBER 2004

3724/2000 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION V JOHN BARRIE LOITERTON & ORS.

JUDGMENT

1 On 1 April 2004 I gave judgment against the defendants in which I found they had each contravened various provisions of the Corporations Act 2001 (the Act) as they existed in 1996 and 1997: ASIC v Loiterton & Ors [2004] NSWSC 172 (the liability judgment). On 17 May 2004 I made declarations of contravention and heard evidence and submissions relevant to banning orders, penalties and a claim for compensation against Sapier when Mr RG Forster SC, leading Mr Brender, appeared for Sapier, otherwise appearances remained unchanged. I reserved my judgment on that day on the basis that it would not be delivered until at least 14 days after the High Court delivered its reasons for allowing the Appeal in Rich & Anor v ASIC [2004] HCA Trans 121 (22 April 2004), allowing an opportunity for all parties to make any additional submissions consequent upon those reasons as they may affect this aspect of these proceedings.

Rich & Anor v ASIC [2004] HCA 42

2 On 9 September 2004 the High Court (Gleeson CJ, Gummow, Hayne, Callinan, Heydon JJ; & McHugh J, Kirby J dissenting) delivered reasons for the orders made on 22 April 2004 in Rich & Anor v ASIC [2004] HCA 42 allowing an appeal from the New South Wales Court of Appeal (Rich & Anor v ASIC (2003) ACSR 6; Spigelman CJ & Ipp JA, McColl JA dissenting) dismissing an appeal from Austin J (ASIC v Rich (No 3) (2003) 45 ACSR 305) in which his Honour had ordered the defendants to provide discovery and to file witness statements.

3 The only matter that was argued before the High Court was whether discovery should have been ordered because ASIC accepted that if discovery should not have been ordered, the orders for the filing of affidavits should not have been made. The joint judgment included the following (footnotes excluded):

35. That it may be possible to characterise proceedings as having a purpose of protecting the public is not determinative. And to begin the inquiry from an a priori classification of proceedings as either protective or penal invites error. It invites error primarily because the classification adopted assumes mutual exclusivity of the categories chosen when they are not, and because the classification is itself unstable. To assume mutual exclusivity of the categories is to fall into the same kind of error as was identified in the constitutional context in Actors and Announcers Equity Association v Fontana Films Pty Ltd . Just as a law may bear several characters, a proceeding may seek relief which, if granted, would protect the public but would also penalise the person against whom it is granted. That a proceeding may bear several characters does not deny that it bears each of those characters. Moreover, as Hayne J emphasised in Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd , those who seek the “essential character” of statutory provisions do not proffer explanations of that process of distillation.

36. It was not suggested, and could not seriously be suggested, that directors, alternate directors and company secretaries do not hold offices to which the privileges against forfeiture and penalties may apply. Rather, the contention of the Commission was that discussed above, namely that the relevant proceedings were protective rather than penal.

37. If a disqualification order is made, the person against whom the order is made ceases to be a director, alternate director, or a secretary of a company, unless given permission under s 206F or s 206G of the 2001 Act to manage the corporation concerned. The order for disqualification thus causes the person against whom it is made to forfeit any office then held in a corporation and forbids that person from holding office in a corporation for the duration of the disqualification order. Those consequences, whether taken separately or in combination, when inflicted on account of a defendant's wrongdoing, are penalties. That the penalty is not exacted in the form of a money payment does not deny that conclusion. As the authorities referred to earlier in these reasons reveal, equity's concern with penalties was never confined to pecuniary penalties. If exposure to loss of office or exposure to dismissal from a police force is exposure to penalty, exposure to a disqualification order is exposure to a penalty.

38. The company cases referred to earlier, as cases concerning how an appropriate period of disqualification should be set, rightly focused upon why the orders sought might be made and what purposes might be achieved by their making. To that stream of authority Kippe stands as an exception. It concerned a different question. In Kippe , the question was whether statements made in an examination under s 19 of the Australian Securities Commission Act 1989 (Cth) were admissible in evidence in proceedings before the Administrative Appeals Tribunal in which banning orders were sought under ss 829 and 830 of the Corporations Law. Section 68(3) of the Australian Securities Commission Act provided that the statements were not admissible in “a proceeding for the imposition of a penalty”. The Full Court of the Federal Court held that a proceeding which might result in a banning order was to be characterised as “’protective’” in purpose and not as one for the imposition of a penalty”. For the reasons given earlier, that conclusion was wrong. Kippe should be overruled.

4 McHugh J said:

42. If the disqualification provisions were purely protective, the only issue for the court would be whether the defendant is now or will in the future be a fit and proper person to manage corporations. If the court were to find that, despite the misconduct, the defendant is now a fit and proper person to manage corporations, the court should refuse to make an order of disqualification. If the court were to find that the defendant would be a fit and proper person to manage corporations in the future, the only issue for determination would be the time when that would occur. Moreover, if the jurisdiction were purely protective, it is hard to see why orders for disqualification should be for fixed periods, as they almost invariably are. Fixed periods of disqualification suggest punishment rather than protection in the same way that disqualification from driving for a period is a punishment rather than an act protective of the public. If the jurisdiction were purely protective, one might have thought that the proper order would be indefinite disqualification with the onus on the defendant to show at some future date that he or she were now a fit and proper person to manage corporations. At all events, if the jurisdiction were purely protective, the defendant should have liberty to apply during the period of disqualification to show that he or she is now a fit and proper person to manage corporations.

43. In exercising their discretion, however, courts which administer the legislation do not concern themselves solely with the issue of whether the defendant now is or in the future will be a fit and proper person to manage corporations. They take into account a wide variety of factors in addition to determining whether any and, if so, what period of disqualification should be imposed. They consider more than the present and future fitness of the defendant to manage corporations. They take into account factors such as the size of any losses suffered by the corporation, its creditors and consumers, legislative objectives of personal and general deterrence, contrition on the part of the defendant, the gravity of the misconduct, the defendant’s previous good character, prejudice to the defendant's business interests, personal hardship and the willingness of the defendant to render assistance to statutory authorities and administrators. No doubt some - maybe all - of these matters are relevant in determining whether the defendant ought to be disqualified or the period of disqualification that is required in order to protect the public. But in practice courts do not use these matters merely as evidentiary indicators of the time when the defendant will, if ever, be fit to manage corporations. Rather, they become part of a synthesis from which the judges make a value judgment concerning whether to order disqualification and, if so, the period of disqualification that should be imposed. It is not the practice of judges to say: “On the evidence, I find that after (say) five years, the defendant will be sufficiently reformed to make it safe for him or her to manage corporations”. This suggests that the disqualification provisions are not purely protective in nature.

5 McHugh J, in referring to the 15 propositions formulated by Santow J in Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at 97-99, said that although they assume that a disqualification is protective rather than punitive, they “track the various matters that judges take into account in the criminal jurisdiction when sentencing offenders” (at par 48). It was the propositions relating to the recognition that disqualification provisions also have objectives of personal and general deterrence (propositions 5 and 6) that McHugh J said “strongly resemble principles under the criminal law” (at par 50). His Honour expressed the view that the factors of “retribution, deterrence, reformation, contrition and protection of the public” that are taken into account in the criminal jurisdiction are also “central” to determining whether an order for disqualification should be made under the Corporations Act (at 52). His Honour continued:

Re One.Tel Ltd (in liq); Australian Securities and Investments Commission v Rich

Corporations Act

,

6 Although the High Court was dealing with the later sections, these principles apply equally to the sections as they were at the time of the contraventions in this case. I intend to take these matters and the factors referred to by Santow J to which McHugh J referred, into account in considering whether orders sought by the plaintiff should be made.

Bankruptcy

7 The first, second and fourth defendants, John Barrie Loiterton (JBL), Ian Robert Hall (Hall), and Peter James Loiterton (PJL), were each made bankrupt on 12 July 2002, 16 May 2002 and 10 February 2003 respectively. A “creditor” requires leave to proceed or to continue proceedings against a bankrupt “in respect of a provable debt”: s 58(3)(b) Bankruptcy Act 1966 (Cth). The plaintiff had originally sought orders for compensation against all of the defendants but abandoned those claims against the bankrupt defendants on the basis that, on reflection, it needed leave to proceed against them and had not sought and did not seek such leave. However the plaintiff maintains its claim against each of the bankrupt defendants for the imposition of a pecuniary penalty under the Act and submitted that such a penalty is not a provable debt. The bankrupt defendants did not make any submissions to the contrary.

8 Section 58(3) of the Bankruptcy Act provides:

9 Prior to 30 June 1998 s 1317EA of the Corporations Law provided, inter alia, that a Court could order a person to pay a pecuniary penalty if satisfied that the person had contravened a civil penalty provision. During this period s 82(3AA) of the Bankruptcy Act provided that an amount payable “under an order made under paragraph 1317EA(3)(b) of the Corporations Law of a State or Territory” was not provable. Under the amendments to the Law and the Act since that date this Court applies corresponding provisions of the Act such that any order made under s 1317EA of the Law is taken to be made under s 1317G of the Act. Section 82(3AA) of the Bankruptcy Act provides that “an amount payable under an order made under section 1317G of the Corporations Act 2001 is not provable in bankruptcy”. In all the circumstances I am satisfied that the plaintiff is able to proceed against the bankrupt defendants for the imposition of a pecuniary penalty without the leave of the Federal Court.

Orders sought

10 The plaintiff seeks an order against each of the defendants prohibiting them from managing a corporation: 25 years for JBL, 20 years for Hall, 15 years for Sapier and 3 years for PJL. The plaintiff has accepted that under the provisions in force at the time the pre-requisite to the making of such orders is that the Court must be satisfied that the contravention(s) is/are serious (s 1317EA). Under the new provisions the Court has to be satisfied that the disqualification is justified (s 206E). The plaintiff also seeks against each of the defendants the imposition of a pecuniary penalty; $500,000 for JBL; $350,000 for Hall; $250,000 for Sapier and $5,000 for PJL. Compensation in favour of CCL is sought against Sapier in the amount of $1,814,768.

John Barrie Loiterton (JBL)

11 The liability judgment should be read in conjunction with this judgment. The references in this judgment to paragraph numbers are references to the paragraphs of the liability judgment. I will adopt the description of the categories of conduct referred to in the liability judgment in respect of which declarations of contravention have been made.

12 The plaintiff claimed and JBL accepted that JBL was in a leadership position of a listed company, CCL, as chairman and chief executive officer. He was a director of CCL and was also a director of Signature, Ansair, JRA, Austchas and IDC at the relevant times referred to in the judgment.

13 JBL’s conduct in relation to the Pre-Acquisition Fees (pars 126-245) was dishonest and the declarations of contravention made on 17 May 2004 were:

1. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 26 June 1997 he approved the issue of Clifford Group’s December 1996 Half-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit included fictitious fees, namely the CCL Pre-acquisition Fee of $1,450,000, the Ansair Pre-acquisition Fee of $800,000 and the Signature Pre-acquisition fee of $252,300.

4. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(2) in relation to CCL I that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- in about the period August 1996 to September 1997 he knowingly caused CCL to charge JRA a fictitious fee, namely the CCL Pre-acquisition Fee of $1,450,000.

5. A declaration that the first defendant John Barrie Loiterton, when a director of Ansair, contravened s.232(2) in relation to Ansair in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of Ansair:- in about the period August 1996 to September 1997 he knowingly caused Ansair to charge a fictitious fee to JRA, namely the Ansair Pre-acquisition Fee of $800,000.

6. A declaration that the first defendant John Barrie Loiterton, when a director of Signature, contravened s.232(2) in relation to Signature in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of Signature:- in about the period August 1996 to September 1997 he knowingly caused Signature to charge a fictitious fee to JRA, namely the Signature Pre-acquisition Fee of $232,500.

9. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified act, he was knowingly the cause of a default under s.295A:- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit wrongly included fictitious fees, namely the CCL Pre-acquisition Fee of $1,450,000, the Ansair Pre-acquisition Fee of $800,000 and the Signature Pre-acquisition Fee of $252,300.

10. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified act, he was knowingly the cause of a default under s.292:- on about 10 October 1997 he approved the issue of CCL’s 1996/1997 Full-Year Accounts knowing that those accounts failed to give a true and fair view of CCL’s profit or loss for the accounting period covered by them because the reported profit wrongly included a fictitious fee, namely the CCL Pre-acquisition Fee of $1,450,000.

14 The plaintiff submitted that there were features of JBL’s conduct that should be emphasised in the consideration of the imposition of any penalty. That conduct included creating and signing the Minutes of 28 June 1996 when he knew no such meeting had been held (pars. 152-154, 158, 232-233) and procuring senior officers of the Group to act dishonestly, namely Hall, whom he directed to charge the Signature Pre-acquisition Fee of $252,300 and Ellis, whom he directed to charge the other two Pre-acquisition Fees (pars. 163-164, 176, 229-230, 235, 238-242).

15 JBL’s conduct in relation to the Signature Exclusivity Fees (pars 271 and 335) was also dishonest. The declarations of contravention made on 17 May 2004 in respect of that conduct were:

11. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 26 June 1997 he approved the issue of Clifford Group’s December 1996 Half-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit included fictitious fees, namely the Signature Exclusivity Fees of $1,541,000.

12. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit wrongly included fictitious fees, namely the Signature Exclusivity Fees of $2,801,100 (which included the Signature Exclusivity Fees of $1,541,000).

16 The plaintiff highlighted JBL’s conduct in approving the scheme put forward for charging these fees and signing fictitious documents, namely the Minutes of an IDC Directors’ meeting of 11 July 1996 and the Minutes of CCL Directors’ meeting of 5 October 1996 when he knew that no such meetings had been held (pars. 288-290, 309-310, 315).

17 JBL’s conduct in respect of the Origin Fee (pars 336 and 388) was dishonest and declarations of contravention made on 17 May 2004 in respect of that conduct were:

16. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL;- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because they failed to disclose that the consolidated profit included a sum of money, namely the Origin Fee of $770,000, that John Barrie Loiterton had injected into Signature on no commercial basis at all.

17. A declaration that the first defendant John Barrie Loiterton, when a director of Signature, contravened s.232(2) in relation to Signature in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of Signature:- in about June 1997 he caused Signature to record the receipt of a sum of money, namely the Origin Fee of $770,000, as a commercial fee from a third party when in truth it was money that John Barrie Loiterton had injected into Signature on no commercial basis at all.

18. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified act, he was knowingly the cause of a default under s.295A:- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because they failed to disclose that the consolidated profit included a sum of money, namely the Origin Fee of $770,000, that John Barrie Loiterton had injected into Signature on no commercial basis at all.

19. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified act, he was knowingly the cause of a default under s.298:- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that those accounts were not made out in accordance with accounting standard AASB1017 because they failed to disclose that the consolidated profit included a sum of money, namely the Origin Fee of $770,000, that John Barrie Loiterton had injected into Signature on no commercial basis at all.

18 The plaintiff originally claimed that JBL’s conduct in respect of the Revesby Profit (pars 389-476) was dishonest. That claim was withdrawn and a claim was made that he had contravened s. 232(4). The declarations of contravention made against JBL on 17 May 2004 in respect of the Revesby Profit were:

20. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that the reported consolidated profit included the Revesby Profit of $1,899,072 but without making proper enquiries as to whether the inclusion of that amount caused those accounts not to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them.

21. A declaration that the first defendant John Barrie Loiterton, when a director of Austchas, contravened s.232(4) in relation to Austchas in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of Austchas without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on 30 June 1997 he approved the execution by Austchas of a contract for the sale of a property at Revesby knowing that private companies associated with himself and the second defendant were funding the deposit because the purchaser itself lacked the funds, and knowing that the purchaser was not an independent third party, but without making proper enquiries as to the identity of the purchaser, the likelihood of the purchaser completing the purchase and the true nature of the transaction.

22. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified omission, he failed to take reasonable steps to secure compliance with s.295A:- before he approved on about 10 October 1997 the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts, knowing that the reported consolidated profit included the Revesby Profit of $1,899,072, he failed to make proper enquiries as to whether the inclusion of that amount caused those accounts not to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them.

19 Some of the features of JBL’s conduct in respect of the Revesby profit highlighted by the plaintiff included the pressure he applied to Hall and Ellis to sell the property by 30 June 1997 (392 and 402), the extraordinary conduct in funding the deposit for the purchase through his own company and that of Hall’s and his main concern that his private company, Leisuremark, might not be repaid $200,000 (448).

20 JBL’s conduct in relation to the Dividends (pars 545 and 585) was in parts dishonest and in parts negligent. The declarations of contravention made on 17 May 2004 in respect off that conduct were as follows:

23. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 10 October 1997 he approved CCL’s 1996/1997 Full-Year Accounts knowing that those accounts failed to give a true and fair view of CCL’s profit or loss for the accounting period covered by them because the reported profit wrongly included the Signature February 1997 Dividend of $1,500,000 which had been paid by Signature otherwise than out of profits.

24. A declaration that the first defendant John Barrie Loiterton, when a director of Signature, contravened s.232(2) in relation to Signature in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of Signature:- on about 28 February 1997 he caused Signature to pay, purportedly out of profits, the Signature February 1997 Dividend of $1,500,000 when he knew that Signature had no profits from which to pay the dividend.

25. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified act, he was knowingly the cause of a default under s.292:- on about 10 October 1997 he approved the issue of CCL’s 1996/1997 Full-Year Accounts knowing that those accounts failed to give a true and fair view of CCL’s profit or loss for the accounting period covered by them because the reported profit wrongly included the Signature February 1997 Dividend of $1,500,000 which had been paid by Signature otherwise than out of profits.

26. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 10 October 1997 he approved CCL’s 1996/1997 Full-Year Accounts knowing that the reported consolidated profit included the Austchas June 1997 Dividend of $1,899,072, but without making proper enquiries as to whether the inclusion of that amount caused those accounts not to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them by reason that the dividend might not have been paid out of profits.

27. A declaration that the first defendant John Barrie Loiterton, when a director of Austchas, contravened s.232(4) in relation to Austchas in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of Austchas without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 30 June 1997 when Austchas had no profits from which to pay a dividend, he caused Austchas to pay, purportedly out of profits, the Austchas 1997 Dividend of $1,899,072 without making proper enquiries as to whether Austchas had profits from which to pay the dividend.

28. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified omission, he failed to take reasonable steps to secure compliance with s.292:- before he approved on about 10 October 1997 the issue of CCL’s Full-Year Accounts, knowing that that the reported profit included the Austchas 1997 Dividend of $1,899,072, he failed to make proper enquiries as to whether the inclusion of that amount caused those accounts not to give a true and fair view of CCL’s profit or loss for the accounting period covered by them by reason that the dividend might not have been paid out of profits.

29. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 30 April 1997 when CCL had no profits from which to pay a dividend, he approved the payment on that day of the CCL April 1997 Dividend of $1,425,825, purportedly out of profits, without making proper enquiries as to whether CCL had profits from which to pay the dividend.

30. A declaration that the first defendant John Barrie Loiterton, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 26 November 1997, when CCL had no profits from which to pay a dividend, he approved the payment on 17 December 1997, at which time CCL still had no profits from which to pay a dividend, of the CCL December 1997 Dividend of $2,905,509, purportedly out of profits, without making proper enquiries as to whether CCL had profits from which to pay the dividend.

21 The plaintiff emphasised JBL’s knowledge that the dividends that were paid relied upon the false profits brought to account from the various transactions the subject of the declarations of contraventions involving dishonest conduct. The plaintiff has compared the reported profits of the Group and CCL with the various amounts that were included in the reported profit in relation to which dishonesty declarations and negligence declarations have been made against JBL. That comparison is as follows:

reported consolidated profit (par 63) $8,405,000 includes:

dishonesty)

1,541,000

dishonesty)

reported consolidated profit (par 63) $11,511,000 includes:

dishonesty)

negligence)

1,899,072

dishonesty

negligence)

(dishonesty)

dishonesty

negligence)

1,899,072

dishonesty

negligence

22 The plaintiff submitted that JBL’s contraventions should really be seen as involving 10 separate and distinct matters over a 12 month period. Those matters are: (1) the charging of the Pre-acquisition Fees (dishonesty); (2) the charging of the Exclusivity Fee (dishonesty); (3) the charging of the Origin Fee (dishonesty); (4) the approval of the Revesby Transaction (negligence); (5) the payment of the Signature February 1997 Dividend (dishonesty); (6) the payment of the Austchas June 1997 dividend (negligence); (7) the payment of the CCL April 1997 dividend (negligence); (8) the payment of the CCL December 1997 dividend (negligence); (9) the approval of Clifford’s December 1996 Half-year Consolidated Accounts (dishonesty); and (10) the approval of Clifford’s 1996/1997 Consolidated Accounts and CCL’s 1996/1997 Accounts (dishonesty and negligence).

23 The plaintiff submitted that JBL’s contraventions were very serious and that there are no mitigating circumstances. It was submitted that this justifies the imposition of a ban on JBL from managing a corporation for 25 years.

24 JBL made a written submission that ultimately became an exhibit (Ex D1-1) because it contained some statements of fact. JBL gave evidence that the statements within the submission were true and was cross-examined upon them. He claimed that no suspect transaction involving directors resulted in any benefit to any director. This seems to ignore the dividends that were paid to the families of the directors via the corporate structures and family trust arrangements.

25 JBL claimed that the demise of the Group caused him to lose his investments and financial distress and also caused his bankruptcy. He claimed that he had not worked in a full-time position since the liquidation and now has “minimal income from being employed by a company controlled by my family” (Ex D1-1). In cross-examination it became clear that JBL lives on a substantial property in the Southern Highlands upon which there are two residences, a lavender farm, a vineyard, and retail outlets selling a variety of products. That business, operated by the company Statford Park Pty (controlled by Mrs Loiterton) apparently ran at a small loss in the last financial year. There is a trust arrangement in place, although the details are far from clear, which apparently favours the youngest of JBL’s five children. The land value alone is at least $3 million.

26 JBL also referred to his loss of reputation and claimed that he could not re-enter public company areas. He claimed that he had suffered substantial personal distress, loss of friends and associates and for a period of six years an inability to recommence his life. He also referred to the extensive costs involved in legal actions, payments for advice and the like contributing to the necessity of bankruptcy. Reference was made to the “immense strain and stress to innocent parties”. In that regard JBL’s submission referred to the stress on his wife and his consequent considerable distress. He also faces several criminal charges in relation to the activities of the Group which continues to cause him both emotional and financial distress.

27 He is presently aged 64 and he has given evidence that it is not his intention to enter any business activities involving public or private companies. Since the liquidation of the Group he has not been involved in the administration of any public or private company, other than what he referred to as the “small family owned companies”. That involvement ceased upon his bankruptcy in 2002.

28 JBL gave evidence that he remains employed casually as a consultant which is his main source of income. He claimed that last year his income was $12,204 plus the use of a small vehicle. He also gave evidence that he was assisted to a “small extent” by his family. JBL also referred to his health. During the trial he was affected by cluster headaches and the hearing of the cases against him had to be adjourned from time to time because of this problem. The medical evidence before me at that time demonstrated that these are severe attacks for which he receives fairly powerful medication.

29 JBL submitted that any banning order, given his age and physical circumstances, should not exceed a period of six years from the date of his bankruptcy in 2002. That would be effectively a period of more than ten years from the appointment of the administrators to the Group. In support of this submission JBL referred to the arrangement reached between the plaintiff and Ellis (par 106). Ellis was in a different category altogether of course, assisting the plaintiff in these proceedings and also agreeing to give evidence against the defendants in the criminal proceedings. It is also important to take into account the fact that Ellis was an employee and, I accept, was under the direction of JBL. Although Ellis was in a position where he could have refused to continue with the relevant conduct and reported the disgraceful conduct of these defendants, he was in an inferior position.

30 JBL’s submission included the following:

As the CEO, I bear a substantial responsibility as a director and officer. In Clifford, Sapier took only peripheral roles in the day-to-day operations whilst Hall had day-to-day roles largely limited to Signature. As a consequence, both relied upon Ellis particularly, and myself, to be properly informed. Whilst little has been made of the role of Ellis in the judgment, he failed in his duty of care not only to the company but also to each of the directors and more particularly to Sapier as his joint company secretary. If Ellis (and myself) had provided better and more timely information to other directors, then their decisions and actions may have been different, a situation I regret. I find it unfortunate that Ellis is not standing beside us in these actions to answer truthfully the matters before your Honour.

In any event, I must bear a share of the responsibility for the actions of Hall and more particularly, Sapier.

(Ex D1-1)

31 The plaintiff submitted that there was not even a hint of contrition or remorse in JBL’s evidence or submission. Having heard this submission JBL then sought leave to give the following further evidence:

I regret the effect of the demise of Clifford on many of the parties, the many parties involved, which of course included, without limitation, the shareholders, the creditors and the staff and of course some 700 employees.

I don’t think I can describe how badly I felt about it at the time and since then. I regret that I did not note within my submissions the level of contrition and that I was extremely sorry for my actions and the effect that they had on this large number of parties. I am sincerely sorry for my actions within the Clifford matters and of course my activities as stated within the judgment. And I apologise for not clearly stating my contrition. As I assumed that it was obvious from my submissions.

(tr.38)

32 I am satisfied that JBL’s conduct amounting to the contraventions of the Act was of a most serious kind. I agree with the proposition he put forward in his evidence that he should take “substantial responsibility”. JBL was the most powerful person in the Group as a matter of personality and as a matter of fact in his position as Chairman. I have no doubt that as a matter of personality each of the defendants and Ellis was dominated by JBL and I also have no doubt that JBL was well aware of his capacity to dominate and used that attribute to effect the results that are the subject of the declarations of contravention.

33 The plaintiff characterised JBL’s conduct as 10 separate and distinct episodes over the period of 12 months. In Re HIH Insurance; ASIC v Adler & Ors (2002) 42 ACSR 80 Santow J said:

[62] … I would agree that the most that could be said is that a multiplicity of contraventions by reference to breaches of not just one but several provisions of the Corporations Law (or Corporations Act) may give a broad indication of the seriousness of the contravention, but much more to the point is to look at the contraventions themselves.

[63] … That the conduct in question was repeated and followed a pattern, simply makes it more serious in terms of dereliction, with consequently greater risk to the public if Mr Adler were allowed to continue to manage companies.

[68] In considering the effect of the multiple contraventions, for the purpose of determining whether or not to make a disqualification order, the relevant transactions are to be judged individually as well for their cumulative effect.

34 On appeal: Adler & Anor v ASIC; Williams v ASIC (2003) 46 ACSR 504, Giles JA said:

[748] Section 1317G gives a discretion as to making a pecuniary penalty order, see “may” at its commencement, and calls for an assessment of whether the contravention is serious, Sections 206C and 206E require that the court be satisfied “that the disqualification is justified”, and provide that the court may have regard to “the person’s conduct in relation to the management, business or property of any corporation” and “any other matters that the Court considers appropriate”. For both pecuniary penalty and disqualification the task is normative, and the nature of the conduct of the person found to have contravened the civil penalty provision is relevant. That a director fails to exercise care and diligence through neglectful inattention is one thing: it is another thing if a director fails to exercise due care and diligence with knowledge that he is acting wrongly, contrary to the interests of the company, and in his own interests. Provided procedural fairness is afforded, there is no error in characterising the director’s conduct as dishonest, if it fairly bears that characterisation, when it comes to deciding whether a pecuniary penalty should be imposed and if so in what amount, or to deciding whether disqualification is justified and if so for what period. It would be nonsense if that could not be done.

35 Fourteen declarations of contravention (DOC) of s 232 have been made against JBL. Here is a man who was in the position of Chairman and director of a public company and a director of private companies associated with that public company not only causing the charging of fictitious fees (DOC 4-7) but approving accounts of the public company containing those fictitious fees as false profits (DOC 1-3) and also causing defaults in compliance with the Act (DOC 8-10, 14, 15, 18, 19). There were also declarations in respect of the dividend payment by Signature in February 1997 and the approval of the CCL accounts that reported profit that included that dividend (DOC 23 –24).

36 That conduct, appropriately characterised as dishonest conduct, occurred over a lengthy period of 2 years. The contraventions taken individually are extremely serious but when viewed cumulatively are both alarming and quite appalling. It is clear that JBL paid little regard to the confines of the law within which companies and company directors are obliged to operate. There is, of course, more. There are the additional episodes of a lack of care and diligence (DOC 20-22, 26, 27, 29, 30) and further default (DOC 25, 28).

37 Until delivery of the liability judgment JBL maintained that he had acted with propriety and at all times in the best interests of Clifford. His lengthy cross-examination of Ellis included suggestions that Ellis was not telling the truth. For instance, it was suggested to Ellis that it was not true that the invoices for the Pre-Acquisition Fees were false. This was put to Ellis in the process of JBL propounding a case that the pre-acquisition invoices were not false or not known by him to be false. These claims have been dealt with in the liability judgment but they are revisited for the purpose of assessing JBL’s evidence given in response to the plaintiff’s claim that there was no evidence that JBL was contrite or remorseful in relation to the contraventions he had committed.

38 From the facts of the case, my observation of him in the witness box and whilst conducting his own defence, I have formed the view that JBL is a complex individual and, as with most aspects of the way in which he conducted the case, this aspect is not free from complexity. His written submissions on penalty focused in the main on his own financial and emotional distress. There was also the statement that the demise of Clifford had “caused immense strain and stress to innocent parties and in particular, my wife and family, something that has in itself caused me considerable distress”. There was no expansion of the term “innocent parties” other than the mention of JBL’s wife and family. There was also the return to Ellis and the somewhat bitter expression of the “unfortunate” absence of Ellis as a defendant in this case “standing beside us in these actions to answer truthfully the matters before your Honour”.

39 JBL stated in the written submission that if Ellis and he had provided better and more timely information to other directors “then their decisions and actions may have been different, a situation I regret”. It seems to me that this expression of regret is somewhat understated in part probably because it is wrapped up in the delivery of the barb about Ellis’ absence as a defendant but also in part because it is the way in which JBL tends to express himself when he is dealing with matters personal. This tendency was evident in the understated way in which JBL described his cluster headaches, a view that is justified having regard to the medical evidence that was available suggesting the very debilitating nature of this affliction.

40 JBL does not seem to be able to come to grips with the fact that Ellis actually admitted his own dishonest and negligent conduct and exposed similar conduct of the defendants. JBL would rather have it that Ellis was not truthful about JBL’s conduct so that he could obtain a better deal from the plaintiff. The sting in the reference to Ellis standing beside him “to answer truthfully” suggests that JBL is still trying to blame Ellis. His seemingly begrudging conclusion was that “in any event, I must bear a share of the responsibility for the actions of Hall and more particularly, Sapier”.

41 JBL’s written submission did include the statement, “I accept the findings of the Court” and the abovementioned reference to the “regret” in relation to the other defendants but it was not until he gave evidence when prompted by the plaintiff’s submission in relation to a lack of remorse or contrition that there was the express statement for the first time that he was “sorry for my actions within the Clifford matters and of course my activities as stated within the judgment”. In cross-examination JBL’s statement that he accepted the findings of the Court was placed in a slightly different light in that he said he “had no option but to accept” them. Although the plaintiff wished to explore whether there were some findings that JBL did not accept, such course was abandoned after I suggested that it may be unhelpful.

42 I am of the view that JBL’s expression of contrition must be taken into account and viewed in the context in which it was given eventuating only when prompted and after the further attempts to blame Ellis.

43 JBL’s written submission, as I understand it, suggested the following by way of mitigation and/or by way of comparison to what might be the worst case:

At the time, Clifford shares represented almost my total assets. Nothing I did in Clifford was for other than the benefit of the shareholders and indirectly the investment of my family. Not at any time was there any transaction, which in any way reduced the shareholder value of Clifford. There were no suspect transactions involving directors, which resulted in any benefit to any director. Whilst the final Revesby sale recovered any potential loss occasioned by the original ‘sale’, the Origin matter resulted in an increase in shareholder funds. There were no spurious deals between the company and director entities resulting in the transfer of wealth from the company to director entities. As a director and employee, I received only proper remuneration and expense recoveries.

There has been no finding as to any insider trading activity such that it could be concluded that I or my family companies benefited directly or indirectly from my actions.

44 I am afraid that these matters do not really assist JBL if it is suggested these matters should be considered as mitigation. True it is that there was no conduct that amounted to or resulted in the transfer of wealth in the crude fashion suggested. The conduct that enabled the profits to be overstated by the inclusion of the false fees and false profits was a little more complex and yet in parts quite unsophisticated. The approval of the dividends as described in the liability judgment resulted in payments to entities that benefited JBL’s family through a corporate structure and trust arrangement. It ill behoves JBL to suggest that because there was not a direct transfer of wealth to him his conduct should be seen in some less serious light. It rather suggests that even now he does not understand the very serious nature of his conduct. I do accept that JBL wanted these companies to be a success and was not simply using them to obtain benefits for himself. However he sought to achieve that success by dishonest and unacceptable methods.

45 To allow JBL to manage or control a company after the very serious and dishonest abuse of his position as a director of both public and private companies is simply not an option for many years, both from a protective and punitive/deterrent perspective. I will not however impose the ban of 25 years suggested by the plaintiff. These events occurred 8 years ago and although I have expressed a view that even now JBL appears to lack insight into the seriousness of his conduct it is necessary to take into account the fact that this conduct occurred quite a long time ago. There is also the matter of his bankruptcy and his disqualification from the management of a company by reason of that status. I also take into account his expression of contrition. In all the circumstances I am satisfied that an appropriate period during which JBL should be prohibited from acting as a director of a company or from managing a company is 17 years from the date of his bankruptcy, 12 July 2002.

46 The plaintiff submitted that for the purpose of fixing a pecuniary penalty each of the ten episodes referred to above justifies a substantial penalty at the higher end of the scale, with the episodes involving dishonesty justifying a higher penalty than those involving negligence. It was submitted that each episode may be regarded notionally as a contravention for which the maximum penalty of $200,000 is applicable. On that basis, it was submitted that a total penalty of $500,000 should be imposed.

47 The plaintiff conceded that JBL’s bankruptcy is a factor to be considered in fixing a penalty, but that it is going too far to say, as Madgwick J said in Australian Securities Commission v Forem- FreewayEnterprises Pty Limited & Ors (1999) 30 ACSR 339 at 352, that the imposition of a substantial pecuniary penalty on a defendant with no present capacity to pay is “a somewhat pointless exercise”. The plaintiff submitted that the conduct was so serious that it warrants a penalty in the vicinity of $500,000 and JBL’s bankruptcy should not prevent the Court from imposing such penalty.

48 JBL claimed that he has no assets and is not in any position to pay any costs or pecuniary penalties. He also claimed that, having regard to his age, he did not expect to accumulate any assets in the future that would enable him to make any payments. He submitted that an appropriate penalty should be limited to an achievable sum with payment to commence within one year after conclusion of his bankruptcy and thereafter by annual payments. He submitted that $10,000 per annum be paid during each year remaining of a potential banning order to a maximum of $50,000.

49 In cross examination JBL gave evidence that the consultancy to which he referred from which he earned approximately $12,000 in the last financial year was with the family company, Statford Park. Eliciting details of the operation of Statford Park was a somewhat slow process. That evidence included the following:

Q. Just tell me about the farm a little bit, what sort of premises, what sort of property is it? It’s a lavender farm. What about buildings?

A. It’s all part of the same, it has some grape vines, about 7,000 grape vines and it has a small orchard and it has lavender.

…

50 As can be seen from this evidence JBL was not going to give anything away. To suggest a combined valuation of approximately $2.3 million without disclosing that such valuation was the unimproved value of the land was less than candid. To then suggest that the total value was about $3 million for what was ultimately described is a little difficult to accept. This evidence is indicative of the way JBL appears to approach things. For a man of his experience and intelligence it is difficult to accept that he does not truly know the position of whether he holds shares beneficially or not and why it was that the extra thousand shares were issued to his wife or what is a discretionary trust.

51 I have not been informed whether the property is encumbered nor has any detail been provided for JBL’s wife’s alleged loans to the Company. If JBL’s wife made loans to the Company such that she and/or JBL thought it appropriate for her to be “protected”, such protection could have been put in place from the outset in about 1997 or 1998. It was not until after the plaintiff commenced these proceedings that the structure was changed. However it has to be remembered that there is no evidence challenging the fact that this property is held beneficially for JBL’s youngest son. That does not mean however that money is not or will not be available to JBL to make payment of a pecuniary penalty. It seems to me that JBL’s suggestion that his income may be three times what it was last year should be viewed as conservative, to use a non-pejorative term. I have little doubt that JBL was doing his best to ensure that his wife and family should not be burdened with the consequences of his conduct. However it has to be remembered that his wife and family benefited from the payment of the dividend which resulted from his contravening conduct.

52 JBL’s suggestion of a pecuniary penalty totalling $50,000 is unacceptable. The dishonest conduct perpetrated during the lengthy period warrants in each case the imposition of a heavy penalty. I am of the view that I should consider the dishonest conduct in categories of conduct rather than taking each and every declaration of contravention, as one upon which there should be the imposition of a penalty.

53 The plaintiff submitted that on the basis of 10 episodes at the maximum penalty of $200,000, the maximum penalty may be regarded, notionally, as $2 million. It was submitted that a total penalty of $500,000 should be imposed inferentially suggesting that on each episode of conduct a penalty of $50,000 should be imposed. That ten episodes relied upon by the plaintiff were categorised as to five episodes of dishonesty (1; to; 3; 5; 9 and part of 10) and five episodes of negligence (4, 6, 7, 8, and part of 10). The approach adopted by the plaintiff is apparently to fix a notional $50,000 for dishonest conduct and $50,000 for negligent conduct.

54 I am satisfied that the dishonest conduct was extremely serious and I am satisfied that the negligent conduct was very serious. I am satisfied that the imposition of a pecuniary penalty in respect of each category of conduct is justified. In fixing this pecuniary penalty I have taken into account the fact that the banning period is also a penalty. In respect of each of the five categories of dishonest conduct I impose a penalty of $50,000. In respect of each of the five categories of negligent conduct I impose a penalty of $30,000. The total pecuniary penalty to be imposed is $400,000.

55 Hall’s conduct in relation to the Pre-acquisition Fees was in part dishonest and in part negligent. On 17 May 2004 the following declarations of contravention were made:

31. A declaration that the second defendant Ian Robert Hall, when a direction of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 26 June 1997 he approved the issue of Clifford Group’s December 1996 Half-Year Consolidated Acconts knowing that these accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit included a fictitious fee, namely the Signature Pre-acquisition Fee of $252,300.

32. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit wrongly included a fictitious fee, namely the Signature Pre-acquisition Fee of $252,300.

33. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 26 June 1997 he approved the issue of Clifford Group’s December 1996 Half-Year Consolidated Accounts knowing that the reported consolidated profit included the CCL Pre-acquisition Fee of $1,450,000 and the Ansair Pre-acquisition Fee of $800,000 but without making proper enquiries as to whether the inclusion of those amounts caused those accounts not to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them.

34. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 10 October 1997 he approved Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that the reported consolidated profit included the CCL Pre-acquisition Fee of $1,450,000 and the Ansair Pre-acquisition Fee of $800,000 but without making proper enquiries as to whether the inclusion of those amounts caused those accounts not to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them.

35. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- on about 10 October 1997 he approved CCL’s 1996/1997 Full-Year Accounts knowing that the reported profit included the CCL Pre-acquisition Fee of $1,450,000 but without making proper enquiries as to whether the inclusion of that amount caused those accounts not to give a true and fair view of CCL’s profit or loss for the accounting period covered by them.

36. A declaration that the second defendant Ian Robert Hall, when a director of Signature, contravened s.232(2) in relation to Signature in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of Signature:- in about December 1996 or January 1997 he knowingly assisted signature to charge JRA a fictitious fee, namely the signature Pre-acquisition Fee of $252,300 by creating an invoice for that fee.

37. A declaration that the second defendant Ian Robert Hall, when a director of JRA, contravened s.232(2) in relation to JRA in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of JRA:- in about December 1996 or January 1997 he knowingly assisted Signature to charge JRA a fictitious fee, namely the Signature Pre-acquisition Fee of $252,300, by creating an invoice for that fee.

38. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.232(4) in relation to CCL in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of CCL without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- in about the period October 1996 to September 1997 he permitted CCL to charge JRA a fee, namely the CCL Pre-acquisition Fee of $1,450,000, without making proper enquiries as to whether such a fee was a bona fide fee.

39. A declaration that the second defendant Ian Robert Hall, when a director of JRA, contravened s.232(4) in relation to JRA in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of JRA without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- in about the period October 1996 to September 1997 he permitted JRA to be charged a fee by CCL, namely the CCL Pre-acquisition Fee of $1,450,000 without making proper enquiries as to whether such a fee was a bona fide fee.

40. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified act, he was knowingly the cause of a default under s.295A:- on about 26 June 1997 he approved the issue of Clifford Group’s December 1996 Half-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit wrongly included a fictitious fee, namely the Signature Pre-acquisition Fee of $252,300.

43. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified omission, he failed to take reasonable steps to secure compliance with s.295A:- before he approved on about 10 October 1997 the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts, knowing that the reported consolidated profit included the CCL Pre-acquisition Fee of $1,450,000 and the Ansair Pre-acquisition Fee of $800,000, he failed to make proper enquiries as to whether the inclusion of those amounts caused those accounts not to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them.

44. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.318(1) in relation to CCL in that, by the following specified omission, he failed to take reasonable steps to secure compliance with s.292:- before he approved on about 10 October 1997 the issue of CCL’s 1996/1997 Full-Year Accounts, knowing that the reported profit included the CCL Pre-acquisition Fee of $1,450,000, he failed to make proper enquiries as to whether the inclusion of those amounts caused those accounts not to give a true and fair view of CCL’s profit or loss for the accounting period covered by them.

56 The plaintiff highlighted Hall’s conduct in back-dating invoices (174-176) and back-dating the Minute purporting to be a Minute of a directors’ meeting on 28 June 1996 (153).

57 Hall’s conduct in relation to the Signature Exclusivity Fees was dishonest. The following declarations of contravention were made on 17 May 2004:

45. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 26 June 1997 he approved the issue of Clifford Group’s December 1996 Half-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit included fictitious fees, namely the Signature Exclusivity Fees of $1,541,000.

46. A declaration that the second defendant Ian Robert Hall, when a director of CCL, contravened s.232(2) in relation to CCL in that, by the following specified act, he acted dishonestly in the exercise of his powers and the discharge of his duties as a director of CCL:- on about 10 October 1997 he approved the issue of Clifford Group’s 1996/1997 Full-Year Consolidated Accounts knowing that those accounts failed to give a true and fair view of Clifford Group’s consolidated profit or loss for the accounting period covered by them because the reported consolidated profit wrongly included fictitious fees, namely the Signature Exclusivity Fees of $2,801,100 (which included the Signature Exclusivity Fees of $1,541,000).

87 The plaintiff accepted that the Court’s power to make a compensation order is discretionary both as to the making of the order and the amount to be ordered. A further discretion is conferred by s.1317JA to relieve a defendant “wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention”. The plaintiff submitted that the evidence does not justify such relief because Sapier, as a skilled accountant on the Audit Committee, was especially well placed to make proper enquires as to the level of real profits and there were no extenuating circumstances.

88 Sapier gave evidence both by way of affidavit evidence and orally. In an affidavit sworn on 14 May 2004 he set out his personal background, his involvement with the Clifford Group, the fact that he made no financial gain from any of his conduct, his financial position, his good character, his role in the liquidation and his expression of contrition. Sapier also called character evidence. That evidence was from Allan Marks, a company director and chief executive officer of Hamilton James & Bruce Group Limited, an ASX listed company since 2000; Leonard John Karp a barrister and friend of Sapier’s since school days; Dr Allan Amodeo a medical doctor and a chief executive officer of the company Tuta Healthcare Pty Ltd; and Rod Macqueen AM, the former international rugby player who described Sapier as a mentor and advisor in both business and personal affairs. Each of the witnesses gave unchallenged evidence that the finding of dishonesty against Sapier was completely out of character and each of them gave evidence that they had found him to be honest, professional and a man of great integrity.

89 Sapier commenced accountancy training at Mann Judd in 1979 where he remained until 1983. He then worked for Messrs Einfeld Symonds and Lowy from about 1983 to about early 1987. He then joined Bird Cameron in 1987 where he worked until 1991 by which time that firm had merged with Horwath & Horwath. Sapier has been in his own private practice since 1991. He is a director of two companies through which the accounting practice is operated at Bondi Junction. Ian Sapier Pty Ltd trading as Ian Sapier and Co, Chartered Accountants, is a registered tax agent and has been so since 2002. Prior to that year it was a trustee company. The other company is Sapier Accountancy and Strategic Advisory Pty Limited (SASA) that operates solely as a trustee of the practice trust. Sapier’s wife holds 49% of the shares in Ian Sapier Pty Limited and Sapier holds the remaining 51% of the shares. Mrs Sapier is the sole shareholder of SASA.

90 The affidavit evidence disclosed that the “firm” occupies approximately 80-90 square metres of office space and employs two qualified accountants and 2-3 support staff. During cross-examination it emerged that a company Reipas Pty Ltd (Sapier spelt backwards) owns the premises from which the firm practises. Mrs Sapier is the sole shareholder of Reipas. It also emerged that the firm pays Reipas $3,000 per month rental for the premises.

91 Approximately 80% of the gross fees derived by the practice is generated from personal tax returns and servicing small business clients providing bookkeeping and annual tax return services. Sapier has never been a director of any other company except for those connected with Clifford. Sapier first met Hall in about 1990 when he did some work for the Leisuremark Group as an employee of Bird Cameron. He was introduced to JBL and after leaving Horwath and Horwath in about 1991 he became the personal accountant for both Hall and JBL.

92 Sapier emphasised that whilst he was involved with Clifford he was for most of the time the only non-executive director and was also the only director not located at the premises. His evidence was that he now recognised that his skills and experience were “inappropriate” to deal with the issues involved in the operation of the public company and its subsidiaries. The fees Sapier received were in the form of a retainer of $65,000 that had to be worked off, and a further $20,000 by way of fees. There was also a contribution to the lease payments on a vehicle of approximately $2,500 a month. Although Sapier received 50,000 shares in CCL when it was floated he did not ever receive the share scrip.

93 Sapier has been involved as a defendant or cross-defendant in two other large proceedings arising out of the liquidation of Clifford involving Colonial Bank and the Australian Tax Office. Those proceedings were settled in October and December 2003 respectively. The liquidators have also proceeded against Sapier’s practice to recover payments alleged to have constituted preferences. Those proceedings were also settled.

94 Sapier’s evidence in relation to his financial position is a little unclear. His wife owns the residence in which he lives and has owned it since it was acquired in 1989. It was apparently purchased through the joint contribution of Mrs Sapier and her mother. The evidence is that four generations live in that home and I have assumed that is an arrangement that is a happy one and is not imposed by financial constraint.

95 Sapier’s evidence was that the practice lost four out of five employees and approximately 40% of its clients during the proceedings. He has spent a large amount of his time attending to court matters and was unable to attend to staff issues or to adequately service the clients of the practice. He has now obtained new staff and commenced rebuilding the practice. His taxable income since the year 2001 has been: 2001 - $97,900; 2002 - $54,542; and 2003 - $40,918. Since 1999 he has paid $265,000 in legal fees and a further $100,000 in fees has been incurred. He has also paid over $100,000 in settlement moneys in the proceedings referred to earlier. Until January 2004 all his available income has gone towards paying for the settlement sums and legal fees.

96 Sapier claims that his livelihood is dependent upon the accounting practice. He has superannuation of $22,000 and the companies that operate the practice have a small amount of cash on hand and work in progress of approximately $70,000, debtors of approximately $100,000 and some office equipment with an aggregate value of less than $20,000. There are also liabilities for employee entitlements, trade creditors and other sundry liabilities. Since January 2004 Sapier has been able to draw salary from the practice of approximately $4,000 net per month.

97 Sapier has a further $9,000 to pay in relation to the settlement of the other proceedings and he still owes $60,000 for fees already billed plus an estimate of a further $40,000. He is a debtor to the practice to an amount of approximately $20,000. He claimed that in the event that he was made bankrupt he would not be able to practise either as a chartered accountant or as a tax agent. He claimed he would not be able to earn a living except by seeking employment which he expected would be very difficult with a background of bankruptcy and disqualification as a chartered accountant and tax agent. He claimed that even if he is not made bankrupt and he is unable to conduct his practice through the company the consequences would be that it would be very difficult to obtain professional indemnity insurance. He said “without that I will be exposed to unlimited personal liability”. He also claimed that if this were to happen it would be very difficult to retain talented employees. The plaintiff relied upon the Institute of Chartered Accountants Professional Indemnity Insurance regulations (Ex B) in this regard to submit that Sapier will not be so exposed. Although it is a little unclear it seems to me that such an exposure is not probable.

98 After I observed that it was clear that Sapier’s wife owned real property that was apparently valuable, Mr Forster SC sought further instructions. He indicated that Mrs Sapier was not willing to provide any funds to Sapier but wanted the Court to understand that she was very “morally” supportive of her husband. Sapier gave some evidence in respect of the difficulties that have been experienced recently in his marriage. It is also clear that both Mrs Sapier and their son have suffered medical problems and that Sapier is at least suffering a great deal of stress and anxiety.

99 There is no doubt that up until his involvement in the conduct referred to in the liability judgment Sapier was a man of good character and a man of integrity. I accept his expressions of contrition as genuine. His explanation in relation to the finding of dishonesty was:

I recognise that my conduct as a director of Clifford fell short of a standard that is required by law. During the proceedings I did not admit dishonesty. I took this stance because I did not accept that what I did was done “dishonesty”. I believed that what I did was not consciously knowing it was wrong, which is what I believed constituted dishonesty. However, I have read the judgment and accept that what I did was unacceptable and wrong. The Court has found that what I did must have been done with a consciousness of wrongdoing. I appreciate what is meant by that and I do not seek to challenge or argue with any of the findings. I am sorry about the conduct I engaged in. I have learned my lesson.

100 It must be said that from the commencement of the trial Sapier admitted that certain aspects of his conduct fell below the standard required of directors and as the trial continued those admissions were refined. It is also the case that the time taken up by cross-examination on Sapier’s behalf of any witnesses was relatively minor.

101 The most serious contraventions committed by Sapier arose out of the Revesby property transaction. The liability judgment deals with the transaction and the evidence given by Sapier and the finding that he had contravened s 232(2) of the Act. Sapier knew that the accounts should not have been approved with the profit for the Revesby transaction included within them. However I have absolutely no doubt that his lack of experience as a director of a public company, his position as non-executive director and his supine response to the wishes of JBL and Hall put him in a very vulnerable position when the need to speak up arose. The liability judgment records that he knew that what was occurring was not in the best interests of the company and notwithstanding that knowledge he proceeded to join in the approval of the accounts (par 476).

102 Shareholders of public companies are entitled to expect that directors, whether they be executive or non-executive, will act honestly and indeed at times courageously – if that is what it takes to confront more experienced and dominating personalities to ensure the protection of the company against dishonest dealings. Sapier was out of his depth both in dealing with the business of a public company and with such experienced and, in the case of JBL, such dominating personalities. His evidence before me in relation to the Revesby transaction was not accepted, however his evidence of his reflection and contrition in respect of the dishonesty contravention (as well as the other contraventions) is accepted. The unchallenged evidence of the witnesses called in support of Sapier is that such conduct is totally out of character. I also accept that evidence.

103 I am confident that Sapier has, as he said in his evidence, “learned” his “lesson”. It certainly has been a very expensive lesson not only in the monetary sense having regard to the findings in the liability judgment. It is conduct that cannot be tolerated and I am satisfied that an order should be made banning the defendant from managing a corporation except those corporations that are necessary to operate his accountancy practice. I am of the view that any order I make should be crafted to enable Sapier to continue to work as an accountant so that he can earn income to pay the pecuniary penalty that I intend to impose.

104 Having regard to all the circumstances I am satisfied that Sapier should be prohibited from managing a corporation, except those companies through which his accountancy and tax agent practice are operated, for a period of 9 years.

105 The plaintiff seeks the imposition of a pecuniary penalty of $250,000. I am of the view that such amount is too high having regard to Sapier’s involvement in all the transactions. Although his conduct was serious I am satisfied that cumulatively it was far less serious than the conduct of JBL and/or Hall. A more realistic penalty reflective of Sapier’s conduct taking into account the subjective matters to which I have referred is $120,000.

106 In respect of the claim for compensation in the amount of $1,814,768, Mr Forster SC relied upon the approach adopted by Santow J (as his Honour then was) in relation to the defendant Mr Fodera in Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler particularly at [175]-[177] where his Honour said:

[175] As to compensation pursuant to s 1317H, as earlier stated, I consider that no compensation against Mr Fodera is appropriate in the circumstances. Those circumstances reflect the very different character of Mr Fodera’s conduct compared to Messrs Adler and Williams, either in relation to the initial payment (judgment [398]) and the fact that Mr Fodera had no actual knowledge or any reason to suspect that the money would be used for the investments procured by Mr Adler ([513] of judgment). The nature of Mr Fodera’s failure was indeed essentially that of omission: [511] of judgment.

[176] In reaching the conclusion I do, I do not accept that Mr Fodera’s involvement was such as to fall outside either a common law test for causation by reference to commonsense considerations or, as I consider applicable, the equitable test for causation. Had Mr Fodera spoken out, in particular by insisting that, as was central to his responsibilities as finance director, that the proper processes should be followed including submission to the investment committee in advance, though recognising that he was pressed at the time with an overseas trip, there is good prospect that the proposal would not have gone ahead. Moreover, some of the loss from the failure to deal with the matter on his return from overseas in relation to the HIH shares, might have been avoided had he then acted promptly. Thus it should be noted that after Mr Fodera’s return from overseas on 17 July 2003 ([473] of judgment) the HIH shares bought by AEUT could have been sold without loss and, indeed, at a significant profit (TB, 1/104C referred to at para 34 of Mr Fodera’s written submissions). Moreover, the asset purchases and lending by PEE, with the exception of some of the loans in relation to PCP Ensor No 2, did not occur until after Mr Fodera’s return from overseas.

[177] Essentially my reason for considering that no compensation should be sought from Mr Fodera is that I am satisfied that though his involvement could not fairly be described as merely peripheral (given his particular responsibility as finance director to preserve and protect the funds of the company and, given that he played an important facilitating role), nonetheless it was only a facilitating role, in circumstances where, after his return from overseas, I think it more likely than not that he simply overlooked the need to refer the matter to the investment committee and board rather than deliberately setting about having them bypassed: [511]. That is in marked contrast to Mr Adler and Mr Williams.

107 Santow J also said, at [182], “Equally I do not accept that the financial loss to the HIH Group, though substantially the responsibility of Mr Adler and Mr Williams, can be treated as in no way the responsibility of Mr Fodera, though it be a significantly lesser one”. It was conceded that Sapier’s involvement could not be described as merely peripheral, however it was submitted that it is reasonable to categorise his role as only facilitating. The following submissions were made on Sapier’s behalf:

20 … Mr Loiterton and Mr Hall were the prime movers. Whilst he had involvement in arranging for the execution of the contract for the sale of land, Mr Sapier was not the architect of the scheme. His sin was to go along with the scheme after it had been devised by Hall. Subsequently as a director he failed to raise his voice against Hall and Loiterton in relation to the payment of dividends out of that sale. Of course the Revesby land was later sold for the same price. It was the timing of the sale that was crucial … Mr Sapier received no financial benefit from it.

Adler

108 The liquidator of CCL made submissions in support of the making of an order that Sapier pay compensation in the amount of $1,814,768. The leave granted to the liquidator in that regard is referred to in par [9] of the liability judgment. On 17 May 2004 after further debate I permitted the liquidator to make submissions. Those submissions are dated 16 April 2004 and were provided to the Court by Mr G Cusson, solicitor. There is really nothing additional to the submissions of the plaintiff to be noted in the submissions for CCL.

109 As I said in the liability judgment, Sapier’s approval of the dividends the subject of this application, was given in circumstances in which he should have made further enquiry about the level of the profits from which to pay the dividends. His conduct in both instances was in contravention of s 232(4) and the plaintiff failed in its claim that he had contravened s 232(2) in relation to the approvals of these dividends. I agree with Mr Forster SC’s submissions that Sapier’s role in this particular regard was a facilitating one. That does not mean that in all cases where such a categorisation can be made that compensation will not be ordered. It will depend very much on the facts of each case.

110 On the basis that Santow J’s approach in Adler is correct, I am not satisfied that an inability to apportion the liability for compensation, is an impediment to making an order for payment of part of the amount claimed. The Court has a discretion whether to make an order for compensation and if it decides to make such an order, it has a discretion as to the amount that is ordered to be paid. It has been submitted that because the other defendants are bankrupt and the plaintiff has not sought leave to proceed against them for an order for compensation, it would be “unjust” to order the total amount of compensation to be paid by Sapier simply because he is the only defendant who is not bankrupt. This submission has some force.

111 Proportionate liability is of course a reality in certain circumstances in relation to loss caused by misleading and deceptive conduct: (Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004; see also Associate Professor Barbara McDonald’s paper Proportionate Liability: Practical Implications of the Reforms, Sydney University, 8 September 2004, Commercial Law Seminar Series) but the capacity to apportion liability in this case is not a matter necessary for decision, particularly having regard to the Court’s discretion in relation to the amount to be awarded. It seems to me that once it is recognised that the Court has a discretion in relation to the amount of compensation to be paid it is not limited to the choices of awarding “all or nothing”. It may appear that the Court is apportioning liability when it orders only part of the amount of compensation claimed to be paid by a particular defendant, however it is not apportioning liability, it is making an award on the basis that the damage or loss resulted from contravening conduct and taking into account the relevant circumstances in deciding whether the defendant may be excused from paying the whole of the amount claimed.

112 I am satisfied that notwithstanding his facilitative role, the loss or damage suffered by the company occurred as a result of the approvals and payments of the April and December dividends and Sapier was a party to that conduct in the manner described. In exercising my discretion I am taking into account the matters that would probably be taken into account if proportionate liability were being considered. These include the nature of the role played by Sapier and his far less significant role than JBL and Hall generally in the affairs of Clifford and CCL and particularly in relation to the limited knowledge that he had about the other false profits from which the dividends were paid. These are matters that persuade me that that the defendant should not have to pay the whole amount claimed. I am satisfied that in all the circumstances of this case as outlined in the liability judgment and above, a just and equitable amount of compensation to be paid by Sapier is $120,000. If I am wrong in the approach that I have taken to the Court’s capacity to award only a proportion of the amount claimed and the choices are really to award all or nothing, then I would have refused to award any compensation to be paid by Sapier having regard to the matters I have outlined above in relation to Sapier’s contravening conduct.

113 PJL did not take part in the trial and made written submissions at trial, and in respect of penalty. He attended Court on 29 April 2004 and gave evidence. PJL’s conduct was found to be negligent and the declarations of contravention made on 17 May 2004 in respect of the Exclusivity Fees were as follows:

86. A declaration that the fourth defendant Peter James Loiterton, when a director of Signature, contravened s.232(4) in relation to Signature in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of Signature without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- in about March 1997 he signed a letter from IDC to Signature dated 11 July 1996 without making proper enquiries about the letter’s contents and why it was dated 11 July 1996, being a letter which purported to propose an arrangement, lasting up to 12 months, for the appointment of IDC as Signature’s exclusive contractor for future fit-outs of Signature’s leasehold properties in exchange for a monthly fee, commencing, 1 July 1996, of $75 per square metre of unbuilt space in those properties at the start of each month.

87. A declaration that the fourth defendant Peter James Loiterton, when a director of IDC, contravened s.232(4) in relation to IDC in that, by the following specified act, he acted in the exercise of his powers or the discharge of his duties as a director of IDC without exercising the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances:- in about March 1997 he signed a letter from IDC to Signature dated 11 July 1996 without making proper enquiries about the letter’s contents and why it was dated 11 July 1996, being a letter which purported to propose an arrangement, lasting up to 12 months, for the appointment of IDC as Signature’s exclusive contractor for future fit-outs of Signature’s leasehold properties in exchange for monthly fee, commencing 1 July 1996, of $75 per square metre of unbuilt space in those properties at the start of each month.

114 The plaintiff seeks orders banning PJL from managing a corporation for 3 years and a pecuniary penalty of $5,000.

115 PJL made the following submission:

I am aware of the seriousness of the findings of the Court in relation to myself and am of the belief that the orders sought are excessive.

I respectfully request that the following issues be taken into consideration when the Court undertakes the task of determining orders against me:

In summary, I have already suffered immensely as a result of my involvement in the company in which I thought I would grow, learn and spend the rest of my career. Instead I find myself at age of 39, having lost my life savings, starting from scratch, trying to build my career and my confidence again.

116 The conduct of PJL in signing a letter at the behest of Hall and/or JBL was, it seems to me, a lapse of judgment by PJL in circumstances where there was pressure from those more senior in years and position. From my observations of PJL and taking into account his submissions and evidence, I am not satisfied that the protection of the public requires a banning period. As to the matters of retribution and deterrence referred to by McHugh J, this man is an exception. He has suffered indeed for his stupidity and weakness in not having the gumption to resist the approaches of others. It was certainly not his idea. However he could have refused to be a party to the conduct. I do not intend to impose any pecuniary penalty on PJL having regard to his personal circumstances and the financially disastrous consequences for him, matters that were not challenged by the plaintiff. Although there are declarations of contravention made against PJL I do not intend to make any orders against him.

Costs

117 The plaintiff makes application for the defendants to pay its costs of the proceedings against them. Hall claimed that having regard to his bankruptcy, any costs order against him required the leave of the Court. In this regard the plaintiff relied upon what was said in Re British Goldfields of West Africa Ltd [1899] 2 Ch 7 (C.A) at 11-12, that a costs order made after the defendant became a bankrupt is not a provable debt. The plaintiff submitted that proceedings in respect of banning orders and pecuniary penalties are not proceedings “in respect of a provable debt” for the purposes of the bankruptcy law. It was submitted that any costs payable by the bankrupt defendants pursuant to any costs order which may be made against them will not be provable debts and thus the plaintiff does not require leave pursuant to s 58 (3)(b) of the Bankruptcy Act. I agree: see also Re Hedge: ex parte Goddard & Anor (1994) 50 FCR 421 (Drummond J) at 422-23.

118 There were a number of respects in which the plaintiff was unsuccessful against the defendants and there was also the abandonment of some parts of its cases against the defendants in particular the claims for compensation against the bankrupt defendants. That abandonment did not occur until well into the trial of the matter on 26 May 2003. These matters will be taken into account in making the costs order against the defendants.

119 The plaintiff seeks the following order in relation to costs:

That the first defendant, John Barrie Loiterton, the second defendant, Ian Robert Hall, the third defendant, Ian Sapier and the fourth defendant, Peter James Loiterton pay, in total, 90% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings subject to the following provisos:

(a) the maximum which the first defendant, John Barrie Loiterton, is required to pay under this order is 70% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings;

(b) the maximum which the second defendant, Ian Robert Hall, is required to pay under this order is 70% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings;

(c) the maximum which the third defendant, Ian Sapier, is required to pay under this order is 70% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings;

(d) the maximum which the fourth defendant Peter James Loiterton, is required to pay under this order is 5% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings.

120 These costs orders that the plaintiff seeks do not reflect appropriately the outcome of these proceedings. I am not satisfied that a reduction of 10% is an appropriate reflection of the plaintiff’s failure to make out its case in some respects and its abandonment of the compensation claims. It must be remembered that the plaintiff commenced these proceedings as long ago as 2000. It maintained its compensation claims throughout that four-year period and but for my request for further submissions as to why it did not need leave, I am satisfied it would have continued to maintain its claims. The impact of the abandonment of those claims is difficult to assess with any real precision, however I am satisfied that the impact is significant. Not only is it significant for those defendants against whom the claims were originally sought and then abandoned but it is significant for Sapier who had to sit through a trial in which evidence was called to establish the compensation claims against the other defendants, as well of course, as himself. It may be said that the evidence relied upon to establish the compensation claims was similar to the evidence relied upon to establish the proper basis for declarations of contravention. I accept that there was a deal of crossover in this regard and I will take that into account in making the costs orders.

121 I am of the view that an appropriate reduction to the costs recoverable by the plaintiff in these proceedings is 30%. I am not satisfied that JBL, Hall and Sapier should pay equally the amount of costs the plaintiff is entitled to recover. I am satisfied the maximum amount JBL should be required to pay is 70% but that Hall’s maximum should be 60%. Sapier admitted at the outset that his conduct fell below acceptable standards and indicated that he would submit to declarations of contravention of section 232 (4) of the Act. It was in the area of dishonesty that he maintained his defence. That took up a relatively small proportion of the time of the trial. I am satisfied that the maximum amount of costs that Sapier should be required to pay is 30%. PJL took no part in the trial, was not cross-examined upon his evidence in relation to penalty and did not resist declarations being made against him. However it was necessary for the plaintiff to prove its case against him. I am satisfied that the maximum that PJL should be required to pay is 2% of the plaintiff’s costs.

Orders

122 I order that John Barrie Loiterton be prohibited for a period of 17 years from managing a corporation, such period to commence from 12 July 2002.

123 I order that John Barrie Loiterton pay to the Commonwealth as a pecuniary penalty the sum of $400,000.

124 I order that Ian Robert Hall be prohibited for a period of 14 years from managing a corporation, such period to commence from 16 May 2002.

125 I order that Ian Robert Hall pay to the Commonwealth as a pecuniary penalty the sum of $285,000.

126 I order that Ian Sapier be prohibited from managing any corporation other than Ian Sapier Pty Ltd and Sapier Accountancy and Strategic Advisory Pty Limited for a period of 8 years from today.

127 I order that Ian Sapier pay to the Commonwealth as a pecuniary penalty the sum of $120,000.

128 I order that Ian Sapier pay to Clifford Corporation Limited (in liquidation) ACN 000 750 103 compensation in the sum of $120,000.

129 The first defendant, John Barrie Loiterton, the second defendant, Ian Robert Hall, the third defendant, Ian Sapier and the fourth defendant, Peter James Loiterton pay, in total, 70% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings subject to the following provisos:

(a) the maximum which the first defendant, John Barrie Loiterton, is required to pay under this order is 70% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings;

(b) the maximum which the second defendant, Ian Robert Hall, is required to pay under this order is 60% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings;

(c) the maximum which the third defendant, Ian Sapier, is required to pay under this order is 30% of ASIC’s costs (other than any costs covered by orders made prior to the date of this order) of the whole proceedings; and

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Last Modified: 10/05/2004

Citations

Australian Securities and Investments Commission v Loiterton [2004] NSWSC 897

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CITATION:	Australian Securities and Investments Commission v John Barrie Loiterton & Ors [2004] NSWSC 897
HEARING DATE(S):	29 April 2004 17 May 2004
JUDGMENT DATE:	30 September 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Bergin J
DECISION:	See paragraphs [122] - [129]
CATCHWORDS:	[IMPOSITION OF PENALTIES] - Whether consequent upon declarations of contravention of the Corporations Act the defendants should be prohibited from managing a corporation for a period - whether pecuniary penalties should be imposed. - [COMPENSATION] - Whether compensation should be awarded for loss and damage to the corporation resulting from the contravening conduct.
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth) Corporations Act 2001 Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004
CASES CITED:	Adler & Anor v ASIC; Williams v ASIC (2003) 46 ACSR 504 ASIC v Forem-Freeway Enterprises Pty Ltd & Ors (1999) 30 ACSR 339 ASIC v Loiterton & Ors [2004] NSWSC 172 ASIC v Rich (No.3) 2003 45 ACSR 305 Re British Gold Fields of West Africa Ltd [1899] 2 Ch 7. Re Hedge: ex parte Goddard & Anor (1994) 50 FCR 421 Re HIH Insurance Ltd (in prov liq): ASIC v Adler (2002) 42 ACSR 80 Rich & Anor v ASIC [2004] HCA 42 Rich & Anor v ASIC (2003) ACSR 6 Segenhoe Ltd v Atkins (1990) 1 ACSR 691
PARTIES :	Australian Securities and Investments Commission (Plaintiff) John Barrie Loiterton (First Defendant) Ian Robert Hall (Second Defendant) Ian Sapier (Third Defendant) Peter James Loiterton (Fourth Defendant)
FILE NUMBER(S):	SC 3724/00
COUNSEL:	F P Carnovale and D J Price (Plaintiff) John Barrie Loiterton (In Person) Ian Robert Hall (In Person) R G Forster SC and R J Brender (Third Defendant) Peter James Loiterton (in person)
SOLICITORS:	Australian Securities and Investments Commission (Plaintiff) Gillis Delaney Brown (Third Defendant)