Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd
[2006] VSC 192
•29 May 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7378 of 2005
IN THE MATTER OF PFS WHOLESALE MORTGAGE CORPORATION PTY LTD
(ACN 107 627 056) AND OTHERS
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Plaintiff |
| v | |
| PFS BUSINESS DEVELOPMENT GROUP PTY LTD (ACN 106 761 826) AND OTHERS | Defendants |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 22, 23, 27, 28 February and 1, 20, 28, 29, 30 March 2006 | |
DATE OF JUDGMENT: | 29 May 2006 | |
CASE MAY BE CITED AS: | Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 192 | |
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Corporations - directors and officers duties – duty of care and diligence - duty to act in good faith and for a proper purpose – duty not to make improper use of position – whether officers were ‘involved’ in contraventions by others – Corporations Act 2001 (Cth) ss. 79, 180(1), 181, 182.
Corporations - financial services and products – whether companies engaged in establishing and marketing self-managed superannuation funds carried on a “financial services business” – whether companies marketing property investments carried on a “financial services business” – whether directors and officers of those companies carried on a “financial services business” - Corporations Act 2001 (Cth) ss. 762A, 766A(1), 766B(1), 766C(1), 763B, 764A(1)(g), 911A.
Evidence – privilege against self-incrimination – evidentiary status of statements made during examination under s. 19 of the ASIC Act - Australian Securities and Investments Commission Act 2001 (Cth) ss. 19, 68(3), 78.
Evidence – admissibility – provisional liquidators reports – weight to be attributed to such reports - Corporations Act 2001 (Cth) ss. 531, 542(2), 1305.
Statutory Interpretation – re-enactment rule – considered – not applicable.
Misleading and Deceptive Conduct and False Statements – by corporation – by directors and officers – silence – statements as to future matters - Corporations Act 2001 (Cth) ss. 769B, 769C(1), 1041H, 1041E – Australian Securities and Investments Commission Act 2001 (Cth) ss. 12BB(1), 12DA, 12DB, 12GH.
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APPEARANCES: | Counsel | Solicitors | |
| For the Plaintiff | Mr RBC Wilson | Australian Securities and Investments Commission | |
| For the Fourteenth Defendant (D Tolson) | Mr D Tolson appeared in person | ||
| For the other Defendants | No appearance | ||
TABLE OF CONTENTS
Introduction and Parties........................................................................................................... 1
PFS Business Development Group Pty Ltd (“PFS Business”)...................................... 2
PFS Construction Consulting Group Pty Ltd (“PFS Construction”)............................ 3
PFS Construction Consulting Group (Ashridge Lane A) Pty Ltd (“PFS Ashridge Lane A”); PFS Construction Consulting Group (Ashridge Lane B) Pty Ltd (“PFS Ashridge Lane B”) and PFS Construction Consulting Group (Ashridge Lane C) Pty Ltd (“PFS Ashridge Lane C”). 3
Meridian Event Management Pty Ltd (“Meridian”)...................................................... 4
Nycam Werd Pty Ltd (“Nycam Werd”)........................................................................... 4
Kaluski White & Associates Pty Ltd (“Kaluski White”)................................................ 5
Kaluski White & Associates (Black Gully Road) Ltd (“Kaluski White Black Gully Road”) 6
PFS Wholesale Mortgage Corporation Pty Ltd (“PFS Wholesale”)............................. 6
Shaun White Pty Ltd............................................................................................................ 7
Complaints about PFS Group and subsequent action by ASIC.................................... 7
Court orders.......................................................................................................................... 8
Evidentiary Issues......................................................................................................................... 14
Issues for Determination........................................................................................................... 25
Summary of Affidavit Evidence............................................................................................... 26
Facts.................................................................................................................................................. 30
Shaun White........................................................................................................................ 30
Nicole White....................................................................................................................... 31
Damian Tolson................................................................................................................... 32
SMSF Business.................................................................................................................... 34
Property development business...................................................................................... 39
Mortgage broking business.............................................................................................. 41
Misappropriation of SMSF trust moneys....................................................................... 41
Misappropriation of moneys invested in joint ventures............................................. 54
Other property developments......................................................................................... 65
Non-payment of PFS Group employees........................................................................ 76
Non-payment of debts of PFS Group.............................................................................. 79
Failure to keep proper books and records for PFS Group transactions.................... 81
General mismanagement of PFS Group......................................................................... 85
Failure of personal defendants to co-operate with ASIC investigation..................... 86
Contraventions of the Act....................................................................................................... 86
Carrying on a financial services business without an AFS licence............................. 87
False and misleading conduct......................................................................................... 93
Breach of director’s duties................................................................................................ 98
Involvement in contraventions of others...................................................................... 103
Declarations................................................................................................................................ 106
Injunctions.................................................................................................................................... 106
HIS HONOUR:
Introduction and Parties
In this proceeding the plaintiff, which I will call “the Commission” or “ASIC” seeks declarations against a number of corporate and personal defendants that they have contravened a number of provisions of the Corporations Act 2001 (Cth) (“the Act”), injunctions consequent upon such declarations as may be made and orders disqualifying the personal defendants from managing corporations for such period that the Court considers appropriate.
In addition, orders were sought that each of the corporate defendants be wound up. On 8 December 2005, Mandie J ordered that the corporate defendants be wound up pursuant to s. 461(1)(k) of the Act.
The proceeding concerns the conduct of a group of eleven companies under the overall control of the twelfth defendant, Shaun White. At all material times, Shaun White was a director of all of the corporate defendants.
There are 14 defendants. Eleven of them are the corporate defendants which comprise the PFS Group. The remaining three defendants are Shaun White, his wife Nicole White and Damian Tolson (collectively “the personal defendants”). Each of the personal defendants was a director of one or more of the corporate defendants.
The proceedings arise out of complaints made by members of the public in respect of the conduct of businesses trading under the name “Personalised Finance Solutions” or “PFS”. These businesses were conducted by some of the corporate defendants and included dealings with the other corporate defendants. For convenience, I will refer to the corporate defendants collectively as “the PFS Group” or “the corporate defendants”.
In summary, the PFS Group conducted three businesses. First, a business of establishing and managing self-managed superannuation funds (“SMSFs”) on behalf of clients. Secondly, a property development business. As will appear, there was substantial inter-relationship between these two businesses. In particular, the trustees of SMSFs were encouraged to invest superannuation moneys in developments undertaken by the property development business. Thirdly, the PFS Group conducted a mortgage and finance broking business.
(1) PFS Business Development Group Pty Ltd (“PFS Business”)
PFS Business was incorporated in October 2003. It is a company which is wholly owned and controlled by Shaun White. He is the only director, secretary and member of the company. At all relevant times, Shaun White was the sole decision-maker in relation to the affairs of PFS Business.
PFS Business marketed to potential clients the service of establishing and managing SMSFs. As a result, it established a number of SMSFs for clients and managed ‑ in many cases mismanaged ‑ those SMSFs.
At the time of establishing SMSFs on behalf of clients, PFS Business procured the trustees or proposed trustees to sign a power of attorney appointing “Personalised Finance Solutions” to act on their behalf. “Personalised Finance Solutions” was a business name registered in the name of another of the corporate defendants, Meridian Event Management Pty Ltd. Shaun White used these powers of attorney to open the bank accounts of the SMSFs established and managed by PFS Business and to appoint himself a signatory, often the sole signatory, of those bank accounts. As will appear, Shaun White used his position as signatory on the bank accounts of a number of SMSFs to misappropriate moneys from these accounts. Although enquiries have not been completed in respect of all of the SMSFs managed by PFS Business, misappropriations totalling approximately $808,000 from 34 SMSFs have been established.
Further, PFS Business was a party to joint ventures for the development of residential units in Studley Road, Eaglemont (“the Studley Road development”). As will appear, the other joint venturers who invested in the Studley Road development have complained that the moneys invested by them were utilised without their authority and that they have suffered substantial losses.
PFS Business also acted as the administration company for the whole of the PFS Group. It paid rent on the business premises, wages and other business expenses.
PFS Business was registered for GST and income tax. Substantial taxes are owing. It has not lodged a Business Activity Statement since 31 October 2004 and has not lodged its 2004 or 2005 income tax returns. The Australian Taxation Office has lodged a proof of debt for $93,116.90 and has indicated that the amount of this claim is likely to increase.
(2) PFS Construction Consulting Group Pty Ltd (“PFS Construction”)
PFS Construction was incorporated on 17 February 2004. Its directors are and were Shaun White and Tolson. Tolson is the secretary. Both Shaun White and Tolson hold six ordinary shares.
PFS Construction was incorporated for the purpose of managing the development of four units on a property situate in Ashridge Lane, Wyndhamvale, Victoria (“the Ashridge Lane development”) and other future property developments by the PFS Group.
PFS Construction has never been registered for GST or income tax purposes and never filed any returns in that regard.
(3)PFS Construction Consulting Group (Ashridge Lane A) Pty Ltd (“PFS Ashridge Lane A”); PFS Construction Consulting Group (Ashridge Lane B) Pty Ltd (“PFS Ashridge Lane B”) and PFS Construction Consulting Group (Ashridge Lane C) Pty Ltd (“PFS Ashridge Lane C”).
Shaun White and Tolson are and were at all material times the only directors of, and equal shareholders in, each of PFS Ashridge Lane A, PFS Ashridge Lane B and PFS Ashridge Lane C. The purpose of the three separate companies was to facilitate the development and ultimate purchase of four lots in the Ashridge Lane development.
PFS Ashridge Lane A entered into a joint venture agreement to develop and purchase Lots 2 and 3 in the Ashridge Lane development.
PFS Ashridge Lane B entered into a joint venture to develop and purchase Lot 1 in the Ashridge Lane development.
PFS Ashridge Lane C was incorporated to facilitate the development and purchase of Lot 4. There was no applicable joint venture. It appears that Shaun White, who had entered into a contract of sale to purchase the land upon which the Ashridge Lane development was to take place, and had lodged a caveat to support his interest as purchaser, intended that Unit 4 in the Ashridge Lane development would be developed for the benefit of Shaun White personally. There is an issue as to whether Tolson also was intended to benefit from the development of Unit 4.
As will appear, no part of the Ashridge Lane development was ever completed. The vendor of the land has rescinded the contract of sale. The moneys invested in the Ashridge Lane development have been lost.
None of PFS Ashridge Lane A, PFS Ashridge Lane B or PFS Ashridge Lane C has ever been registered for GST or income tax and has filed no returns in that regard.
(4) Meridian Event Management Pty Ltd (“Meridian”)
As I have said, Meridian was registered as the proprietor of the business name “Personalised Financial Solutions”. It appears that this was the predecessor entity to PFS Business, it having been incorporated in May 2001. Shaun White is and was at all relevant times the only director, secretary and a shareholder of this company. It appears that Meridian has not traded since the incorporation of PFS Business in October 2003. Its last tax return was for the year ended 30 June 2000 and its last Business Activity Statement was for the quarter ended 30 June 2001.
(5) Nycam Werd Pty Ltd (“Nycam Werd”)
Nycam Werd was incorporated in September 2003 to facilitate the purchase and construction of a development in Harvest Home Road, Epping, Victoria (“the Epping property”).
Five investors, including SMSFs, have invested in the Epping property. The form of investment was by the purchase of redeemable preference shares in Nycam Werd. The moneys invested have all been lost.
Nycam Werd has never been registered for GST or income tax purposes and has never filed any returns in that regard.
(6) Kaluski White & Associates Pty Ltd (“Kaluski White”)
Kaluski White was incorporated in April 2003. Andrew Kaluski is and was at all relevant times a director, secretary and the only shareholder in the company. Shaun White was a director in the period 16 February 2004 until 6 April 2005. On 14 July 2005, Kaluski White was placed into voluntary administration.
The books and records of Kaluski White disclose that Shaun White loaned funds to the company, as a result of which the company resolved to issue shares to Shaun White. If issued, these shares would have made Shaun White a 25 per cent shareholder. However, it appears that these shares were never issued to Shaun White.
Kaluski White was incorporated to facilitate the purchase and development of residential properties in Victoria. It appears that Shaun White would find properties of interest and conduct feasibility studies. Mr Kaluski would be responsible for sourcing investors and managing the developments. The company entered into a number of contracts for the purchase and development of residential properties. A number of investors, including SMSFs under the management of the PFS Group, have invested in these property developments and have suffered loss as a result.
Mr Kaluski is not a defendant and it is unnecessary that I make any findings as to his conduct, except as may be necessary in the course of considering whether I should make findings against the defendants.
In addition to its involvement in property developments, it appears that Kaluski White had some involvement in mortgage broking for which it received a commission. However, there was little evidence in this regard. The evidence which was available was limited to one transaction.
There was no evidence as to the taxation status of Kaluski White.
(7)Kaluski White & Associates (Black Gully Road) Ltd (“Kaluski White Black Gully Road”)
At material times, the directors of Kaluski White Black Gully Road were Shaun and Nicole White and Mr Kaluski. Mr Kaluski was the company secretary. He resigned as both director and secretary on 6 April 2005. Shaun and Nicole White hold the majority of the shares in the company (105,000 shares each). Mr Kaluski holds a minority shareholding (25,000 shares).
Kaluski White Black Gully Road was incorporated to facilitate the development of a property situate at 47 Black Gully Road, Diamond Creek, Victoria (“the Black Gully Road property”). However, the contract of sale for the purchase of the Black Gully Road property named Shaun White as the only purchaser. The contract of sale was not performed and has been rescinded.
As a public company, Kaluski White Black Gully Road was required to appoint an auditor. In contravention of ss. 327A and 327B of the Act, it did not do so. The evidence does not allow a conclusion as to whether it was registered for income tax or GST. Whether or not it was registered for these purposes, there is no evidence of any tax return or business activity statements being filed by it.
(8) PFS Wholesale Mortgage Corporation Pty Ltd (“PFS Wholesale”).
PFS Wholesale was incorporated in January 2004 under the name “Mortgage Helpline Pty Ltd”. Initially, Shaun White and Mr Kaluski were directors. Mr Kaluski resigned as a director on 10 May 2004. Shaun White and Mr Kaluski each hold half of the issued shares in the company.
PFS Wholesale conducted business as a mortgage and finance broker. Shaun White was the sole decision-maker and was in control of the company. He was paid a wage of $1,500 per week by the company. However, the company was not registered for either GST or income tax purposes and has never lodged any return in that regard.
(9) Shaun White Pty Ltd
Shaun White is and was at all relevant times the sole director, secretary and shareholder in this company. There was some evidence that this company paid some of the wages and bills of PFS Business. Whether it did so by way of advances to PFS Business, or by direct payment, is not relevant. As appears hereafter, substantial sums which were taken from SMSF accounts, without authority of the account holder, were subsequently transferred to this company’s bank account.
Shaun White has refused to discuss the affairs of this company with the liquidators and has not completed a “Return As To Affairs” as requested by the liquidator. The company has never been registered for GST or income tax purposes and has filed no returns in that regard.
(10) Complaints about PFS Group and subsequent action by ASIC
In early 2005, ASIC received a number of complaints from members of the public relating to the activities of the PFS Group. In general terms, the complaints were as follows:
(1) Employees of the PFS Group were not being paid their salaries.
(2)Moneys were taken from SMSFs established and managed by the PFS Group without any authority from the trustees of those SMSFs. The trustees of these SMSFs were unable to obtain any, or any satisfactory, explanations as to what had happened to these moneys.
(3)A number of the PFS Group property developments were to be conducted by joint ventures with investors. Investors were told that the moneys which they invested would be paid into accounts dedicated to the specific property development which was the subject of the joint venture. The joint venture agreements specifically stated that payments could only be made from those accounts with the authority of a “policy committee” of which the investor was a member. In fact, the moneys in these accounts had been expended without any authority of the policy committees. The project developments had failed and investors were unable to obtain a satisfactory explanation as to what had become of their investment.
As a result of these complaints, on 6 April 2005, ASIC commenced an investigation into the affairs of the PFS Group under s. 13 of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) in relation to suspected contraventions of a number of provisions of the Act and also in relation to suspected contraventions of the Crimes Act 1958 (Vic).
As a result of these investigations by ASIC, this proceeding was commenced on 26 July 2005.
(11) Court orders
On 29 July 2005, Mandie J made a series of orders. First, it was ordered that Gess Rambaldi and Andrew Yeo (“the provisional liquidators”) be appointed as provisional liquidators of each of the second to tenth defendants (“the first appointment group”). The first appointment group comprises all of the corporate defendants except PFS Wholesale and Shaun White Pty Ltd. Secondly, it was ordered that each of the personal defendants should deliver up forthwith to the provisional liquidators all of the books, records and assets of the first appointment group and of any SMSF or joint venture established, managed or controlled by the first appointment group in the possession, custody or power of any of them. Thirdly, it was ordered that the provisional liquidators prepare a report to the Court and to ASIC in relation to whether there were any grounds to suspect that any of the first appointment group defendants had contravened the Act. Fourthly, a series of injunctive orders were made by Mandie J, which had the effect of restraining the first appointment group companies and the personal defendants from carrying on business in a number of respects (“the interlocutory injunctions”).
In summary, the interlocutory injunctions restrained the first appointment group and the personal defendants from:
(1)carrying on any business related to, concerning or directed to superannuation interests within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”);
(2)carrying on a business related to, concerning or directed to financial products or financial services within the meaning of s. 761A of the Act;
(3)providing any financial product advice within the meaning of s. 761A of the Act;
(4)dealing in financial products within the meaning of s. 761A of the Act;
(5)making recommendations intending to influence persons in make a decision in relation to superannuation interests to acquire an interest in a self-managed superannuation fund within the meaning of the SIS Act;
(6)arranging for persons to acquire an interest in a self-managed superannuation fund within the meaning of the SIS Act;
(7)being in any way, directly or indirectly, knowingly concerned in or a party to the conduct by another person of a financial services business in contravention of s. 911A of the Act without holding an Australian financial services licence;
(8)dealing with or disposing of any and all of their respective assets without the written consent of ASIC or an order of the Court;
(9)in respect of the personal defendants, leaving Australia without giving seven days written notice to ASIC of an intention to do so.
In addition, there were a number of injunctions directed towards prohibiting the first appointment group companies and the personal defendants from engaging in specific conduct of the kind previously carried on by them in connection with the businesses of the PFS Group.
Finally, the interlocutory injunctions required the personal defendants to make and swear within 14 days an affidavit describing full details of their assets, liabilities and sources of income. Tolson complied with this order. Shaun and Nicole White did not.
On 19 August 2005, Mandie J appointed the provisional liquidators to act as provisional liquidators of each of the remaining corporate defendants, PFS Wholesale and Shaun White Pty Ltd. The provisional liquidators were ordered to provide a report to the Court in relation to whether there were any grounds to suspect that any of the defendants have contravened the Act. The effect of this order, when combined with the earlier orders in relation to the first appointment group, was that the provisional liquidators were required by Court orders to report to the Court in relation to the affairs of all of the corporate defendants.
On 23 September 2005, one of the provisional liquidators Gess Rambaldi (“the liquidator”), provided a report to the Court in respect of whether there were any grounds to suspect that any of the defendants, personal or corporate, had contravened the Act (“the provisional liquidator’s report”).
The contents of the provisional liquidator’s report resulted in ASIC applying for leave to amend its originating process in the proceeding. This leave was granted by Mandie J on 4 November 2005.
The trial of the proceeding was fixed for 8 December 2005. Shaun White, Nicole White and Tolson appeared in person. Without objection from Nicole White or Tolson, Shaun White stated to Mandie J:
“The wind-up orders on the company, your Honour, we don’t intend to oppose. But anything that deals with us personally and our actions (we) do intend to defend.”
As I have said, on 8 December 2005, Mandie J ordered that each of the corporate defendants be wound up. The provisional liquidators were appointed as the joint and several official liquidators of each of them (“the liquidators”).
Further, on 8 December 2005, Mandie J ordered that the trial of the remaining issues in the amended originating process be fixed for hearing on 22 February 2006. With a view to the efficient conduct of that trial, Mandie J made a number of procedural directions requiring the personal defendants to:
(1)give notice to ASIC of any objection they may have to the admission into evidence at trial of part or any of the affidavits and exhibits filed by ASIC;
(2)file and serve by way of affidavit any evidence that they personally intended to give and rely upon at the trial;
(3)file and serve a list of any other witnesses that they proposed to call to give oral evidence at the trial; and
(4)file and serve a written outline of submissions.
None of the personal defendants complied with any of these procedural directions.
The trial of the remaining issues in the proceeding occupied some nine days. Mr R Wilson of counsel appeared for ASIC. The corporate defendants were unrepresented. During the course of the trial, based upon the consent of the liquidators, I gave leave to ASIC to proceed against them nunc pro tunc.
Tolson appeared in person to represent himself.
Neither Shaun White nor Nicole White appeared at the trial. However, on the day before the trial commenced, Shaun and Nicole White sent a letter by facsimile to the Court, addressed to me personally. The letter was signed by both Shaun and Nicole White. In the letter, Shaun White stated:
“The informality of this document is meant to have no disrespect to the court, I simply do not know in what format to send it.
I apologise for the late submission of this document but as the registrar was unable to tell me who to address it to until this morning, I was unable to send it earlier.
After speaking with you (sic) Associate... I made a phone call to Mr Warren Day of ASIC. I asked him what ASIC was trying to achieve tomorrow, his reply was ‘three things. One, have the companies wound up, well that has already been achieved. Two, have yourself, your wife and Damian [Tolson] banned for life as directors and three get a permanent restraint from you dealing in superannuation, financial services.’
We have already consented to the winding up of the companies even though we did not believe them to be insolvent, we simply did not have the money or other resources to fight the allegations made by ASIC. We leave the matter of Director’s ban to the wisdom of the Court, we will however draw your attention to the fact that ASIC has drawn the comparison to both ASIC v Rich and ASIC v Vizard, neither of which received lifetime bans. As for the restraint in dealing with superannuation, neither Nicole nor I have any future aspirations of returning to the superannuation industry.
I would like to draw your attention to page 26 of the Liquidator’s report, paragraph 6.2.1 ASIC alleges that Anna’s SMSF and Zenner’s SMSF were used to pay for the deposit on the property at Blackgully Rd, Diamond Creek. Blackgully Rd was purchased on 9 September 2003, both of the superannuation funds mentioned were established up to nine months latter (sic). I believe that this is consistent with the conduct of the ASIC investigation. In Miss Julie McNare’s (sic) report she draws attention to a $30,007.50 transaction from the Barnard superannuation fund and infers that it is a card transaction for personal benefit the $7.50 is a bank check (sic) fee, the check (sic) was drawn up for Mr Barnard.
I would also like to state that we did not believe that we were carrying on a financial services business, we believed that the preparation of Trust deeds was providing a form of legal document, and as we believe that you are not required to be licensed to prepare a contract of sale, an employment contract or even a family trust, we did not believe that we needed to be licensed to provide SMSF trust deeds.
I am making no admissions to breaches of director’s duties nor does Nicole, I do accept that Nicole and Myself were convicted of an offence on 17 May 2000 and that this disqualified us from acting as a Director’s (sic) until 17 May 2005, a fact that we have only recently been made aware of. I do not know what implications this has on the proceedings if any at all but again I will leave that to the wisdom of the Court.
Thank you for considering this document...”
The trial proceeded in the absence of Shaun and Nicole White over six hearing days. Following an adjournment to enable ASIC to file further affidavit material and written submissions, the trial was fixed for further hearing on 28 March 2006. On that morning, Shaun and Nicole White sent a further letter by facsimile to the Court, addressed to me personally, and signed by both of them. In this letter, Shaun White stated:
“I was served with further documentation by Colin Moffit of ASIC yesterday the 27th of March at 5.00 pm, after speaking with him I thought it prudent to send this fax. After some discussion I asked Mr Moffit if I should be attending the proceedings. He stated that it was not necessary but I could if I chose to, he also said that as I have not attended the hearing to date he does not know if the court will give me an opportunity to reply before sentencing.
I am sending this fax to inform Your Honor (sic) that I have not abandoned the case, it is just that I am unrepresented and after trying to formulate a defense (sic) at the end of last year, I realised that I have little if any understanding of the court that I find myself before. If it is required of me to appear before the Court I will do so as requested.
Again I mean no disrespect to the Court by the informality of this document, I just felt that I needed to communicate with Your Honor (sic) after speaking with Mr Moffit yesterday.”
As a result of this second letter from Shaun and Nicole White, I adjourned the further hearing of the proceeding to the following day. At the time of this adjournment, I stated, in summary, that I did not require Shaun or Nicole White to attend the proceedings as this was a matter for them. They had been given a full opportunity to attend and had chosen not to do so. However, having regard to the seriousness of the allegations made against them, I noted that it may be in their interests to attend and make submissions. I directed that a copy of the day’s transcript be served on Shaun and Nicole White forthwith.
On the following day, neither Shaun White nor Nicole White appeared or was represented. I was satisfied that they had been provided with a copy of the previous day’s transcript. Accordingly, I proceeded with the balance of the hearing in their absence.
Evidentiary Issues
With some limited exceptions to which I will refer, ASIC relied upon affidavit evidence to establish its case. At an early stage of the trial, it became apparent that a significant portion of the affidavit evidence which was relied upon was inadmissible hearsay. This necessitated the filing of a number of further affidavits from persons who had personal knowledge of the matters previously deposed to by way of hearsay. These further affidavits were served on the personal defendants, including Shaun and Nicole White.
A particular issue in respect of hearsay statements arose from the fact that an ASIC officer, Mr Moffitt, exhibited to his affidavit a number of witness statements taken by ASIC officers from previous employees of the PFS Group, trustees of SMSFs established and managed by the PFS Group and investors in PFS Group property developments. Each of these witness statements contains a signed acknowledgement by the witness in the following terms:
“I hereby acknowledge that this statement is true and correct and I make it in the belief that a person making a false statement in the circumstances is liable to the penalties of perjury.”
Based upon these acknowledgements, it was submitted on behalf of ASIC that I should dispense with the rules of evidence in relation to these witness statements. Reference was made to the power of the Court under Rule 40.05.[1] I was initially attracted by this submission. However, upon reflection, I took the view that it was inappropriate to dispense with the rules of evidence in such a broad fashion. Although Rule 40.05 is not restricted to formal matters, the evidence contained in the witness statements was of such importance to the issues in the proceeding, and concerned allegations of such a serious kind, that I insisted that it be verified on oath if it was to be relied upon. Further, the mandate of s. 1317L of the Act is in my view inconsistent with such a liberal use of the discretion under Rule 40.05.
[1]Supreme Court (General Civil Procedure) Rules 2005 (Vic).
A further evidentiary issue arose with respect to the admissibility of the provisional liquidator’s report.
In Australian Securities and Investments Commission v Rich,[2] Austin J considered the admissibility of a number of categories of documents in a proceeding in which ASIC sought, as it does here, declarations of contravention of the Act by certain company directors and disqualification orders against those directors.
[2](2005) 53 ACSR 752.
One category of documents which Austin J considered was a group of reports to creditors prepared by the liquidators of One.Tel Limited and its related companies (collectively “One.Tel”). Some of these reports had been prepared by the liquidators prior to their appointment, at a time when they were acting as administrators of One.Tel. Austin J dealt with the admissibility of all of the reports together, and referred to them compendiously as “the liquidators’ reports.”[3]
[3]ASIC v Rich (2005) 53 ACSR 752 at [83].
There are two aspects in which the decision of Austin J in ASIC v Rich differs from the facts of this case. First, the liquidators here were previously provisional liquidators and not administrators. Secondly, the provisional liquidator’s report in this case was not a report to creditors but was a report ordered by this Court. In my view, neither of these distinctions makes the reasoning of Austin J inapplicable to the issue of admissibility of the provisional liquidator’s report in this case.
In ASIC v Rich, ASIC submitted that all of the liquidators’ reports were admissible in evidence under s. 1305 of the Act. Austin J considered this submission in extensive detail, including an examination of all of the relevant authorities, and concluded that all of the liquidators’ reports were admissible in the proceeding under s. 1305 of the Act.[4] In this proceeding, it was submitted on behalf of ASIC that I should follow and apply the decision of Austin J in ASIC v Rich and, as a result, admit the whole of the liquidators’ report into evidence. I accepted this submission and admitted the liquidators’ report into evidence.
[4]ASIC v Rich (2005) 53 ACSR 752 at [223]-[321].
The question remains as to the use which may be made of the liquidators’ report. Section 1305(1) of the Act provides:
“(1)A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.”
It can be seen that s. 1305(1) permits evidence to be given of “any matter stated or recorded in the book”. As Austin J’s analysis shows, the provisional liquidator’s report is such a book for the purposes of the Act. Further, Austin J held that a book, such as the provisional liquidator’s report, is admissible even if it contains evidence which is hearsay or opinion expressed by the liquidators.[5] Of course, questions of weight will arise in considering evidence of this kind.
[5]ASIC v Rich (2005) 53 ACSR 752 at [227].
Before turning to the issue of weight to be given to the provisional liquidator’s report, it is necessary to consider s. 1305(2), which provides:
“(2)A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).”
As can be seen, s. 1305(2) creates a rebuttable presumption. I accept that this presumption extends to both elements mentioned in s. 1305(1), that a book is both kept by a body corporate and is so kept “under a requirement of the Act”.[6]
[6]ASIC v Rich (2005) 53 ACSR 752 at [273]-[281].
As the provisional liquidator’s report was prepared for a different purpose than the liquidators’ reports considered by Austin J in ASIC v Rich, it is necessary to consider whether the presumption arising under s. 1305(2) has been rebutted in this case. In my view, it has not. Although the provisional liquidator’s report was prepared for a different purpose than the liquidators’ reports considered by Austin J in ASIC v Rich, the reasoning of Austin J is, in my view, equally applicable to the provisional liquidator’s report. Austin J stated in this regard:
“Section 531 obliges a liquidator to keep ‘proper books’ in which he or she must cause to be made entries or minutes of proceedings at meetings and such other matters as are prescribed, and creditors and contributories have the right to inspect those books unless the court otherwise orders. Regulation 5.6.01 prescribes, as the matters to be recorded, all matters that are required to give a complete and correct record of the liquidator’s administration of the company’s affairs. Under s 542(1), where a company has been wound up, all books of the company and of liquidator that are relevant to affairs of the company at or subsequent to the commencement of the winding up are, as between the contributories of the company, prima facie evidence of the truth of all matters purporting to be recorded in those books. By s 542(2), once the company has been wound up, the liquidator must retain the books referred to in subs (1) for a period of 5 years, except in the special circumstances set out in s 542(3).
Is it correct to say that, for the purposes of s 1305, documents kept by the liquidators in that capacity are kept by the body corporate to which they have been appointed; and if it is, are they kept by the body corporate ‘under a requirement of [the Corporations] Act’?
When performing their functions and exercising their powers as such, liquidators occupy the position of agent of the company: A R Keay, McPhersons’ Law of Company Liquidation, 4th ed, LBC Information Services, Sydney, 1999, p 288, and cases there cited. If, therefore, the liquidators take some authorised step in carrying on the business of the company, that step is binding on the company as principal, just as if it had been taken by or on behalf of the company’s board of directors prior to commencement of the voluntary administration. It would have been a step taken by the company as principal.
In my opinion the same consequences flow when the liquidators take a step in the administration of the affairs of the company, since in doing so they are acting as the company’s agent. The liquidators’ keeping of reports to creditors prepared by them in their capacity as liquidators or administrators, by retaining them, is conduct by them as agent for the company. It follows that the reports are kept by the body corporate, and therefore those documents are books kept by a body corporate for the purposes of s 1305. Clearly, they are books kept under requirements of the Act, namely the requirements set out above which oblige liquidators to keep and retain such documents.” [7]
[7](2005) 53 ACSR 752 at [268]-[271].
In my view, the provisional liquidator’s report was one which the liquidators were obliged to keep under s. 531 of the Act. The provisional liquidator’s report is one of the prescribed matters under reg 5.6.01 because it is necessary to record the matters referred to in the report in order to give a complete and correct record of the liquidators’ administration of the company’s affairs. Further, having been prepared, the liquidators’ report is a document which the liquidators are required to retain under s. 542(2) of the Act.
I turn next to the question of weight to be attached to the provisional liquidator’s report. Austin J considered this issue in the context of the Evidence Act 1995 (NSW) and, in particular, the discretion under that Act to exclude or limit the use of evidence under ss. 135 and 136.[8] There are presently no equivalent provisions in the Evidence Act 1958 (Vic).
[8]ASIC v Rich (2005) 53 ACSR 752 at [322]-[388].
I will consider the weight of statements in the provisional liquidator’s report by reference to each individual statement relied upon by ASIC or Tolson. In doing so, I will take account of the probabilities, the form of the statement in question (in particular as to whether any conclusion or opinion expressed by the provisional liquidators is supported by facts otherwise established or by facts or reasons expressed in the report) and as to the appropriate weight to give to hearsay statements recorded in the provisional liquidator’s report.
As to hearsay statements made by Shaun White or Nicole White which are recorded in the provisional liquidator’s report, I must be especially careful. Given the impropriety of their conduct as established by the evidence as a whole, any hearsay statement which is not in the nature of an admission against their interest must be carefully scrutinised before according it any weight. This is particularly so where ASIC seeks to use hearsay statements by Shaun or Nicole White which are contained in the provisional liquidator’s report against Tolson.
Further, in assessing weight I will take account of the fact that the provisional liquidator’s report is the result of the provisional liquidators both carrying out their statutory functions and complying with orders of this Court. As Austin J said in ASIC v Rich, in respect of a report by the liquidators of One.Tel at a time that they were administrators, “That status gives it [the report] a degree of presumptive probative value”.[9]
[9]ASIC v Rich (2005) 53 ACSR 752 at [220], referring to McVeigh v Commissioner of Taxation [2004] FCA 653 at [6]; see also Re Action Waste Collections Pty Ltd (in liq); Crawford v O’Brien [1981] VR 691 at 700.
The final issue of significance concerning admissibility of evidence related to the extent to which ASIC could rely upon statements made by the personal defendants at their examinations conducted under s. 19 of the ASIC Act. ASIC sought a ruling that it could rely, as against each of the personal defendants, upon the whole of the transcripts of their s. 19 examinations. The statements on which ASIC sought to rely included statements where, before the statement was made, the defendant examinee claimed that the statement might tend to incriminate him or her. Mr Wilson made substantial written and oral submissions in support of this application by ASIC. However, later in the trial, Mr Wilson informed me that ASIC withdrew its application in this regard and would not, as against the defendant examinee concerned, rely upon statements made by him or her after a claim had been made that the answer might tend to incriminate him or her.
At the time that Mr Wilson withdrew ASIC’s application in this regard, he stated that, amongst other reasons, the application was withdrawn because this proceeding was not a desirable vehicle for the point to be determined, given that none of the defendants was represented and the Court would not have the benefit of full and vigorous debate from counsel opposing the application.
Although the application to rely upon the whole of the s. 19 transcripts as against the individual examinees was withdrawn, I had reached a firm view that the application should be refused. As I have said, this was after I had received substantial written submissions, and heard oral argument, on behalf of ASIC. In these circumstances, the fact that the defendants were unrepresented is of little significance. Further, as the issue may be one of general importance, I will express my views about it notwithstanding that ASIC did not press its application in this case.
Section 68(3) of the ASIC Act provides in effect that a statement which is made by an examinee after such a claim for privilege is made is not admissible in evidence against the person in a criminal proceeding or a proceeding for the imposition of a penalty. This proceeding is not a criminal proceeding. The question for determination is whether this is a proceeding for the imposition of a penalty against the personal defendants because ASIC seeks orders banning them from managing corporations in the future.
In Australian Securities Commission v Kippe[10] the Full Court of the Federal Court of Australia considered the statutory precursor to s. 68(3) of the ASIC Act. The relevant provision was contained in s. 68(3) of the Australian Securities Commission Act 1989 (Cth) (“the ASC Act”) and was in identical terms to s. 68(3) of the ASIC Act. In that case, banning orders were sought prohibiting Kippe from acting as a representative of a dealer in securities or an investment advisor. The Administrative Appeals Tribunal, which heard the case at first instance, refused to allow evidence of statements made by Kippe at his s. 19 examination and in respect of which he had claimed privilege. On appeal, the Full Court disagreed. It was held that the proceedings were not for the imposition of a penalty but were preventative in character. Accordingly, the statements made by Kippe under a claim for privilege were admissible in the proceeding against him in which banning orders were sought.
[10](1996) 67 FCR 499.
In Rich v Australian Securities and Investments Commission[11] the New South Wales Court of Appeal, by majority, reached a similar conclusion to that in Kippe.[12] That case, like this proceeding, involved a proceeding by ASIC for declarations of contravention of the Act and, as a consequence, orders that the defendants be disqualified from managing corporations.
[11](2003) 203 ALR 671.
[12]Rich v ASIC (2003) 203 ALR 671 at [74]-[80].
The defendants appealed to the High Court. In Rich v ASIC[13] the High Court (Kirby J dissenting) allowed the appeal. In the joint judgment of Gleeson CJ, McHugh, Gummow, Hayne, Callinan and Heydon JJ, it was held that exposure to a disqualification order under the Act is exposure to a penalty.[14] As a result, the majority held that the decision in Kippe was wrong and should be overruled.[15]
[13](2004) 220 CLR 129.
[14](2004) 220 CLR 129 at 147.
[15](2004) 220 CLR 129 at 147.
However, notwithstanding the decision of the High Court in Rich v ASIC, it was submitted on behalf of ASIC that the decision in Kippe should, because s. 68(3) of the ASC Act was re-enacted as s. 68(3) of the ASIC Act, be treated as representing the presumed intention of Parliament as to the proper construction of s. 68(3) of the ASIC Act. That is, notwithstanding the decision of the High Court to overrule Kippe it should be taken to represent the law. In my view, this submission was wrong and, had the application by ASIC in this regard not been withdrawn, I would have refused it.
The submission was based upon the so-called “re-enactment rule” of statutory interpretation. It was submitted that there was a direct “clash” between this rule of statutory interpretation and the decision of the High Court in Rich v ASIC. As to the continuing existence of the re-enactment rule, reliance was placed upon the decision of the High Court in Re Alcan Australia Ltd and ors; Ex parte Federation of Industrial, Manufacturing and Engineering Employees where the High Court stated:
“There is abundant authority for the proposition that where the parliament repeats words which have been judicially construed, it is taken to have intended the words to bear the meaning already ‘judicially attributed to [them]’, although the validity of that proposition has been questioned. But the presumption is considerably strengthened in the present case by the legislative history of the Act.”[16] (Citations omitted.)
[16](1994) 181 CLR 96 at 106.
In Re Alcan, the applicants sought to have the High Court reconsider one of its previous decisions. The Court was of the view that it should not do so. Three reasons were given. First, that the previous decision had been accepted as correct in a number of subsequent cases. Secondly, that the re-enactment presumption was reinforced by the legislative history of the statutory provision under consideration. This legislative history reinforced the presumption that Parliament did not intend to overturn the previous decision of the High Court as to its interpretation.[17] Thirdly, because there was no reason to think that the earlier decision was “in any way affected by error”.[18]
[17](1994) 181 CLR 96 at 106.
[18](1994) 181 CLR 96 at 107.
In Re Alcan, the High Court referred to the fact that the re-enactment presumption had been questioned in a number of earlier decisions of the High Court. Salvation Army (Victoria) Property Trust v Ferntree Gully Corporation,[19] R v Reynhoudt[20] and Flaherty v Girgis[21] were referred to.[22]
[19](1952) 85 CLR 159 at 174, 182.
[20](1962) 107 CLR 381 at 388.
[21](1986) 162 CLR 574 at 594.
[22](1994) 181 CLR 96 at 106, n 40.
In the Salvation Army case, Dixon, Williams and Webb JJ referred to the presumption in the following terms:
“But this principle affords at most a valuable presumption as to the meaning of the language employed. It should not lead the Court to perpetuate the construction of a statutory provision which it considers to be erroneous.” [23]
[23](1952) 85 CLR 159 at 174.
In R v Reynhoudt, Dixon CJ stated:
“... the view that in modern legislation the repetition of a provision that has been dealt with by the courts means that a judicial interpretation has been legislatively approved is, I think, quite artificial. To repeat what I have said before, the mechanics of law-making no longer provide it with the foundation in probability which the doctrine was once supposed to have possessed.” [24]
[24](1962) 107 CLR 381 at 388.
This statement by Dixon CJ was endorsed in Flaherty v Girgis, where Mason ACJ, Wilson and Dawson JJ stated:
“For the reason given by Dixon CJ, the suggested rule nowadays is little use as a guide and it will not be permitted to prevail over an interpretation otherwise appearing to be correct.” [25]
[25](1986) 162 CLR 574 at 594.
In my view, these criticisms of the presumption are particularly apposite to this case. Unlike Re Alcan, this is not a case where the circumstances serve to reinforce the presumption. The decision in Kippe has been overruled by the High Court. The legislative history of the Act demonstrates only that the Act and the ASIC Act were re-enacted following the decisions in Re Wakim; ex parte McNally[26] and R v Hughes[27] and consequent referral by the States to the Commonwealth of the power to regulate companies. It is impossible to infer from this legislative history any intention on the part of Parliament to confirm the decision in Kippe as governing the proper interpretation of s. 68(3) of the ASIC Act.
[26](1999) 198 CLR 511.
[27](2000) 202 CLR 535.
Finally on this issue, the reliance placed upon the so-called “re-enactment rule” did not recognise that there are no rules governing the interpretation of legislation. The position is correctly stated in the fifth edition of Pearce and Geddes, Statutory Interpretation in Australia, at paragraph 1.4:
“In an endeavour to facilitate the discovery of the meaning of legislation, the courts have evolved, over a long period, a number of approaches and assumptions – and this book discusses these. It is important to stress at the outset that these are nothing more than approaches and assumptions – underlying principles of interpretation. To elevate them to the level of ‘rules’ is but to mislead as it invites the conclusion that courts and tribunals will strictly apply them. If one could be sure that every writer of legislation knew all the approaches and assumptions of the courts and rigidly adhered to them – if indeed that were possible – it would be permissible to talk in terms of rules. But this is not the case and the so-called rules can only be regarded as aids to interpretation. And very helpful aids they are; but it must not be forgotten that the task before the courts is to ascertain the meaning of the legislation. The failure to apply a well-established presumption does not matter if the correct meaning is arrived at.”
There remains for consideration the use to which the s. 19 transcripts can legitimately be relied upon by ASIC. In this regard, I accept the submissions on behalf of ASIC. First, I accept that there is “other evidence”, constituted by affidavits from persons present at the examinations who have sworn that the s. 19 transcripts are a true and correct record of the examinations and that the transcripts accurately record the statements made by the examinees.[28] Secondly, I accept that the s. 19 transcripts are admissible in the proceeding generally, including as against persons other than the examinee. This is because no party to the proceeding has required that any of the examinees be called as a witness in the proceeding.[29] Thirdly, I note that the weight to be attached to statements contained in the s. 19 transcripts, as against a person other than the examinee, is to be determined in accordance with s. 78 of the ASIC Act.
[28]Section 76(3) of the ASIC Act.
[29]Sections 76(2) and 77(b) of the ASIC Act.
The practical effect of the above is that the s. 19 transcripts have the following evidentiary status:
(1)Any statement made by a personal defendant at a s. 19 examination after the defendant claimed the statement might tend to incriminate him or her or make him or her liable to a penalty is:
(a) not admissible in the proceeding against that defendant;
(b)subject to the weight to be given to such evidence in accordance with s. 78 of the ASIC Act, admissible in the proceeding against the other defendants.
(2)Any other statement made at an examination under s. 19 of the ASIC Act by a personal defendant is admissible in the proceeding:
(a) against that defendant;
(b)subject to the weight to be given to such evidence in accordance with s. 78 of the ASIC Act, against the other defendants;
(3)The statements made by Kristie O’Toole[30] in her examination under s. 19 of the ASIC Act are, subject to the weight to be given to such statements in accordance with s. 78 of the ASIC Act, admissible in the proceeding against all of the personal defendants.
[30]Ms O’Toole is a previous employee of the PFS Group.
Finally on the question of evidence, I note the seriousness of the allegations made against the defendants and, particularly against the personal defendants, the gravity of the possible consequences of making adverse findings against them. In these circumstances, I have approached the fact-finding task in accordance with the well-known statements of Dixon J in Briginshaw v Briginshaw.[31]
[31](1938) 60 CLR 336 at 361-2.
Issues for Determination
In Forge v Australian Securities and Investments Commission[32] the New South Wales Court of Appeal held that, before a court disqualifies a person from managing corporations, the court should first make findings as to the statutory pre-conditions for the making of a disqualification order. The court should then provide the person with a separate opportunity to be heard as to whether a disqualification order should, in light of the findings, be made.[33] I accept that this is how I should approach this case.
[32](2004) 52 ACSR 1.
[33](2004) 52 ACSR 1 at [410]-[427].
The relevant statutory pre-conditions for the making of a disqualification order against the personal defendants are contained in ss. 206C(1) and 206E(1) of the Act, which provide:
“206C(1) On application by ASIC, the Court may disqualify a person from managing corporations for a period that the Court considers appropriate if:
(a)a declaration is made under section 1317E (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision;[34] and
[34]In this proceeding, the only relevant civil penalty provisions are ss. 180-183 of the Act.
(b)the Court is satisfied that the disqualification is justified.”
206E(1)On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if:
(a)the person
(i)has at least twice been an officer of a body corporate that has contravened this Act while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or
(ii)has at least twice contravened this Act while they were an officer of a body corporate; or
(iii)has been an officer of a body corporate and has done something that would have contravened subsection 180(1) or section 181 if the body corporate had been a corporation; and
(b)the Court is satisfied that the disqualification is justified.”
I will accordingly proceed to determine whether the declarations of contravention of the Act which are sought by ASIC are established. As will appear, I am of the view that there have been a number of contraventions. Accordingly, once a reasonable opportunity has been provided to the personal defendants to consider these reasons, I will proceed to conduct a separate hearing on ASIC’s application for disqualification orders.
Summary of Affidavit Evidence
As I have said, ASIC relied principally upon affidavit evidence to establish its case. The following affidavits were relied upon:
Colin Moffitt, a lawyer employed in the Enforcement Directorate of ASIC, swore a number of affidavits. In his principal affidavit, Mr Moffitt described the complaints received by ASIC about the conduct of the PFS Group and the results of the subsequent ASIC investigation. He produced as exhibits to his principal affidavit a number of witness statements taken by ASIC officers from previous employees of the PFS Group, trustees of SMSFs established and managed by the PFS Group and investors in PFS Group property developments. As I have said, I was not prepared to accept these witness statements as evidence. As a result, with exceptions which I will mention, affidavits were sworn by these witnesses confirming the truth of the witness statements exhibited by Mr Moffitt.
Mr Moffitt deposed to the attempts by ASIC to obtain the books of the PFS Group, his dealings with Shaun White in that regard, and the limited success which was achieved in obtaining the books of the PFS Group.
Mr Moffitt also deposed to having been present at, or read the transcripts of, the examinations under s. 19 of the ASIC Act of Shaun White, Nicole White, Tolson and Ms O’Toole. In his affidavit, Mr Moffitt summarised evidence given at these examinations. This included references to portions of the s. 19 transcripts where, before answering questions, the witnesses had claimed that the answers might tend to incriminate them. In considering this evidence of Mr Moffitt, I have proceeded in accordance with my summary of the evidentiary status of the s. 19 transcripts, as set out above.
Julie McNair, an accountant employed by ASIC as an investigator in its Enforcement Directorate, also swore a substantial affidavit. Ms McNair deposed that she had examined such of the books of the PFS Group which were available to ASIC, including the limited data which was able to be extracted from the PFS Group computers, and the bank account information produced to ASIC by Australia and New Zealand Banking Group Ltd (“ANZ”) relating to PFS Group dealings.
Ms McNair also deposed to having been present at the examinations of Shaun White, Tolson and Ms O’Toole pursuant to s. 19 of the ASIC Act. In considering this evidence of Ms McNair, I have proceeded in accordance with my summary of the evidentiary status of the s. 19 transcripts, as set out above.
Based upon the banking records produced by ANZ, including as to account opening authorities and signatories, Ms McNair has been able to trace the movement of trust funds from the bank accounts of various SMSFs into the bank accounts of several of the defendants. Ms McNair prepared a number of helpful tables and charts describing the relevant flow of funds between the various accounts. This evidence as to the flow of funds, when combined with the evidence of the owners of the SMSF accounts, demonstrates that there have been many misappropriations of SMSF trust funds by Shaun White in his capacity as signatory to the bank accounts of many SMSFs being administered by the PFS Group.
The bank account information which ANZ made available to ASIC pursuant to notices under s. 30 of the ASIC Act is summarised in Ms McNair’s affidavit. It is necessary to describe the available records produced by ANZ in some detail, in order to understand the conclusions reached by Ms McNair as a result of her investigations.
Shaun White maintained two ANZ bank accounts at all material times. The first account bears the account descriptor “Studley Rd Chq” (“Studley Rd account”). The second account bears the account descriptor “Margaret St cheque (“Margaret St account”). Shaun White was the sole signatory to these accounts and Ms McNair had access to the bank statements for the relevant period.
The PFS Group maintained a number of bank accounts:
(1)An account in the name of “Personalised Finance Solutions” with the account descriptor “Plan Commission Account” (“PFS Plan Commission account”). It appears that this account was established by Meridian, in its capacity as owner of the business name “Personalised Finance Solutions”. The sole authorised signatory of this account at all relevant times was Shaun White.
(2)PFS Business maintained an account in its own name at relevant times (“PFS Business account”). At all relevant times, Shaun White was the sole authorised signatory to this account.
(3)PFS Wholesale maintained a bank account in its own name at all relevant times (“PFS Wholesale account”).[35] At all relevant times, Shaun White and Mr Kaluski were authorised signatories to this account.
(4)PFS Construction maintained a bank account in its own name (“PFS Construction account”). At all relevant times the sole authorised signatory for this account was Tolson.
(5)PFS Ashridge Lane A maintained a bank account at relevant times in its own name. (“PFS Ashridge Lane A account”) At all relevant times the sole authorised signatory was Tolson.
(6)Sean White Pty Ltd maintained a bank account at relevant times. At all relevant times Shaun White was the sole authorised signatory to this account.
[35]Initially, the account descriptor was “Mortgage Helpline Pty Ltd” which was the previous name of PFS Wholesale.
It appears that neither PFS Ashridge Lane B nor PFS Ashridge Lane C ever maintained a bank account. The evidence does not disclose whether Kaluski White, Kaluski White Black Gully Road or Nycam Werd ever held a bank account.
As I have mentioned above, acting upon powers of attorney in favour of “Personalised Finance Solutions”, Shaun White was able to open the bank accounts of the SMSFs established and managed by PFS Business and to appoint himself a signatory, often the sole signatory, of those bank accounts. As Ms McNair’s affidavit demonstrates, it is apparent that Shaun White used his position as signatory to these SMSF bank accounts to transfer moneys from those accounts to accounts maintained by the PFS Group and to his own personal bank accounts. The affidavits sworn by the holders of these accounts establish that Shaun White transferred these moneys without any authority of the account holder.
I will describe the detail of these unauthorised transactions by Shaun White later in this judgment.
ASIC also relied upon two affidavits sworn by the liquidator. In his affidavits, the liquidator produced the provisional liquidator’s report and described the manner of its preparation. I have considered the admissibility of the statements and opinions contained in the provisional liquidator’s report above. Further, the liquidator has deposed to recent dealings concerning the Epping property and has addressed the criticisms by Shaun and Nicole White of his report in their first letter to the Court which is quoted above. I have taken the criticisms by Shaun and Nicole White, and the liquidator’s response, into account in making my factual findings.
In addition to these principal affidavits, ASIC relied upon a number of affidavits sworn by ex-employees of the PFS Group, SMSF account holders, investors in PFS Group property developments and other affidavits proving specific facts relied upon by ASIC.
Tolson did not file any affidavits or give oral evidence. He restricted his evidentiary role in the trial to the cross-examination of two witnesses and the tender of a few documents, which he said he obtained from Nicole White, without objection by ASIC.
Facts
An examination of the conduct of the PFS Group reveals a dispiriting tale of misleading statements, gross mismanagement, breaches of trust and fraud. There have been many contraventions of the Act. The extent to which each of the personal defendants was responsible for, participated in or was aware of this conduct must be examined in order to determine whether there have been any contraventions of the Act by them. Where contraventions are established against a personal defendant, it is necessary to consider the circumstances in which that contravention occurred and, in particular, whether it involved any incompetence, lack of good faith or improper use of his or her position as a director to gain an advantage for him, her or another person. As I have said, it is only when I have made findings and published my reasons in this regard that the Court can give separate consideration to the question of whether any, and if so what, disqualification orders should be made against one or more of the personal defendants.
(1) Shaun White
Shaun White was a director of all of the corporate defendants at material times.[36]
[36]On 6 April 2005, during the time that complaints about the PFS Group were being made to ASIC and only some three months prior to the commencement of proceedings by ASIC, Shaun White resigned as a director of Kaluski White. Shaun White remains a director of all of the other corporate defendants.
The evidence establishes that, at all relevant times, Shaun White was the person in overall control of the whole of the PFS Group.
On 17 May 2000, Shaun White was convicted by the Magistrates’ Court of Victoria at Melbourne of obtaining property by deception in contravention of s. 81 of the Crimes Act 1958 (Vic), which carries a penalty of up to 10 years imprisonment. He was sentenced to a term of 18 months imprisonment as part of an aggregate sentence for this and other offences. As the sentence of imprisonment was suspended, Shaun White was disqualified under s. 206B(2) of the Act from managing corporations for a period of five years after 17 May 2000. This period of disqualification operated throughout the period that Shaun White acted as a director and controlling mind of companies in the PFS Group.
As I have said, Shaun White was a signatory to bank accounts of SMSFs which had been established on behalf of clients by Meridian and later PFS Business. In this capacity, Shaun White misappropriated funds from SMSFs for the purposes of the PFS Group or for his own personal use.
Further, as will appear, it is apparent that Shaun White used his position as the person in overall control of the PFS Group to bring about “inter-company loans” from PFS Ashridge Lane A to PFS Business, Shaun White personally and in payment of various expenses of the PFS Group or Shaun White personally.
(2) Nicole White
Since March 2005, Nicole White has been a bankrupt. Accordingly, she has been disqualified from managing corporations since that time by virtue of s. 206B(3) of the Act. However, notwithstanding this disqualification, Nicole White acted as a director of Kaluski White Black Gully Road since its incorporation and, in addition and more importantly for this proceeding, was actively involved in the management of the SMSF business operated by the PFS Group and, in particular, Meridian and PFS Business.
The evidence establishes that Nicole White worked for the PFS Group at all material times and was responsible for both establishing and administering SMSFs on behalf of PFS Group clients. Her business card describes her as “Senior Fund Administrator” and the evidence shows that she performed this function.
The evidence establishes that Nicole White benefited personally from her husband’s misappropriation of funds from SMSFs and from joint ventures in relation to property developments. The evidence also discloses that Nicole White told lies to cover-up some of her husband’s misappropriations, thus indicating that she knew of at least those misappropriations.
(3) Damian Tolson
The position of Tolson is not so straightforward. Although he was a director of PFS Construction and of the three PFS Ashridge Lane companies, and a signatory to some relevant bank accounts, he does not appear to have been involved in any deliberate misappropriation of moneys from either SMSFs or joint ventures.
At the time of the events in question, he was inexperienced in business and, it would appear, naively did Shaun White’s bidding without considering his duties as a director or the contractual duties of companies of which he was a director. These were the first companies of which he was a director and, I find, he had no real appreciation of his duties as a director. Although I find, for the reasons appearing below, that Tolson has breached his duties as a director in material respects, and will make declarations accordingly, my findings against him in this regard are based upon negligence, indeed gross negligence, rather than any deliberate wrongdoing.
Tolson is a carpenter by trade. In 2003, he was working as a carpenter with the aim of becoming registered builder. He had known Shaun White since they were teenagers, but they had not spoken for eight or nine years by 2003.
At some stage in 2003, Shaun White telephoned Tolson and asked him if he was interested in doing some carpentry work at his father’s house and on a property development in Warburton Lane, Melbourne, which he was developing with a partner, Ross Tochi. Tolson accepted the offer of work.
When Tolson commenced carpentry work for White and Tochi, he learned that Andrew Kaluski was also involved in the property development business. To Tolson’s observation, White, Tochi and Kaluski appeared to be financially successful and he saw an opportunity for future carpentry work on their behalf. In the latter half of 2003, Tolson worked on another small project for White, Tochi and Kaluski and appears to have impressed them with the standard of his work.
In December 2003, Tochi parted ways with White and Kaluski. This was at a time when White and Kaluski were about to move into new offices, on which Tolson was carrying out some carpentry work. At this time, White asked Tolson if he was interested in “coming on board”. Tolson understood that this invitation was motivated by the need for someone to fulfil the construction manager role previously undertaken by Tochi.
Tolson accepted the offer to become a construction manager of the property developments being undertaken by White and Kaluski.
In circumstances which were not fully explained in the evidence, Tolson agreed to become a director of PFS Construction and the three PFS Ashridge Lane companies. As I have said, he also became the sole signatory to the PFS Construction account and the PFS Ashridge Lane A account.
In time, Tolson’s role expanded beyond that of a construction manager. As a director of PFS Ashridge Lane A, and the sole signatory to its bank account, he was involved in what he described as “inter-company loans” from PFS Ashridge Lane A to PFS Construction, other PFS Group companies and Shaun White personally. The funds which were “lent” belonged to investors in joint venturers to which PFS Ashridge Lane A and PFS Ashridge Lane B were parties. Although I have no doubt that all of these “loans” were initiated by Shaun White, Tolson did nothing to stop them. It appears that he trusted Shaun White, who told him that the money would be repaid. These transactions are described in more detail below.
Further, towards the end of the operation of the PFS Group businesses, it appears that Tolson became involved in the wider aspects of the business, including acting as a salesman for the property development business by actively seeking investors in the Epping property.
(4) SMSF Business
The SMSF business of the PFS Group was inextricably bound up with the property development business. Shaun White’s business plan was simple. Using the business name “Personalised Financial Solutions” (“PFS”) members of the public would be approached and encouraged to move their superannuation moneys out of existing superannuation funds and into a SMSF established for them by Meridian and, later, PFS Business. As part of the establishment process, clients would be required to sign a power of attorney in favour of “Personalised Financial Solution”.[37] Once a SMSF was established, the trustee would be targeted as a potential investor for PFS Group property developments.
[37]The powers of attorney referred to the Australian Business Number of Meridian and, later, of PFS Business. There was no explanation in the evidence of the use of the singular “Solution”. I assume this was mere spelling error and proceed on that basis.
The manner in which members of the public were encouraged to transfer their superannuation moneys from existing superannuation fund to a SMSF established and managed by the PFS Group, and to sign a power of attorney in the process in favour of PFS, was wholly inappropriate and replete with false and misleading conduct.
Shaun White actively engaged untrained and unqualified staff to act as spruikers of the SMSF concept. The prime example was Ned Tibble. Tibble was a lamb-boner employed by the PFS Group as an “introducer”. He was paid a fee of $110 for every person referred by him to the PFS Group who established a SMSF.
According to Tibble, Shaun White informed him that he did not need to be licensed to act as an “introducer” and market SMSFs to the public. Shaun White told him that PFS was registered with ASIC and the Australian Taxation Office (“ATO”) and said “I am the fund administrator. You simply work for me. I hold the licence for you.” This was false. None of the defendants held an Australian financial services licence at any time.
At or shortly after a training session, in which Shaun White informed “introducers” as to what to say to potential clients, Shaun White told Tibble to say to potential clients that “everything had to go through the ATO before the SMSF was set up and that the ATO audits the SMSF every year”.
Shaun White also told Tibble that he should inform potential clients that PFS would charge an accounting fee of $990 per year to act as secretary and book keeper of the SMSF and that, for this purpose only, the application form to establish a SMSF contained a “release form” to allow PFS to take these annual fees.
Tibble and other introducers were given what Shaun White described as an “information pack” to market the SMSF concept. This was a most misleading document which was designed to encourage people to set up their own SMSF with an investment of as little as $30,000. It is apparent that Shaun White’s business plan was, with the assistance of unqualified “introducers”, to target unsophisticated people with small balances in their superannuation accounts. Marketing by PFS included random doorknocking, placing leaflets in letterboxes and advertising in newspapers including the Trading Post. The usual method of attracting interest was to inform potential clients that PFS offered the service of finding “lost” superannuation funds. Once the clients’ interest was attracted, they were offered the opportunity to roll all of their existing superannuation funds into a SMSF. Tibble and other introducers were also encouraged to market the benefits of establishing SMSFs to friends and family.
The information pack was misleading in that, when read as a whole, it gives the appearance of having been prepared by an experienced superannuation fund manager who was licensed under applicable legislation to do so. This illusion is created by numerous references to applicable legislative requirements and the statement:
“Although PFS is the authorised administrator of the fund and is independent, unbiased and operates under strict legislative guidelines, it will not be the trustee of your Superannuation Fund and therefore will not take on the responsibilities of trustee.”
The information pack is also misleading in that it records a number of detailed promises by PFS as to what they will do in the future in administering SMSFs. The evidence establishes that most, if not all, of these promises were not fulfilled. Under the heading “What Personalised Finance Solutions will do for you”, PFS made a number of promises, including promises to:
(ii) PFS Construction
PFS Construction engaged in misleading and deceptive conduct when Tolson led Joseph Scaffaro to believe that he would be paid wages if he continued to work for PFS Construction. In fact, Scaffaro was not paid. I find that Tolson, and therefore PFS Construction, had no reasonable grounds for stating or implying to Scaffaro that he would be paid. I refer to paragraphs 296-302 above.
(iii) PFS Ashridge Lane A and PFS Ashridge Lane B.
These companies engaged in misleading and deceptive conduct in the following respects:
(1)Each of them failed to comply with the representation contained in the joint venture agreements to which it was a party, that a separate bank account would be opened and maintained for each of the joint ventures. In fact, the PFS Ashridge Lane A account was the only bank account opened. All moneys invested in the Ashridge Lane development were placed in this account: see paragraphs 108(5), 109 and 234-7 above. There was no evidence of any reasonable grounds for the making of these representations.
(2)Investors in the Ashridge Lane development were not told that moneys invested for the purposes of the development were used to make “inter‑company loans” to PFS Business and for other purposes not directly associated with the Ashridge Lane development. Further, investors were not told of the consulting fee charged by PFS Business or the investor fee paid to Anthony Warthold Pty Ltd as a commission in respect of securing Cech and Hanlon as investors in the Ashridge Lane development. In my view, the investors were entitled to expect that they would be told if the moneys invested in the Ashridge Lane development were used for these purposes. By failing to inform the investors of these payments from the PFS Ashridge Lane A account, these companies engaged in misleading and deceptive conduct because the investors were induced to believe that their investments were held in a separate bank account for use only in connection with the Ashridge Lane development. See paragraphs 237-49 above.
(3)Tolson, on behalf of PFS Ashridge Lane B, mislead Paul Hanlon about the reasons for construction ceasing on the Ashridge Lane development. Although the concrete slab may have been poured “slightly out”, the real reason for construction ceasing was that there was no money left in the PFS Ashridge Lane A account, as a result of the unauthorised use of moneys invested in the Ashridge Lane development. Tolson mislead Hanlon by failing to inform him of this: see paragraphs 240-1 above.
(iv) Kaluski White
Kaluski White engaged in misleading and deceptive conduct in relation to its joint venture agreement with Ivana Stillitano. As with other joint ventures, no separate bank account was opened, as provided for and represented in the joint venture agreement. The investment by Ms Stillitano was placed in the Kaluski White general account: see paragraph 259 above.
(v) Nycam Werd
Nycam Werd engaged in misleading and deceptive conduct in relation to the Epping property, in the following respects:
(1)The investment report prepared by Shaun White on behalf of Nycam Werd included a detailed project feasibility study including extravagant predictions of profits to investors ranging from 40 per cent to 102 per cent. In fact, all of the investors in redeemable preference shares in Nycam Werd will lose their money: see paragraphs 270-5 above. As there was no evidence of any reasonable grounds for the making of the extravagant profit forecasts, I find that this conduct on behalf of Nycam Werd was misleading and deceptive.
(2)Tolson told Aaron Kendon that he was “guaranteed” to make a 15 per cent return on his investment in Nycam Werd within 12 months: see paragraph 289 above. This has not eventuated and there is no evidence that there were reasonable grounds for Tolson to make this statement. I find that it was misleading and deceptive.
(c) Personal Defendants
The conduct of the personal defendants which was misleading or deceptive has been canvassed above in relation to the corporate defendants. As I have said, any misleading or deceptive conduct by a personal defendant on behalf of a corporate defendant is taken to be misleading and deceptive conduct by both the personal defendant and the relevant corporate defendant.
(3) Breach of director’s duties
Before setting out the applicable law, I note that there is substantial overlap between the conduct of the personal defendants which I have found to be misleading or deceptive and the conduct of the personal defendants which is in contravention of their duties under the Act as directors or officers of the corporate defendants.
(a) Applicable law
Section 180(1) of the Act provides that directors and officers of a corporation must, subject to the business judgment rule in s. 180(2), exercise their powers and discharge their duties with a reasonable degree of care and diligence. Section 181(1) provides that directors and officers of a corporation must exercise their powers and discharge their duties in good faith and for a proper purpose. Section 182(1) provides that directors, officers and employees of a corporation must not improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the corporation.
As appears above, Shaun White was a director of each of the corporate defendants at all relevant times.
Nicole White was a director of Kaluski White Black Gully Road. More importantly, Nicole White was at all relevant times an “officer” of Meridian and PFS Business, in that she was the person within the PFS Group who at all material times was responsible for the establishment and administration of SMSFs on behalf of PFS Group clients. In this role, Nicole White made or participated in the making of decisions that affected the whole or a substantial part of the business conducted by Meridian and, subsequently, PFS Business. Accordingly, I find that Nicole White was at all relevant times an “officer” of Meridian and PFS Business within the meaning of the Act.[53]
[53]See the definition of “officer” in s. 9 of the Act.
Tolson was at all relevant times a director of PFS Construction and of PFS Ashridge Lane A, B and C. Tolson was not, in my view, an officer of any of the other corporate defendants.
Because ASIC also seeks declarations against Nicole White and Tolson that they were “involved” in contraventions of ss. 181(1) and 182(1) by Shaun White, it is necessary to consider the elements of these two sub-sections briefly.
It suffices for present purposes to refer to the consideration by Santow J in ASIC v Adler[54] of the applicable principles. Relevantly, Santow J stated that issues of good faith, proper purpose and improper use of position are, for the purposes of ss. 181(1) and 182(1), to be determined objectively.
(b) Contraventions of s. 180(1)
[54](2002) 41 ACSR 72 at [458]; [735]-[740].
As I have said, the management of the PFS Group was a complete shambles. Each of the personal defendants must bear some responsibility for this. Obviously enough, the prime responsibility is that of Shaun White and, in connection with the SMSF Business, Nicole White. However, as a director of PFS Construction and the three Ashridge Lane companies, Tolson must also bear some responsibility.
I find that the personal defendants contravened s. 180(1) of the Act by failing to exercise a reasonable degree of care and diligence as a director or officer of the corporate defendants, in the following respects:
(1)Failing to ensure that PFS Group employees were paid wages in a timely manner or at all: see paragraphs 293-311 above.
(2)Permitting PFS Group companies to continue to trade whilst they were obviously insolvent: see paragraphs 316-7 above.
(3)Failing to ensure that PFS Group companies kept proper books and records of all transactions engaged in by them: see paragraphs 228, 235, 259 and 318-29 above. In this regard also, I note the failure of the personal defendants to fully comply with notices served on them under s. 30 of the ASIC Act: see paragraph 333 above.
(4)Failing to ensure that the corporate defendants complied with their taxation obligations: see paragraphs 12, 15, 21, 25 and 34 above.
(5)General mismanagement of the PFS Group: see paragraphs 330-2 above.
In my view, each of the personal defendants contravened s. 180(1) in the respects mentioned in the previous paragraph, albeit to varying degrees.
Further, I find that Shaun White breached s. 180(1) of the Act in the following respects:
(1)By preparing a false and misleading “information pack” for “introducers” to give to potential clients of the SMSF Business: see paragraphs 140-4 above.
(2)By preparing a misleading feasibility study in respect of the Epping property and investment in redeemable preference shares in Nycam Werd: see paragraph 369 above.
(3)By employing unsuitable and unqualified persons to act as “introducers” of the SMSF Business concept to potential clients. The prime example is Ned Tibble: see paragraph 136 above.
(4)Failing to ensure that PFS Group companies, in particular, Meridian and PFS Business, held an AFS licence. In this regard, I note that Shaun White knew of the need to be licensed: see paragraph 138 above.
Further, I find that Tolson contravened s. 180(1) of the Act by failing to exercise a reasonable degree of care and diligence in connection with the “inter‑company loans” and other payments which he allowed to be made from the PFS Ashridge Lane A account: see paragraphs 237-49 above.
(c) Contraventions of s. 181(1)
As will be apparent, I am of the firm view that Shaun White has contravened s. 181(1) of the Act by failing to act in good faith and for a proper purpose in numerous respects. The principal respects in which Shaun White failed, in the exercise of his powers and the discharge of his duties as a director of the corporate defendants, to act in good faith in the best interests of the corporate defendants or for a proper purpose are as follows:
(1)The powers of attorney which were granted by trustees of SMSFs established by Meridian or PFS Business did not appoint Shaun White as their attorney. They appointed “Personalised Finance Solution ABN...” as the attorney. Until the establishment of PFS Business, the ABN of Meridian was stated in the powers of attorney. After the incorporation of PFS Business, its ABN was stated in the powers of attorney. Shaun White used his position as a director of Meridian, and later PFS Business, to convince the ANZ Bank to appoint him as a signatory to SMSF bank accounts. In my view, this demonstrates that Shaun White was exercising his powers as a director of Meridian, and later PFS Business, when he used his authority as account signatory for SMSF bank accounts to misappropriate moneys. This conduct by Shaun White was obviously not in good faith, in the best interests of Meridian or PFS Business or for a proper purpose.
(2)Further and in any event, I infer that Shaun White used his position as a director of Meridian and PFS Business to become appointed as signatory of SMSF bank accounts for the purpose of gaining an advantage for himself and his wife. Although it may be that, in the early stages of the SMSF Business, Shaun White did not intend to misuse his authority as account signatory for SMSFs under his control, his conduct in taking steps to have himself appointed a signatory to SMSF bank accounts after he had commenced misappropriating moneys was clearly done in bad faith and for an improper purpose. The continuing pattern of misappropriation establishes this.
(3)By directing Tolson to make the “inter-company loans” and other advances from PFS Ashridge Lane A to PFS Business, Shaun White failed to act in good faith as a director of PFS Ashridge Lane A and PFS Ashridge Lane B. The loans and other payments were directed by Shaun White for his own purposes, or those of PFS Business, and were clearly improper.
(4)The lies told by Shaun White, which I have found to be misleading and deceptive conduct, constitute conduct by Shaun White as a director of PFS Business which was in bad faith, not for the best interests of PFS Business and not for a proper purpose.
I find that Nicole White contravened s. 181(1) of the Act by lying to Anna Chirnishova and Mr and Mrs Zenner: see paragraphs 173-5 and 189.
I am not satisfied that Tolson contravened s. 181(1) of the Act. In my view, the conduct of Tolson in this regard to the “inter-company loans” and other payments from the PFS Ashridge Lane A account should be viewed as gross negligence, rather than as a lack of good faith on his part. This is because I infer that Tolson was simply complying with directions from Shaun White in circumstances where, as I have said, he had no real appreciation of his duties as a director.
(d) Contraventions of s. 182(1)
In my view, the conduct of Shaun White and Nicole White which I have found to contravene s. 181(1) also contravened s. 182(1).
Further, as I have said, the conduct of Tolson in using his position as the sole signatory to the PFS Ashridge Lane A account to make the “inter‑company loans” and other payments for purposes other than the Ashridge Lane development constitutes, on any objective view, an improper use by Tolson of his position as a director of PFS Ashridge Lane A to gain an advantage for another. Viewed objectively, it was improper for Tolson to facilitate these loans and payments. At the time, Tolson was a director and the sole signatory to the PFS Ashridge Lane A account. Although I have little doubt that Tolson acted at the direction of Shaun White, this is no answer to a finding of objective impropriety against him in this regard. I note that Tolson made no attempt to ensure, prior to the “inter‑company loans” being advanced, that the loans were documented, made on reasonable terms as to the payment of interest or secured in any way. No reasonable director could have properly agreed to the “inter‑company loans” being made in these circumstances.
In this regard also, the loan by Tolson from the PFS Ashridge Lane A account to himself, in the sum of $1,000, must be seen as an improper use of his position as a director of PFS Ashridge Lane A: see paragraph 246 above.
(4) Involvement in contraventions of others
(a) Applicable law
Section 79 of the Act provides that:
"A person is involved in a contravention if, and only if, the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced, whether by threats or promises or otherwise, the contravention; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention."
Section 79 of the Act mirrors s. 75B of the Trade Practices Act 1974 (Cth). In Yorke v Lucas[55], the High Court considered each of the elements of s. 75B of the Trade Practices Act. In summary, the High Court held that, in order to be involved in a contravention, it was necessary to establish that the person alleged to be involved was an intentional participant in the contravention and that, in order to be an intentional participant in the contravention, the person must have knowledge of the essential matters which go to make up the contravention, although it is not necessary to know that the matters amount to a contravention. In this regard, actual knowledge is required, but this may be inferred where there is a combination of suspicious circumstances and a wilful failure to make inquiry.[56]
[55](1985) 158 CLR 661.
[56]Giorgianni v R (1985) 156 CLR 473 at 482, 487, 507-8; Pereira v R (1988) 82 ALR 217 at 219-20; Richardson & Wrench (Holdings) Pty Ltd v Ligon 174 Pty Ltd (1994) 123 ALR 681 at 693-4; Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 at 26; ASIC v Adler (2002) 41 ACSR 72 at [209]; Forge v ASIC (2004) 52 ACSR 1 at [202]; ASIC v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305 at [108]-[112].
Further, the knowledge of the person involved must come about at a time contemporaneous with the contraventions. It is not sufficient for the purposes of s. 79 that a person acquires knowledge of the essential matters which go to make up the contravention after it has occurred and, at that time, fails to take appropriate action.[57]
(b) Nicole White
[57]ASIC v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305 at [114]-[115].
I find that Nicole White was a person involved in the contraventions by her husband of ss. 181(1) and 182(1) of the Act, for the following reasons:
(1)Nicole White is the wife of Shaun White and obviously has a close personal relationship with him.
(2)Nicole White was the direct and indirect recipient of the benefit of moneys misappropriated by Shaun White.
(3)As the “Senior Fund Administrator” of the SMSF Business conducted by Meridian and, subsequently, PFS Business, Nicole White must have known that Shaun White was a signatory, often the sole signatory, of SMSF bank accounts. Further, she must have known that bank statements were forwarded by ANZ to PFS and not to the trustees of the SMSFs under her control as fund administrator.
(4)Even if Nicole White did not know of the early misappropriations by Shaun White of SMSF moneys, there can be no doubt that she well knew of misappropriations by at least mid-June 2004. This follows as a matter of necessary inference from the request by Anna Chirnishova of Nicole White in mid-June 2004 for access to her superannuation moneys and the subsequent lies told by Nicole White to Ms Chirnishova in order to cover up the fact that, by mid-June 2004, $83,000 had been taken from Ms Chirnishova SMSF bank account: see paragraphs 172-8 above. The only reason for Nicole White lying to Ms Chirnishova was to conceal the fact that moneys had been stolen from her SMSF bank account.
(5)Similarly, the only explanation for the lies told by Nicole White to Mr Zenner about his superannuation moneys is that Nicole White was covering up her husband’s misappropriation of $178,000 from the Makaze SMSF bank account in July 2004: see paragraphs 183-9 above.
(6)I find that Nicole White knew, from at least mid-June 2004 and probably earlier, of her husband’s misappropriations of SMSF trust moneys. Further, I find that she knew that her husband improperly used his position as a director of PFS Business, together with the powers of attorney in favour of PFS Business, to become a signatory to SMSF bank accounts and thus facilitate the misappropriations. If Nicole White did not have actual knowledge of these matters, she was on notice of extremely suspicious circumstances and her failure to inquire into her husband’s actions was wilful.
(c) Tolson
I am not prepared to find that Tolson had actual knowledge of the essential matters which go to make up the contraventions by Shaun White of ss. 181(1) and 182(1) of the Act. There is no evidence that Tolson knew, or had any reason to suspect, that Shaun White was misappropriating SMSF trust funds.
It was only after the “inter‑company loans” and other payments from the PFS Ashridge Lane A account had been made, and not repaid within a reasonable time, that Tolson became concerned about the ability of these moneys to be repaid.[58] However, it is unnecessary to pursue this matter further as I have found that Tolson was in direct contravention of s. 182(1) of the Act in respect of the making of the so-called “inter‑company loans” and other payments from the PFS Ashridge Lane A bank account.
[58]See paragraph 283 above.
Declarations
I will make declarations as to the contraventions which I have found to be established. I will hear the parties as to the form of these declarations.
Injunctions
It was submitted on behalf of ASIC that the conduct of the defendants was of such a serious character as to justify the Court granting permanent injunctions “shutting down” the business of the PFS Group and preventing the personal defendants from engaging in, or being concerned in, the conduct of a financial services business at any time in the future. ASIC relied upon the following matters as justifying injunctions of this character:
(1)The defendants conducted a financial services business without being licensed to do so. Shaun White knew that a licence was required and misled PFS Group employees by stating that a licence was held.[59] If an AFS licence had been applied for and obtained by the defendants or any of them, the licence holder would have been bound by the various provisions of the Act which have the obvious purpose of ensuring that persons providing financial services to the public do so efficiently, honestly and fairly. Reference was made to the detailed provisions contained in Parts 7.6, 7.7, 7.8 and 7.9 of the Act which regulate the conduct of a financial services business by holders of an AFS licence and their representatives. The defendants failed to comply with this detailed statutory regime.[60]
(2)Investments in superannuation stand in a very special category of financial investment. The purpose of such investments is to provide income for people in their retirement. Viewed in this context, the conduct of the defendants was so incompetent, misleading and, in respect of Shaun White in particular, dishonest, that all of them should be restrained from, directly or indirectly, being involved in the conduct of any financial services business in the future.
[59]See paragraph 138 above.
[60]Particular reliance was placed upon the failure to comply with the requirements of ss. 912A, 945A, 941A, 942B, 946A, 947A, 947B, 947C, 1012A, 1012B, 1012C and 1012D of the Act.
I accept these submissions on behalf of ASIC. It is hard to imagine a more serious case of contraventions of the financial services provisions of the Act and the ASIC Act. I note that Finkelstein J made permanent “shut down” orders in ASIC v Preston[61] in circumstances similar to this but which involved conduct which was far less widespread and involved significantly lesser amounts of misappropriation.
[61][2005] FCA 1805.
In making these comments, I am conscious that the position of Shaun White stands apart from that of Nicole White and Tolson. As the person in overall control of the PFS Group, it was Shaun White who orchestrated the misappropriation of moneys invested in SMSFs and PFS Group property developments. Although the involvement of Nicole White and Tolson appears to have been to implement the directions of Shaun White, their conduct was nevertheless, at the very least, of a level of incompetence justifying the making of permanent injunctions.
The granting of permanent injunctions of the kind sought by ASIC is consistent with s. 1101B(4) of the Act, which provides examples of the kinds of orders which a Court may make under s. 1101B(1). That subsection expressly authorises the making of orders restraining a person from carrying on a business or doing any act in relation to financial products or financial services where the person has persistently contravened one or more provisions of Chapter 7 of the Act or of any other law relating to dealing in financial products or financial services. I am satisfied that this is such a case.
I will hear the parties as to the precise form of the injunctions which I should make in order to give effect to these reasons.
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