Australian Securities and Investments Commission v Rich - [2004] NSWSC 836

No judgment structure available for this case.

Reported Decision:
50 ACSR 500
(2004) 22 ACLC 1232

Supreme Court

CITATION: ASIC v Rich & Ors [2004] NSWSC 836

HEARING DATE(S): 31/08/04, 02/09/04, 03/09/04

JUDGMENT DATE:
9 September 2004

JUDGMENT OF: White J

DECISION: See Page 37 of Judgment

CATCHWORDS: Corporations - Officers and employees - Duties and powers - Duty of care and diligence - Consent orders - Responsibilities of Chairman discussed - s 1317E requirements for specificity discussed - s 1317F discussed - Period of disqualification - Factors to consider for non-executive chairman.

LEGISLATION CITED: Corporations Act (2001) (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
Bankruptcy Act 1966 (Cth)
Corporate Law Reform Bill 1992
Corporate Law Economic Reform Bill 1998
Trade Practices Act 1974 (Cth)
Petroleum Retail Marketing Sites Act 1980 (Cth)

CASES CITED: ASIC v Rich & Ors (No. 2) (2003) 21 ACLC 672; 44 ACSR
Williams v Powell [1894] WN (Eng 141
Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221
Termijtelen v Van Arkel [1974] 1 NSWLR 525
Wallersteiner v Moir [1974] 3 All ER 217
Metzger v Department of Health and Social Security [1977] 3 All ER 444
BMI Limited v Federated Clerks Union of Australia (1983) 51 ALR 401
Young, Declaratory Orders, 2 ed
Dean-Willcocks Pty Ltd v Commissioner of Taxation (No. 2) (2004) 49 ACSR 325; 22 ACLC 1034
ASIC v Rich (2003) 174 FLR 128; 44 ACSR 341; 21 ACLC 450
Vrisakis v Australian Securities Commission (1993) 9 WAR 395
Australian Securities & Investments Commission v Adler (No. 4) (2002) 189 ALR 365; 20 ACLC 723
Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 399; 17 ACLC 511
Tannous v Mercantile Mutual Insurance Co Ltd [1978] 2 NSWLR 331
News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410
Re Great Eastern Cleaning Services Pty Ltd and The Companies Act [1978] 2 NSWLR 278
BP Australia Limited v Brown & Ors (2003) 58 NSWLR 322
Cameron v Cole (1944) 68 CLR 571
Rich & Silbermann v ASIC (2003) 203 ALR 671; 48 ACSR 6; (2004) 22 ACLC 286
Starnex Securities Pty Ltd & Ors; Australian Securities & Investments Commission v Starnex Securities Pty Ltd [2003] FCA 1375
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993
ASIC v Adler (No. 5) (2002) 42 ACSR 80; 20 ACLC
ASC v Donovan (1998) 28 ACSR 583
Daniels v Anderson (1995) 37 NSWLR 438
Re Barings Plc; Secretary of State for Trade and Industry v Baker & Ors [1998] BCC 583
Dairy Containers Limited v NZI Bank Limited (1995) 13 ACLC 3211
Adler v ASIC (2003) 21 ACLC 1810; (2003) 46 ACSR 504
Australian Securities & Investments Commission v Plyman Elliott & Harrison [2003] VSC 230

PARTIES :
Australian Securities & Investments Commission
v
John David Rich & 3 Ors

FILE NUMBER(S): SC 5934/01

COUNSEL: Plaintiff: RSB MacFarlan QC, N J Beaumont, A J Abadee
3rd Defendant: J N West QC

SOLICITORS: Plaintiff: Jan Redfern Solicitor
3rd Defendant: Watson Mangioni Solicitors

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Thursday, 9 September 2004

5934/01 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v JOHN DAVID RICH & 3 Ors

1 HIS HONOUR: This is an application by the plaintiff, which is consented to by the third defendant, for the making of declarations pursuant to s 1317E of the Corporations Act that the third defendant contravened s 180(1) of the Corporations Law in various ways, for an order pursuant to s 206C and 206E of the Corporations Act prohibiting the third defendant from managing corporations for four years, for an order pursuant to s 1317H(1) of the Corporations Act that the third defendant pay compensation to One.Tel Limited (in Liquidation) in an amount of $20 million, and for an order for costs.

2 On 6 September 2004 I made declarations and orders referred to in Para 95 below. These are my reasons.

3 The third defendant was the non-executive chairman of the board of One.Tel Limited. One.Tel Limited was the holding company of a number of subsidiaries which together with One.Tel Limited comprised the One.Tel Group. Those companies are in liquidation. One.Tel Limited was placed into administration on 29 May 2001. On 24 July 2001 the creditors of One.Tel resolved that it be wound up. The liquidators presently estimate that there will be a shortfall to admitted creditors’ claims of about $240-250 million.

4 In its Third Further Amended Statement of Claim the plaintiff claims declarations pursuant to s 1317E of the Corporations Act that between 1 January 2001 and 31 March 2001 the third defendant as chairman of directors of One.Tel contravened s 180(1) of the Corporations Law by various omissions. The third defendant consents to the making of certain of the declarations sought. They are that between 1 January and 30 March 2001 the third defendant as the chairman of Directors of One.Tel contravened s 180(1) of the Corporations Law by:

(1) failing to take reasonable steps to promptly ensure that he and the Board were aware of the “January circumstances”, the “February circumstances” and the “March circumstances”;

(2) failing to recommend to the Board on or after 28 February 2001 that the Group cease trading or appoint an administrator unless the Board was satisfied that cash injections totalling in the order of at least $270 million could be obtained as and when required over the next nine to twelve months of trading;

(3) failing to take reasonable steps to monitor management of the One.Tel Group, to properly assess the financial position and performance of the One.Tel Group, and to properly and promptly detect and assess material adverse developments affecting the financial position and performance of the One.Tel Group;

(4) failing to take reasonable steps to ensure that all material financial information was provided to the Board to enable the Board of One.Tel to monitor management, to properly assess the financial position and performance of the One.Tel Group, and to properly and promptly detect and assess any material adverse development affecting its financial position and performance, in particular information revealing;

(ii) the actual, and not simply the estimated, financial position and performance of the various segments of the business of the One.Tel Group; and

(iii) key events and transactions affecting the financial position and performance of the One.Tel Group;

(5) failing to take reasonable steps to ensure, in conjunction with the joint managing directors, that systems were maintained and monitored which resulted in material financial information which was accurate and reliable, flowing from management to the board of One.Tel.

5 Sections 1317E and s 1317F of the Corporations Act provide as follows:

- SECT 1317E
Declarations of contravention

civil penalty provisions

- SECT 1317F
Declaration of contravention is conclusive evidence

6 The declarations and orders sought include the following paragraphs to make it clear that they do not affect the position of other defendants to the proceedings:

“The Court makes the following declarations and orders noting:

(a) that they are intended to be operative only between the plaintiff and the third defendant and are not intended to be binding on or in any way affect any other defendant in the proceedings;

(b) that in particular the declarations concerning the conduct that constituted the contraventions of the Corporations Law are not binding upon or conclusive evidence of facts against any other defendant in the proceedings.”

7 In ASIC v Rich & Ors (No. 2) (2003) 21 ACLC 672; 44 ACSR 682 Bryson J made declarations pursuant to s 1317E in relation to the conduct of Mr Keeling, a joint managing director of One.Tel. At para 18 His Honour said of s 1317F that:

“The only matter which could be conclusively established is matter mentioned in terms in subs 1317E(2), such as matter relating to conduct of Mr Keeling which constituted a contravention. The proposed declarations contain statements of circumstances of Mr Keeling’s conduct, as is indispensably necessary to identify the conduct. I do not think that it would be correct, or that it would be reasonably arguable that circumstances so referred to would be conclusively established for the purposes of establishing the circumstances of anyone else’s conduct.”

8 Hence the declarations which I am asked to make will not affect the position of the first and fourth defendants. However the extent to which s 1317F makes declarations about the third defendant’s conduct conclusive in respect of other proceedings where his conduct is in issue, is a matter to which I will return.

9 I deal first with the declarations sought pursuant to s 1317E. Two things can be noted at once. First, that before a declaration can be made I must be satisfied that the third defendant has contravened s 180(1). Secondly, if I am so satisfied, I have no discretion to refuse to make the declaration.

10 As a general principle a Court does not make declarations on matters relating to public rights, or rights analogous thereto, by consent or on admissions, but only if it is satisfied by evidence. (Williams v Powell [1894] WN (Eng) 141; Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221 at 225-227; Termijtelen v Van Arkel [1974] 1 NSWLR 525; Wallersteiner v Moir [1974] 3 All ER 217; Metzger v Department of Health and Social Security [1977] 3 All ER 444 at 451; BMI Limited v Federated Clerks Union of Australia (1983) 51 ALR 401; Young, Declaratory Orders, 2 ed para 601).

11 Having regard to s 1317F, and the disqualification order which might be made consequent upon the declaration under s 1317E, the present case involves public or other analogous rights.

12 One of the reasons the Court may decline to make declarations by consent is the absence of a contradictor. However because s 1317E provides that the Court must make a declaration if satisfied that the person has contravened a civil penalty provision, the absence of a contradictor is only relevant if it means that the Court does not reach a state of satisfaction on the materials presented.

13 The materials presented in this case included an Enforceable Undertaking given by the third defendant to the plaintiff and accepted by it pursuant to s 93AA of the Australian Securities and Investments Commission Act. It also included a Statement of Agreed Facts which contained admissions by the third defendant of particular duties he owed in the circumstances, and of breaches of those duties. The statement also contained admissions by the plaintiff that as a non-executive director the third defendant relied on financial information provided to him by the executive directors and officers of the company and that based on that information the third defendant believed the financial position of the company to be secure when he resigned on 30 March 2001.

14 One.Tel’s annual report to 30 June 2000 and reports by liquidators to creditors of One.Tel Limited and its subsidiaries were tendered. The plaintiff also read affidavits by two experienced public company directors about the roles ordinarily performed by chairmen of listed public companies in Australia with particular reference to their ensuring that boards were kept fully informed of material financial information. The plaintiff also tendered reports of a chartered accountant, Mr Carter, who specialises in what is called forensic accounting. He described the financial position of the One.Tel Group, the financial information available to management and that provided to the Board. There was no objection to the admissibility of any of this evidence.

15 Although a declaration cannot be made under s 1317E unless the court is satisfied that the contravention has occurred, the material which may produce that satisfaction may include a statement of agreed facts and admissions by the parties. That was the course taken in ASIC v Rich & Ors (No. 2) at [2] and [10]. It is consistent with the course adopted by Austin J in Dean-Willcocks Pty Ltd v Commissioner of Taxation (No. 2) (2004) 49 ACSR 325; 22 ACLC 1034. As Austin J observed in the latter case (at 331, [28]):

“A court is never bound by admissions made inter parties or in the pleadings:

[1974] 1 NSWLR 525. It may decline to act on admissions if, for example, they are made so as to attract a jurisdiction that is not naturally present. However, in most cases it is appropriate to allow and even encourage parties to simplify litigation by making admissions so as to achieve the just, quick and cheap resolution of their dispute. …”

16 The evidence and admissions established the following matters. One.Tel commenced business in May 1995 as an Optus GSM service provider in Australia. The third defendant was the non-executive chairman of One.Tel from that time until 31 December 1995 and from 25 July 1997 until his resignation on 30 March 2001. He was also chairman of the finance and audit committee from at least 1 July 2000 until 30 March 2001. He is a chartered accountant. From May 1992 to January 1996 he was the chief financial officer of Optus. From January 1996 to 30 June 1999 he was the finance director of John Fairfax Holdings Ltd.

17 One.Tel Limited was listed on the ASX in November 1997. By the time administrators were appointed on 29 May 2001 it had operations in Australia, the United Kingdom, France, Germany, Switzerland, the Netherlands, Hong Kong and Singapore. As at 31 December 2000 the One.Tel Group had 2.4 million customers worldwide. The Group employed 3,000 employees.

18 Its business expanded rapidly. By 29 May 2001 its business included the re-selling of Optus mobile phone services, the re-selling of Telstra fixed wire local and long distance and international calls, the re-selling of Telstra internet services, the sale of pre-paid phone cards for long distance calls, and the provision of mobile phone services using the group’s own network.

19 The 2000 Annual Report records that in twelve months to August 2000 the number of customers increased from 642,000 to 2 million. Staff numbers doubled over that period. It signed contracts in 1999 for the rollout of a national mobile phone network. Those contracts were worth over $1.1 billion.

20 In the twelve months to 30 June 2000 One.Tel raised $818.5 million through the issue of shares and borrowed $139.8 million. Its payments to suppliers and employees over that period exceeded receipts from customers by over $170 million. It spent $525.6 million on the purchase of licences and $87.5 on plant and equipment. At 30 June 2000 it held cash or cash equivalents of $335.7 million. Unsurprisingly, given the rapid expansion of its business, it had a great appetite for cash.

21 The evidence before me, which was not tested by cross-examination, established that as at 28 February 2001 there was a deficiency in net liquidity of $24.5 million which increased to $98.7 million at the time the administrators were appointed. More relevantly for present purposes, there was a liquidity surplus of $44.8 million at 31 December 2000 but a deficiency in net liquidity of $22.4 million as at 31 March 2001.

22 Mr Carter’s reports established a progressive deterioration of the financial position of the Group between 1 January and 17 May 2001, including trading losses of $83.6 million in the first four months of 2001. His evidence also established that substantially more cash was expended in the operations over that period than had been forecasted or budgeted.

23 Mr Carter’s report, which again I emphasise was admitted without objection and was not the subject to cross-examination, established that the information supplied to the Board was deficient.

24 His report stated:

“25. In my opinion these deficiencies included:

(a) information available to management, that indicated the Group was experiencing serious cash difficulties, that was not disclosed to the Board. In particular, the Board was provided with no information concerning substantial growth in overdue trade creditors, and the extent to which the Group was effectively running out of cash

(b) the Board was not informed of the cause and true extent of material difficulties in the collectability of debtors. Those difficulties meant that the Group’s losses were understated and expected cash collections overstated

(c) there were differences between the earnings information available to management, and the earnings information provided to the Board. In my opinion, the Board was not advised of the extent of the losses the Group was actually incurring. …

(d) there were a number of key events and transactions which were not made known, or fully and accurately made known, to the Board.

25 The problem was not that the systems for recording financial information were inadequate. The problem was that although important information was available, that which was actually provided to the Board was limited and inaccurate. This was demonstrated in two particular respects: the statement of cash balances and the omission of data on the aging of debtors.

26 The Board received monthly reports called “Flash Reports” shortly after each month end and Board papers before each Board meeting. There was no Flash Report for the month of December 2000, but Flash Reports for January, February and March were sent to directors on 7 February, 5 March and 3 April respectively. Board papers were provided for meetings held on 25 January 2001 and 30 March 2001. These Board papers were tendered.

27 The Flash Reports provided detailed month and year-to-date results compared to forecasts in relation to the number of subscribers, revenue, gross margin, operating costs, EBITDA, cash balance, and a brief explanation for variances between actual and forecast results. The Board papers contained operational and financial data which usually included a comparison of actual to forecast results for a month, quarter, half-year of full-year as applicable, in generally the same areas (although with some variations).

28 The Flash Report for January 2001 reported a Group cash balance as at 31 January 2001 of $86 million. This was the cash in the bank account. What was not disclosed was that cheques totalling $7 million had been drawn, but not handed over until after month end so that the creditors’ payments were overdue. Another $8 million had been pledged to secure international lease liabilities and was not available for payment of other obligations. This was not disclosed in the information provided to the Board. Nor did that information disclose that there were overdue Australian creditors of about $24.4 million as at 31 January 2001.

29 It is unnecessary in these reasons to detail all the evidence in relation to what was not disclosed or was inaccurately stated in the reports to the Board. The problems of reporting to Board members continued to at least the end of March 2001. The deficiencies are summarised over three pages in paragraph 303 of Mr Carter’s report, exhibit C. Matters not reported or not accurately reported included:

“(a) the available cash balance, including the cash pledged and the amount of un-presented cheques, so that the Board was not in a position to assess the cash available to pay outstanding liabilities

(b) the extent to which creditor payments were deferred thereby resulting in an impression that the Group had higher cash balances and lower cash usage than it would with payment of overdue creditors. Further the deferral of payments resulted in a more favourable comparison against forecast than would otherwise have been the case

(c) cash balances were not reported by individual operations resulting in the cash balance deficiency in the Australian operations at the end of February 2001 and again in April 2001 not being disclosed

(d) there was a transfer of $26 million from the UK operations to the Australian operations on 28 February 2001, which resulted in the UK operations having insufficient cash to pay overdue trade creditors

(e) aging creditors including comparisons to prior periods to enable the Board to assess the Group’s immediate (and increasing) cash requirements and the extent of pending cash position deficiencies

(f) details of the Australian liquidity position which would have revealed that the Australian operations had insufficient cash and liquid assets to pay debts that had been incurred.”

30 The second principal deficiency was in the reporting of the delay in collecting debts. This had obvious implications not only for the reliability of reported earnings but for the reliability of forecasted cash balances. The information provided to non-executive directors did not include a detailed aging of the debtors’ balance or information upon which an assessment could be made of the adequacy of the provision for doubtful debts. The 30 March 2001 Board papers reported that the amount of debtors outstanding over 90 days was $84 million and that the provision against bad and doubtful debts of $54 million had been made, which was stated to be adequate. At that time Australian debtors totalled $152 million of which $84 million was greater than 90 days. Of these $61 million was greater than 180 days and $48 million was greater than 330 days. The provision of $54 million for bad and doubtful debts was insufficient to cover even Australian debtors greater than 180 days. Without the additional aging information the Board would not have been able to consider the adequacy of the provision.

31 It was Mr Carter’s opinion that without detailed information of the factors affecting the reported cash balance, cash flow and the deterioration in the cash position, including information as to the aging and collectability of debtors and the adequacy of the provision for doubtful debts, the Board was not in a position to monitor management, or properly assess the financial position and performance of the Group, or properly and promptly detect and assess any material adverse development affecting its financial position and performance.

32 Monthly management accounts were not finalised until after the Flash Reports were provided to the Board. Nonetheless there were startling discrepancies between the Flash Reports for month end and the management accounts. The Flash Reports were not revised once the management accounts were available so that the Board was not made aware of the discrepancies. For the months of January and February 2001 the EBITDA loss reported to the Board was $7,693,000 and $3,664,000 respectively, whereas management accounts disclosed losses of $20,869,000 and $16,000,032 respectively.

33 I have not dealt with all of the evidence in relation to the deficiencies of information supplied to the Board. What I have described is sufficient for the purposes of dealing with the present application.

34 It is not suggested that the third defendant was aware of any of these discrepancies or of the deficiencies in the information he and the Board received. He admits that he did not take reasonable steps to ensure that the information provided to the Board was accurate and adequate, and that by omission he breached his duty under s 180(1) of the Corporations Law to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if he or she were a director in the corporation’s circumstances and occupied the office held by, and had the same responsibilities in the corporation as, the third defendant.

35 The 1998 final report of the UK Hampel Committee on Corporate Governance stated:

“3.4 The effectiveness of a board (including in particular the role played by the non-executive directors) is dependent to a substantial extent on the form, timing and quality of the information which it receives. Reliance purely on what is volunteered by management is unlikely to be enough in all circumstances and further enquiries may be necessary if the particular director is to fulfil his or her duties properly. Management has an obligation to ensure an appropriate supply of information. In addition, we endorse Cadbury’s view (Report 4.8) that the chairman has a particular responsibility to ensure that all directors are properly briefed on issues arising at board meetings.”

36 In ASIC v Rich (2003) 174 FLR 128; 44 ACSR 341; 21 ACLC 450, Austin J held that it was reasonably arguable that the third defendant had the responsibilities pleaded in paragraph 9 of the Statement of Claim and as set out in paragraphs 14 and 15 of the judgment. In reaching that conclusion his Honour carefully reviewed the authorities, the literature and expert evidence which was also adduced before me as to the responsibilities ordinarily undertaken by chairmen of public listed companies in Australia. The third defendant has admitted that he had responsibilities:

(a) to take reasonable steps to ensure that he and the other members of the Board monitored the management of the One.Tel Group, properly assessed One.Tel’s financial position and performance, and properly and promptly detected and assessed any material adverse development affecting its financial position or performance;

(b) to take reasonable steps to ensure that he and the other members of the Board were informed of all material financial information concerning the One.Tel Group which was necessary to enable the Board to monitor management, to properly assess its financial position and performance, and to properly and promptly detect and assess any material adverse development affecting it’s financial position and performance; and

(c) to take reasonable steps to ensure that the material financial information referred to in (b) included information which revealed:

(2) the actual, and not simply the estimated, financial position and performance of the various segments of the business of the One.Tel Group; and

(3) key events or transactions, which affected the financial position or performance of the One.Tel Group.

37 He also admitted that he had a duty to take reasonable steps to ensure, in conjunction with the joint managing directors, that systems were maintained and monitored which resulted in material financial information which was accurate and reliable, flowing from management to the Board of One.Tel.

38 I have no reason to doubt that the admissions were properly made and that in the particular circumstances of One.Tel Limited between January and March 2001 the third defendant’s general duties extended to taking reasonable steps to carry out the more particular responsibilities which I have set out.

39 The plaintiff read affidavits of Mr Warburton and Mr Cameron, each of whom have had considerable experience as directors of public companies in Australia including experience as chairmen or deputy chairmen.

40 They gave evidence about the roles ordinarily performed by inter alia, the chairmen, of listed public companies in Australia with particular reference to ensuring that the Board was kept fully informed of all material financial information concerning the company. The evidence was admitted without objection. Mr Warburton’s evidence was that where a company was developing a new business and there was substantial movements of cash, the chairman will ensure that he and other non-executive directors know and understand all material information affecting the cash flow. He deposed that the chairman would not be satisfied with a provision by management of summary information on the cash position, but would insist on sufficiently detailed creditor and debtor information to enable him and the Board to form an intelligent view about the company’s actual and likely future cash position and its principal constituent elements. These will include a debtor profile, aged listings of debtors and creditors, and regular comparisons of actual cash balances with forecasts. Mr Cameron deposed that where the accuracy of information about the company’s actual and forecast cash balance is critical to its continued solvency, the chairman would not usually be satisfied with cash information which did not at least include an analysis of debtors, including an aged listing, especially where debtors outstanding were very substantial. He deposed that in such circumstances the chairman would require that the board be provided, as frequently as the circumstances required, with sufficient underlying information to enable the Board to make a meaningful assessment of the cash position.

41 Whilst the third defendant says, and the plaintiff admits, that he relied on the financial information supplied to him by others, it follows from his admission that he contravened s 180(1) of the Corporations Act that he does not claim that his reliance on others was reasonable. I am satisfied on the evidence to which I have referred and the admissions made by the third defendant that he did contravene s 180(1) of the Corporations Law by not insisting on management supplying sufficiently detailed financial information to himself and the Board. One of the admitted consequences of that failure is that he failed to recommend to the Board that the Group ceased trading or appointed an administrator unless the Board was satisfied that cash injections totalling in the order of at least $270 million could be obtained as and when required over the next nine to twelve months of trading.

42 Declarations of contravention made pursuant to s 1317E must specify each of the matters referred to in subs 1317E(2), including the conduct that constituted the contravention. Where the conduct is by omission, a question arises whether it is sufficient to declare a failure to take reasonable steps directed to achieving an outcome, or whether the declaration must state what particular steps ought to have been taken which were omitted. (Compare Vrisakis v Australian Securities Commission (1993) 9 WAR 395).

43 Prior to the 1999 CLERP Amendments s 1317EA(2) had provided for the making of declarations that a person had “by a specified act or omission” contravened a civil penalty provision. This provision was replaced by s 1317E(2), by the substitution, principally, of the word “conduct” for the previous “specified act or omission”. The change was discussed by Santow J in Australian Securities & Investments Commission v Adler (No. 4) (2002) 189 ALR 365; 20 ACLC 723. His Honour concluded that a reasonable degree of specification of the relevant conduct was required based upon the facts found and conclusions reached (at [12]). His Honour described the current practice as being to identify in fairly concise terms the substantive conduct which constituted the relevant contravention. Conciseness of terms may import some broadness of description, particularly where conduct consists of or includes omissions. Thus in Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 399; 17 ACLC 511 the Court made a declaration in terms of the respondent’s failing to prevent a company incurring specified debts when a reasonable person in the respondent’s position would have been aware that there were reasonable grounds for suspecting insolvency.

44 In ASIC v Rich (No. 2) Bryson J made declarations in respect of the second defendant’s, Mr Keeling’s, conduct, which included declarations materially in the same terms as those sought in respect of the third defendant. I do not think the authorities require that the declaration specify the particular acts which the third defendant ought to have taken to discharge his duties. That is particularly so given that his duties may have been capable of being discharged in a variety of ways. Accordingly subject to three matters, I am satisfied that it is appropriate to make the declarations sought.

45 The first matter is that the declarations must specify the corporation to which the conduct related. The expressions “One.Tel” and “One.Tel Group” in the proposed declarations need to be defined. I have addressed that in the declarations made.

46 The second matter concerns the form of the first declaration referred to in paragraph 4 above. The definitions of each of the January, February and March circumstances, include statements as to the financial position of the One.Tel Group and transactions entered into at times after the third defendant ceased to be a director. I refer to paragraphs S1(a), S2, S25-S34, S40(d), (e), (h) and (i), S41(a), (c), (d) and (e), S42(d), (f), S43A to S44D, S45 and S46A. It is not appropriate to make declarations in those terms. Nor would it be appropriate to make a declaration to the effect that the third defendant contravened s 180(1) by failing to take prompt and reasonable steps to ensure that he and the Board were aware of so many of those circumstances as in fact existed up to the Board meeting of 30 March 2001. A declaration should be self contained and intelligible without reference to extrinsic material, at least where that is or may be uncertain. (Tannous v Mercantile Mutual Insurance Co Ltd [1978] 2 NSWLR 331.)

47 The plaintiff requested that if I were of this view the parties have the opportunity to reconsider the formulation of those declarations. The third defendant did not demur and I will stand the proceedings over to a date to be arranged to allow the parties to propose revised terms of declarations in paragraph 1(a)-(c) of Schedule B to the Enforceable Undertaking.

48 The third matter concerns the operation of s 1317F and the effect that the declarations may have on third parties. In ASIC v Rich (No. 2) Bryson J said (at [18]):

“Principles of res judicata and issue estoppel have no application other than between ASIC and Mr Keeling, or persons whose interests are so closely related to theirs as to be in privity with them. Section 1317F makes evidence conclusive where it is evidence of matters referred to in subsection 1317E(2).

The declarations will be conclusive evidence, even in proceedings in which Mr Keeling has never been or is no longer a party, or at a hearing in which he does not take part, that Mr Keeling contravened s 180 of the Corporations Law, and of the conduct of Mr Keeling which constituted contravention.

It is conceivable that those may be relevant facts in some future litigation, although I am unable to explore this possibility…..”

(Emphasis added)

49 This attributes a literal effect to s 1317F.

50 It is apparent from the Enforceable Undertaking that the third defendant was insured under policies of Directors and Officers’ Liability Insurance with two named insurers. Part of the Enforceable Undertaking provides for the third defendant to enter into a deed of arrangement under Part X of the Bankruptcy Act and to transfer to the trustee of the deed his rights under those policies.

51 I was concerned that if s 1317F applies literally in the way described by Bryson J in the sentence emphasised, the declarations might be conclusive evidence in proceedings between the trustee of the deed and the insurers, that the third defendant had engaged in the conduct subject to the declarations and had thereby contravened s 180(1).

52 If that were so, the question would arise whether they should have been joined as parties to the proceedings as persons whose rights were directly affected. (News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 at 524-525; Re Great Eastern Cleaning Services Pty Ltd And The Companies Act [1978] 2 NSWLR 278 at 281.) If they were conclusively bound by the declarations without having had an opportunity to be heard, prima facie, the declarations would be voidable at their suit. (BP Australia Limited v Brown & Ors (2003) 58 NSWLR 322 at 348; Cameron v Cole (1944) 68 CLR 571 at 589.)

53 I re-listed the matter for further argument on this question and I received detailed submissions from the parties. Both parties contended that the declarations did not have such an effect. Mr MacFarlan QC, who appeared with Mr Abadee and Mr Beaumont for the plaintiff submitted that:

(a) s 1317F had no different operation than its predecessor provision, s 1317HF. It should be read as if it provided that “for the purposes of Part 9.4B” the declaration of contravention is conclusive evidence of the matters referred to in s 1317E(2);

(b) the declaration was not conclusive evidence of the facts which it described as constituting the contravention, but only of the fact of the contravention, albeit that the contravention must be described in the way prescribed by s 1317E(2);

(c) the insurers had declined the opportunity to take over the conduct of the litigation on behalf of the third defendant. Accordingly, irrespective of s 1317F, they would in any event be bound by the declarations so that their rights were not adversely affected in any relevant sense;

(d) in any event, the effect of a declaration on their rights was not “direct” in the sense relevant to the obligation to join persons as defendants whose rights are directly affected by relief sought in litigation;

54 On 3 September 2004 one of the insurers, CGU Insurance Ltd, sought to intervene to be heard on the question of the conclusiveness of the declarations, although not on whether a declaration of contravention should be made. The arguments proposed to be submitted were not materially different from those advanced by the parties. I refused the application.

55 I am satisfied that Mr MacFarlan QC’s first submission is correct. It is therefore not necessary to consider the others, although I find the distinction drawn in the second submission to be somewhat elusive having regard to s 1317E(2)(d) and s 1317F.

56 A detailed analysis of the civil penalty provisions introduced in 1992 and revised in 1999 is to be found in the judgments of the Court of Appeal in Rich & Silbermann v ASIC (2003) 203 ALR 671; 48 ACSR 6; (2004) 22 ACLC 286. The Court of Appeal did not however consider s 1317F.

57 Prior to the 1999 CLERP Amendments, s 1317HF provided that:

SECTION 1317HF CERTIFICATES EVIDENCING CONTRAVENTION 1317HF

(a) purports to be signed by the Registrar or other proper officer of an Australian court; and

(b) states:

(i) that that court has declared that a specified person has, by a specified act or omission, contravened a specified civil penalty provision in relation to a specified corporation; or

(ii) that a specified person was convicted by that court of an offence constituted by a specified contravention of a civil penalty provision in relation to a specified corporation; or

(iii) that a specified person charged before that court with such an offence was found in that court to have committed the offence but that the court did not proceed to convict the person of the offence;

is, unless it is proved that the declaration, conviction or finding was set aside, quashed or reversed, conclusive evidence:

(c) that the declaration was made, that the person was convicted of the offence, or that the person was so found, as the case may be; and

(d) that the person committed the contravention.”

58 The Explanatory Memorandum to the Corporate Law Reform Bill 1992 described the purpose of s 1317HF as follows:

“188. This section will help the corporation to rely on earlier proceedings to make a later application for compensation under proposed section 1317HD, without having to ‘re-prove’ all the matters that were decided in the earlier proceedings. It will have a similar operation where a court (other than the Court) has made a declaration under proposed Division 4 that a person has contravened a civil penalty provision, and will in this context facilitate the making of applications under proposed section 1317EA for a civil penalty order.”

59 The key words in s 1317HF for present purposes were “For the purposes of this Part”. Those introductory words were words of restriction. They were omitted in s 1317F. Prima facie this would suggest that the restriction was removed. However Mr MacFarlan QC submitted that this was not the proper conclusion to be drawn. Rather one should discern that s 1317F was subject to an implied qualification to the same effect. This was partly because of s 1317J, partly because of the far-reaching consequences of a literal interpretation of s 1317F which Parliament could not have intended, and partly because the Explanatory Memorandum to the Corporate Law Economic Reform Bill 1998 demonstrated that the change was due to simplified drafting, adopting plain English, without any intention to change the scope of the relevant provision.

60 There are clear indications in the structure of Part 9.4B and from the implications of a literal construction of s 1317F that it is subject to an implied qualification. Section 1317J provides:

“ - SECT 1317J
Who may apply for a declaration or order

Application by ASIC

Application by corporation

Compensation order relating to financial services civil penalty provision—any other person who suffers damage may apply

No one else may apply

(4) No person may apply for a declaration of contravention, a pecuniary penalty order or a compensation order unless permitted by this section.

Director of Public Prosecutions Act 1983

61 Only the corporation or the responsible entity for the registered scheme can intervene in an application for a declaration of contravention in relation to the corporation or scheme. Even they are not entitled to be heard on whether the declaration should be made. The conferring of a right to intervene on two classes of persons only, and the limiting of their rights, implies that no other person has a right to intervene or to be heard on whether the declaration should be made. If a third party has no right to intervene, it cannot have been intended that he should be entitled to be joined as a party. This necessarily implies that it was not intended that a declaration should adversely affect the rights of third parties.

62 If s 1317F were applied literally, it would be capable of affecting the rights of a wide variety of people, many of whom could not be ascertained and thus could not be joined, even if s 1317J permitted joinder. This indicates that it is unlikely that Parliament intended the section to apply literally. The civil penalty provisions and financial services civil penalty provisions in respect of which a declaration of contravention may be made are wide-ranging. Counsel gave a number of examples of the possible effects of s 1317F if it were read literally. One will suffice. One of the civil penalty provisions is s 344(1). It requires directors to take all reasonable steps to comply with, or to secure compliance with, Part 2M.2 and Part 2M.3. Part 2M.3 deals with the content of financial reports. A declaration could be made that a director failed to take reasonable steps to ensure that the company’s accounts provided a true and fair view of its financial position and performance by failing to ascertain a certain matter and ensure its effect was recognised in the accounts. That would be a declaration of conduct that constituted a contravention. It would be grossly unfair if such a declaration were conclusive evidence against an investor who relied on the accounts, or against an auditor seeking contribution, who might wish to contend that the director in fact knew of the matter in question and fraudulently concealed it. Even if s 1317J was not a bar to the joinder of third parties who might be adversely affected by a declaration, it would be impossible to identify who such persons were. Such examples can be multiplied. They show that s 1317F should not be construed literally.

63 A possible reason for the removal of the words “For the purposes of this Part” is that the 1999 CLERP Amendments removed the provision for the making of a disqualification order (formerly s 1317EA(3)(a)) from Part 9.4B to Part 2D.6 (now s 206C). That provision is now found alongside other provisions empowering the Court or ASIC to disqualify persons from managing corporations. I doubt however this is the reason for the removal of the words. As a result of other 1999 CLERP Amendments, only ASIC can now apply for a disqualification order under s 206C. (Formerly a Commission delegate or a person authorised by the Minister could also do so: s 1317EB.) As only ASIC can apply for a disqualification order under s 206C, s 1317F would have no useful operation in relation to s 206C proceedings. Irrespective of s 1317F, the declaration would give rise to cause of action and issue estoppels as between ASIC and the person against whom the declaration was made.

64 Mr MacFarlan QC submitted that the omission of the introductory words was the result of simplified drafting adopting plain English which did not change the intended scope of the section. The Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 stated in paragraph 2.40 that:

“A plain English re-write is being undertaken of the relevant areas of the Corporations Law. This will make the law more user-friendly and reduce compliance costs for corporations and market participants.”

65 Regrettably, the loss of precision in the re-drafting has resulted in the expenditure of considerable time and costs for the parties in relation to this issue, not to mention judicial time.

66 The same Explanatory Memorandum stated that Part 9.4B was re-written without substantial changes. (Paragraph 4.3 and 6.111). The Explanatory Memorandum identified the “more significant changes” which were proposed to be made to the provisions when re-writing them. The changes were identified in paragraph 6.127 to 6.131. They did not include any change to the effect of a declaration of contravention of a civil penalty provision. In Rich & Silberman v ASIC, McColl JA observed (at [330]):

The explanatory memorandum to the CLERP amendments in 1999 made it clear no substantive changes were effected to Pt 9.4B. This is apparent from the form of the amendments, albeit that there was some rearrangement of some provisions

67 The intention behind s 1317F appears to be to make the matters declared in accordance with s 1317E(2) to be binding in other proceedings under Pt 9.4B, brought by persons other than ASIC, against the defendant against whom the declaration was made.

68 For these reasons s 1317F is not a bar to the making of declarations without having first heard from third parties whose rights or liabilities in proceedings other than Pt 9.4B might depend on whether the third defendant contravened s 180(1).

69 It is for these reasons that I have made the declarations in paragraphs 1(d), 2, 3 and 4 of Schedule B to the Enforceable Undertaking.

70 There is no reason I should not make the compensation order by consent in accordance with paragraph 6, nor the order for costs.

71 However the disqualification order in paragraph 5 raises different considerations. It is sought under s 206C and s 206E. Section 206C provides:

“ - SECT 206C
Court power of disqualification—contravention of civil penalty
provision

72 Section 206E(1) provides:

“- SECT 206E
Court power of disqualification—repeated contraventions of
Act

(1) On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if:

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

73 Section 206E(2) is in the same terms as s 206C(2).

74 A court does not rubber stamp orders for disqualification which are sought by consent. In Re Starnex Securities Pty Ltd & Ors; Australian Securities & Investments Commission v Starnex Securities Pty Ltd [2003] FCA 1375 Finkelstein J said (at [2]):

“Initially ASIC and Mr Camiolo asked that a disqualification order be made by consent. I declined to take that course. Section 206(E)(1)(b) provides that the court may make a disqualification order if it is “satisfied that the disqualification is justified”. It is not possible to be satisfied that an order is justified simply because the person to be disqualified agrees to that course. A similar view of the provision seems to have been taken by Bryson J in

(2003) 44 ACSR 682. There the parties submitted a consent order for a disqualification but the judge examined the facts for himself and only made the order when he was satisfied that, in all the circumstances, it should be made.”

75 The third defendant consented to an order that he be prohibited from managing corporations for a period of four years. The plaintiff submitted that that was an appropriate order. The parties submitted that I should follow the approach taken by the Full Federal Court in relation to pecuniary penalties in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 290-291, as recently reaffirmed by that Court in Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993 at [51]-[58], and [77]-[79].

76 I agree that the approach adopted in those cases is warranted, where it can be applied. I do not regard the differences in the language of the relevant statutes, or the differences in subject matter between pecuniary penalties on the one hand and the disqualification orders on the other, as requiring a different approach. However I have found it difficult to identify in this case what a “permissible range” would be.

77 In the case of the pecuniary penalties under the Trade Practices Act 1974 (Cth) the Court may order that a person pay a pecuniary penalty if a Court is “satisfied” that the person has contravened a relevant provision of the Act. The amount to be paid is such amount as the Court determines to be appropriate having regard to all relevant matters. (Trade Practices Act 1974 (Cth) s 76(1)). Section 13 of the Petroleum Retail Marketing Sites Act 1980 (Cth) provides that if the Court is satisfied that a prescribed corporation has contravened a certain provision, it may order the corporation to pay such pecuniary penalty not exceeding a stated maximum as the Court determines to be appropriate having regard to all relevant matters. Under s 206C the Court may disqualify a person from managing corporations for a period that it considers appropriate if a declaration of contravention has been made and it is satisfied that the disqualification is justified.

78 They are common characteristics of all the provisions that the Court must be satisfied that a contravention has occurred and the order to be made must be one which either the Court determines to be appropriate, or is satisfied is justified. These slight nuances of language do not warrant a difference in approach. In each case the order is discretionary.

79 Even if disqualification orders have an exclusively protective purpose (Rich & Silbermann v ASIC per Spigelman CJ at [114]-[115]) and have no element of penalty or punishment, that need not require that the approach to dealing with the consent aspect of orders for disqualification (where made by consent), be different from that which is appropriate to dealing with consent orders for penalties. The principles and policies which have produced an approach with respect to consent orders for penalties, have equal force with respect to disqualification orders.

80 With appropriate modifications to the case in hand, the approach to be drawn from the authorities cited is as follows:

(1) The responsibility for determining whether a disqualification is justified, and if so for what period, rests with the Court, not with the parties;

(2) The fixing of a period of disqualification is not an exact science. Where the parties have agreed on a precise figure, the Court need not and should not ask whether it would have fixed the same period of disqualification in the absence of agreement. If the agreed period of disqualification is within a permissible range, it should not be rejected merely because the Court would have been disposed to select some other figure.

(3) The Court examines all of the circumstances of the case and may act on agreed statements of fact if it is appropriate to do so. The Court is not bound to do so. It may request the parties to provide additional evidence and if they do not do so, the Court may well not be satisfied that the proposed period of disqualification is within the permissible range.

(4) There is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy, and that may be taken into account in determining whether it is appropriate to act on an agreed statement of facts.

81 The question of the extent to which, if at all, the objects of punishment and deterrence have a role to play in disqualification orders is unclear following the upholding by the High Court of the appeal from the orders of the Court of Appeal in Rich & Silbermann v ASIC. The High Court has not yet given its reasons.

82 In ASIC v Adler (No. 5) (2002) 42 ACSR 80; 20 ACLC 1146 Santow J reviewed the authorities on the purposes for which disqualification orders may be made and the matters which may be taken into account in deciding what order, if any, should be made. I will not repeat what his Honour set out at paragraphs 55-56. In ASIC v Rich (No. 2) Bryson J observed at para 26 that he found “a distinction between motives of deterrence and a punitive motive as difficult, in practical terms impossible to sustain. The punitive impact of such an order must be recognised; Courts apply punitive measures with care, avoid excessive measures and have regard to the circumstances of individuals. No one should be sacrificed to the public interest”.

83 In Rich & Silbermann v ASIC, Spigleman CJ observed in relation to this passage that there is some inexplicitness in the use of general terms such as “punitive”, “punishment” or “penalty”. A punishment or penalty may serve a number of disparate objectives including retribution, specific and general deterrents, and rehabilitation. In another sense the word “punishment” may be restricted to the retributive element in a sentence (at [89]).

84 There is a difference between recognising that a disqualification order will practically operate as a punishment of the contravener and determining an appropriate period of disqualification with a view to punishing the contravener. I do not approach the assessment of an appropriate period of disqualification with a view that the third defendant should be punished for his omissions. However I do consider that a disqualification order should reflect more than merely the need to protect investors in companies with which the third defendant may later be involved as a director or manager. Questions of general deterrence have a legitimate role to play in the making of a disqualification order. That, it seems to me, is consistent with a disqualification order being protective of the community. The protection to be sought is not just against future transgressions of the contravener, but protection against other persons in a like position failing to pay due regard to their obligations. The object of general deterrence has been recognised as a legitimate consideration. (ASIC v Adler (No. 5) at [56]; ASC v Donovan (1998) 28 ACSR 583 at 602.) Paragraph 178 of the Explanatory Memorandum to the Corporate Law Reform Bill 1992 stated:

“The emphasis should be on preventing a recurrence of the contravention by the defendant and providing a deterrent to other persons involved in the management of corporations.”

85 After the trials and tribulations which the third defendant must have undergone following the liquidation of One.Tel and through these proceedings, I expect that if he were to serve again on the board of a public company he would be meticulous in pressing for the supply of appropriate information to non-executive directors and in turning his mind to how the Board should carry out its function of “ensuring that [it] has available means to audit the management of the company so that it can satisfy itself that the company is being properly run”. (Daniels v Anderson (1995) 37 NSWLR 438 at 500-501.) In determining whether the proposed period of disqualification of four years is appropriate, the notion of general deterrence is an important consideration. There are few cases in Australia involving disqualification orders against non-executive directors. There are none of which I am aware, and counsel could not to point to any, where disqualification orders have been made against non-executive directors for contravening s 180(1) or its predecessors, that is, where the non-executive director has been disqualified for breach of the statutory duty of care and diligence. This makes it difficult to identify a “permissible range” for a disqualification period, except to suggest it should be at the lower end of the scale. (ASIC v Adler (No. 5) at [56]).

86 The closest analogue I have found in the limited time available is the judgment of Sir Richard Scott VC in Re Barings Plc; Secretary of State for Trade and Industry v Baker & Ors [1998] BCC 583. That case concerned the disqualification of a senior director, a Mr Maclean, within the Barings Group. He was not a non-executive director. However he was chairman of a committee responsible for monitoring risk within the Barings Group. As part of senior management he had delegated functions to subordinates. Sir Richard Scott VC said (at 586):

[Counsel] made the point that if an efficient system is in place, or if the individual in question has good reason for believing there to be an efficient system in place, the delegation within the system of functions to be discharged in accordance with the system by others cannot be the subject of serious criticism if, in the event, the persons to whom the responsibilities are delegated fail properly to discharge their duties.

That may be so up to a point in theory, but the higher the office within an organisation that is held by an individual, the greater the responsibilities that fall upon him. It is right that that should be so, because status in an organisation carries with it commensurate rewards. These rewards are matched by the weight of the responsibilities that the office carries with it, and those responsibilities require diligent attention from time to time to the question whether the system that has been put in place and over which the individual is presiding is operating efficiently, and whether individuals to whom duties, in accordance with the system, have been delegated are discharging those duties efficiently.

87 To adapt those words to the present case, the third defendant’s responsibilities required diligent attention to whether the system of reporting by management was operating efficiently, and whether the individuals in the system who were exercising delegated powers from the Board were discharging their duties efficiently. Section 198A(1) of the Corporations Act provides that the business of a company is to be managed by or under the direction of the directors. In a large business the directors must delegate their powers. However as Thomas J said in Dairy Containers Limited v NZI Bank Limited (1995) 13 ACLC 3211 at 3222:

“Executives in running the day to day business of a company are exercising delegated powers. It is to be borne in mind always that they are delegated, and not original, powers and that they are therefore subject to the ultimate responsibility of the directors for the oversight of the company.”

88 The corollary is that those who have delegated their powers have a duty to exercise reasonable care and diligence to ensure that the powers delegated are being efficiently discharged.

89 The third defendant is 53 years of age. He has held a number of senior and responsible positions in well-known public companies. Except for a three-month period between January and March 2001 there is no suggestion that he has failed to honour his responsibilities in any of the positions which he has held. There is no suggestion that he acted for personal gain or that his contraventions of the Corporations Law were advertent. (Compare ASIC v Adler (No. 3) (2002) 20 ACLC 576; Adler v ASIC (2003) 21 ACLC 1810; (2003) 46 ACSR 504 and Australian Securities & Investments Commission v Plyman Elliott & Harrison [2003] VSC 230 at [107], [19], [20], [24] and [25].) I do not think that any “range” has yet been established for the disqualification of persons in the position of the third defendant. I place no particular weight on the disqualification of Mr Maclean for four years in Re Barings Plc. Nor do I place particular weight on the disqualification of Mr Keeling for ten years. He was a joint managing director. I do not know what evidence was led before Bryson J as to his knowledge or means of knowledge of the discrepancies between the information known to management and that disclosed to the Board. On the evidence led before me the positions and means of knowledge of Mr Keeling and the third defendant were very different. Bryson J described the facts as showing incompetence by Mr Keeling of a very high order. I do not think the same can be said against the third defendant. Incompetence suggests lack of capacity. Nonetheless the third defendant’s breach of his duty of care and diligence was serious. I accept that he relied on information provided by executive directors and officers, but his reliance was not reasonable.

90 The declarations to which the third defendant has consented and his admissions of liability establish appropriate contrition and regret for the substantial losses which have been suffered by creditors of One.Tel. Nonetheless the magnitude of those losses is a relevant consideration in determining an appropriate period of disqualification.

91 I do not regard the third defendant’s consent to a compensation order of $20 million as carrying great weight on the application. I do not know how ample will be the amends which he will make to creditors as a result of his consenting to that order. As part of the settlement with ASIC and with the liquidator, the third defendant has agreed to enter into a Part X arrangement under the Bankruptcy Act. He has agreed to pay or procure the payment to the trustee of the deed of an amount of $600,000, and transfer shares in three companies, his rights under policies of Directors’ and Officers’ Liability Insurance, and the benefit of costs orders in his favour. I do not know the value of the shares to be transferred to the trustee. Nor do I know what other assets the third defendant may have which are not to be transferred to the trustee. The fact that ASIC and the liquidator have consented to the arrangement is testimony to its propriety. But the fact remains that I do not know how ample will be his amends to creditors, nor how severe will be the effect on his personal financial position.

92 For a person of the third defendant’s age and attainments a disqualification order of four years is a heavy burden. It marks the need for non-executive directors generally and chairmen of directors in particular to heed the words of the Hampel Committee which I have quoted in paragraph 35 above. Having regard to the seriousness of the breach of duty, the severity of the losses suffered by creditors, and the objects of general deterrence, I am satisfied that in the circumstances disqualification is justified and that the period is appropriate.

93 For these reasons on 6 September 2004 I made the following orders:

(1) I make declarations in accordance with paragraphs 1 (d), 2, 3 and 4 and orders in accordance with paragraphs 5, 6 and 7 of the document entitled "Declarations and Orders in respect of the Third Defendant", which is Schedule B to the Enforceable Undertakings, Exhibit A;
(2) In those declarations and orders, the expression "One.Tel" means One.Tel Limited (in Liquidation) and the expression "One.Tel Group" means One.Tel and its subsidiaries;
(3) I make those declarations and orders noting the matters in paragraphs (a) and (b) on page 2 of the Schedule;
(4) I note the agreement between the plaintiff and the third defendant in paragraph 8 of that Schedule;
(5) I stand over the proceedings against the third defendant to a date to be fixed to consider any revision which may be proposed by the parties, or either of them, to the terms of the proposed declarations in paragraphs 1 (a) to (c) of the document.

******

Last Modified: 09/09/2004

Citations

Australian Securities and Investments Commission v Rich [2004] NSWSC 836

Most Recent Citation

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CITATION:	ASIC v Rich & Ors [2004] NSWSC 836
HEARING DATE(S):	31/08/04, 02/09/04, 03/09/04
JUDGMENT DATE:	9 September 2004
JUDGMENT OF:	White J
DECISION:	See Page 37 of Judgment
CATCHWORDS:	Corporations - Officers and employees - Duties and powers - Duty of care and diligence - Consent orders - Responsibilities of Chairman discussed - s 1317E requirements for specificity discussed - s 1317F discussed - Period of disqualification - Factors to consider for non-executive chairman.
LEGISLATION CITED:	Corporations Act (2001) (Cth) Australian Securities and Investments Commission Act 2001 (Cth) Bankruptcy Act 1966 (Cth) Corporate Law Reform Bill 1992 Corporate Law Economic Reform Bill 1998 Trade Practices Act 1974 (Cth) Petroleum Retail Marketing Sites Act 1980 (Cth)
CASES CITED:	ASIC v Rich & Ors (No. 2) (2003) 21 ACLC 672; 44 ACSR Williams v Powell [1894] WN (Eng 141 Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221 Termijtelen v Van Arkel [1974] 1 NSWLR 525 Wallersteiner v Moir [1974] 3 All ER 217 Metzger v Department of Health and Social Security [1977] 3 All ER 444 BMI Limited v Federated Clerks Union of Australia (1983) 51 ALR 401 Young, Declaratory Orders, 2 ed Dean-Willcocks Pty Ltd v Commissioner of Taxation (No. 2) (2004) 49 ACSR 325; 22 ACLC 1034 ASIC v Rich (2003) 174 FLR 128; 44 ACSR 341; 21 ACLC 450 Vrisakis v Australian Securities Commission (1993) 9 WAR 395 Australian Securities & Investments Commission v Adler (No. 4) (2002) 189 ALR 365; 20 ACLC 723 Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 399; 17 ACLC 511 Tannous v Mercantile Mutual Insurance Co Ltd [1978] 2 NSWLR 331 News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 Re Great Eastern Cleaning Services Pty Ltd and The Companies Act [1978] 2 NSWLR 278 BP Australia Limited v Brown & Ors (2003) 58 NSWLR 322 Cameron v Cole (1944) 68 CLR 571 Rich & Silbermann v ASIC (2003) 203 ALR 671; 48 ACSR 6; (2004) 22 ACLC 286 Starnex Securities Pty Ltd & Ors; Australian Securities & Investments Commission v Starnex Securities Pty Ltd [2003] FCA 1375 NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993 ASIC v Adler (No. 5) (2002) 42 ACSR 80; 20 ACLC ASC v Donovan (1998) 28 ACSR 583 Daniels v Anderson (1995) 37 NSWLR 438 Re Barings Plc; Secretary of State for Trade and Industry v Baker & Ors [1998] BCC 583 Dairy Containers Limited v NZI Bank Limited (1995) 13 ACLC 3211 Adler v ASIC (2003) 21 ACLC 1810; (2003) 46 ACSR 504 Australian Securities & Investments Commission v Plyman Elliott & Harrison [2003] VSC 230
PARTIES :	Australian Securities & Investments Commission v John David Rich & 3 Ors
FILE NUMBER(S):	SC 5934/01
COUNSEL:	Plaintiff: RSB MacFarlan QC, N J Beaumont, A J Abadee 3rd Defendant: J N West QC
SOLICITORS:	Plaintiff: Jan Redfern Solicitor 3rd Defendant: Watson Mangioni Solicitors