Commissioner for Consumer Affairs v Emacord Autos Pty Ltd - [2011] SADC 69

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
COMMISSIONER FOR CONSUMER AFFAIRS - v EMACORD AUTOS PTY LTD & ORS
[2011] SADC 69
Judgment of Her Honour Judge McIntyre
20 May 2011
ADMINISTRATIVE LAW
Disciplinary proceedings brought under the Second Hand Vehicle Dealers Act 1995 against a licensed body corporate, a director of that body corporate and a person said to be a de facto director of that body corporate;
Held: That the first defendant, the licensed body corporate which is currently in liquidation, acted improperly in the course of conducting its business.
That there is proper cause for taking disciplinary action against the second defendant both in his capacity as a director of the first defendant and in his capacity as the dealer engaged to manage and supervise the first defendant's business. That the second defendant should be disqualified from being licensed under the Act and prohibited from being a director or having an interest in a body corporate that is a dealer until further order.
That there is proper cause for taking disciplinary action against the third defendant who acted as a defacto director of the first defendant and that he be permanently disqualified from being licensed under the Act, prohibited from being a director or having an interest in a body corporate that is a dealer and prohibited from being employed by or otherwise engaged in the business of a dealer.
Second Hand Vehicle Dealers Act 1995 s27, s27(1)(c), s27(2), s3, referred to.
Corporate Affairs Commission v Drysdale (1978) 141 CLR 236; Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129; Commissioner for Consumer Affairs v Sollars (2001) 79 SASR 145 ; Craig v The Medical Board of South Australia (2001) 79 SASR 545, considered.

COMMISSIONER FOR CONSUMER AFFAIRS - v EMACORD AUTOS PTY LTD & ORS
[2011] SADC 69

Emacord Autos Pty Ltd is licensed under the Secondhand Vehicle Dealer’s Act 1995 (the Act) as a dealer. David William Lines has been a director of Emacord since 19 May 1997 and since 19 January 1999 has been licensed to act as a manager and a licensed dealer under the Act. Grantley David Murdock’s position is more ambiguous and forms one of the issues to be determined in this matter.
The Commissioner for Consumer Affairs makes complaint that there is proper cause for disciplinary action against Emacord, Lines and Murdock under the provisions of the Act.
It is said that Emacord acted improperly in the course of conducting business as a dealer by:
·Failing to discharge vehicle loans.
·Failing to reimburse deposits.
·Using vehicles it did not own as security for loans.
·Failing to properly account for proceeds of vehicle sales.
·Failing to inform a purchaser of a statutory warranty and selling a vehicle without authority.
The first defendant, the licensed body corporate is currently in liquidation and was unrepresented. The company has not been wound up nor has it been deregistered.
The Commissioner contends that Mr Lines is liable for the improper conduct of Emacord on two grounds. First because he is a director of Emacord and second because he was the dealer engaged to manage and supervise Emacord’s business.
It is said that Mr Lines has acted improperly in the course of managing and supervising that business by allowing Mr Murdock to have significant control over the management of Emacord and by taking inadequate steps to ensure that Mr Murdock was managing Emacord’s business appropriately. It is further said that Mr Lines would not now be entitled to be licensed as a dealer were he to apply for a license in view of the matters that are the subject of the complaint.
Finally, the Commissioner contends that Mr Murdock is a de facto director of Emacord and that he is thereby liable for its improper conduct.
Issues
1Whether, on the balance of probabilities, there is proper cause for taking disciplinary action against Emacord, Lines and/or Murdock?
This will involve consideration of:
·Mr Murdock’s involvement in the business of Emacord and determination of his role; and
·Mr Lines’ management of the business and supervision of Mr Murdock.
2What are the proper orders to be made, if any?
Background
Since 7 February 1985 Emacord carried on business as a second hand vehicle dealer within South Australia. From 19 May 1977 Mr Lines has been a director of Emacord. Since 19 January 1999 Mr Lines has been licensed under the Act.
To put it neutrally, Mr Murdock has been associated with Emacord and Mr Lines since the early 1980’s. Mr Murdock has never been licensed under the Act.
Emacord operated premises at 138 Grange Road Flinders Park. In about 2002 a second dealership was opened in Morphett Street Adelaide. Mr Lines was based at Grange and Mr Murdock was based at Morphett Street. The matters that are the subject of the complaint result primarily from actions taken by Mr Murdock.
A hearing took place before me on 13 and 14 April 2010. Most of the matters alleged in the complaint are the subject of agreed facts. In addition a number of documents were tendered by consent and I heard evidence from Mr Lines and Mr Murdock. They were both unsatisfactory witnesses. Mr Lines was extremely vague and unhelpful on a number of issues that one would have expected him to know about. My impression was that he lacked candour. Mr Murdock gave evidence in an apparently frank manner but much of what he said about contentious issues appeared unlikely at best. I have no confidence in the truth or reliability of his evidence.
The Act
I must consider whether there is proper cause for disciplinary action against all three defendants in the context of s.27 of the Act. Relevantly that section provides as follows:
27—Cause for disciplinary action
(1) There is proper cause for disciplinary action against a dealer if—
…….
(c)the dealer or another person has acted contrary to this Act or otherwise unlawfully, or improperly, negligently or unfairly, in the course of conducting, or being employed or otherwise engaged in, the business of the dealer; or
(d)in the case of a dealer who has been employed or engaged to manage and supervise an incorporated dealer's business—the dealer or another person has acted unlawfully, improperly, negligently or unfairly in the course of managing or supervising, or being employed or otherwise engaged in, that business; or
(h)events have occurred such that the dealer would not be entitled to be licensed as a dealer if he or she were to apply for a licence.
(2)Disciplinary action may be taken against each director of a body corporate that is a dealer if there is proper cause for disciplinary action against the body corporate.
The Complaint
I will deal first with the specific incidents that are the subject of the complaint. These comprise grounds 2 to 10(c). Many of the allegations are not contentious and are the subject of agreed facts.
Ground 2:
Ground 2 alleges that on 3 February 2004 Oleg Zarucki agreed to purchase a second hand vehicle from Emacord. He traded in his vehicle. I have been provided with a copy of the contract.[1] The agreed facts are incorrect in that the vehicles have been transposed. I find that Zarucki agreed to purchase a 1996 BMW sedan registration SQA-686 from Emacord and that Emacord agreed to purchase from Zarucki a 1993 Honda Legend coupe registration VWA‑001 as a trade in valued at $19,000. The sum of $19,000 was to be paid to Medfin Australia Pty Ltd to discharge a financial obligation that existed in relation to the Honda. It is agreed that Emacord did not pay the entire sum of $19,000 to Medfin Australia Pty Ltd. The parties have been unable to agree precisely how much has been paid. It is however clear, and I so find, that Mr Zarucki was left with an outstanding obligation to Medfin of at least $11,000. It is further agreed that, on or about 25 June 2005, Mr Murdock provided Mr Zarucki with a cheque drawn on Emacord’s account for $2,944 which was subsequently dishonoured.
[1] Exhibit C2 p183
Mr Zarucki issued civil proceedings in the Magistrates Court of South Australia seeking the sum of $15,963.62. He obtained judgment against Emacord for that amount. A sheriff’s officer attempted to execute a warrant for sale on 26 March 2007 by attending at Emacord’s Grange Road premises. The report to the sheriff was tendered.[2] The report indicates that Mr Lines stated that all of the vehicles advertised for sale at the Grange Road premises were his vehicles and that Emacord had no financial interest in them. Mr Lines confirmed in his evidence that this was indeed what he had said to the sheriff’s officer although it was not true. He described it as “a bit of bluff at the time”.[3]
[2] Exhibit C2 p189
[3] Transcript p90
On 3 April 2009 an order was made by the Magistrates Court of South Australia under Schedule 3 of the Act authorising payment of compensation in the sum of $19,999.65 to Mr Zarucki from the Second Hand Vehicles Compensation Fund.
Ground 3:
On 6 February 2007 Mr Murdock, acting on behalf of Emacord, agreed to purchase a 2001 Audi-A4 registration number WOO-113 from Eric Dechegne for $23,000. It was agreed that the full purchase price would be paid to Volkswagen Financial Services Australia Ltd to discharge a financial obligation that existed in relation to that vehicle.
On 6 February 2007 Mr Murdock showed Mr Dechegne a Bank of South Australia deposit slip made out to an account in the name of “Eric Dechegne – Audi Finance” for $23,000. As at 6 February 2007 no deposit of any amount had been made by Emacord in any account in relation to Mr Dechegne’s financial obligations in respect of WOO-113.
Mr Murdock agreed that he had supplied the deposit slip to Mr Dechegne and that he had placed a seal on it. He was unable to explain why he did this and said it was “stupidity”. He denied that it was because he was concerned he would not get the vehicle if Mr Dechegne questioned the deposit stub. He did however agree that it was “possibly” to make it look more “authentic”.[4] In my view the only reason for Mr Murdock to supply this document was to falsely indicate to Mr Dechegne that payment had been made to his finance company in accordance with the terms of his agreement with Emacord.
[4] Transcript p150
On 26 March 2007 a cheque for $23,000 was drawn on Emacord’s account, was presented to Volkswagen Financial Services Australia Ltd. This cheque was dishonoured. A further cheque was supplied by Emacord on 27 March 2007 which did discharge that obligation. I note that on 7 February 2007 sold the vehicle WOO-113 to Megan Bilecki for $29,000. It is unclear why Emacord did not promptly pay Mr Dechegne out of those funds.[5]
[5] Ground 8
Ground 4:
On 7 March 2008 Simon Redden entered into an agreement with Emacord to purchase a second hand vehicle being a 2002 Land Rover, Victorian registration TJR-425. He traded in his 2002 Ford Falcon Registration XLS-139 for the sum of $16,000. It was agreed that Emacord would pay the sum of $16,000 to Esanda Finance to discharge a financial obligation in respect of the trade-in.
On 22 March 2008 Emacord sold the trade-in for the sum of $16,000. On 2 September 2009 Mr Murdock told Esanda Finance that Emacord was not able to fully discharge the debt that was owed in relation to the trade-in vehicle. The parties are unable to agree the amount that has been paid to Esanda Finance. It is however agreed that Emacord has not paid the full amount to Esanda Finance and has not obtained a discharge of Mr Redden’s financial obligation in relation to XLS-139.
Ground 5:
In about August 2006 Emacord entered into an agreement with Penelope Bailey to sell her 1994 Mercedes Benz C220 Elegance registration VYK-131 on consignment. Ms Bailey had a financial obligation in relation to that vehicle existing with the Adelaide Bank. On 17 December 2007 Mr Murdock telephoned Ms Bailey and told her that a buyer wanted to purchase her vehicle and that she would need to provide the sum of $6,720 to be put towards the discharge of the financial obligation to the Adelaide Bank. Emacord failed to sell VYK-131. On 4 August 2008 Ms Bailey collected the vehicle from Emacord. Emacord has not repaid Ms Bailey the sum of $6,720 or paid that amount to Adelaide Bank.
Ground 6:
Ground 6 was withdrawn by the complainant.
Ground 7:
In about June or July 2008 Mr Milorad Janosevic entered into an agreement with Emacord to sell his 1981 Porsche, registration CC492A on consignment.
On 9 July 2008 Mr Murdock entered into a loan agreement with Unique Finance Pty Ltd. as a result of which, he received the amount of $33,300. Unique Finance took a mortgage over Mr Janosevic’s Porsche by way of security. Capital and Equity Group Pty Ltd registered an interest over the vehicle. Both Unique Finance and Capital and Equity are companies associated with a Mr Ventrice.
Mr Janosevic was not called to give evidence. His knowledge of the loan transaction is unclear. Mr Lines knew nothing of the transaction. Mr Murdock says that Mr Janosevic was desperate to raise money otherwise he would lose his house. Mr Murdock went on to say:
…..So I did a deal with Mr Ventrice from Unique Autos/Finance and raised some money on the car. Mr Janosevic was aware of what I was doing, I told him who I was doing it with, where the car was going and that we were only getting part payment for it on the day. Mr Ventrice paid some money to me, which I met one of Mr Janosevic’s associates in the carpark of the Goodwood Road McDonalds and handed it over to him. He was purportedly going to pay it to Westpac for him.[6]
[6] Transcript p130
Mr Murdock was most unclear as to how much money he gave to that associate. It was not the full amount of $33,000 borrowed from Unique Finance but he said that Mr Janosevic was subsequently paid the balance of the money and that Emacord got the car back from Mr Janosevic who, according to Mr Murdock “decided to covertly obtain the Porsche back from Mr Ventrice, which he did”.[7]
[7] Transcript p131
It is not clear why Mr Janosevic would have done this if, as Mr Murdock contends, he was aware of the transaction with Unique.
In cross-examination Mr Murdock said that he expected to sell Mr Janosevic’s vehicle for $60,000 and that Emacord would have made between $2,000 and $10,000 on that transaction. He said that the arrangement he had with Mr Janosevic was that he was looking to net $50,000 or $52,000. His memory was that he gave the gentleman in the McDonalds’ carpark $5,000 or $7,000 and he then gave a further sum to Mr Janosevic in cash. The total amount paid to or on behalf of Mr Janosevic was in the order of $13,000 according to Mr Murdock. He then wrote Mr Janosevic a cheque for $50,000. Mr Murdock was asked as follows:
QSo why, if you’ve done a deal with Mr Janosevic where you would net him between $50 and $52,000 are you giving him $68,000.
AWell, I can’t remember exactly the terms of it but I would imagine that there would’ve been some negotiations and he was going to give me some back. We had that relationship. We’ve sold a lot of cars. At one stage he had a lot of money and at that stage I had a lot of money as well, so the money wasn’t the huge thing at the time.[8]
[8] Transcript pp146-147
The assertion that Mr Murdock had a lot of money at that stage and wished to assist a longstanding customer seems inconsistent with the fact that the cheques drawn on Emacord were dishonoured. It also seems inconsistent with Mr Murdock’s description of the arrangements with Unique. Why, for example, was Mr Janosevic not given the full amount borrowed from Unique against the security of his vehicle, if the point of the transaction was to obtain funds urgently required by him?
Mr Murdock’s evidence about the loan agreement itself was also unconvincing. The loan agreement with Unique[9] contains very high interest rates. Notwithstanding this, Mr Murdock asserts that he did not pay any interest on the loan. He said Mr Ventrice had lenders that said he, Mr Murdock, needed a document to “support what we were doing”.[10] He said he made some sort of donation to Mr Ventrice’s ex-wife rather than payment of interest. This evidence frankly makes no sense.
[9] Document 14.2
[10] Transcript p147
I do not however have to resolve these issues. Even if Mr Murdock entered into the loan agreement with Unique with Mr Janosevic’s consent, it was a highly questionable transaction. Notwithstanding that Mr Janosevic does not appear to have ultimately been out of pocket, the loan and associated transactions are highly irregular and improper.
Ground 8:
In about January 2009 Ms Megan Bilecki left a 2001 Audi A-4 registration number WOO-113 at Emacord’s Morphett Street yard for sale on consignment. She had purchased the Audi from Emacord in February 2007. The agreement was that the sale price would be between $21,000 and $23,000 and that Ms Bilecki would be paid the proceeds of the sale following deduction of Emacord’s expenses. As a result of the difficulties over the transaction that is the subject of Ground 7, the Audi was removed from Emacord’s possession without Ms Bilecki’s knowledge and an interest was subsequently registered over that vehicle by Capital and Equity Group.
Mr Murdock gave evidence that when Mr Janosevic recovered his Porsche from Unique Finance, some associates of that company came to the Morphett Street yard and removed Ms Bilecki’s vehicle along with some others. Mr Murdock said he did not call the police because it was all resolved “reasonably quickly”. Ms Bilecki subsequently obtained the vehicle back. The interest registered by Capital and Equity Group was cancelled.
Ground 9:
On 25 June 2009 Emacord through Mr Murdock entered into an agreement with Tung Guo to purchase a 2004 Peugeot, registration XCI-496 for $13,500. The agreement was that the sum of $8,340.60 was paid to Guo and the sum of $5,159.40 was to be paid to St George Bank to discharge a financial obligation that existed in relation to that vehicle. Mr Murdock provided Mr Guo with a cheque drawn on Emacord’s account which was subsequently dishonoured. He has never been paid the agreed amount.
Ground 10:
On about 31 March 2009 Daniel Walsh purchased a 1999 BMW sedan, registration BB863U from Emacord for $24,000. The vehicle experienced mechanical problems. Mr Walsh notified Emacord of those problems within 3 months of purchasing the vehicle and returned it to Emacord. He dealt with Mr Murdock. He did not give final instructions to either fix the vehicle or to have Emacord repurchase the vehicle. Mr Murdock said that the situation was unclear; Mr Walsh was a friend of his and trusted him to act in his best interests. This evidence appears to be supported by Mr Walsh’s comments to the Commissioner’s investigators contained in the agreed tender book. I accept that the instructions from Mr Walsh were unclear, and that Mr Murdock may well have been acting in what he thought were Mr Walsh’s best interests when he sold the vehicle on 17 September 2009 for the sum of $11,500.
Mr Murdock conceded that he did not tell Mr Walsh of the sale and that Mr Walsh discovered that the vehicle had been sold when he saw it on the driveway of the purchaser, Mr Nakhoul. It is agreed that, at the time of the sale to Mr Nakhoul, Emacord did not own the vehicle or inform Mr Nakhoul that it did not own the vehicle. It is also agreed that Emacord did not inform Mr Nakhoul that the vehicle was subject to a financial obligation being Mr Walsh’s loan from the Adelaide Bank. In October 2009 Mr Murdock agreed to refund Mr Nakhoul $11,500 and to take possession of the vehicle. He did not do so and no money has been paid to Mr Nakhoul.
Ground 10A:

On about 11 July 2004 Emacord, through Mr Murdock, entered into an agreement with Mr and Mrs Kingshott whereby the Kingshotts purchased a vehicle and traded in a 1999 Alfa Romeo, registration WJH-596. The agreed value of the trade-in was $31,500 and it was agreed that this sum would be paid to BMW Finance Australia Limited. Emacord failed to pay the full trade-in value to BMW Finance Australia as agreed.
Ground 10B:
In about July 2009 Emacord, through Mr Murdock, entered into a further agreement with the Kingshotts where they left a 2001 Jaguar, registration AJR-562 for sale by consignment. The agreement was that the vehicle would be sold at the maximum possible price and that all of the proceeds would be paid to the Kingshotts finance company. On 26 November 2009 Emacord sold AJR-562 to Robert Gareth Williams for $17,990 and did not pay any of the proceeds of the sale to either the Kingshotts or their finance company.
Ground 10C:
On 30 January 2010 Emacord, through Mr Murdock, entered into a further agreement with the Kingshotts whereby Emacord agreed to obtain a second hand vehicle, a 2003 Mercedes Benz registration WRK-449, from Victoria on behalf of the Kingshotts. The Kingshotts paid Emacord $6,500 as a deposit. The vehicle purchase did not proceed, Mr Murdock says, due to problems with the vehicle. Emacord did not return any of the deposit to the Kingshotts.
Is there proper cause for taking disciplinary action against Emacord?
I am satisfied on the balance of probabilities that there is proper cause for disciplinary action to be taken against Emacord under s 27(1)(c) of the Act. These dealings have involved a large number of consumers over an extended period of time. Several of those consumers remain out of pocket. The total amount of the shortfall is $58,540. No doubt considerable distress and inconvenience was caused to the various consumers involved. Many of the dealings involved questionable business practices such as dishonoured cheques, falsified documents and delayed payment of agreed amounts. In addition the Second Hand Vehicles Compensation Fund has been called upon.
Is there proper cause for taking disciplinary action against Mr Lines?
Mr Lines has submitted to me that he has not done anything wrong and that he had limited involvement. He said that he knew nothing about the matters that are the subject of Grounds 3, 5, 7, 8, 9, 10, 10B and 10C. Indeed, it is clear that these transactions were undertaken by Mr Murdock. This submission is relevant to Grounds 12 and 13 of the complaint but does not answer Ground 11.
To establish liability under s.27(2) of the Act, the Commissioner must establish two matters. First, that there is proper cause for disciplinary action against the body corporate Emacord. I have made that finding. Second, that Mr Lines was a director of Emacord. I am satisfied that Mr Lines was a director of Emacord at all relevant times. I find that there is proper cause for disciplinary action to be taken against him under s.27(2) of the Act as the Commissioner contends in Ground 11.
I also find that Mr Lines was, at all material times, registered as the holder of a second hand vehicle dealer’s licence authorised to act as a manager and supervisor of Emacord’s second hand vehicle business as the Commissioner contends in Ground 12.
Mr Lines said he did not think that he had done much wrong. He said that he “made phone calls and did everything”. If he wasn’t told what was going on how could he address matters?[11] This begs the question. There is a positive duty on a person in Mr Lines’ position to make enquiries and manage the business so that such matters do come to his attention. Mr Lines did not give evidence that he checked the financial or other records of the business to see what was happening in the Morphett Street yard at any time. He also did not say that he spoke to anyone, other than Mr Murdock, concerning the operation of the Morphett street yard or the business in general. Evidence of active supervision of the business at Morphett Street or of Mr Murdock by Mr Lines is very limited.
[11] Transcript p165
Mr Lines tendered some documents to the court in order to show that he remained involved with the business whilst he was on leave following the closure of the Grange Road yard. These records do not however indicate his level of involvement with the Morphett Street yard prior to this. Many of the matters that are the subject of the complaint occurred prior to the closure of the Grange Road yard. Even when matters came to his attention, such as the events that are the subject of ground 2, there is no evidence that Mr Lines took steps to investigate Mr Murdock’s actions, to discipline him in any manner, curtail his activities or subject him to increased supervision.
It is my view that, Mr Lines left Mr Murdock entirely unsupervised both whilst he was on holidays and before. Mr Lines’ actions or inactions amount, in my view, to a failure to appropriately manage the business and led directly to exposing consumers to misconduct of the type which occurred. I am satisfied, on the balance of probabilities, that there is proper cause for taking disciplinary action against Mr Lines.
Is there proper cause for taking disciplinary action against Mr Murdock?
Mr Murdock’s situation is more complex. He admits being the prime mover in the matters that give rise to the complaints. Mr Murdock also admits that a large number of consumers are out of pocket, although his evidence tended to minimise the effects of this, and, even to claim that many of the people the subject of the complaint are still good friends. Be that as it may, these were very serious breaches. If he was in the position of Mr Lines there is no doubt that there is proper cause to take disciplinary action against him. The difficulty is that Mr Murdock has no licence. Accordingly, he cannot be disciplined in his own right. The Commissioner contends that he is liable to disciplinary action as a de facto director of Emacord.
Section 3 defines director of a body corporate as follows:
director of a body corporate includes—
(a)a person occupying or acting in the position of director or member of the governing body of the body corporate, by whatever name called and whether or not validly appointed to occupy or duly authorised to act in the position;
and
(b)any person in accordance with whose directions or instructions the directors or members of the governing body of the body corporate are accustomed to act.
The Commissioner contends that the Act is consumer protection legislation and that in consequence the term “director” should have a wide definition to ensure that anyone, who is a person who should be regulated by the Act, is subject to the consumer protection regime provided for in the legislation. It is said that on any view, Mr Murdock was occupying or acting in the position of a director of Emacord or a member of its governing body and further, that Mr Lines regularly acted in accordance with his wishes.
Mr Lines and Mr Murdock say that Mr Murdock is, and has always been an employee of Emacord. Further, they say that he has no interest in Emacord; that he has never invested in it and that he is not a de facto director as contended by the Commissioner.
There are two aspects to this issue. First is whether a de facto director is liable to be disciplined under s.27(2) and second whether Mr Murdock falls within that description and/or whether Mr Lines was accustomed to acting in accordance with Mr Murdock’s directions or instructions.
Is a de facto director liable to be disciplined under section 27(2)?
The definition of director in the Act speaks of a person occupying or acting in the position of a director. Corporate Affairs Commission v Drysdale[12] dealt with a similar definition in the then New South Wales Companies Act 1961, where “director” was defined so as to include:
…any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act.[13]
[12] (1978) 141 CLR 236
[13] s5(1)
The respondent in that case had ceased to be a director but, notwithstanding this, had acted and represented himself as a director of the company, attended meetings of directors and participated in the management of the company as if he were a duly appointed director. In finding the respondent to be a de facto director Mason J stated:
To say that a person occupies a position or office is to say something more than that he holds the position or office. The first statement denotes one who acts in the position, with or without lawful authority: the second denotes one who is the lawful holder of the office.[14]
[14] Mason J at p242
The further effect of this decision is that a person who acts as a director though not validly appointed or described as a director, is subject to the same statutory duties to the company as are owed by directors validly appointed to the office. Extrapolating from that it is my view that such a person is also subject to the same statutory duties as those owed by a director in the context of this legislation which is enacted for the protection of the public. The definition of director in the Act is a wide one and is plainly intended to catch a person who exercises effective control over the company, whether or not duly appointed as a director. To impose a more restrictive reading upon the section would be to frustrate the customer protection regime embodied in the Act.
Did Mr Murdock act as a de facto director of Emacord?
In order to determine whether Mr Murdock occupied or acted in the position of a director of Emacord or a member of the governing body it is necessary to examine his conduct. The case law is summarised in the decision of Jacobsen J in Chameleon Mining NL v Murchison Metals Limited as follows:[15]
Whether a person is acting as a director of a company will depend upon the nature of the functions and powers which are exercised and the extent to which they are exercised. It is a question of fact which may often be one of degree. It requires consideration of the duties performed by the person in the context of the operation and circumstances of the company …
The circumstances which bear on the question include the size of the company, its internal practices and structure and how the alleged de facto director is perceived by outsiders who deal with the company.[16]
[15] 2010 (FCA 1129)
[16] Paras [90] and [91]
It is therefore necessary to consider Mr Murdock’s activities and duties in the context of Emacord’s operations and circumstances.
Emacord was a small operation. Mr Lines is the only director formally appointed. It is clear from the evidence that, since 2002, Mr Murdock operated almost entirely independently from his own yard in Morphett Street. He had little or no supervision from Mr Lines. He was permitted to deal on behalf of Emacord with customers without supervision and restraint. He was a signatory to the company cheque account. He entered into contracts on behalf of Emacord. He appears to have had involvement with and an understanding of Emacord’s financial arrangements.
Mr Murdock’s substantial influence on the company and his relationship with Mr Lines is illustrated by the evidence about his dealings with a Melbourne dealer, Mr Kakoliris, over a number of years. As a result of these dealings, Mr Kakoliris was able to become indebted to Emacord in the order of $1.5 million. Mr Kakoliris defaulted on that debt and disappeared in about 2005.
Mr Lines had only limited dealings with Mr Kakoliris. He was plainly concerned about the extent of Mr Murdock’s dealings on behalf of Emacord with Mr Kakoliris as can be seen from the following transcript:[17]
[17] Transcript pp94-95
QBut you did become concerned at the exposure, the financial exposure to Emacord?
AYes.
QDid you take steps prior to Mr Kakoliris disappearing to reduce that exposure? Did you get the cars back?
AObviously not.
QDid you tell Mr Murdock that he could not deal with Mr Kakoliris?
AYes.
QWhen did you tell Mr Murdock that?
AWhen it was too late but like I said prior to Mr Murdock was told if he was to keep dealing with Mr Kakoliris and it all goes sideways he better find some money to pay.
QSo essentially you allowed Mr Murdock –
ANo, I didn’t, didn’t allow it.
QYou didn’t stop Mr Murdock from dealing with Mr Kakoliris.
AHow could I?
QWell as you’ve indicated he’s your employee.
AYeah, you lead a horse to water but you can’t make him drink it.
It seems extraordinary that, if Mr Murdock was indeed an employee, Mr Lines could not simply instruct him to desist from dealing with Mr Kakoliris or alternatively instruct him to deal with Mr Kakoliris on a specific basis. Any failure to comply with such a direction would, in the normal course of events with an employee, lead to some form of disciplinary action. It is plain from the whole of the evidence of Mr Lines and Mr Murdock that this did not occur. Further, it does not appear that Mr Lines undertook any increased supervision of Mr Murdock’s dealings with Mr Kakoliris despite his concerns. Mr Murdock was left to deal, apparently unrestrained, with Mr Kakoliris.
The second aspect of the dealings with Mr Kakoliris relates to the impact of the loss of that sum upon the company. Plainly it resulted in financial difficulties which ultimately led to the company ceasing to trade. The assumption implicit in the passage of Mr Lines’ evidence quoted above is that Mr Murdock was to be financially liable for the transactions with Mr Kakoliris if something went wrong. This is not a standard requirement of an employee.
This assumption is even more incongruous when one takes into account the evidence of both Mr Lines and Mr Murdock that Mr Murdock received no financial benefit from the dealings with Mr Kakoliris other than his wages and that all of the profits went to Emacord and thus to Mr Lines. Yet, it is an agreed fact that Mr Murdock has not been paid wages since February 2005 about the time Mr Kakoliris defaulted on the debt. Mr Lines explained the reason for this as follows:
Mr Murdock wasn’t a director. The reason Mr Murdock was working for no wages was because, obviously, Mr Murdock, with his dealings, had cost the company some money. That was his way of making retribution to the company. The idea was to work the way out of things and hope things came good and there would have been some wages. I think it is just a moral issue with Mr Murdock as he won’t admit he messed up with Mr Kakoliris and, I repeat myself, that’s his way of making retribution to the company. I wasn’t getting paid either by the way.[18]
[18] Transcript p164
Mr Murdock said that prior to 2005 he was receiving in the vicinity of $100,000 per annum. Following the cessation of his regular wages, he said that he received an amount of $5,000 for the whole of the 4 years he worked part time for Emacord. Mr Murdock said that he was remorseful about decisions that he had made that had impacted upon the company and Mr Lines. He said that he saw a future for the company trading through its difficulties. He wanted to reduce overheads to avoid other staff suffering so he stayed on as an employee working without regular wages.[19] Despite Mr Lines and Mr Murdock claiming that Mr Murdock got no personal benefit out of the dealings with Mr Kakoliris when they were profitable, and Mr Murdock saying that it was not his fault Mr Kakoliris defaulted on the debt, they claim Mr Murdock chose to forego in the order of $400,000 in wages.
[19] Transcript p143
I do not accept their evidence. I do not consider Mr Murdock was paid wages by Emacord. His situation following the Kakoliris default was exactly the same as Mr Lines. The company had suffered a loss. Neither Mr Lines nor Mr Murdock received payment.
Mr Lines took over a year off when the Grange Road yard closed leaving Mr Murdock in charge of the remaining operations of Emacord. Whilst I accept that Mr Lines had some involvement with the running of the company during this period, his involvement was limited. It is plain from his evidence that he was generally unaware of Mr Murdock’s dealings during that period. For example, Mr Lines was completely unaware of a demand for payment made by the Commissioner to Emacord for the company to reimburse the Compensation Fund for compensation paid under the Act. Mr Murdock acknowledged receiving the letter but Mr Lines was unaware of it.
It is plain to me that Mr Lines did not supervise Mr Murdock, or his business dealings on behalf of Emacord, during the period of his holiday or prior to that period. Mr Murdock was left to his own devices. This is not a usual scenario for an employee. It is even more unusual given that Mr Lines was aware that Mr Murdock’s dealings with Mr Kakoliris had lead to the loss of about $1.5 million. If Mr Lines was indeed the sole director of Emacord one would have expected a far more rigorous approach to the supervision of Mr Murdock and his financial dealings on behalf of Emacord following such a substantial loss.
It also seems that Mr Murdock invested in the company to some extent. He disputes doing more than bringing in a few vehicles at the start of his relationship with Emacord and putting up his house as security for a loan in later years. Mr Murdock’s various statements about his financial contribution in Emacord are contradictory and suggest a more substantial investment than this, but even these limited actions do not sit well with a description of Mr Murdock as an employee.
It would not have been obvious to an outsider that Mr Murdock was an employee. He ran the Morphett Street yard. He did deals and signed contracts on behalf of Emacord without apparent reference to Mr Lines. He signed cheques and dealt with complaints. Indeed Mr Murdock appears to have generally conducted himself as a director or partner of Mr Lines. For example, Mr Murdock instructed lawyers on behalf of Emacord in relation to Mr Zarucki. Mr Murdock dealt with the complaint by Mr Nakhoul to the Commissioner. Mr Murdock entered into the loan arrangements with Unique Finance that I have already referred to. The documents were in his name but it is plain from the context that the borrowings were on behalf of Emacord.
Taking all of these matters into account it is my view that Mr Murdock’s activities go well beyond those of an employee even a senior employee. I find that he acted as or occupied the position of director or member of the governing body of Emacord.
Even if I am wrong in finding Mr Murdock acted as or occupied the position of director, I consider that the evidence, taken as a whole, indicates that Mr Lines was accustomed to acting in accordance with Mr Murdock’s directions or instruction. For example, Mr Murdock considered that Emacord could make a substantial profit trading with Mr Kakoliris. Despite Mr Lines’ reservations, Mr Murdock’s view prevailed. Mr Lines acquiesced in Emacord engaging in substantial dealings with Mr Kakoliris over a number of years ultimately enabling him to default on a debt to the tune of $1.5 million.
I therefore find that there is proper cause for disciplinary action to be taken against Mr Murdock under section 27(2) of the Act.
What orders should be made?
The orders that may be made are set out in s.31 of the Act. The purpose of exercising the power to make orders in disciplinary proceedings is not to punish the person that engaged in the improper conduct but rather to protect the public.[20]
[20] Commissioner for Consumer Affairs v Sollars (2001) 79 SASR 145, Craig v. The Medical Board of South Australia (2001) 79 SASR 545

Mr Murdock was the instigator and prime mover in the matters that form the basis of the findings of misconduct. These matters represent a repeated and sustained course of conduct involving a number of consumers over a number of years. Some consumers remain considerably out of pocket. All have been subject to inconvenience and distress. Claims for compensation have been made under Schedule 3 to the Act. The incidents were not accidental or inadvertent. At least one matter involved the deliberate falsification of a document. It is difficult to imagine a more serious complaint and yet Mr Murdock appears to have no real understanding of the seriousness of his conduct or its effect upon the various consumers.
The action taken must emphasise the gravity of the misconduct and demonstrate that the protection of the public is paramount. It is my view that Mr Murdock poses an unacceptable risk to consumers in any capacity in the second hand motor vehicle business. Accordingly I permanently disqualify him from being licensed under the Act, prohibit him from being a director or having an interest in a body corporate that is a dealer and prohibit him from being employed by or otherwise engaged in the business of a dealer.
It is my view that Mr Lines’ failure to appreciate and undertake his obligations under the Act over an extended period of time enabled Mr Murdock to engage in the misconduct. This leads inevitably to the conclusion that measures should be taken in the interest of community protection to prevent Mr Lines from being in a position to commit further breaches. I am fortified in this view because of Mr Lines admission in evidence that he gave misleading information to a sheriff’s officer which had the effect of depriving a customer of proper recourse against the assets of Emacord and led to a claim against the compensation fund. Whilst this was not the subject of the complaint it demonstrates his cavalier attitude towards his obligations. I therefore disqualify him from being licensed under the Act and prohibit him from being a director or having an interest in a body corporate that is a dealer until further order.