Diesel Holdings Pty Ltd v Waters
[2023] VSC 455
•4 August 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2022 03607
| DIESEL HOLDINGS PTY LTD (ACN 145 993 326) AS TRUSTEE FOR THE DANIEL BAXTER FAMILY TRUST & ORS | Plaintiffs |
| v | |
| JOSHUA ROY WATERS & ORS | Defendants |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 June 2023 |
DATE OF JUDGMENT: | 4 August 2023 |
CASE MAY BE CITED AS: | Diesel Holdings Pty Ltd v Waters |
MEDIUM NEUTRAL CITATION: | [2023] VSC 455 |
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COMPANIES – Management and administration – Automatic disqualification of director under Corporations Act 2001 (Cth) s 206B – Peters v The Queen (1998) 192 CLR 493 – Whether director convicted of offence which ‘involves dishonesty’ – Whether dishonesty must be an element of the offence, inherent to the offence or present in the circumstances surrounding the offending – Pollard v Commonwealth Director of Public Prosecutions (1992) 28 NSWLR 659 – Barber v Law Society of New South Wales [No 2] [2001] NSWSC 861 – Consideration of legislative intent and nature of automatic disqualification provision – Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | B Murphy | Velocity Legal |
| For the Defendants | A Moriarty | AXM Law |
HIS HONOUR:
Introduction
Background
In August 2018, the second plaintiff, Daniel Baxter, and the first defendant, Joshua Waters, established the third defendant, Rock Solid Structural Developments Pty Ltd (‘Rock Solid’), in order to purchase and develop property together as business partners. Rock Solid acted as the trustee of the FatHead Unit Trust (the ‘FatHead Trust’), with the shares in Rock Solid owned in equal shares by Mr Baxter and Mr Waters and the units in the FatHead Trust owned in equal shares by the first plaintiff, Diesel Holdings Pty Ltd (‘Diesel Holdings’), which was controlled by Mr Baxter, and JRW Enterprises Pty Ltd (‘JRW Enterprises’), which was controlled by Mr Waters.
On 18 May 2021, Mr Baxter was convicted in the Magistrates’ Court of Victoria of various offences, and sentenced to an imprisonment term of six months. On 25 February 2022, Mr Baxter was convicted in the County Court of Victoria of several other offences, and sentenced on 8 March 2022 to an immediate term of imprisonment for three years, one month and 14 days (collectively, the ‘Baxter Offences’). The Baxter Offences are outlined in further detail below, but were egregious in nature and involved or arose out of circumstances of domestic violence.
Rock Solid, as trustee of the FatHead Trust, owned a property at 2 Furlong Street, Cranbourne West, Victoria (the ‘Cranbourne Property’) until around May 2022, when it was sold at the instigation of Mr Waters whilst Mr Baxter was in jail. The proceeds of sale were paid out in their entirety to JRW Enterprises.
On the plaintiffs’ case, Mr Baxter was a director of Rock Solid up until 12 April 2022, when he was wrongfully removed as a director by Mr Waters. On the defendants’ case, Mr Baxter ceased to be a director of Rock Solid automatically by operation of law as a consequence of s 206B(1) of the Corporations Act 2001 (Cth) (the ‘Corporations Act’) on either of 18 May 2021 or 25 February 2022, being the dates on which he was convicted of the Baxter Offences. As such, the defendants say that the sale of the Cranbourne Property and the payment out of the proceeds was lawfully effected by Mr Waters as Rock Solid’s sole director.
The proceeding generally
The plaintiffs initiated this proceeding claiming that following Mr Baxter’s convictions in respect of the Baxter Offences, Mr Waters wrongfully removed Mr Baxter as a director of Rock Solid, caused Rock Solid to sell the Cranbourne Property and effected the disbursement of the entirety of the sale proceeds to JRW Enterprises by reason of the issue and subsequent redemption by Rock Solid of special units in the FatHead Trust, which were issued solely to JRW Enterprises by Rock Solid by resolution of its purported sole director, Mr Waters.
In the main proceeding, the plaintiffs argue that this conduct was oppressive and in breach of various duties owed to them by the defendants.
The current application
By an interlocutory application dated 8 May 2023, the first and second defendants (the ‘Applicants’),[1] Mr Waters and JRW Enterprises, apply for orders pursuant to rr 9.06 and 23.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the ‘Rules’) for the proceeding to be dismissed, or alternatively, permanently stayed on the basis it is improperly brought. Alternatively, the Applicants seek only that the claims made by Diesel Holdings be stayed or dismissed, or for Diesel Holdings to be removed as a party to the proceeding.
[1]The third defendant, Rock Solid, was taken to be appeared for at the hearing along with the Applicants, but does not appear to take an active role in this application, by virtue of its role as the relevant company subject of the dispute.
By a relevantly identical contention as that underlying the asserted disqualification of Mr Baxter as a director of Rock Solid, the Applicants argue that Mr Baxter was also automatically disqualified as a director of Diesel Holdings. Given that there is no other director of Diesel Holdings apart from Mr Baxter, the Applicants submit that this proceeding has been brought by a company, Diesel Holdings, acting otherwise than by its lawfully appointed director. Thus, it seeks dismissal or a stay on the basis that the proceeding is scandalous, frivolous or vexatious or an abuse of the Court’s processes.
The Applicants’ contention is based on s 206B(1) of the Corporations Act which, among other things, provides that a person becomes disqualified from managing corporations if the person is convicted of an offence that involves dishonesty and is punishable by imprisonment for at least 3 months. The Applicants also rely on s 206A(1) of the Corporations Act, which states that a person who is disqualified from managing corporations commits an offence if they do so. In this second limb of their contention, the Applicants contend that Mr Baxter’s initiation and maintenance of the proceeding as a disqualified director of Diesel Holdings is an abuse of the Court’s process or alternatively, constitutes scandalous conduct.
The plaintiffs (in this application, the ‘Respondents’), submit that Mr Baxter has never been convicted of an offence involving dishonesty punishable by imprisonment for at least 3 months, and therefore, that there is no basis for the Applicants’ claim.
Grounds for a stay or dismissal of the proceeding
The relief sought by the Applicants is for a stay or dismissal of the proceeding, pursuant to r 23.01 of the Rules. Alternatively, the Applicants seek that the first plaintiff’s claims be dismissed or it be removed as a party to the proceeding, pursuant to r 9.06 of the Rules.
As noted above, the Applicants submit that the bringing and maintenance of the proceedings by Mr Baxter and therefore Diesel Holdings is an abuse of the Court’s process, because:
(a) Mr Baxter is automatically disqualified as a director under the Corporations Act, and therefore Diesel Holdings is bringing this proceeding without any authority to do so; and
(b) should the proceeding be permitted to continue, Mr Baxter will be committing a further criminal offence pursuant to s 206A(1) of the Corporations Act, as he is continuing to make decisions that affect Diesel Holdings post-disqualification as a director.
Rule 23.01 – stay or dismissal of the proceeding or claims within it
Rule 23.01 of the Rules provides:
Where a proceeding generally or any claim in a proceeding—
(a) is scandalous, frivolous or vexatious; or
(b) is an abuse of the process of the Court—
the Court may stay the proceeding generally or in relation to any claim or give judgment in the proceeding generally or in relation to any claim.
Relevantly, it has been said that any difference between whether a proceeding is ‘scandalous, frivolous or vexatious’ or ‘an abuse of process’ of a court is now ‘largely irrelevant’.[2]
[2]Knight v Bell [2000] VSCA 48, [12] (Ormiston JA).
In Business Service Brokers Pty Ltd v Optus Mobile Pty Ltd,[3] Connock J referred to Kermani v Westpac Banking Corporation (among other cases)[4] to illustrate the principles relevant to stay applications on the grounds of abuse of process:
[3]Business Service Brokers Pty Ltd v Optus Mobile Pty Ltd [2021] VSC 310 [27]–[28] (Connock J) (citations omitted).
[4]Kermani v Westpac Banking Corporation (2012) 36 VR 130.
27In Kermani v Westpac Banking Corporation, [the Court] outlined the principles relating to stay applications on the grounds of abuse of process. Those principles relevantly included the following:
(1)The court possesses an inherent jurisdiction to stay its proceedings as an abuse of process if the proceedings are unjustifiably oppressive and vexatious or manifestly unfair or otherwise bring the administration of justice into disrepute among right-thinking people …
(2)The jurisdiction should only be exercised in exceptional cases or sparingly with the utmost caution …
(3)The jurisdiction to stay for abuse of process is not limited to cases where the proceedings have been brought for an improper purpose or where there is no possibility of the court affording the affected party a fair hearing …
(4)The circumstances in which abuse of process may arise are extremely varied and the courts have refrained from limiting the circumstances to fixed categories …
(5)In considering whether to grant a stay as an abuse of process, the court should undertake a weighing process involving a subjective balancing of a variety factors and considerations …
…
28The factors and considerations to be weighed and balanced include the requirements of fairness to the parties, the public interest and the need to maintain public confidence in the administration of justice.
As demonstrated by the extract above, the Court will not make an order under r 23.01 of the Rules unless it is clear that the claim is unsustainable in fact or law and that no proper amendment of the pleading can raise a good cause of action.[5] It is only granted in exceptional cases.
[5]Annesley v Westpac Banking Corporation [2016] VSC 323.
Rule 9.06 – removal of a party to a proceeding
The Applicants also seek that the first plaintiff be removed as a party to the proceeding, on the basis that Mr Baxter is the sole director of Diesel Holdings and therefore Diesel Holdings is unable to bring the claim.
Rule 9.06 of the Rules relevantly provides that:
At any stage of a proceeding the Court may order that—
(a)any person who is not a proper or necessary party, whether or not that person was one originally, cease to be a party …
The issues
There are two connected principal issues in this application. The first is the scope of the word ‘involves’ as it is used in the relevant provision of the Corporations Act. Where a person is ‘convicted of an offence that involves dishonesty’, does this narrow the scope to offences in which dishonesty is an element (as argued by the Respondents), limit it to offences in which dishonesty is ‘inherent’, albeit not an explicit element of the offence, or does it mean, in the broader sense, any form of dishonesty in the surrounding circumstances of offending (as argued by the Applicants)? To pose the question in another way, does ‘involves dishonesty’ direct attention to a specific class of offences (whether they contain dishonesty as an element or otherwise inherently), or does it require examination of the factual circumstances surrounding the commission of the particular offence (here, the Baxter Offences)?
In the event that the broader view urged by the Applicants is accepted, the second question which arises is whether an examination of the factual circumstances of the Baxter Offences in the broader sense ‘involves’, in the sense that the facts surrounding the offences reveal, dishonesty. A substantial part of the parties’ submissions focussed on this latter issue in the context of the Baxter Offences.
Relevant legislation
The Corporations Act definition of dishonesty
The relevant part of s 206B of the Corporations Act reads as follows:
206B Automatic disqualification—convictions, bankruptcy and foreign court orders etc.
Convictions
(1)A person becomes disqualified from managing corporations if the person:
…
(b)is convicted of an offence that:
…
(ii)involves dishonesty and is punishable by imprisonment for at least 3 months …
‘Dishonest’, defined in s 9 of the Corporations Act, means ‘dishonest according to the standards of ordinary people’.
The Baxter Offences
Mr Baxter was convicted of the following offences:
(a) On 18 May 2021, in the Magistrates’ Court of Victoria:
(i) causing injury intentionally, pursuant to s 18 of the Crimes Act 1958 (Vic) (the ‘Crimes Act’); and
(ii) contravention of a family violence intervention order intending to cause harm or fear for safety, pursuant to s 123A(2) of the Family Violence Protection Act 2008 (Vic) (the ‘FVP Act’);
(b) On 25 February 2022, in the County Court of Victoria:
(i) causing injury intentionally, pursuant to s 18 of the Crimes Act;
(ii) two counts of contravention of a family violence intervention order intending to cause harm or fear for safety, pursuant to s 123A(2) of the FVP Act;
(iii) contravening a conduct condition of bail, pursuant to s 30A of the Bail Act 1977 (Vic) (the ‘Bail Act’) (noting that this is a strict liability offence);
(iv) committing an indictable offence whilst on bail, pursuant to s 30B of the Bail Act (noting that this is an absolute liability offence); and
(v) contravening a family violence interim intervention order, pursuant to s 123(2) of the FVP Act.
It is not in issue that each of the Baxter Offences carry a maximum penalty term of imprisonment greater than three months. The Applicants also accept that dishonesty is not an essential element under any of these offences, or in other words, the Baxter Offences are not dishonesty offences of the traditional kind.
The Applicants’ submissions
As noted above, the Applicants contend that by reason of Mr Baxter’s criminal convictions, he is automatically disqualified from managing corporations. In support of their submission that it is appropriate to interpret the phrase ‘involves dishonesty’ broadly, they point to the history of the incorporation of the phrase ‘dishonesty’ in the Corporations Act and the scope of what dishonesty means. It is useful to outline some of that history here.
Definition of ‘dishonesty’
The Applicants note that the definition of dishonesty in the Corporations Act was amended by the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth), in order to streamline its application across the entire Corporations Act. The Applicants point out that the streamlined definition of the dishonesty test comes from the ‘preferred test for dishonesty in Australia’,[6] being the test established in Peters v The Queen in the High Court of Australia (‘Peters’).[7]
[6]Revised Explanatory Memorandum, Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 (Cth) 56.
[7]Peters v The Queen (1998) 192 CLR 493 (‘Peters’).
One of the issues considered in Peters was whether dishonesty was a separate element of the offence of conspiracy to defraud. The majority held that dishonesty was not a separate element of the offence, but rather, ‘inherent’ in the other elements of the crime to be proven. Relevant also was the majority’s conclusion that the next stage of the enquiry was to consider whether the knowledge, belief or intent of the accused was such that it would be regarded as dishonest by the standards of ordinary people.
The Court chose not to follow the two limb test derived from the English case of R v Ghosh (‘Ghosh’) which states that ‘dishonesty’ must be:[8]
(a) dishonest according to the standards of ordinary people (the ‘objective’ element, and the only test in Peters); and
(b) must be known by the defendant to be dishonest according to the standards of ordinary people (the ‘subjective’ element).
[8]R v Ghosh [1982] QB 1053 (‘Ghosh’).
Following Peters, the Peters approach to the meaning of dishonesty was introduced into the Corporations Act. Thus, for the purposes of the relevant part of the Corporations Act, it was not necessary to prove that a party knew that their conduct was dishonest, only to prove that the conduct was objectively dishonest according to the standards of ordinary people.
The Applicants submit that consistent with the recent adoption of the Peters test in the Corporations Act, the reference to an offence involving dishonesty in s 206B(1)(b)(ii) cannot be limited to offences where dishonesty is an express mens rea element. The Applicants state that such offences are typically characterised as ‘offences of dishonesty’ under criminal law, and that such offences typically and traditionally apply the Ghosh two-limb dishonesty test. From this, the Applicants infer that the legislature must have had a broader scope in mind when choosing to incorporate the Peters test into the Corporations Act, as, if it did not have a broader scope in mind, the Ghosh test would have sufficed to limit the scope of s 206B(1)(b)(ii) to ‘offences of dishonesty’.
The crux of the Applicants’ submission emphasises the standards of ordinary people in the definition of dishonesty, submitting that ordinary people will look further than the mere elements of a criminal offence to establish dishonesty. Relatedly, the Applicants also contend that the use of the word ‘involves’ in the relevant part of the Corporations Act infers a broader intention by the legislature, and point to various dictionary definitions of the word.
Dishonesty in relation to the Baxter Offence of strict liability
The Applicants also submit that support for their submission is obtained from Mr Baxter’s plea of guilty in relation to the strict liability Baxter Offence.[9] The Applicants submit that questions of honesty of the accused may play a central role in determining guilt for a strict liability offence, whether as a positive element of an offence, relevant to the accused’s intention or knowledge of the crime, or through the defence of honest and reasonable mistake.[10] From this, the Applicants argue that some strict liability offences naturally may constitute crimes involving dishonesty, but otherwise, that the failure of Mr Baxter to raise any defence of honest and reasonable mistake in relation to the strict liability offence is proof of the absence of honesty and hence establishes dishonesty for the purposes of his automatic disqualification as a director. In essence, the Applicants submit that the absence of a defence of honest and reasonable mistake in relation to a strict liability offence gives rise to an inference of dishonesty.
[9]See above [23].
[10]The Applicants rely on the case of He Kaw Teh v The Queen (1985) 157 CLR 523 (‘He Kaw Teh’) as a general authority for this proposition.
Evidence of Mr Baxter’s dishonesty
In written submissions, the Applicants state that:
… the character of the crimes as mens rea, strict or absolute liability offences is superfluous, where ordinary members of the public may consider it appropriate to look past these categories to determine whether a thread of dishonesty runs throughout the crimes committed. The task for the [Court] is to put itself in the shoes of such ordinary decision makers.
The Applicants submit that ordinary members of the public confronting the circumstances of the Baxter Offences would consider Mr Baxter’s actions as inconsistent with those of a hypothetical ‘honest’ man. Such an individual, according to the Applicants, would have been ‘at pains to observe his bail conditions and the terms of family violence intervention orders’ and ‘possessed the self-discipline and/or foresight’ to foresee his conduct leading to the commission of other crimes. As noted above, the Applicants rely on Mr Baxter’s failure to ‘raise any evidence that his offending was motivated by any honest and reasonable mistaken belief’ as evidence of his dishonesty.
Summary of the Applicants’ case
In summary, the Applicants submit that:
(a) offences ‘involving dishonesty’ include those common law or statutory offences where dishonesty may not be an express element of the crime to be put to the jury or finder of fact, but where they are nevertheless recognised as involving dishonesty, drawing a parallel to the circumstances in Peters;
(b) Peters provides authority for the principle that the Court should not take an unduly technical or overly narrow approach to defining dishonesty; and
(c) in the case of strict liability offences, despite the absence of a required mens rea, crimes can ‘nevertheless inherently [be] recognised by the law to involve judicial and/or jury consideration of the accused’s honesty or dishonesty’.[11]
[11]Such as in He Kaw Teh (see above n 10).
The Applicants submit that s 206B(1)(b)(ii) of the Corporations Act requires each conviction to be assessed on a case by case basis, rather than just whether the elements of the crime contain dishonesty as an explicit component. In the Applicants’ view, according to ordinary members of the public, an honest man in Mr Baxter’s circumstances would not have committed such crimes.
Respondents’ submissions
Consideration of ‘dishonesty’
The Respondents submit that Mr Baxter has never been convicted of a dishonesty offence.
The Respondents also make reference to Peters, in particular, the following passage of Toohey and Gaudron JJ, where their Honours stated:[12]
In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest. Necessarily, the test to be applied in deciding whether the act done is properly characterised as dishonest will differ depending on whether the question is whether it was dishonest according to ordinary notions or dishonest in some special sense. If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people. However, if “dishonest” is used in some special sense in legislation creating an offence, it will ordinarily be necessary for the jury to be told what is or, perhaps, more usually, what is not meant by that word. Certainly, it will be necessary for the jury to be instructed as to that special meaning if there is an issue whether the act in question is properly characterised as dishonest.
[12]Peters (n 7) [18] (Toohey and Gaudron JJ) (citations omitted).
The Respondents submit that the streamlined dishonesty test in Peters concerned the offence of conspiracy to defraud and that the critical issue in the case which the Court was grappling with was whether a subjective or objective test should be applied.
The Respondents submit that in order to determine whether the Baxter Offences are dishonest, in accordance with Peters,[13] it is necessary to look at both the mental and actionable components of the Baxter Offences, namely:
[13]Noting that these steps were outlined by Toohey and Gaudron JJ in the context of a judge instructing a jury. The first step is to be taken by the judge instructing the jury, with the latter two steps to be decided by the jury.
(a) identify the knowledge, belief or intent which is said to render the acts for which Mr Baxter was convicted as dishonest;
(b) decide whether such knowledge, belief or intent was subjectively held by Mr Baxter;[14] and
(c) decide whether the acts were dishonest by the standards of ordinary, decent people.
[14]Note that this is a different subjectivity test than that found in Ghosh. Instead of deciding whether the defendant knew their conduct was dishonest (as in Ghosh), the Peters test requires consideration of the defendant’s mental state in the holistic determination of whether the conduct was objectively dishonest.
In applying this test, the Respondents submit that the Baxter Offences, whilst repugnant to the standards of ordinary people, do not involve any element of dishonesty.
In written submissions, the Respondents submit that ‘[t]here is no knowledge, belief or intent to identify [that] which is said to render the acts dishonest’, and that in determining dishonesty, the Court, stepping into the shoes of the ‘ordinary, decent person’, would ‘necessarily draw upon the concepts of deceit and fraud or when someone says something they know is untrue’.
The Respondents submit that if the Applicants’ broader construction of ‘involve’ is accepted, it would lead to the conclusion that any offence punishable by imprisonment for at least three months could, depending on its particular circumstances, ‘involve’ dishonesty and therefore automatically disqualify a director under the Corporations Act. The Respondents submit that Parliament’s intent under s 206B(1) of the Corporations Act was to ‘guard [companies] against individuals convicted of fraud, obtaining property by deception, or obtaining financial advantage by deception’, and this is because the nature of such offences ‘speaks directly to [a director’s] ability to discharge their statutory duties [as a director] honestly’.
Analysis
Scope of ‘involves dishonesty’
To the extent to which the submissions of the parties focussed on introduction of the Peters test of dishonesty, they ran the risk of distracting from the real focus, which is the breadth to be given to the phrase ‘involves dishonesty’, more particularly, the breadth of the word ‘involves’. Indirectly, the parties have argued two different constructions of s 206B(1)(b)(ii) of the Corporations Act:
(a) the narrower view, where the Baxter Offences must be ones which, in the abstract, involve dishonesty (for example, by reference to the specific elements of the crimes,[15] or inherently so, as in Peters); or
(b) the broader view, where involvement of dishonesty is determined at the factual level of the offending (for example, by reference to the surrounding factual circumstances of the offending).
[15]Note that these are also sometimes referred to as ‘offences of dishonesty’ or ‘dishonesty offences’ in criminal law.
Case law
Interestingly, there is mixed case law on this point.
Corporate contexts
In Australian Securities Commission v Lord (‘Lord’),[16] Davies J of the Federal Court of Australia considered the meaning of the phrase ‘involves fraud or dishonesty’ in the context of the power of the corporate regulator to serve a notice requiring the production of books of a company where there was an alleged or suspected contravention of a law that concerns the management or affairs of a body corporate or involves fraud and dishonesty and relates to a body corporate.
[16]Australian Securities Commission v Lord (1991) 33 FCR 144.
The alleged contravention involved the making of a statement by a director of a company that was alleged to be false or misleading to an inspector who was conducting an investigation of various other companies. Davies J held that:
[t]he word “involves” does not denote that fraud or dishonesty must be an element of the offence as charged, merely that the contravention suspected must have involved fraud or dishonesty.[17]
…
Fraud was not suspected. Dishonesty was. It was suspected that Mr Lord did not tell the truth to the investigator and deliberately did not do so … It was not necessary that the dishonesty be an essential element of the offence suspected.[18]
[17]Ibid 149 (Davies J).
[18]Ibid 150 (Davies J).
Pollard v Commonwealth Director of Public Prosecutions (‘Pollard’) was a case closer to the present.[19] Mr Pollard had pleaded guilty to an offence of obtaining financial advantage by making a statement with reckless disregard as to whether it was true of or misleading. He was later charged with contravening a precursor provision to s 206A(1) of the Corporations Act, by being concerned in the management of the company whilst disqualified as a director by reason of an automatic disqualification provision of the kind under consideration here.
[19]Pollard v Commonwealth Director of Public Prosecutions (1992) 28 NSWLR 659.
Specifically, Abadee J considered whether the offence of making a statement with reckless disregard as to whether it was true or false, for the purpose of obtaining a financial advantage, was an offence ‘involving fraud or dishonesty’ for the purposes of director disqualification. In finding that it was, his Honour addressed in obiter a submission of the defendant, the Commonwealth Director of Public Prosecutions, that the director disqualification provision was not confined to offences which on their face involved fraud or dishonesty. His Honour stated:[20]
[t]he offence under [the director disqualification provision] is concerned with the conviction of the person charged, of an offence, “involving fraud or dishonesty”. The inquiry is directed towards ascertaining whether fraud or dishonesty was “involved” in the offence. The word used in the section is ‘involving’ and not “of”. In my view ‘involving’ is a word that should be given its ordinary meaning. Were it necessary for me to finally determine [the] alternative submission, I would be disposed to the view that if conduct or behaviour answering the description of fraud or dishonest was involved in commission of the earlier offence, then, the offence under [the director disqualification provision] would be established.
…
If it were necessary … I would be of the view that … the three offences under [the relevant legislation] of which the plaintiff had been earlier convicted … were offences “involving” at least, “dishonesty” or “fraud”.
[20]Ibid 663 (Abadee J).
Further, when dealing with a submission by Mr Pollard that the specific offence was not one which involved fraud or dishonesty, Abadee J stated:[21]
I should immediately observe that the argument is not one that is prima facie an attractive one, as it appears to involve re-writing the section by excluding the word “involving” and substituting for it the word “of”. There is no warrant for so reading the section. The word “involving” appears to have been deliberately inserted in contradistinction to the insertion of the word “of”. Further, the argument fails to give the section its ordinary meaning, which in my view, leads to no ambiguity or uncertainty. It appears to me that there is a clear difference between an offence “involving” fraud or dishonesty, and an offence “of” fraud or dishonesty. I would also observe that a similar earlier provision s 122(1)(b) of the Companies Act 1961 containing the words “offence involving fraud or dishonesty”, was apparently given its ordinary meaning by Bowen CJ in Equity in Re Magna Alloys. In describing the offence of which the applicant had been earlier convicted, Bowen CJ in Equity said, the offence “was also an offence involving fraud or dishonesty punishable on conviction … or more”.
[21]Ibid 666 (Abadee J) (citations omitted).
Other contexts
In ABC v Victims of Crime Assistance Tribunal (‘ABC v VOCAT’),[22] Quigley J of this Court considered whether aggravated burglary was an offence which ‘involve[d] an assault on, or injury or a threat of injury to, a person’ in relation to a victims of crime assistance claim, in circumstances where the victim (who was claiming assistance) was asleep at the time of offending. Her Honour stated:[23]
One approach is that it be answered at the level of the statutory meaning of the offence in question — that is, must the offence be one that, in the abstract, necessarily “involves an assault on, or injury or a threat of injury to, a person” (for example, by reference to its elements)?
The alternative approach is that it ought be answered at the level of the particular offence that was, in fact, committed? In other words, does para (a) of the definition of “relevant offence” direct attention to a class of offences, or the factual circumstances of particular offending?
The applicant argued that it ought be the latter, and I agree.
[22]ABC v Victims of Crime Assistance Tribunal (2021) 66 VR 381 (‘ABC v VOCAT’).
[23]Ibid 396 [77]–[79] (Quigley J) (emphasis in original).
Quigley J noted that ‘[t]he word “involves” implies a degree of flexibility – ie a common sense consideration of all the circumstances of the case’.[24] After citing cases in other statutory contexts which supported the broader construction,[25] her Honour continued:[26]
[t]o the extent [that the relevant legislation] is ambiguous or could be read another way, this construction ought to be preferred. This construction is plainly open on the natural meaning of the word “involves” and, importantly, would better serve the beneficial legislative objectives. The legislative objective of assisting victims “to recover” would be better served if the particular circumstances of the offending were taken into account. Recovery is directed to what in fact happened to a person; not the abstract terms or elements of an offence.
[24]Ibid 396 [80] (Quigley J) (emphasis in original).
[25]Ibid 396–7 [81]–[82] (Quigley J).
[26]Ibid 397 [83] (Quigley J) (emphasis in original).
In Barber v Law Society of New South Wales [No 2] (‘Barber’),[27] Bell J of the Supreme Court of New South Wales took a different view in the context of a claim against the Law Society’s compensation fund arising from funds paid into a bank account maintained by a solicitor. The plaintiff invested funds in return for promised interest payments at the rate of 16% per annum. When the funds were not returned or interest paid, the plaintiff made a claim on the compensation fund because of a failure to account by the solicitor. No claim upon the compensation fund could succeed unless the failure to account arose from an act or omission for which the solicitor had been convicted of a crime or an offence ‘involving dishonesty’. The solicitor was convicted of an offence involving the manufacture of illicit substances. The plaintiff argued that the solicitor’s failure to account arose from the confiscation of the solicitor’s property following his arrest, and that it was dishonest for the solicitor not to inform the plaintiff that he was engaged in the production of illicit substances during the time the plaintiff had invested funds with him.
[27]Barber v Law Society of New South Wales [No 2] [2001] NSWSC 861.
Bell J took a narrower view of the determination of the phrase ‘involving dishonesty’ to that of Quigley J in ABC v VOCAT, and that of Abadee J in Pollard, in relation to the illicit substance offence:[28]
[t]he conviction of which [the relevant legislation] speaks of is one for a crime or offence involving dishonesty. It seems to me that the crime or offence the subject of the conviction must be one which answers that description without further inquiry. Offences involving dishonesty embrace those such as stealing and robbery in which the property of another is taken with the intention thereby of permanently depriving the rightful owner of it and offences where property or some advantage is gained through indirect means such as false pretences, conspiracy to defraud and the like. … [W]hile the great majority of offences of dishonesty relate to property it is not true to say that all do … an illustration of an offence of dishonesty not involving property [is] the commission of perjury in order to avoid going to prison.
I am not persuaded that on a generous interpretation of the concept of a crime or offence involving dishonesty that a conviction for the offence of taking part in the manufacture of a prohibited drug (or conspiring to produce) contrary to … the Controlled Substances Act 1984 (SA) might properly come within the terms of [the relevant legislation].
[28]Ibid [32]–[33] (Bell J) (emphasis added) (citations omitted).
In Director of Public Prosecutions v Verigos,[29] Nettle J considered the jurisdiction of the Magistrates’ Court to deal summarily with a charge of burglary or aggravated burglary which ‘involves an intent to steal’. In dealing with the use of the word ‘involves’, his Honour stated:[30]
[a]lthough it is difficult to conceive of an offence as involving an intent to steal unless the intent to steal is an element of the offence, it has been held in another context that the word “involves” is not necessarily to be equated to an element of an offence. In [Lord], Davies J held that it was not necessary to establish that fraud or dishonesty was an element of an offence the subject of investigation for the purposes of the expression “involves fraud or dishonesty” in [the relevant section of the law]. It was enough that it was suspected that there was associated fraud or dishonesty. The word “involved” also has an established meaning in the area of revenue law concerned with the problem of whether a decision the subject of appeal is one that involves a question of law. In as much as those lines of authority ascribe a meaning to “involved” that is equivalent or close to “associated with”, as opposed to “part of”, they may be thought of as some support for the idea that [the relevant] offence is one that involves an intent to steal if committed in conjunction with an offence of stealing.
But I do not think that is the case. The words of a statutory provision take their meaning from their context, and in the context of [the relevant section of the law] I do not think that there can be any doubt that ‘involves’ was used in the sense of “an element of the offence”. The section referred to an offence that “involves the stealing of property and the amount or value of the property the subject-matter of the offence” (my emphasis). Regardless of the circumstances, the only form of burglary of which it could be said that it had the stealing of property as its “subject matter” was burglary of which the intent to steal was an element of the offence.
To read the words in any other fashion would also have made nonsense of the provision …
[29]Director of Public Prosecutions v Verigos (2004) 145 A Crim R 82 (‘Verigos’); which Quigley J considered in ABC v VOCAT (n 22) 396 n 42.
[30]Verigos (n 29) [26]–[28] (citations omitted).
In Hammond v Commissioner for Fair Trading (NSW),[31] the New South Wales Civil and Administrative Tribunal examined the question in the context of a contracting (building) licence. The relevant provision provided that a person who had been convicted of an offence involving dishonesty within a specified period, could not hold a building licence. The Tribunal preferred the narrower approach adopted in Barber, and noted that the narrower approach had also been adopted by the Appeal Panel in Farah v Director General, Department of Finance and Services (‘Farah’),[32] and had earlier been adopted by Bray CJ of the Full Court of the Supreme Court of South Australia in Clark v Johnson (‘Clark’).[33]
[31]Hammond v Commissioner for Fair Trading (NSW) [2020] NSWCATOD 132.
[32]Ibid [27]; Farah v Director General, Department of Finance and Services [2014] NSWCATAP 23 (‘Farah’).
[33]Clark v Johnson [1967] SASR 279, 291 (Bray CJ).
In Farah, the Appeal Panel set out its conclusion as follows:[34]
[o]ur conclusion is that it is the offence itself that must “involve dishonesty”. It is not permissible to look behind the conviction for that offence to consider the particular facts of the case. The agreed facts on which a guilty plea is based, the findings of the court in relation to a contested hearing and the sentencing remarks are not relevant. Those matters cannot be relied on to find that the person has engaged in dishonest conduct or behaviour or had a particular state of mind which was dishonest. In the words of Bell J, the offence must be one which involves dishonesty “without further inquiry”.
[34]Farah (n 32) [42].
The decision in Farah was applied by an Appeal Panel in Luk v Commissioner of Police (NSW) (‘Luk’),[35] with the panel deriving three propositions from Farah:[36]
1.An “offence involving dishonesty” does not require that the relevant statutory provision contain the word “dishonest” or “dishonesty” (examples being stealing, robbery and offences where property is gained through indirect means such as false pretences and conspiracy to defraud);
2.an offence involving dishonesty does not permit an inquiry into the conduct or state of mind of the person concerned when committing the offence;
3.it is the offence itself that must involve dishonesty, and it is not permissible to look behind a conviction for that offence to consider the particular facts of the case. The agreed facts on which a guilty plea is based, the findings of the court in relation to a contested hearing and the sentencing remarks are not relevant, and those matters cannot be relied on to find that the person has engaged in dishonest conduct or behaviour or had a particular state of mind which was dishonest.
[35]Luk v Commissioner of Police (NSW) [2019] NSWCATAP 23.
[36]Ibid [34].
In RTA v Sharp Towing Pty Ltd (‘RTA v Sharp’),[37] the Appeal Panel, in relation to the mandatory refusal of a tow truck licence following conviction for an offence ‘involving fraud, dishonesty or stealing’ and after conducting a detailed review of the cases, including Pollard and Barber, favoured the approach in Pollard over that taken in Barber, but importantly noted that whilst Bell J in Barber expressed a narrower view than Abadee J in Pollard, neither judge expressed the view that the specified conduct must be an element of the offence, stating the following:
… the cases are consistent in holding that it is not determinative of whether an offence “involves” prescribed conduct that the conduct be an element of the offence. It is enough that the offence can be said to be of a kind that deals with a subject matter that would ordinarily be regarded as conduct of the kind prescribed.[38]
…
I do not agree that the expression “an offence involving [prescribed conduct]” should be limited in its operation to a scrutiny of the terms of the offence provision. I agree with Abadee J in Pollard that an offence may be able to be shown to involve prescribed conduct, such as dishonesty, even though the offence itself is not an offence that directly refers in its terms to that kind of conduct or can be readily characterised as an offence about that kind of conduct.[39]
[37]RTA v Sharp Towing Pty Ltd [2008] NSWADTAP 49.
[38]Ibid [22] (emphasis in original).
[39]Ibid [50].
Importantly, and after noting the divergence of views as to whether the decision maker can only look at the offence provision in order to see whether it might reasonably be said to be one of a kind which involves dishonesty, and that the view taken in the preponderance of cases is that the issue is determined by consideration only of the terms of the offence provision and not the circumstances of the particular offence, the Appeal Panel in RTA v Sharp expressed the view that the latter approach was preferable, that is, that it is permissible to look at the particular circumstances of the case in question. This lends support to the Applicants’ approach.
Application
Despite the varied approach to the meaning of ‘involves’ in the various cases, the relevant enquiry is one which requires its meaning to be determined by reference to the particular provision of the Corporations Act under consideration.
The process of statutory construction both starts and concludes with the text itself. The relevant principles were outlined by the High Court of Australia in Thiess v Collector of Customs:[40]
[40]Thiess v Collector of Customs (2014) 250 CLR 664, 671–2 [22]–[23] (French CJ, Hayne, Kiefel, Gageler and Keane JJ) (citations omitted).
22Statutory construction involves attribution of meaning to statutory text. As recently reiterated:
“This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text”. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text.
23Objective discernment of statutory purpose is integral to contextual construction. The requirement of s 15AA of the Acts Interpretation Act 1901 (Cth) that “the interpretation that would best achieve the purpose or object of [an] Act (whether or not that purpose or object is expressly stated … ) is to be preferred to each other interpretation” is in that respect a particular statutory reflection of a general systemic principle. For:
it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.
The policy rationale of director disqualification provisions generally was noted in Re Magna Alloys & Research Pty Ltd (‘Magna’),[41] albeit by reference to the precursor of the current s 206B of the Corporations Act:
The policy to which [the director disqualification provision] gives effect is that a person convicted of an offence of any of the types specified in that section is not to be permitted to act as a director or to take part in the management of a company. The section is not punitive. It is designed to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company. In its operation it is calculated to act as a safeguard against the corporate structure being used by individuals in a manner which is contrary to proper commercial standards.
[41]Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203, 205 (Bowen CJ in Eq) and noted and referred to with approval in Adams v Australian Securities and Investments Commission (2003) 46 ACSR 68.
The consequence of the Applicants’ favoured interpretation is illustrated by some of the examples explored in oral submissions. In the case of an assault, the Applicants accept that a random assault with no element of premonition would not be one which the ordinary member of the public would regard as dishonest, but argued that an assault preceded by an element of deception would fall within the scope of the automatic disqualification provision. Thus, the director randomly engaging in an act of violence on a street corner with a stranger and convicted accordingly would not also be automatically disqualified as a director, but the director who deceptively asked the intended victim to stop, on the false pretence that the director wanted assistance with directions, would face automatic disqualification. The Applicants’ approach is one therefore which includes those offences which have dishonesty as a specific element as well as those in which dishonesty, though not an express element, is nevertheless inherent, but also includes offences where dishonesty is not present in some cases but might be in others, depending on the surrounding circumstances.
The Applicants’ submission therefore eschews the approach favoured in Barber, Clark and by the various tribunals in Farah and Luk, in favour of the broader approach favoured in ABC v VOCAT, and given support in RTA v Sharp.
It is instructive to look at the balance of s 206B of the Corporations Act. The operative parts of the section read as follows:
206B Automatic disqualification—convictions, bankruptcy and foreign court orders etc.
Convictions
(1) A person becomes disqualified from managing corporations if the person:
(a) is convicted on indictment of an offence that:
(i) concerns the making, or participation in making, of decisions that affect the whole or a substantial part of the business of the corporation; or
(ii) concerns an act that has the capacity to affect significantly the corporation’s financial standing; or
(b) is convicted of an offence that:
(i)is a contravention of this Act and is punishable by imprisonment for a period greater than 12 months; or
(ii) involves dishonesty and is punishable by imprisonment for at least 3 months; or
(c) is convicted of an offence against the law of a foreign country that is punishable by imprisonment for a period greater than 12 months.
The offences covered by paragraph (a) and subparagraph (b)(ii) include offences against the law of a foreign country.
(2) The period of disqualification under subsection (1) starts on the day the person is convicted and lasts for:
(a) if the person does not serve a term of imprisonment—5 years after the day on which they are convicted; or
(b) if the person serves a term of imprisonment—5 years after the day on which they are released from prison.
Bankruptcy or personal insolvency agreement
(3) A person is disqualified from managing corporations if the person is an undischarged bankrupt under the law of Australia, its external territories or another country.
(4) A person is disqualified from managing corporations if:
(a) the person has executed a personal insolvency agreement under:
(i) Part X of the Bankruptcy Act 1966; or
(ii)a similar law of an external Territory or a foreign country; and
(b) the terms of the agreement have not been fully complied with.
(5) A person is disqualified from managing corporations at a particular time if the person is, at that time, disqualified from managing Aboriginal and Torres Strait Islander corporations under Part 6‑5 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006.
Foreign court orders
(6) A person is disqualified from managing corporations if the person is disqualified, under an order made by a court of a foreign jurisdiction that is in force, from:
(a) being a director of a foreign company; or
(b) being concerned in the management of a foreign company; or
(c) being a director of a passport fund, or of an operator of a passport fund; or
(d) being concerned in the management of a passport fund.
Certainly, the circumstances contemplated in sub-ss 206B(1)(b)(i) and 206B(1)(c) supports a narrow approach, with the analysis undertaken by reference to the offence alone. Each of the circumstances contemplated by sub-ss 206B(1)(b)(i) and 206B(1)(c), being contravention of the Corporations Act punishable by imprisonment for a period greater than 12 months and conviction of an offence against the law of a foreign country punishable by imprisonment of greater than 12 months respectively, is easily ascertainable by reference to objective criteria. So too is automatic disqualification in an insolvency context,[42] automatic disqualification as a director as a result of disqualification under the Corporations (Aboriginal and Torres Strait Islander) Act2006 (Cth),[43] and reciprocal automatic disqualification arising by orders of a court of foreign jurisdiction.[44] Automatic disqualification also arises if a court order is made disqualifying a person from managing corporations under the Australian Securities and Investments Commission Act 2001 (Cth).[45]
[42]See, eg, Corporations Act 2001 (Cth) s 206B(4) (‘Corporations Act’).
[43]Ibid s 206B(5).
[44]Ibid s 206B(6).
[45]Ibid s 206EB.
The wording of s 206B(1)(b)(ii) is less certain of objective ascertainment but nevertheless focusses very much on the particular offence the subject of conviction.
It is also relevant that s 206B is but one of many provisions in the Corporations Act by which the protective purpose of director disqualification may be achieved. There are a raft of circumstances where the Court may make a disqualification order on ASIC’s application, which include s 206C of the Corporations Act, by which the Court may make a disqualification order in the event of a declaration being made under the Corporations Act and s 206D, by which the Court may make a disqualification order if, inter alia, the person concerned has been a director of two or more corporations which have failed within the last seven years.[46] ASIC also has its own powers to make disqualification orders.[47]
[46]See also Corporations Act ss 206EAA, 206EAB, 206EA.
[47]See, eg, Corporations Act s 206F.
The critical feature of s 206B of the Corporations Act in contrast to the other disqualification provisions of the Corporations Act is that the disqualification is automatic. Automatic disqualification does not contemplate third party determination, save for where an affected party seeks some sort of declaratory relief. For the section to be efficacious in its presumed intended operation, in the context of s 206B(1)(b)(ii), there needs to be clarity as to the class of offences covered. The person convicted, and those otherwise involved in the company such as fellow directors or shareholders, must be able to easily establish that as a result of the conviction of the particular offence, that, without more, the person is prohibited from acting as a director. Unlike those parts of the Corporations Act which predicate the prohibition on acting as a director by a determination of the Court or ASIC, s 206B(1)(b)(ii) is designed to operate immediately as and from conviction. The critical weakness with the broader interpretation favoured by the Applicants is that it requires a case by case assessment to be conducted, presumably by a judge, through the prism of ‘an ordinary member of the public’ in order to determine whether there is ‘dishonesty’ in the surrounding circumstances of every offence committed by a director punishable by imprisonment for at least 3 months, in order to determine, in effect, retrospectively, whether an automatic disqualification has arisen on conviction. As such, ABC v VOCAT is distinguishable from the present circumstances;[48] it involves a quite different legislative regime and is one which required a beneficial construction, unlike the present case.
[48]ABC v VOCAT (n 22).
I do not accept that the proper interpretation of the section requires such an approach. In my view, the section is designed to operate with clarity by reference to particular categories of offence. The focus is on the offence itself and whether dishonesty is inherent or integral to that offence, and not to the circumstances of the particular offending. For the most part, the fact that the offence ‘involves’ dishonesty will not be controversial. I do not accept that ‘dishonesty’ must be an element of the offence; that casts the net too narrowly and is inconsistent with the ordinary meaning of the broad term ‘involves’. But dishonesty must be inherent to such an offence, albeit not necessarily a specific element of the particular offence. The proper interpretation of the section does not in my view permit the examination of the particular circumstances of the offender’s conduct.
As acknowledged by the Applicants, the Baxter Offences do not contain dishonesty as an element. But nor do the Baxter Offences contain an inherent or integral dishonesty, especially when considered in comparison to the offences illustrated in Peters, Lord and Pollard, and in light of the policy objectives of s 206B of the Corporations Act, as referred to in Magna.
If I am incorrect, and the broadest view of s 206B(1)(b)(ii) of the Corporations Act is to be adopted, and it is necessary and permissible to examine the particular circumstances of the Baxter Offences in order to ascertain whether the surrounding circumstances reveal any ‘implied, included or entailed’ dishonesty,[49] I have considered the reasons for sentence of Mr Baxter delivered by his Honour Judge Johns on 8 March 2022,[50] and the circumstances outlined in the pleadings, submissions and relevant affidavits of the parties.
[49]ABC v VOCAT (n 22) [85].
[50]DPP v Baxter [2022] VCC 334.
The Baxter Offences, as listed above,[51] involve acts of violence and contravention of bail conditions and family violence intervention orders. While reprehensible, there is nothing to suggest that Mr Baxter was dishonest in the commission of these offences, nor does it appear any deceit, on the part of Mr Baxter or otherwise, furthered the commission of the Baxter Offences. Acting contrary to the law, as Mr Baxter has done, is different to acting with deceit or a lack of honesty. The Applicants’ submissions conflate the two. The offence of causing injury intentionally was an offence of violence, not dishonesty. The contraventions of the family violence intervention orders and the bail conditions are offences which involve disregard of the law, but not dishonesty. The fact that certain of the offences were strict liability offences does not assist the Applicants. Questions of reasonable and lawful excuse or honest but mistaken belief and the like call for assessment in the context of the elements of the particular offence. Here, where the relevant offences of that nature relate to bail conditions or offences whilst on bail, the failure to advance such a defence merely speaks to the fact that Mr Baxter did not have any such state of mind when the offending occurred. As the underlying offences or breaches of the bail conditions did not have dishonesty as an element or an integral part, the failure to advance any defence does not permit an inference of dishonesty.
[51]See above [23].
Conclusion
The Baxter Offences do not involve dishonesty, whether as an element of the offence or inherent in the offences committed. In the event I am wrong in that view,[52] there is no dishonesty in the circumstances surrounding the commission of the Baxter Offences, such that Mr Baxter has been automatically disqualified pursuant to s 206B(1)(b)(ii) of the Corporations Act.
[52]As noted above [73].
As a result, the Applicants have not met the exceptional circumstances required to sound in any form of the relief sought.
The application is therefore dismissed. I shall hear the parties as to costs.
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