Director-General, Department of Fair Trading v Adrema Pty Limited
[2002] NSWSC 884
•26 September 2002
CITATION: DIRECTOR-GENERAL, DEPARTMENT OF FAIR TRADING v. ADREMA PTY. LIMITED & ORS [2002] NSWSC 884 CURRENT JURISDICTION: Common Law FILE NUMBER(S): SC No. 13389 of 2001 HEARING DATE(S): Thursday 26 September 2002 JUDGMENT DATE: 26 September 2002 PARTIES :
DIRECTOR-GENERAL, DEPARTMENT OF FAIR TRADING
v. ADREMA PTY. LIMITED & ORSJUDGMENT OF: Greg James J at 1
COUNSEL : Plaintff: P. Renehan
1st Deft: Submitting appearance
2nd Deft: J. Kosmin (Sol)
3rd Deft: R. Greenhill, SC.SOLICITORS: Plaintiff: D. Catt
1st Deft: Kemp Strang
2nd Deft: Kosmin & Associate
3rd Deft: Turnbull Hill LawyersCATCHWORDS: Criminal law - summary jurisdiction - offences of strict liability - punishable only by fines - consideration of matters referred to by the Crimes (Sentencing Procedure) Act 1999 - totality of criminality - total of fines - means of offender as relevant to quantum of fine. LEGISLATION CITED: Travel Agents Act 1986
Fair Trading Act 1987
Supreme Court Summary Jurisdictions Act 1967
Crimes (Sentencing Procedure) Act 1999CASES CITED: Pearce (1998) 194 CLR 610
De Simoni (1981) 147 CLR 383DECISION: First defendant - I stand the proceedings against the company over to a date to be fixed by arrangement with my associate. If the matter is not to proceed, a notice of discontinuance is to be filed within one month. In the event that the matter is to proceed, I direct that notice be given to my associate of that intention and the relevant written submissions and affidavit evidence of notification of the liquidator filed within one month from today; Second defendant - I fine the offender, Stewart Cahn, the sum of $3,000 to be paid by instalments calculated on a weekly basis, to be payable monthly. The amount to be paid shall be $20 per week. In the event of default, the Director General may take action for the outstanding balance. First payment due on 1 November 2002. I order that Mr. Cahn, pursuant to s.38(2) of the Travel Agents Act 1986, be jointly liable to make compensation in the sum of $140,373 to the Director General, Department of Fair Trading for payment out to the 24 persons whose claims were rejected by the travel compensation fund. I order the defendant, Mr. Cahn, to pay the plainiff's costs; Third defendant - for the offence under s.6 of the Travel Agents Act 1986, I fine the defendant, Mr. Elphick, $11,000. For each of the offences under the Fair Trading Act 1987, I fine the defendant, Mr. Elphick, $5,500. I order that the defendant have one month in which to pay those fines. Under s.38(2) of the Travel Agents Act 1986, I order the defendant to pay compensation assessed in the sum of $140,373 to the Director-General, Department of Fair Trading for payment out to the 24 persons whose claims were rejected by the travel compensation fund. I order the defendant, Mr. Elphick, to pay the plaintiff's costs.
IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISIONGREG JAMES, J.
THURSDAY 26 SEPTEMBER 2002
No. 13389 of 2001
JUDGMENTDIRECTOR GENERAL, DEPARTMENT OF FAIR TRADING v. ADREMA PTY. LIMITED & ORS
IN RELATION TO KEN ELPHICK, THE THIRD DEFENDANT
1 HIS HONOUR: In these proceedings, there is a plea of guilty to three offences, all prosecuted by the Director-General of the Department of Fair Trading against the third defendant, Ken Elphick. There are also proceedings against a company in liquidation, Adrema Pty. Limited, the first defendant, and its director, Mr. Stewart Cahn, the second defendant.
2 The first of the offences charged against Mr. Elphick is that during a period of approximately nine months, he carried on business as a travel agent, otherwise than under a licence under that Act, and did so, contrary to s.6 of the Travel Agents Act 1986.
3 Section 6 of that Act requires persons who carry on business as the defendant did to be licensed and prescribes a penalty of 500 penalty units for an infringement. That penalty translates to a maximum penalty of $55,000 for each offence. The offence here charged was a continuing offence throughout nine months.
4 The defendant is also charged with two offences under the Fair Trading Act 1987. The first that he was knowingly concerned in the actions of a company representing that it had an affiliation with a travel company, Concorde Travel Pty. Limited which it did not have and contrary to s.44(F) of the Fair Trading Act 1987, the second, that he was knowingly concerned in a contravention of the Fair Trading Act 1987 in that he was concerned in the making of a false and misleading statement, that by reason of an affiliation with Concorde International Travel Limited, persons dealing with a company, Adrema Pty. Limited; that being the principal offender in respect of these offences under the Fair Trading Act 1987, were covered by the Travel Compensation Insurance Fund when they were not.
5 All three offences are prosecuted by the plaintiff, the Director-General with the consent of the Minister for Fair Trading
6 Proceedings were commenced in this court in November 2001. On 12 November 2001, Hulme, J. ordered pursuant to s.4 of the Supreme Court (Summary Jurisdiction) Act 1967 that the defendants, Adrema Pty. Limited, Cahn and Elphick appear before the court to answer the charges. Shortly after, Mr. Elphick indicated a plea of guilty would be entered.
7 The short particulars of those charges are set out in a statement of facts. Those particulars were accepted by Mr. Greenhill of senior counsel on behalf of his client as accurate, as has also been accepted by him to be accurate, the material in the statement of facts to which I refer in these remarks.
8 Provided to me, for the purposes of considering the appropriate sentence is the statement of facts, Exhibit A, which sets out the background of these matters. That discloses that during the period October 2000 to June 2001, Adrema through two businesses, National Sports Marketing and Sportstartours, sold tour packages to major sporting events around the world. The package included return international airline tickets, accommodation and tickets to major sporting events and other ancillary items such as car hire and sporting tours.
9 Adrema and those two businesses were operated through an internet website. Sportstartours, which had been developed particularly by Mr. Yeo, an associate of Mr. Elphick and Mr. Elphick himself, promoted its services, it appears, through Adrema, and it was also with that business that Mr. Cahn was associated, although Mr. Elphick was also a consultant to Adrema and to National Sports Management.
10 On all the websites that Sportstartours operated, appeared the statement (I take the quote from paragraphs seven and eight of the statement of facts):-
- “Sportstartours is not a registered travel agent. Their preferred travel agent from Australia, Concorde International Travel (licence number 2TA00258), arguably Australia's largest wholesaler of international air travel and an accredited number of IATA, AFTA, APAC and AUSTAP.
- Sportstartours' association with Concorde International Travel ensures all clients are comprehensively covered and protected for their purchase through the Travel Compensation Insurance Fund, thus guaranteeing clients 'no financial risk' purchase.”
11 In September or October of 2000, Adrema through the defendant, Mr. Elphick, organised with Concorde International Travel Pty. Limited to supply air tickets to successful bidders online through internet auction sites for Adrema's travel packages. The scheme was as follows: Adrema would book the relevant airline tickets through Concorde. The customer would pay Adrema. The payment would be to Adrema's bank accounts and Adrema would pay Concorde. The customers did not deal directly with Concorde. It was the essence of the scheme that the customers would not directly deal with Concorde, but make the payment to Adrema.
12 It was because the customers did not deal directly with Concorde and did deal with Adrema, that Adrema committed the offence under s.6 of the Travel Agents Act 1986 and Mr. Elphick similarly, that offence.
13 Provided to me in the statement of facts is a reference to an e-mail sent by Mr. Elphick of 22 March 2001 to Bernard Stivala, a travel consultant with Concorde. It sets out the nature of the operation.
14 Although it appears that at all times there was an intention that Concorde would provide travel agent services, it does not seem to have been appreciated that those travel agents' services were provided to Adrema and not to the persons dealing with Adrema.
15 Consequently, the statement that "all clients are comprehensively covered and protected through your purchase of the Travel Compensation Insurance Fund", thus guaranteeing clients a "no financial risk purchase" was untrue.
16 It is not contended on behalf of the Director-General that that statement was made with the intent that persons be defrauded. It is not contended that statement was made, knowing it to be untrue, and deliberately made for the purpose of inducing persons to deal with Adrema. It is, however contended that it was untrue and the offence is an offence of strict liability.
17 I will deal with Mr. Elphick in respect of counts charges two and three on that basis and similarly for the offence under s.6 of the Travel Agents Act 1986 which is also an offence of strict liability.
18 It does not appear to have been appreciated by Mr. Elphick that he was engaging in the business of a travel agent or that the customers were not covered by the Travel Agents Compensation Fund. Nonetheless, it is an offence to engage in the business this way even though it may not have been appreciated by Mr. Elphick that he was so offending. No defence is raised as to suggest any relevant mistake of fact which might give rise to an exemption from liability.
19 It will be necessary, therefore, to consider Mr. Elphick's culpability upon the basis that in each case his liability arose, without intent to defraud or malice, but without any mental state such as might exculpate him or mitigate substantially his responsibility. Whilst the offences may not be aggravated, being offences of strict liability, they are not mitigated by his failure to ensure that he was not committing offences.
20 The statement of facts refers to the breakdown of business between Adrema and Concorde on 3 May 2001 and the intent of the operators of Adrema, including Mr. Elphick to replace Concorde, who withdrew it's association from Adrema by another licensed travel agent.
21 However, prior to that licensed travel agent receiving any money or issuing any airline tickets, Adrema went into administration. The reason for that, it appears, is that the price of the tour packages it sold was less than the cost to the company, so that Adrema was running at an ever-increasing loss, although it was apparently hoped that the sale of high quality packages of this sort at such a price would lead to increased patronage and the ability in due course to make profits.
22 In consequence of the company going into administration, a number of customers who had paid Adrema in advance for their tour packages did not receive that for which they paid nor refunds.
23 Some 60 tour packages had been paid for in advance and Adrema received some $350,000. Some customers who have paid for the package on their credit cards were able to receive a refund from the relevant bank or financial institution. There is no information available to me as to what such bank or financial institution may have received, by way of reimbursement from the liquidator of Adrema. Twenty-four customers however, applied to the Travel Compensation Fund for compensation in respect of a total amount of some $140,373 not so refunded.
24 Their claims have been rejected and they remain unsecured creditors in the winding up of Adrema with no expectation of being paid. It is not suggested to me by anyone that they have any rights against anyone other than Adrema, Mr. Cahn and Mr. Elphick.
25 I am informed by counsel for the Director-General that application is made under s.38(2) of the Travel Agents Act 1986 against Mr. Elphick and Mr. Cahn jointly, that they be made responsible for that sum of $140,373 by way of compensation.
26 In that regard, I will note that matter and I understand that an order may be made in that respect against Mr. Elphick by consent.
27 I therefore make that order against Mr. Elphick and will consider, on dealing with his matter, whether Mr. Cahn should be similarly dealt with.
28 I am not provided with any information as to the ability of Mr. Elphick to meet any such order or pay any fine. I note that all three offences are punishable only by fines.
29 Adrema is in liquidation with a deficiency of the costs of administration over one million dollars. Neither Mr. Elphick nor Mr. Cahn has any expectation from that source, although Mr. Elphick apparently received consultants fees during the operation of the scheme of about $22,000 to $24,000.
30 Mr. Elphick participated in a recorded interview with officers of the Department. That interview was conducted following service of a notice under s.20 of the Fair Trading Act, 1987. Although the fact of that interview has been referred to in the statement of facts before me, it is also pointed out to me that the answers given by Mr. Elphick are inadmissible in the proceedings.
31 So far as there was a degree of co-operation in respect of Mr. Elphick, it is not to the same degree reflected by the voluntary recorded interview that was conducted by Mr. Cahn with the officers of the Department, which was not subject to such protection.
32 It is put that Adrema's offences were committed with the consent or connivance of Elphick. I am unable to say on the facts as placed before me whether those offences might have been committed, but for the consent or connivance of Mr. Elphick, in that, I am unable to say that they might not have been committed by Adrema assisted by Mr. Cahn alone.
33 However, the statement of facts does show a more substantial involvement by Mr. Elphick and in particular, in the email to Mr. Stivala, so he should be treated as a, if not the prime mover in the operation. That seems to conclude the material to which I am entitled to have regard to in considering the appropriate penalty to be imposed, except that I should note that the maximum penalties for offences against ss.44(f) and 44(k) of the Fair Trading Act 1987 which are set out in s.62 of that Act are penalties of 22,000 in each case in respect of real persons.
34 It is common ground that I should apply the provisions of Crimes (Sentencing Procedure) Act 1999. I note that s.21(3) of that Act empowers me to impose a fine of a lesser amount than the maximum.
35 I am required to take into account the sentencing principles set out in s.21A of that Act and do so.
36 I have no information as to the personal circumstances of the victims beyond that which I have referred to.
37 I have regard to the fact that the offence is an offence of strict liability and that I am unable, on the material, to conclude that it is necessary to protect the community from the offender, although, I am of the view that there is a need to impose a penalty which reflects both general and personal deterrence so as to deter the offender or other persons for committing offences of the same or similar character.
38 I accept as put forward by Mr. Elphick's counsel that there was an early plea, or relatively early plea at least indicated and in due course made, so that s.22 of that Act applies and I will impose a lesser penalty than I otherwise would have imposed.
39 I accept that there is a degree of contrition but I have little, if any information, other than that contained in the statement of facts which refers to the character, antecedents, cultural backgrounds, ages, means and general condition of the offender, or the prospect of rehabilitation. I will note in that regard that the offender submits to the order for compensation. I also note that the three offences form part of a course of conduct which consists of a series of criminal acts.
40 I also have regard to the fact that the offender comes forward for sentence with no assertion against him of any prior matter which should be taken into account to his detriment on sentence.
41 These are serious matters and substantial fines will need to be imposed in each case. I should, however, have regard to the principles in Pearce v. The Queen (1998) 194 CLR 610 enunciated by the High Court concerning the totality of penalty but it is not possible to make fines concurrent or partly concurrent.
42 Therefore, what I will need to do is to fix each fine, having regard to the totality of criminality such that the overall penalty reflects that totality.
43 In regard to that, I note that it is submitted by Mr. Greenhill, of senior counsel, on his client's behalf, that his client does not submit he does not have the means to pay the fine and that I should proceed on the basis of his client having such means. I also have regard to the order of compensation, which will affect those means and that the Department seeks an order for costs.
44 For the offence under s.6 of the Travel Agents Act 1986, I fine the defendant the sum of $11,000. On each of the offences under the Fair Trading Act 1987, I fine the defendant $5,500.
45 As no other deferral is sought, I order that the defendant have one month in which to pay those fines.
46 I order the defendant to pay compensation assessed in the sum of $140,373 to the Director-General, Department of Fair Trading for payment out to the 24 persons whose claims were rejected by the Travel Compensation Fund. I order the defendant to pay the plaintiff's costs.
IN RELATION TO STEWART CAHN, THE SECOND DEFENDANT
47 Earlier in this judgment concerning the third defendant, Ken Elphick, I turned to the facts as alleged against that defendant as set out in the statement of facts, Exhibit A.
48 The second defendant, Stewart Bradley Cahn, comes before me as a person against whom no assertion is made of any prior misconduct, such as might be taken into account to his detriment. He pleads guilty to one charge that he carried on business as a travel agent otherwise than in accordance with the authority conferred on him by a Travel Agent's Licence contrary to s.6 of which the maximum penalty is $55,000.
49 The statement of facts discloses that his involvement was primarily with the company Adrema Pty. Limited, now in liquidation, and National Sports Marketing, a business operated in conjunction with that company, together with an involvement with the third defendant, and Sportstartours.
50 Mr. Cahn was the sole director of Adrema. That company operated the sports tour business, to which I had referred in my remarks on sentence concerning Mr. Elphick. Mr. Elphick was a consultant to that business. Having regard to the principles in De Simoni v. The Queen (1981) 147 CLR 383, I must note that I am not dealing with Mr. Cahn for any offence under the corporations law concerning his activities as a director of that company. I am dealing with him for the offence with which he has been charged under the Travel Agents Act 1986.
51 The offence occurred in the following context. Adrema had organised through Mr. Elphick, with Concorde International Travel, for the supply of airline tickets and ancillary tour entitlements to persons paying money into Adrema's account. The operation ceased in consequence of Concorde forming the view that Adrema was unlicensed as a travel agent and in those circumstances it was not willing to deal with Adrema.
52 The dealings of those persons buying tours were with Adrema rather than Concorde, so that those persons were not entitled to the benefit of the travel compensation fund. It was a consequence of Adrema not being licensed, and Mr. Cahn not being licensed, that those persons were not so covered by that fund. The statement of facts does not suggest explicitly that Adrema or Mr. Cahn was directly responsible for the representation that persons were comprehensively covered and protected through the Travel Compensation Insurance Fund. I will not, in that respect, regard Mr. Cahn as in that way culpable. That matter distinguishes his situation markedly from that of Mr. Elphick, who I find was more culpable overall in the enterprise, and indeed who I am bound to regard as more culpable, bearing in mind the two additional charges against him under the Fair Trading Act 1987.
53 Nonetheless, it is part of the context of Mr. Cahn's offence, that I should have regard to the fact that 24 persons who had booked tours were unable to recover the costs when the tours ceased to be available to them, and remained out of pocket to the extent of $140,373. It is accepted that Mr. Cahn too should be liable, with Mr. Elphick, for payment of that compensation.
54 It was, however, submitted on his behalf that perhaps some lesser extent of liability was appropriate, rather than sharing full joint liability with Mr. Elphick. These are offences of strict liability. It was by reason of the commission of an offence of strict liability, in what amounted to a joint illegal enterprise conducted through the company of which Mr. Cahn was the sole director, that these losses were incurred. I see no reason why Mr. Cahn should not be jointly liable, with Mr. Elphick, for payment of the compensation. Should they each wish to adjust the compensation between themselves, that is a matter with which the plaintiff need not, in my view, be concerned.
55 I will order that Mr. Cahn, pursuant to s.38 (2) of the Travel Agents Act 1987 be jointly liable to pay compensation in the sum of $140,373 to the Director-General to the Department of Fair Trading for payment out to the 24 persons whose claims were rejected by the Travel Compensation Fund.
56 Turning to the matters I must consider under s.21A of the Crimes (Sentencing Procedure) Act 1999, I note in Mr. Cahn's case here, as I did when dealing with Mr. Elphick, that Mr. Cahn had participated in a voluntary recorded interview with officers of the Department on 16 July 2001 and had thereby shown co-operation with the authorites.
57 He has pleaded guilty at the first reasonably available or practically available opportunity.
58 Mr. Cahn is aged 38. His relationship with his spouse failed in April 2000. They have a five year old child. His father died in January 2000. Those factors of personal tragedy affected him at the time that he elected to participate in this operation. The effect of the operation upon him is that he did not receive directors fees or consultant's fees, and indeed substantial monies owing to him from Adrema remain outstanding and, in view of the collapse of the business of that company, are irrecoverable. He has thus lost heavily overall in the operation of the company.
59 I am informed he has current liabilities of $13,000 on credit cards, that he had leased a Mitsubishi Mirage motor car, worth about $6,000, which is being driven by the former spouse, and which is subject to leasing finance; so that he has a liability current on it of some $8,000.
60 He resides in a home unit with his mother at Rose Bay. That unit is apparently occupied by her as a tenant in common with other owners of the unit under an exclusive licence for the particular unit. It is a two bedroom unit, and he occupies one of the two bedrooms. He has offered to pay board to his mother.
61 He has, since the debacle, been unemployed, receiving unemployment benefits, and is now obtaining an income of some $400 per week net, this income having been enjoyed for the past two weeks while working to produce a children's book.
62 He has been unable to pay any monies to his mother. He has made maintenance payments, on behalf of his former spouse and their five year old child, to cover the maintenance for the spouse and child support of some $150 per week. He owns his clothes, a second-hand couch, a second-hand television, and has no other assets; nor does he have apparently, at present at least, any particular expectations.
63 There was, in those circumstances, and bearing in mind that the maximum penalty is a fine of $55,000, some considerable discussion before me as to the effect of those reduced means of the offender upon the penalty which should be ordered against him.
64 It was conceded by Mr. Renehan, on behalf of the Director-General, that the inability to meet any substantial penalty, particularly having regard to the order for compensation and costs, was a matter which was directly relevant to the quantum of the penalty as well as any order for payment by instalments.
65 It is submitted that it would be appropriate to order the penalty to be paid by instalments calculated on a weekly basis, but I think appropriately to be paid monthly over the next three years. In the event of course that the offender is able to liquidate that payment earlier, by reason of some upturn in his means, it would be entirely appropriate that he do so. Such a scheme will provide an ever-living memory to him with each payment, of the existence of the fine, and in that sense will operate as a personal deterrent. Its continued operation will also mean that it will operate as a general deterrent, since the public will be aware of the continued incidence upon him, even in his straitened circumstances, of the necessity to continue to pay the fine. Thus the impact of the penalty on him will be very severe.
66 Having those matters in mind, I fine the offender the sum of $3,000, to be paid by instalments calculated on a weekly basis but payable monthly. The amount to be paid shall be $20 per week until the $3,000 is paid. In the event of default, the Director may take action for the outstanding balance.
67 I order the defendant, jointly with Mr. Elphick, to pay the compensation to which I have referred. The defendant is to pay the plaintiff's costs.
IN RELATION TO ADREMA PTY LIMITED, THE FIRST DEFENDANT
68 As to the proceedings, if any, against the company, difficulties arise concerning the submission of the Director-General that a company in liquidation may be proceeded against without leave being granted, having regard to the provisions of the corporations law, even though the Director-General submits that the company may be convicted without any consequent penalty being inflicted upon it. As to that submission, there appear to me, at least at present, on the present submissions, to be substantial problems of principle. These are matters which it is intended, apparently, that the Director-General will address or consider addressing, and if the matter is to proceed further against the company he will notify the liquidator of what it is sought to do and the legal underpinning for that action with a view to obtaining either the liquidator's presence and assistance in argument or, alternatively, consent to that course.
69 In that regard the appropriate course is that I stand the matter over to a date to be fixed, by arrangement with my Associate, and direct further that if the matter is not to proceed then a notice of discontinuance be filed within one month in respect of the proceedings against the company.
70 In the event that the matter is to proceed, I direct that within one month notice be given to my Associate of that intention and the relevant written submissions and affidavit evidence of notification to the liquidator be filed.
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