in the matter of QLS Superannuation Pty Ltd (ACN 059 795 998); v Parker

[2003] FCA 262

FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission,

in the matter of QLS Superannuation Pty Ltd (ACN 059 795 998)
v Parker [2003] FCA 262

CORPORATIONS      )
SUPERANNUATION ) - whether director of corporate trustee of a superannuation fund with large membership contravened s 232(2), (4) and (6) the Corporations Law - whether prohibition and penalty orders appropriate under s 1317EA the Corporations Law

Corporations Law s 232 and 1317EA
Superannuation Industry (Supervision) Act 1993 (Cth) ss 52 and 55
Superannuation Guarantee Charge Act 1992 (Cth)

Re Coram; Ex parte Official Trustee in Bankruptcy v Inglis (1992) 109 ALR 353
Australian Securities Commission v Corplan Nominees Pty Ltd (Drummond J, unreported, 29 April 1994)
Wilkinson v Feldworth Financial Services Pty Ltd (1998) 29 ACSR 642
Camelot Resources Ltd v MacDonald (1994) 14 ACSR 437
Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187
Centofanti v Eekimitor Pty Ltd (1995) 15 ACSR 629
Marchesi v Barnes [1970] VR 434
Australian Growth Resources Corporation Pty Ltd (Recs and Mgrs apptd) v Van Reesema (1988) 13 ACLR 261
R v Byrnes (1995) 183 CLR 501
Re Magna Alloys & Research Pty Ltd [1975] 1 ACLR 203
Australian Securities and Investments Commission v Adler [2002] NSWSC 483
Australian Securities Commission v Donovan (1998) 28 ACSR 583
Australian Securities and Investments Commission v Forge [2002] NSWSC 760
Lowe v The Queen (1984) 154 CLR 606

IN THE MATTER OF QLS SUPERANNUATION PTY LTD
ACN 059 795 998

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v GERALD LEONARD PARKER, ANTHONY ASHTON TARR, BRENDAN MATTHEW FRANKCOMBE AND MERCEDES BARRIE
Q 3004 OF 2001

DRUMMOND J
27 MARCH 2003
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 3004 OF 2001

IN THE MATTER OF QLS SUPERANNUATION PTY LTD
ACN 059 795 998

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PLAINTIFF

AND:

GERALD LEONARD PARKER
FIRST DEFENDANT

ANTHONY ASHTON TARR
SECOND DEFENDANT

BRENDAN MATTHEW FRANKCOMBE
THIRD DEFENDANT

MERCEDES BARRIE
FOURTH DEFENDANT

JUDGE:	DRUMMOND J
DATE OF ORDER:	27 MARCH 2003
WHERE MADE:	BRISBANE

THE COURT DECLARES THAT:

1.The first defendant, in the exercise of his powers and the discharge of his duties as an officer of QLS Superannuation Pty Ltd, contravened s 232(4) the Corporations Law by the following conduct:

(a)Submitting to the Board of Directors of that corporation his proposal for it to loan $2,500,000 to one Perdriau to refinance his existing borrowings without taking proper care to obtain information as to the performance by Mr Perdriau of his obligations under his existing loan from the Public Trustee of Queensland and without obtaining any information as to the performance by Mr Perdriau of his obligations under his existing loans from his three other lenders.

(b)By his conduct between the time the Board granted conditional approval on 16 June 1997 of the loan to Mr Perdriau and 4 July 1997 when the $2,500,000 was advanced by that corporation to Mr Perdriau in failing to ensure that the following conditions of the loan were satisfied by 4 July 1997:

(i)obtaining independent verification before settlement of the key business indicator represented by Mr Perdriau of a benchmark occupancy of 80% and independent verification before settlement of an expense ratio at not more than 45%;

(ii)provision by Mr Perdriau of a valuation from Taylor Byrne valuers that was addressed to the Board of QLS Superannuation Pty Ltd and which valued Mr Perdriau’s property on each of the following bases:

·asset and land value;

·cost to refit and relet; and

·income yield;

(iii)obtaining verification of the reasonableness of Mr Perdriau’s profit and loss statement for the eleven months to May 1997 by an appropriate accountant.

2.The first defendant, in the exercise of his powers and the discharge of his duties as an officer of QLS Superannuation Pty Ltd, contravened s 232(2) the Corporations Law by the this same conduct.

3.The first defendant, in the exercise of his powers and the discharge of his duties as an officer of QLS Superannuation Pty Ltd, contravened s 232(6) the Corporations Law by the this same conduct to gain the success fee Mr Perdriau agreed to pay him upon receipt of the loan from QLS Superannuation Pty Ltd.

THE COURT ORDERS THAT:

4.        The first defendant be prohibited for four years from managing a corporation.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 3004 OF 2001

IN THE MATTER OF QLS SUPERANNUATION PTY LTD
ACN 059 795 998

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PLAINTIFF

AND:

GERALD LEONARD PARKER
FIRST DEFENDANT

ANTHONY ASHTON TARR
SECOND DEFENDANT

BRENDAN MATTHEW FRANKCOMBE
THIRD DEFENDANT

MERCEDES BARRIE
FOURTH DEFENDANT

JUDGE:	DRUMMOND J
DATE:	27 MARCH 2003
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. The Australian Securities and Investments Commission’s (“ASIC”) case is now confined to seeking declarations that the first defendant, Mr Parker, contravened s 232(2), (4) and (6) the Corporations Law, an order prohibiting him from managing a corporation and an order that he pay a pecuniary penalty “in relation to each contravention by him of $200,000”.

2. QLS Superannuation Pty Ltd (“QLSS”) carries on business as the trustee of a superannuation fund, the Law Employees Superannuation Fund (“LES Fund”).  It was established by the Queensland Law Society.  It is a regulated fund under the Superannuation Industry (Supervision) Act 1993 (Cth). Membership of the Fund is confined to employees of solicitors’ practices in Queensland. According to its Annual Reports, the Fund had assets at 30 June 1996 of a little over $13,000,000 and 5,042 members and, at 30 June 1997, assets of over $18,000,000 and 5,477 members. Under the Superannuation Guarantee Charge Act 1992 (Cth), employers are required to provide a prescribed minimum level of superannuation support in each financial year for each of their employees. The LES Fund thus provides a service to Queensland solicitors to assist them in meeting their statutory obligations under the Superannuation Guarantee Scheme. The contributions made to the Fund, in large part if not entirely, come from these employer solicitors: there is no evidence to suggest that contributions of any significant amount have been made by voluntary payments by employees.

3. The Board did not oversee the activities of the trustee of a family trust of which they themselves were beneficiaries or of the trustee of a private trust set up to benefit persons who were to be the object of the settlor’s voluntary bounty.  The Board had charge of trust funds generated from compulsory contributions made by employer solicitors in respect of their employees intended by Parliament to assist in providing, otherwise than at public expense, for the employees’ retirement.  The employers have no control over the moneys once they have contributed them to QLSS and, in all probability, would be content in any event to take no interest in QLSS’ activities once they are relieved of their own statutory obligations.  As Parker commented in his May 1997 paper on superannuation presented to McCullough Robertson, in which he urged that firm to use the LES Fund in order to discharge its obligation with respect to the compulsory superannuation of its employees, he said:

   Most employers see superannuation as a business expense.  In reality that is a truism.  Most employers don’t want the hassle that typically goes with superannuation …

4. Each employee intended to benefit from the Fund is “neither the legal nor the beneficial owner of the amount that stands to the credit of his [or her] account from time to time” with the Fund until the happening of a prescribed event, such as retirement or death, that will crystallise the member’s “account” into an actual beneficial entitlement.  See Re Coram; Ex parte Official Trustee in Bankruptcy v Inglis (1992) 109 ALR 353 at 357. At any given time, most members will thus have no interest in any of the Fund’s assets and only very limited rights to information from the trustee. Moreover, like the employee members of the superannuation fund I dealt with in Australian Securities Commission v Corplan Nominees Pty Ltd (unreported, 29 April 1994 at 15 and 16), many of the employee members of the LES Fund are unlikely to be vigilant in monitoring the way the moneys in which they are prospectively interested are administered by the Fund trustee, firstly, because a considerable number of such members can be expected to be younger persons not able to obtain access for many years to the moneys that accumulate in the Fund for their benefit and, secondly, because employer contributions paid into the Fund on behalf of individual employees from time to time are likely to be relatively small and, for that reason too, not of great concern to the individual employees.  The average account balance of the LES Fund as at 30 June 1996 was only about $2,600 and, as at 30 June 1997, about $3,200.  Employer-contributors and Fund members as potential beneficiaries are thus especially dependent on the integrity and competence of their Fund’s trustee and those persons who control the activities of the trustee.

5. It is in recognition of these characteristics common to many superannuation funds created with compulsory contributions from employers of the kind administered by QLSS that the Parliament has imposed heavy responsibilities on both the trustees of such funds and the directors of those trustees. Pursuant to s 52 the Superannuation Industry (Supervision) Act, the governing rules of QLSS as trustee of the Fund are taken to include covenants by the trustee, which include the following:

   … the trustee [must]:

   (a)… act honestly in all matters concerning the entity;

   (b)… exercise, in relation to all matters affecting the [fund], the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide;

   (c)… ensure that the trustee’s duties and powers are performed and exercised in the best interests of the beneficiaries;

   …

   (e)not … enter into any contract, or do anything else, that would prevent the trustee from, or hinder the trustee in, properly performing or exercising the trustee’s functions and powers;

   (f)… formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the [fund] including, but not limited to, the following:

   (i)the risk involved in making, …, and the likely return from, the [fund’s] investments having regard to its objectives and its expected cash flow requirements;

   (ii)the composition of the [fund’s] investment as a whole including the extent to which the investments are diverse or involve the [fund] in being exposed to risks from inadequate diversification;

   (iii)the liquidity of the [fund’s] investments having regard to its expected cash flow requirements;”

6. Pursuant to s 52(8) of that Act, each of the statutory covenants binding QLSS as trustee also operates as a covenant by each of the four defendants, as its directors, “to exercise a reasonable degree of care and diligence for the purpose of ensuring that the trustee carries out” those covenants. Contravention of such a covenant by the trustee and by a director entitles a person who suffers loss or damage resulting therefrom to recover the amount of that loss or damage by action against the trustee and the director involved in the contravention: see s 55(3).

7. Because QLSS’ business was acting as trustee of the LES Fund with the particular membership that it had and was subject to the statutory covenants, QLSS was bound in conducting its business to conform to the higher standard of care referred to in Wilkinson v Feldworth Financial Services Pty Ltd (1998) 29 ACSR 642 at 693 than that of an ordinary prudent business person which commonly applies to trustees. Each of its directors was in their turn bound to ensure that QLSS satisfied this higher standard of care to which it was subject.

8. In 1993, each of the four defendants, Dr Tarr, Mr Frankcombe, Ms Barrie and Mr Parker, became the four directors of QLSS, with Tarr as Chairman of the Board and Parker as Secretary.  Tarr and Parker were the employers’ representatives and Frankcombe and Barrie were the employees’ representatives on the Board.  That remained the position at all times of present relevance.

9. QLSS did not employ staff.  Administrative tasks were undertaken for it prior to 30 June 1997 by Parker, in his capacity as an employee of Buck Consultants Pty Ltd and thereafter, in his capacity as an employee of his own company, Just Consulting Pty Ltd.

10. Until late 1996, QLSS invested the superannuation contributions it received from employer-solicitors in a range of funds managed by large professional investment managers.  In October 1996, Parker prepared and distributed to the other three Board members his “Future Directions” paper.  It is unlikely that it was all Parker’s own idea.  Parker says that he produced this paper for the Board’s consideration after a discussion with Tarr in which they agreed that it was desirable for QLSS to seek better investment returns.

11. The “Future Directions” paper identified a major difficulty for the LES Fund as being that the fund administrator was a Suncorp organisation, which competed with the LES Fund for contributions.  The sixteen points identified for discussion in the paper included dropping Suncorp as the fund administrator and establishing a specialist administration company owned by QLSS.  Other discussion points were:

    9.Expand the role of the Fund Secretary [ie, Parker] to include marketing and promotion of the Fund.  Remuneration to be made on a success factor basis.  Costs met from the Fund’s marketing reserve.

    …

    12.Establish a direct investment vehicle whereby investments that are attractive but not ‘main stream’ can be explored and such exploration can be syndicated with other superannuation funds.

12. The Board, at its 1 October 1996 meeting, resolved:  “that the entire paper be adopted and that each recommendation as well as all proposals numbered 1 through 16 be adopted”.  In consequence, Parker prepared in January 1997 a further report to the Board entitled “Future Directions - Stage 2”.  This paper discusses a number of matters, including the strategy for changing the fund administrator from Suncorp to an entity controlled by QLSS.  Under the heading “Investment Strategies”, Parker wrote:

    We presently hold a very conservative investment portfolio …

    …

    I propose a sum of $3M be allocated to Australian share investment through BNP.  …

    I have invested in BNP in a number of other trustee relationships, and presently recommend them for investment by my clients.

13. At its meeting on 14 February 1997, the Board resolved to expand its operations into commercial lending.  The Board’s objective was to achieve a higher rate of return than it had been able to obtain from the funds it placed with professional managers.  The Board also resolved at that February 1997 meeting to delegate to Parker the task of seeking alternative income investments that held good expectation for returns above cash rates and to present these to the Board for consideration.  The Minutes of this meeting, under the heading “Investment Strategies”, record the following:

    …  In terms of the conservative exposure to growth assets the Secretary’s proposal for increased exposure was not proceeded with after resolution that a conservative approach to investments remained relevant and it was noted in that context that the change of control of the Fund in 1993 [ie, from Suncorp as investment manager] had seen some steady improvement in the Fund’s performance.  …

    …

    It was resolved that the Secretary seek alternative income investments that held good expectation for returns above cash rates and present same to the trustee for consideration.

14. It can be seen that the Board did not adopt Parker’s recommendation in his “Future Directions - Stage 2” paper to invest $3,000,000 in listed shares through BNP, preferring a more “conservative approach to investments”.  But it did adopt his other proposals.  On the evidence before me, the Board’s decision to commit QLSS to a program of commercial lending was not a sound one.

15. From about 1985, Parker had worked in the insurance industry and, in the latter part of this period, had been involved in the sale of superannuation products and then the administration of companies involved in superannuation.  He said his experience in managing an investment portfolio and in the making and administration of commercial loans was limited.  I have reservations about whether it was as limited as he suggested.  In his “Future Directions - Stage 2” paper, Parker claimed experience in the selection of investments for a number of trustee organisations.  He had some experience in organising syndicated lending by superannuation fund trustees in his role as a director of EPAS Asset Management Pty Ltd.  In March 1997, he gave detailed reasons to the Board why it should approve the first loan made by QLSS, ie, that to Santalucia, and urged the Board to enter into this transaction because:  “It is, in my professional opinion, a good investment opportunity.”  The letter he wrote on 9 May 1997 to Perdriau suggests he may well have had rather more familiarity with the intricacies of commercial lending, including matters such as the assessment of credit risk and prudential steps to be taken by a lender before advancing moneys, than he sought to convey in his evidence.  This letter sets out, eg, a number of quite sophisticated loan terms and conditions all of which found their way into the ultimate loan agreement approved by the QLSS Board; it also suggests, in the requirement that Parker informed Perdriau would apply so far as provision of a valuation of use to a mortgagee is concerned, a level of sophisticated knowledge of such matters on Parker’s part.  The letter also contains statements by Parker that he had a number of investor clients (one being QLSS) who, in effect, would act on his say-so in making loans of up to $2,500,000 available.

16. Parker said that he knew of nothing to suggest that any of Tarr, Frankcombe or Barrie had any experience in commercial lending.  It is unclear what experience Tarr had in such matters.  Tarr, a lawyer himself, was the Chief Executive Officer of the Queensland Law Society; in about March 1996, he moved to the position of Chief Executive Officer of the Society’s newly-established insurer which it had set up to provide professional indemnity insurance that had become compulsory for solicitors.  In its Annual Report to members for the 1998 year, the LES Fund recorded that Tarr was also a director and shareholder of another organisation which “arranges group insurance for the many superannuation funds on a co-operative premium sharing basis and offers a collective pricing system that would otherwise not be available to our Fund on its own”.  He appears to have had considerable commercial experience particularly in the insurance area.  Parker said, in his affidavit, that decisions as to the investments QLSS should pursue was the subject of decision by the Board and “was a matter as to which Dr Tarr particularly had significant input”.  This is confirmed by Frankcombe.  Tarr saw Parker’s affidavit, but did not comment in his own statement on what Parker had to say here.

17. Frankcombe was a client services manager with a major law firm, McCullough Robertson; he has no professional qualifications and his duties largely involved collecting debts due to the firm.  Ms Barrie was employed by the Law Society in its accounts department.  So far as the evidence before me indicates, neither of Frankcombe or Barrie had any experience at all in commercial lending.

1. Despite what Parker says was his limited experience in commercial lending and despite the evidence suggesting little such experience on the part of the other three directors, they did not engage skilled assistance to advise them in relation to this new area of investment activity to which they determined to commit QLSS.  In the agreed statement of facts, it is recorded that from early 1997 onwards:

   (i)QLSS did not employ staff or consultants who were experienced in the business of commercial lending; and

   (ii)did not have adequate procedures by which loan applications and lending risks were to be assessed.

2. Everything with respect to the commercial loans business was done by the Board, with Parker being given by the Board’s decision of 14 February 1997 responsibility for seeking out proposals for commercial loans which he thought suitable for consideration by the Board.

3. As I understand it, this statement of facts was agreed only as between Parker and ASIC.  But I take it to record the facts which ASIC would, in all probability, have been able to prove if the action had proceeded against all four defendants, something supported not only by QLSS’ documents, including Board minutes, but also by the evidence of Frankcombe.

4. Parker was, by early April 1997, much concerned about whether his continuing involvement with Buck Consultants and the fact that they were being retained by the administrator of the LES Fund might create problems for the Fund because Buck would be a “related party”.  In his “internal working paper” of 9 April 1997, which it appears he circulated to the directors and his note on the same topic to Tarr of 9 April 1997, Parker records his concerns.  He invited the Board members’ comments, noting:  “[m]y preference is to resolve this conflict of interest by resigning from Buck Consultants and terminate all interests in Buck (eg share holdings) and seek separate appointment to QLS under a personal business structure”.  Parker was keen to develop a secure, long-term relationship with QLSS for himself.  He succeeded in achieving this by mid 1997.  By 30 June 1997, according to its Annual Report to members, QLSS had terminated the administration contract with Suncorp and established its own administration under Parker. 

5. In early June 1997, Parker put a proposal before the Board for QLSS to lend $2,500,000 to Perdriau, who operated a child minding centre on the Gold Coast.  It is agreed that by early 1997, Perdriau was in financial difficulties and was seeking to refinance loans owed to financiers totalling approximately $2,350,000.  Parker declared a financial interest in this transaction and absented himself from the discussions on this proposal by the other three members and took no part in the decision made by those three to make this advance.  The $2,500,000 was advanced to Perdriau on 4 July 1997.  He made monthly repayments of interest as had been agreed, from August 1997 until May 1999 (save that he missed the January 1998 payment:  Parker agreed to capitalise this instalment of interest and the Board of QLSS did not demur).  He made no repayments of interest or capital after May 1999.  QLSS ultimately realised its security over the child minding centre.

6. As a result of this loan, QLSS lost a lot of money, a loss ameliorated by ASIC’s pursuit of the four defendants.  It is agreed that interest unpaid by Perdriau to September 1999 amounted to a little over $100,000.  Interest at the non-default rate from October 1999 to November 2001, when QLSS’ securities over Perdriau’s properties were realised, would have amounted to about a further $500,000.  If all this interest is added to the principal of $2.5m and if the net proceeds of realisation of the security and the settlement proceeds received as a result of ASIC’s action are brought into account, it appears that the decision of the Board to grant the loan to Perdriau has resulted in the QLSS Fund losing at least about $600,000.

7. In late 2001, ASIC commenced proceedings against Tarr, Frankcombe, Barrie and Parker. It alleged that all four infringed s 232(4) the Corporations Law by, among other things, making and implementing the decision on behalf of QLSS to advance moneys to Perdriau. It also alleged that Parker had further infringed ss 232(2) and (6) the Corporations Law. The proceedings for compensation brought by ASIC against all four Board members, based on s 232(4), was settled shortly before the trial commenced. It appears that they had insurance in respect of liabilities they might incur to the Trust. The insurer agreed to pay an amount equal to part of the damages ASIC had claimed on behalf of the Trust, which amount ASIC considered acceptable. None of the four defendants contributed any of their own moneys. ASIC discontinued its compensation proceedings against all four in so far as they were based on their contraventions of s 232(4). It was a term of this compromise that none of Tarr, Frankcombe, Barrie or Parker was required to make any admission that he or she had contravened that particular provision.

8. ASIC, however, continued its disqualification and penalty proceedings against Parker. It thus seeks declarations that Parker contravened s 232(2), (4) and (6) the Corporations Law, an order under s 1317EA(3)(a) that he be disqualified from acting as a director of any company and that he be ordered under s 1317EA(3)(b) to pay a pecuniary penalty in respect of his contraventions of ss 232(2), (4) and (6). The case against Parker is based on his conduct in bringing Perdriau’s application before the Board for its consideration, on his conduct in failing to ensure that the loan conditions set by the Board on 16 June 1997 were complied with before the money was advanced to Perdriau on 4 July and on his being involved in the transaction in the ways mentioned when he and Perdriau had agreed that he was to have a success fee of $50,000 if QLSS approved the loan application. Understandably, in view of the settlement of its compensation claim against all four defendants, ASIC no longer alleges that Parker contravened s 232(4) by joining in the Board’s decision to embark upon commercial lending: the case ASIC initially brought against all four defendants included an allegation that each had contravened s 232(4) by permitting QLSS to enter upon the business of making commercial loans without having suitably experienced advisers or risk assessment procedures.

9. Of the other three directors, only Frankcombe gave evidence.  His recollection of relevant events is poor.  The Court has not heard from the Chairman of the Board, Tarr.  A facsimile statement from Tarr was put into evidence.  It is quite brief and, in part, so illegible that senior counsel for ASIC had to offer his suggestion as to how the illegible passage should be read.  It appears from this short statement (and from the extract from his examination by ASIC that Parker put in evidence) that, like Frankcombe, Tarr claims a limited recall only of relevant events.  He is apparently now resident in the USA.  But no attempt was made by ASIC to explain why Tarr neither attended Court as a witness nor was available for cross-examination by the kind of video-conferencing facility now commonly in use.  ASIC did not rely on anything in Tarr’s compulsory examination by ASIC, though Parker’s counsel tendered an extract.  Some basis was, however, laid by ASIC in its evidence for explaining why the remaining member of the Board, Barrie, was not available to give evidence.

10. In closing submissions, Parker’s counsel acknowledged, no doubt on the basis of Parker’s concessions in his affidavit and oral evidence, that his conduct in failing to ensure that the conditions of this loan set by the Board were satisfied in the period between the Board’s decision of 16 June and drawn down of the loan on 4 July 1997 was such as to amount to a contravention of s 232(4). However, counsel submitted that the case was nevertheless one in which neither disqualification nor a pecuniary penalty order was warranted. Parker opposes the making of findings that his conduct upon which ASIC has focused involved contraventions of s 232(2) or (6).

11. I have said something about the experience of all four Board members in the area of commercial lending.  The Perdriau loan was, in fact, only the third loan made by QLSS from its trust funds.  QLSS had advanced $1,500,000 to Santalucia on 27 March 1997 and $1,000,000 to Clairview on 4 April 1997.  Parker brought both these applications to the Board, just as he brought the Perdriau application before it on 16 June 1997 in the exercise of the responsibility to do that that had been delegated to him by the Board.  With the advance to Perdriau, these three loans together represented about 27% of the entire assets of the LES Fund.

12. On 6 March 1997, Parker circulated information to Board members about the Santalucia investment proposal.  He said it fell “directly within the October 96 resolution” and provided the opportunity for the fund to participate in a syndicated loan facility with two other superannuation funds.  The proposal was for the fund to advance, on 14 March 1997, the sum of $1,500,000, ie, 50% of the syndicated facility sought by the borrower.  Parker described the ratio of security to the valuations of the security properties “as very favourable … if in fact the valuations are ‘reasonable’ for mortgage purposes which I understand from the facility Agent is the basis upon which they have been made”.  This agent described as “Agent for the Syndicate” was EPAS Asset Management Pty Ltd, of which Parker was then a director.  In the proposal Parker prepared for Board consideration, he identified the risks involved in proceeding with the proposal saying:  “The level of risk of an individual direct loan is not able to be accurately assessed using market indicators or standardization techniques, but would typically take into account the individual strengths of the borrower (mortgagor) and the security.  Notwithstanding the above, a strong loan to security valuation ratio goes a long way towards minimising investment risk”.  He included other advice directed to minimising risk by procuring valuations of the offered security on a number of specialised bases.  He concluded by saying, among other things:

    [I]t is, in my professional opinion a good investment opportunity …

13. The proposal to make the loan as part of the Santalucia loan syndicate proposal was approved by the Board at its 14 March 1997 meeting.  The Board resolved:  “to approve the participation in the syndicated loan facility as proposed subject to the Secretary being satisfied that the valuations were reasonable representation of fact.  In this regard the Secretary to seek appropriate advice”.  It appears from the minutes that Parker advised the Board that the relevant valuations “were now in hand”.  On 27 March 1997, the $1,500,000 was advanced to Santalucia through the syndicated loan facility.  The Board, at its 11 April 1997 meeting, was told by Parker that “actuarial valuation performed by Buck Consultants identified a slightly lower valuation of security offered by Santalucia but not to any material extent.  Based on the prior resolution, loan moneys were advanced.  Secretary sought ratification”.  The Board so resolved.

14. As to the Clairview matter, Parker received a facsimile of 31 March 1997 from Craig Ellis, an intermediary for two US developers.  They were urgently seeking $1,000,000 “for a maximum of 2 months” to enable them to complete the purchase of a North Queensland island valued at $1,500,000.  The intermediary advised Parker that the borrowers were prepared to pay interest “at 6.6% per month or part thereof”.  It appears from the intermediary’s facsimile to Parker that Clairview Island was subdivided into five lots, that the US developers’ intention was to sell the whole project overseas and that they already had “commitments for two blocks at US$525,000 and US$575,000”.  The intermediary concluded:

    A confirmation, from you, of the availability of funds is required urgently as settlement is required for Friday 4 April 1997.  Is it possible?

    Please ring me on my mobile …

    Gerald, if we can complete this transaction I am sure it will go along way towards giving confidence for future transactions.

15. Ellis sent Parker a short valuation dated 3 April 1997 stating:  “The property was valued by my firm on 31 July 1996 at $1,500,000 …  There has been little movement in the real estate market along this section of the coastline since the valuation was carried out and I confirm that this valuation is still applicable”.

16. The arrangement was completed on 4 April 1997 with QLSS funds being advanced through McCullough Robertson on the instructions of Parker.  At the QLSS Board meeting of 11 April 1997, Parker tabled these documents relating to the Clairview Island loan and “sought ratification of investment in” Clairview.  Parker says that this “loan was dealt with more particularly by Dr Tarr and myself and the Board at some very early date thereafter ratified it”.  Parker’s actions in rushing into this loan and disbursing $1,000,000 of QLSS moneys to the US developers without Board approval suggests he had a high degree of confidence that he would be able to get the Board’s ex post facto approval of his action.  His confidence was well placed.  The Board resolved to ratify Parker’s activities.  The evidence before me does not otherwise reveal whether Parker discussed this transaction with any other Board members in the five days between when he received the initial approach and when he arranged for the $1,000,000 to be advanced.  Parker told Perdriau in his letter of 9 May 1997 that:  “I act for a number of clients [who included QLSS] who are direct and substantial investors … Upon my advice, they will place investments”.  After setting out the terms and conditions that he would require Perdriau to agree to, he said:  “If the above is acceptable to you I will arrange for my clients to resolve to make available to you the sum of $2.5 million …”.  Once again, the confidence that Parker here expressed in his ability to persuade his investor clients to do his bidding was fully justified, at least so far as  QLSS was concerned.

17. The Board acted on Parker’s recommendation that QLSS make the Santalucia and Perdriau loans and the Board ratified his precipitate actions in disbursing $1,000,000 of QLSS’ trust moneys to Clairview.  There is no evidence that the Board rejected any lending proposal put up by Parker.  The other Board members were not mere rubber stamps for Parker’s decisions:  they did not accept the BNP share market investment recommendation he made in his January 1997 paper and they imposed terms a little more onerous in some respects on Perdriau, as the price for his loan, than the conditions proposed by Parker to Perdriau and then to the Board.  But I accept that Parker had considerable influence with the Board in so far as the other members would very likely act on loan recommendations that Parker saw fit to bring to their attention.  They would hardly have delegated to him in February 1997 the responsibility for selecting loan proposals suitable for their consideration if that was not the position.

18. The Clairview loan was an extraordinary investment for a superannuation trustee company.  The LES Fund provided two US entrepreneurs with $1,000,000 finance for a maximum of two months to enable them to settle a purchase in circumstances where they planned to repay the loan from speculative sales they hoped to make overseas of the five lots comprising the property.  The loan was made on a cursory valuation of the island, the LES Fund’s main security for repayment.  The interest rate, annualised at nearly 80%, might be thought to reflect the very high level of risk:  it is about six times the rate at which financiers were commonly lending on first mortgage security at about this time.  In the letter he prepared on 14 May 1997 under cover of which he distributed the Board papers for the meeting of 16 May, Parker said of the Clairview Island investment:  “I believe this project is under contract for sale.  This will see our investment repaid as anticipated”.  His optimism was misplaced.  By early June 1997, ie, two months after the transaction was entered into, Clairview defaulted.  It appears from the limited information before me, including the agreed facts, that it remained in default until January 1998, when QLSS had the good fortune, after obtaining a Supreme Court judgment against Clairview, to recoup the moneys outstanding in respect of the transaction “in full”, according to Parker, from a source of refinance that Clairview was eventually able to locate.  The evidence does not reveal whether QLSS recouped not only the $1,000,000 principal, but also interest over the six months or so after this loan should have been repaid.

19. What happened at the 16 June 1997 Board meeting, when the Perdriau loan was approved, suggests a high degree of imprudence on the part of Tarr, Frankcombe and Barrie, as well as Parker, in continuing with the activity of commercial lending given their limited experience in that field and their failure to have skilled assistance and proper risk assessment procedures in place.  Information put before the Board on that occasion by Parker showed that Clairview had just gone into default by failing to repay its $1,000,000 loan made to it by QLSS only two months before; the Board papers included a letter written by Parker on behalf of QLSS to Clairview’s solicitors warning that, unless the outstanding payment was made immediately, QLSS as mortgagee would take such action as it considered appropriate.  The Board’s reaction to being told at the meeting of 16 June that one of the two loans they had made in this entirely new area of business for QLSS had gone bad was to move on, it would appear, without much if any discussion - none is recorded in the minutes and Parker says there was none - to making the decision to advance a further $2,500,000 of QLSS funds to another commercial borrower, who after a time also went bad.

20. ASIC does not contend that Parker knew prior to 16 June, when the Board approved the loan to Perdriau on his recommendation, or at any time between then and 4 July 1997, that Perdriau was in default under various of the loans which he was seeking to refinance with the $2,500,000 from QLSS.  But ASIC submits that Parker was derelict in not making inquiries about the position of the existing loan facilities that Perdriau had.  This submission is well founded.  I would only add that it is surprising that none of the other three Board members showed any interest in knowing something about the state of these other loans either, before agreeing on 16 June to the loan proposal.

21. At the time the Board approved this loan on 16 June 1997, Perdriau was in serious financial difficulty.  He had been in that position for some considerable time.  He had a $1,000,000 loan from the Public Trustee of Queensland which he obtained in late 1993.  It was for a three year term.  On 1 July 1996, the Public Trustee’s senior investments officer wrote to remind Perdriau that back in December 1995 the Public Trustee’s Investment Board had given instructions “to reduce our Gold Coast property exposure, and that we do not undertake construction finance” (which Perdriau was also then seeking to obtain in connection with the development of his child care centre in addition to altering his existing loan arrangements with the Public Trustee).  The senior investment officer also then said:

    The purpose of this letter is to advise you that we require all facilities to be fully repaid on or before the 1st of November, 1996.  This date is the maturity of the loan agreement.  No alterations, extensions or further advances will be considered.  We advise you this now so that you are fully aware of our position, and that you have sufficient time to arrange refinance.

1. Save that it did grant some extensions for repayment of the loan that fell due on 1 November 1996, the Public Trustee did not deviate from this position.  On 30 October 1996, the Public Trustee’s Investment Board approved the extension of the expiry date of Perdriau’s loan facilities from 1 November 1996 to 27 February 1997 on condition that Perdriau repay $65,000 to the Public Trust Office by 30 November 1996.  He did not do that and, on 3 January 1997, Mr Clarkson, a solicitor and the head of the Public Trustee’s internal commercial lending division, wrote to Perdriau informing him that because of his default in not paying the $65,000, the Investment Board’s approval was withdrawn and his loan facilities were accordingly due for immediate payment outstanding since 1 November 1996.  Clarkson, however, told Perdriau in his letter that he would recommend to the Public Trustee that Perdriau be allowed until 31 January 1997 to arrange for the refinancing of his loan facilities.  A further extension beyond that date was nevertheless granted.  However, by 11 March, the Public Trustee’s patience with Perdriau had run out.  Clarkson wrote to Perdriau in these terms:

   As to your application for an extension, I understand that the due date for repayment of your loan was 27 February 1997.  It was on the (sic) after the due date that you chose to notify my client the loan would not be repaid by the due date … your request for extension has been granted subject to certain conditions.  I note you object to those conditions, and that is a matter for you.  However, if you choose not to comply, then my advice to my client will be that the extension is voidable with the consequence that the principal sum and other moneys are payable to him forthwith.  In the event that you fail to do so, a Notice of Exercise of Power of Sale should be issued to you.

2. It was very soon after that Perdriau approached Parker about a loan to refinance this and his other existing borrowings.

3. Between July 1996 and January 1997, Perdriau had raised a loan of $1,000,000 from another financier, MBA Mortgages Pty Ltd.  It was due for repayment on 30 June 1997; MBA had informed him that it would not be prepared to rollover the loan and required repayment by 30 June.  In July 1996, Perdriau had also raised loans of $200,000 from Derni Pty Ltd and, in October 1996, $200,000 from Sanwa Australia Finance Limited on lease finance.  As at early June 1997, he had, for many months, been in default under the Public Trustee loan facility and the Derni facility and had had difficulty in paying a number of the lease instalments to Sanwa on time.  By the end of that month, he also had to find $1,000,000 to repay MBA.  The $2,500,000 was advanced by QLSS to Perdriau on 4 July 1997.

4. Parker says that Perdriau approached him in April 1997 with a proposal to borrow $2,500,000 to refinance his existing facilities.  He reduced his proposal to Parker to writing.  In his letter of 21 April 1997, Perdriau explained to Parker his desire to refinance as being driven by a desire to obtain better borrowing rates of about 8.5% then available than the 10% rate of his existing loan facilities.  Parker says there was some discussion between the two about why the Public Trustee was not prepared to rollover Perdriau’s existing loan.  Parker says Perdriau told him that the Public Trustee’s decision not to rollover his loan was governed by its change in its lending policies.  He also said that the Public Trustee was happy, though the $1,000,000 loan had fallen due back in October 1996, to allow him further time to obtain alternative finance.  Parker does not suggest, however, that Perdriau told him or that he asked anything about the state of the other loan facilities, one of which had been in default for a long time.  Perdriau sent Parker a copy of a 1993 valuation for the first stage of the child centre he had obtained for the Public Trustee when he originally got his loan from that organisation.  He sent it to Parker with a letter from a Public Trustee solicitor, Ms Kennedy, dated 9 April 1997 to Perdriau.  Ms Kennedy, in this letter, said:

   I note you are to revert to us with your final refinance approval as soon as possible.  Please note if same is not received by Friday, 11 April 1997 I will be seeking further instructions to proceed to finalise this matter.  The Public Trustee reserves all of his rights in respect of the loan.

5. Parker did not accept Perdriau’s say-so that there were no difficulties between him and the Public Trustee.  He could not, in the face of Ms Kennedy’s letter.  He telephoned Clarkson on 11 June 1997 to seek confirmation that the Public Trustee was not refusing to rollover Perdriau’s $1,000,000 facility because of any default by Perdriau.  Clarkson dealt with Parker on his conference telephone with Ms Kennedy present.  He says Parker told him that Perdriau “had represented that the Public Trustee had decided not to extend long term finance to Mr Perdriau due to a rationalisation of the Public Trustee’s lending portfolio and that the decision not to refinance was not due to any breaches by Mr Perdriau.  Mr Parker asked me for a report concerning the loan repayments and for confirmation of Mr Perdriau’s representations”.  Ms Kennedy’s filenote, about which Clarkson gave evidence, makes reference to “penalty for Perdriau” and there is a note of the normal monthly rate and an increased rate “with penalty for May”.  Clarkson appears to accept that these notes are of discussions with Parker, saying:  “The filenote refers to possible ‘penalty’ payments.  However, I have no recollection of our conversation in that regard.”  But, in any event, Clarkson says Parker asked not just for confirmation of what Perdriau had told him about the Public Trustee’s decision not to refinance Perdriau, but also “for a report concerning the loan repayments”.  After getting Perdriau’s consent to providing information to Parker, Ms Kennedy wrote to Parker on 12 June 1997 saying:

   “I refer to your recent telephone conversation with Les Clarkson, the Acting Official Solicitor to the Public Trustee of Queensland.

   I am instructed to confirm that the decision of the Public Trust Office Investment Board not to extend long term finance to John Perdriau was due to a rationalisation of the Public Trustee’s lending portfolio and not due to any breach on the part of Mr Perdriau at the time the decision was taken.

   If I can be of further assistance please do not hesitate to contact me on the above number.”

6. This letter dealt with only one of the two issues Parker raised with Clarkson.  As a response to Parker’s queries, it told only half the truth.  Ms Kennedy’s letter of 12 June is inconsistent with Clarkson’s letter to Perdriau of 11 March and her own letter of 9 April, which Parker had.  The true position on 12 June was that the Public Trustee had granted Perdriau a number of ad hoc extensions to the 1 November 1996 date for repayment of the $1,000,000 loan while pressing him for repayment under threat of enforcement action.  There is nothing in the evidence before me, including the evidence given by Clarkson, to suggest that there was any significant change by the Public Trustee in its attitude to Perdriau between 28 March and 11 June, only a series of requests by Perdriau for further and further extensions.  Ms Kennedy’s letter of 12 June carefully avoids giving any report of the kind Clarkson says Parker sought.  Such a report would have informed QLSS, the potential refinancier, in writing of Perdriau’s past and continuing defaults.  It can be readily inferred that the Public Trustee was concerned about Perdriau’s capacity to repay its $1,000,000 as more and more time passed after 1 November 1996 without Perdriau being able to produce the money.  It can further be inferred that the Public Trustee saw Parker’s emergence on the scene as an opportunity to extricate itself, without loss, from its relationship with Perdriau.

7. Parker thought it appropriate to seek confirmation from the Public Trustee of Perdriau’s statements to him to the effect that he was not in default under the loan from that organisation.  Parker had reason, in the form of the copy of Ms Kennedy’s letter to Perdriau of 9 April 1997, to be concerned about his repayment history.  Yet he accepted Ms Kenney’s letter of 12 June, although it did not deal with that history and he did not insist on getting the information he had expressly asked Clarkson to give him on 11 June.  Nor did Parker trouble himself with making any inquiries of his own of Perdriau’s other three financiers or even with asking Perdriau anything about those other loans.  When asked to explain his lack of interest in these matters, he gave this evidence:

   I am sorry if I have already asked you this question:  you didn’t make inquiries of the other lenders, Sanwa and MBA?‑‑‑That’s correct, I didn’t.

   Can you provide any reason why you didn’t do that either prior to 16 June or after 16 June?‑‑‑No, I can’t.

   You accept now, don’t you, that if you had, and if they had been prepared to tell you, you would have appreciated that Mr Perdriau was bouncing cheques off Sanwa in April and May 1997?‑‑‑If I had have made that inquiry - I accept that if I had made that inquiry and if they had been honest with me, inclusive of Public Trustee being honest with me, I would have had a view about Mr Perdriau quite different to the one I had at the time.

   And if they didn’t tell you anything, then you could have gone to Mr Perdriau and say, “Could we just have a look at your bank statements?”?‑‑‑But I didn’t do that.

   Why didn’t you do that?‑‑‑I don’t know why I didn’t do that.

   …

   Well, you understood something about lending in 1997, didn’t you?‑‑‑In the context of this, I had a narrow understanding, yes.

   But from your commercial experience which we can come back to, didn’t you understand that in the normal course a company thinking about lending money wants some sort of credit reference from the current financier if they can get it?‑‑‑Yes.

   You understood that in 1997?‑‑‑Yes.

8. Parker’s willingness to rely on what Perdriau told him in relation to these other three lenders is extraordinary.  He had reason to doubt what Perdriau had told him about his relationship with the Public Trustee and he acted on that doubt by seeking confirmation of what Perdriau told him from the Public Trustee itself.  Further, through the first quarter of 1997, Parker had had dealings with Perdriau.  By March 1997, ie, a few weeks before Perdriau approached Parker with his request for refinance, Parker had formed a very poor opinion indeed of Perdriau.  Parker was the Chairman of the Board of EPAS Ltd, the trustee of a privately operated public offer superannuation fund.  It had made a loan of fund moneys to one Farnan, a child care centre operator.  By early 1997, the loan was in default and Farnan was contending it was irrecoverable by EPAS Ltd because of the illegal conduct of Parker’s fellow EPAS directors.  Perdriau and Commins approached EPAS as intermediaries for Farnan.  Perdriau put various proposals to Parker for resolving the dispute with Farnan, including one in which Perdriau and Commins would manage Farnan’s child care centres with Farnan’s debt being forgiven by EPAS.  On 17 March 1997, Parker wrote a lengthy report to the EPAS Board about the Farnan loan.  Parker was extremely critical of Farnan’s lack of business acumen.  He recommended against a mortgagee sale of Farnan’s operation and in favour of the proposal that Farnan should immediately lease his child care centre sites to experienced operators and assign all lease payments to EPAS.  It appears Parker was prepared to accept the possibility of Perdriau becoming the operator, subject to EPAS putting in place a stringent supervisory regime involving the operating lessee reporting to EPAS on whether he had met performance requirements to be incorporated in a business plan.  However, Parker, in reporting to the EPAS Board, said of Perdriau:

   Perdriau is a ‘gun hoe’ type businessman destined to fall by his own self importance and refusal to consider regulatory authority in terms of Child Care.  Whilst on the surface he may appear, and have you believe he is, successful I strongly suspect he is constantly living on the edge of reality.  Several ‘stuff the rules I know better’ attitudinal issues bubbled to the surface.  Not least of which were continued calls to my office to tell me new reasons why urgency should prevail for issues just pending around the corner.  These are machinations of ill-planned business.

9. Neither in his 11 June Board paper, at the meeting of directors of QLSS on 16 June 1997, nor at any other time prior to the making of the advance to Perdriau did Parker inform the other directors of QLSS of the view that he had formed of Perdriau in March 1997.  Parker says that he wrote this report to the EPAS Board of 17 March 1997 “reflecting my thoughts of Mr Perdriau in the strongest terms in order to completely destroy any prospect that the other directors of EPAS would agree with Mr Perdriau and Mr Commins’ initial proposal and would authorise me to negotiate a satisfactory outcome on behalf of EPAS”.  The outcome was that the EPAS Board gave Parker the requisite authority and he says that “in or about March or April 1997” negotiations culminated in a satisfactory outcome with Commins, the other party who, with Perdriau, had sought to negotiate on behalf of Farnan, forming his own company which purchased Farnan’s business and took an assignment of the EPAS loan made to Farnan.

10. I do not accept that what Parker had to say about Perdriau in his report to the EPAS Board reflected anything other than his actual assessment of Perdriau in mid March 1997.  The gravity of Parker’s failures to press the Public Trustee for the information he sought about Perdriau’s repayment history and to make any inquiry about Perdriau’s repayment history in respect of his other lenders is exacerbated by his having formed this adverse view of Perdriau only a couple of months before he saw fit to recommend Perdriau’s application for refinance to the QLSS Board.  Parker’s failures in these respects suggest, if not an awareness that Perdriau was in trouble meeting his existing borrowing obligations, a conscious decision not to probe too deeply into Perdriau’s financial affairs.

11. Parker submitted Perdriau’s application for a loan in the sum of $2,500,000 to the QLSS Board by his Board paper of 11 June 1997.  In this paper, Parker set out under the heading “Reasons for Re-Finance (verified)” details of his discussions with Clarkson about Perdriau and said:

    … I anticipate written confirmation from PTOQ in this regard but note their reticence to provide comment of the nature I sought.  It was explained to PTOQ at the time of my inquiry that QLSS would place great emphasis on the reason for the re-finance being triggered.  Consequently, PTOQ’s initiative resulted in a total reconsideration of all the Applicant’s loans and you would note from the Business Plan that some second mortgage arrangements are presently in place.  The Applicant desires to consolidate all these together which from a lender’s point of view makes a total attractive package with first priority over all security.

12. It is agreed that Parker submitted the Perdriau loan application to the Board for consideration at its 16 June 1997 meeting:

    (a)without obtaining or reading a current valuation of the property commissioned by QLSS from any valuer;

    (b)without obtaining verification of Perdriau’ s financial statements;

    (c)without giving adequate consideration to existing valuations in respect of the property;

    (d)without making inquiries into Perdriau’s performance of his obligations under all his existing loans;

    (e)without seeking or obtaining confirmation in writing from all of Perdriau’s existing lenders that Perdriau was not in default under his existing loans;

    (f)without considering that any goodwill component in the valuation of the property was vulnerable to reduction and unlikely to be fully recoverable under a mortgagee in possession sale;

    (g)without requiring the application to be analysed by a person who was experienced in commercial lending;

    (h)without providing adequate information to the other members of the Board with respect to:

    (i)Perdriau’s financial circumstances;

    (ii)the value of the security offered by Perdriau.

13. Parker’s defaults in sub-pars (d), (e) and (h)(i) are particularly serious.  In cross-examination, he acknowledged the obvious, viz, that he well knew at the time the importance of checking on the proposed borrower’s performance under his other loans.  The importance of having such information is emphasised by the fact that the loan from QLSS was sought for the purpose of re-financing existing loans.  Moreover, though he recommended in his 11 June paper all the conditions that the Board ultimately decided to attach to its approval of the loan, Parker did not recommend that it be made a condition of the loan that Perdriau provide the information that would remedy those defaults before draw down.

14. The other three Board members cannot escape strong criticism:  even if they blindly relied on Parker, which, for the reasons given, I do not think they did, that is not sufficient to justify the lack of interest shown by the other three members of the Board in the important matter of Perdriau’s performance in respect of his existing loans, especially when they knew they were dealing with an application to refinance those existing loans.  Parker’s default referred to in sub-par (g) above can also be said to be a default on the part of each of the other three members of the Board and, indeed, formed part of the compensation case mounted by ASIC, not only against Parker but also against these other three Board members.  The failure of all four to require expert assistance in analysing Perdriau’s refinance application is exacerbated by the fact that Parker submitted the Perdriau loan application at a time when all directors knew that the loan made by QLSS to Clairview had just gone into default in that it had not been repaid on 4 June 1997.

15. Parker concluded his 11 June paper to the Board with this “Disclosure”:

    Fees are payable to my company Just Consulting, in respect of services rendered and to be rendered to Perdriau’s businesses which includes assisting him to refinance his business and providing advice to him in respect of projects under consideration at ACCA.  To avoid any possibility of interest in the vote, I shall abstain from voting on this matter.

16. Parker absented himself from the meeting of directors whilst the Perdriau application was being considered and did not participate in that decision.

17. On 16 June, the Board approved the $2,500,000 loan to Perdriau on the conditions proposed by Parker in his Board paper of 11 June, except that the Board fixed the interest rate at 9.5% instead of the 9% proposed by Parker.  Other conditions of the loan included the following:

    (a)the loan to valuation ratio being at least 65%, ideally 75%;

    (b)independent verification before settlement of a number of key business indicators, including the number of approved carer spots and a benchmark occupancy of 80% and independent verification before settlement of an expense ratio of 45%;

    (c)Perdriau to provide an independent valuation from Taylor Byrne valuers addressed to the Board of QLSS and that such valuation would include:

    (i)asset and land value;

    (ii)cost to refit and relet; and

    (iii)income yield;

    (d)the reasonableness of Perdriau’s profit and loss statement for the eleven months to May 1997 be verified by an appropriate accountant;

    (e)all due diligence approved by guidance of McCullough Robertson, solicitors.

18. The loan to valuation ratio of “at least 65%, ideally 75%” condition set by the Board was transcribed from Parker’s paper of 11 June.  It does not make sense.  Parker acknowledged this.  He said that all the Board members knew that a ratio of no more than 65% was the ideal, though a ratio of 75% was “the worst they would accept”.

1. Why Parker proposed that conditions of the loan should include verification of the key business indicators referred to above appears from Parker’s letter to Perdriau of 9 May 1997:  before he raised with Tarr or any of the other Board members of QLSS the possibility of a loan application being received from Perdriau, he identified in this letter, as conditions of the loan which he assured Perdriau he would be able to arrange from one of his investor clients, the need for substantiation of what Perdriau had told him about having achieved an 80% occupancy rate and an expense ratio of 45%.  The loan condition requiring a valuation on the basis of “cost to refit and relet” appears from this same letter of 9 May to have been Parker’s own idea.  He there says:

   In terms of valuing the security you offer, I reiterate that one method of consideration will be the ‘cost to refit’ basis where upon the mortgagee in possession might reasonably incur expense to convert a held security into a saleable or income producing asset.  The more generic the site the less refit expense anticipated to accomplish objective.  This will need to be assessed by persons nominate (sic) by me at your expense.  I will proceed on this issue if this initial offer is acceptable to you.

2. At all times Parker was responsible for communicating with the solicitors retained by QLSS, McCullough Robertson, on behalf of QLSS concerning the loan to Perdriau.  Parker gave McCullough Robertson their instructions by his letter of 20 June 1997.  He said:

   The Board has agreed to advance $2.5M to Perdriau subject to conditions as contemplated in the attachments.  …

   …

   Please do all the necessary searches, prepare necessary loan agreements and security documents in relation to this matter … 

   Subject to Perdriau meeting our requirements we agree that settlement of the loan sum is to occur on or before 30 June 1997.  This is a tight schedule but we seek your endeavours to ensure our end does not hold the matter up.  You should press upon Perdriau any item of urgency that would otherwise prevent this deadline from completing.

3. The attachments included the letter of offer of 19 June 1997 sent by Parker to Perdriau on behalf of QLSS:  it sets out all the terms and conditions of the loan, including the condition requiring Perdriau to establish, maintain and adhere to a business plan which, with “key indicators”, was to form the basis for Perdriau’s monthly reporting to QLSS; it also includes a schedule identifying the “Business Indicators” and the performance requirements related to them.  It attaches a copy of Perdriau’s profit and loss for the eleven months to May 1997 and refers to the loan condition stating that “[i]t’s reasonableness would be subject to verification by an appropriate accountant”.  Parker’s letter of 19 June also notes, under the terms and conditions section, that Parker has asked the applicant to provide an independent valuation (from Taylor Byrne) addressed to the Board and that he expected this on Thursday.  In this context, it states:

   Note that several valuation approaches will be required looking at:

   ·Asset and Land Value,

   ·cost To refit and Relet (see risk table) and

   ·Income Yield.

4. Also attached to his letter of instructions to McCullough Robertson was a copy of Parker’s short letter to Perdriau of 20 June 1997 advising Perdriau of conditional approval of the loan.  It includes the following:

   In summary, the Board is prepared to advance on loan the sum of $2.5 million over a three (3) year term, subject the (sic) original proposal, and:

   1.confirmation as to valuation of security being not less than $3.34 million but ideally $3.85 million.  Security may include personal guarantees that are supported by a personal Asset and Liability statement.  The Board’s Loan to Valuation ratio of 65% nominal but 75% at worst will then be fulfilled and you will be required to maintain such ratios for the duration.

5. In his letter of instructions to McCullough Robertson, he said nothing to suggest McCullough Robertson should leave any matters to him. On the face of it, it appears, though he does not expressly say so, that he was leaving it to the solicitors to ensure that the numerous terms and conditions of the loan, including independent verification of Perdriau’s profit and loss statement and the valuation material addressed to QLSS, were satisfied before the transaction was finalised.  McCullough Robertson wrote back to Parker seeking his confirmation that they were required to attend only to a much narrower range of things on behalf of QLSS:  by their letter of 20 June 1997, they confirmed Parker’s instructions concerning the loan, including the searches they intended to undertake with respect to the property, and asked:

   (a)if any additional searches were required;

   (b)if there were any other requirements for settlement;

   (c)if there were any other matters that were required to be investigated.

6. McCullough Robertson, in their letter to Parker, explicitly identified the very limited range of matters they would attend to; those matters did not include ensuring the valuation referred to in the attachment to Parker’s letter of instructions was obtained or having Perdriau’s profit and loss statement verified by an appropriate accountant or having the key business indicators set out in the loan conditions verified.  Although they asked “particularly if there is anything further you would like us to investigate”, Parker did not respond.  Nor did he himself make any effort to attend to these matters.

7. Parker was well aware of the loan conditions set by the Board.  It is agreed that despite having this knowledge from 16 June 1997, Parker knew, prior to the advance of $2,500,000 being made by QLSS to Perdriau on 4 July 1997, that the conditions imposed by that Board decision had not been satisfied and in particular knew:

   (a)that QLSS had not obtained an independent assessment of the key business indicators;

   (b)that QLSS had not obtained a valuation addressed to QLSS, utilising the three different methods of valuation, asset and land value, cost to refit and relet, and income yield, or any current valuation addressed to the Board;

   (c)that QLSS had not obtained verification of Perdriau’s profit and loss statement for the eleven months to May 1997 from an appropriate accountant;

   (d)that neither McCullough Robertson nor anyone else had undertaken any due diligence investigation.

8. In January 1997 Taylor Byrne had prepared a valuation report of the child care centre as at 9 January 1997 for Perdriau.  Parker got this from Perdriau prior to 16 June 1997.  This was one of the only two valuations he had prior to the Board meeting of 16 June.  This Taylor Byrne valuation, prepared for and addressed to Perdriau, was obtained by him to assist him in seeking refinance of his existing loan facilities.  It covered only Stage 2 of the centre and the swimming centre.  Taylor Byrne valued this part of Perdriau’s operation at a total of $2,250,000.  Parker said, of the only other valuation he had before the 16 June Board meeting, that he had received from Perdriau not only Ms Kennedy’s letter to Perdriau of 9 April, but also the valuation referred to in her letter:  that had been prepared by an internal Public Trustee valuer in May 1993; it relates only to Stage 1 of the centre.  Parker said he discussed this 1993 valuation with Tarr, who told him it was too old to be of use.  After referring at one point in his affidavit to this 1993 valuation and the Taylor Byrne January valuation of Stage 2, Parker returned, at a later stage of his affidavit, to the topic of valuations.  He here says “at some stage I recall discussing the valuations [plural] with respect to the TSCEC which had been prepared by Taylor Byrne Valuers [only one had been prepared by that firm up to that time] with Mr Hamilton of that firm.  The contact was made by me by telephone prior to the settlement of the loan with Mr Perdriau.  I cannot now recall the precise date of the conversation.  However, it would have been between 16 and 30 June 1997.”  Parker then sets out the substance of what he claims was his conversation with Hamilton, including his request that Hamilton update the latter’s Stage 2 valuation of January 1997 and address it to QLSS.  He makes no further reference to receiving such a valuation, although he goes on to say that:  “the updated valuation of stage 1 of the TSCEC by Taylor Byrne dated 19 June 1997 was forwarded to me by McCullough Robertson on 30 June 1997”.  Between 25 June and 30 June 1997 Taylor Byrne prepared a valuation report of Stage 1 as at 19 June 1997, also addressed to Perdriau.  Taylor Byrne were never asked for and never provided a valuation report addressed to the Board of QLSS in relation to the property offered by way of security.  Hamilton says he was never contacted by anyone on behalf of QLSS about either his Stage 1 or Stage 2 valuation, his instructions to make his 19 June valuation of Stage 1 coming in a telephone call from Perdriau on 16 June 1997.  He sent this June valuation to Perdriau’s solicitors, who passed it on to McCullough Robertson on 30 June.  It was from McCullough Robertson that Parker got this June valuation of Stage 1, not Hamilton.  I accept the valuer, Mr Hamilton’s, evidence in preference to Parker’s.

9. The Taylor Byrne Stage 1 and Stage 2 valuations each stated:

   (a)that the valuation was based on an assumption that 85% occupancy would be achieved;

   (b)that the valuation included a substantial component on account of goodwill;

   (c)that child care centres are management sensitive specialised businesses which also rely heavily on continuation of federal government subsidies for their financial success;

   (d)that the valuation was subject to the following qualifications and limitations:

   (i)“Lending institutions should be aware that on going concern values include high goodwill component which may not be fully recoverable under a mortgagee possession sale. For these reasons a cautious lending approach is recommended”; and

   (ii)the report was only for use of the party to whom it was addressed, [namely Perdriau], and that the report was to be used for no other purpose and no responsibility is accepted to any party for the whole or part of its contents.

10. It is agreed that Parker knew or ought to have known prior to drawn down of the loan moneys on 4 July 1997:

    (a)that the Stage 1 valuation and the Stage 2 valuation of the properties contained the qualifications stated above;

    (b)that the loan to valuation ratio required by the 16 June Board decision would not be satisfied if amounts for goodwill included in those valuations were discounted, as Taylor Byrne suggested they should be by any lender in the qualification with respect to goodwill.

11. Taylor Byrne, in the Stage 1 and Stage 2 valuations, expressed these opinions on the basis of the valuation methods set out therein, which did not include cost to refit and relet, as to the value of Perdriau’s property:

    Stage 1  $1,220,000.00

    Stage 2  $1,450,000.00
    Swimming Centre     $800,000.00

    Total  $3,470,000.00

12. The loan to value ratio in respect of the proposed loan was therefore approximately 72%, close to the least favourable ratio the Board was prepared to accept as satisfying the valuation condition it fixed for the loan.  Parker had repeatedly stressed in the various papers he presented to the Board in connection with QLSS’ entry into and conduct of its commercial lending business, the need for reliable valuations confirming a substantial margin between the amount of the loan and the amount likely to be realised from the security property.  It is to be noted that in his letter of 2 July 1997 to Tarr in which he referred, without further comment, to having by then obtained valuations for Stage 1 and Stage 2, he informed Tarr:  “Based on the loan application of $2.5M this will give a 72% LVR which falls inside the Board’s conditions”.  The loan to valuation ratio of 72% to which Parker drew Tarr’s attention has particular significance in view of the qualifications set out by Taylor Byrne in their January 1997 valuation which Parker had prior to the Board meeting of 16 June and which I accept was made available to the other three members at that meeting.  It provides yet another reason why the Board’s decision to make the loan was imprudent. 

13. Both valuations were addressed to Perdriau.  Parker did not have the Taylor Byrne valuations assigned to QLSS, ie, he did not obtain a statement in writing from Taylor Byrne to the effect that QLSS was entitled to rely upon the valuations for the purpose of advancing $2,500,000 to Perdriau secured over Stage 1, Stage 2 and the swim centre.

14. The agreed facts state that if Parker did not know the valuations contained the qualifications in par 61(d) above, he ought to have known that.  Though he had the January valuation for a time prior to the Board meeting of 16 June, Parker cannot have looked at it.  If he had he could not have put it before the Board on 16 June without comment.  That valuation was of Stage 2 only; it is of an amount of $2,250,000, well below the $2,500,000 that Perdriau was seeking and very greatly below the loan to valuation ratio which the Board expressly adopted, on Parker’s recommendation, as one of the conditions upon which it was prepared to make the $2,500,000 advance to Perdriau when it made that decision on 16 June.  Nor did he bother to read the 19 June valuation which he says that he received from McCullough Robertson on 30 June 1997.  He said he looked only at the “bottom line”, ie, the $1,220,000 figure, and did not consider any of the qualifications set out in the valuation.  These qualifications appear at the end of the valuation under the heading “CONCLUSION”; they are the same as those mentioned in the valuation of Stage 2 of January 1997 already set out.

15. ASIC contends that Parker did not bring the January valuation of Stage 2 - all he then had - to the notice of the other three Board members on 16 June.  It is, I think, clear enough from the absence of any copies of this valuation in the papers produced to ASIC in response to statutory notices by each of Tarr, Frankcombe and Barrie, that they did not have among their own papers such copies.  Parker says that, while his practice was to copy to each board member all relevant papers for use at board meetings, if a document came to hand only after he had circulated the board papers for a forthcoming meeting, he would not necessarily photocopy that to all the members, but would table the original document at the meeting.  He says he thinks he did this on 16 June.  I accept that Parker did make the Taylor Byrne January 1997 valuation available to the other Board members at the 16 June meeting.

16. Only Frankcombe of the other three board members gave evidence.  At his compulsory examination, he appears to have been quite certain that he saw a valuation of Perdriau’s centre before the decision to make the advance was made by the Board.  He said then:  “I do remember seeing a valuation because we made a decision based on that valuation but I can’t tell you exactly what the valuation was like.”  At the time he was being asked to identify whether a particular valuation document was the one to which he was referring.  At trial he was still certain he saw a valuation; but he was less certain as to whether he saw it before, during or after the meeting of 16 June.

17. The information provided by Tarr is confined to a short facsimile statement partly illegible.  He says of the Taylor Byrne January valuation:

    … I do not recall seeing the document headed “Taylor Byrne valuation of Stage 2, the Southport Children’s Education and Swim Centre” dated 9 January 1997 … before my examination on 9 May 2001 and do not recall whether or not it was tabled at the meeting of the directors of QLSS on 16 June 1997.

18. It can be inferred from his handwritten alterations to his signed statement that he initially told the drafter of his statement that the valuation was not tabled on 16 June, but had second thoughts and made the more qualified assertion about a lack of recall in his statement as amended.  Though he was compulsorily examined, ASIC did not seek to put any part of that examination into evidence.  There is no information before me about Ms Barrie’s position on whether she ever saw this Taylor Byrne valuation.  In these circumstances, I consider that Parker’s letter of 2 July 1997 to Tarr has special importance.  In it he wrote:

    At our last meeting the Board approved the above subject to a number of modifications to the application.  In particular one such modification was that the leverage factor was to be at least 65% ideally 75%.

    I made an oversight in the presentation of documents wherein I did not notice that the valuations provided by Taylor Byrne addressed on two of the three titles.  Accordingly, they have now provided their valuation on the third as follows in summary (see attached full report to be received by our solicitors and directed to QLS Super P/L):

    Stage 1  $1.22M
    Stage 2   $1.45M
    Swim Centre  $0.80M
    Total   $3.47M

    Based on the loan application of $2.5M this will give a 72% LVR which falls inside the Boards conditions.  (emphasis added)

19. The passage emphasised suggests that Parker did make the incomplete Taylor Byrne January valuation available to the other Board members at the meeting of 16 June.  It suggests that, prior to 2 July 1997, Parker had drawn the attention of Tarr (and the other board members) to this January valuation at the board meeting of 16 June, though no one then present, including Parker himself, took enough interest in it to realise that it dealt only with part of the properties in question and that they were being asked to lend $2,500,000 of LES Fund moneys on a valuation of only $2,250,000.  Parker suggested that since he had the 1993 valuation, he would have tabled it at the June Board meeting also.  I do not accept that he did that.  His letter to Tarr is inconsistent with him having tabled not only the Taylor Byrne January valuation, but also the Englert Public Trustee valuation of 1993.  That he would have done that is inconsistent also with his evidence that Tarr had earlier told him the 1993 valuation was so old to be of no use.

20. It appears Parker’s attention was drawn to this gap in the only valuation material he had bothered to obtain before the 16 June Board meetings by McCullough Robertson.  They wrote to him on 30 June 1997 saying:

    We have also received a fax copy of the valuation for the property from Taylor Burne Valuers.  According to that valuation, the property and business is valued at $1,220,000.00.  Does this alter your views on this transaction?

21. This is the valuation of Stage 1 prepared in late June 1997 and which McCullough Robertson had received from Perdriau’s solicitor.  Included with this second valuation was the one page facsimile dated 25 June 1997 from Taylor Byrne addressed to Perdriau.  In it, Taylor Byrne stated that they were “currently compiling our full report” on the valuation of Stage 1, but, by way of preview, stated:

    Based on the two most appropriate valuation methods ie. direct comparison and capitalisation of net annual income, we have assess (sic) the walk-in/walk-out value of Stage 1 at $1,220,000.

    The valuation report currently being completed for the subject centre can be read in conjunction with our earlier report for Stage 2 and the Swim Centre.

    This original report dated 9 January 1997 advised the following values.

    Stage 2                 Child Care Centre             $1,450,000

    Swim Centre  $   800,000

22. It is this one page summary which Parker gave to Tarr under cover of his letter of 2 July 1997 set out above.  I accept Hamilton, the valuer’s evidence, that he prepared his Stage 1 valuation and his letter to Perdriau of 25 June 1997 at Perdriau’s urgent request.  It was the query from McCullough Robertson on 30 June that resurrected Parker’s lost interest in obtaining the valuations required if the terms and conditions of the loan were to be satisfied.  But Parker did not maintain that interest for long.  Though he drew Tarr’s attention to the lack of a valuation of the entire centre in his letter to Tarr of 2 July and though he recorded his expectation of receiving a “full report … directed to QLS Super P/L”, he never bothered to check whether a full report, so addressed, was ever received.  By letter dated 3 July 1997, McCullough Robertson certified to Parker exactly what they had attended to.  Under the heading “Security Address”, they noted:

    We have not seen the full valuation for the properties and therefore cannot comment on whether the property descriptions we have been given are the entire property.

1. In developing its argument that Parker abandoned QLSS’ interests in order to pursue his own financial interests, ASIC submitted that Parker’s disclosure in his Board paper of 11 June 1997 set out above was inadequate and misleading.

2. It is agreed that in his 11 June paper and at the meeting of the directors of QLSS held on 16 June 1997, Parker informed the other directors of QLSS that:

   (a)Just Consulting had rendered and would continue to render services to Perdriau;

   (b)Some of these services included assisting Perdriau to refinance his businesses;

   (c)Just Consulting would receive a fee in relation to the services provided and to be provided to Perdriau.

3. It is further agreed that neither in the 11 June Paper, at the meeting of directors of QLSS on 16 June 1997, nor at any other time prior to the making of the advance to Perdriau on 4 July 1997 did Parker inform the other directors of QLSS:

   (a)that his only involvement in assisting Perdriau to refinance his businesses was to present Perdriau’s application to QLSS;

   (b)that no fees were in fact then payable by Perdriau to Just Consulting and that fees would only be payable in the event that QLSS made the loan to Perdriau;

   (c)that the quantum of the negotiated fee payable by Perdriau to Just Consulting was $50,000 in the event the loan was made.

4. The disclosure suggested that the fees were payable to Parker in respect of services rendered and to be rendered in relation to Perdriau’s businesses, which included assisting him to refinance his business and providing advice to him in respect of other projects.  ASIC says that, in truth, Parker’s relationship with Perdriau was confined to an entitlement to be paid the success fee if QLSS approved Perdriau’s loan application; ASIC points to the agreed facts set out above.

5. Notwithstanding the agreed facts, Parker now says his disclosure was not inadequate or misleading.  Parker says the reference in his letter of 11 June to providing other services to Perdriau was a reference to the discussions which he had had concerning the establishment of alternative finance for the child care industry and that he intended to disclose that his relationship with Perdriau would be ongoing and therefore more substantial than an involvement with him that was limited to this particular loan transaction and to it alone.  In his affidavit Parker said that, in the course of dealing with Perdriau and Commins in relation to Farnan’s dispute with EPAS, he had discussions with Perdriau about the establishment of a national scheme for providing finance to child care centres that did not involve banks with whom a number of child care centre operators were experiencing difficulties.  He also said that a particular proposal discussed was that the Australian Child Care Centres Association might be able to obtain bulk finance from a financial institution and then re-distribute that finance by way of loans to various child care operator members of the Association, of which Perdriau was treasurer.  In the letter of 7 July 1997 under cover of which Parker sent Perdriau the invoice for his $37,500 fee, he said “I look forward to working with you on the ACCA refinance pool proposal”.  Given this confirmation of what Parker says about anticipating an extended relationship with Perdriau, I think that his disclosure to the Board was not inadequate or misleading in so far as it asserted that he had a relationship with Perdriau which, in effect, was more extensive than the right to a success fee if the loan application was approved.

6. ASIC also attacks the adequacy of Parker’s disclosure because he did not reveal the quantum of the fee he was to be paid if the Board approved Perdriau’s application.  Whether the Board would have demurred at the proposal to lend the $2,500,000 to Perdriau if Parker had disclosed that he was to be paid a success fee of 2% of that figure can be doubted.  As already noted, the Board, at its 1 October 1996 meeting, resolved to adopt all of the proposals made by Parker in his “Future Directions” paper.  These included recommendation no 9, by which he proposed that he would expand his role as Fund Secretary to include Marketing and Promotion and would be remunerated on a “success factor basis”.  The propriety of the Board of the trustee of a superannuation fund with membership like that of the LES Fund making such an arrangement with one of the directors does not need to be considered now.  The QLSS Board minutes of 27 July 1999 record that each of Frankcombe and Barrie were asked by the new chairman, Mr Short, whether, if they had been aware of the amount of fees payable to Parker by Perdriau, they would still have agreed to the loan and both said they would have.  The Board’s willingness to accept Parker’s proposals to loan money to Santalucia and Clairview supports this conclusion.  The absence of evidence suggesting that a 2% fee was excessive or beyond the range of fees that brokers might charge for placing finance with borrowers does too.

7. I am not prepared to find that Parker made a disclosure of his interest in the Perdriau loan being approved which was, in all the circumstances, inadequate or misleading.

8. I have reservations about the extent to which Parker can be relied upon as a witness.  But I am not prepared to find that he put the Perdriau loan proposal before the Board actually knowing that Perdriau was in financial difficulty, as it is now agreed he then was, because Parker’s dominating interest was in earning the $50,000 success fee he had bargained for with Perdriau.  There is reason to suspect that he may, by reason of his knowledge of the rates position, have been aware that the reasons Perdriau had given him for seeking refinance may not have been the true ones and that Perdriau may have been in some financial difficulty.  He was concerned to obtain information about Perdriau’s financial position from the Public Trustee.  Yet he was content to be fobbed off with an inadequate response by the Public Trustee to his inquiry.  This also suggests that he had reason to be wary of what he was told by Perdriau about his reasons for refinancing.  His failure to make any inquiry at all of Perdriau’s other lenders, for which failure he could offer no explanation at all, suggests that he had decided not to inquire any further than he was forced to into Perdriau’s affairs.  But Parker had just been successful in negotiating with the Board for him to become involved in what was anticipated to be a long term relationship from which Parker could expect to earn significant ongoing income.  I doubt that he would have jeopardised that new relationship, practically at its outset, to earn the fee from Perdriau if he had known that he was proposing to the Board that they enter into a transaction very likely to result in substantial loss to the LES Fund.  I think, however, he deliberately shut his eyes when he knew that vigilance was required in seeking out information as to Perdriau’s financial position in order to properly perform his duties to QLSS.  I have come to the conclusion that his conduct was not deliberately dishonest, in that he decided to keep back information from the Board that he knew would kill Perdriau’s prospects of obtaining a loan in order to earn the success fee he had negotiated with Perdriau.  I think his conduct up to 16 June can most accurately be characterised as conduct engaged in by him with a reckless disregard for the proper performance of his duties as a director with delegated responsibility for identifying for consideration by the Board commercial loan proposals that might be suitable investments for QLSS in carrying out its role as trustee of a superannuation fund.  Though I am not prepared to find that he deliberately sold out QLSS in order to earn the success fee, the prospect of a substantial fee, if the proposal was approved by the Board, played a part in Parker adopting the attitude that he did.

9. Parker’s conduct after 16 June in abandoning entirely his duty to ensure that the conditions upon which the Board approved the loan to Perdriau were satisfied before permitting disbursement of the $2,500,000 advance could readily be explained as the actions of a person who was prepared to permit the company of which he was a director to take the decisive step of paying over money which he knew was, in large part at least, at serious risk of being lost, in order to ensure that his own personal expectation of pecuniary advantage was realised.  However, the difficulty I have in finding that he acted as he did between 16 June and 4 July 1997 because he wanted to advance his own financial interests, though knowing that that would very likely mean loss to QLSS, is that such a view of things is in conflict with the trouble Parker had taken to establish the recently consummated relationship with QLSS that I have no doubt Parker expected would be a remunerative one for him in the long term.  His conduct between 16 June and 4 July 1997 must, however, be regarded as showing a high degree of reckless disregard for the proper performance of his duties as a director with the responsibility for overseeing and ensuring that the loan conditions fixed by the Board were satisfied before permitting the loan moneys to be advanced to Perdriau.  I do not doubt that the prospect of receiving the success fee once the loan was finalised contributed to Parker’s reckless conduct in the period between loan approval and draw down.

10. While I think Parker may have had rather more experience in evaluating commercial loan proposals and the risks of commercial lending than he was prepared to admit to, I do not think he was particularly skilled or experienced in that.  But notwithstanding this, he appears to be a man with an abundance of confidence in his ability to oversee and manage complex commercial activities.  He was confident, without having any real reason for being so, in proposing that the Board, which he believed had no experience in the area, should adopt a higher risk investment strategy than it had hitherto followed in reliance on Parker’s ability to select suitable investment proposals.  His precipitate conduct in committing the LES Fund to the manifestly risky Clairview proposal without prior Board approval and his confidence in informing Perdriau that he had clients who would act on his recommendation also suggest this.  I am inclined very much to think that the reckless disregard for the interests of fund members that he displayed in putting up the Perdriau proposal to the Board and the blatantly reckless conduct he displayed in failing to ensure that the loan conditions set by the Board were satisfied before permitting Perdriau to get his hands on the money resulted from an unfounded, over-confident assessment by him of his own ability to properly manage other people’s money.

11. Section 232(4) the Corporations Law provides:

    In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances.

12. The content of the obligation imposed by this provision to exercise care and diligence is, as the section indicates, governed by the particular corporation’s circumstances and how a reasonable person in the defendant’s position in the particular corporation would conduct himself. I have described the nature of QLSS trustee business. QLSS was bound to comply with the statutory covenants in s 52(2) the Superannuation Industry (Supervision) Act in conducting its business as trustee of the LES Fund; Parker was bound by s 52(8) to exercise a reasonable degree of care and diligence for the purpose of ensuring that QLSS itself satisfied these statutory covenants. In consequence, the content of the fiduciary duties on Parker as a director required of him a higher standard of care and diligence in performing his duties, including his duty to bring loan proposals suitable for consideration by the Board before it, than is the nature of the fiduciary duty on a director of an ordinary trading company.

13. As I have noted, Parker, by his counsel, does not dispute that he contravened s 232(4) by his failure to ensure that the loan conditions fixed by the Board by its decision of 16 June 1997 were satisfied before he permitted the loan moneys to be advanced to Perdriau. I have explained why I regard that failure as a serious departure by Parker from the standard of care and diligence that he was required to meet. For the reasons given, he also contravened s 232(4) by his reckless failure to make proper inquiry into the history of repayment by Perdriau of his loan from the Public Trustee and any inquiry into his repayment history in respect of his borrowings from his other lenders prior to proposing to the Board that it approve the advance sought by Perdriau.

14. Parker disputes that he contravened s 232(2), which provides:

    An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office.

15. Counsel for ASIC drew attention to the controversy in the case law between the line of authority that commences with Marchesi v Barnes [1970] VR 434, which requires proof of conduct by a director that involves a consciousness that what is being done is not in the interests of the company and deliberate conduct in disregard of that knowledge and cases, including Australian Growth Resources Corporation Pty Ltd (Recs and Mgrs apptd) v Van Reesema (1988) 13 ACLR 261 at 272, where it is said that s 232(2) is contravened where a director exercises powers in circumstances in which he believes he is acting honestly but for a purpose which the Court determines is an improper one. It is unnecessary to resolve this conflict having regard to the view I have formed that Parker’s conduct in putting the Perdriau proposal before the Board for its consideration without making proper inquiry into Perdriau’s dealings with his existing borrowers and his conduct subsequent to Board approval of the Perdriau application in failing to ensure that the loan conditions were satisfied before permitting Perdriau access to the loan moneys involved a high degree of reckless disregard of the interests of the company. Parker’s conduct in both respects shows a failure to act honestly contrary to s 232(2) in accordance with the interpretation placed on that provision in Marchesi v Barnes, the approach to the sub-section that most favours Parker and which I can assume to be correct.

16. Parker also contends that he did not contravene s 232(6) despite his arrangement with Perdriau for payment of a success fee if the loan application were approved.

17. Section 232(6) provides:

    An officer … of the corporation must not, in relevant circumstances, make improper use of his or her position as such an officer … to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation.

18. In R v Byrnes (1995) 183 CLR 501, Brennan, Deane, Toohey and Gaudron JJ said, of the expression “improper use” in a statutory provision equivalent to s 232(6), that an objective test of impropriety, which requires an examination of all relevant circumstances, is intended. Their Honours added, at 514 - 515:

    … Impropriety does not depend on an alleged offender’s consciousness of impropriety.  Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case.  When impropriety is said to consist in an abuse of power, the state of mind of the alleged offender is important:  the alleged offender’s knowledge or means of knowledge of the circumstances in which the power is exercised and his purpose or intention in exercising the power are important factors in determining the question whether the power has been abused.  But impropriety is not restricted to abuse of power.

19. I have explained why I do not think Parker’s disclosure of his interest in the Board approving the Perdriau application was inadequate or misleading.  But, quite apart from that consideration, Parker was delegated by the Board and accepted responsibility for identifying borrowing proposals suitable for approval by the Board.  He put up the Perdriau application in the circumstances I have described, which involved a reckless failure to check Perdriau’s repayment history.  He also had the responsibility for ensuring that the conditions upon which the Board approved the loan to Perdriau were satisfied before draw down.  I have explained why I consider he acted in reckless disregard of that responsibility too.  He was acting in both capacities as the director of a company which was the trustee of the superannuation fund with the membership characteristics I have described.  In both areas of the Perdriau transaction, Parker, in my opinion, breached the standards of conduct to be expected of him having regard to all the circumstances and thus made improper use of his position. 

20. By his letter of 9 May 1997, he required Perdriau to agree to pay him a fee of 2% of the amount advanced “on completion of the loan advance” before he would put Perdriau’s application for finance before his clients.  At trial, he said that if Perdriau had not agreed to pay this success fee:  “I would most probably have terminated my services with him” ie he would not have taken the application to the Board of QLSS.  One of his objects in putting the Perdriau application before the Board and in allowing it to proceed to settlement was thus to earn, ie, to gain, the success fee that Perdriau had promised. 

21. Parker therefore contravened s 232(6).

22. The object of the disqualification power in s 1317EA(3)(a) is “not punitive”. The section 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”: see Re Magna Alloys & Research Pty Ltd [1975] 1 ACLR 203 at 205. A detailed discussion of the considerations relevant to the determination of disqualification periods under the Corporations Law is contained in the judgment of Santow J in Australian Securities and Investments Commission v Adler [2002] NSWSC 483 at pars [55] and [56]. In par [56], his Honour says that the factors that led to the shortest disqualifications, “that is disqualifications for up to 3 years” included:

    ·the defendant had no immediate or discernible future intention to hold a position as manager of a company

    ·the defendant had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings.

23. Since the power of disqualification is protective of the public interest and not punitive, I do not think that, in determining upon the disqualification or whether it should be imposed on Parker, I am entitled to take into account the fact that ASIC has decided not to pursue disqualification proceedings against the other three directors of QLSS.

24. Parker’s counsel submitted that the discretion to disqualify him from acting in the management of a company is not enlivened because there is no evidence that he is presently unfit to manage a corporation: by s 1317EA(4) the Court is not to make a prohibition order under s 1317EA(3)(a) if it “is” satisfied - ie at the time of decision - that, despite the contravention, the person is a fit and proper person to manage a corporation. I reject that submission.

25. The fact that he may not have been responsible for causing harm to the interests of persons involved in superannuation funds in particular since the events the subject of this action does not, of itself, serve to show that the discretion to disqualify is not enlivened.  The quality of his conduct while a director of QLSS, particularly in the period from late 1996 to mid 1997, is such as to show that he remains unfit, despite his past experience in the insurance and superannuation area, to be in a position where he can influence the investment decisions of an organisation carrying on the business of managing superannuation fund moneys.  Parker’s conduct in June/July 1997 was detrimental to the interests of members of the LES Fund.  It constitutes serious misconduct.  In large part, he admits his conduct was unjustifiable.

1. Further, QLSS terminated the services of Just Consulting, and with it Parker’s services, in May 1999. Thereafter, Parker continued to be involved in providing advisory services to three other superannuation funds. Parker says he made the decision sometime in 2000 to terminate Just Consulting’s business in providing advisory services to these superannuation funds because of the cloud caused by the ASIC investigation into his own conduct. After a short time out of the superannuation industry, he took up in February 2001 what appears to be a senior position with a superannuation and group life insurance management company. This employment was terminated in July 2002, when the ASIC action against him became public knowledge. The sensitivity of those in the superannuation industry, at least in more recent times, to having people of perceived probity and competence in positions of influence in the industry is illustrated by the hostility Parker says he attracted from fellow workers in that industry, once knowledge of the ASIC investigation into his activities with QLSS became known and by the reasons he was given by his employer’s managing director for terminating his employment in 2002. It is apparent that, though Parker may not have engaged in any conduct that might demonstrate unfitness to be the director of a company involved in managing or administering superannuation funds after July 1997, the nature of his conduct up to that time, which is the subject of the ASIC action against him, was considered by a range of people in the superannuation industry as rendering Parker unfit to be involved in that industry in 2002. It is understandable that Parker’s conduct here in question should be seen, even some years later, as leaving him with a still-enduring stigma. I have referred to the statutory features of the superannuation industry regulating the activities of funds like the LES Fund and the practical considerations flowing from the nature of the particular Fund’s membership and the compulsory element that puts the Fund in the position of being in control of the moneys of others. These considerations show why reasonably minded observers expect a high level of probity and competence on the part of those involved in the management of superannuation funds. If the Court were not to impose any disqualification on Parker now, that might well be represented as a degree of vindication of Parker.

2. I do not accept counsel’s submission that Parker is entitled to recognition because he frankly acknowledged his poor performance and did not attempt to excuse actions which he accepts cannot be excused.  The quality of his performance, particularly in failing to take any action to ensure that the loan conditions were satisfied before permitting the moneys to be advanced, is so gross that I do not see his so-called frank admissions as telling much in his favour:  rather does Parker accept that any attempt to defend his conduct has no prospect of succeeding.  It is, I think, more revealing of Parker’s attitude that, though accepting that his conduct was indefensible, he still says that no disqualification or, at worst, a limited disqualification is all that is warranted.

3. These considerations, coupled with his conduct in June/July 1997 as I have described it, show, in my opinion, that he is not now a fit and proper person to manage a corporation that has any involvement in managing or administering others’ funds.

4. It was submitted by Parker’s counsel that, even if a disqualification order were to be made, it would be appropriate to limit the disqualification so as to permit him to manage his own company, Just Consulting.  An undertaking was offered on behalf of Parker to that effect to avoid any disqualification being ordered.

5. I do not accept that it is appropriate to permit Parker to manage his own company.  Its business included the provision of advisory services to three other superannuation funds into, it would appear, 1999 or 2000.  It appears Parker is keen to get back into the superannuation industry in which he has spent a good deal of time between 1986 and July 2002 and can be expected to operate that company as he has in the past, as his vehicle for doing that.  It is the management level of that particular area of business activity from which I think he should be excluded.

6. I do not consider it appropriate, given the quality of Parker’s conduct, to impose a partial or limited disqualification.  In my opinion, a substantial period of disqualification, four years, is appropriate.

7. In Australian Securities Commission v Donovan (1998) 28 ACSR 583, it was said, at 37 - 38, of the power conferred on the Court to impose pecuniary penalties:

   Section 1317EA(3)(b) is punitive in character.  Its purpose in the appropriate case is to punish, but principally the imposition of a pecuniary penalty is to act as a general deterrent and a deterrent to the general public against the repetition of like conduct.  …  If compliance with the appropriate standards of commercial conduct in the management of corporations by deterrence is the object, then any penalty should be no greater than is necessary to achieve this objective.  Otherwise, severity beyond that figure would be oppressive.

8. As Foster AJ observed in Australian Securities and Investments Commission v Forge [2002] NSWSC 760, after setting out this passage from Donovan, at par [156]:

   It is also appropriate, in accordance with the general principles applicable to the imposition of penalties, to take into account the nature and extent of the contravening conduct and the amount of loss or damage caused.  The presence or absence of contrition is also important.  Also, the whole of the contravening conduct must be taken into account so that the well-known “totality principle” of sentencing is not infringed.

9. A detailed discussion of the considerations relevant to the fixing of the appropriate pecuniary penalty under the Corporations Law provisions here in question appears in Adler at par [125] to [132].

10. On the findings I have made as to the quality of Parker’s relevant conduct, it would be appropriate to impose a not insubstantial amount by way of pecuniary penalty, either in the form of a single penalty or of a penalty in respect of Parker’s conduct in putting Perdriau’s application before the Board and his later conduct in failing to oversee compliance with the loan conditions.  Having regard to the fact that he received a benefit of $37,500 and the character of his conduct constituting the contraventions of the three provisions here in question, a substantial penalty, discounted to a significant extent to reflect his personal circumstances and his good character, including the testimonials evidencing that, would be appropriate. 

11. However, the loss inflicted on the LES Fund as a result of the Perdriau transaction was not caused only by the conduct of Parker. The other three directors, and particularly Dr Tarr appear to have, on the evidence before me, a significant share of responsibility for that. I recognise that because ASIC has elected not to pursue proceedings against these three directors and they are in consequence not represented in these proceedings, I am not in a position to form anything like a final view on the quality of their conduct. But the evidence before me, limited though it therefore is, suggests that these directors contributed significantly to the loss suffered by the LES Fund as a result of the Perdriau transaction by conduct well capable of constituting a contravention of s 232(4). They committed QLSS to commercial lending of LES Fund’s moneys, when the Board lacked expertise in that area, without putting in place prudential controls; they approved the loan to Perdriau, though that meant that, with the earlier two loans, over a quarter of the Fund’s entire assets had been lent out in this new area of business, without taking the trouble to look closely at the proposal and, in particular, they approved this loan at about the same time the second of the loans made by the Board on behalf of the LES Fund had gone into default. That all suggests conduct on their part pointing to each falling well short of conduct required of the Board of the trustee of a superannuation fund like LES Fund that was causative of the loss suffered from the Perdriau transaction.

12. Since the object of the penalty provision is punitive, I think I can take into account the fact that ASIC has chosen to pursue Parker alone of the four directors.  Disparity between the sentences imposed on co-offenders can justify an otherwise appropriate sentence imposed on one of the offenders being reduced.  In Lowe v The Queen (1984) 154 CLR 606, the High Court identified the reason for this sentencing principle in the fact that, in some circumstances, the disparity may be such as to give rise to a justifiable sense of grievance on the part of the particular offender and the appearance of injustice to the objective bystander looking on. See pp 610, 613 and 623. This principle is not directly applicable here by way of analogy because proceedings for a penalty have not been pursued against the other three directors. But that Parker should be singled out when he was but one of four directors responsible for the loss to the LES Fund that provoked ASIC to take action is, in my opinion, well capable of creating the appearance of injustice if I were to accede to ASIC’s submission that a pecuniary penalty be imposed on him, and on him alone.

13. I have decided not to impose any pecuniary penalty on Parker because he is by no means solely responsible for the debacle resulting in 1997 from the Board of QLSS deciding to embark upon commercial lending and, in particular, deciding to make the loan to Perdriau.  I am not, against this background, prepared to single out Parker for punishment by way of the imposition of a pecuniary penalty, though, but for that consideration, his conduct would justify a moderate penalty, something substantially less than that proposed by ASIC.

14. Moreover, I have not been prepared to find actual dishonesty on Parker’s part, though I have found a high degree of recklessness.  I also take into account here the likely impact that the disqualification will have on Parker.

15. I will accordingly make a declaration that Mr Parker, in the exercise of his powers and the discharge of his duties as an officer of QLS Superannuation Pty Ltd, contravened s 232(4) the Corporations Law by the following conduct:

    (1)submitting to the Board of Directors of that corporation his proposal for it to loan $2,500,000 to one Perdriau to refinance his existing borrowings without taking proper care to obtain information as to the performance by Perdriau of his obligations under his existing loan from the Public Trustee of Queensland and without obtaining any information as to the performance by Perdriau of his obligations under his existing loans from his three other lenders.

    (2)by his conduct between the time the Board granted conditional approval on 16 June 1997 of the loan to Perdriau and 4 July 1997 when the $2,500,000 was advanced by that corporation to Perdriau in failing to ensure that the following conditions of the loan were satisfied by 4 July 1997:

    (a)obtaining independent verification before settlement of the key business indicator represented by Perdriau of a benchmark occupancy of 80% and independent verification before settlement of an expense ratio at not more than 45%;

    (b)provision by Perdriau of a valuation from Taylor Byrne valuers that was addressed to the Board of QLSS and which valued Perdriau’s property on each of the following bases:

    (i)asset and land value;

    (ii)cost to refit and relet; and

    (iii)income yield;

    (c)obtaining verification of the reasonableness of Perdriau’s profit and loss statement for the eleven months to May 1997 by an appropriate accountant.

16. I will also declare that Mr Parker, in the exercise of his powers and the discharge of his duties as an officer of QLS Superannuation Pty Ltd, contravened s 232(2) the Corporations Law by this same conduct.

17. I will also declare that Mr Parker, in the exercise of his powers and the discharge of his duties as an officer of QLS Superannuation Pty Ltd, contravened s 232(6) the Corporations Law by the this same conduct to gain the success fee Perdriau agreed to pay him upon receipt of the loan from QLS Superannuation Pty Ltd.

I certify that the preceding one hundred and forty-four (144) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

A/Associate:

Dated:             27 March 2003

Counsel for the Plaintiff:	PDT Applegarth SC and DA Kelly
Solicitor for the Plaintiff:	Australian Securities and Investments Commission
Counsel for the First Defendant:	DG Clothier
Solicitor for the First Defendant:	Brian Bartley Associates
Dates of Hearing:	23, 24, 25 and 26 July 2002
Dates of Submissions:	21 and 27 August 2002
Date of Judgment:	27 March 2003