Olesen v Early Sunshine Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Olesen v Early Sunshine Pty Ltd [2015] FCA 12

Citation: Olesen v Early Sunshine Pty Ltd [2015] FCA 12
Parties: NEIL OLESEN, DEPUTY COMMISSIONER OF TAXATION (SUPERANNUATION) v EARLY SUNSHINE PTY LTD, BRENT CHRISTOPHER JAMESON, ERRON DOUGLAS JAMESON and BLAINE KENNETH MACDONALD
File number: NSD 1523 of 2012
Judge: FOSTER J
Date of Orders:  6 August 2013
Date of Publication of Reasons: 23 January 2015
Catchwords: SUPERANNUATION – whether the Court should make declarations and impose civil pecuniary penalties upon the directors of the trustee of a regulated superannuation fund in respect of admitted contraventions of ss 62(1), 84(1) and 109(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) in order to give effect to an agreed resolution of enforcement proceedings brought by the Deputy Commissioner of Taxation (Superannuation) as the relevant regulator
Legislation: Evidence Act 1995 (Cth), s 191
Superannuation Industry (Supervision) Act 1993 (Cth), ss 62(1), 65(1), 84(1), 109(1), 196, 197
Cases cited: Minister for Sustainability, Environment, Water, Population and Communities v Woodley (2012) 194 LGERA 290
Olesen v Eddy [2011] FCA 13; (2011) 81 ATR 763
Olesen v MacLeod [2011] FCA 229; (2011) 85 ATR 107
Olesen v Parker [2011] FCA 1096; (2011) 85 ATR 387
Date of hearing: 6 August 2013
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 38
Counsel for the Applicant: Mr J Hmelnitsky
Solicitor for the Applicant: Australian Government Solicitor
Counsel for the Respondents: Mr P Afshar
Solicitor for the Respondents: Colin Daley Quinn

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 1523 of 2012
BETWEEN:

NEIL OLESEN, DEPUTY COMMISSIONER OF TAXATION (SUPERANNUATION)
Applicant
AND:

EARLY SUNSHINE PTY LTD
First Respondent

BRENT CHRISTOPHER JAMESON
Second Respondent

ERRON DOUGLAS JAMESON
Third Respondent

BLAINE KENNETH MACDONALD
Fourth Respondent

JUDGE:

FOSTER J

DATE OF ORDER:

6 august 2013

WHERE MADE:

SYDNEY

THE COURT DECLARES THAT:

Contravention of s 62(1) by failing to ensure Fund maintained for prescribed purposes

1.The first respondent, as trustee of the George MacDonald & Sons Pty Ltd Superannuation Fund (the Fund), contravened s 62(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the Act) by failing to ensure that the Fund was maintained solely for one or more of the purposes prescribed in s 62(1) of the Act, in that the first respondent made the loans in Annexure A to these Orders for the purpose of providing financial accommodation to George MacDonald & Sons Pty Ltd in order that George MacDonald & Sons Pty Ltd could overcome deficiencies in its working capital, and failed to obtain interest on the outstanding amount of the debt owed by George MacDonald & Sons Pty Ltd.

2.The first respondent, as trustee of the Fund, contravened s 62(1) of the Act by failing to ensure that the Fund was maintained solely for one or more of the purposes prescribed in s 62(1) of the Act, in that the first respondent made a loan in the amount of…

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Details
Case
[2015] FCA 12
Decision Date

CaseChat Overview and Summary

This case involved a dispute between the Deputy Commissioner of Taxation (Superannuation) and the directors of Early Sunshine Pty Ltd, the trustee of the Early Sunshine Superannuation Fund. The Deputy Commissioner brought enforcement proceedings against the directors for admitted contraventions of sections 62(1), 84(1) and 109(1) of the Superannuation Industry (Supervision) Act 1993 (Cth). The contraventions related to loans made from the superannuation fund to a related business and company. The court was required to determine whether it should make declarations and impose civil pecuniary penalties as requested by the parties in their agreed resolution of the enforcement proceedings. The key legal issues were whether the contraventions were serious enough to warrant civil penalties and whether the agreed resolution was appropriate.

The court found that the contraventions were serious enough to warrant civil penalties. The loans made from the superannuation fund were not in accordance with the purposes specified in section 62(1) of the SIS Act, and breached the in-house asset rules and the requirement for arm’s length dealings. The court also found that the agreed resolution was appropriate and that it could and should make the declarations and final orders requested by the parties. The court imposed monetary penalties of $13,000 on each of the second to fourth respondents and ordered them to pay contributions to the applicant’s costs. The court gave the respondents liberty to apply to pay the penalties and costs by instalments.

Orders

Orders of the court

Civil Penalties

9. Pursuant to s 196(3) of the Act, within 28 days of the date of this order (subject to order 12) the second respondent pay to the Commonwealth of Australia a monetary penalty of $13,000 in respect of his conduct in contravention of the Act referred to in paragraph 7 above.

10. Pursuant to s 196(3) of the Act, within 28 days of the date of this order (subject to order 12) the third respondent pay to the Commonwealth of Australia a monetary penalty of $13,000 in respect of his conduct in contravention of the Act referred to in paragraphs 7 and 8 above.

11. Pursuant to s 196(3) of the Act, within 28 days of the date of this order (subject to order 12) the fourth respondent pay to the Commonwealth of Australia a monetary penalty of $13,000 in respect of his conduct in contravention of the Act referred to in paragraph 7 above.

12. Each of the second to fourth respondents has liberty to apply to the District Registrar to pay his monetary penalty by such time and by such instalments as the District Registrar may allow.

Costs

13. The second respondent pay a contribution to the applicant’s costs of and incidental to this proceeding fixed by agreement in the amount of $5,000, such costs to be paid within 28 days of the date of this order (subject to order 16).

14. The third respondent pay a contribution to the applicant’s costs of and incidental to this proceeding fixed by agreement in the amount of $5,000, such costs to be paid within 28 days of the date of this order (subject to order 16).

15. The fourth respondent pay a contribution to the applicant’s costs of and incidental to this proceeding fixed by agreement in the amount of $5,000, such costs to be paid within 28 days of the date of this order (subject to order 16).

16. Each of the second to fourth respondents has liberty to apply to the District Registrar to pay his costs by such time and by such instalments as the District Registrar may allow.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

I was satisfied that the resolution of the matter agreed by the parties was appropriate and I was also satisfied that I could and should make the declarations and final orders which I had been requested to make by consent.A Brief Summary of the Relevant Facts GMS was incorporated in or about 1981. Upon its incorporation, it assumed control of a business which had previously been carried on by Joseph George MacDonald in his individual capacity. In the period between about June 1995 and 31 March 2000, GMS was controlled by the second to fourth respondents. Throughout that period, GMS carried on a freight trucking business based on the New South Wales Central Coast. In 2001, the business lost its principal customer, Rosemount Estate Wines. This caused significant financial stress to the business. Further, in about 2007 and again in 2008, the business came under further financial stress as a result of a number of factors including:(a)Difficulties experienced by the business in recovering amounts owed to it by its debtors; and(b)General uncertainty in the Australian economy brought about by the global financial crisis. As a result of the financial difficulties experienced by the business in 2001 and again in 2007–2008, the second to fourth respondents caused Early Sunshine to make loans from the Fund to GMS. They also caused it to make a small loan to a company controlled by the third respondent, Vertu Pty Ltd. The conduct of Early Sunshine in making these loans and of the other respondents in causing these loans to be made constituted the contraventions of the SIS Act which were the subject of this proceeding. All of the respondents admitted the contraventions alleged against them. A total of $553,568.20 in loans was made by the Fund to GMS during the four year period from 25 June 2007 to 23 June 2011. The amount of each of the individual loans making up that total was less than $20,000 in every case. The average amount loaned was approximately $7,768. The loans made to GMS were unsecured and did not bear interest. The loan made to Vertu Pty Ltd was unsecured but did bear interest at 8.5% per annum. The length of time during which each loan was outstanding was relatively short. Typically, the loan was outstanding for only a few weeks at a time. Each of the loans was ultimately repaid in full. For this reason, the Fund suffered no loss of capital as a result of the contraventions. On 23 August 2011, Early Sunshine resolved to wind up the Fund and to roll over members’ benefits to the Transport Industry Superannuation Fund. Thereafter, it took steps to implement that resolution. Since that time, the Fund has had no assets and no liabilities and has not earned any income or incurred any expenses. It is dormant. Consideration Section 62(1) of the SIS Act provides that a trustee of a regulated superannuation fund must ensure that the fund is maintained solely for the purposes specified in that subsection. These purposes may broadly be described as superannuation purposes.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

On 23 August 2011, Early Sunshine resolved to wind up the Fund and to roll over members’ benefits to the Transport Industry Superannuation Fund. Thereafter, it took steps to implement that resolution. Since that time, the Fund has had no assets and no liabilities and has not earned any income or incurred any expenses. It is dormant. Consideration Section 62(1) of the SIS Act provides that a trustee of a regulated superannuation fund must ensure that the fund is maintained solely for the purposes specified in that subsection. These purposes may broadly be described as superannuation purposes. Section 84(1) provides that each trustee of a regulated superannuation fund must take all reasonable steps to ensure that the in-house asset rules are complied with. Those rules are found in Divs 2, 3 and 3A of Pt 8 of the SIS Act. Those rules constitute a detailed regulatory scheme which governs the dealings which a regulated superannuation fund is permitted to have with associated or related parties. Section 109(1) of the SIS Act requires that all dealings by a trustee of a superannuation entity must be at arm’s length. Section 196 of the SIS Act provides:196 Court may make civil penalty orders(1)This section applies if the Court is satisfied that a person has contravened a civil penalty provision, whether or not the contravention also constitutes an offence because of section 202.Note:Section 220 provides that a certificate by a court that the court has declared a person to have contravened a civil penalty provision is conclusive evidence of the contravention.(2)The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified superannuation entity, but need not so declare if such a declaration is already in force under Division 4.(3)The Court may also make against the person an order that the person pay to the Commonwealth a monetary penalty of an amount specified in the order that does not exceed 2,000 penalty units.(4)The Court is not to make an order under subsection (3) unless it is satisfied that the contravention is a serious one.(5)The Court is not to make an order under subsection (3) if it is satisfied that an Australian court has ordered the person to pay damages in the nature of punitive damages because of the act or omission constituting the contravention. As I have already noted, each of ss 62(1), 84(1) and 109(1) is a civil penalty provision for the purposes of s 196 of the SIS Act. Early Sunshine was the primary contravenor. The second to fourth respondents are liable in respect of its contravention as a result of the operation of s 194 of the SIS Act which provides that, for the purposes of Pt 21 (which includes s 196), a person who is involved in a contravention of a particular provision of this Act is taken to have contravened that provision. The second to fourth respondents accepted that they were “persons involved” within the meaning of s 194 of the SIS Act for present purposes. The acceptance of that proposition was justified.