Olesen v Parker

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FEDERAL COURT OF AUSTRALIA

Olesen v Parker [2011] FCA 1096

Citation: Olesen v Parker [2011] FCA 1096
Parties: NEIL OLESEN, DEPUTY COMMISSIONER OF TAXATION (SUPERANNUATION) v DAVID PARKER and CHERYL PARKER
File number: VID 302 of 2011
Judge: GORDON J
Date of judgment: 23 September 2011
Catchwords: SUPERANNUATION – Superannuation Industry (Supervision) Act 1993 (Cth) ss 62(1), 82, 83(2), 84(1), 109(1A), 196(4), 221, 323 – regulated superannuation fund – self-managed superannuation fund ‑ in-house assets – related party – Part 8 associate – seriousness of contraventions – acted honestly – ought fairly to be excused – reasonable mistake – reasonable reliance on information supplied by another person – monetary penalty
Legislation: Superannuation Industry (Supervision) Act 1993 (Cth)
Cases cited: Australian Prudential Regulation Authority v Holloway (2000) 104 FCR 521
Australian Prudential Regulation Authority v Holloway (2000) 45 ATR 278
Australian Prudential Regulatory Authority v Derstepanian (2005) 60 ATR 518
Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003
Dolevski v Hodpik Pty Ltd [2011] FCA 54
Geraldton Building Co Pty Ltd v May (1977) 136 CLR 379
Olesen v Eddy [2011] FCA 13
Olesen v MacLeod [2011] FCA 229
Raelene Vivian, suing in her capacity as Deputy Commissioner of Taxation v Robert Burley Fitzgeralds [2007] FCA 1602
Date of hearing: 13 September 2011
Date of last submissions: 21 September 2011
Place: Melbourne
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 87
Counsel for the Applicant: Mr P Gray
Solicitor for the Applicant: Australian Government Solicitor
Counsel for the First and Second Respondents: The First and Second Respondents appeared in person

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 302 of 2011
BETWEEN:

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

DAVID PARKER
First Respondent

CHERYL PARKER
Second Respondent

JUDGE:

GORDON J

DATE OF ORDER:

23 SEPTEMBER 2011

WHERE MADE:

MELBOURNE

THE COURT DECLARES THAT:

Contravention of s 84(1) by breaching in-house rules

1.On or about 1 May 2005, each of the First and Second Respondents contravened s 84(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the Act) by failing to take reasonable steps to comply with s 83(2) of the Act, in that they made a loan of $65,000 to Triton 2001 Pty Ltd (Triton) increasing the market value ratio of the in-house assets of the D&C Parker Superannuation Fund (the Fund), which ratio was immediately prior to the making of that loan already above the maximum market value ratio of 5% allowed under the Act.

2.On or about 4 July 2005, each of the First and Second Respondents contravened s 84(1) of the Act by failing to take reasonable steps to comply with s 83(2) of the Act, in that they made a loan of $128,538 to Triton increasing the market value ratio of the Fund’s in-house assets, which ratio was immediately prior to the making of that loan already above the maximum market value ratio of 5% allowed under the Act.

3.On or about 6…

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Details
Case
[2011] FCA 1096
Decision Date

CaseChat Overview and Summary

In the matter of Olesen v Parker, the applicant sought civil penalties against the respondents, the trustees of a self-managed superannuation fund (SMSF), for breaches of the Superannuation Industry (Supervision) Act 1993 (Cth). The breaches included failure to obtain payments on loans to related entities, exceeding the allowable market value ratio for in-house assets, and not preparing written disposal plans for in-house assets. The SMSF had investments in a company, Adzparadox, which was related to the fund, and loans to the company were not repaid, leading to further breaches of the Act. The Australian Taxation Office (ATO) conducted audits and found these contraventions, leading to the disqualification of the respondents as trustees.

The primary legal issues before the court were whether the contraventions identified by the ATO were serious enough to warrant civil penalties under the Act and whether the respondents acted honestly and ought to be excused for their actions. The court had to consider the seriousness of the contraventions, the respondents' awareness of their obligations, and whether they had a reasonable mistake or relied on information provided by another party. The court also needed to determine if the respondents' actions warranted a monetary penalty under the Act.

The court found that the contraventions were serious and that the respondents were aware of their obligations but chose to breach the Act. The court rejected the respondents' argument that they reasonably believed the investments were not in breach of the Act based on advice from an accountant. The court held that Adzparadox was a related party, and the loans to the company constituted in-house assets, which were in breach of the Act. The court concluded that the respondents did not act honestly or have a reasonable mistake and were not entitled to be excused. Therefore, the court ordered the respondents to pay monetary penalties and the applicant's costs. The First Respondent was ordered to pay $35,000, and the Second Respondent was ordered to pay $15,000. Both penalties were to be paid by 24 October 2011, or by such instalments as the District Registrar may allow. The respondents were also ordered to pay the applicant's costs of $5,000 by the same deadline.

Orders

Orders of the court

43. Pursuant to s 196(3) of the Act, on or before 24 October 2011, or by such time and by such instalments as the District Registrar may allow, the First Respondent pay to the Commonwealth of Australia a monetary penalty of $35,000 in respect of his conduct in contravention of the Act referred to in paragraphs 1 to 42 above.

44. Pursuant to s 196(3) of the Act, on or before 24 October 2011, or by such time and by such instalments as the District Registrar may allow, the Second Respondent pay to the Commonwealth of Australia a monetary penalty of $15,000 in respect of her conduct in contravention of the Act referred to in paragraphs 1 to 42 above.

45. The Respondents pay the Applicant’s costs of and incidental to this proceeding fixed in the sum of $5,000, such costs to be paid on or before 24 October 2011, or 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

The relevant civil penalty provisions are in Pt 21 of the Act entitled “Civil and criminal consequences of contravening civil penalty provisions”. Section 193 of the Act provides that each of ss 62(1), 84(1), and 109(1A) is a civil penalty provision. Section 196 in Pt 21 of the Act entitled “Court may make civil penalty orders” provides:(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.…(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.No order of the kind referred to in s 196(5) has been made in relation to the Respondents’ conduct the subject of this proceeding.FACTS As noted earlier, the parties filed a statement of agreed facts. A number of facts were not the subject of agreement. What follows is a summary of the relevant agreed facts together with the findings of fact in relation to the disputed facts. Parties and audits The Applicant brings this proceeding pursuant to s 197(1) of the Act as delegate of the “Regulator” within the meaning of s 10(1) of the Act. The Respondents were at all material times from about 21 May 2001 the trustees of the Fund. The Fund is and was at all material times:1.a “superannuation fund” within the meaning of s 10(1) of the Act; and2.a “regulated superannuation fund” within the meaning of s 19 of the Act. In addition, at all material times, the Respondents were the trustees of the Fund and the governing rules of the Fund, contained in the Fund’s Trust Deed, provided that the sole and primary purpose of the Fund was to provide old-age pensions to or in respect of members or for a member’s dependants in the event of the death of a member. On about 21 May 2001, the Respondents gave the Commissioner of Taxation written notice in the approved form electing that the Act was to apply in relation to the Fund. As a result, from that date, the Fund was a “self managed superannuation fund” within the meaning of s 17A of the Act. In particular, the Fund has had fewer than five members, the Fund’s trustees have been individuals (the Respondents who are each members of the Fund), the Fund’s sole members (the Respondents) have each been trustees of the Fund, the Fund’s members have been relatives (husband and wife) and the Fund’s trustees have not received any remuneration from the Fund or from any person for any services performed by them in relation to the Fund.

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

In relation to Cherchem, financial assistance was provided by failing to obtain payment of any part of the principal of, or interest on, the outstanding amount of the CMS / Cherchem Loan in each of the 2005, 2006, 2007 and 2008 income years: see [30] and [34]-[35] above.Exceeding of market value ratio and failing to prepare written plans Further, there was no dispute that from 30 June 2005 until 30 June 2008, the market value ratio (see [32] and [33] above) of the Fund’s in-house assets, being the ratio of the total value of the Fund’s in-house assets to the total value of all the Fund’s assets, greatly exceeded the maximum permissible market value ratio of 5%. Set out below is a summary of the ratio of the total value of the Fund’s in-house assets to the total value of all the Fund’s assets as disclosed by the evidence: There was also no dispute that the Respondents, as trustees of the Fund, were required by s 82 of the Act to prepare a written plan by 30 June 2007 for the disposal of in-house assets of the Fund as at 30 June 2006 and a written plan by 30 June 2008 for the disposal of in-house assets of the Fund as at the 30 June 2007, to the extent that their market value ratio exceeded 5% of the Fund’s total assets. No written plan was prepared and no steps were taken towards preparing such a written plan by 30 June 2007 or 30 June 2008, or at all. Respondents’ awareness of their obligations and breaches of the Act The Respondents were aware of their obligations as trustees of the Fund, including the obligations not to exceed the 5% market value ratio in respect of in-house assets, to prepare a written plan to reduce the level of in-house assets, to maintain investments of the Fund at arm’s length, and to ensure that the Fund was maintained for one or more of the permitted purposes under s 62(1) of the Act. Moreover, the Respondents accept that they were generally aware that they were acting in breach of the Act by exceeding the 5% market value ratio in respect of in-house assets, by failing to maintain investments of the Fund at arm’s length, and by failing to ensure that the Fund was maintained for one or more of the permitted purposes under s 62(1) of the Act. The Respondents submitted that they did not believe that the investments in Adzparadox (including the loans to that company) were made to a related entity and were therefore in breach of the in-house assets rules by reason of advice from an accountant to the effect that there was no problem in the Fund investing in that company. As I have earlier found, I reject that contention. Adzparadox was a related party of the Fund (see [27] above) and each loan or investment was an “in-house asset” (see [33] above) of the Fund. Consequences of second audit and contraventions of the Act identified by the ATO By reason of the contraventions of the Act identified as a result of the audit started in August 2008, the ATO decided to disqualify the Respondents as trustees of the Fund. Notices of disqualification were issued and sent to the Respondents on or about 11 May 2010.