Re Ferrari Furniture Co Pty Ltd - [2002] NSWSC 483

No judgment structure available for this case.

Reported Decision:
42 ACSR 80
(2002) 20 ACLC 1146

New South Wales

Supreme Court

CITATION: ASIC v Adler & 4 Ors [2002] NSWSC 483

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 2753/01

HEARING DATE(S): 06/05/02, 07/05/02

JUDGMENT DATE: 30 May 2002

PARTIES :

In the matter of HIH Insurance Limited (in provisional liquidation) ACN 008 636 575 and HIH Casualty and General Insurance Limited (in provisional liquidation) ACN 008 482 291
Australian Securities & Investments Commission
Plaintiff
Rodney Stephen Adler
First Defendant
Raymond Reginald Williams
Second Defendant
Dominic Fodera
Third Defendant
Adler Corporation Pty Ltd (ACN 054 924 373)
Fourth Defendant
Lynda Sharon Adler
Fifth Defendant

JUDGMENT OF: Santow J

COUNSEL :
R B S Macfarlan QC/ P Durack/ A Abadee (Plaintiff)
B W Walker, SC (First and Fourth Defendants)
P Crutchfield (Second Defendant)
J E Sexton, SC (Third Defendant)

SOLICITORS: Jan Redfern, Solicitor for ASIC (Plaintiff)
Gilbert & Tobin (First and Fourth Defendant)
Arnold Bloch Leibler (agent: Sparke Helmore) (Second Defendant)
Dibbs Crowther & Osborne (Third Defendant)
Speed and Stracey (Fifth Defendant)

CATCHWORDS: CORPORATIONS - Disqualification order from managing a corporation - Relevant principles and factors - Contrition - Impossibility of order limited to public companies - disqualified person can later apply for permission on a restricted or conditional basis - Compensation order - Relevant principles - Difficulty of differentiation between Defendants - Pecuniary penalty order - Relevant principles and factors - Totality principle - Relevance of multiple contraventions - Exoneration - Appearance of honesty - Relationship between civil and criminal prosecution.

LEGISLATION CITED: Corporations Act 2001; s180 to s183; s206E; s206G; s208; s209; s260; s260A; s260C; s260D; s1317G; s1317H; s1317P; s1317Q; s1317S; s1318
Evidence Act 1995 (NSW) s128

CASES CITED: Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (No. 2) ([2002] FCA 559 ,3 May 2002, unreported)
Australian Competition and Consumer Commission v George Weston Foods Ltd (2000) ATPR 41-763
ACC v Rural Press Limited [2001] ATPR 41-833
ACCC v Universal Music Australia Pty Limited (No. 2) [2002] FCA 192
ASIC v Adler & Ors [2002] NSWSC 171; (2002) 41 ACSR 72
ASC v Donovan (1998) 28 ACSR 583
ASC v Forem- Freeway Enterprises (1999) 30 ACSR 339
Beech Petroleum NL v Kennedy (1999) 48 NSWLR 1
Brickenden v London Loan and Savings (1934) 3 DLR 465
Commonwealth Bank of Australia v Friedrich (1990-1) 5 ACSR 115
Re Gold Coast Holdings Pty Ltd ASIC v Papatto (2000) 35 ACSR 107
ASIC v Hutchings (2001) 38 ACSR 387
ASIC v Parkes (2001) 38 ACSR 355
ASIC v Pegasus Leveraged Options Group P/L & Anor [2002] NSWSC 310
ASC v Roussi (1999) 32 ACSR 568
ASC v Donovan at 609; ASC v Spencer (1997) 25 ACSR 143
Barisic v Devenport [1978] 2 NSWLR 111
Bell v Thompson (1943) 34 SR(NSW) 431
Commissioner for Corporate Affairs v Ekamper (1987) 12 ACLR 519
D'Angola v Rio Pioneer Gravel Co Pty Ltd [1979] 1 NSWLR 495
Re Magna Alloys & Research Pty Ltd (1975) ACLR 203
NW Frozen Foods Pty Ltd v ACC (1996) 71 FCR 285
P.O. Morris Ltd v Perrott and Bolton [1945] 1 All ER 567
Pearce v the Queen (1988) 194 CLR 610
Power (Brett) Wayne [1999] NSWCCA 25, 5 March 1999, unreported)
Queensland v JL Holdings Pty Limited (1997) 189 CLR 146
R v Towey (1996) 21 ACSR 46
Re Strikers Management P/L;ASC v Dimitri (Burchett J, Federal Court of Australia, 7 May 1997, unreported)
Re Tasmanian Spastics Association; ASC v Nolan (1996) 23 ACSR 743
Trade Practices Commission v CSR Limited [1991] ATPR 52-135
Trade Practices Commission v Simpson Pope Ltd (1980) 30 ALR 544
Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 17-882
Wong v R (2002) 185 ALR 233

DECISION: Orders for relief made; see paras 110, 124, 160, 187, 188.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SANTOW J

In the matter of HIH INSURANCE LIMITED

(in provisional liquidation)

ACN 008 636 575

and HIH CASUALTY AND GENERAL INSURANCE LIMITED

(in provisional liquidation)

ACN 008 482 291

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
Plaintiff

RODNEY STEPHEN ADLER
First Defendant
RAYMOND REGINALD WILLIAMS
Second Defendant
DOMINIC FODERA
Third Defendant
ADLER CORPORATION PTY LTD (ACN 054 924 373)
Fourth Defendant
LYNDA SHARON ADLER
Fifth Defendant

Tables of Contents

Page

INTRODUCTION

NARRATIVE

Background - the Impugned Transactions

CONTRAVENTIONS FOUND AGAINST DEFENDANTS

RELIEF SOUGHT BY ASIC

Declarations

Compensation

FACTUAL FINDINGS

Mr Adler and Adler Corporation - findings.

Mr Williams - findings.

Mr Fodera - findings.

ADDITIONAL EVIDENTIARY MATERIAL

Mr Williams - additional material

Mr Adler and Adler Corporation - additional material.

Mr Williams - affidavit material.

Mr Fodera - additional material.

Contribution

RELIEF SOUGHT

Disqualification - First Defendant

Conclusion

Compensation

Conclusion

Pecuniary Penalty

Mr Williams

Disqualification

Compensation

Pecuniary Penalty

Conclusion

Mr Fodera

Disqualification

Compensation

Pecuniary Penalty

Conclusion

OVERALL CONCLUSION AND ORDERS 71

INTRODUCTION

1 On 14 March 2002, I gave judgment in which I made findings of contraventions of the Corporations Act. Those findings were in relation to certain impugned transactions (see [5] to [12] below) involving one or more of four Defendants, namely Mr Adler, Mr Williams and Mr Fodera, and Adler Corporation Pty Ltd (“Adler Corporation”). Those findings are summarized below (see [13] to [18] below). They are described with greater particularity in the declarations subsequently made, whose formulation is explained in my subsequent judgment of 27 March 2002.

2 Relief, as laid down in orders made as early as 26 November 2001 and made with all parties’ consent, was deferred till after liability had been determined, and after further submissions had been thereafter received. Submissions were subsequently made pursuant to the timetable subsequently agreed by all parties on 21 March 2002. Following those events, an application was made to the Court of Appeal by the First and Fourth Defendants for a stay of these further proceedings in the Equity Division; it was dismissed by Handley JA on 29 April 2002 with reasons. Consequently, this judgment now determines that relief. It does so, taking into account

(b) additional affidavit evidence filed without material objection on behalf of the first three Defendants and other evidence of a limited nature admitted without objection (see [32] to [49] below).

3 The narrative which follows gives an overview of the relevant findings of the earlier judgment of 14 March 2002 and a distillation of the submissions. Greater elaboration follows, when I deal with each Defendant in terms of relief.

4 A foreshadowed application for a stay of any orders made pursuant to the judgment is for later consideration on 5 June 2002.

NARRATIVE
Background - the Impugned Transactions

5 This background section complements the narrative that is more fully elaborated in the Reasons for Judgment (“the Judgment” in ASIC v Adler & Ors [2002] NSWSC 171; (2002) 41 ACSR 72. That narrative and this judgment is cross-referenced to paragraphs of the Judgment.

6 The Plaintiff (“ASIC”) relied upon what it has identified as nine “transactions”, or “episodes”, giving rise to contraventions of the Corporations Law by the First (“Adler”) and Fourth (“Adler Corporation”) Defendants.

7 In the Judgment at [4] these are grouped together four “sets” of transactions comprising nine in all, namely

(b) the purchase, following (a) above, of shares in HIH Insurance Limited (“HIH”) by the trust, out of part of the $10 million (one transaction);

(c) the sales by Adler interests to the trust of three unlisted investments owned by them at cost (three transactions); and

(d) four loans made by the trust to Adler associated interests (four transactions).

8 The first of the nine transactions ((a) above) was the payment by cheque of $10 million on 15 June 2000 by HIH Casualty and General Insurance Ltd (“HIHC”) to Pacific Eagle Equity Pty Ltd (“PEE”), a company controlled by Mr Adler and the trustee of AEUT. It was this transaction, held to contravene s208 of the Corporations Law [193], which provided the foundation for claims of contraventions of the Corporations Law (s209(2)) upheld against Messrs Adler [199], Williams [199] and Fodera [217], and Adler Corporation [199] by reason of the respective involvement of each.

9 The second transaction ((b) above) was the payment by Mr Adler out of the said $10 million of a sum of $3,991,856.21 for the purchase of shares in HIH over an approximate two-week period starting on 15 June 2000. Those shares were subsequently sold by AEUT at a loss of $2,121,261.11 on 26 September 2000, just over three months later. It was this transaction with the preceding one which in combination contravened s260A of the Corporations Law [355]. It thus provided the foundation for claims of contraventions of the Corporations Law (s260D(2) upheld against Messrs Adler, Williams and Fodera and Adler Corporation, by reason of the respective involvement of each [369]. It also provided the basis for claims of contravention of the Corporations Law (director’s and officer’s duties) upheld against Messrs Adler [387], [394] (and see also [577(d)]), Williams [453] [461] and Fodera [512], and Adler Corporation [387] [775(4)] (and see also [732] in relation to Mr Adler’s accessory liability in Mr Williams’ contravention of s182 of the Corporations Law).

10 The third to fifth transactions ((c) above) involved the use of part of the $10 million payment for the purchase at cost from Adler interests of three investments in unlisted technology and communication stocks. Those purchases comprised the acquisition by AEUT of shares in dstore Limited on 25 August 2000 (for $500,002), Planet Soccer International Limited on 25 August 2000 (for $820,748) and Nomad Telecommunications Limited on 26 September 2000 (for $2,539,000). AEUT suffered a loss on these investments in the sum of $3,859,002 (disregarding interest). It was these transactions which provided the foundation for claims of contravention of directorial duties upheld against Mr Adler [577] [621] [678] and Adler Corporation [578], [621], [678].

11 The sixth to ninth transactions involved Mr Adler causing AEUT to make four unsecured loans totalling $2,084,345 in the period between 26 July 2000 and 30 November 2000, to Morehuman Pty Ltd ($160,000), Intagrowth Fund No. 1 ($500,000), Pacific Capital Partners ($200,000) and PCP Ensor No. 2 Pty Limited ($1,275,475). It was these transactions which also provided the foundation for claims of contravention of directorial duties upheld against Mr Adler [694], [706], [730] and Adler Corporation [694], [706], [730].

12 All of the Defendants contended at the hearing on relief that the transactions directly involving each of them should be viewed as a single transaction. Mr Adler and Adler Corporation in particular relied upon paragraphs [141] especially paras (c) and (f) thereof, [191] and [193] of the Judgment; see written submissions dated 3 May 2002, paras 27-28.

13 In the Judgment, HIH and HIHC (who were not parties to the proceedings) were held in the circumstances found to have contravened

Corporations Law

(b) s260A (financial assistance for the purchase of shares) of the Corporations Law by such payment of $10 million followed by the purchase of shares by AEUT from part of the $10 million; paras [182], [183] and[355].

14 Mr Adler and Adler Corporation, as well as the Second Defendant (“Mr Williams”) and Third Defendant (“Mr Fodera”), were also found to have been relevantly “involved” in those contraventions, so as to place themselves in breach of (respectively) ss209(2) and 260D(2) of the Corporations Law; [199], [217] & [369].

15 Mr Adler was held to have contravened his directorial duties, or duties as an officer, that were owed to HIH and HIHC and (save in relation to s183) PEE, under ss180, 181, 182 and 183 of the Corporations Law, by reason of the transactions, described above: [387], [577], [694], [706] & [730]. Adler Corporation was found to have been “involved” in these contraventions, so as to be liable itself under ss181(2), 182(2) and 183(2) of the Corporations Law: [578]. Mr Adler was also relevantly involved in Williams’ contravention of his duty under s182 so as to be liable himself under s182(2): [731].

16 Mr Williams was held to have contravened his directorial duties, or duties as an officer, owed to HIH and HIHC, under ss180 and 182 of the Corporations Law, through his involvement with the payment of $10 million by HIHC to PEE: [453], [461].

17 Mr Fodera was also held to have contravened his directorial duties, or duties as an officer, owed to HIH and HIHC under s180(1) of the Corporations Law, through his involvement with the payment of $10 million by HIHC to PEE: [512(a)].

18 In submissions on relief, ASIC pointed out that it was found or derived from the Judgment that there were 101 contraventions of the Corporations Law by Mr Adler; 84 by Adler Corporation; seven by Mr Williams and five by Mr Fodera; see T, 31.20 and the attachment A to this judgment. This multiplicity was put by ASIC not so much as having significance as to pecuniary penalty, but of some general relevance in relation to disqualification as a director.

RELIEF SOUGHT BY ASIC
Declarations

19 Following publication of the Judgment, declarations were made in respect to these contraventions, pursuant to s1317E(1) of the Corporations Act 2001 (Cth) on 27 March 2002, with brief reasons accompanying, as to their formulation.

20 Apart from these declarations, ASIC sought disqualification orders, compensation orders and pecuniary penalties against Messrs Adler, Williams and Fodera pursuant to ss206C, 1317H and 1317G of the Corporations Act respectively, as well as compensation orders and pecuniary penalties against Adler Corporation. ASIC submitted that the disqualification orders for Mr Adler and Mr Williams should be significantly longer than for Mr Fodera. It also submitted that it should be borne in mind that s206G of the Corporations Act retains in the Court the discretion, should future application be made, to give leave in appropriate circumstances to disqualified persons again to manage corporations; also to impose exceptions and conditions on that leave; (s206G(3)). That should be contrasted with the “all or nothing” character of a disqualification order, save as to period; s206C.

Compensation

21 In respect to the issue of compensation, the evidence from ASIC’s expert, Mr Carter was accepted in the earlier judgment that HIH, HIHC and PEE suffered loss in respect of the $10 million payment in the sum of $7,768,000 plus interest from 31 August 2001: [741] – [742]. In supplementary affidavit evidence sworn by Mr Carter interest had been calculated up to 7 May 2002. ASIC submitted at the hearing on relief that the total loss was $8,095,451. That figure however requires adjustment following a concession made on behalf of ASIC during the hearing on relief, by giving credit for certain receipts for assumed repayments on maturity of the assumed 30 day bills. The parties agreed to submit a revised figure reflecting this. That revised figure, as since calculated by ASIC (see its letter of 16 May 2002 accompanying a revised calculation by Mr Carter as at 7 May 2002) is $7,958,112. That sum, together with interest from 7 May 2002 to the date of judgment, represents the compensation order now sought. There is however still apparently some dispute as to the proper arithmetic effect of ASIC’s concession (see fax from First Defendant’s solicitors of 16 May 2002). If not resolved, I shall if necessary hear submissions on the final calculation, whilst provisionally accepting ASIC’s figure.

22 At the hearing on relief, issue was again taken as to whether any loss, or that loss, relevantly “resulted from” the identified contraventions, including the investment of monies in thirty-day bank bills. In particular, notwithstanding the Judgment (at [769] to [774] the Defendants submitted that:

(b) there had been evidence at the hearing that had the transactions been brought to the attention of HIH’s board, the transactions would have been ratified (disputed by ASIC); and

(c) the investments made after the Board became aware of the original transaction totalled more than $4 million (T, 102.20 7 May 2002) (a submission which ASIC does not concede is an accurate reflection of the facts as there is no evidence that the Board were aware of the investments itemised in the schedule handed up, reproduced below).
INVESTMENTS MADE AFTER 12 SEPTEMBER 2000 (according to Third Defendant)

DATE	TRANSACTION	COST ($)	CARTER 27.9.01
20 Sep 2000	Loan of $500,000 to Intagrowth Fund No 1	500,000.00	page 21
26 Sep 2000	Acquisition of 1,813,572 Nomad shares	2,554,234.00	page 13
26 Sep 2000	1/7 interest in Jewish Minds	100,000.00	page 21
3 Oct 2000	Acquisition of 1 million Psiron shares	1,000,000.00	page 14
4 Oct 2000	Acquisition of 2/7 interest in Jewish Minds	200,000.00	page 21

FACTUAL FINDINGS

23 At the hearing on relief, ASIC relied upon the factual findings made in the Judgment dated 14 March 2002. These findings are summarized in paragraph [774], under the heading “Recapitulation of Conclusions”. ASIC also emphasised serious findings made against the Defendants personally, particularly Mr Adler and Mr Williams, to which reference will be made.

Mr Adler and Adler Corporation - findings.

24 Mr Adler was found to have instigated the $10 million investment, its investment in HIH shares, and its later application in making the unlisted investments loans. He did so without taking any steps towards obtaining the approval of the HIH Board, or its investment committee. His purpose in causing PEE to purchase shares in HIH was to stabilize or maintain the HIH share price, or at least prevent it from falling by an even greater amount than it did. He did this for the benefit of his company’s substantial shareholding in HIH; evidenced by his deliberately passing up the opportunity to sell at a profit on 11 July 2000, and maximizing the ultimate loss to AEUT (and therefore HIH) by selling first his own company’s shares in HIH, in a falling market (see [141], [165], [280]). Moreover, it was found that Mr Adler intended that the $10 million payment would not come to the attention of the investment committee (see [254]).

25 In respect to the unlisted investments, AEUT suffered the known (to Mr Adler) prospect of a likely loss on the three investments, when these investments were to varying degrees at real risk. It was found that there had been a heightened risk of a total loss between the time when Adler Corporation purchased these investments and the change in market conditions in mid-April 2000. Mr Adler had lost confidence in these investments and on-sold them to AEUT at cost to AEUT, without due diligence, and in a context of misleading statements and omissions by Mr Adler in relation to their sale: [681].

26 In relation to the loans, Mr Adler caused PEE, as trustee of AEUT, to make the loans generally without adequate documentation, without adequate security and without advantage to AEUT. Specifically, the loans to Morehuman and Intagrowth Fund No 1 were made without adequate documentation, no documented obligation to pay interest and no security other than an inadequately documented guarantee. The loans to PCP and PCP Ensor were disadvantageous to HIH/PEE because they were made without security other than the Wolf (unsecured) guarantee and in respect of the PCP Ensor loan, for a very limited share of profits which was never paid. This was in a context where the loans were not brought to the attention of the other members of the Board or investment committee of HIH (except for Mr Williams): [694], [706] and [730]. Furthermore, Mr Adler had a substantial interest in Morehuman, Intagrowth Fund No 1 and PCP: [693], [705] and [708]. The PCP Ensor loans were favourable to Mr Adler because of his apparent entitlement to a very substantial share of the profits in respect of the Manly Development Project and payments via PCP's role as project manager in that project: [730]. It was found that the loans to Morehuman and Intagrowth Fund No 1 were repaid with interest: [690] and [702].

27 In support of (and appended to) its written submissions, ASIC referred to several other findings in the Judgment against Mr Adler that were relevant to relief. Those findings included false impressions that Mr Adler conveyed to: financial journalists and the press ([121-7], [148], [155], [161], [219]); to the market generally through his s205G notice ([146] – [148]); to the solicitors for HIH ([169], [307]); to the Chairman of HIH ([300]); and to other directors and investors of HIH ([571-572], [611] – [613]). Mr Adler’s failure to fully and frankly disclose his involvement in what had occurred, even at the end of 2000, and his semi-covert bypassing of proper corporate safeguards, was described in the Judgment as reflecting a consciousness of impropriety on Mr Adler’s part([296], [387]). His conduct generally was designed to advance his own interests, and those of Adler Corporation, to the detriment of those companies to whom he had obligations as director or officer ([164(xi), [170], [277], [725]). At [776] it is stated that “on the evidence presently before me I consider that the contraventions by Mr Adler (and Adler Corporation) the most serious of all”.

28 Mr Adler concedes that the findings made against him were serious, but says that the seriousness differs in respect of each aspect of the transaction. For example, Mr Adler submitted that a loan to an associate which was repaid in full with interest is of a much lower level of seriousness than some of the other findings against him.

Mr Williams - findings.

29 It was found that the $10 million payment was carried out at Mr Adler’s initiative and with Mr Williams’ concurrence and direction [198]. Mr Williams caused and procured the payment; which followed prior discussions with Mr Adler regarding the trust, and the intended purchase of the shares in HIH [141], [398]. Mr Williams took no steps to obtain approval of the HIH Board or investment committee [141]. Moreover, it was found that Mr Williams intended that the $10 million payment would not come to the attention of the investment committee [254].

30 ASIC also appended to its written supplementary submissions on relief a table containing reference to serious findings made against Mr Williams. It was found, essentially, that Mr Williams’ conduct went beyond a mere error of judgment, and amounted to a gross disregard of HIH’s interests [451]. His conduct featured misleading information being provided to the board of HIH [248], and the solicitors for HIH [307]. He failed to correct misstatements by the solicitors [334] and by Mr Adler [433]. His failure to fully and frankly describe his involvement at the end of 2000 constituted an admission of his consciousness of the impropriety surrounding the payment [296]. The Judgment also notes in conclusion that “he did not profit in the way Mr Adler and Adler Corporation profited by the investments derived from Adler Corporation or the loans made to Adler Corporation or Adler related entities [776].

Mr Fodera - findings.

31 Mr Fodera was found to have facilitated the $10 million payment, whilst removing a potential impediment (Mr Balhausen), though he tried to keep himself at a safe distance, or wash his hands of it; treating it as Mr Williams’ deal [141], [215], [217], [398], [492]. He sensed the impropriety of the transaction [215]. He also took no steps to obtain investment committee or board approval [141], [512] from his return from overseas in July until 8 or 12 September 2000, when the auditors drew attention to the transaction [512] although it was found that Mr Fodera simply overlooked it [511]. It was found that Mr Fodera was not aware “of the prospect or actuality of those unlisted investments and loans” [513] and no finding of “lack of good faith or improper purpose or dishonesty” was made [512] The Judgment concludes that his “failings were of a significantly lesser order, though still amounting to contraventions in the respects earlier identified. Basically, his failure was as a responsible director in facilitating the original $10 million payment knowing it was to be used (in part) to buy HIH shares and in neglecting to ensure that the proper processes were followed for approval of the relevant transactions after Messrs Adler and Williams had failed to bring that about” [776].

ADDITIONAL EVIDENTIARY MATERIAL
Mr Williams - additional material

32 At the commencement of the hearing on liability, on 26 November 2001, it was noted that the judgment would, in the event ASIC was successful, be provisional only in so far as the question of relief was concerned, and that the Defendants would be given the opportunity to file supplementary evidence as to character relevant to that issue.

33 At a directions hearing on 21 March 2002, which followed delivery of reasons for judgment, Mr Crutchfield, Counsel for Mr Williams, foreshadowed his client’s intention to file an affidavit that would express his contrition and also explain the motivation for payment. Reference was made to the direction on 26 November 2001 and it was reiterated that evidence could only be filed as to character; statements of contrition would bear upon character. It was foreshadowed that statements of motive would be regarded as inadmissible.

Mr Adler and Adler Corporation - additional material.

34 At the hearing of relief, Mr Adler relied upon two affidavits he had earlier sworn in an application to the Court of Appeal for a stay of the hearing on relief (which application was unsuccessful). Those affidavits were admitted on the condition that Mr Adler would not use them in relation to any further stay application.

35 In broad terms, those affidavits referred to publicity Mr Adler had received since the commencement of the proceedings, his business dealings through Adler Corporation, his resignation of public company directorships (and its financial consequences for him), the cessation of his involvement in equities and margin trading, his withdrawal from and sale of joint venture investments; his intention to resign from other private company directorships, and his inability to realize assets in the sum of $10 million.

36 Mr Adler also relied upon favourable affidavit evidence relating to his character from the Honourable Marcus Einfeld AO, QC, PhD, David Lance, Leon Carr and Rabbi Pinchus Feldman.

37 In addition to the findings in the Judgment against Mr Adler, ASIC relied upon an extract from the HIH Part B statement (tendered as PX15 in the liability hearing, but PRX2 in the relief hearing). Page 5 of that document revealed that Mr Adler had 61,698,210 shares in FAI, shortly prior to the takeover of FAI by HIH.

38 ASIC also relied upon a facsimile from Mr Adler’s solicitors to ASIC dated 7 November 2001 (tendered as PRX4), responding to the latter’s request for discovery of Mr Adler’s trading in equity or property investments in June and July 2000. Mr Adler’s solicitors rejected the request for discovery, citing that discovery of this category of documents would “involve searching and producing thousands of additional documents”.

39 ASIC relied upon correspondence exchanged between Mr Peter Thompson and Mr Adler in March 2001 (tendered as PRX5). At that time, ASIC was investigating the circumstances surrounding payment of the $10 million, and sought to confirm that HIH had produced all relevant documents. In a memo dated 28 March 2001 addressed to many HIH directors (including Mr Adler), Mr Thompson sought information as to whether HIH had documents falling within a range of categories. In his facsimile response the same day (on the letterhead of Adler Corporation) Mr Adler described Mr Thompson’s memo as “most dangerous and not thought out” and expressed his concern that the facsimile was not privileged. He concluded his facsimile by asserting that Mr Thompson was “putting at risk the company, everyone that you write to and yourself.”

Mr Williams - affidavit material.

40 Mr Williams read favourable affidavit evidence on character from Father David Smith and Professor Martin Silink.

41 He also swore an affidavit himself, in which he said he “deeply regret(s) the consequences of the PEE transaction on HIH and HIHC.”

42 Paragraphs 2 and 3 (second and third sentences) of his affidavit were objected to by ASIC. The objection to para 2 was upheld. In respect to the part of para 3 objected to, Mr Williams was invited to put evidence in chief during the hearing. That opportunity was not utilized.

43 Mr Williams also relied upon an agreed statement of facts, which was in the following terms:

“During the months of August, September, October and November 2001 representatives of the Plaintiff and the Second Defendant’s legal advisers entered into negotiations in relation to the Plaintiff’s claim against the Second Defendant. Offers of settlement were made on behalf of the Second Defendant which included offers to pay compensation, and costs and offers to consent to an Order that the Second Defendant be disqualified from managing corporations. The Plaintiff made a counter – offer to the Second Defendant’s initial offer of settlement. The Second Defendant provided the Plaintiff with details of his financial circumstances on Statutory Declaration. Subsequent negotiations ultimately did not result in any settlement.”

44 In addition to the findings in the Judgment against Mr Williams, ASIC relied upon ASIC tendered Minutes of Meeting of the HIH Board of Directors dated 19 January 2001, particularly at para 1.20, which related to the termination payment agreed to be made but ultimately not made to Mr Williams.

45 ASIC also relied upon an extract from the HIH Annual Report for 1999 – 2000 (PX5 in the liability hearing), which disclosed, inter alia, that Mr Williams received remuneration for the year ended 30 June 2000 in the sum of $1,147,692.

46 Mr Williams relied on Plaintiff's exhibit TB, 5/1836. It is common ground that Mr Williams sold no shares in HIH during the relevant period.

Mr Fodera - additional material.

47 Mr Fodera referred to evidence given in cross – examination by Mr Gardener (T, 345), which expressed a positive opinion of Mr Fodera’s character. He also read favourable affidavits as to character from Mr Simon Manchester, Rector of the St Thomas Anglican Church at North Sydney and from Mr Martin Dudley.

48 Mr Fodera also tendered documentary evidence (accepted by ASIC) indicating his resignations from a large number of wholly owned subsidiaries of HIH. Mr Fodera now only remains a director of Fodera Investments Pty Ltd, a family company.

49 In addition to the findings in the Judgment, ASIC relied upon an extract from the HIH Annual Report for 1999 – 2000 (PX5 in the liability hearing). It disclosed, inter alia, that Fodera received remuneration for the year ended 30 June 2000 in the sum of $677,128.

50 At the hearing on 6 May 2002 an application by Mr Williams was for the first time made seeking a declaration that matters of indemnity and/or contribution between the respective Defendants are to be considered as issues in these proceedings. For the reasons stated in my judgment of 6 May 2002 that application was declined. I quote [13] and [14] of that judgment:

Queensland v JL Holdings Pty Limited

(a) no such cost orders are proffered;

Corporations Act

(d) the present stage of proceedings (two days only) could not accommodate lengthy argument on indemnity or contribution sought to be raised late in the day.

Port of Melbourne Authority v Anshun Pty Ltd

51 The earlier narrative sets out the essential background to considering the three forms of relief sought against the First to Fourth Defendants. They are:

Corporations Act

(b) compensation orders (s1317H of the Corporations Act); and

(c) pecuniary penalty orders (s1317G of the Corporations Act).

52 I first deal with each of these forms of relief in relation to the First and Fourth Defendants (clearly however disqualification only applies to Mr Adler); thereafter I deal sequentially with the Second Defendant and Third Defendant.

Disqualification - First Defendant

53 The relevant provisions of the Corporations Act applicable to disqualification are primarily to be found in s206C. It operates where a declaration has been made under the Corporations Act civil penalty provisions. The Court must be satisfied that the disqualification is justified taking into account the matters in subsection (2). Alternatively, such disqualification order can be made under s206E, where a person has at least twice been an officer of a body corporate that has contravened the Act, or such person has at least twice contravened the Act whilst an officer. This is provided in either case that the Court is satisfied the disqualification is justified, having regard to the same matters as apply in relation to s206C.

54 For convenience, I set out the two sections below:

206C. Court power of disqualification---contravention of civil penalty provision

206E. Court power of disqualification---repeated contraventions of Act

(b) the Court is satisfied that the disqualification is justified.

55 It is useful if, at the outset, I identify the propositions, by way of guiding principles or relevant factors, that can be derived from the cases which have dealt with these provisions or their predecessors.

56 The cases on disqualification gave orders ranging from life disqualification to 3 years. The propositions that may be derived from these cases include:

(i) Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards. ASIC v Hutchings (2001) 38 ACSR 387 at 395; ASIC v Pegasus Leveraged Options Group P/L & Anor [2002] NSWSC 310; ASC v Forem- Freeway Enterprises (1999) 30 ACSR 339 at 349-350; ASC v Donovan (1998) 28 ACSR 583 at 602; ASC v Roussi (1999) 32 ACSR 568 at 570 - 571 ; Re Strikers Management P/L;ASC v Dimitri (Burchett J, Federal Court of Australia, 7 May 1997, unreported); Re Tasmanian Spastics Association; ASC v Nolan (1996) 23 ACSR 743 at 751;

(ii) The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office: ASC v Roussi (supra) at 570; Re Gold Coast Holdings Pty Ltd ASIC v Papatto (2000) 35 ACSR 107 at 112;

(iii) Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors: ASC v Roussi at 570; Re Gold Coast Holdings Pty Ltd (supra) at 112; Re Tasmanian Spastics Association (supra) at 751;

(iv) The banning order is protective against present and future misuse of the corporate structure: ASC v Donovan (supra) at 603;

(v) The order has a motive of personal deterrence, though it is not punitive: Re Magna Alloys & Research Pty Ltd (1975) ACLR 203 at 205; ASIC v Pegasus Leveraged Options Group P/L & Anor (supra); ASC v Donovan at 607; Re Tasmanian Spastics Association at 751;

(vi) The objects of general deterrence are also sought to be achieved: ASC v Donovan at 602;

(vii) In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company: ASC v Donovan at 607;

(viii) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty: ASC v Donovan at 605-607;

(ix) In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public: ASIC v Pegasus Leveraged Options Group P/L & Anor ; ASIC v Parkes (2001) 38 ACSR 355 at 386; ASC v Forem-Freeway Enterprises ; ASC v Roussi at 570-571;

(x) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct: ASC v Donovan at 607; ASIC v Parkes (supra) at 386;

(xi) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming: ASC v Forem-Freeway Enterprises at 351;

Commissioner for Corporate Affairs v Ekamper

ASC v Roussi

Re Gold Coast Holdings Pty Ltd

ASIC v Hutchings; ASIC v Pegasus Leveraged Options Group P/L & Anor

ASC v Parkes

ASC v Forem-Freeway Enterprises

ASC v Donovan

ASC v Roussi; Re Strikers Management P/L

Re Gold Coast Holdings Pty Ltd

Roussi’s

ASC v Roussi

Donovan’s

ASC v Donovan; Re Tasmanian Spastics Association

57 I have earlier set out the relevant findings in the judgment in summary form. These, Mr Adler in the written submissions on his behalf concedes, are “extremely serious”. ASIC, in its supplementary submissions on relief, summarises the position in these terms:

Corporations Law

58 Attachment A to ASIC’s submissions fairly summarises those “persistent lies and deceits and the associated impropriety”, by reference to the relevant paragraphs in the Judgment which elaborates upon those matters. For convenient reference, I reproduce that attachment below:

[121-7], [148] False impression conveyed by Adler to Mr Westfield, journalist, that Adler was purchasing the HIH shares on his own behalf or on behalf of family interests through some related trust.

[146-8] Adler intended to convey the false impression to the market through his s.205G notice that he was purchasing the HIH shares on his own behalf or on behalf of family interests through some related trust.

[155], [161], [148] False impression given by Adler to journalist, Mr Mellish, that he was using his own money to buy the HIH shares.

[164(xi)], [277] Adler blatantly preferred his own interests over those of AEUT and HIH by selling Adler Corporation’s shareholding in HIH before that of AEUT.

[165] Adler’s purpose in causing PEE to purchase HIH shares was to benefit his own company’s shareholding in HIH, not to benefit AEUT or HIH.

[169] Adler less than frank in giving instructions to Minter Ellison in June 2000.

[170] By not selling the HIH shares held by AEUT in July 2000, Adler preferred his own interests to those of HIH.

[191] Adler preferred his own position over that of HIH and HIHC in a number of respects.

[219] Adler made no attempt to correct the misleading impression given by press publicity which he had played an important role in generating.

[221] Adler wanted to avoid HIH obtaining its own advice.

[254] Adler intended that the Investment Department be sidestepped.

[278], [280], [321], [349] Adler’s purpose in having PEE purchase HIH shares in June 2000 was not to enable PEE to make a profit on the resale of HIH shares but to advantage himself.

[296] Adler’s failure at the end of 2000 to fully and frankly describe what had occurred was an admission of his consciousness of the impropriety in what occurred.

[300], [307] Adler falsely stated in a letter to the Chairman of HIH that he was unaware that neither the Board nor the Investment Committee knew of the creation of the trust.

[307] At the end of 2000, Adler gave Minter Ellison materially false information.

[334] Adler knew that Minter Ellison’s letter of advice to the HIH Board contained a number of misstatements and omissions but made no attempt to correct them.

[359], [364] Adler knew that the assistance given by HIHC to PEE to purchase shares in HIH materially prejudiced the interests of HIHC.

[387] The semi-covert bypassing of proper corporate safeguards reflected consciousness of impropriety on Adler’s part.

[571-2], [611-3] Adler’s Quarterly Report to HIH/HIHC and other investors contained a number of obviously false statements and gave a grossly misleading picture.

[618-9] Adler’s memo to HIH directors of 15 December 2000 gave a misleading impression in connection with Planet Soccer.

59 Moreover, Mr Adler’s conduct from the time the PEE transaction first came to the attention of the non-executive directors until the present time has manifested no contrition whatsoever. While it may go only to mitigation of a statutory penalty, lack of contrition has a direct bearing upon disqualification. For here the interest of the public must be paramount. Mr Adler has at all times, by himself and through his counsel, vigorously denied any wrongdoing. In those circumstances, there is nothing whatsoever in his conduct to suggest that he would in the future act any differently in the performance of his duties as a company director or officer that he did in relation to the relevant transactions.

60 It is well settled (see [56(i) to (iii)] above) that the primary purpose of the disqualification power is the protection of the public; see, for example, ASC v Forem-Freeway Enterprises Pty Ltd at 349. That its object is the need to protect the public, with its corollary of personal deterrence, does not mean that its aim should be punitive though personal deterrence is relevant. That is explained in the judgment of Bowen CJ in Re Magna Alloys & Research Pty Ltd (supra) at 205:

Corporations Act

61 Here, of course, the occasion for considering disqualification does not arise after the conviction by indictment for a criminal offence; compare s206B which provides for automatic disqualification in the circumstances there delineated. That of itself does not mean that because these proceedings have been by way of civil penalty, the Court is thereby constrained in the exercise of its discretion to apply a lesser period of disqualification than the mandatory five years under s206B. The discretion of the Court is still directed to the nature of the relevant person’s conduct in relation to the management, business or property of any corporation. It is also directed, more broadly, to any other matters that the Court considers appropriate, once the Court is satisfied that the disqualification is justified.

62 In any event, we are here dealing with a repeated series of contraventions though that needs to be put in proper perspective. While in arithmetic terms, the declarations made on 27 March 2002 produced 101 contraventions by Mr Adler and a further 84 by Adler Corporation, that simply represents the result of multiplying the nine episodes or transactions giving rise to a contravention by the number of corporate entities involved and the number of sections of the Corporations Law contravened by that same conduct. I would agree that the most that could be said is that a multiplicity of contraventions by reference to breaches of not just one but several provisions of the Corporations Law (or Corporations Act) may give a broad indication of the seriousness of the contravention, but much more to the point is to look at the contraventions themselves. Thus two factors should be considered. First, the number of episodes or transactions. These are themselves numerous, nine in all for Mr Adler and the same number for Adler Corporation.

63 To this, the First and Fourth Defendants contend that the correct characterisation, having regard to findings in the judgment, are that all of these pieces of conduct in substance constituted a single transaction, reference being made to para [141] of the judgment, especially subparas (c) and (f) thereof, and paras [191] and [193]. It is therefore submitted that a single penalty only should be imposed.

64 I should say at the outset that the judgments provide no basis for such contention as I explain below. We are moreover here dealing with disqualification with its paramount protective purpose. Highly relevant is thus the number of companies suffering dereliction of duty by Mr Adler (HIH, HIHC and PEE) and the fact that there were nine instances of misconduct by Mr Adler. That the conduct in question was repeated and followed a pattern, simply makes it more serious in terms of dereliction, with consequently greater risk to the public if Mr Adler were allowed to continue to manage companies.

65 The specific references in the earlier judgment of 14 March 2002 provide on analysis no basis for treating the nine transactions or episodes as in substance a single transaction. It is one thing to treat the purchase of shares in HIH over some two weeks as a single transaction (para [141(f)], quite another to treat each of the other transactions as in substance one transaction when they are distinct though not unrelated. Thus, clearly, the provision of $10 million payment to AEUT is a discrete transaction from its subsequent application in purchasing shares in HIH. These likewise represent distinct contraventions, namely of s208 and s260A of the Corporations Act by HIH and HIHC, with Mr Adler and Adler Corporation being “involved” so as to contravene the s209(2) and s260D respectively.

66 Then there are three separate investments by AEUT in purchasing from Adler interests the three entities, dstore Limited, Planet Soccer International Limited and Nomad Telecommunications Limited. Then there are the further four loan transactions occurring when Mr Adler caused AEUT to make four separate unsecured loans to associated entities. There is nothing in the Judgment which justifies treating these transactions as one single transaction, though of similar motivation.

67 By way of analogy, whilst in Australian Competition and Consumer Commission v George Weston Foods Ltd (2000) ATPR ¶41-763 the ACCC was unsuccessful in arguing that conduct in which the respondent had attempted to involve two retailers in price-fixing amounted to separate contraventions, in Trade Practices Commission v Simpson Pope Ltd (1980) 30 ALR 544 Franki J said, appositely to the present context:

Trade Practices Act

68 In considering the effect of the multiple contraventions, for purposes of determining whether or not to make a disqualification order, the relevant transactions are to be judged individually as well for their cumulative effect. Thus in applying s206E of the Corporations Act, not only has there been at least two contraventions of the Act by HIH and at least two contraventions of the Act by HIHC, but the relevant person, here Mr Adler, did not merely fail to take reasonable steps to prevent the contravention but was himself directly involved in it so as himself to contravene the Act. That clearly reinforces the basis for applying s206E with a substantial disqualification order.

69 Indeed the gravity of the contraventions as well as their repetition in distinct transactions, numbering nine in all, make a powerful case for the lengthiest disqualification period.

70 The principles of parity which guide the exercise of judicial discretion do not produce any neat arithmetic algorithm from other cases though the earlier propositions([56] above) give some guidance. I would adopt what is said by Hill J in ACCC v Universal Music Australia Pty Limited (No. 2) [2002] FCA 192 at [34] where, in the analogous context of the Trade Practices Act he says:

“Hence, while pecuniary penalties imposed in one case provide a guide, that guide will seldom if ever be able to be used mechanically.”

71 Austin J, while making similar observation, in ASIC v Parkes [2001] 38 ACSR 355 at 386 refers to a number of factors which are directly applicable to the present case and its circumstances:

“In reaching this conclusion [disqualification for 25 years], I take into account the following factors :

· the contraventions that I have found include some very serious contraventions;

· those contraventions have led to loss and damage on the part of companies and investors, contrary to the protective purpose of the relevant provisions of the Corporations Law;

· the defendant’s field of activity, management and financial consultancy, is an area where the potential to do damage is especially high, compared, say, with a defendant whose expertise is in making cement;

· the defendant’s contraventions have been recurrent, arising in the context of three different sets of companies;

· until the end, the defendant asserted explanations for what he had done which I found to be implausible, and this suggests to me that he has no contrition;

· all of these facts lead me to believe that there is a high propensity that the defendant will engage in similar conduct if only a short period of prohibition is imposed;

72 In the present case each of those factors are present, though it should be noted that Mr Adler himself did not assert any personal explanation for what he had done. Rather, through his legal advisers, he denied that there was any contravention in the circumstances, a denial which is at odds with the findings of the Judgment and thus cannot stand.

73 A review of the cases demonstrates that a wide range of banning periods have been imposed by the courts. For the most serious, there is prohibition for life, though in one case with a right to apply for variation after five years; ASIC v Hutchings.

74 Section 206G permits a disqualified person applying to the court at any time

(b) a particular class of corporation; or

(c) a particular corporation;

Corporations Act

75 Windeyer J in ASIC v Hutchings framed his orders in such a way that the right to apply after five years on three months’ notice was for a variation of the order disqualifying the relevant directors for life.

76 My earlier review of the now relatively numerous cases in which disqualification orders have been made of varying lengths, does not add significantly to the list of factors identified by Austin J in Parkes, given the almost infinite variety of facts and discretionary considerations.

77 Against the very substantial disqualification order pressed upon me by ASIC, the First Defendant advances the following private interest considerations which it is said should be “weighed against the public interest grounds upon which a disqualification order should be made against Adler”.

“(a) In his affidavit affirmed on 17 April 2002, Adler said that his sources of income comprised directorship and consultancy fees, equities trading, and investment in private and joint venture enterprises. Almost of all of these business interests are carried on through Adler Corporation Pty Limited, which is a private company, and of which Adler and his wife are the only directors and shareholders.

(d) Many of the private and joint ventures in which Adler Corporation has invested depend upon the continuing support of investors such as Adler Corporation and Adler’s personal relationships with those enterprises. “

78 It is then submitted that in the alternative:

“[I]n relation to Fodera, it is appropriate to impose single penalties in respect of two factual circumstances. Regard should be had to the fact that there were multiple contraventions by him in relation to the relevant factual circumstances, namely the $10 million payment and the purchase of shares in HIH. His conduct should be regarded as significantly less serious than that of Adler and Williams.”

165 To this, Mr Fodera’s submissions first respond by contending that Mr Fodera should be relieved from any penalty pursuant to either s1317S or s1318 of the Corporations Act. It is pointed out that there is no relevant distinction between those sections as applicable to the circumstances of Mr Fodera which are for a civil penalty. In particular, it is said that provided it is shown that the person concerned has acted honestly, this gives rise to a discretion in the Court under either provision to relieve the person concerned either wholly or partly from a liability to which the person would otherwise be subject where the person ought in the circumstances fairly to be excused. Section 1317S is of course applicable only to proceedings for a contravention of a civil penalty provision whereas s1318 is wider in scope.

166 It is submitted that under s1317S(2)(b)(i) the requirement is no higher than that it must “appear to the court” that the person has acted honestly. Acting honestly has been interpreted as meaning “without moral turpitude”; Commonwealth Bank Limited v Friedrich (supra) at 196. It would, however, be putting matters rather too high to say that there is no onus on a defendant to positively show honesty, in order to persuade the court to be positively satisfied that the person has acted honestly and to exercise its discretion favourably, if otherwise satisfied to do so.

167 As to honesty in the present context, there is as the Third Defendant points out, an express finding (Judgment [774] at p294 para (a)) where it is expressly stated that “no finding of lack of good faith or improper purpose or dishonesty is made in the case of Mr Fodera”. The Third Defendant presses that there is no evidence to the contrary of the proposition that Mr Fodera acted honestly, notwithstanding the findings of breach of duty, though to this must be balanced the finding that “he did not want any involvement in the transaction because he sensed its impropriety; he was trying to wash his hands of it” [215].

168 Sensing the impropriety of another falls short, by itself, of a finding of dishonesty. But that is not the same as the court reaching a positive satisfaction that the person concerned “has acted honestly”, s1317S(2)(b)(i), or that the person “has acted honestly” within the meaning of s1318. If the court is unable to reach a conclusion as to the appearance of honesty, but is not prepared to make the grave finding of dishonesty, more especially in circumstances where no evidence has been given directly by Mr Fodera, the better view is that the jurisdiction to give dispensatory relief simply does not arise; indeed if it did arise, it would hardly be exercised favourably in the absence of demonstration of acting honestly, though that may not necessarily be enough.

169 Moreover, even were I in a position to make a finding that Mr Fodera had acted honestly, it would still be necessary to consider what weight should be given in the exercise of the resulting discretion, of the negative factor of Mr Fodera’s consciousness of impropriety on the part of another. That is so, even if it be accepted that such consciousness of impropriety does not of itself amount to a failure to act honestly.

170 I should make clear that I make no finding that Mr Fodera sensed or should have sensed that the transaction involved fraud. But that does not mean that Mr Fodera may not have sensed that the transaction involved dishonesty at least as entailed in the deliberate bypassing of the Investment Committee and Board, though, as described in the Judgment, “semi-covert”; see [387].

171 In referring earlier, as I have done, to Mr Fodera sensing the impropriety of the transaction, I should emphasise that the Judgment does not go so far as to attribute knowledge to Mr Fodera of the improper purpose of Mr Adler in maintaining or stabilising the HIH share price for his own advantage; Judgment [483].

172 What the Judgment does do is conclude he facilitated the occurrence of the transaction whereby Mr Balhausen was bypassed as a potential impediment. That transaction, to his knowledge, was to involve the payment of money by way of a then apparently undocumented loan to a fellow director, via his company, giving him a 10% return with evident potential for a conflict of interest, with Mr Fodera “attempting to keep himself at a safe distance”. Moreover, he knew that the $10 million was in part being used to purchase HIH shares without the matter going to either the Investment Committee or the Board. He was thus involved in a contravention of both s208 of the Corporations Act and s260 of the Corporations Act; see paras [215] to [217] and [367] to [369].

173 As to the bypassing of the Investment Committee and Board, the Judgment makes no finding (beyond that in [511]) as to whether Mr Fodera originally set about bypassing the Investment Committee and Board or simply assumed Mr Williams would deal with those matters, though he took no steps later, probably overlooking the matter, to ensure the matter did go to the Investment Committee for ratification when he must have known that it had not been ratified. These are, taken as a whole with the other matters earlier noted, circumstances which preclude any dispensation under s1317S and s1318, even assuming that the jurisdiction to give such dispensation was satisfied by way of positive demonstration of the appearance of honesty, as distinct from an absence of proof of dishonesty.

Disqualification

174 The question then becomes one of determining what if any relief should be provided against Mr Fodera, starting with his disqualification from the management of corporations. Having considered the circumstances carefully, and taking into account the protective purpose of the disqualification provisions, I do not consider it likely that Mr Fodera would fail in the future to appreciate the importance of ensuring that corporate approval processes are not bypassed, more especially in the case involving a director or other insider or transactions involving purchase of the parent’s shares. In those circumstances, I do not consider disqualification as a director is warranted.

Compensation

175 As to compensation pursuant to s1317H, as earlier stated, I consider that no compensation order against Mr Fodera is appropriate in the circumstances. Those circumstances reflect the very different character of Mr Fodera’s conduct compared to Messrs Adler and Williams, either in relation to the initial payment (judgment [398]) and the fact that Mr Fodera had no actual knowledge or any reason to suspect that the money would be used for the investments procured by Mr Adler ([513] of Judgment). The nature of Mr Fodera’s failure was indeed essentially that of omission ([511] of Judgment).

176 In reaching the conclusion I do, I do not accept that Mr Fodera’s involvement was such as to fall outside either a common law test for causation by reference to commonsense considerations or, as I consider applicable, the equitable test for causation. Had Mr Fodera spoken out, in particular by insisting that, as was central to his responsibilities as Finance Director, that the proper processes should be followed including submission to the Investment Committee in advance, though recognising that he was pressed at the time with an overseas trip, there is good prospect that the proposal would not have gone ahead. Moreover, some of the loss from the failure to deal with the matter on his return from overseas in relation to the HIH shares, might have been avoided had he then acted promptly. Thus it should be noted that after Mr Fodera’s return from overseas on 17 July 2000 ([473] of judgment) the HIH shares bought by AEUT could have been sold without loss and, indeed, at a significant profit (TB, 1/104C referred to at para 34 of Mr Fodera’s written submissions). Moreover, the asset purchases and lending by PEE, with the exception of some of the loans in relation to PCP Ensor No 2, did not occur until after Mr Fodera’s return from overseas.

177 Essentially my reason for considering that no compensation should be sought from Mr Fodera is that I am satisfied that though his involvement could not fairly be described as merely peripheral (given his particular responsibility as Finance Director to preserve and protect the funds of the company and, given that he played an important facilitating role), nonetheless it was only a facilitating role, in circumstances where, after his return from overseas, I think it more likely than not that he simply overlooked the need to refer the matter to the Investment Committee and Board rather than deliberately setting about having them bypassed [511]. That is in marked contrast to Mr Adler and Mr Williams.

Pecuniary Penalty

178 Finally, I turn to pecuniary penalty under s1317G.

179 Here, some pecuniary penalty is I consider justified though not a large one. First, there is the fact of Mr Fodera’s assistance and acquiescence which, as I have explained, should not be treated as peripheral or of relatively minor importance, though its importance should be considered significantly less than that of Mr Adler and Mr Williams.

180 The second circumstances is the seriousness of Mr Fodera’s failure, more especially as Finance Director, to bring the proposed transaction to the attention of the Board and the Investment Committee, not only before his departure but, as is more significant, after his return, though it be the case that this was due to Mr Fodera simply overlooking it.

181 Third, is the absence of any statement of contrition in mitigation. I have already dealt with that aspect earlier in relation to Mr Adler and Mr Williams. I have stated that the fact that civil penalties do not preclude later criminal proceedings (s1317P of the Corporations Act) is not of itself reason for discounting the relevance of contrition altogether. Such mitigation as might have been warranted had contrition been proffered, is not available here.

182 Equally I do not accept that the financial loss to the HIH group, though substantially the responsibility of Mr Adler and Mr Williams can be treated as in no way the responsibility of Mr Fodera, though it be a significantly lesser one.

183 Weighed against a pecuniary penalty or justifying a low one, is the evidence particularly that of Mr Gardener, his fellow director, that Mr Fodera “is highly intelligent, extremely trustworthy and reliable and usually quite outspoken about his views” (T, 345.21) and that “it would be extremely remote” for Mr Fodera to re-offend (T, 345.49). This with the evidence of Mr Manchester and Mr Dudley concerning Mr Fodera’s exemplary character does deserve some weight.

184 Taking the considerations from the judgment of Austin J in Parkes set out earlier, Mr Fodera’s conduct, though in a “but for” sense responsible for the loss and damage, was not centrally responsible, though not merely peripheral. Second, Mr Fodera’s contraventions have not been recurrent. Third, Mr Fodera has not asserted implausible explanations for what he did, though it should be pointed out that he asserted no explanation whatsoever by way of direct evidence. Finally, Mr Fodera (I agree) does not have a high propensity to engage in similar conduct, indeed is unlikely to.

185 The greater culpability of others should not however be taken to include Messrs Howard and Cassidy.

186 In all the circumstances, I consider that a relatively small penalty should be imposed, namely $5,000, within the category for lower range penalties. I am satisfied that the conditions of s1317G to apply are made out, namely that the contraventions did materially prejudice the interests of HIH and HIHC and were serious, though not of the level of seriousness of Messrs Adler and Williams. I also take into account that while personal deterrence to Mr Fodera may be disregarded, general deterrence is a relevant consideration; Re Tasmanian Spastics Association. I should add that comparing the position to the other Defendants, clearly Mr Fodera had nothing to gain by the transaction.

Conclusion

187 In the case of Mr Fodera, no disqualification or compensation order should be made but a pecuniary penalty should be imposed of $5,000 in relation to all of the contraventions of Mr Fodera, such to be similarly calculated by reference to his contraventions as in the case of Mr Adler and Mr Williams.

OVERALL CONCLUSION AND ORDERS

188 I propose to make orders in terms earlier set out in relation to Messrs Adler, Williams and Fodera and Adler Corporation. These include compensation orders against Messrs Adler and Williams and Adler Corporation, but not Mr Fodera. I will hear the parties as previously foreshadowed, in relation to the foreshadowed application for a stay of these orders by the First and Fourth Defendants.

189 So far as costs of this hearing and the previous hearing, as present advised, I consider costs should follow the event and be made equally against each of the four Defendants, though I will hear submission on costs if desired.

ASIC v ADLER & ORS

ATTACHMENT A

NUMBER OF CONTRAVENTIONS

(As per Declarations made on 27/3/02)

Mr Adler

Number of
Declaration Contraventions

1. s209(2), HIH and HIHC 2

2. s260D(2), HIHC 1

3. ss180, 181, 182, 183, HIH, 9 events 36

4. ss180, 181, 182, 183, HIHC, 9 events 36

5. ss180, 181, 182, PEE, 8 events 24

6. s182(2), HIH 1

7. s182(2), HIHC 1

___

101

Mr Williams

8. s209(2), HIH and HIHC 2

9. s260D(2), HIHC 1

10. ss180, 182, HIH 2

11. ss180, 182, HIHC 2

___

7

Mr Fodera

12. s209(2), HIH and HIHC 2

13. s260D(2), HIHC 1

14. s180, HIH

15. s180, HIHC 1

___

5

Adler Corporation

16. ss181, 182, 183, HIH, 9 events 27

17. ss181, 182, 183, HIHC, 9 events 27

18. ss181, 182, PEE, 8 events 24

19. s209, s.260D, HIH, HIHC re s.208 and HIHC re s.260A 6

___

84

**********

Last Modified: 05/31/2002

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Citations

Re Ferrari Furniture Co Pty Limited & The Companies Act [2002] NSWSC 483

Most Recent Citation

Environment Protection Authority v Wyanga Holdings Pty Ltd; Environment Protection Authority v Cauchi [2015] NSWLEC 78

Cases Citing This Decision

388

Rich v Australian Securities and Investments Commission [2004] HCA 42

Cases Cited

20

Statutory Material Cited

2

Australian Securities and Investments Commission v Adler [2002] NSWSC 171

Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310

Cited Sections

CITATION:	ASIC v Adler & 4 Ors [2002] NSWSC 483
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2753/01
HEARING DATE(S):	06/05/02, 07/05/02
JUDGMENT DATE:	30 May 2002
PARTIES :	In the matter of HIH Insurance Limited (in provisional liquidation) ACN 008 636 575 and HIH Casualty and General Insurance Limited (in provisional liquidation) ACN 008 482 291 Australian Securities & Investments Commission Plaintiff Rodney Stephen Adler First Defendant Raymond Reginald Williams Second Defendant Dominic Fodera Third Defendant Adler Corporation Pty Ltd (ACN 054 924 373) Fourth Defendant Lynda Sharon Adler Fifth Defendant
JUDGMENT OF:	Santow J

COUNSEL :	R B S Macfarlan QC/ P Durack/ A Abadee (Plaintiff) B W Walker, SC (First and Fourth Defendants) P Crutchfield (Second Defendant) J E Sexton, SC (Third Defendant)
SOLICITORS:	Jan Redfern, Solicitor for ASIC (Plaintiff) Gilbert & Tobin (First and Fourth Defendant) Arnold Bloch Leibler (agent: Sparke Helmore) (Second Defendant) Dibbs Crowther & Osborne (Third Defendant) Speed and Stracey (Fifth Defendant)
CATCHWORDS:	CORPORATIONS - Disqualification order from managing a corporation - Relevant principles and factors - Contrition - Impossibility of order limited to public companies - disqualified person can later apply for permission on a restricted or conditional basis - Compensation order - Relevant principles - Difficulty of differentiation between Defendants - Pecuniary penalty order - Relevant principles and factors - Totality principle - Relevance of multiple contraventions - Exoneration - Appearance of honesty - Relationship between civil and criminal prosecution.
LEGISLATION CITED:	Corporations Act 2001; s180 to s183; s206E; s206G; s208; s209; s260; s260A; s260C; s260D; s1317G; s1317H; s1317P; s1317Q; s1317S; s1318 Evidence Act 1995 (NSW) s128
CASES CITED:	Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (No. 2) ([2002] FCA 559 ,3 May 2002, unreported) Australian Competition and Consumer Commission v George Weston Foods Ltd (2000) ATPR 41-763 ACC v Rural Press Limited [2001] ATPR 41-833 ACCC v Universal Music Australia Pty Limited (No. 2) [2002] FCA 192 ASIC v Adler & Ors [2002] NSWSC 171; (2002) 41 ACSR 72 ASC v Donovan (1998) 28 ACSR 583 ASC v Forem- Freeway Enterprises (1999) 30 ACSR 339 Beech Petroleum NL v Kennedy (1999) 48 NSWLR 1 Brickenden v London Loan and Savings (1934) 3 DLR 465 Commonwealth Bank of Australia v Friedrich (1990-1) 5 ACSR 115 Re Gold Coast Holdings Pty Ltd ASIC v Papatto (2000) 35 ACSR 107 ASIC v Hutchings (2001) 38 ACSR 387 ASIC v Parkes (2001) 38 ACSR 355 ASIC v Pegasus Leveraged Options Group P/L & Anor [2002] NSWSC 310 ASC v Roussi (1999) 32 ACSR 568 ASC v Donovan at 609; ASC v Spencer (1997) 25 ACSR 143 Barisic v Devenport [1978] 2 NSWLR 111 Bell v Thompson (1943) 34 SR(NSW) 431 Commissioner for Corporate Affairs v Ekamper (1987) 12 ACLR 519 D'Angola v Rio Pioneer Gravel Co Pty Ltd [1979] 1 NSWLR 495 Re Magna Alloys & Research Pty Ltd (1975) ACLR 203 NW Frozen Foods Pty Ltd v ACC (1996) 71 FCR 285 P.O. Morris Ltd v Perrott and Bolton [1945] 1 All ER 567 Pearce v the Queen (1988) 194 CLR 610 Power (Brett) Wayne [1999] NSWCCA 25, 5 March 1999, unreported) Queensland v JL Holdings Pty Limited (1997) 189 CLR 146 R v Towey (1996) 21 ACSR 46 Re Strikers Management P/L;ASC v Dimitri (Burchett J, Federal Court of Australia, 7 May 1997, unreported) Re Tasmanian Spastics Association; ASC v Nolan (1996) 23 ACSR 743 Trade Practices Commission v CSR Limited [1991] ATPR 52-135 Trade Practices Commission v Simpson Pope Ltd (1980) 30 ALR 544 Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 17-882 Wong v R (2002) 185 ALR 233
DECISION:	Orders for relief made; see paras 110, 124, 160, 187, 188.