Re Idylic Solutions Pty Ltd; Australian Securities and Investments Commission v Hobbs
[2013] NSWSC 106
•21 February 2013
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs [2013] NSWSC 106 Hearing dates: 14 and 17 December 2012 Decision date: 21 February 2013 Jurisdiction: Equity Division - Corporations List Before: Ward JA Decision: Imposition of disqualification orders and pecuniary penalties against first, third and eighth defendants; disqualification orders against fourth defendant; costs.
Catchwords: CORPORATIONS - multiple civil penalty contraventions and other contraventions of Corporations Act and ASIC Act (in relation to operation of unregistered managed investment scheme, provision of financial services without an Australian Financial Services Licence, misrepresentations, improper use of corporate position to obtain benefits at the detriment of companies) - relief and consequential orders following findings of liability - consideration of relevant principles and factors in determination of penalties - power to make disqualification orders under s 1324 where no declaration of contravention of s 1101B - principles applicable in relation to exercise of discretion for grant of declaratory relief - appointment of receiver to assets of defendants in jurisdiction - costs Legislation Cited: Australian Securities and Investments Act 2001 (Cth)
Civil Procedure Act 2005
Companies Act 1986 (Cth)
Companies Act 1993 (NZ)
Corporate Law Reform Act 1992
Corporate Law Reform Bill 1992
Corporate Law Reform Bill Explanatory Memorandum 1992 (Cth)
Corporations Act 2001 (Cth)
Corporations Act Explanatory Memorandum 2001 (Cth)
Financial Advisors Act 2008 (NZ)
Securities Industry Act 1980 (Cth)
Uniform Civil Procedure Rules 2005Cases Cited: ACCC v MSY Technology Pty Ltd [2012] FCAFC 56; (2012) 201 FCR 378
ACCC v Willesee Healthcare Pty Ltd (No 2) [2011] FCA 752
Ainsworth v Criminal Justice Commn (Qld) [1992] HCA 10;(1992) 175 CLR 564
Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161
Allen v Atalay (1993) 11 ACSR 753
ASC v Form-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339
ASIC v Adler (No 5) [2002] NSWSC 483; (2002) 42 ACSR 80
ASIC v Citrofresh International Ltd (ACN 064 551 426) (No 3) [2010] FCA 292; (2010) 268 ALR 303
ASIC v Loiterton (2004) [2004] NSWSC 897; 50 ACSR 693
ASIC v Nandan (1997) 23 ACSR 743
Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406; (1996) 139 ALR 663
Australian Competition and Consumer Commission v 1MB Group Pty Ltd (1999) ATPR 41-688, [1999] FCA 313
Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; 190 ALR 169
Australian Competition and Consumer Commission v Ozdirect Online Brands Pty Ltd [2009] FCA 1604
Australian Securities & Investments Commission v McDougall [2006] FCA 427; (2006) 229 ALR 158
Australian Securities & Investments Commission v West [2008] SASC 111; (2008) 100 SASR 496
Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43; (2012) 287 ALR 693
Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; (2007) 238 ALR 595
Australian Securities and Investments Commission v Cyclone Magnetic Engines Inc [2009] QSC 58; (2009) 224 FLR 50, (2009) 71 ACSR 1
Australian Securities and Investments Commissionv Elm Financial Services Pty Ltd [2005] NSWSC 1065; (2005) 55 ACSR 544; [2005] NSWSC 1065;
Australian Securities and Investments Commission v Forge [2007] NSWSC 1489
Australian Securities and Investments Commission v Fuelbanc Australia Limited [2007] FCA 960; 162 FCR 174 and, as amended, in [2006] FCA 940
Australian Securities and Investments Commission v Gramax Investment Club Ltd [2005] FCA 1708
Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430; (2011) 284 ALR 734
Australian Securities and Investments Commission v MacDonald (No 12) [2009] NSWSC 714; (2009) 73 ACSR 638
Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd [2002] NSWSC 741; (2002) 42 ACSR 605
Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373
Australian Securities and Investments Commission v Parkes [2001] NSWSC 377; (2001) 38 ACSR 355
Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561
Australian Securities and Investments Commission v Preston [2005] FCA 1805
Australian Securities and Investments Commission v Soust (No 2) [2010] FCA 388; (2010) 76 ACSR 1
Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114
Australian Securities and Investments Commission v Vizard (2005) 145 FCR 57
Australian Securities and Investments Commission V West & Anor [2008] SASC 111; 100 SASR 496
Australian Securities and Investments Commission v White [2006] VSC 239; (2006) 58 ACSR 261
Australian Securities Commission v Donovan (1998) 28 ACSR 583
Australian Securities Commission v Nandan(1996) 23 ACSR 743
Australian Softwood Forest Pty Ltd v Attorney-General (NSW) [1981] HCA 49; (1981) 148 CLR 121
Brian Cassidy Electrical Industries Pty Ltd (in prov liquidation) and another v Attalex Pty Ltd [1984] 3 NSWLR 52
Broken Hill Pty Co Ltd v Bell Resources Ltd (1984) 2 ACLC 157
Brookfield Multiplex Ltd v International Litigation Funding Partners Pty Ltd (2009) 180 FCR 11
Caines v Australian Securities and Investments Commission [2012] AATA 289
Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519
Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075
Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596
Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 322
Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421
Gillfillan v ASIC [2012] NSWCA 370
Hanson v Radcliffe UDC [1922] 2 Ch 490
Hawkins (1993) 67 A Crim R 64
Hayes v ASIC [2006] AATA 506
Ibeneweka v Egbuna [1964] 1 WLR 219
ICI Australia Operations Pty Limited v TPC (1992) 38 FCR 248
In the matter of Melinda Scott and Roach Graham Scott Pty Ltd [2012] NSWSC 1643
Jimmy v the Queen [2010] NSWCCA 60
Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534; (1990) 97 ALR 45
Liquorland (Aust) Pty Ltd v Anghie [2001] VSC 362; 20 ACLC 58
McDougall and Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (ACN 106 761 826) [2006] VSC 192; (2006) 57 ACSR 553
Mercedes Holdings Pty Ltd v Waters (No 2) [2010] FCA 472; (2010) 186 FCR 450
Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128
Mill v R [1988] HCA 70; (1988) 166 CLR 59; 83 ALR 1
NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285
Oates v Hawkins [2010] NSWSC 491
Ohn v Walton (1995) 36 NSWLR 77
Oil Basins Ltd v Commonwealth [1993] HCA 60; (1993) 178 CLR 643; 117 ALR 338
Old v McInnes and Hodgkinson [2011] NSWCA 410
Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72; (1998) 152 ALR 83
Pearce v R (1998) 194 CLR 610; 156 ALR 684; [1998] HCA 57
Postiglione v R [1997] HCA 26; (1997) 189 CLR 295
Rahme v R (1989) 43 A Crim R 81
Re Austral Knitting Mills Ltd (1926) 43 WN (NSW) 131
Re Judiciary and Navigation Acts (Advisory Opinions Case) [1921] HCA 20; (1921) 29 CLR 257
Re McDougall [2006] FCA 427; 229 ALR 158
Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129
Russian Commercial and Industrial Bank [1921] 2 AC 438
Seagrim v Australian Securities and Investments Commission [2012] AATA 583
Triton Underwriting Insurance Agency [2003] NSWSC 1145; (2003) 48 ACSR 249Texts Cited: Austin and Black, Annotations to the Corporations Act
Austin and Ramsey, Ford's Principles of Corporations Law (15th edn)
Lang Thai, "Statutory injunction - call for amendment to s 1324 of the Corporations Act" (2006) 24 C&SLJ 41
Thomas, Principles of Sentencing 2nd edn 1979
Thomson Reuters, Annotated Corporations Act, 2012 ednCategory: Consequential orders Parties: Australian Securities and Investments Commission (Plaintiff)
David John Hobbs (First Defendant)
Min Hua Li (Second Defendant)
David John Collard (Third Defendant)
Huimin Wu (Fourth Defendant)
Con Koutsoukos (Fifth Defendant)
Brian John Wood (Sixth Defendant)
Jimmy Truong (Seventh Defendant)
Jacqueline Hobbs (Eighth Defendant)
Idylic Solutions Pty Ltd ACN 121 960 754 (Ninth Defendant)
888 Management Inc (Tenth Defendant)
Geneva Financial Ltd (Eleventh Defendant)
Barclaywest Ltd (Twelfth Defendant)
Preserved Investment Group Ltd (Thirteenth Defendant)
North Wave Ltd (Fourteenth Defendant)
G P Global Ltd (Fifteenth Defendant)Representation: J A Halley SC with J R Clarke (Plaintiff)
Ms G Hayden, Solicitor for Australian Securities and Investments Commission (Plaintiff)
File Number(s): 07/258119
Judgment
HER HONOUR: On 24 October 2012 I published my reasons for judgment in proceedings brought by ASIC against various individual and corporate defendants in respect of alleged breaches of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Act 2001 (Cth) (Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276). Those breaches related to the involvement of the defendants, in various capacities, in investment schemes through which investors' funds were pooled for the purpose of investment into the offshore wholesale market. The fourteen individual investment schemes the subject of these proceedings together constituted a single managed investment scheme that was required to be (but was not) registered under the Corporations Act (the Hobbs Scheme). (Had the individual schemes not formed part of a single collective scheme, then only two of the individual schemes (the Integrity Plus and Super Save schemes) would have been required to be registered.)
After a hearing commencing on 4 July 2012 and concluding (with some adjournments during that period) on 12 September 2012 (at which none of the defendants had legal representation, other than a brief appointment of Counsel on a pro bono basis for the giving of advice on a limited issue to Ms Wu), I found that contraventions had been committed of a variety of statutory provisions, including, in a number of instances, civil penalty provisions of the Corporations Act. I then fixed the matter for a separate penalty hearing (and for submissions as to the other relief sought) on 14 and 17 December 2012.
Due to the earlier discontinuance of the proceedings against three of the defendants, and the fact that others had been deregistered at various times prior to the hearing (and, indeed, prior to the commencement of the proceedings), substantive relief was sought by ASIC only as against Mr and Mrs Hobbs, Mr Collard and Ms Wu (though some of the declaratory relief that is sought relates to the conduct of the other defendants). Consequential relief to dispose of the proceedings and to facilitate the winding up of the Hobbs Schemes was also sought.
There was no appearance by Mr and Mrs Hobbs or by Mr Collard during the penalty hearing on 14 and 17 December 2012. (Although there was also no appearance by Ms Wu on 14 December 2012, her husband (Mr Zhang) was in attendance in Court and made some oral submissions on behalf of his wife on that occasion.) ASIC filed affidavit evidence as to its communications with Mr and Mrs Hobbs, Mr Collard and Ms Wu seeking to ascertain their intentions in relation to attendance at the penalty hearing. Mr Collard's response made it clear that he did not intend to attend or be represented at the hearing. As to Mr and Mrs Hobbs, an email communication was sent to my chambers on 14 December 2012 informing the Court that Mr and Mrs Hobbs would not be attending court for health and financial reasons.
In those circumstances I proceeded on 14 December 2012 to hear ASIC's with its application to seek final relief and orders against Ms Wu and Mr Collard, in their absence. I then stood the matter over to 17 December 2012 for oral submissions in relation to the orders sought against each of Mr and Mrs Hobbs, making directions to allow for medical evidence to be given on Mr Hobbs' behalf, if there were to be an application at that late stage to vacate the penalty hearing on medical grounds (a possibility having regard to the content of some of the written submissions that had been received on his behalf). There was no such application. Accordingly, on 17 December 2012, I proceeded to hear oral submissions as to the penalties to be imposed on Mr and Mrs Hobbs.
Drafts of the declarations and orders sought by ASIC had been provided in advance to Mr and Mrs Hobbs, Mr Collard and Ms Wu. They were the subject of some amendment during the course of the oral submissions at the penalty hearing on 14 December 2012. Transcript of the oral submissions on 14 December and 17 December 2012 was provided to Mr and Mrs Hobbs at my direction and at no cost to them. Pursuant to directions made at that time, I gave Mr and Mrs Hobbs an opportunity to make further submissions by 21 January 2013 (a date Iater extended at their request to 25 January 2013). Written submissions were served by Mr and Mrs Hobbs pursuant to those directions and, by leave, on 4 February 2013 ASIC served short submissions in reply thereto.
A complication that had by then arisen, in terms of finalising the relief to be granted in these proceedings, was that on 29 January 2013 I became aware of a facsimile transmission dated 25 January 2013 that had been sent to the Court by two investors in the Pinnacle Fund (Mr Ze Ning He and Mr Feng Gao), seeking the payment to them of moneys held in Court referable to the Pinnacle Fund. I caused each of ASIC, Mr and Mrs Hobbs, Mr Collard and Ms Wu to be notified of, and copied with, that communication and listed the matter for directions on 1 February 2013. I did so because the relief for which Messrs He and Gao were seeking (in their then informal application to the Court) was inconsistent with (and would be rendered futile by) the orders sought by ASIC for the appointment of a liquidator to wind up the Pinnacle Fund (as part of the winding up of the overall Hobbs Scheme) and for the payment to the liquidator of all of the funds held in Court referable to the Hobbs Scheme.
Pursuant to directions made on 1 February 2013, on 7 February 2013 Messrs He and Gao filed a notice of motion seeking orders under Part 55.11 of the Uniform Civil Procedure Rules 2005 (NSW) for payment to them of the moneys held in Court that are referable to the Pinnacle Fund and joining as respondents to that application each of Mr Hobbs, Ms Wu and the only other investor (according to the s 50 summaries admitted as Ex A in the proceedings) in the Pinnacle Fund (Ms Suzan Ou, both personally and through a company HLD Corporation). That notice of motion was returnable on 11 February 2013. The difficulty with proceeding with the payment out application on that day was that Ms Ou had not been properly served in accordance with the Rules (the documents being sent by express post to an address obtained by reference to identification documents of Ms Ou, the provenance of which was not made clear). There was no evidence of recent attempts to contact Ms Ou in order to ascertain or confirm her current whereabouts (though attempts had been made in the past by reference to a mobile phone number on which she had previously been contactable). I made further directions in relation to service on Ms Ou and stood that application over to 21 February 2013, at the same time listing these proceedings for judgment on the penalty hearing on that day (with a view to hearing the application for payment out of Court and then delivering judgment on the penalty hearing, with any modification of orders as might be necessary having regard to the outcome of the application by Messrs He and Gao). Ms Ou has since served an affidavit in which she indicates her consent to the payment out orders sought (on the basis, as I understand it, that she receive a share of the funds proportionate to her investment to the fund).
As to the amounts paid into Court, handed up as an aide memoire during the course of the hearing was a list of the amounts paid in (from the various Cadent and Technocash accounts as well as from various of the corporate administrators of the Schemes, totalling AU $19,383,475.20 and US $1,580,593.02). Of those amounts a total of AU $18,953,475.20 has been paid out to the liquidator of the Super Save and Integrity Plus funds and the investors in Procash; and a further US $963,833.74 to the liquidator of the Master Fund. Remaining in Court are the sums of AU $430,000 and US $616,759.28 (together with any interest that may have been accrued thereon). Of that amount a sum in the order of US $215,617.77 is acknowledged by ASIC to be referable to the Pinnacle Fund. This is the amount in respect of which Messrs He and Gao have made their application under Rule 55.11.
Summary
For the reasons set out below, I am of the view that declarations largely in the terms sought by ASIC should be made; that each of the first, third, fourth and eighth defendants should be disqualified on a permanent basis from operating or carrying on the Hobbs Scheme or any other unregistered managed investment scheme and from providing any financial services without an Australian Financial Services Licence; and that, in addition to those disqualification orders:
- disqualification orders should be made on a permanent basis against Mr Hobbs from managing any corporation, operating or carrying on any other managed investment scheme (i.e. even if that be registered) and from providing financial services; and he should be ordered to pay the Commonwealth a total penalty of AU $500,000 in respect of his numerous contraventions of ss 180, 181 and 182 of the Corporations Act;
- permanent financial services disqualification orders should be made against Mr Collard; as to managing corporations he should be disqualified for a period of 20 years from the date of these orders and he should be ordered to pay the Commonwealth a penalty in total of $150,000 in total in respect of his many civil penalty contraventions;
- Ms Wu should be restrained for a period of four years from managing corporations and a period of eight years from providing financial services; and
- Mrs Hobbs should be restrained from managing corporations for a period of six years and from providing financial services (and related financial services disqualifications) for a period of eight years; and should pay the Commonwealth the sum of $20,000 in total by way of pecuniary penalty for her various contraventions of s 182 of the Corporations Act.
There should be costs orders against each of those defendants, limited in the case of Ms Wu and Mr Collard to the period in which they actively contested the claims against them.
I will make other consequential orders to provide for the winding up of the Hobbs Scheme (and the individual schemes comprised therein) and to dispose of the proceedings. I will make a final determination as to the orders in relation to the Pinnacle Fund after determining the notice of motion by Messrs He and Gao. The orders that are presently in the attached Schedule of Declarations and Orders include those that, but for and subject to the outcome of that application, I propose to make in relation to the Hobbs scheme and component funds, including the Pinnacle Fund.
For convenience, I set out below a schedule of contents of these reasons.
CONTENTS
Summary
[10]
Background
[14]
Relief sought
[21]
Relevant Legal Principles
[24]
Declaratory relief
[25]
Disqualification orders (ss 206C and 206E)
[41]
Disqualification orders (ss 1101B and 1324)
[58]
Section 1101B
[59]
Section 1324
[64]
Scope of s 1324 in light of s 1101B
[72]
Are the Adler factors applicable?
[92]
Pecuniary penalties sought under s 1317G
[107]
Multiple Contraventions
[112]
Appointment of receiver pursuant to ss 1101B and 1323(1)
[117]
Reasons
Declaratory relief
[119]
Disqualification/Penalty orders
Contraventions
[122]
Mr Hobbs
[124]
Mr Collard
[126]
Ms Wu
[128]
Mrs Hobbs
[129]
Identification of contraventions for purpose of imposition of civil penalties
[131]
Disqualification orders under ss 206C and 206E
[160]
Seriousness of contraventions
Departure from standards expected
[161]
Potential/actual consequences
[169]
Disqualification orders under s 1101B and/or 1324
[182]
Mr Hobbs
Conduct of Mr Hobbs
[186]
Submissions made as to penalty by Mr Hobbs
[193]
Mr Hobbs' affidavit/January statement
[195]
Contrition
[197]
Mr Hobbs' further arguments as to findings
[211]
Mr Hobbs' financial position
[238]
Mr Hobbs' medical condition
[243]
Impact of the proceedings
[249]
Mr Hobbs' position as to penalty
[265]
Character Evidence
[275]
Should disqualification orders be made against Mr Hobbs?
[280]
Period of disqualification orders
[288]
Mr Collard
Conduct
[318]
Mr Collard's submissions
[326]
Should disqualification orders be made?
[340]
Period of disqualification
[342]
Ms Wu
Conduct
[350]
Ms Wu's submissions
[356]
Should disqualification orders be made?
[365]
Period of disqualification
[368]
Mrs Hobbs
Conduct
[375]
Submissions on behalf of Mrs Hobbs
[384]
Should disqualification orders be made/period
[400]
Pecuniary penalties
[404]
Mr Hobbs
[407]
Mr Collard
[438]
Mrs Hobbs
[449]
Appointment of receiver
[460]
Other orders
[470]
Costs
[479]
Conclusion
[494]
Schedule of Representations
Schedule of s 182 Commissions and Payments
Schedule of Declarations and Orders
Background
The events leading up to the proceedings are set out in detail in my principal reasons for judgment and are not repeated here. In these reasons I have adopted the same definitions and abbreviations as those used in my principal reasons. The relevant contravening conduct of Mr Hobbs, Mr Collard, Ms Wu and Mrs Hobbs is set out later in these reasons. By way of brief introduction, however, I note as follows.
From around 2002, Mr Hobbs promoted in Australia (through FTC and the FTC executives) individual "white label" or generic investment funds that constituted a financial product for which an Australian financial services licence was required. No such licence was held by anyone involved in the operation of the schemes. As a consequence, there was a breach of s 911A of the Corporations Act by Mr Hobbs (as well as a breach by him in his capacity as a de facto director of FTC and shadow director of the relevant corporate administrators, Mr Hobbs having caused or permitted the respective corporations similarly to contravene s 911A of the Act). The financial services in question related to the marketing of the respective individual investment funds through a combination of the sale of FTC subscriptions and the OEM/KLM process. This led to the making of offers and issue of unit certificates, or the confirmation of investments, in this jurisdiction (albeit generally in the name of an IBC that was registered offshore). (There were similar contraventions by Mr Collard and Ms Wu.)
There was also a breach of s 601ED(5) of the Corporations Act by Mr Hobbs (and others) by reason of the operation within this jurisdiction of the Hobbs Scheme (that scheme comprising the individual managed investment schemes and the process in which FTC and OEM/KLM were engaged in promoting and marketing the individual schemes); the Hobbs Scheme being an unregistered managed investment scheme within the meaning of the Act.
ASIC established numerous contraventions by each of Mr Hobbs and Mr Collard relating to the making of misrepresentations as to the Hobbs Scheme to potential investors (including misrepresentations specific to one or more of the individual investment schemes); and breaches by them of breaches of duties owed under s 180 and 181 of the Corporations Act (having caused or permitted similar representation contraventions by the corporate administrators to whom such duties were owed); and breaches of s 182 of the Corporations Act in relation to benefits obtained by improper use of their position as directors or officers of various of the corporate administrators to the detriment of the relevant companies.
Similar contraventions of ss 911A and 601ED(5) and similar representation contraventions in relation to particular investment schemes were found to have been committed by each of Ms Li, Mr Koutsoukos, Mr Wood and Mr Truong (though these findings were relevant only insofar as they were necessary to establish the liability of others in respect of those contraventions, since the proceedings had either been stayed or discontinued against those defendants).
ASIC established a lesser number of contraventions of one or more of the same statutory provisions by each of Ms Wu (an officer or de facto officer of two of the corporate administrators, Barclaywest and 888 Vanuatu) and Mrs Hobbs (Mr Hobbs' wife and a de facto director or officer of another corporate administrator, Geneva Financial).
Contraventions were also established of s 911A of the Corporations Act by each of the remaining defendants (being the corporate administrators of the various investment funds), though only ISPL and North Wave were still registered as at the time of the hearing.
Relief sought
In broad terms, the relief that ASIC has sought encompasses: declarations as to the various contraventions as well as disqualification or banning orders restraining particular defendants (Mr Hobbs, Mr Collard, Ms Wu and Mrs Hobbs) from a range of conduct (operating or promoting the Hobbs Scheme, or any of the individual schemes comprised within that scheme, or any managed investment scheme (registered or unregistered); managing corporations and providing financial services) for various periods (ranging from permanent disqualification to disqualification for a specified period of time); pecuniary penalty orders (pursuant to s 1317G of the Corporations Act) against each of Mr Hobbs, Mr Collard and Mrs Hobbs (not Ms Wu); the winding up of the Hobbs Scheme (and those of the individual schemes comprised therein that have not already been the subject of winding up orders); the appointment of a receiver to any assets located in this jurisdiction of Mr and Mrs Hobbs (in order to investigate whether there are any such assets that were derived from the individual schemes and to the assets of Ms Wu); and costs.
Consequential orders are sought as to the discharge of various asset preservation and related orders made (and the release from certain undertakings given) during the course of the proceedings; as well as orders to preclude any later revival by the individual defendants of the now deregistered corporate defendants and orders for the discontinuance of the proceedings against those deregistered corporate defendants.
ASIC seeks that the proceedings remain stayed (presumably indefinitely) as against the second defendant (Ms Li), who is presently in prison in China, so as to be able to rely on the commencement of these proceedings against her within the relevant limitations period(s) should ASIC later be in a position (and consider it appropriate to do so) to press the claims made against her.
Relevant Legal Principles
I set out first the relevant legal principles to be applied when determining whether to grant declaratory relief and to impose disqualification orders and pecuniary penalties before turning to the submissions made as to the relief to be granted in the present case.
(i) Declaratory relief
Section s 1317E of the Corporations Act requires the court to make a declaration of contravention if satisfied (as is the case here) that a person has contravened a civil penalty provision, specifying, among other things, the civil penalty provision that was contravened, the person who contravened the provision, the conduct that constituted the contravention and the corporation to which the conduct related (s 1317E(2)).
There is no element of discretion in the grant of declaratory relief of this kind. To the extent that the declarations sought by ASIC go beyond those mandated by s 1317E, however, the making of such orders is a matter within the discretion of the court.
There is no doubt that the court has a wide discretion to grant declaratory relief (Hanson v Radcliffe UDC [1922] 2 Ch 490, at 507; Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421, at 438; Ibeneweka v Egbuna [1964] 1 WLR 219, at 225; Re Judiciary and Navigation Acts (Advisory Opinions Case) [1921] HCA 20; (1921) 29 CLR 257; Ainsworth v Criminal Justice Commn (Qld) [1992] HCA 10; (1992) 175 CLR 564, at 581, per Mason CJ, Dawson, Toohey and Gaudron JJ; Oil Basins Ltd v Commonwealth (1993) 178 CLR 643 at 649; 117 ALR 338 per Dawson J). In Ainsworth, the plurality (adopting the language of that in Forster v Jododex) said that it was neither possible nor desirable to fetter the inherent discretionary power of superior courts to grant declaratory relief by laying down rules as to the manner of its exercise.
In Forster v Jododex, it was said that it was necessary that there be a real and not a theoretical question before the Court; that the person raising it must have a real interest to raise it and that there must be someone presently existing who has a true interest to oppose the declaration sought (as judicial pronouncements ought not to be issued unless there are circumstances that call for their making) (at 435-436). Those principles were included with approval in the summary of relevant principles by Lockhart J (with whom Spender and Cooper JJ agreed) in Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406; (1996) 139 ALR 663 at 670-671.
In the present case, the declaratory relief that is sought as a matter of the Court's discretion (i.e. not the declaratory relief that is mandated by s 1317E) does not involve the determination of abstract or hypothetical questions. Where the declaratory relief is directed to conduct of defendants against whom no substantive relief is now sought (such as those against whom the proceedings have been discontinued or stayed) or which are no longer in existence (being deregistered companies), the declarations go to matters relevant to the determination of claims against other defendants which are productive of real consequences for the parties.
ASIC seeks that further declaratory relief on the basis that, as a regulator exercising its statutory function, it has a real interest in obtaining such relief (referring to the recognition of the regulator's interest therein in Australian Securities & Investments Commission v West [2008] SASC 111 at [207] and Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43 at [271]). Reference was also made to the recognition in Australian Securities & Investments Commission v McDougall (2006) 229 ALR 158 at [55] (the court there citing Australian Softwood Forest Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121 at 125) that the seeking of declarations by regulators serves important law enforcement purposes.
Insofar as the requirement that there be a proper contradictor to the grant of declaratory relief (Forster v Jododex; Russian Commercial and Industrial Bank [1921] 2 AC 438 at 448; Ainsworth;Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596), in the sense of someone presently existing who has a true interest to oppose the declaration sought is concerned, it is not necessary that the contradictor actually oppose the declaratory relief sought (ACCC v MSY Technology Pty Ltd [2012] FCAFC 56; (2012) 201 FCR 378; ACCC v Willesee Healthcare Pty Ltd (No 2) [2011] FCA 752 at [44]).
In the present case, the allegations as to the various contraventions were opposed throughout the proceedings by Mr and Mrs Hobbs (and, at the close of the hearing, to some extent in the submissions pressed on behalf of Ms Wu). (Though Mr Hobbs was ultimately prepared, as his alternative position, to accept that certain findings of contravention could be made against the various corporate/scheme administrators, Mrs Hobbs continued to press her defence of those allegations against her.) Furthermore, Mr Collard (though entering a submitting appearance in April 2012) was personally in attendance throughout most of the hearing and was in the position of someone with a true interest in opposing the claims against him (as evident by his attempt, albeit unsuccessful, at a late stage of the hearing to withdraw his submitting appearance and reinstate his earlier defence).
As to the utility of the declaratory relief sought, ASIC concedes that ordinarily the court will not grant declarations that are of little or no utility but refers to Transphere (at 608) for the proposition that, even if the declaratory relief may have only slight utility, the public interest in determining and declaring a contravention of statutory provisions is an appropriate basis for such relief. Although one way that utility may be measured is in terms of the effectiveness of the declaratory relief in quelling the dispute between the parties and preventing further litigation (Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075, at [28] per Brereton J), this is not determinative of the exercise of the court's discretion.
Mr Halley SC (Senior Counsel appearing for ASIC with Mr Clarke of Counsel at both the hearing and the penalties hearing) submits that there is a public interest in the making of declarations of contravention of the kind now sought on the following five bases.
First, that this is an appropriate means by which to record the Court's disapproval of the contravening conduct (as was recognised in McDougall at [55]). Second, that this will vindicate ASIC's claim as to the commission of the contraventions in question and may assist ASIC in carrying out its statutory duties and functions as regulator (including as a means of deterrence) (reference there being made to Australian Lending Centre at [272]). Third, that this may assist in clarifying the law (as recognised in Australian Lending Centre at [272])). Fourth, that significant contraventions of law may be exposed through the regulator bringing the decision to the community's attention (Australian Competition and Consumer Commission v Ozdirect Online Brands Pty Ltd [2009] FCA 1604 at [53]). Fifth, that this may serve to warn others of the dangers from the contravening conduct (Australian Competition and Consumer Commission v 1MB Group Pty Ltd (1999) ATPR 41-688, [1999] FCA 313 at [21]), particularly where (as here) the contravening conduct was directed to a large section of the public over a significant period of time.
Each of those submissions has force in the present case having regard to: the scope (and seriousness) of the conduct comprising the contraventions; the section of the public to whom that conduct was quite clearly directed (financially unsophisticated investors targeted by word of mouth or through relatives and friends of Scheme administrators to whom the prospect of a significant return on their investment would (as Mr Hobbs well appreciated) be likely to prove highly attractive and many of whom (at least in the Li/Collard Schemes) spoke little or no English and hence were unlikely to be in a position to understand the documentation in relation to the investments without assistance); the manner in which at least some of the investment documentation was executed (giving investors little or no opportunity to absorb, or obtain legal or other advice as to, the information provided in the scheme memoranda); the fact that two of the schemes were expressly directed to the investment of superannuation funds; and in circumstances where, in the context of the disqualification orders that have been sought, Mr Halley has drawn to my attention some legal issues on which it appears clarification may be useful.
ASIC accepts (as recognised in Transphere at 608) that a legitimate and powerful factor against the grant of declaratory relief would be the possibility of embarrassment in a practical sense to a non-party. It is not suggested that the making of the declarations sought in the present case would give rise to such a risk. While I accept that the making of declarations extending the conduct of Ms Li (who has not been in a position to defend the allegations against her), may give rise to some embarrassment, no issue estoppel would arise to preclude a later defence by her of the allegations and it does not seem to me that the making of the declarations is likely to lead to any embarrassment beyond that which would already have arisen by the making of the findings already made in my principal judgment. As to the position of Messrs Koutsoukos, Wood and Truong, in respect of whom these proceedings were discontinued in circumstances where criminal proceedings had been instituted against them, they gave evidence voluntarily in ASIC's case. It was not suggested that the making of declarations relating to their conduct in the present proceedings should be avoided having regard to the existence of those criminal proceedings (the present status of which I am unaware).
The declarations sought by ASIC have been framed in accordance with the approach adopted by Brereton J in Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373. There, where there had been contraventions of various civil penalty provisions (and both declaratory relief and pecuniary penalties were sought against some of the defendants), his Honour noted that it would generally be inappropriate to make declarations of contravention that treated the relevant course of conduct of the defendants as directors of the relevant group over the whole period of the operation of the schemes both as a single contravention of s 180 and then as another contravention of s 181 ([146]).
In Maxwell, his Honour was of the view that, generally, there should be a separate declaration of contravention in respect of each act or default (though noting that in the circumstances of the case before him it did not operate to the prejudice of the defendants to treat as one contravention what may have been multiple contraventions). His Honour went on at [148] to say:
... the same conduct should be treated as constituting one contravention only, and not separate contraventions of ss 180 and 181. Sections 180, 181 and 182 of the Corporations Act are intended to give statutory recognition to the general law duties of company directors, and to make available additional sanctions for their breach, but not to create a regime of multiple jeopardy. The same conduct may constitute a breach of the duty to act in good faith as well as of the duty of care and diligence. At general law, what mattered was that the conduct was in breach of a director's duties; and although the same conduct might have been characterised as a breach of more than one of those duties, it constituted only a single breach. Bearing in mind that at least ss 181 and 182 have criminal as well as civil sanctions, and on well-established principles, the same conduct should be penalised only once. I have addressed this by consolidating the proposed declarations of contravention of the different sections into one declaration of contravention. (my emphasis)
I have adopted that approach in the present case.
(ii) Disqualification orders (from managing corporations) sought under ss 206C and 206E
Insofar as orders are sought against various defendants to disqualify them from managing corporations (either for a period of time or, in the case of Mr Hobbs and Mr Collard, permanently), ASIC invokes the powers conferred by ss 206C and 206E of the Corporations Act. Those sections are as follows:
206C Court power of disqualification - contravention of civil penalty provision
(1) On application by ASIC, the Court may disqualify a person from managing corporations for a period that the Court considers appropriate if:
(a) a declaration is made under section 1317E (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision; and
(b) the Court is satisfied that the disqualification is justified.
(2) In determining whether the disqualification is justified, the Court may have regard to:
(a) the person's conduct in relation to the management, business or property of any corporation; and
(b) any other matters that the Court considers appropriate.
206E Court power of disqualification - repeated contraventions of Act
(1) On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if:
(a) the person:
(i) has at least twice been an officer of a body corporate that has contravened this Act while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or
(ii) has at least twice contravened this Act while they were an officer of a body corporate; or
(iii) has been an officer of a body corporate and has done something that would have contravened subsection 180(1) or section 181 if the body corporate had been a corporation; and
(b) the Court is satisfied that the disqualification is justified.
(2) In determining whether the disqualification is justified, the Court may have regard to:
(a) the person's conduct in relation to the management, business or property of any corporation; and
(b) any other matters that the Court considers appropriate.
The power conferred by s 206C of the Corporations Act is thus predicated on the making of a declaration, pursuant to s 1317E of the Act, of contravention by the relevant defendant of a civil penalty provision and the court being satisfied that the disqualification is justified. As already noted, the making of such declarations is mandated by s 1317E where a contravention of such a provision has been found. Since declarations of that kind will now be made, the relevant threshold question is as to whether in the present case the disqualification is "justified".
The power pursuant to s 206E of the Corporations Act to make such a disqualification order arises where, relevantly, the person has at least twice been an officer of a body corporate that has contravened the Corporations Act (this not being limited to a contravention of a civil penalty provision) and has each time failed to take reasonable steps to prevent the contravention (my emphasis) or the person has, while an officer of the corporation, at least twice contravened the Corporations Act (again, not limited to contravention of civil penalty provisions). Again, it is necessary that the court be satisfied that the disqualification is "justified".
In Gillfillan v ASIC [2012] NSWCA 370, Sackville AJA noted, at [193], that insofar as s 206C of the Corporations Act empowers the court to disqualify a person from managing a corporation for a period only if it is satisfied that "the disqualification is justified", this means that the court must be satisfied not only that an order for disqualification should be made against the contravenor, but also that the period of disqualification is "justified".
The reference in ss 206C and 206E to disqualification "for a period that the court considers appropriate" encompasses the making of an order for permanent disqualification (Australian Securities and Investments Commissionv Elm Financial Services Pty Ltd (2005) 55 ACSR 544; [2005] NSWSC 1065; Australian Securities and Investments Commission v White (2006) 58 ACSR 261; [2006] VSC 239).
Here, there have been multiple contraventions by each of Mr Hobbs, Mr Collard, Ms Wu and Mrs Hobbs (while directors or officers of different companies) of various provisions of the Corporations Act (satisfying the requirement set out in s 206E(1)(ii)). In addition, s 206E(1)(i) has been satisfied as each of Mr Hobbs, Mr Collard, Ms Wu and Mrs Hobbs, in their respective capacities as de facto or shadow directors or officers (in the case of Ms Wu, she was an officer not a director); have at least twice been officers of companies who have contravened the Act and, far from taking reasonable steps to prevent those contraventions by the respective corporations, the individual defendants each played a role in causing or facilitating the contraventions.
In determining whether disqualification is justified for the purposes of ss 206C and 206E, regard may be had to the person's conduct in the management, business or property of any corporation (not just the corporation committing the contravention (ss 206C(2) and 206E(2)).
In Gillfillan, it had been submitted that the primary judge had erred (when imposing particular periods of disqualification for non-executive directors of the company), by commencing the analysis required by s 206C(2) of the Corporations Act not by a consideration as to whether disqualification was justified having regard to the individual director's conduct in relation to the management, business or property of any corporation and other appropriate matters but, instead, by comparison with the period of disqualification attributed to another defendant (that then being discounted by applying the parity principle). That approach was found to be in error, not because regard had been had to the penalties to be imposed on other contraveners, but by reference to the manner in which that process of comparison had been carried out. At [194]-[195], Sackville AJA said:
The language of s 206C(2) of the Corporations Act gives the court broad scope in determining the matters to take into account in deciding whether a period of disqualification is appropriate for a contravention of the legislation. As the propositions stated by Santow J in ASIC v Adler recognise, the nature of the contravention and its seriousness are critical considerations. But they are not the only relevant matters. The terms of s 206C(2) are wide enough to permit the court to have regard to penalties imposed or to be imposed on other contravenors whose contraventions are the same or at least very similar.
However, if the penalty imposed on one contravenor is to be regarded as the yardstick for the penalty to be imposed on another contravenor, care must be taken to identify the points of similarity and difference. If identical penalties are to be imposed, attention should be directed to whether the contravenor's circumstances warrant equal treatment. If the penalty imposed on one contravenor is taken as a comparator for the penalty to be imposed on another contravenor, but adjustments are thought to be necessary, the circumstances that justify and explain the differential treatment should be identified. (my emphasis)
When Sackville AJA came to approach that exercise afresh, his Honour commenced by first considering the examination of the nature and seriousness of the particular contravening conduct.
The seriousness of the contravention is to be determined by reference to the degree by which the officer of the relevant corporation has departed from the requisite standard of care and diligence and the potential or actual consequences of the contravention(s) (Vines v ASIC, per Ipp JA (at [229])).
The importance of general deterrence and the need to uphold proper standards of corporate behaviour are factors in determining whether a disqualification should be imposed and, if so, for what period (in Gillfillan, at [183]; see also Australian Securities and Investments Commission v Beekink (2007) 238 ALR 595 at [83]; Australian Securities and Investments Commission v MacDonald (No 12) (2009) 73 ACSR 638). It is recognised that disqualification itself has a punitive effect and that retribution is one of the objectives of such a provision (Australian Securities and Investments Commission v Forge [2007] NSWSC 1489; Macdonald; Australian Securities and Investments Commission v Vizard (2005) 145 FCR 57 at [35]). It is necessary to balance the objectives of general and specific deterrence with the need not unfairly to disadvantage the penalised person or to impose a penalty so large as to overreach what is the necessary object of such an order. Thus, hardship is a relevant factor in determining penalty though it plays a lesser role than that of deterrence (Forem-Freeway, Middleton J at 349-50) citing NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285; Re Tasmanian Spastics Association; Australian Securities Commission v Nandan (1996) 23 ACSR 743 at 752 per Merkel J).
Where, as here, both pecuniary penalties and disqualification orders are sought, the approach by the court should be to consider the issue of disqualification before that of pecuniary penalty. McHugh J in Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [48] (having referred to the Explanatory Paper accompanying the first draft of the Corporate Law Reform Bill 1992 in relation to the predecessors to ss 206C and 206E) said:
It is expected that in settling an appropriate [civil penalty] order, the Court would first give consideration to whether it should impose a civil penalty disqualification. The issue should be whether the defendant's conduct, whilst not criminal in nature, was so reprehensible and had such serious consequences as to warrant an order prohibiting the person from managing a corporation. For example, if gross negligence by a director had led directly to massive losses for shareholders, the Court may consider that a director should be disqualified for a substantial period, even where there was no question of a dishonest intent. The emphasis should be on preventing a recurrence of the contravention by the defendant, and providing a deterrent to other persons involved in the management of corporations. (my emphasis)
(See also Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430 at [101]; (2011) 284 ALR 734; Australian Securities and Investments Commission v Soust (No 2) [2010] FCA 388 at [20].)
McHugh J went on to refer to an expectation that the Court would consider imposing a pecuniary penalty only where a disqualification order would provide an inadequate or inappropriate remedy. That said, there is no doubt that the seriousness of the relevant contravention(s) may warrant the imposition in an appropriate case of a pecuniary penalty in addition to a disqualification order. At [330] in Gillfillan, Sackville AJA said:
I accept that a pecuniary penalty should be imposed on the appellants only if an order for disqualification is an inadequate or inappropriate remedy: CA Penalty Judgment, at [131], per curiam. However, I think that the seriousness of each contravention warrants an additional pecuniary penalty, even if of a relatively modest amount. While the appellants have correctly submitted that a pecuniary penalty is not required in the interests of personal deterrence, it is necessary to take into account the objective of general deterrence and the need for the court to match the disapproval of conduct involving such a marked departure from the standards to be expected of directors of public companies. (my emphasis)
The principles and factors to be taken into account by the court in exercising the power of disqualification in the context of the management of corporations were set out by Santow J, as his Honour then was, in ASIC v Adler (No 5) (2002) 42 ACSR 80 (a judgment described by McHugh J in Rich at [48]-[49]) as the leading authority on the reasons for the exercise of the power of disqualification under ss 206C and 206D). (As will be seen below, it is also the yardstick by which disqualification orders under other provisions have been considered by later Tribunals and by this Court.)
Though these principles have been widely reproduced (and applied) in other cases (see, for example, the authorities listed in Austin and Black's Annotations to the Corporations Act at [2D.206C]), it is useful to set out in full the relevant passage (at [56]) from Santow J's judgment in Adler (since ASIC's submissions are directed to the factors recognised as leading to the varying disqualification periods referred to in that judgment and it may assist the self-represented defendants in this case to understand the way in which those factors have been found to apply to them). Nevertheless, the principles summarised by Santow J are guidelines only; each case turning upon its own considerations (Beekink). In Forge, White J (noting at [106] that Santow J had not purported to lay down three separate and water-tight categories of case leading to disqualification orders) considered that there would inevitably be cases where the appropriate period of disqualification would fall outside any of the periods considered in Adler.
At [56] in Adler, Santow J noted that his review of the cases on disqualification revealed the making of such orders for periods ranging from life disqualification to three years and went on to say:
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: Australian Securities and Investments Commission v Hutchings (2001) 38 ACSR 387 at 395 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339 at 349-50 Australian Securities Commission v Donovan (1998) 28 ACSR 583 at 602 Australian Securities Commission v Roussi (1999) 32 ACSR 568 at 570-1 Re Strikers Management Pty Ltd; Australian Securities Commission v Dimitri (unreported, Fed C of A, Burchett J, No NG 3789 of 1996, 7 May 1997, BC9702133) Re Tasmanian Spastics Association; Australian Securities Commission v Nandan (1997) 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: Australian Securities Commission v Roussi, above, at 570; Re Gold Coast Holdings Pty Ltd; Australian Securities and Investments Commission v Papotto (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: Australian Securities Commission v Roussi at 570; Re Gold Coast Holdings Pty Ltd, above, at 112; Re Tasmanian Spastics Association, above, at 751.
(iv) The banning order is protective against present and future misuse of the corporate structure: Australian Securities Commission v Donovan, above, at 603.
(v) The order has a motive of personal deterrence, though it is not punitive: Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd, above; Australian Securities Commission v Donovan at 607; Re Tasmanian Spastics Association at 751;42 ACSR 80 at 98. As Austin J noted in Australian Securities and Investments Commission v Vines [2006] NSWSC 760; (2006) 58 ACSR 298 at [35]-[36], this proposition must be read as subject to what was said in Rich v ASIC (infra) such that a disqualification order should now be regarded as involving the imposition of a penalty.
(vi) The objects of general deterrence are also sought to be achieved: Australian Securities Commission 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: Australian Securities Commission 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: Australian Securities Commission v Donovan at 605-7.
(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: Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd; Australian Securities and Investments Commission v Parkes (2001) 38 ACSR 355 at 386; Australian Securities Commission v Forem-Freeway Enterprises; Australian Securities Commission v Roussi at 570-1.
(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: Australian Securities Commission v Donovan at 607; Australian Securities and Investments Commission v Parkes, above, at 386.
(xi) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming: Australian Securities Commission v Forem-Freeway Enterprises at 351.
(xii) The eight criteria to govern the exercise of the court's powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 have been influential. It was held that in making such an order it is necessary to assess:
· character of the offenders;
· nature of the breaches;
· structure of the companies and the nature of their business;
· interests of shareholders, creditors and employees;
· risks to others from the continuation of offenders as company directors;
· honesty and competence of offenders;
· hardship to offenders and their personal and commercial interests; and
· offenders' appreciation that future breaches could result in future proceedings.
Australian Securities Commission v Roussi at 570-1; Re Gold Coast Holdings Pty Ltd at 111;
(xiii) Factors which lead to the imposition of the longest periods of disqualification (that is disqualifications of 25 years or more) were:
· large financial losses;
· high propensity that defendants may engage in similar
activities or conduct;
· activities undertaken in fields in which there was potential
to do great financial damage such as in management and
financial consultancy;
· lack of contrition or remorse;
· disregard for law and compliance with corporate
regulations;
· dishonesty and intent to defraud;
· previous convictions and contraventions for similar
activities.
Australian Securities and Investments Commission v Hutchings; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd; Australian Securities Commission v Parkes;
(xiv) In cases in which the period of disqualification ranged from 7-12 years, the factors evident and which lead to the conclusion that these cases were serious though not "worst cases", included:
· serious incompetence and irresponsibility;
· substantial loss;
· defendants had engaged in deliberate courses of conduct
to enrich themselves at others' expense, but with lesser
degrees of dishonesty;
· continued, knowing and wilful contraventions of the law
and disregard for legal obligations;
· lack of contrition or acceptance of responsibility, but as
against that, the prospect that the individual may reform;
Australian Securities Commission v Forem-Freeway Enterprises; Australian Securities Commission v Donovan; Australian Securities Commission v Roussi; Re Strikers Management Pty Ltd; Re Gold Coast Holdings Pty Ltd.
The difficulty with Roussi's case is that disqualification for 10 years was ordered, as this was the period of disqualification that the ASC had sought. Had a longer period been applied for, Einfeld J may have considered giving a longer period: Australian Securities Commission v Roussi at 571;
(xv) The factors leading to the shortest disqualifications, that is disqualifications for up to 3 years were:
· although the defendants had personally gained from the
conduct, they had endeavoured to repay or partially repay
the amounts misappropriated;
· the defendants had no immediate or discernible future
intention to hold a position as manager of a company;
· in Donovan's case, the respondent had expressed
remorse and contrition, acted on advice of professionals
and had not contested the proceedings;
Australian Securities Commission v Donovan; Re Tasmanian Spastics Association.
In Vines, Austin J (having had regard to the above principles) summarised afresh the factors to be taken into account in determining the period of disqualification for managing corporations (at [43]) as including: whether the defendant now is or will in the future be a fit and proper person to manage corporations; the size of any losses suffered by the corporation, its creditors and consumers; the legislative objectives of personal and general deterrence; contrition on the part of the defendant; the gravity of the misconduct; the defendant's previous good character; prejudice to the defendant's business interests; personal hardship; and the willingness of the defendant to render assistance to statutory authorities and administrators.
(iii) Disqualification orders (from other conduct, including the provision of financial services) sought under ss 1101B and 1324
As well as orders disqualifying the particular defendants from managing corporations, disqualification orders are sought by ASIC against those same defendants to restrain them from carrying on a business in relation to financial products or financial services, or from being involved in the carrying on of a financial services business by someone else, or from the promotion, establishment or carrying on of the business of a registered managed investment scheme (again such orders are variously sought ranging from orders on a permanent basis to those for a period of years). I refer to disqualification orders in respect of conduct of this kind collectively as financial services disqualification orders.
Section 1101B
Section 1101B appears under the heading "Power of Court to make certain orders". Sub-section (1) commences with the sub-heading "Court's power to make orders in relation to certain contraventions" (my emphasis). Under this provision the court is empowered, on the application of ASIC, to make such orders as it considers fit where it appears to the court, relevantly, that a person
49. That the first, third and eighth defendants (Mr Hobbs, Mr Collard and Mrs Hobbs) pay ASIC's costs of matter 2007/258119 from 27 August 2010 to 12 April 2012.
50. That the first and eighth defendants (Mr and Mrs Hobbs) pay ASIC's costs of matter 2007/258119 from 13 April 2012 to 24 October 2012, save for ASIC's costs of the following applications made by the fourth defendant (Ms Wu):
(a) an application dated 27 June 2012 and filed on 3 0 July 2012;
(b) an application made on 15 and 16 August 2012; and
(c) an application made on 21 August 2012
and that Ms Wu pay ASIC's costs of the applications in (a) to (c) above.
51. That the first and eighth defendants (Mr and Mrs Hobbs) pay ASIC's costs of matter 2007/258119 from 24 October 2012 to date, save for ASIC's costs, including ASIC's costs thrown away, arising out of the service by the fourth defendant on ASIC of Ms Wu's affidavit affirmed on 12 December 2012 and that the fourth defendant (Ms Wu) pay ASIC's costs arising out of the service of that affidavit (including costs thrown away in relation thereto).
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Decision last updated: 21 February 2013
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