Registrar of Aboriginal and Torres Strait Islander Corporations v Monaghan (No 2)
[2016] FCA 1143
•20 September 2016
FEDERAL COURT OF AUSTRALIA
Registrar of Aboriginal and Torres Strait Islander Corporations v Monaghan (No 2) [2016] FCA 1143
File number: ACD 22 of 2015 Judge: GRIFFITHS J Date of judgment: 20 September 2016 Catchwords: CORPORATIONS – Aboriginal and Torres Strait Islander corporation – contraventions under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) involving duties of directors and officers including duty of care and diligence, not to improperly use position to gain advantage or cause detriment and record keeping – civil penalty regime – multiple contraventions of civil penalty provisions – totality principle – whether to make declarations and orders for disqualification, compensation and/or pecuniary penalties – admissions by some respondents.
Held: disqualification of five years imposed on first and second respondents and six months on third respondent – first and second respondents to pay pecuniary penalty of $38,500 and costs.
Legislation: Aboriginal Councils and Associations Act 1976 (Cth), s 71
Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth), Chs 3, 4, 5, 6, 7, 8, Pts 6-4, 7-2, 7-3, ss 1-25, 1-30, 29-5, 57-1, 69-1, 180-1, 252-1, 252-1(1), 262-1, 265-1, 265-1(1), 265-1(2), 265-5, 265-10, 265-10(1), 279-15, 279-15(1), 279-15(2), 322-10, 363-1, 363-1(1), 386-1, 386-1(1), 386-1(2), 386-10, 386-10(1), 386-10(1)(b)(iii) 386-15(1), 386-20, 386-20(1), 386-25, 439-20, 453-1
Corporations (Aboriginal and Torres Strait Islander) Bill 2006 (Cth)
Corporations (Aboriginal and Torres Strait Islander) Consequential, Transitional and Other Measures Act 2006 (Cth), Sch 3, Item 1(1)
Corporations (Aboriginal and Torres Strait Islander) Regulations 2007 (Cth), reg 29-5.01
Corporations Act 2001 (Cth), ss 180(1), 181(1), 182, 203C, 206E, 1317E, 1317G, 1317H
Trade Practices Act 1974 (Cth)
Cases cited: Adler v Australian Securities and Investments Commission [2003] NSWCA 131
Australian Securities and Investments Commission v Adler [2002] NSWSC 171; 41 ACSR 72
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; 75 ACSR 1
Australian Securities and Investments Commission v Healey [2011] FCA 717; 196 FCR 291
Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41-515
Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; 238 ALR 595
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 326 ALR 476
Grove v Flavel (1986) 43 SASR 410
Markarian v The Queen [2005] HCA 25; 228 CLR 357
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; 71 FCR 285
Trade Practices Commission v CSR Ltd (1991) ATPR 41-076
R v Byrnes [1995] HCA 1; 183 CLR 501
Re HIH Insurance (in prov liq); ASIC v Adler [2002] NSWSC 483; 42 ACSR 80
Registrar of Aboriginal and Torres Strait Islander Corporation v Kerkhoffs [2013] FCA 1445
Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham [2013] FCA 912; 216 FCR 393
Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) [2014] FCA 27; 97 ACSR 412
Registrar of Aboriginal and Torres Strait Islander Corporations v Murray [2015] FCA 346
Date of hearing: 27 and 28 July 2016 Registry: Australian Capital Territory Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 403 Counsel for the Applicant: Mr David de Jersey Solicitor for the Applicant: Minter Ellison Counsel for the First Respondent: Mr Karl Pattenden Solicitor for the First Respondent: Legal Aid ACT Counsel for the Second Respondent: Ms Prue Bindon Solicitor for the Second Respondent: Legal Aid ACT Counsel for the Third Respondent: Mr Craig Wilson Solicitor for the Third Respondent: Pennicott Weir Lawyers ORDERS
ACD 22 of 2015 BETWEEN: REGISTRAR OF ABORIGINAL AND TORRES STRAIT ISLANDER CORPORATIONS
Applicant
AND: FRED MONAGHAN
First Respondent
TERESA ELSA MONAGHAN
Second Respondent
KIM MAREE PETERS
Third Respondent
JUDGE:
GRIFFITHS J
DATE OF ORDER:
20 SEPTEMBER 2016
THE COURT ORDERS THAT:
First and Second Respondents
1.From 25 March 2009 to 18 December 2013 (the Relevant Period), the first and second respondents each contravened s 265-1(1) of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act) by failing to exercise his or her powers and discharge his or her duties as a director or officer of Southside Housing Aboriginal Corporation ICN 2379 (the Corporation) with the degree of care and diligence that a reasonable person would exercise if that reasonable person:
(a)were a director or officer of an Aboriginal and Torres Strait Islander corporation in the Corporation’s circumstances; and
(b)occupied the office held by, and had the same responsibilities within that corporation as, each of the first and second respondents; and
by failing to:
(c)manage and maintain the properties, previously owned and managed by the Corporation (the Properties), by taking steps to ensure that:
(i)the Properties were maintained to an adequate physical standard; and
(ii)the Corporation had sufficient funds to meet all of the costs and expenses in relation to the proper maintenance of the Properties; and
(d)ensure that the Corporation took steps or had systems to comply with the practices required by its rule books and the CATSI Act and by failing to ensure proper practices were implemented for the management of the Corporation by taking steps to:
(i)cause an annual general meeting (AGM) to be held by the Corporation (in each of the calendar years ended 2009 and 2012) in accordance with cl 4.1 of the Registrar Initiated Rule Book (which was effective from 22 June 2009);
(ii)for any AGM of the Corporation that was held in 2009 or 2012, cause to be kept a record of the AGM or minutes of the AGM in accordance with cl 7 of the Registrar Initiated Rule Book;
(iii)cause the Corporation to hold directors’ meetings at least once every three months in each of the 2009, 2010, 2012 and 2013 calendar years (as required by the Corporation’s rule book) in accordance with cl 5.16 of the Registrar Initiated Rule Book;
(iv)for any directors’ meetings that were held in each of the 2009, 2010, 2012 and 2013 calendar years, cause to be kept a record of the meeting or minutes of the meetings in accordance with cl 7 of the Registrar Initiated Rule Book and s 220-5(1) of the CATSI Act;
(v)ensure that the payment of all accounts was approved at directors’ meetings in those meetings held during the Relevant Period in accordance with cl 8 of the Registrar Initiated Rule Book; and
(vi)cause the Corporation to maintain, or keep at its documents access address, a register of members and former members during the Relevant Period in accordance with cl 3.8 of the Registrar Initiated Rule Book and ss 180-1, 180-5, 180-10, 180-15 and 180-20 of the CATSI Act.
(e)Formally disclose, in accordance with cl 10 of the Second Rule Book (registered between 31 August 1997 and 22 June 2009), cll 5.11 and 5.12 of the Registrar Initiated Rule Book, and s 265-10 of the CATSI Act, their personal interest in matters at directors’ meetings:
(i)in respect of the first respondent, held on 23 May 2011, 11 July 2011, 17 October 2011 and 27 February 2012, at which the non-payment of rent or rental arrears by tenants of the Properties, and the non-payment of rent or rental arrears by a relative were discussed;
(ii)in respect of the second respondent, held on 23 May 2011, 11 July 2011, 17 October 2011 and 27 February 2012, at which the non-payment of rent, rental arrears, and the non-payment of rent or rental arrears by a relative were discussed; and
(iii)in respect of the second respondent, held on 23 May 2011, 11 July 2011, 17 October 2011, 19 December 2011 and 27 February 2012, at which the debt owing to ACTEW Corporation incurred for excess water usage by tenants of the Properties was discussed.
2.Throughout the Relevant Period, the first and second respondents each contravened s 265-10(1) of the CATSI Act by improperly using his or her position as a director or officer of the Corporation to:
(a)gain an advantage for herself and another person; and
(b)cause detriment to the Corporation,
by failing to:
(c)cause the Corporation to charge rent for the Properties which was sufficient to meet the costs and expenses associated with the Properties, including but not limited to maintaining the Properties;
(d)cause the Corporation to take appropriate steps to recover rental arrears and excess water consumption charges;
(e)cause the Corporation to take appropriate steps to require tenants of the Properties to repair or pay for damage caused to the Properties; and
(f)formally disclose, in accordance with cl 11 of the Second Rule Book, cll 5.11 and 5.12 of the Registrar Initiated Rule Book, and s 265-10 of the CATSI Act, their personal interest in matters at directors’ meetings.
3.Throughout the Relevant Period, the first and second respondents each contravened s 363-1(1) of the CATSI Act by failing to take all reasonable steps to ensure the Corporation complied with, or to secure compliance with, its record keeping and reporting requirements under Pts 7-2 and 7-3 of the CATSI Act, by failing to:
(a)create and keep, or cause the Corporation to create or cause the Corporation to keep for seven years, adequate written financial records of books of account and source records;
(b)ensure that an organised system of maintaining source business records was used;
(c)ensure that an organised system of recording all transactions was used, such as registers;
(d)ensure that bank reconciliations were completed by the Corporation to verify the accuracy of the records kept; and
(e)ensure that written financial records correctly recorded the Corporation’s transactions and financial position and performance, and would enable true and fair financial reports to be prepared and audited.
Third Respondent
4.Throughout the period from 25 March 2009 to early 2012, the third respondent contravened s 363-1(1) of the CATSI Act by failing to take all reasonable steps to ensure the Corporation complied with, or to secure compliance with, its record keeping and reporting requirements under Pts 7-2 and 7-3 of the CATSI Act, by failing to:
(a)create and keep, or cause the Corporation to create or cause the Corporation to keep for seven years, adequate written financial records of books of account and source records;
(b)ensure that an organised system of maintaining source business records was used;
(c)ensure that an organised system of recording all transactions was used, such as registers;
(d)ensure that bank reconciliations were completed by the Corporation to verify the accuracy of the records kept; and
(e)ensure that written financial records correctly recorded the Corporation’s transactions and financial position and performance, and would enable true and fair financial reports to be prepared and audited.
5.Pursuant to s 279-15(1) of the CATSI Act, the third respondent be disqualified from managing any Aboriginal and Torres Strait Islander corporation for a period of six months.
6.Within 14 days hereof, the third respondent must proffer an undertaking to the applicant, which is acceptable to the applicant, to repay to the Corporation any outstanding rent payable by the third respondent in respect of her tenancy at 6 Rolph Place, Gilmore. Such payments may be made by instalments, the amount of which must take into account the third respondent’s current and likely future financial circumstances.
7.The applicant and the third respondent are to seek to agree costs in the light of these reasons and, if they are unable to reach an agreement, within 14 days hereof each should file and serve an outline of submissions not exceeding three pages in support of their respective positions on costs.
BY CONSENT THE COURT ORDERS THAT:
8.Pursuant to s 279-15(1) of the CATSI Act, each of the first and second respondents be disqualified from managing any Aboriginal and Torres Strait Islander corporation for a period of five years.
9.Pursuant to s 386-10(1) of the CATSI Act, each of the first and second respondents pay to the Commonwealth a pecuniary penalty in the amount of $38,500.
10.Pursuant to s 581-20(2) of the CATSI Act, the first and second respondents pay the applicant’s costs of this proceeding.
11.The applicant shall not enforce the order in paragraph 10 above without the leave of the Court.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
INTRODUCTION
[1]
SUMMARY OF THE REGULATORY REGIME
[5]
THE ROLE OF THE REGISTRAR
[27]
THE STATEMENT OF AGREED FACTS
[31]
Southside Housing Aboriginal Corporation
[37]
The Corporation's rules
[41]
Purchase of the Properties
[53]
Renting the Properties
[56]
Laurrie Scheele Real Estate
[61]
The First Examination
[66]
The First Administration
[71]
LSRE communications with directors regarding rental arrears and maintenance
[79]
Proposed deregistration
[83]
Payment of water and sewerage accounts (2010-11)
[86]
Engagement of consultant
[87]
Payment of water and sewerage accounts (2011-12)
[92]
ACT Civil and Administrative Tribunal proceedings against the Corporation
[95]
Request for assistance to FaHCSIA and ACT Housing and Community Services Division)
[102]
Inspections and urgent repairs by Housing ACT
[106]
The Second Examination
[111]
The Second Administration
[123]
The Respondents
[138]
Directors and/or officers of the Corporation
[138]
Respondents’ Occupation and Tenancy of the Corporation’s Properties - rental and other charges
[143]
The First and Second Respondents’ duties
[157]
Conduct of the First and Second Respondents
[159]
Duty of care and diligence
[161]
Duty not to improperly use position
[163]
Duty to comply with Pts 7-2 and 7-3 of the CATSI Act
[166]
Admissions - contraventions of civil penalty provisions
[168]
THE REGISTRAR’S EVIDENCE SUMMARISED
[170]
THE RESPONDENTS’ EVIDENCE SUMMARISED
[181]
Mr Monaghan
[182]
Ms Monaghan
[195]
Ms Peters
[205]
Ms Peters’ cross-examination summarised
[218]
Ms Peters’ reliance on the evidence of Mr McEwan and Mr Richards
[227]
THE REGISTRAR’S SUBMISSIONS SUMMARISED
[229]
Duty of care and diligence – s 265-1(1)
[232]
Improper use of position – s 256-10
[237]
Failure to keep proper records – s 363-1
[241]
Relevant principles concerning relief
[242]
Periods of disqualification
[246]
Ms Monaghan and Mr Monaghan
[246]
Ms Peters
[251]
Pecuniary penalty
[253]
(a) Principles in relation to multiple contraventions
[254]
Application of the course of conduct principle to all three respondents
[255]
First episode
[256]
Second episode
[259]
Third episode
[260]
(b) Principles in relation to determining an appropriate penalty for each contravention
[261]
Consideration of statutory maximum penalties
[262]
Centrality of deterrence
[265]
Factors to be taken into account in determining a penalty of appropriate deterrent value
[269]
Application of the principles for determining an appropriate penalty for each contravention
[276]
General deterrence
[276]
Specific deterrence
[278]
(c) Assessing penalties: Quantum
[280]
Mr Monaghan
[281]
Ms Monaghan
[282]
Ms Peters
[283]
Application of the totality principle
[285]
Compensation orders
[295]
Mr Monaghan and Ms Monaghan
[296]
Ms Peters
[299]
Costs
[301]
Registrar’s supplementary submissions concerning Ms Peters
[302]
SUBMISSIONS OF THE RESPONDENTS SUMMARISED
[311]
Mr and Ms Monaghan
[311]
Ms Peters
[312]
CONSIDERATION AND DETERMINATION
[313]
Mr and Ms Monaghan
[313]
Declaratory orders
[317]
Disqualification orders
[320]
Pecuniary penalties
[321]
Multiple contraventions
[325]
Principles for determining appropriate pecuniary penalty for each contravention
[329]
Compensation orders
[339]
Costs
[340]
Ms Peters
[342]
Duty of care and diligence
[344]
Duty not to improperly use director’s position to gain advantage or cause detriment
[358]
Ensuring sufficient rent
[364]
Unpaid Rent and Excess Water Usage
[369]
Maintenance of the Properties to a habitable standard
[387]
Tenants’ responsibility for damage to Properties
[388]
Failure to declare conflicts of interest
[390]
Record keeping
[393]
Relief against Ms Peters
[397]
Costs as between Ms Peters and the Registrar
[400]
CONCLUSION
[401]
REASONS FOR JUDGMENT
GRIFFITHS J:
INTRODUCTION
The Registrar of Aboriginal and Torres Strait Islander Corporations (the Registrar) sought declarations, disqualification orders, compensation orders and pecuniary penalties for contraventions of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act) by three former directors of the Southside Housing Aboriginal Corporation ICN 2379 (the Corporation).
The primary objective of the Corporation is to provide affordable alternative housing for Aboriginal people in the inner south Canberra region. The respondents are Mr Fred Monaghan (Mr Monaghan), his estranged wife Ms Teresa Monaghan (Ms Monaghan), and Ms Kim Peters (Ms Peters). As will emerge below, it appears that there were additional directors of the Corporation during some or all of the period to which the relief sought by the Registrar relates, but no relief is sought against those other directors in this proceeding. The relevant period is 25 March 2009 to 18 December 2013 (the Relevant Period). The parties agree that:
(a)Mr Monaghan was a director and/or officer of the Corporation for the period 2005 until 2009, then for the period 2012 to 2013;
(b)Ms Monaghan was a director and/or officer of the Corporation for the period 2005 until 28 January 2014; and
(c)Ms Peters was a director and/or officer of the Corporation for the period 15 December 2005 to early 2012. (It might be interpolated that there is some evidence which suggests that Ms Peters remained a director until late in December 2012, but the Court will act upon the agreed facts).
At the commencement of the hearing, Mr de Jersey, who appeared for the Registrar, informed the Court that the Registrar had reached an agreement with Mr and Ms Monaghan concerning relief against them. The Court was subsequently provided with draft proposed orders reflecting this agreement. Counsel for Mr and Ms Monaghan (Mr Pattenden and Ms Bindon respectively) were excused from attending the first day of the hearing, the primary focus of which then shifted to the Registrar’s case against Ms Peters.
These reasons for judgment will consider the CATSI Act, the Registrar’s role, a revised statement of agreed facts, the Registrar’s evidence, the respondents’ evidence, the contravening conduct, the contraventions of the CATSI Act and rule books, the applicable legal principles and the relief sought against each respondent. Although it remained a matter for the Court to be satisfied as to the appropriateness of the agreed proposed orders concerning Mr and Ms Monaghan, the balance of these reasons for judgment will primarily focus on general legal principles and contested matters relating to Ms Peters. The evidence relating to Mr and Ms Monaghan’s conduct as directors will also be outlined.
SUMMARY OF THE REGULATORY REGIME
The regulatory framework created by the CATSI Act was helpfully summarised by Jacobson J in Registrar of Aboriginal and Torres Strait Islander Corporation v Matcham (No 2) [2014] FCA 27; 97 ACSR 412 (Matcham) at [8]-[29] and by Gordon J in Registrar of Aboriginal and Torres Strait Islander Corporations v Murray [2015] FCA 346 (Murray) at [5]-[27]. The key relevant features of that framework may be outlined as follows.
The CATSI Act replaced the Aboriginal Councils and Associations Act 1976 (Cth) (ACA Act). The preamble to the CATSI Act states that the law is a special measure for the advancement and protection of Aboriginal peoples and Torres Strait Islanders. The Revised Explanatory Memorandum to the Corporations (Aboriginal and Torres Strait Islander) Bill 2006 (Cth) explained that the Bill aligned with modern corporate governance standards and corporations law but maintained a special statute of incorporation for Aboriginal and Torres Strait Islander peoples that took account of the special risks and requirements of the Indigenous corporate sector. The Revised Explanatory Memorandum noted in [1.7] that the Bill “maximises alignment with the [Corporations Act 2001 (Cth)] where practicable, but provides sufficient flexibility to accommodate specific cultural practices and tailoring to reflect the particular needs and circumstances of individual groups”.
The objects of the CATSI Act (in s 1-25) recognise that Aboriginal and Torres Strait Islander peoples, in some circumstances, have special needs for incorporation, assistance, monitoring and regulation which the Corporations Act 2001 (Cth) (Corporations Act) is unable to meet: Matcham at [10]. The express objects of the CATSI Act are to provide for the establishment of the role of the Registrar and the Registrar’s functions and powers, and the incorporation, operation and regulation of appropriate bodies under the Act, as well as the imposition of duties on, and regulation of, officers of those bodies: s 1-25 of the CATSI Act.
Chapter 2 of the CATSI Act provides for Aboriginal and Torres Strait Islander corporations and their registration. By s 29-5 of the CATSI Act, a certain percentage of the members of an Aboriginal and Torres Strait Islander corporation must be Aboriginal and Torres Strait Islander persons. This has some significance in circumstances where, as will emerge shortly, directors only receive remuneration if this is authorised by the constitution of the particular corporation. If the corporation has five or more members, at least 51% of members must be Aboriginal and Torres Strait Islander persons; if it has fewer than five members but more than one member, all or all but one of the members must be Aboriginal and Torres Strait Islander persons; and if it has only one member, that member must be an Aboriginal and Torres Strait Islander person: see also reg 29-5.01 of the Corporations (Aboriginal and Torres Strait Islander) Regulations 2007 (Cth).
Chapter 3 of the CATSI Act provides for the ‘basic features’ of Aboriginal and Torres Strait Islander corporations. It includes provisions dealing with the internal governance rules, the minimum number of members required, and the names and powers of such corporations. Section 57-1 records that the rules dealing with internal governance are of four kinds: common law rules, rules in the CATSI Act that cannot be replaced by the corporation’s constitution, replaceable rules in the CATSI Act that may be modified or replaced by the corporation’s constitution, and rules that are in the corporation’s constitution. Pursuant to s 69-1, the constitution of an Aboriginal and Torres Strait Islander corporation is the constitution that is registered in respect of the corporation.
Chapter 4 of the CATSI Act provides for, amongst other things, the membership of Aboriginal and Torres Strait Islander corporations. Such a corporation must set up and maintain a register of members (s 180-1).
Chapter 5 of the CATSI Act deals with directors’ meetings and general meetings of Aboriginal and Torres Strait Islander corporations. It sets out the rules for those meetings, some of which may be modified or replaced by the corporation’s constitution.
Chapter 6 of the CATSI Act deals with the officers (and directors) of an Aboriginal and Torres Strait Islander corporation. Unless the constitution of such a corporation provides otherwise, the directors are not to be paid remuneration (s 252-1(1)).
Part 6-4 of the CATSI Act, entitled “Duties and powers of directors and other officers and employees”, sets out some of the most significant duties of directors, secretaries, other officers and employees of Aboriginal and Torres Strait Islander corporations: s 262-1 of the CATSI Act. Other duties are imposed by other provisions of the CATSI Act, provisions of the Corporations Act that are applied to Aboriginal and Torres Strait Islander corporations, and other laws including the general law.
Three statutory duties imposed on directors and officers by the CATSI Act are relevant here – those imposed by ss 265-1(1) and 265-10(1) in Ch 6 and that imposed by s 363-1(1) in Ch 7.
Section 265-1(1) of the CATSI Act imposes a duty to act with care and diligence:
A director or other officer of an Aboriginal and Torres Strait Islander corporation must exercise his or her powers and discharge his or her duties with the degree of care and diligence that a reasonable person would exercise if that reasonable person:
(a)were a director or officer of an Aboriginal and Torres Strait Islander corporation in the corporation’s circumstances; and
(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
Note 1: This subsection is a civil penalty provision (see section 386-1).
…
This duty mirrors s 180(1) of the Corporations Act: Matcham at [12].
Section 265-10(1) of the CATSI Act relates to the use inter alia of a director’s position:
A director, secretary, other officer or employee of an Aboriginal and Torres Strait Islander corporation must not improperly use his or her position to:
(a) gain an advantage for himself or herself or someone else; or
(b) cause detriment to the corporation.
Note 1: This subsection is a civil penalty provision (see section 386-1).
…
Note 3: The contact person for the corporation is covered by the reference to an employee of the corporation.
This duty mirrors s 182 of the Corporations Act: Matcham at [14].
Section 363-1(1), in Ch 7, imposes a duty to take all reasonable steps to comply, or to secure compliance, with Pts 7-2 and 7-3 of the CATSI Act (which impose obligations in relation to record keeping and reporting). Section 363-1(1) provides:
A director of an Aboriginal and Torres Strait Islander corporation contravenes this section if he or she fails to take all reasonable steps to comply with, or to secure compliance with, Parts 7-2 and 7-3.
Section 322-10 of the CATSI Act (which is in Pt 7.2) provides:
(1)An Aboriginal and Torres Strait Islander corporation must keep written financial records that:
(a)correctly record and explain its transactions and financial position and performance; and
(b)would enable true and fair financial reports to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.
Penalty: 25 penalty units or imprisonment for 6 months, or both.
Note: Section 700-1 defines financial records.
Period for which records must be retained
(2)The financial records must be retained for 7 years after the transactions covered by the records are completed.
Penalty: 25 penalty units or imprisonment for 6 months, or both.
…
As noted above, a failure by a director to take all reasonable steps to comply with, or to secure compliance with, these obligations regarding records and reporting may result in a contravention of s 363-1(1).
Chapter 8 of the CATSI Act establishes a civil penalty regime that is based on Pt 9.4B of the Corporations Act: Matcham at [28]. The civil penalty regime was enacted following a review in 2002 of the ACA Act, which highlighted “the need to protect the members of CATSI corporations from the actions of ‘rogue’ directors or officers”: Matcham at [15].
Each of ss 265-1(1), 265-10(1) and 363-1(1) is a civil penalty provision: s 386-1(1) of the CATSI Act. If a Court is satisfied that a person has contravened one or more of those provisions (among others), it must make a declaration of contravention: s 386-1(1). A declaration of contravention must specify that the Court made the declaration, the civil penalty provision that was contravened, the person who contravened the provision, the conduct that constituted the contravention and the Aboriginal and Torres Strait Islander corporation affected by the contravention: s 386-1(2). Section 386-1 of the CATSI Act is analogous to s 1317E of the Corporations Act: Matcham at [18].
A Court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if a declaration of contravention by the person has been made under s 386-1 and the contravention: (a) materially prejudices the interests of the Aboriginal and Torres Strait Islander corporation affected by the contravention or the interests of its members; or (b) materially prejudices the ability of the Aboriginal and Torres Strait Islander corporation affected by the contravention to pay its creditors; or (c) is serious: s 386-10(1). This provision is analogous to s 1317G of the Corporations Act: Matcham at [20].
A Court may order a person to compensate an Aboriginal and Torres Strait Islander corporation for damage suffered by the corporation if a person has contravened a civil penalty provision in relation to the corporation and the damage resulted from the contravention: s 386-15(1). The order must specify the amount of the compensation. This provision is analogous to s 1317H of the Corporations Act: Matcham at [22].
The Registrar may apply for a declaration of contravention, a pecuniary penalty order or a compensation order: s 386-20(1). Proceedings for a declaration of contravention, a pecuniary penalty order or a compensation order may be started no later than six years after the contravention: s 386-25.
The discretionary power to order disqualification is in Ch 6 of the CATSI Act, which deals with officers and directors. Section 279-15(1) provides:
On application by the Registrar, the Court may disqualify a person from managing Aboriginal and Torres Strait Islander corporations for a period that the Court considers appropriate if:
(a) a declaration is made under:
(i)section 386-1 (civil penalty provision) that the person has contravened a civil penalty provision; or
(ii)section 1317E of the Corporations Act (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision (within the meaning of that Act); and
(b) the Court is satisfied that the disqualification is justified.
Section 279-15(2) provides that, in determining whether the disqualification is justified, the Court may have regard to the person’s conduct in relation to the management, business or property of any CATSI Act corporation or Corporations Act corporation and any other matters that the Court considers appropriate.
THE ROLE OF THE REGISTRAR
The current Registrar is Mr Anthony Beven. In his affidavit dated 20 March 2015, Mr Beven explained his regulatory role and referred to his 48 full-time equivalent staff and their offices located at premises in Canberra, Perth, Broome, Darwin, Alice Springs, Cairns and Coffs Harbour.
Mr Beven described his role as to build the capacity of CATSI Act corporations and their directors through “a number of unique statutory support functions, such as education programs, dispute resolution, research and policy” at [8]. Mr Beven deposed that the resources of his office are limited and he cannot directly oversee the daily governance and internal management of all corporations registered under the CATSI Act.
Mr Beven deposed that as at March 2015 there were 2600 such corporations registered and that approximately 60 percent of those corporations were based in remote or very remote areas. He said that nearly all the CATSI Act corporations are not-for-profit organisations, and more than 20 percent are registered charities.
Corporations registered under the CATSI Act normally provide important services to their Indigenous communities, including housing services of the type provided by the Corporation. Mr Beven stated that in the financial year 2011-2012 the top 500 corporations registered under the CATSI Act generated a combined income of $1.61 billion (an average income of $3.22 million), and held a combined value of $1.84 billion in assets. While the largest 20 corporations now generate 61 percent of their income from private sources, Mr Beven stated that the majority of these corporations rely almost entirely on government funding to fund their operations and services.
THE STATEMENT OF AGREED FACTS
The Registrar and each of the three respondents filed affidavit evidence which will be summarised shortly. The parties were also ultimately able to finalise an agreed statement of facts (the first statement of agreed facts). This occurred in late March 2016, shortly before the proceedings were then scheduled to commence. The proceedings were deferred at that time because of personal circumstances relating to Mr and Ms Monaghan.
As noted above, at the commencement of the hearing the Court was advised that the Registrar had reached an agreement with Mr and Ms Monaghan as to the proposed relief against them, which also involved some amendments to the first statement of agreed facts relating to them (the revised statement of agreed facts). No such agreement was reached with Ms Peters. The amendments, which only apply to Mr and Ms Monaghan, are to be found in [140] and [157] to [169] below.
The substance of the revised statement of agreed facts is set out below in [37] to [169].
The Registrar was appointed pursuant to s 653-1 of the CATSI Act.
The Registrar is entitled to commence these proceedings and seek relief pursuant to ss 279-15, 386-1 and 386-20 of the CATSI Act.
The Registrar is assisted in undertaking his or her functions under the CATSI Act by staff of the Office of the Registrar of Aboriginal and Torres Strait Islander Corporations (ORIC) pursuant to s 1-30 of the CATSI Act.
Southside Housing Aboriginal Corporation
At all times during the period from 25 March 2009 to 18 December 2013 the Corporation was registered on 5 May 1995 under the ACA Act and was allocated Indigenous Corporation Number (ICN) 2379.
The Corporation transitioned to registration under the CATSI Act on 1 July 2007, pursuant to Sch 3, item 1(1) of the Corporations (Aboriginal and Torres Strait Islander) Consequential, Transitional and Other Measures Act 2006 (Cth).
The Corporation was a small not-for-profit corporation owned and controlled by Aboriginal people in the Australian Capital Territory (ACT). It was established to provide affordable housing to Aboriginal people in the ACT.
The Corporation was deregistered on 7 April 2015 (I interpolate that it was subsequently reregistered).
The Corporation's rules
At all relevant times the Corporation had a rule book or constitution which contained its internal governance rules and objectives.
On 5 May 1995, the Corporation's first rule book was registered by the then Registrar of Aboriginal Corporations under the ACA Act (the First Rule Book).
On 31 August 1997, a second rule book was registered by the then Registrar of Aboriginal Corporations under the ACA Act (the Second Rule Book).
The Corporation's Second Rule Book states (at 6) that the objects for which the (then) Association was established are:
… to provide affordable alternative housing for Aboriginals within the Canberra and Australian Capital Territory area.
The Corporation's Second Rule Book also states (at 9.(13)) that:
The Committee shall manage and control the affairs of the Association in accordance with these rules and with the Act and for that purpose may exercise the powers of the Association as if they had been expressly conferred on the Committee by a general meeting of the Association.
The Corporation's Second Rule Book also states (at 10.(1)) that:
Any person on the Committee must disclose any interest in a contract or arrangement, or proposed contract or arrangement with the Association at a meeting of the Committee and a record of such disclosure shall be made in the minutes of that meeting,
and further (at 10.(2)) that:
A person on the Committee who has disclosed an interest may not vote on the Committee on any motion relating to the contract or proposed contract or arrangement.
The Corporation's Second Rule Book states (at 11) that:
Each person who is on the governing committee:
(a)has a duty to act in that position with honesty, diligence and reasonable care, and
(b)shall not make improper use of information or opportunities received through that position.
On 22 June 2009, a Registrar initiated rule book for the Corporation was registered (the Registrar Initiated Rule Book). A 'Registrar initiated rule book' is a generic set of rules registered for a corporation by the Registrar under the CATSI Act, where that corporation had failed to draft and register its own within two years of the commencement of the CATSI Act on 1 July 2007.
The Corporation's Registrar Initiated Rule Book states the duties of directors at cl 5.11 as:
(a)a duty of care and diligence;
(b)a duty of good faith;
(c)a duty to disclose a conflict of interest (material personal interest);
(d)a duty not to improperly use position or information; and
(e)a duty not to trade while insolvent.
Clause 5.11 further states that: “[t]he business of the corporation is to be managed by or under the direction of directors.”
Clause 5.12 details the actions required of a director who has a material personal interest in a matter:
5.12 Conflict of interest (Material personal interest)
A director who has a material personal interest in a corporation matter must tell the other directors.
This notice must give details of what the interest is and how it relates to the corporation. It must be given at a directors' meeting as soon as possible, and it must be recorded in the minutes of the meeting.
A director who has a material personal interest must not:
ŸBe present at the directors' meeting while the matter in question is being considered;
ŸVote on the matter in question
unless allowed to do so under the CATSI Act.
Clause 14.4 requires the Corporation to keep written financial records that correctly record and explain its transactions, financial position and performance.
Purchase of the Properties
Between 27 July 1999 and May 2001, the Corporation was allocated funds by the Aboriginal and Torres Strait Islander Commission (ATSIC) under the Community Housing & Infrastructure Program. It purchased seven residential properties in the southern area of Canberra, being the properties situated at the following addresses in the ACT:
(a)7 Leakey Place, Richardson;
(b)1 Lamb Place, Chifley;
(c)8 Bosworth Circuit, Kambah;
(d)26 Degraves Street, Wanniassa;
(e)118 Chippindall Circuit, Theodore;
(f)6 MacQueen Place, Charnwood; and
(g)6 Rolph Place, Gilmore,
(together, the Properties).
The ATSIC funding was provided under a purposes agreement for each of the Properties. ATSIC registered caveats on the titles of the Properties that prevented them from being sold.
In 2005 ATSIC was abolished and its functions, assets and obligations were assumed by the Commonwealth agency with responsibility for Indigenous affairs. In late 2013 departmental responsibility for Indigenous affairs, including the purposes agreements with the Corporation and the caveats lodged on the titles of the Properties, was transferred to the Department of Prime Minister and Cabinet as a result of machinery of government changes.
Renting the Properties
The Corporation rented the Properties to Aboriginal people.
Each of the respondents occupied one or more of the Properties for the following periods:
(a)Mr Monaghan, at various times lived in the premises at 6 MacQueen Place, Charnwood and/or 7 Leakey Place, Richardson;
(b)from at least around 2000 Ms Monaghan was, and remains, a tenant of the property situated at 7 Leakey Place, Richardson; and
(c)Ms Peters was a tenant of the property situated at 6 Rolph Place, Gilmore, from around 2000 until March 2011 but continued to pay rent until October 2012.
The Corporation's only source of income was rental payments made by the tenants of the Properties.
The rental payable in respect of each of the Properties was:
(a)in 2008, $270.00 per fortnight; and
(b)from at least 22 June 2010, $320.00 per fortnight.
As at 30 January 2013 tenants of the Properties were responsible for paying for excess water and sewerage charges incurred in respect of the Properties.
Laurrie Scheele Real Estate
In 1999 Laurrie Scheele Real Estate (LSRE) took on the management of the Properties.
LSRE had no role in the selection of tenants for the Properties, and the names of tenants would be provided to LSRE by the Corporation.
LSRE provided monthly statements of rental income which commonly showed some rentals to be unpaid, leaving very little money for the maintenance of the Properties.
LSRE advised the Corporation about any maintenance works required, but there were seldom funds available for maintenance. Over time, the wear and tear created a greater demand for maintenance and the difference between rental payments and costs and capital required for maintenance expanded.
The Corporation did not terminate tenancies for non-payment of rent or for property damage by tenants.
The First Examination
In July and August 2004, the Corporation was examined under the ACA Act by examiners from ORIC's predecessor agency (the First Examination).
On 14 September 2004, following the First Examination, an examiner's report was prepared.
The examiner's report, amongst other things, reported that the Corporation had contravened the ACA Act and its own rules by failing to:
·have a duly elected governing committee in place since 2000;
·file mandatory annual returns for each of the financial years ending 30 June 2000, 2001, 2002 and 2003;
·maintain a current list of members;
·conduct an annual general meeting since 30 June 2000;
·maintain accounting records;
·take out insurance cover for the Properties prior to 7 September 2004; and
·produce financial records sufficient to establish its financial position.
On 21 September 2004, pursuant to s 71 of the ACA Act, the Corporation was asked to show cause why it should not be placed under administration.
On 30 September 2004, Mr Monaghan sent an email to ORIC stating that the Corporation's “governing committee” had resolved at a meeting on 7 September 2004 to accept the appointment of an administrator. The email listed the members of the “governing committee” present as: Mr Monaghan, Wayne Williams, Neville Williams, Ms Monaghan, Ernie Johnson, Alice Conners (sic), Ray Barrett, Nada Drazevich and Enid Freeman.
The First Administration
On 15 November 2004, Frank Lo Pilato (Mr Lo Pilato) of RSM Bird Cameron was appointed as special administrator of the Corporation by the then Registrar. The administration was for an initial period of 3 months, but was subsequently extended until 20 January 2006, after which control of the Corporation was returned to its members (the First Administration).
During the course of the First Administration, Mr Lo Pilato ascertained that the Corporation had not prepared any of the required financial statements since the 1998-99 financial year.
Mr Lo Pilato also found minimal information to show the Corporation had in place internal controls regarding expenditure relating to and the management of the Properties.
The Corporation had not been preparing and lodging Business Activity Statements (BAS) with the Australian Tax Office (ATO), and had accrued outstanding tax liabilities of $42,000.
The following persons were living in the Properties at the time of the First Administration, and all were up to date with rental payments:
Property Tenant 26 Degraves Street, Wanniassa Mr Roderick Connors 6 Rolph Place, Gilmore Ms Kim Peters 6 MacQueen Place, Charnwood Ms B Johnson 118 Chippindall Circuit, Theodore Ms Freeman 7 Leakey Place, Richardson Ms Teresa Monaghan & Mr Fred Monaghan 1 Lamb Place, Chifley Ms Anne Monaghan 8 Bosworth Circuit, Kambah Mr Ray Barrett & Ms Alice Connors
Mr Lo Pilato took the following actions during the course of the First Administration:
(a)advised members by letter that for the Corporation to function effectively it must have a pro-active membership base that is willing to participate in and contribute to the Corporation, and a motivated and participative governing committee dedicated to the success of the Corporation and the achievement of its objectives;
(b)held negotiations with parties interested in taking over the Corporation's Properties;
(c)completed and submitted BASs on a monthly basis to quantify the Corporation's ATO debt;
(d)considered options for the repayment of the ATO debt, including the possibility of selling a house;
(e)liaised with ATO staff in relation to the repayment of its ATO debt, and arranged for the Corporation to enter a payment arrangement and secure the remission of interest charges; and
(f)held a special general meeting of members on 15 December 2005 to elect a new governing committee and provide an update on the progress of the special administration, including the payment proposal entered into with the ATO.
The members of the Corporation's governing committee elected on 15 December 2005 were:
(a)Ms Peters (Chairperson);
(b)Brendan Richards (Secretary);
(c)Coral King (Public Officer);
(d)Kristie Peters (Treasurer); and
(e)Ms Monaghan.
At the completion of the First Administration, Mr Lo Pilato reported in relation to the Corporation that:
(a)its trust account balance was $4,112.88;
(b)its property at Chifley required repairs estimated to cost $8,125.70;
(c)its property at Wanniassa required repairs estimated to cost $6,364;
(d)its BAS for December 2005 had been submitted; and
(e)it had reached an agreement with the ATO to repay the outstanding liability of $42,000.
LSRE communications with directors regarding rental arrears and maintenance
Between February 2008 and January 2010, LSRE sent a number of letters to the Corporation via Ms Peters and Ms Monaghan, informing the Corporation that:
(a)there were significant rental arrears for tenants of a number of the Properties;
(b)there was excessive water consumption at all of the Properties and the usual practice was that tenants were responsible for excess water rates;
(c)there were issues with the condition of the properties situated at 6 MacQueen Place, Charnwood and 1 Lamb Place, Chifley, ACT, and a fire had caused damage to another one of the Properties;
(d)internal inspections could not be conducted in respect of the properties situated at 1 Lamb Place, Chifley and 26 Degraves Street, Wanniassa, ACT but that a drive by assessment suggested that those properties were in “… a very poor state”; and
(e)several letters had been received from the Tenants’ Union relating to the condition of 8 Bosworth Circuit, Kambah, ACT.
Laurrie Scheele, the principal of LSRE, states that LSRE undertook the management of the Properties for a period of time largely on a pro bono basis. However, throughout the period of LSRE's management of the Properties, the Corporation did not follow LSRE's recommendations in relation to dealing with rental arrears, maintenance and water charges in respect of the Properties.
On 5 January 2010, LSRE sent to members of the Corporation a proposed agenda for the annual general meeting of the Corporation scheduled for 28 January 2010. The agenda items listed included “Rent Arrears”, “Water Consumption”, “Rental Increases”, “Maintenance done by tenants” and “SHAC to self-manage the properties”.
On 21 January 2010, LSRE wrote to Ms Monaghan and Ms Peters informing them that LSRE would no longer manage the Properties for the reasons set out in that letter.
Proposed deregistration
On 9 April 2010, the Registrar published in the Commonwealth of Australia Gazette a notice of proposed deregistration for the Corporation, as the Corporation had failed to lodge a general report with the Registrar as required under the CATSI Act.
On 8 June 2010, the Corporation lodged its general report for the 2008-09 financial year. The general report was signed by Ms Monaghan as contact person for the Corporation, and listed the directors as:
(a)Ms Enid Freeman of Chippedale (sic) Circuit, Theodore, ACT 2905;
(b)Mr Fred Monaghan of 6 McQueen Street, Charnwood, ACT 2615;
(c)Ms Alice Connors of 8 Bosworth Circuit, Kambah, ACT 2902; and
(d)Ms Teresa Monaghan of 7 Leakey Place, Richardson, ACT 2905.
The general report also stated that the Corporation's income was $36,000, its expenditure was $32,000 and the value of its non-current assets was $1,163,000. The general report was accepted for lodgement by the Registrar and the proposed deregistration did not proceed.
Payment of water and sewerage accounts (2010-11)
On 10 February 2011, the Corporation paid water and sewerage accounts for the Properties totalling $13,192.
Engagement of consultant
On 25 September 2012, the Corporation entered into a service agreement with Patrick Lock (Mr Lock), who had experience with Indigenous housing co-operatives and had been a Director of Aboriginal Housing New South Wales. Mr Lock worked as a consultant for the Corporation for 2 to 3 months.
Mr Lock is related to Mr Monaghan, Ms Monaghan and Alice Connors. He realised that the composition of the Corporation's Board presented potential conflicts of interest and he told the directors that there should be an independent committee running the Corporation.
When he commenced working for the Corporation, Mr Lock was provided with very limited books and records relating to the affairs of the Corporation. He could not locate any of the following documents among the Corporation's books and records:
(a)the rule book;
(b)a members list;
(c)leases for the Properties;
(d)a record of the names of the tenants and details of rental payments;
(e)a waiting list of people requiring houses; or
(f)insurance documents in respect of Properties.
Mr Lock also noted that there was no central place to receive the Corporation's mail, and suspected that mail was going missing as a result.
In December 2012, Mr Lock was elected chairperson of the Corporation at a members' meeting.
Payment of water and sewerage accounts (2011-12)
Mr Lock became aware that there were bad leaks in the plumbing for most, if not all of the Properties, which resulted in high water rates. In June 2012, the Corporation paid $16,096 in water rates for the Properties.
Mr Lock also became aware that the Corporation had a shortfall in funds to pay for maintenance in respect of the Properties. Mr Lock made priorities of keeping the water and sewerage connected, and finding money for urgent maintenance.
On 14 September 2013, Mr Lock resigned from the Corporation.
ACT Civil and Administrative Tribunal proceedings against the Corporation
In August 2011, Alice Connors (a tenant of the property situated at 8 Bosworth Circuit, Kambah (the Kambah property) and the Corporation's secretary) asked her niece, Kia Connors, if she would like to rent the Kambah property. Alice Connors moved out of the Kambah property shortly afterwards, and Kia Connors, her partner and five children moved in.
After moving into the Kambah property Kia Connors approached a director of the Corporation, Ms Monaghan, and asked for the Corporation to undertake repairs and maintenance to the Kambah property.
Between August 2011 and June 2012, Kia Connors made repeated requests to Ms Monaghan for the Corporation to undertake repairs and maintenance to the Kambah property.
In 2012, Kia Connors obtained assistance through the Welfare Rights and Legal Centre Limited. On 6 June 2012, the Welfare Rights and Legal Centre Limited sent to the Corporation a notice to remedy defects at the Kambah property.
By March 2013, the Corporation had not complied with the notice to remedy and Kia Connors obtained legal representation from Ashurst lawyers. On 12 March 2013, Ashurst sent a further notice to remedy to the Corporation.
In August 2013, Kia Connors commenced an action against the Corporation in the ACT Civil and Administrative Tribunal (ACAT).
On 9 December 2013, Kia Connors obtained judgement in ACAT against the Corporation in the amount of $16,000.
Request for assistance to FaHCSIA and ACT Housing and Community Services Division)
On 17 January 2013, Darren Williams (Mr Williams) sent an email to an adviser to the ACT Minister for Housing, Shane Rattenbury, expressing his concern about the condition of the Corporation's Properties. Minister Rattenbury asked his department, the ACT’s Department of Housing and Community Services (HACS) to inquire into the condition of the Properties.
In early 2013, Mr Williams attended a series of informal meetings with HACS staff. One meeting was attended by a person identified as a board member (director) of the Corporation.
On 8 March 2013, Mr Williams sent an email to the Executive Director of the ACT Community Services Directorate advising that he had taken on the role of public officer for the Corporation. Mr Williams further stated that he and the Corporation's chairman had approached FaHCSIA (the former Commonwealth Department of Families, Housing, Community Services and Indigenous Affairs, which is now part of the Department of Prime Minister and Cabinet) requesting urgent funding to repair the Properties, but the request had been declined.
On 14 May 2013, staff from FaHCSIA's Indigenous Housing Delivery Branch met with Mr Lock, Mr Monaghan, Ms Monaghan and Dezi Connors to see if FaHCSIA could assist with financing the costs of maintaining the Properties. While FaHCSIA provided some information about managing the Properties, it did not provide any financial assistance to the Corporation to meet the costs of undertaking urgent maintenance works in respect of the Properties.
Inspections and urgent repairs by Housing ACT
On 15 March 2013, the ACT’s Department of Disability, Housing and Community Services (Housing ACT) conducted an inspection of the Corporation's property situated at 1 Lamb Place, Chifley, ACT (the Chifley property) and prepared a report.
On 18 March 2013, Housing ACT carried out urgent works costing $5,720.69 to make the Chifley property safe. The urgent works included electrical works, securing doors, isolation of a stove which would not turn off, replacement of tap washers, the clean-up of surface raw sewerage and the jet cleaning of sewer lines.
In the following week, Housing ACT carried out inspections of the remaining Properties and prepared condition reports.
Mr Williams also provided ACT Housing with an estimation of the cost of urgent repairs to the remaining Properties, which totalled $326,400.
On 18 June 2013, Housing ACT relocated the family occupying the Kambah property to ACT Government public housing because the Kambah property was considered uninhabitable.
The Second Examination
On 18 June 2013, the Registrar authorised an examination of the Corporation under s 453-1 of the CATSI Act (the Second Examination).
On 24 June 2013, Mr Williams delivered the Corporation's books and records to the ORIC office in Woden. The books and records were contained in a cardboard box.
Due to the state of the Corporation's books and records, the examiners had to reconstruct its financial records using bank statements.
The examiners identified that rent had not been paid by all of the tenants of the Properties.
The examiners reported that the Corporation had breached the CATSI Act and its Registrar Initiated Rule Book, by:
·not maintaining membership records, in particular a register of members and former members;
·not maintaining accurate, signed minutes of meetings;
·failing to provide supporting documentation for financial expenditures;
·making financial reimbursements to members and tenants without supporting documentation;
·providing benefits to related parties without following the proper approval process;
·not reporting officer changes to the Registrar within 28 days of the changes;
·not appointing the contact person by resolution at a directors' meeting; and
·the directors not declaring material personal interests.
In addition, the examiners reported that they could not determine that:
·an annual general meeting had been held in each financial year since 1 July 2011;
·regular directors' meetings had been held since 1 July 2011;
·all Corporation payments had been authorised by resolution at a directors' meeting;
·proper financial and administrative records had been maintained by the Corporation; or
·the Corporation had maintained financial and administrative records for the past seven years.
On 26 June 2013, the examiners held an exit meeting with Mr Lock, Mr Monaghan (a director of the Corporation whom Mr Lock introduced as the “Chairperson”), and Mr Williams. The meeting was held at the Corporation's registered document access address in Queanbeyan. Mr Monaghan provided no responses to any matters raised during the exit meeting of the examination and no other directors of the Corporation attended the exit meeting of the examination.
On 13 August 2013, the Corporation and its directors were served with a compliance notice under s 439-20 of the CATSI Act (the Compliance Notice) by the Registrar, listing irregularities in the affairs of the Corporation as reported by the examiners. The Compliance Notice listed actions that the Corporation and its directors needed to take to rectify the irregularities and a timeframe to complete the actions.
On 26 September 2013, the directors requested, via an email from Mr Lock, an extension of time to comply with the Compliance Notice. Mr Lock also advised that he had resigned from the Corporation, and that a subsequent directors' meeting had appointed Mr Monaghan as Chairperson of the Corporation.
In October 2013, the Corporation was granted an extension of time but failed to address the actions in the timeframes listed in the letter granting an extension of time to comply with the Compliance Notice.
On 28 November 2013, the Registrar issued to the Corporation and its directors a notice under s 487-10 of the CATSI Act to show cause (the Show Cause Notice) by 13 December 2013 as to why the Corporation should not be placed under special administration. The Corporation did not respond to the Show Cause Notice.
On 29 November 2013, Mr Williams advised the Registrar by email that he had resigned as contact person for the Corporation. The email stated that Mr Monaghan was the Corporation's Chairperson.
The Second Administration
The Corporation was placed into special administration by the Registrar effective from 18 December 2013. Mr Lo Pilato and Tony Grieves (Mr Grieves) were appointed as joint and several special administrators (special administrators).
Following their appointment, the special administrators had various conversations with Mr Monaghan, Ms Monaghan and Alice Connors, who informed the special administrators that they were the only active directors.
On 20 December 2013, Mr Lo Pilato reported to the Registrar that, despite urgent requests, the directors of the Corporation had informed the special administrators that they were unavailable to meet with them until 6 January 2014.
In January 2014, the special administrators engaged Colin McIntyre (Mr McIntyre) of Ray White Real Estate Tuggeranong (Ray White). Mr McIntyre conducted external appraisals of the Properties and assessed them to be in poor to average condition, with most requiring repairs, renovations or cleaning up.
Mr McIntyre completed written condition reports and sales appraisals for each of the Properties.
The special administrators independently confirmed the persons living at the Properties as at the time of their appointment as follows:
Property Tenant 26 Degraves Street, Wanniassa Ms Alice Connors 6 Rolph Place, Gilmore Mr Brendan Richards 6 MacQueen Place, Charnwood Ms Jellenah Collins 118 Chippindall Circuit, Theodore Mr Rod Connors 7 Leakey Place, Richardson Ms Teresa Monaghan & Mr Fred Monaghan 1 Lamb Place, Chifley No Tenant 8 Bosworth Circuit, Kambah No Tenant
The special administrators noted that Mr Monaghan, Ms Monaghan and Ms Connors were all directors of the Corporation.
Mr Lo Pilato confirmed that only five of the seven Properties were habitable, and as of 26 February 2014 an amount of $26,050 in rental arrears was owed in relation to two of the Properties, being the properties situated at 6 Rolph Place, Gilmore and the 6 MacQueen Place, Charnwood.
The special administrators' staff inspected the property situated at 6 MacQueen Street, Charnwood, and concluded that it too was in need of urgent repairs and maintenance.
The special administrators received two quotes from Housing ACT to bring the Properties up to a standard acceptable to Housing ACT. One quote was in the amount of $326,400 and the other quote was in the amount of $420,051.56.
In April 2014, the special administrators released their first report to members of the Corporation, which outlined the following:
(a)the Corporation was not in a good financial position;
(b)it was estimated that the Corporation was owed at least $26,050 in outstanding rent; and
(c)the Corporation had $42,052 in outstanding liabilities for:
·water rates ($22,176);
·ACT government rates ($3,746); and
·damages awarded against the Corporation resulting from legal proceedings commenced against it by a tenant (the ACAT proceedings).
On 1 May 2014, at the request of the special administrators, Ray White provided written sales proposals for the Kambah property and the Chifley property.
On 15 May 2014, the special administrators listed the Chifley property for sale.
Ray White subsequently conducted a full inspection of the Chifley property and reported that "the condition of the house was one of the worst I have seen in my career" and "the property was not habitable".
On 23 August 2014, the Chifley property was sold at auction for an amount of $528,000. In December 2014, the special administrators released their final report to the members of the Corporation, which informed members that:
(a)the Corporation was no longer viable;
(b)the remaining properties of the Corporation had been transferred to Housing ACT on 17 December 2014;
(c)the residual of funds from the sale of the Chifley property had been transferred to Housing ACT to pay for the costs of repairs to the remaining Properties;
(d)the special administration would end on 23 January 2015; and
(e)the administrators would recommend to the Registrar that the Corporation be deregistered.
The Respondents
Directors and/or officers of the Corporation
Mr Monaghan was a director and/or officer of the Corporation for the period 2005 until 2009, then for the period 2012 to 2013.
Ms Monaghan was a director and/or officer of the Corporation for the period 2005 until 28 January 2014.
Consistent with s 252-1 of the CATSI Act and cl 5.13 of the Registrar Initiated Rule Book, Mr Monaghan, Ms Monaghan and Ms Peters’ did not receive any remuneration from the Corporation as directors and/or officers of the Corporation and performed those roles on a voluntary basis.
Ms Peters was a director and/or officer of the Corporation for the period 15 December 2005 to early 2012 (see [2(c)] above).
General Reports lodged by the Corporation in each of the last four completed financial years (2010, 2011, 2012, and 2013) list Mr Monaghan, Ms Monaghan, Ms Peters and Alice Connors as being directors of the Corporation, and list each of their residential addresses as being one of the Properties.
Respondents’ Occupation and Tenancy of the Corporation’s Properties - rental and other charges
Mr Monaghan, at various times, lived in the following premises with the tenant of:
(a)6 MacQueen Place, Charnwood; and/or
(b)7 Leakey Place, Richardson.
From at least 22 June 2010 until at least 26 September 2013, Mr Monaghan, whilst not a tenant or obliged to pay rent, did contribute towards payment of rent for either the property situated at 6 MacQueen Place, Charnwood or the property situated at 7 Leakey Place, Richardson.
The total water and sewerage charges incurred in respect of those properties for the period 31 March 2007 to 7 March 2014 were:
(a)6 MacQueen Place, Charnwood - $3,938.44 (charges); $1,517.92 (usage); $81.51 (interest); and
(b)7 Leakey Place, Richardson - $3,573.49 (charges); $14,714.15 (usage); $371.16 (interest).
Mr Monaghan did not pay any amount, to the Corporation as payment for water and/or sewerage charges incurred in respect of the property situated at 7 Leakey Place, Richardson, or the property situated at 6 MacQueen Place, Charnwood.
During the Relevant Period Mr Monaghan:
(a)was employed full-time as a youth worker with Gugan Gulwan Youth Aboriginal Corporation; and
(b)was a member of a number of ACT Government committees and boards, including the ACT Aboriginal and Torres Strait Islander Elected Body.
Ms Monaghan was a tenant, licensee to occupy or resident of the property situated at 7 Leakey Place, Richardson from at least around 2000 and is currently a tenant at the property.
From at least 22 June 2010 until at least 26 September 2013, Ms Monaghan paid the following amounts for rental in respect of the property situated at 7 Leakey Place, Richardson, on or about the following dates:
(a)4 May 2012 - $299.01;
(b)18 May 2012 - $299.01;
(c)10 August 2012 - $299.01;
(d)7 September 2012 - $299.01;
(e)5 October 2012 - $299.01;
(f)19 October 2012 - $299.01;
(g)14 December 2012 - $299.01;
(h)5 April 2013 - $299.01;
(i)3 May 2013 - $299.01;
(j)17 May 2013 - $299.01;
(k)31 May 2013 - $299.01;
(l)14 June 2013 - $299.01;
(m)28 June 2013 - $299.01;
(n)26 July 2013 - $299.01;
(o)9 August 2013 - $299.01;
(p)6 September 2013 - $299.01; and
(q)20 September 2013 - $299.01.
The total water and sewerage charges incurred in respect of the property situated at 7 Leakey Place, Richardson for the period 31 March 2007 to 7 March 2014 were $3,573.49 (charges); $14,714.15 (usage); $371.16 (interest).
Ms Monaghan did not pay any amount, to the Corporation or any other party, as payment for water and/or sewerage charges incurred in respect of the property situated at 7 Leakey Place, Richardson.
Ms Peters was a tenant of the property situated at 6 Rolph Place, Gilmore, from around 2000 until 17 October 2012.
From at least 22 June 2010 until at least 26 September 2013, Ms Peters paid the following amounts only for rental in respect of the property situated at 6 Rolph Place, Gilmore, on or about the following dates:
(a)22 June 2010 - $320;
(b)6 July 2010 - $320;
(c)19 July 2010 - $320;
(d)2 August 2010 - $320;
(e)17 August 2010 - $320;
(f)31 August 2010 - $320;
(g)14 September 2010 - $320;
(h)27 September 2010 - $320;
(i)11 October 2010 - $320;
(j)25 October 2010 - $320;
(k)8 November 2010 - $320;
(l)23 November 2010 - $320;
(m)7 December 2010 - $320;
(n)17 January 2011 - $320;
(o)31 January 2011 - $320;
(p)14 February 201 - $320;
(q)1 March 2011 - $320;
(r)11 March 2011 - $320;
(s)4 April 2011 - $320;
(t)14 April 2011 - $320;
(u)27 April 2011 - $320;
(v)9 May 2011 - $320;
(w)23 May 2011 - $320;
(x)2 November 2011 - $319.01;
(y)30 November 2011 - $319.01;
(z)11 January 2012 - $319.01;
(aa)25 January 2012 - $319.01;
(bb)8 February 2012 - $319.01;
(cc)22 February 2012 - $319.01;
(dd)7 March 2012 - $319.01;
(ee)21 March 2012 - $319.01;
(ff)4 April 2012 - $319.01;
(gg)2 May 2012 - $319.01;
(hh)16 May 2012 - $319.01;
(ii)8 August 2012 - $319.01;
(jj)5 September 2012 - $319.01;
(kk)3 October 2012 - $319.01; and
(ll)17 October 2012 - $319.01.
The total water and sewerage charges incurred in respect of the property situated at 6 Rolph Place, Gilmore for the period 31 March 2007 to 30 September 2012 were $978.22 (charges); $1,892.05 (usage); $92.45 (interest).
Ms Peters did not pay any amount, to the Corporation or any other party, as payment for water and/or sewerage charges incurred in respect of the property situated at 6 Rolph Place, Gilmore.
From at least February 2010 until June 2011 Ms Peters was employed full-time with Lowana Youth Services Incorporated.
The First and Second Respondents’ duties
As directors and/or officers of the Corporation, Mr and Ms Monaghan owed duties to the Corporation, including:
(a)to exercise their powers and to discharge their duties as a director and/or officer in accordance with ss 265-1 and 265-10 of the CATSI Act and, until 22 June 2009, cl 11 of the Second Rule Book, and from 22 June 2009, cl 5.11 of the Registrar Initiated Rule Book; and
(b)to take all reasonable steps to comply with the record keeping and reporting requirements set out in Pts 7-2 and 7-3 of the CATSI Act in accordance with s 363-1 of the CATSI Act and, until 22 June 2009, cl 21 of the Second Rule Book, and from 22 June 2009, cl 7 of the Registrar Initiated Rule Book.
The Registrar maintains that Ms Peters owed the same duties to the Corporation as set out at [157]; however, Ms Peters has not admitted this.
Conduct of the First and Second Respondents
During the Relevant Period, for the periods Mr and Ms Monaghan were directors and/or officers of the Corporation, they:
(a)were aware that rental from the properties owned by the Corporation was the only income stream for the Corporation, and therefore the only source of funds available to meet repairs and other costs of the Properties;
(b)allowed tenants of the Properties, including at times Ms Monaghan and Ms Peters, to fall into significant rental arrears, and during the Relevant Period the Corporation was owed at least $26,050 in outstanding rent;
(c)did not take adequate steps to cause unpaid rent, including rent owed by each of Ms Monaghan and Ms Peters, to be recovered;
(d)caused the Corporation to pay for expenses, such as excess water charges and damage to the Properties caused by tenants, which tenants of the Properties were in fact responsible for, or should have been made responsible for;
(e)failed to cause the Corporation to manage its Properties and finances appropriately such that the Corporation was unable to meet its obligation to maintain the Properties in a reasonable state of repair;
(f)attended directors' meetings and discussed and voted on issues in which they had a direct and material personal interest, namely increasing rent, recovering unpaid rental arrears and/or authorising payment of expenses relating to the Properties (which tenants were in fact responsible for), without formally disclosing in accordance with the requirements of the CATSI Act or Rule Book that they had a material personal interest in those matters;
(g)failed to adequately manage the day-to-day activities of the Corporation;
(h)failed to implement adequate internal management controls of the Corporation;
(i)failed to cause the Corporation to keep and maintain financial records which would enable correctly recorded and explained its transactions and financial position and performance, and would enable true and fair financial reports to be prepared and audited;
(j)failed to cause the Corporation to hold an AGM in each of the calendar years ended 2009 and 2012 and/or for any AGM of the Corporation that was held in 2009 or 2012, the Mr and Ms Monaghan failed to keep or cause to be kept a record of the AGM or minutes of the AGM; and
(k)otherwise failed to ensure that the Corporation complied with the requirements of the CATSI Act and its Rule Book.
The Registrar maintains that Ms Peters conducted herself in the same way as set out at [159]; however, Ms Peters has not admitted this.
Duty of care and diligence
By their conduct as set out in [159] above, Mr and Ms Monaghan:
(a)acted in a manner that was inconsistent with how a reasonable person would exercise his or her duties as a director and/or officer of the Corporation; and
(b)had a material personal interest in the subject matter to which their conduct relates.
The Registrar maintains that Ms Peters owed the same duty to the Corporation as set at [161]; however, Ms Peters has not admitted this.
Duty not to improperly use position
By their conduct as set out in [159] above, in particular [159(e)], Mr and Ms Monaghan caused detriment to the Corporation, in that:
(a)as at 18 December 2013, the Corporation was owed approximately $26,050 in unpaid rent in respect of the Properties and did not have sufficient funds to pay its liabilities, including the costs of repairing the Properties, without selling one or more of the Properties;
(b)HACS:
(i)assessed two of the Properties as being unfit for habitation and requiring significant repairs totalling hundreds of thousands of dollars; and
(ii)as a result, found alternative housing for the residents of those Properties;
(c)the Corporation sold the Chifley property and the proceeds of sale were used to pay outstanding debts and to pay Housing ACT to meet the costs of repairs required to be undertaken in respect of the remaining Properties; and
(d)the Corporation transferred ownership of the remaining Properties to Housing ACT.
Further, by their conduct as set out in [159] above, in particular [159(c)] and [159(d)], Mr and Ms Monaghan gained an advantage for each of themselves in that:
(a)they did not take adequate steps to recover unpaid rental from Ms Monaghan or other persons that resided at the Properties;
(b)they caused the Corporation to pay for expenses, such as excess water charges and damage to the Properties caused by tenants, which tenants of the Properties were in fact responsible for; and/or
(c)Mr and Ms Monaghan did not take adequate steps to ensure that tenants or occupants of the Properties, including themselves, paid or contributed towards water or other charges incurred by them as tenants or occupants of the Properties.
The Registrar maintains that Ms Peters owed the same duty to the Corporation as set at [163] and [164]; however, Ms Peters has not admitted this.
Duty to comply with Pts 7-2 and 7-3 of the CATSI Act
By their conduct as set out in [159] above, in particular [159(i)], Mr and Ms Monaghan failed to take all reasonable steps to comply with, or to secure compliance with, the record keeping and reporting requirements in Pts 7-2 and 7-3 of the CATSI Act.
The Registrar maintains that Ms Peters owed the same duty to the Corporation as set at [166]; however, Ms Peters has not admitted this.
Admissions - contraventions of civil penalty provisions
Mr and Ms Monaghan admit that the conduct as set out in [159] above:
(a)contravened ss 265-1, 265-10 and 363-1 of the CATSI Act;
(b)materially prejudiced the interests of the Corporation or the interests of its members;
(c)materially prejudiced the ability of the Corporation to pay its creditors and effect repairs and maintenance to the Properties; and
(d)is serious within the meaning of s 386-10(1)(b)(iii) of the CATSI Act.
The Registrar maintains that Ms Peters has committed the same contraventions as set out at [168]; however, Ms Peters has not admitted this.
THE REGISTRAR’S EVIDENCE SUMMARISED
Mr Beven’s affidavit evidence is summarised in [27] to [30] above. Mr Beven was not required for cross-examination, however, with the Court’s leave he gave further oral evidence in chief and explained why he had decided to proceed only against the three respondents and not the other directors of the Corporation (including Mr Lock). It is unnecessary to set out that evidence. I accept Mr Beven’s explanation for having limited the proceeding to the three respondents.
The Registrar relied upon affidavits sworn by Mr Peter Armstrong (a senior officer in ORIC); Mr Lock (who, as noted above, was initially a consultant and then subsequently a director of the Corporation); Mr Michael Strecker (a member of the Regulation Section of ORIC who conducted a statutory examination of various Corporation directors); Mr Gregory Jepsen (a retired officer in the Regulation Section of ORIC who conducted examinations in the first administration); Mr Lo Pilato (an accountant who was appointed special administrator in both the first administration and the second administration); Mr Laurrie Scheele (real estate agent); Ms Jennifer Scheele (who carried out voluntary bookkeeping for the Corporation in the period January 2011 to 25 June 2012); Mr Duncan Wallace (an investigating officer with ORIC); Mr Michael Ramalli (a Commonwealth Public Servant with the Department of Prime Minister and Cabinet); Mr David Collett (an ACT Government Public Servant who gave evidence on behalf of Housing ACT) and Mr Graham Pert (an investigating officer from ORIC).
It is unnecessary to summarise the evidence in chief of many of these witnesses which, I accept, provides a sufficient evidentiary foundation for the contents of the agreed statement of facts and the revised agreed statement of facts.
It should be noted that some, but not all, of the Registrar’s witnesses were cross-examined. To the extent that the cross-examination of those witnesses is relevant to the remaining issues in the proceeding, which primarily relate to Ms Peters, the following summary should suffice.
Mr Peter Armstrong gave evidence that copies of all rule books of CATSI corporations were available online from the ORIC website. He also said in cross-examination that his role was a corporate regulator and not about training. He added, however, that at the end of the first administration one of his staff made an offer to send the Corporation some training material about how to run a directors’ meeting and also, offered a training program for the directors. Mr Armstrong was unable to say what happened thereafter.
Mr Lock confirmed in cross-examination that he had received from Ms Peters in mid-2012 a shopping trolley sized bag of the Corporation’s documents.
Mr Lock explained how the Corporation was ineligible for Commonwealth funding which might have been used to assist with repairs and maintenance because it owned only seven houses and not the required ten.
Mr Lock gave evidence of his attempts to collect outstanding rent and the difficulties he encountered with the failure of the Corporation’s tenants to attend meetings.
Mr de Jersey properly acknowledged that the Registrar’s allegations against Ms Peters needed to be established to the Briginshaw standard. I am not satisfied that the Registrar has met that standard in relation to his claims against Ms Peters concerning s 265-1.
Duty not to improperly use director’s position to gain advantage or cause detriment
The matters relating to Ms Peters’ conduct which the Registrar claimed amounted to a contravention of s 265-10 of the CATSI Act are summarised in [240] above. Ms Peters did not dispute that, in her capacity as director, she owed the Corporation a duty under the general law and statute to act in good faith for the benefit of the Corporation, which she described as a “fiduciary duty”. It is evident that the duty being referred to was essentially the duty imposed by s 265-10.
In his oral address, Mr Wilson made detailed submissions relating to s 265-5 of the CATSI Act and referred the Court to a series of decision relating to the comparable provision in s 181(1) of the Corporations Act. It is difficult to see the relevance of those authorities in circumstances where the Registrar made no claim that Ms Peters had breached her duty of good faith under s 265-5. Rather, the Registrar claimed that Ms Peters had contravened s 265-10, which prohibits a director of a CATSI Act corporation from improperly using his or her position to gain an advantage for himself or herself or someone or cause detriment to the corporation.
As noted above, the equivalent provision to s 265-10 of the CATSI Act is s 182 in the Corporations Act. The following statement of the relevant principles by Santow J in Australian Securities and Investments Commission v Adler [2002] NSWSC 171; 41 ACSR 72 at [458] is apposite (without alteration):
…
I should commence by a brief statement of the effect of the case law on the application of s 182 in the present context.
(1)causing a company to enter into an agreement which confers unreasonable personal benefits on a director is a breach of ss 180, 181 and 182.
(2)failing to end an agreement that pays reasonable benefits to a related consultant after the director should realise that the company is insolvent breaches s 182: Simar Transit Mixers Pty Ltd v Baryczka (1998) 28 ACSR 238 [CL s 232 1992] .
(3)obtaining the agreement in a manner which keeps any independent director “in the dark” is strong evidence that the benefits are unreasonable, as is the lack of any evidence as to what the director did for the company in return: Claremont Petroleum NL v Cummings (1992) 10 ACLC 1685, 9 ACSR 1; on appeal (1993) 11 ACLC 125, 9 ACSR 583 [CC s 229 1989] .
(4)Moreover it is sufficient to establish that the conduct of a company was carried out in order to gain an advantage for that director or someone else without also having to establish that an advantage was actually achieved: Chew v R (1992) 173 CLR 626 per Mason CJ, Brennan, Gaudron and McHugh JJ at 633.
(5)Where a director acts in relation to a transaction in which he or a party to whom the director owes a fiduciary duty stands to gain a benefit without making adequate disclosure of his interest, that director acts “improperly” within the meaning of s 182(1): R v Byrnes (1995) 183 CLR 501 at 516-17. That is likely to lead also to a conclusion of lack of good faith for s 181 purposes. …
(6)Finally, impropriety for the purposes of s 182(1) is to be determined objectively and does not depend upon the director's consciousness of impropriety. It consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case: R v Byrnes (supra) at 514-15 per Brennan, Deane, Toohey and Gaudron JJ.
The Court of Appeal approved Santow J’s approach to s 182 in Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [555] per Giles JA, with whom Mason P and Beazley JA agreed. In particular, their Honours approved the distinction drawn by Santow J between impropriety in the use of a position and the purpose (or intention) with which the position was improperly used.
The Registrar relied upon five particular matters in claiming that Ms Peters had breached s 265-10. These matters, as pleaded in the statement of claim, may be summarised as follows:
(a)Ms Peters failed to ensure the rental charged for the Properties was at a rate which was sufficient to cover all costs and expenses required properly to maintain the Properties ([26] of the statement of claim);
(b)from time to time during the Relevant Period, Ms Peters permitted rent owed by tenants, including rent paid by herself, to go unpaid and did not take adequate steps to cause unpaid rent, including rent owed by her, to be recovered ([27] of the statement of claim). In addition, the Registrar claimed that Ms Peters knew or ought to have known that the tenants were responsible for the payment of excess water consumption charges, that the matter was discussed at directors’ meetings attended by Ms Peters on 23 May 2011 and 27 February 2012 and that at the latter meeting Mr Monaghan proposed that, if the Corporation had sufficient funds, the Corporation, rather than the tenants, should pay half the excess water charges ([70], [71(c)] and [72] of the statement of claim);
(c)at no time during the Relevant Period did Ms Peters cause any tenant to be evicted for failure to pay rent despite rent not being paid in relation to some of the Properties;
(d)throughout the Relevant Period and until about 7 December 2012, Ms Peters failed to cause the Corporation to manage the Properties appropriately such that the Corporation was unable to meet its obligations concerning maintenance and the Corporation did not receive any payments for the cost of property damage caused by tenants ([33] of the statement of claim); and
(e)throughout all the Relevant Period, Ms Peters was a tenant at 6 Rolph Place, Gilmour ([59] of the statement of claim).
It is convenient to deal with each of those five matters in turn. As will shortly emerge, I am not satisfied that the Registrar has established to the Briginshaw standard that Ms Peters contravened s 265-10.
Ensuring sufficient rent
The Registrar’s claim was that Ms Peters failed to “ensure” that the rent charged for the Properties was at a rate which was sufficient to cover all costs and expenses required properly to maintain the Properties. The Registrar adduced no direct evidence to establish what amount of rent would have been sufficient to ensure that the costs and expenses associated with the Properties would be met. Nor did he suggest what additional steps to those taken by Ms Peters (or, indeed, Mr Lock) should have been taken to overcome the difficulties of having tenants pay outstanding rent, other than to say that she should have resigned earlier than she did. The Registrar did not identify any person who may have been suitable and willing to replace Ms Peters had she resigned earlier. The minutes of a meeting which appear to be dated 7 December 2012 record that the meeting was mainly called to discuss Ms Peters stepping down as Chairperson (this is at odds with the agreed facts). Significantly, however, the minutes (which are in the form of a transcript of the meeting), record three people being nominated for the role to replace Ms Peters, each of whom declined the nomination. This highlights the difficulty of replacing Ms Peters. Ultimately, the minutes record Ms Peters appointing Troy Groveler and Alice Connors as Chairperson and Deputy Chairperson respectively until the next AGM, which they agreed to do jointly.
Ms Peters’ evidence, which I accept, was to the effect that she believed that the rent charged was sufficient to meet the Corporation’s relevant costs, but the problem as she saw it was that the tenants would not pay the rent. She came to that view after taking numerous steps to encourage other tenants to pay their rent arrears. She emphasised that she was not alone in that view. On 26 January 2013, after Ms Peters ceased residing in Rolph Place and after she ceased being a director, it was decided to keep the rent at the same rate. Furthermore, as noted above, the fortnightly rent had been increased from a fortnightly figure of $270.00 to $320.00 in mid-2010, when Ms Peters was both the Chairperson and director of the Corporation. It is unclear on the evidence who initiated that increase.
In addressing this matter, it is also relevant to take into account the fact that the Corporation’s object was to provide affordable housing for Indigenous people, some of whom were welfare dependent. Understandably, therefore, market rents were not charged. Moreover, Ms Peters sought to obtain funds from other sources to pay for repair and maintenance costs, some of which were successful and others not.
I am not satisfied that the Registrar has demonstrated that the relevant conduct of Ms Peters of which he complains involves an “improper use” of her position as required by s 265-10. On the contrary, I am satisfied that the steps taken by Ms Peters in respect of the amount of rent being paid and its collection were consistent with the proper performance of her duties as a director, albeit that the conduct was unsuccessful in accomplishing her objectives.
For completeness, I should also state that I am not persuaded that the conduct complained of was undertaken by Ms Peters with a view to her gaining an advantage for herself or anybody else. While it may be accepted that the Corporation suffered detriment as a consequence of tenants not paying their rents, I do not consider that this was a consequence of an improper use by Ms Peters of her position as a director. Insofar as her own outstanding rent is concerned for which she was liable as a tenant, I accept Ms Peters’ evidence that she only became aware of the matter after these proceedings were commenced and she has undertaken to repay the relevant amount. No submission was made by the Registrar that there was some reason for doubting that Ms Peters would honour that undertaking. So that there is no doubt, I propose to make an order which obliges Ms Peters to come to a satisfactory arrangement with the Corporation for the outstanding rent to be paid by instalments, which should take into account her financial circumstances.
Unpaid Rent and Excess Water Usage
There can be no dispute that Ms Peters was put on clear notice by LSRE concerning issues of rent, maintenance and excess water usage. For example (and concentrating on the Relevant Period):
(a)LSRE wrote to Ms Peters and Ms Monaghan on 26 May 2009 and enclosed correspondence from the Tenants’ Union relating to property maintenance at the Kambah property. The letter acknowledged that Ms Peters had said that she was investigating other alternatives to manage the Corporation and it was suggested to her that she could look into setting up a bank account so that rent could be directly deposited. On the issue of possible evictions, the letter recorded (significantly) that “it is not usual for a charity organisation to issue a Notice to Vacate so perhaps [the Corporation] will be able to encourage the tenants with late rent to pay before any Notices are issued”. As noted above, Ms Peters took various steps to encourage the tenants to pay their rental arrears;
(b)by letter dated 31 August 2009, LSRE informed Ms Peters and Ms Monaghan that there was a huge water account at the Wanniassa property and that it was “unacceptable” for the tenant to incur such a large water consumption account without attempting to fix the water leak. It was suggested that the tenant either pay the rent or vacate the property and that action also needed to be taken concerning rent at the Kambah property; and
(c)by letter dated 21 January 2010, LSRE wrote to both Ms Monaghan and Ms Peters and advised them that LSRE would be unable to manage the Properties.
The Registrar’s claims in relation to this matter require him to establish that Ms Peters permitted outstanding rent, including in relation to herself, to go unpaid and that she did not take adequate steps for such unpaid rent, including her own, to be recovered.
I reject those claims. There is abundant evidence, as summarised above, of various steps taken by Ms Peters to seek to have other tenants pay outstanding rent. I have already accepted her evidence that, despite these efforts, tenants frequently failed to pay outstanding rent because of “family connections”, as well as the lack of the Corporation’s funds to take relevant proceedings to evict such tenants.
In the case of her own outstanding rent, I adopt what is said above regarding Ms Peters’ belief, prior to the commencement of these proceedings, that there was no outstanding debt concerning her rent and her undertaking to repay any relevant amount by instalments.
Ms Peters also relied upon the Minutes of the Corporation’s 23 May 2011 meeting, which record that: “Kim advised that due to unemployment, after June she may have a lapse in rental payments for up to 12 weeks until the Centrelink payments are available to her.” The Minutes of the Corporation’s 11 July 2001 meeting record that: “Kim notified by phone that she was not currently paying rent but friends are staying there. She will ask them to pay rent.” I accept that she made these disclosures.
Ms Peters contended that, despite moving out of the rental property in March 2011, she continued to pay rent to October 2012.
Before and during Ms Peters' time as a director, the directors discussed rent arrears by a number of tenants. Except for the particular time period discussed in the May and July 2011 meetings, Ms Peters paid her rent. Ms Peters submitted that her statement that she was going to have a problem with payment of rent for a defined period and that she was obtaining a solution to the problem was not an abuse of her position to obtain an advantage for herself. To the contrary, she submitted that she acted responsibly in advising the Corporation (as her landlord) in advance that there was an issue pending and that it would be rectified.
Ms Peters submitted that, after these proceedings were commenced, she became aware that she still owed rent to the Corporation. She contended that, prior to the commencement of the proceedings she thought all outstanding rent owed by her had been paid. She submitted that the accrued debt was an oversight on her part due to a period of unemployment and having moved out of the property. She was not cross-examined on these matters and I accept her submissions.
Ms Peters rejected the assertion that the non-payment of the rent was in any way an abuse of her position as a director of the Corporation. She accepted that the Corporation had a claim against her for breach of contract/lease and that, on this basis, she is indebted to Corporation. She emphasised that she has offered and continues with the offer to pay the outstanding sum, which is estimated to be about $3,520.
Turning to the issue of excess water usage charges, it is critical to note that the Registrar’s claims in this regard are predicated on his assertion that tenants were responsible for the payment of excess water consumption charges (see [70] of the statement of claim). That claim was particularised in the statement of claim by reference to letters written by LSRE on or about 17 March 2008 and 17 July 2008, which the Registrar claimed informed the Corporation that in Canberra tenants were responsible for excess water consumption charges. That claim is not borne out by the evidence.
By a letter dated 17 March 2008, LSRE wrote to Ms Peters and enclosed a copy of an article which had appeared in the Canberra Times about reducing water consumption. Ms Peters was told that “it is common practice that residential tenants pay full quarterly water consumption charges” and that all LSRE’s “usual Property Management clauses within our tenancy agreements” specify that the tenant shall be responsible for all charges associated with the consumption of services, including water. It is significant that it would appear that LSRE was of the view that there needed to be an express clause in a tenancy agreement in order to hold a tenant responsible for paying all water charges (which presumably would include excess water charges).
By letter dated 16 July 2008, LSRE wrote a letter to Ms Monaghan (not Ms Peters) and drew attention to the need to address the “extremely high water consumption bills” at the next meeting. The letter also contained the following statement:
In Canberra the water consumption account should be paid by the tenant of the property and the accounts that we receive (for other properties) are well under $100.00 per quarter. Therefore you may wish to stress to [the Corporation’s] tenants that any dripping taps, leaking hot water, etc are costing a large amount of money and it may be in the best interest of all [the Corporation] for these costs to be passed on to the tenant.
This evidence does not establish any legal responsibility on the part of the Corporation’s tenants to bear the cost of excess water charges. Nor is there any evidence that Ms Peters ever saw this letter.
Ms Peters gave evidence that she was not aware of any such legal obligation. The Court’s attention was not drawn to a copy of any Corporation tenancy agreement dated prior to 30 January 2013 (which may reflect the Corporation’s poor records). In other words, apparently there was no copy of any Corporation tenancy agreement which operated during the term of Ms Peters’ term as director which revealed that, under the agreement, a tenant was responsible for excess water charges.
In my view, the evidence, such as it is, is insufficient to make any finding in the Registrar’s favour that there was a legal obligation on the Corporation’s tenants to pay excess water charges during the period relating to Ms Peters. This aspect of the Registrar’s claims is rejected.
With regard to the excess water usage costs, Ms Peters described the Registrar’s case as being that she was present at the meetings in May 2011 and February 2012 when it was discussed that the Corporation should consider paying excess water bills and therefore, as both a tenant and a director, Ms Peters was placed in a conflict of interest and gained from her position as a director.
Ms Peters drew attention to the minutes of the Corporation meeting held in May 2011 which record a decision that water charges would be “passed on to the tenants by way of an invoice from [the Corporation].” The minutes of the Corporation meeting held on 27 February 2012 record that there was a decision that the Corporation would pay half of each bill outstanding for each property in respect of excess water usage. She submitted that had the tenants paid their rent then the Corporation would have had sufficient funds to meet the cost of water usage. Ms Peters submitted that her position was consistent with the approach taken by the Corporation prior to her becoming a director and prior to the Relevant Period. I accept that submission.
Ms Peters contended that the minutes of the May 2011 and February 2012 meetings show that, rather than gaining an advantage for herself, she acted to the Corporation’s benefit by supporting a position that the tenants should pay the excess water bills in circumstances where, until this point, it had been entirely the Corporation’s responsibility to pay for any and all water usage. I accept that contention.
Maintenance of the Properties to a habitable standard
This issue is closely tied to that relating to the sufficiency of rent and the rental arrears, both of which have been considered and rejected for the reasons given above. For similar reasons, I reject the Registrar’s claims on this issue. Ms Peters did take some steps to keep the Properties at a proper standard but these steps were largely to no avail because of the lack of funds and the other frustrations which Ms Peters encountered. Furthermore, some, but by no means all, of the evidence concerning the state of the Properties, postdates Ms Peters’ time as a director.
Tenants’ responsibility for damage to Properties
The first point to note about this aspect of the Registrar’s case against Ms Peters is that, as pleaded, it asserts that Ms Peters failed throughout the Relevant Period and until about 7 December 2012 to cause the Corporation to manage the Properties appropriately. This pleading sits uncomfortably with the agreed fact that Ms Peters ceased to be a director in early 2012.
Concentrating on that part of the Relevant Period during which it is agreed Ms Peters was a director, I have summarised above various correspondence from LSRE which was sent to Ms Peters concerning damage to the Properties and maintenance. As I have also emphasised above, that while Ms Peters took various steps to seek to have these problems addressed, they were to no avail, largely because of the apparent impecuniosity of many of the tenants and the obstacles created by “family connections”. As noted above, it is revealing that Mr Lock also sought to address these same problems when he replaced Ms Peters as Chairperson and director but, he too, was unsuccessful. As also noted in [382] above, the Court’s attention was not drawn to a copy of any tenancy agreement dated prior to 30 January 2013 and which was in evidence, hence the liability of tenants for property damage is unclear for the earlier period.
Failure to declare conflicts of interest
With regard to the unpaid rent, the Registrar asserted that she was in a positon of conflict and failed to declare such conflict when:
(a) non-payment of rent or rental arrears was discussed on 23 May 2011 and 11 July 2011; and
(b)excess water usage by tenants of the Properties was discussed on 23 May 2011 and 27 February 2012.
During the Relevant Period all of the other directors (including the Monaghans) and tenants (including the Monaghans’ relatives) were aware that Ms Peters was both a tenant and director. Ms Peters submitted that it was unnecessary and redundant for her explicitly to state she had a conflict of interest when these matters were discussed as it was obvious to all that she was both a tenant and a director. I accept that submission.
The Registrar’s complaint was that she failed to disclose her interest. Ms Peters had been a tenant at 6 Rolph Place since 2000, i.e. for almost 10 years. She became a director of the Corporation in December 2005. It is clear that the issues of rent and water usage came up frequently at Corporation meetings over many years. In these circumstances, there can be no doubt that everyone who was involved in the Corporation’s decision-making was well aware of Ms Peters’ status as a tenant. Indeed, as the extracts from the minutes above reveal, Ms Peters declared to the meeting several times that she was in arrears of her rent and explained why that was so. These were not one-off discussions or issues which would attract strict application of the obligation to declare a conflict of interest. Rather, they were ongoing issues. There is simply no basis for finding that the other directors were unaware or kept in the dark of Ms Peters’ tenancy. The position was plainly to the contrary.
Record keeping
The Registrar claimed that Ms Peters contravened s 363-1 of the CATSI Act by her failure, as a director, to take steps to ensure that the Corporation complied with its record keeping and reporting requirements under Pts 7-2 and 7-3 of the CATSI Act. In particular, the Registrar pointed to Ms Peters’ failure to:
(a)create and keep, or cause the Corporation to create or did not cause the Corporation to keep for seven years, adequate written financial records of books of account and source records;
(b)ensure that an organised system of maintaining source business records for use;
(c)ensure that an organised system of recording all transactions was used, such as registers;
(d)ensure that bank reconciliations were completed by the Corporation to verify the accuracy of the records kept; and
(e)ensure that written financial records correctly recorded the Corporation’s transactions and financial position and performance, and which would enable true and fair financial reports to be prepared and audited.
In response, Ms Peters relied on her affidavit evidence, which was to the effect that, during the Relevant Period, records of meetings were kept by Fleur Scheele, Jennifer Scheele and/or a representative of LSRE and that when she ceased being a director she handed the Corporation’s records over to Mr Lock.
Ms Peters submitted that she thought she had ensured that payments for accounts were approved at directors' meetings and that a register of members was kept, but she accepted that with the passage of time she can no longer say for certain that these things occurred.
It is clear on the evidence (including the relevant part of the first statement of agreed facts which is set out in [115] to [116] above), that the Registrar’s complaints regarding the Corporation’s deficient and inadequate records are well founded and, having regard to her obligation under s 363-1 as a director of the Corporation, Ms Peters must accept some responsibility for this state of affairs. I am satisfied that the Registrar has established a contravention of that provision by Ms Peters.
Relief against Ms Peters
I am satisfied that a suitably worded declaratory order should be made against Ms Peters in respect of her contravention of s 363-1 of the CATSIAct.
Taking into account the circumstances of this case as they relate to Ms Peters and also to the general legal principles set out above, I consider that it is also appropriate to disqualify Ms Peters from managing a CATSI Act Corporation. In Ms Peters’ particular circumstances and having regard to the relevant legal principles outlined above, I consider that the period of disqualification should only be six months, which reflects my assessment that her contravening conduct is distinctly at the lower end of the spectrum.
Having regard to the terms of the proposed declaratory and disqualification orders, I am not persuaded that Ms Peters should also be ordered to pay either a pecuniary penalty or compensation in relation to her conduct relating to the Corporation’s record keeping. I consider that the orders which I propose to make are sufficient in the particular circumstances of this case. In my view, specific and general deterrence is sufficiently accomplished by the making of the proposed disqualification order. I have also taken into account the fact that the Registrar did not press for an order for compensation against the Monaghans, while also noting that this occurred in the context of an agreement involving wider relief, including pecuniary penalties.
Costs as between Ms Peters and the Registrar
Both the Registrar and Ms Peters indicated that there should be an opportunity to address the issue of costs having regard to the Court’s findings in respect of the case against Ms Peters. Accordingly, the relevant parties should seek to agree costs in relation to Ms Peters in the light of these reasons and, if they are unable to reach an agreement, within 14 days hereof each should file and serve an outline of submissions not exceeding three pages and any evidence in support of their respective positions on costs. It is proposed that the matter of costs between these parties will be determined on the papers and without any further oral hearing.
CONCLUSION
Having regard to the revised statement of agreed facts and the relevant legal principles outlined above, I am satisfied that the revised proposed orders in relation to Mr and Ms Monaghan, the first and second respondents, should be made.
Ms Peters, the third respondent, is in a different position. The only part of the Registrar’s case against Ms Peters which has been established is that relating to her obligations as a director under s 363-1(1) of the CATSI Act in relation to the Corporation’s record keeping and reporting requirements. I am satisfied that this contravention should attract a suitably worded declaration and an order disqualifying Ms Peters from managing any CATSIAct corporation for a period of six months. The Registrar and Ms Peters should seek to agree costs, which should reflect the Registrar’s relatively limited success in his case against her.
Finally, these proceedings vividly highlight the need for there to be appropriate training for people who are directors or officers of a CATSI Act corporation. It is plain on the evidence that none of the respondents had the appropriate knowledge, experience or understanding of their roles and responsibilities as directors of the Corporation. I respectfully suggest that consideration should be given to reviewing the relevant legislative regime to ensure that the Registrar has adequate powers and functions to provide appropriate training to persons such as the respondents and that adequate resources are available for this purpose. It may well be that it is considered that such training should be a condition of a person becoming a director or officer of such a corporation but that is a matter which is beyond the scope of these proceedings.
I certify that the preceding four hundred and three (403) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths. Associate:
Dated: 20 September 2016
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