Trade Practices Commission v Farrow

Re: TRADE PRACTICES COMMISSION
And: RODDY FARROW also known as RONALD FREDERICK and TRADE PRACTICES
COMMISSION and JIM SPATHAROS also known as DIMITRIOS SPATHAROS
Nos. SG23,25,27,29,31,43,45,47,49,51,53,55,76-81,86-96, 111-116 of 1989
FED No. 106
Trade Practices Act

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Von Doussa J.(1)

CATCHWORDS

Trade Practices Act - prosecutions of two persons knowingly involved in contraventions by corporations of s.59(2) - companies invited members of the public to engage in business activity requiring the investment of money and the performance of work - seven investors induced to invest total of $262,000 in business represented as manufacturing motorised wheelbarrows - companies now in liquidation - investors lost money - representations blatant lies - cynical plan of deception - factors to be considered when imposing heavy fines including means and ability to pay - imposition of term of imprisonment in default - factors leading to disparity in sentences between defendants - defendant who masterminded deception fined $60,000 in total on 33 counts - other defendant fined $7,500 on 7 counts - orders for damages made in favour of the victims.

Trade Practices Act 1974 - ss.59(2), 79(1)(d), 79A, 87, 87A.

Crimes Act 1914, s.18A.

Criminal Law (Sentencing) Act 1988 (S.A.) ss.3, 61.

HEARING

ADELAIDE

#DATE 19:3:1990

Counsel for the prosecutor : Mr J.R. Mansfield QC

with Mr S.F. Vorreiter
Solicitors for the prosecutor: Department of Public Prosecutions
Counsel for Farrow : Mr S.C. Ey
Solicitors for Farrow : Mangan Ey and Associates
Counsel for Spatharos : Mr T.P. Kavanagh
Solicitors for Spatharos : Caldicott and Co.

ORDER

A. In Nos. SG25, 27, 29, 31, 33, 35, 37, 39, 41, 43, 45, 47, 49,

51, 53, 77, 78, 79, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 111, 113, 114, 115 and 116 of 1989 :

1. The defendant Roddy Farrow is convicted of each charge.

2. The following fines are imposed : In respect of No. SG25 $1,250 In respect of No. SG27 $1,250 In respect of No. SG29 $1,250 In respect of No. SG31 $1,250 In respect of No. SG33 $1,250 In respect of No. SG35 $1,250 In respect of No. SG37 $1,250 In respect of No. SG39 $1,250 In respect of No. SG41 $1,430 In respect of No. SG43 $1,430 In respect of No. SG45 $1,428 In respect of No. SG47 $1,428 In respect of No. SG49 $1,428 In respect of No. SG51 $1,428 In respect of No. SG53 $1,428 In respect of No. SG77 $3,334 In respect of No. SG78 $3,333 In respect of No. SG79 $3,333 In respect of No. SG86 $3,334 In respect of No. SG87 $1,430 In respect of No. SG88 $1,430 In respect of No. SG89 $1,428 In respect of No. SG90 $1,428 In respect of No. SG91 $1,428 In respect of No. SG92 $1,428 In respect of No. SG93 $1,428 In respect of No. SG94 $3,333 In respect of No. SG95 $3,333 In respect of No. SG111 $2,000 In respect of No. SG113 $2,000 In respect of No. SG114 $2,000 In respect of No. SG115 $2,000 In respect of No. SG116 $2,000 TOTAL $60,000

3. The defendant pay the total sum of $60,000 on or before 20 March 1991.

In default imprisonment for a term calculated at the rate of one day's imprisonment for each $25 of the amount of the fines that are unpaid. The Court declares that the order for imprisonment in default of payment of the fines shall cease to have effect in respect of the fines imposed on Roddy Farrow by this order after the said Roddy Farrow has served an aggregate of 3 years imprisonment in respect of these fines.

B. In Nos. SG23, 55, 76, 80, 81, 96 and 112 of 1989:

1. The defendant Jim Spatharos is convicted of each charge.

2. The following fines are imposed : In respect of No. SG23 $1,500 In respect of No. SG55 $1,500 In respect of No. SG76 $ 500 In respect of No. SG80 $ 500 In respect of No. SG81 $ 500 In respect of No. SG96 $1,500 In respect of No. SG112 $1,500 TOTAL $7,500

3. The defendant pay the total sum of $7,500 on or before 20 March 1991.

In default imprisonment for a term calculated at the rate of one day's imprisonment for each $25 of the amount of the fines that are unpaid.

C. The defendant Farrow and the defendant Spatharos jointly and

severally pay the costs of the prosecution to be taxed.

D. In the matters of Nos. SG23, 25, 27, 29, 31, 33, 35, 37, 39,

41, 43, 45, 47, 49, 51, 53, 55, 76, 77, 78, 79, 80, 81, 86, 94, 95, 96, 111, 112, 113, 114, 115 and 116 of 1989 : The defendant Farrow and the defendant Spatharos pursuant to Sections 87(1A) and 87(1B) of the Trade Practices Act 1974 jointly and severally pay damages and interest as follows:

(1) To George Angelis $102,000

(2) To Anthony George Yammouni $ 26,000

(3) To Frederick Charles Harrison $ 26,000

(4) To Andrew Percival Quirke $ 48,562

(5) To Jo Milton Carl Johansen $ 26,000

(6) To Alan Edward Sawtell $ 52,338 TOTAL $280,900

E. In the matters of Nos. SG87, 88, 89, 90, 91, 92 and 93 of

1989 :

The defendant Farrow pursuant to Sections 87(1A) and 87(1B) of the Trade Practices Act 1974 pay damages and interest as follows :

(1) To Ian William Muir $ 52,000

F. Liberty to apply is granted.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Roddy Farrow also known as Ronald Frederick, (hereinafter referred to as "Farrow") has pleaded guilty to 33 offences, and Jim Spatharos, also known as Dimitrios Spatharos, ("Spatharos") has pleaded guilty to 7 offences, against s.79(1)(d) of the Trade Practices Act 1974 ("the TP Act") which involved conduct by a corporation contrary to sub.s.59(2) of the TP Act. Sub-section 59(2) reads :

"Where a corporation, in trade or commerce, invites, whether by advertisement or otherwise, persons to engage or participate, or to offer or apply to engage or participate, in a business activity requiring the performance by the persons concerned of work, or the investment of moneys by the persons concerned and the performance by them of work associated with the investment, the corporation shall not make, with respect to the profitability or risk or any other material aspect of the business activity, a respresentation that is false or misleading in a material particular."

Farrow is guilty of being knowingly concerned in contraventions by both Quik Power Pty Limited ("Quik Power") and Quik Holdings Pty Limited ("Quik Holdings") whereby these companies invited 7 members of the public ("the investors") to engage in a business activity requiring the investment of moneys and the performance of work, and made false or misleading statements with respect to either the profitability or a material aspect of the business activity. Spatharos is guilty of being knowingly concerned in contraventions involving invitations to 6 of the same 7 investors.
When the informations were first laid against Farrow and Spatharos, additional informations were also laid charging Quik Power, then in liquidation, with 8 offences and Quik Holdings, then in liquidation, with 10 offences involving conduct contrary to s.59(2) being contraventions in which Farrow and Spatharos or one of them were involved. On Farrow and Spatharos pleading guilty the charges against the companies were discontinued.
At the outset I shall deal with a point of procedure which has arisen. Each offence was made the subject of a separate information and summons as the prosecutor understood this to be the requirement of the rules of Court. Reliance was placed on the dicta of Pincus J. in Dillon v. Chin (1988) 84 ALR 457. In that case separate informations and summonses were issued in respect of a number of charges under the TP Act. The issue before his Honour was whether the charge as laid in each summons and information was bad for duplicity. He held that it was. In the course of his judgment his Honour at pp 458-459 said :
"The rules relating specifically to prosecutions
are in O 49. They require that a prosecution for
an offence be commenced by summons upon
information (r 1), that the summons state the
offence with which the defendant is charged (r
2(1)(a)) and that the summons be divided into
paragraphs: r 3(1). Then O 49, r 3(2) says: 'So
far as convenient, each paragraph shall deal only
with one matter.' In my view that does not imply
that an information or a summons may relate to
more than one offence; nor do the forms of
summons and information (Nos 51 and 52) do so.
When these rules were made, the practice was, as
to criminal charges other than those brought by
indictment, that only one charge could be the
subject of a single proceeding. The rules appear
to be drawn on the assumption that there will be
one summons for each charge. The summons and
information in the charge I have mentioned (G57 of
1987) are also drawn on that basis, but the
problem is that the charge has been particularised
and evidence has been led in such a way as to
suggest that in reality more than one offence is
charged in the summons."
Insofar as that passage supports the view that it is not open to include two or more counts each charging a separate offence in the one summons and information, I respectfully differ from his Honour. Whilst the rules and the forms as drawn assume that a summons will be in respect of a single charge, this may be explained as a style of drafting to avoid the expression of the singular and the plural on each occasion. The forms, by O.1, r.7, may be varied as the nature of the case requires. I do not think there is anything in the wording of O.49 inconsistent with the notion that a summons and information may include two or more counts. His Honour refers to a practice as to criminal charges. That was not a uniform practice as at least in South Australia it was, and is, common to include more than one count in a single proceeding commenced by summons upon information. Furthermore, s.4K of the Crimes Act 1914, enacted by the Crimes Legislation Amendment Act 1987 (which replaced s.45B of the Acts Interpretation Act 1901) makes specific provision for making a number of charges the subject of a single information and summons. Sub-section 4K(3) provides :

"Charges against the same person for any number of offences against the same provision of a law of the Commonwealth may be joined in the same information, complaint or summons if those charges are founded on the same facts, or form, or are part of, a series of offences of the same or a similar character."

In my opinion many of the charges, the subject of the separate informations and summonses in the matters now before the Court, could have been laid as separate counts within the same proceedings. It will be noted however that the circumstances in which several charges may be joined in the same summons are not identical with the circumstances laid down in s.79(2) of the TP Act which aggregate separate offences for the purpose of penalty.
The following summary of the facts is taken mainly from exhibit P1, an agreed summary prepared by the prosecutor. In late 1987, and until 3 February 1988, the beneficial owner of the shares in Quik Holdings (then known as J.R. Investments Pty Ltd) was Spatharos. Quik Power (then known as Quik-Tow (S.A.) Pty Ltd) was a subsidiary of J.R. Investments Pty Ltd. That company was engaged in making trailers under the management of Spatharos. On 3 February 1988 an allotment of shares occurred in J.R. Investments Pty Ltd which had the effect of giving Farrow, as trustee for the Ilma Joan Trust, a 75% shareholding in that company. On 17 February 1988 J.R. Investments Pty Ltd changed its name to Quik Holdings, and on 29 March 1988 the name change concerning Quik Power occurred.
Spatharos was at all relevant times a director of each company. Although from 3 February 1988 Farrow held a controlling shareholding in Quik Holdings, he was at no time formally appointed an officer of either company. It is agreed however that he controlled the direction and operation of both companies through Spatharos.
The core business activity in which three of the investors were invited to engage in January and February 1988, namely Andrew Percival Quirke, Alan Edward Sawtell and Ian William Muir, was the development and manufacture of a motorised wheelbarrow to which various accessories could be attached. Those accessories, which are depicted by photographs or sketches in a glossy brochure prepared at the instigation of Farrow, included a generator and jackhammer, different types of barrow tray or basket, an air compressor, a cement mixer, a spray unit, a post hole digger, and different cutting and lifting attachments. The motorised unit to which the various accessories could be attached became known as the "power-pak".
Three more investors, Anthony George Yammouni, Frederick Charles Harrison and George Angelis were invited to engage in the business activity of distributing the power-pak and its accessories and trailers in Victoria. This Victorian distributorship was sold jointly to Yammouni and Harrison in March 1988, and then to Angelis in May 1988.
Finally Jo Milton Carl Johansen was invited in March 1988 to engage in the business activity of "Quik Trailer", which was a branch of Quik Holdings established to make trailers.
The various false and misleading statements of the companies were made by Farrow who held himself out either as the national or international co-ordinator of Quik Holdings. Spatharos was introduced by Farrow to each investor as the chairman of each of the two companies.
It is now admitted by the defendants that it was Farrow's intention in making the false and misleading statements, with the assistance and knowledge of Spatharos, to procure from the investors their respective investments and to secure the application of the invested funds substantially for Farrow's benefit.
The development of the power-pak appears to have begun when Farrow approached an engineering firm in December 1987 and instructed it to build a prototype of the power-pak wheelbarrow. This involved a tubular construction with two handles, two wheels, a small engine fitted between the wheels as a means of mechanical propulsion, and a wheelbarrow bucket sitting over the engine. A static model of a prototype had apparently been exhibited at a trade fair in Geneva where it received commendation during 1987. By whom it was exhibited is not disclosed in the material before the Court.
During January and February 1988 the first three investors were enticed to invest money for the development of the prototype. At this time the companies had leased factory premises, and some development work was in hand. Once the investors paid their money, they became employees of one or other of the companies, and were actively engaged in the development work. When a second prototype power-pak was developed during February 1988, it was used by Farrow to illustrate the brochure previously mentioned. Spatharos also played some part in the preparation of the brochure. Although the photographs purport to depict complete and operational units available for sale the fact is that the basic unit was still a primitive prototype, and the various attachments had not been developed. The accessories used in the photographs incorporated in the brochure were units commercially available from other manufacturers which were simply placed on or leaned against the power-pak for the purpose of the photographs. No drive mechanism to connect the accessories to the power-pak had been designed or manufactured. The sketches were no more than rough commercial artists' impressions of ideas by the defendants.
A technical report obtained in May 1988 concerning the power-pak, as it was then developed, confirms that the unit was still in its early developmental stages, and had not reached a point where it could be tested. The prototype then available was fitted with a 3 horsepower engine (whereas the brochure described the engine range available as between 3.75 and 90 horsepower). There were numerous technical and design problems with the prototype. The power-pak, as then developed, was not capable of performing the various functions claimed for it in the brochure. The agreed statement of facts observes :
"As far as the capacity of Quik Power Pty Limited
to produce in significant quantities was concerned
a number of observations can be made. Firstly
none of the necessary plant was purchased. For
example there were no presses and no tube bender
as had been represented to a number of investors.
There was also no sufficiently long term
commitment to lease the factory sites which the
companies had occupied. The manufacture of
components was ad hoc and restricted to metal
components which could be cut or bent. There
were no plans to buy engines or gearboxes in
quantities consistent with an intention to
manufacture in any volume. Secondly no cost
analyses were done for either the labour,
material, developmental, distribution or marketing
input required for volume production. In
addition no assessment was done as to the capital
that might be required to develop and manufacture
such a product.
By May 1988, it was not possible to know the cost
of the components or of the labour to manufacture,
the indirect costs of manufacturing, the research
and development costs (or how they should be
accounted for), and so the cost in the market if
ultimately the power-pak could be developed could
not be known, nor - it follows - whether purely in
economic terms it was marketable."
The involvement of each investor, briefly, was as follows :
Alan Edward Sawtell
Sawtell came into contact with the power-pak on 25 January 1988 when he answered an advertisement in "The Advertiser" newspaper seeking an active partner in a new steel product. Over the following few days he had several meetings with Farrow and was introduced to Spatharos. Sawtell was told about the product, its development and in particular the profitability of becoming involved. Farrow told him that because of his background he (Sawtell) would become the production manager. The representations made to him were as follows :
Date Defendant No. Statement
26.1.88 Farrow SG114 That Quik Holdings would soon be

going public and that if Sawtell invested $40,000 in Quik Holdings he would receive $40,000 shares in that company and that as soon as Quik Holdings went public the shares would be worth at least $160,000.

26.1.88 Farrow SG115 That if Sawtell invested $40,000 in

Quik Holdings he would be entitled to 2.5% of the gross profit of all the Quik Holdings group of companies or businesses and that such returns would be a lot and that "we would all be very rich people".

26.1.88 Farrow SG116 That Quik Holdings had sales lined

up with distributors in Australia and America.

5.2.88 Farrow SG113 That within 12 months Quik Holdings

would be the biggest manufacturing company in South Australia.

16.2.88 Spatharos SG112 That Sawtell would have "a Projected

Income of profit share of approximately $60,000 a year from Quik Power". (This representation was in a letter drafted by Farrow which Spatharos signed at Farrow's request).

17.2.88 Farrow SG111 That the figure of $60,000 mentioned

in a letter to him from Spatharos dated 16 February 1988 was only a "scratch" figure and that it would be about $200,000.

Sawtell decided to invest $40,000 in reliance on the representations. He obtained the funds from the Hindmarsh Building Society on the security of a mortgage over his family home. The $40,000 was paid on about 2 March 1988. Sawtell commenced work on about 17 February 1988 under the direction of Farrow. He was occupied in employing staff and also did some work on developing the prototype. He continued to work until the collapse of the businesses and has not received a return of any of his investment. Quik Power was wound up on a creditor's petition on 9 August 1988, and Quik Holdings was wound up on a creditor's petition on 23 August 1988.
Andrew Percival Quirke
Quirke answered an advertisement in "The Advertiser" on 10 February 1988 seeking a manufacturing partner. He met Farrow (held out as the corporate co-ordinator) and Spatharos (held out as the director and chairman) at the offices of Quik Holdings which had been leased at Fullarton Road, Rose Park. He, too, was told of the power-pak and the profitability of becoming involved.

The following statements were made to him by Farrow, in respect of which Spatharos was involved as shown and which are the subject of charges. Spatharos was involved by being present and through silence acquiescing in the statements made by Farrow.
Date Defendant No. Statement
11.2.88 Farrow SG77 That all the money from Quirke's

investment would assist in the setting up of the company and would assist in getting the motorised power-pak into operation.

11.2.88 Farrow SG78 Forecast that Quirke's investment

would be more than doubled in six months and that he would be well on the path to being a millionaire by the end of twelve months.

11.2.88 Farrow SG79 That Quirke would receive a 2.5%

share in Quik Power in return to an investment of $40,000.

11.2.88 Spatharos SG76 Statement as in SG77

11.2.88 Spatharos SG81 Statement as in SG78

11.2.88 Spatharos SG80 Statement as in SG79

In reliance on these statements Quirke invested $40,000 and was put in charge of tubular productions. He was occupied in developing the power-pak and in enquiring about various items of plant, such as a tube bender and presses at GMH. Despite Quirke being asked to make enquiries, Farrow never authorised the actual purchase of these items. Quirke continued to work until July 1988 and has lost all his investment.
Ian William Muir
Muir met Farrow after responding to an advertisement in "The Advertiser" on 16 February 1988 seeking an active partner in a manufacturing business. Farrow (introduced as the international co-ordinator of Quik Holdings) made various representations about the product and referred to Spatharos as the chairman of the company. He was offered the position of acquisitional manager.
The following are the representations which are the subject of charges :
Date Defendant No. Statement
16.2.88 Farrow SG87 That the turnover of Quik Power was

in multi-millions of dollars.

16.2.88 Farrow SG88 That the power-pak product as

illustrated in the photographs in the photocopied brochure shown to Muir was in the final stages of development.

16.2.88 Farrow SG89 That if Muir invested $40,000 in

Quik Power he would receive $40,000 of shares in Quik Holdings at the nominal value at which they came on to the market and that Muir would get a substantial immediate capital gain in that the $40,000 of shares would be worth $160,000 as soon as Quik Holdings went public.

16.2.88 Farrow SG90 That Muir would receive 2.5% share

of the net profits of Quik Power in return for his investment.

16.2.88 Farrow SG91 That in America a company called

Ezywheel had been incorporated and was establishing distributorships in the United States and a factory in California and that orders were flowing in from Ezywheel in the United States.

16.2.88 Farrow SG92 That a huge new factory was to be

built at Lonsdale on land Farrow had personally purchased.

16.2.88 Farrow SG93 That the South Australian

Government looked like they were going to supply a business loan to the Quik Holdings enterprise.

Spatharos was not involved in these contraventions.
Muir invested $40,000 and was made the purchasing officer because this had been his principal work experience. Muir had many contacts among suppliers of equipment and materials and Farrow instructed him to obtain at least 30 day credit accounts. Most of the goods supplied were never paid for and Muir's reputation has consequently seriously suffered. He has lost all his investment and had to sell his family home to repay the funds that he borrowed.
Anthony George Yammouni and Frederick Charles Harrison
Yammouni and Harrison came into contact with the power-pak at the Werribee Show on 24 February 1988 in Melbourne after answering an advertisement that had a short time earlier appeared in "The Age". Spatharos was at this show with an early prototype. After the show Yammouni and Harrison went to Adelaide where they met Farrow who introduced himself as the international co-ordinator of Quik Holdings and Spatharos was held out as the chairman of the company.
The following are the statements made to Yammouni and Harrison :
Date Defendant No. Statement
24.2.88 Spatharos SG23 That the power-pak unit had all the

functions of the attachments illustrated in the brochure which was handed to Yammouni and Harrison by Spatharos.

9.3.88 Farrow SG25 That Quik Holdings had purchased

5,000 motors from Victa.

9.3.88 Farrow SG27 That Quik Holdings had purchased

four GMH presses, at a cost of $250,000 each.

9.3.88 Farrow SG29 That Quik Holdings had purchased a

computer controlled tube bender.

9.3.88 Farrow SG31 That Yammouni and Harrison would

have delivery of the first consignment of power-pak units by 1st April 1988.

9.3.88 Farrow SG33 That all engineering problems

relating to the power-pak unit had been overcome.

9.3.88 Farrow SG35 That Quik Holdings would be putting

on 30 men the following week and that they would be producing 2,100 units per day.

9.3.88 Farrow SG37 That Yammouni and Harrison would

make $6,000 per week through the weekly sale of 300 trailers manufactured by Quik Holdings.

9.3.88 Farrow SG39 That with respect of the dyeline

proof of the "Mighty Power-Pak" brochure Quik Holdings manufactured the power-pak unit with the functions of all the attachments illustrated there.

Yammouni and Harrison were invited to participate in the Victorian distributorship of the power-pak and trailers. They invested $20,000 each and were intending to be partners in the distributorship. They lost all of their investment.
Jo Milton Carl Johansen
Johansen was invited to participate in Quik Holdings business known as Quik Trailers. He answered an advertisement in late March 1988 seeking a working partner in a business which manufactured trailers. Johansen met Farrow and Spatharos at Quik Holdings' offices which had now been relocated to 213 Greenhill Road, Eastwood. Farrow introduced himself as the national co-ordinator of Quik Holdings and Spatharos as the chairman. A number of representations were made concerning the activities of the companies.
The following are the statements made to Johansen :
Date Defendant No. Statement
24.3.88 Farrow SG95 That Johansen would receive 2-1/2%

of a monthly profit namely approximately $9,000.

24.3.88 Spatharos SG96 That Johansen would receive 2-1/2%

of a monthly profit namely approximately $9,000.

25.3.88 Farrow SG86 That Quik Holdings would become a

public company within six weeks and that if Johansen invested $40,000 he would get $40,000 shares valued at 25 cents each and an option to buy 40,000 more and that the shares would go on the market at $1.15 each.

25.3.88 Farrow SG94 That if Johansen did not get back a

return of $120,000 within 12 months for an investment of $40,000 then he Roddy Farrow would personally guarantee to return the initial investment.

Johansen was to invest $40,000 but only invested $20,000 until he realised a few days after he started work that the business was worthless. He came to this conclusion after he costed the trailer the business was supposed to produce and found that there was no profit margin. He has lost his $20,000 investment.
George Angelis
Angelis and his son John were invited to participate in the Victorian distributorship in May 1988. This was the same business activity that Yammouni and Harrison had invested in in March 1988. George Angelis had been interested in buying a business for his son John and after relying on the representations made by Farrow in Melbourne and visiting the factory in Adelaide decided to make the investment. Farrow held himself out as the international co-ordinator of Quik Holdings and Spatharos was introduced as the chairman of the company. The details of the representations upon which they relied are set out below :
Date Defendant No. Statement
2.5.88 Farrow SG41 Forecast an income of $250,000 net

per year for the Victorian distributorship.

2.5.88 Farrow SG43 That Quik Power had established 60

trailer yards in Victoria from which trailers manufactured by Quik Power were to be sold and forecast the sale of 250 trailers per week.

2.5.88 Farrow SG45 That Quik Power had appointed 120

sales agents in Victoria for the sale of the power-pak unit manufactured by Quik Power.

2.5.88 Farrow SG47 That all the attachments whose

photographs appeared in the "Mighty Power-Pak" brochure were available.

2.5.88 Farrow SG49 That within one week 100 employees

were to start at the Quik Power factory and that they would produce 100 units per week.

2.5.88 Farrow SG51 That in that week Roddy Farrow had

taken orders for $100,000 worth of stock.

2.5.88 Farrow SG53 That the Victorian distributorship

would have $100,000 worth of stock for the launch of 1 June 1988

4.5.88 Spatharos SG55 In a draft deed that "...the

descriptions and photographs in any literature of the manufacturer are of products in production at the time of publication."

Angelis invested a total of $85,000. He and his son worked from a warehouse and showroom which Quik Holdings had leased. $100,000 of stock promised for a launch of the business did not arrive. Belatedly odd units did arrive but they could not be sold because of defects. At the end of the first week's trading the landlord said the rent was in arrears and sought to recover possession. Angelis obtained $5,000 from Farrow and Spatharos for the rent, but decided to keep that sum. He therefore lost $80,000. Of the money originally invested $82,000 was borrowed on the security of his home which has recently been sold to repay the finance company.
The pleas by the defendants acknowledge the falsity of each of the above representations to the knowledge of the defendant concerned insofar as they allege representations of fact, and a lack of any reasonable basis for them insofar as they constituted forecasts. The moneys lost by the investors total $257,000.
During the period from January to May 1988, whilst the companies were carrying on business, Farrow and Spatharos each paid themselves $1,000 per week as wages. The investigations by the prosecutor have revealed in part the fate of the investors' funds. The moneys in the first instance were paid into the Jim Spatharos trust account. From the trust account the following moneys were paid to the Ilma Joan trust (of which Farrow was the trustee) :
from Quirke's investment - $20,000 from Sawtell's investment - $30,000 from Muir's investment - $20,000
Spatharos received two payments, one of $10,000 which he paid to his mother, and a further payment of $5,000. Remaining moneys in the Jim Spatharos trust account, and the investments from Yammouni and Harrison, and Angelis, were probably paid into accounts of the companies and the application of those moneys has not been satisfactorily traced. However some of it was used in the pursuit of the businesses. Farrow kept strict control of the companies' finances paying only so much to the creditors of the companies as was necessary to preserve and sustain the appearance of substance. The companies' operations were constructed so as to create the illusion of a substantial ongoing business activity, and as each investor became involved the illusion grew. Although Farrow controlled the use of funds, Spatharos was a signatory of the accounts of the Jim Spatharos trust and to the companies' accounts, and would have been aware of the use of the funds. Where possible equipment and components required for the businesses were obtained on credit, and many creditors were never paid.
In addition to the moneys transferred from the Jim Spatharos trust account to the Ilma Joan trust, a further $107,500 was transferred to the Ilma Joan trust from the companies' accounts, although these funds were not necessarily only those of the investors referred to in the offences. There has been considerable difficulty in tracing the source and final destination of moneys. The prosecutor has also been able to identify substantial transfers from the Ilma Joan trust to an entity called the Naleeh trust the beneficiaries of which are members of Farrow's family. From this trust, moneys have been used to construct a substantial dwelling house at Tennyson. The prosecutor has obtained restraining orders pursuant to s.87A of the TP Act against the trustees of the Ilma Joan trust and the Naleeh trust, and the registered proprietors of the Tennyson house. There is a possibility (it can be put no higher) that moneys from these sources, particularly the Tennyson house, may become available for distribution to creditors of Farrow, including the investors. Even if this occurs, the amount recovered is likely to be much less than the investors have lost.
On these facts the prosecutor correctly asserts that the conduct of the defendants involved gross and blatant lies which were part of a cynical and deliberate plan to defraud members of the public. Those who have lost money have been the victims of grave confidence tricks. In Guthrie v. Robertson; Guthrie v. Tarwarri No. 12 Pty Ltd (1986) ATPR 40-744 Spender J. at p 48,114, said that in considering penalty where defendants are charged with a number of offences which have a similar factual background :
"...the proper approach...is not to view the matter
by taking each information by itself but to view
the matter as a course of conduct of a serious
kind extending over a not inconsiderable period,
and to have regard to the global effect of that
conduct and fashion penalties which properly
reflect the view that that conduct deserves to be
very seriously punished."
The prosecutor contends that a similar approach should be adopted in the present matters and the defendants have not argued to the contrary. It is to be remembered that as the policy of the TP Act is consumer protection it is important that the penalty is such that it will not only deter the particular offenders from engaging in similar conduct again, but will also deter others from engaging in conduct that is prohibited by the TP Act. The penalty must reflect that the offences were part of a deliberately fraudulent scheme the effects of which have caused great personal hardship and suffering to those who were duped.
A person convicted of an offence pursuant to sub.s.79(1) of the TP Act is punishable on conviction by a fine not exceeding $20,000. However sub.s.79(2) provides :
"(2) Where a person is convicted of two or more

offences constituted by, or relating to, contraventions of the same provision of Part V, being contraventions that appear to the Court to have been of the same nature or a substantially similar nature and to have occurred at or about the same time (whether or not the person is also convicted of an offence or offences constituted by, or relating to, another contravention or other contraventions of that provision that were of a different nature or occurred at a different time), the Court shall not, in respect of the first-mentioned offences, impose on the person fines that, in the aggregate, exceed the maximum fine that would be applicable in respect of one offence by that person against that provision."

The prosecutor concedes that sub.s.79(2) applies so as to group together for the purposes of penalty various of the offences with which each defendant is charged. I agree with the submission of the prosecutor, with which the defendants concur, that in the case of each investor all charges relating to that investor should be treated as being of the same nature or of a substantially similar nature and to have occurred at or about the same time, and therefore to attract in the aggregate fines not exceeding the maximum fine that would be applicable in respect of one offence. This means that in aggregate the conduct of Farrow could attract six fines not exceeding $20,000 each, and the conduct of Spatharos five fines not exceeding that amount.
There can be no doubt about the gravity of the defendants' conduct and of the harm which it has caused to the investors. However other considerations also arise in the sentencing process. This is particularly so where punishment is to be imposed on an individual. It is as well to remember the so called golden rule of sentencing exemplified in South Australia by the well known remarks from the judgment of Napier C.J. in Webb v. O'Sullivan (1952) SASR 65, which are incorporated in the following judgment of King C.J. in Yardley v. Betts (1979) 22 SASR 108 at 112-113 :

"To say that the criminal law exists for the protection of the community is not to say that severity is to be regarded as the sentencing norm. Times and conditions change, and the approach of judges to their task must be influenced by contemporary conditions and attitudes. But public concern about crime, however understandable and soundly based, must never be allowed to bring about departure by the Courts from those fundamental concepts of justice and mercy which should animate the criminal tribunals of civilised nations. They are summed up, in the aspects relevant to the present discussion, by Napier C.J. in Webb v. O'Sullivan (1952) SASR 65 at 66: 'The courts should endeavour to make the punishment fit the crime and the circumstances of the offender, as nearly as may be. Our first concern is the protection of the public, but, subject to that, the court should lean towards mercy. We ought not to award the maximum which the offence will warrant, but rather the minimum which is consistent with a due regard to the public interest.' The protection of the public must remain our first concern, but if, consistently with that, we can, in our compassion, assist another human being to avoid making ruin of his life, we ought surely to do so."

The discussion in Webb v. O'Sullivan and Yardley v. Betts was directed primarily towards the option of imprisonment for crime, but even in fixing a monetary penalty where imprisonment is not an option provided by the statute, similar considerations arise, especially where the maximum monetary penalty is high.
The customary sanction imposed by order of the Court to enforce payment of a fine is imprisonment. This is recognised in s.79A of the TP Act. Sub-section 79A(5) provides :
"(5) The term of a sentence of imprisonment imposed

by an order under a law of a State or Territory applied by section 18A of the Crimes Act 1914 in respect of a fine shall be calculated at the rate of one day's imprisonment for each $25 of the amount of the fine that is from time to time unpaid."

The relevant law of South Australia applied by s.18A of the Crimes Act is to be found in the Criminal Law (Sentencing) Act 1988 (S.A.) and in particular in sub.s.61(1) which reads :

"61.(1) For the purposes of enforcing an order

against a person for payment of a pecuniary sum, the court may, at the time of making the order, sentence the person to a term of imprisonment to be served on default in payment of the sum."

The Criminal Law (Sentencing) Act, by sub.s.3(1), defines "pecuniary sum" to mean, in addition to a fine, compensation, costs, and other moneys payable pursuant to an order or direction of a court. However, by s.18A of the Crimes Act, only so much of the State laws as are applicable and not inconsistent with the laws of the Commonwealth apply. In my view it is clear that s.79A of the TP Act contemplates that the sanction of imprisonment will be available to enforce payment only of a fine, not for the payment of other moneys which may incidentally be awarded to be paid by the defendants, such as costs, or damages or compensation awarded pursuant to sub.s.87(1A) of the TP Act. Sub-section 61(1) of the Criminal Law (Sentencing) Act provides the power in the Court to impose a term of imprisonment for enforcing the payment of the fine but the provisions of s.79A of the TP Act, and in particular sub.ss.(3), (5), (7), (8), (9) and (10), override inconsistent provisions of the Criminal Law (Sentencing) Act which deal with the same topics.

A sentence of imprisonment is not an option provided by the TP Act in the case of a person involved in a contravention of sub.s.59(2) by a corporation. The Court must therefore recognise that to impose a heavy fine or fines on a defendant who is truly without the means and ability to meet the penalty is effectively to sentence the defendant to a long term of imprisonment. In the present case, for example, fines aggregating $27,375 or more against a defendant, if unpaid in the time allowed by the Court for payment, would result in the defendant serving a term of imprisonment of three years, the maximum term prescribed by sub.s.79A(7). In Juris Wilde v. Menville Pty Ltd and Ors (1981) ATPR 40-195 at p 42,664 Smithers J. observed in relation to the imposition of penalty on an individual under the TP Act :
"Parliament has indicated in the clearest possible
way that contraventions of the sections with which
the defendants have been charged are to be
punished by fines and not by imprisonment. The
period of imprisonment contemplated in s.18A of
the Commonwealth Crimes Act is solely to enforce
the payment of those fines and is not to be
considered as a punishment for the primary
offence. It is designed to encourage payment of
the fines and the questions of ability to pay
inevitably obtrude. Accordingly in assessing the
period of imprisonment that should be imposed it
is relevant for the Court to remember that the
burden of a fine to a man who can pay it is not to
be compared with the burden of imprisonment for
default of payment by a man who does not have the
money. In a sense, in such a case, imprisonment
is the effective punishment, and it is a
punishment of an altogether different nature and
intensity from that of the primary kind of
punishment contemplated by Parliament."
His Honour went on to observe that it is necessary to keep in mind also that a measure such as directing the service of terms of imprisonment concurrently is not available to the Court and that remissions incidental to imprisonment imposed as a primary punishment may not be an incident of imprisonment for the non-payment of a fine. His Honour's observations were made before the enactment of s.79A, and were reasons why it would be inappropriate to impose a substantial period of imprisonment in default upon a person whose means and ability to pay a fine were limited. The discretion as to the length of period of imprisonment which then resided in the Court is now removed by s.79A(5) of the TP Act. Nevertheless the considerations mentioned by Smithers J. remain. Now they are matters which must be reflected in the amount of the fine.

On the other hand, as counsel for the prosecution stressed, adverse financial circumstances of a defendant convicted for serious offending against the TP Act cannot be permitted to so dominate the sentencing process that the offender becomes immune from punishment. There must be a balancing between the needs for general and particular deterrence, and for retribution which the community and the victims may reasonably expect the law to exact on the one hand, and the circumstances of the offender on the other hand. Where the means and ability of a defendant to pay are limited, the Court should explore the position very carefully before departing from the penalty that is otherwise indicated by the circumstances of the offence. It is necessary to consider the defendant's present financial position, assets as well as income. It is necessary to consider the defendant's prospects. In appropriate cases, it may also be necessary to consider the defendant's motivation. Often the limited circumstances of a defendant can be accommodated by allowing a lengthy time to pay a fine.
In considering the defendant's financial position the impact of other monetary orders besides fines which may flow from the proceedings before the Court also fall for consideration. In the present case liabilities of this nature are very considerable. The prosecutor seeks an order for costs against both defendants jointly and severally. The prosecutor estimates that the costs will tax at $54,000.
With the written consent of the investors, the prosecutor has sought orders for damages in favour of the victims pursuant to sub.ss.87(1A) and (1B). The damages sought represent the investments lost and simple interest thereon. I shall not set out the calculations which have been presented by the prosecutor. The assessment of those damages has not been challenged by the defendants. I propose to make the orders sought in favour of each of the investors. The individual awards appear in the formal order of the Court. It is sufficient to record that the damages awarded jointly against Farrow and Spatharos total $280,900, and that there is an additional award in favour of the investor Muir against Farrow for $52,000.
The imposition of the orders for costs and damages is likely to affect each defendant differently. As will be apparent when I outline the circumstances of Spatharos, he intends to declare himself bankrupt at the conclusion of these proceedings. The orders for damages and costs will be debts provable in his bankruptcy. Any fine which this Court now imposes will remain to be paid, but Spatharos will not be burdened by debts and other liabilities incurred or imposed prior to his bankruptcy. In the circumstances I do not think that the orders for costs and damages are factors which require that fines, otherwise assessed to be appropriate to the circumstances of the case, should be adjusted downwards in the case of Spatharos.
The situation of Farrow is different. His financial position is largely unknown. Whilst it may be anticipated that proceedings will be taken against him to enforce the orders for costs and damages, it is not known whether he has assets or means available to him to meet these liabilities. His situation is further described below. It cannot be assumed that he will become bankrupt, and neither can it be assumed that he can pay a large fine and meet the other obligations which will arise from these proceedings. In these circumstances I consider regard must be had to the extent of the orders for costs and damages when considering the imposition of fines.
Farrow is aged 45. He is married man with five adult children. He is a qualified mechanic. After receiving that qualification he went into a business which failed. He became bankrupt. He subsequently endeavoured to operate a number of other businesses. He is presently unemployed. He says he has no present income and has been refused unemployment benefits. He complains that he has received enormous adverse media coverage by reason of these offences and other matters which prevent him from conducting a business. His counsel asserts, baldly, that Farrow has no money and he cannot work and therefore any fine will be onerous. It is not disputed that he is physically able to perform work, but it is said that at least in the short term he would have difficulty in obtaining employment. These assertions fail to address interests which Farrow may have in assets or through trusts. At the conclusion of submissions on his behalf I put it squarely to his counsel that the material submitted to the Court by Farrow did not disclose his asset position, and the Court could make no assumption one way or the other about his asset position which remained unknown. Counsel did not dissent from that proposition.
The situation of Spatharos on the other hand is as follows. He is now aged 25, a single man living with his parents. He obtained a secondary education and pursued for one year a computer course at a tertiary institution. He met Farrow in February 1987 whilst he was looking for employment. Spatharos read an advertisement in "The Advertiser" seeking investors to participate in a fashion chain named "Stolen Looks". Farrow had inserted the advertisement, and Spatharos was induced by Farrow to invest $50,000 in exchange for a 10% share in the business and the position of national co-ordinator. He put in $5,000 of his own money and borrowed $45,000 from his parents who mortgaged their house. The business collapsed after two months and Spatharos lost his investment. Farrow blamed another person for the collapse, and Spatharos accepted the explanation. In August 1987 on his own account he started the company Quik-Tow (S.A.) Pty Ltd and commenced making trailers. He was working at that pursuit when Farrow, who had been for a time in the United States, returned to South Australia. Spatharos was induced by Farrow to become involved with the power-pak concept. Spatharos was excited by its prospects, and was trusting in the apparent enthusiasm of Farrow. Farrow acquired a controlling interest in Spatharos' companies, and thereafter asserted de facto control. Advertisements were placed for investors. Farrow insisted that he receive 50% of the invested funds, in effect, as a commission. Whilst Spatharos concedes that the various representations and forecasts were made as charged, he says that at the time, although there were no reasonable grounds for the forecasts, he had high hopes that they would be fulfilled. There was an overwhelming response from people seeking to invest money. By May 1988, 35 employees were working in the project. Trailers were being produced but the power-pak was still in the developmental stage. Part of the funds received from the investors was spent on wages, rent and other outgoings. The $10,000 which Spatharos received from the Jim Spatharos trust was paid to his mother in part repayment of the debt existing from his earlier involvement with Farrow.
It has been submitted on Spatharos' behalf that he is a young man who came under the spell of Farrow, that he went along blindly with Farrow's proposals, and, in common with the other investors, has himself suffered substantial loss through Farrow's fraud. But the fact remains, that, by his pleas, he admits that by the time the representations and predictions the subject of these proceedings were made, he knew that they were either false or without reasonable foundation. Whilst his earlier involvement with Farrow may excite sympathy for his position, that background can provide no justification for becoming party to Farrow's fraud, however much he hoped that the venture would turn out successfully.
The prosecutor has tendered records of previous convictions on the part of both defendants. The previous convictions include such matters as traffic offences. In the case of Spatharos I consider his previous record to be irrelevant. In the case of Farrow he has a number of convictions for dishonesty, the most significant and recent prior conviction being in February 1977. His past convictions show that he could not expect leniency on account of a previously unblemished character, but otherwise I do not treat them as relevant.
Each defendant asks that their pleas of guilty be taken into account. In appropriate circumstances a plea of guilty may lead to some discount in the penalty: Miller v. Fiona's Clothes Horse of Centrepoint Pty Ltd (1989) ATPR 40-963 at p 50,522. In the case of Spatharos I accept there is an element of contrition in his plea, but whilst Farrow asserts regret that the investors suffered loss, I am forced by the circumstances of the offending to treat that as doubtful. Allowance may also be made for a timely plea on the ground that it operates in the public interest in saving the cost of a lengthy trial. In the present case the pleas of guilty were not entered until very late.
Having regard to the seriousness of the offences, and the dominating role assumed by Farrow I consider an overall monetary penalty should be imposed on him in the sum of $60,000. Having regard to sub.s.79(2) I apportion that fine as to $10,000 to each group of offences and then allocate the amount apportioned between each of the offences forming that group as nearly as may be.
There are considerations in the case of Spatharos which warrant an exercise of mercy in his case. In particular I accept that he is a young man who has been badly led astray by Farrow. So that the burden of the fine and the default period of imprisonment which will attach to it are not ruinous to his prospects of rehabilitation I shall impose a fine which is less than offending of similar seriousness would ordinarily attract. He has established that on his means and ability to pay, it will be difficult for him to meet the fine, but I propose to allow a substantial time for him to re-establish himself in employment so that he has a reasonable opportunity to do so. I consider penalties totalling $7,500 should be imposed on him. This sum will be allocated between his several offences.
I will hear the parties as to the time which should be allowed for payment of the fines. In default of payment of the fines there will be an order that Farrow be imprisoned for a term calculated at the rate of one day's imprisonment for each $25 of the amount of the fines unpaid, and pursuant to sub.s.79A(7) of the TP Act the Court by order will declare that the order for imprisonment shall cease to have effect after Farrow has served an aggregate of three years imprisonment in respect of the fines. In the case of Spatharos there will be an order that in default of payment within the time to be allowed he be imprisoned for a term calculated at the rate of one day's imprisonment for each $25 of the amount of the fines unpaid.
The formal orders of the Court are as set out at the commencement of these reasons.

[1990] FCA 106

19 MARCH 1990