Adams v Australian Securities and Investments Commission

Number of paragraphs: 40

Counsel for the Applicant: P Crutchfield with D Mandie

Solicitor for the Applicant: Logie-Smith Lanyon

Counsel for the Australian Securities and Investments Commission: T Boston

Solicitor for the Australian Securities and Investments Commission: Australian Securities and Investments Commission

IN THE MATTER OF WESTGATE PORTS PTY LIMITED (ACN 096 501 727) AND WESTGATE PORTS SERVICES PTY LIMITED (ACN 106 313 062) LUKE EDWARD DUFFY

1. Pursuant to s 206G of the Corporations Act 2001 (Cth), the Applicant be granted leave to manage Westgate Ports Pty Limited (ACN 096 501 727) and Westgate Ports Services Pty Limited (ACN 106 313 062) (collectively "the Companies") on the condition that: 1. the Applicant not be appointed as a director of, or act as a director of, one or more of the Companies before 11 October 2011; and 2. the Applicant report to the Managing Director of each of the Companies until 11 October 2011.
2. No order as to costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

IN THE MATTER OF WESTGATE PORTS PTY LIMITED (ACN 096 501 727) AND WESTGATE PORTS SERVICES PTY LIMITED (ACN 106 313 062) LUKE EDWARD DUFFY

APPLICATION AND FACTS 1 This is an application by Luke Edward Duffy (the Applicant) under s 206G of the Corporations Act 2001 (Cth) (the Act) for leave to be able to manage the affairs of Westgate Ports Pty Limited (ACN 096 501 727) (Westgate Ports)and Westgate Ports Services Pty Limited (ACN 106 313 062) (Westgate Ports Services), (collectively the Westgate Ports Entities). 2 From October 2002, the Applicant was employed by the National Australia Bank (NAB) as Global Head of Currency Options. The Applicant's duties included "budget and business planning and development, staff management and development for two senior and three junior traders and several ancillary staff … [and] … the client contact for marketing the currency options business and the bank to large institutional clients". 3 In November 2004, the Applicant pleaded guilty to three counts of using his position as an employee at NAB dishonestly under s 184(2)(a) of the Act between 30 September 2003 and 12 January 2004. The counts related to the entry of false foreign exchange transactions to hide losses at NAB's currency options trading desk and the payment of bonuses to the Applicant and his team, paid in part for the falsely reported profits. The Applicant ceased employment with NAB in March 2004. 4 As noted, the Applicant pleaded guilty to the charges. The evidence disclosed that the Applicant pleaded guilty at the earliest opportunity, offered his full cooperation to the prosecution authorities and has shown genuine remorse. The bonus the Applicant received ($129,338) was repaid in full. In an affidavit filed for the purposes of this application, the Applicant states "I took and take full responsibility for my part in [the false reporting], in particular as the senior person involved". The Applicant acknowledges that his offending was serious. 5 On 15 June 2005, the Applicant was sentenced to a term of imprisonment of 29 months and ordered to serve a minimum term of 16 months imprisonment. The factors referred to in paragraph [4] above, inter alia, were taken into account by the sentencing judge in imposing that sentence. Pursuant to s 206B of the Act, the Applicant was automatically disqualified from managing a corporation until five years after the day on which he was released from prison. 6 The Applicant was released from prison under a home detention order on 2 May 2006. The home detention order expired on 10 October 2006. Counsel for the Applicant submitted, and I accept, that for the purposes of this application, the five year period commenced on the date he was released from home detention, 10 October 2006, not the date on which he was released from prison, 2 May 2006. The period of disqualification will expire on 11 October 2011. 7 As a result of the offences, the Applicant had difficulty finding employment in the field of his former employment. The Applicant undertook volunteer work for a period of time before finding employment in November 2004 in the freight and logistics industry as a Customer Service Officer with Magellan Logistics Pty Limited (Magellan). Magellan is owned and operated by Mr David Thatcher. Mr Thatcher agreed to re-employ the Applicant, if a position was available, upon the Applicant's release from prison. 8 In late 2006, Mr Thatcher established a new business known as Tricon Transport (Tricon) and the Applicant was employed as the Operations Coordinator. Magellan was a client of Tricon. In March 2007, Westgate Ports Services acquired Tricon. The Applicant began working for Westgate Ports Services in July 2007. From the outset of the Applicant's employment with Westgate Ports Services, the Applicant informed the Director (Mr Veevers), the Chairman and Owner (Mr Sam J Tarascio) and the General Manager of Operations and Development (Mr Wicks) of his previous convictions and the consequences of his actions. Westgate Ports Services forms part of the Westgate Ports Entities and the Westgate Ports Entities are a part of the Salta Group of companies (Salta Group) of which Mr Sam J Tarascio is the founder. It is of significance that the Applicant has the support of the Boards of the Westgate Ports Entities, the owner and chairman of the Salta Group (Mr Sam J Tarascio) and the retiring Chief Executive Officer (CEO), Mr Haines (Mr Haines). 9 The Applicant submitted, and the affidavit evidence disclosed, that the Applicant has made every effort to remain busy, gainfully employed and productive since his offending and conviction. He has shown every indication of seeking to become again, and remain, a worthwhile and contributing member of the community. At his criminal trial, the Court found the Applicant to be of "impeccable character" with a strong work ethic, having no prior convictions. Affidavit evidence adduced in support of this application was also provided by a longstanding and close family friend, company director Mr Woodend, who stated that the Applicant is and has always been hardworking with a great sense of family responsibility, providing financial assistance to his mother and siblings through difficult times in his early years. Mr Woodend's view is that the Applicant's offending had a significant effect, and that his subsequent co-operation with the authorities and remorse, along with his efforts and achievements in re-establishing himself in a wholly new industry, are a testament to his character. It is also Mr Woodend's view that the Applicant is "ready to become a respectable member of the community again". 10 As noted earlier, the Westgate Ports Entities are part of the Salta Group. Mr Veevers, a director of both companies and of other Salta Group companies, is also a partner in Logie-Smith Lanyon Lawyers. His affidavit evidence explained the structure of the Salta Group and the establishment, growth and current and future projects of the Westgate Ports Entities. In summary, Westgate Ports Services operates the Salta Group's warehousing, transport and logistics activities at its wharf space at Victoria Dock, with plans to expand these operations by rail link to inland ports outside of the inner Melbourne Metropolitan area (Altona and Lyndhurst). Westgate Ports manages the Salta Group's port assets. 11 Initially, the Applicant's duties at Westgate Ports Services centred on operations and he had a limited role. Over time the Applicant became more involved and he became central to the establishment of Westgate Ports Services' logistics business at the site at Victoria Dock. He also, on occasion, reported to the Board on various operational matters. 12 The Applicant reported to Mr Wicks, the General Manager of Operations and Development, who reported to the Board. Mr Haines was appointed CEO in June 2008 and has executive and financial control of the business, with Mr Wicks and the Applicant each reporting to him. 13 In mid 2009, Mr Wicks took leave and the Applicant worked more closely with Mr Haines and Mr Sam J Tarascio, developing at this time a broader understanding of the business as a whole and becoming involved in major projects. According to Mr Haines, the Applicant implemented a system of on-line bookings and tracking and has been important in bringing in new clients and industry contacts. This was a period of significant growth for the business during which time the Applicant was involved in most of the company's major projects including discussion and planning that led to the making of significant contracts, the new rail head at Victoria Dock and planning for the implementation of the inland ports. 14 As of 2009/2010, the Westgate Ports Entities have an annual turnover of $12 million, which is expected to double over the next year. The Salta Group has invested $40 million in the development of the Westgate Ports Entities. At present, Westgate Ports Services employs 35 staff and a similar number of independent contractors. The Westgate Ports Entities' business is expected to become a major focus of the Salta Group's business. 15 Toward the end of 2009, Mr Haines indicated he wished to reduce his working hours to part time, to step out of the day-to-day management of the business, and move toward leaving his executive role completely. Mr Haines is expected to remain as a part time consultant on a short term basis. 16 In the view of Mr Veevers, it is not practical for the Westgate Ports Entities to continue with a part time CEO. Mr Veevers' evidence is that the Applicant is uniquely placed to step into the role of General Manager because he has a detailed knowledge of the freight and logistics industry generally and detailed knowledge of the companies' specialised business and current projects, and because he has been involved in the companies since the beginning. According to Mr Veevers, the Applicant is the most qualified candidate for the position and offers the continuity and expertise required. 17 The evidence also disclosed that the Chairman, Mr Sam J Tarascio, considered appointing an external party to the position of General Manager but that Mr Veevers considers that there is an effective monopoly of management staff by the large competitors in the industry, and identifying another person with the relevant experience would be a difficult task. 18 The Court was told that if the application is successful, it is proposed that, in anticipation of the retirement of Mr Haines, the role of CEO is to be split between the Managing Director and Chairman, Mr Sam J Tarascio, and the Applicant who would report directly to Mr Sam J Tarascio. It is expected that Mr Sam J Tarascio would have an ongoing supervisory role.

LEGAL PRINCIPLES 19 As the Applicant submitted, the principles and relevant factors in considering an application under s 206G of the Act are well established (see generally Adams v Australian Securities and Investments Commission (2003) 46 ACSR 68 at [8]); see also Re Altim Pty Ltd [1968] 2 NSWR 762; Re Ferrari Furniture Co Pty Ltd [1972] 2 NSWLR 790; Re Macquarie Investments Pty Ltd (1975) 1 ACLR 40; Re Maelor Jones Pty Ltd (1975) 1 ACLR 4; Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203; Re Zim Metal Products Pty Ltd (1977) 2 ACLR 553; Re Marsden (1981) 29 SASR 454; Re Australian Limousin Breeders Society Ltd (1989) 7 ACLC 426; Murray v Australian Securities and Investments Commission (1993) 12 ACLC 11; Pace v Australian Securities and Investments Commission (1999) 17 ACLC 1674; Re Seymor [2002] TASSC 85; Chew v National Companies and Securities Commission (No 2) [1985] WAR 337; Borsboom v Australian Securities Commission (unreported, Supreme Court of Western Australia, White J, 17 January 1997). Those principles may be summarised as follows: 1. The Applicant bears the onus of establishing that the Court should make an exception to the legislative policy underlying the prohibition; 2. The legislative policy is one of protecting the public, not one of punishing the offender: Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at [56]; cf Australian Securities and Investments Commission v Vizard (2005) 145 FCR 57 at [35] and Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [41] - [43]; 3. Another objective is to deter others from engaging in conduct of the particular kind in question; 4. The prohibition itself contemplates that there will be hardship to the offender. Therefore, hardship to the offender alone is not a persuasive ground for the granting of leave; 5. The Court in exercising its discretion will have regard to the following factors (Re Magna Alloys 1 ACLR 203 at 205; cited in Re Zim Metal Products 2 ACLR 553 at 555): (i) the nature of the offence; (ii) the Applicant's general character, including conduct prior to and in the period since the offence; (iii) any risks to shareholders, creditors, employees or to the public should the Applicant assume the management position proposed; (iv) any acknowledgement of wrongdoing and co-operation by the Applicant; (v) whether the Applicant's general character is such that he has never before offended, whether he is a valuable and contributing member of the community and whether re-offending is unlikely: see for example, Pace 17 ACLC 1674 at [7]; (vi) the structure of the companies. (The Applicant referred to Jansen v Australian Securities and Investments Commission [2003] FCA 1564, where Mansfield J found the shareholding structure to be of significance in granting leave, as the company had only three shareholders, including the applicant, and the other shareholders were aware of his background and were supportive of his application: in particular at [12] and [14]); (vii) the degree of control which the Applicant would be able to exercise (Re Marsden 29 SASR 454; cited in Pace 17 ACLC 1674 at [23]) and the level of supervision (Pace 17 ACLC 1674 at [29]); and (viii) whether the Applicant has before the Court a specific proposal to take part in the management of a specified corporation or corporations, and whether what is proposed accords with proper commercial standards (see Re Shneider (1996) 71 FCR 69 in which Drummond J stated that the legislative policy of public protection could not be met without a specific and commercially proper proposal before the Court. Re Shneider 71 FCR 69 concerned the predecessor of s 206G of the Act, s 229(3) of the Corporations Law, however the legislative policy and the approach to be adopted would be consistent, particularly as s 206G specifically refers to leave to manage a particular corporation).

NOTICE TO ASIC 20 On 4 February 2010, pursuant to s 206G(2) of the Act (21 days before commencement of proceedings as required), the Australian Securities and Investments Commission (ASIC) was notified of the proposed application. On 11 May 2010, ASIC was notified of a change in the proposed application, to limit the orders sought to exclude leave to act as a director of the Westgate Ports Entities. Despite that notification, it was not until the day preceding the hearing that ASIC informed the Applicant and the Court that it did not oppose leave being granted for the Applicant to manage the Westgate Ports Entities but that the leave should be conditional on the Applicant: 1. not being appointed as a director of the Westgate Ports Entities; 2. having no authority to personally enter or delete or authorise any other employee to enter or delete any transactions in the finance and accounting systems of the Westgate Ports Entities; 3. not being permitted to have sole authority to transfer moneys of the Westgate Ports Entities in excess of $10,000.00 or to authorise any other employee to transfer monies of the Westgate Ports Entities in excess of $10,000.00; 4. not being permitted to receive in his own right any monies or other financial benefits to which the Westgate Ports Entities are entitled or held on trust by the Westgate Ports Entities for any third parties; 5. notifying the Court and ASIC of any changes that are proposed to be made to those he reports to in the Westgate Ports Entities; 6. notifying the Court and ASIC of any changes that are proposed to be made in his role and responsibilities of General Manager; and 7. notifying the Court and ASIC of any proposed changes to the arrangements contemplated above two days before any such changes are made. It will be necessary to return to consider the position of ASIC later in these reasons for decision.

ANALYSIS 21 It is against the legal principles summarised in paragraph [19] above that the present application is to be considered. 22 The Applicant's criminal conduct was serious and conduct from which he personally benefited. He was the person in "charge" of the conduct which was criminal. He managed the team that undertook the criminal conduct. He took steps to ensure that the criminal conduct was not uncovered, including by paying himself a bonus commensurate with the results of the criminal conduct, a bonus to which he was not entitled. 23 For the protection of the public, the Act prohibits the Applicant from managing a corporation for five years. That time has not expired. The prohibition contemplates hardship to the Applicant. That hardship is just one of the consequences of the Applicant's conduct. 24 As noted earlier, the Applicant bears the onus of establishing that the Court should make an exception to that legislative policy underlying prohibition. If granted, the exception would reduce the period of prohibition of five years by some 16 months. That 16 months includes a period of six months of home detention. 25 I have already referred to the evidence as to the Applicant's character both prior to and since the criminal conduct which resulted in a term of imprisonment: see [9] above. I accept that the Applicant's general character is such that he has never before offended, that he is a valuable and contributing member of the community and that re-offending is unlikely. The Applicant acknowledged his criminal conduct and, according to the trial judge at his criminal trial, co-operated with the authorities at the earliest opportunity. 26 What then is the proposal that the Court is asked to consider? 27 The proposal is that the Applicant be appointed the General Manager of the Westgate Ports Entities and that the Applicant report directly to the ultimate owner/controller of the companies, Mr Sam J Tarascio. Mr Sam J Tarascio is also to be the Managing Director. 28 The evidence also discloses that Mr Sam J Tarascio is a "hands on" owner who is involved in all major decisions on a weekly basis. Mr Sam J Tarascio expects the Applicant and other managers to report all strategic operational and financial decisions to the Board. The Applicant submitted, and I accept, that these matters ameliorate at least some of the risks to the public, the companies, their shareholders and creditors. In addition to the direct line of reporting, the Board of Directors is active and involved and all directors are expected to, and do, become involved in the day-to-day running of the business. One of those directors is a lawyer. 29 Moreover, the Westgate Ports Entities are not public companies. On the other hand, they are not small proprietary companies in which the Applicant is a shareholder and director, where abuse of the corporate structure might be at issue. The Applicant is merely a valued employee. However, the fact that the Applicant is merely a valued employee makes the potential hardship to the companies a more difficult consideration in this application. The evidence of the directors and owner of the business as to the Applicant's specific expertise in conducting the company's business is, of course, relevant. As I have said, he clearly is a valued employee. But are the Westgate Ports Entities and its interested parties suffering hardship because the Applicant is prohibited from managing a corporation for another 16 months? Is the Applicant's management role so important to the activities of the Westgate Ports Entities that the Court should make an exception to the legislative policy underlying the prohibition? 30 It is important to assess that question recognising two considerations. First, no employee is indispensable; no employee is irreplaceable. What the Westgate Ports Entities have said about the Applicant must be assessed against that consideration. Secondly, the legislative prohibition is not absolute and inflexible. There can be exceptions. What balance should be struck in the present case? 31 Having regard to the role which the Applicant would be expected to play in the Westgate Ports Entities, and the degree of immediate supervision to which he would be subject to in the performance of that role, I consider that the Applicant should have the leave that is sought. 32 The owners of the companies which he is to manage know full well what the Applicant has done in the past. Despite that, they want the Applicant to manage those companies. Those with whom those companies will deal, under the management of the Applicant, will do so in circumstances where Mr Sam J Tarascio (the man most obviously and publicly associated with the Salta Group and the Westgate Ports Entities in particular) will be, and appear to be, the person ultimately responsible for the commercial probity of the enterprises. So far as the general public is concerned, I consider this is one of those exceptional cases where the balance between application of the general rule of five years exclusion from management and exceptional dispensation from the rule, should be struck in favour of the Applicant.

Conditions? 33 ASIC did not oppose the Court granting the leave sought by the Applicant, even in the absence of the conditions that it sought: see [20] above and by way of example, Searle v Australian Securities and Investments Commission [2006] FCA 208. The conditions sought by ASIC were opposed by the Applicant. Some conditions in a modified form were proposed by the Applicant. It is to the conditions that I now turn. 34 The first condition sought by ASIC (see [20(1)] above), that the Applicant not be appointed a director, was in fact a narrower condition than that proposed by the Applicant. In my view, leave should be granted on the terms proposed by the Applicant, namely that the Applicant not be appointed as a director, or act as a director, of one or more of the Westgate Ports Entities before 11 October 2011. 35 The second condition sought by ASIC (see [20(2)] above) is both unnecessary and unworkable. First, the evidence disclosed that the Applicant was the person who implemented a system of on-line bookings and tracking at the Westgate Ports Entities (see [13] above), an aspect of the finance and accounting systems of the Westgate Ports Entities. The condition sought by ASIC had the real potential to place the Applicant in a more restrictive position that he currently finds himself. That cannot be the intention of the prohibition. Moreover, consistent with that conclusion, I do not regard the conduct the subject of the proposed condition as "managing" a corporation. Secondly, when asked how the condition would practically work, Counsel for ASIC informed the Court that ASIC intended that the Applicant take any documentary material to be entered into or deleted from the finance and accounting systems of the Westgate Ports Entities to the Managing Director, Mr Sam J Tarascio, for him to deal with or authorise someone else to do so. Given the nature of the business, the condition is also unworkable. Given the criminal conduct for which the Applicant went to prison, the nature of the business, the corporate structure and the role to be undertaken by the Applicant, that condition is unnecessary. Finally, despite an opportunity to do so, ASIC did not seek to cross-examine any of the deponents of the affidavits filed in support of the application including the Applicant, Mr Veevers, Mr Sam J Tarascio or Mr Haines, the CEO. That is significant. The Applicant has been employed in his current role by Westgate Ports Services since July 2007, a role which has included the aspects I have just identified. His application is supported by the shareholders, directors and current senior management of the Westgate Port Entities - some of the people available to be cross-examined. In my view, it is unfortunate that ASIC should propose a condition in circumstances where it had not sought before the hearing, and did not seek at the hearing, to enquire about the need for and consequence of such a condition. 36 The third condition sought by ASIC (see [20(3)] above) is also unnecessary. The condition sought was that the Applicant not be permitted to have sole authority to transfer monies or to authorise any other employee to transfer monies. There are a number of matters to be noted. The condition is narrower than the internal controls of the Westgate Ports Entities. The evidence disclosed that any transfer of funds (regardless of amount) requires two signatories. The proposed condition, at the very least by implication, was contrary to those internal controls. 37 The fourth condition sought by ASIC (see [20(4)] above) is unworkable. The condition sought was that the Applicant not be permitted "to receive in his own right any moneys (sic) or other financial benefits" to which the Westgate Ports Entities are entitled or held on trust by those entities for third parties (emphasis added). During the course of argument, I asked Counsel for ASIC what the phrase "in his own right" meant and what practical step or steps ASIC wished to prohibit the Applicant from undertaking. In the end, the explanation was unsatisfactory. As best as I understood it, ASIC wished to prohibit the Applicant from receiving a cheque payable to a Westgate Ports Entity and providing that cheque to the accounts department. I do not regard that conduct as "managing" a corporation. Moreover, ASIC appeared to seek to impose a condition which was likely to place the Applicant in a more restrictive position than he currently finds himself: see [35] above. For those reasons, I refuse to impose such a condition. 38 The fifth, sixth and seventh conditions sought by ASIC may be dealt with shortly. ASIC accepts that those conditions are unnecessary in light of the condition proposed by the Applicant that the Applicant report to the Managing Director of each of the Westgate Ports Entities until 11 October 2011. 39 Before turning to the final orders, I wish to say something about the imposition of conditions in the granting of leave in an application of this nature. There is no doubt that if the Court should make an exception to the legislative policy underlying the prohibition, conditions can be, and are, imposed in granting dispensation from the statutory prohibition. That is to occur in the present case. However, in my view, the conditions must be carefully considered and drafted. For example, the conditions imposed should be directed to addressing the particular circumstances of the application (including the nature of the criminal conduct) (i.e. conditions necessary to protect the public), be workable, be intelligible and be free-standing. That list is not exhaustive. In the end, if dispensation is to be granted, the Applicant, the public and third parties must understand what is required of the Applicant and others. In the present case, I consider that the conditions ultimately proposed by the Applicant achieved those objectives. The conditions sought by ASIC did not. 40 Accordingly, the orders of the Court will be: