Background
1 On 28 October 2005, I made the following declarations of contravention pursuant to s.1317E(1) of the Corporations Act 2001 (Cth):
"1. A declaration, pursuant to section 1317E(1) of the Corporations Act 2001 (Cth) ('the Act'), that the Defendant, Malcolm Leslie Edwards, whilst being a director of Murray River Pty Limited ('MRL'), contravened s.588G(2) of the Act, in that he failed to prevent MRL incurring a debt, on 27 April 1999, of $390,000 to Colin Joss & Co Pty Limited ACN 003 538 583 ('CJC'), in circumstances where, at that time, MRL was insolvent, there were reasonable grounds for suspecting that MRL was insolvent, and the Defendant knew that there were reasonable grounds for suspecting that MRL was insolvent.
2. A declaration, pursuant to section 1317E(1) of the Act, that the Defendant, Malcolm Leslie Edwards, whilst being a director of MRL, contravened s.588G(2) of the Act, in that he failed to prevent MRL incurring a debt, on 10 May 1999, of $635,000 to CJC, in circumstances where, at that time, MRL was insolvent, there were reasonable grounds for suspecting that MRL was insolvent, and the Defendant knew that there were reasonable grounds for suspecting that MRL was insolvent.
3. A declaration, pursuant to section 1317E(1) of the Act, that the Defendant, Malcolm Leslie Edwards, whilst being a director of MRL, contravened s.588G(2) of the Act, in that he failed to prevent MRL incurring a debt, on 20 May 1999, of $1,340,000 to CJC, in circumstances where, at that time, MRL was insolvent, there were reasonable grounds for suspecting that MRL was insolvent, and the Defendant knew that there were reasonable grounds for suspecting that MRL was insolvent.
4. A declaration, pursuant to section 1317E(1) of the Act, that the Defendant, Malcolm Leslie Edwards, whilst being a director of MRL, contravened s.588G(2) of the Act, in that he failed to prevent MRL incurring a debt, on 18 June 1999, of $859,370 to CJC, in circumstances where, at that time, MRL was insolvent, there were reasonable grounds for suspecting that MRL was insolvent, and the Defendant knew that there were reasonable grounds for suspecting that MRL was insolvent.
5. A declaration, pursuant to section 1317E(1) of the Act, that the Defendant, Malcolm Leslie Edwards, whilst being a director of MRL, contravened s.588G(2) of the Act, in that he failed to prevent MRL incurring a debt, on 22 July 1999, of $183,889 to CJC, in circumstances where, at that time, MRL was insolvent, there were reasonable grounds for suspecting that MRL was insolvent, and the Defendant knew that there were reasonable grounds for suspecting that MRL was insolvent.
6. A declaration, pursuant to section 1317E(1) of the Act, that the Defendant, Malcolm Leslie Edwards, whilst being a director of MRL, contravened s.588G(2) of the Act, in that he failed to prevent MRL incurring a debt, on 24 September 1999, of $181,772 to CJC, in circumstances where, at that time, MRL was insolvent, there were reasonable grounds for suspecting that MRL was insolvent, and the Defendant knew that there were reasonable grounds for suspecting that MRL was insolvent."
2 The making of the declarations of contravention followed publication of reasons for judgment on 24 August 2005: Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148. There was a subsequent hearing on penalty. In that connection, it is the contention of the plaintiff that the court should, under s.206C(1) of the Corporations Act, make an order disqualifying the defendant from managing corporations for a period considered appropriate by the court. The plaintiff contends that the period should be twelve years or more. The plaintiff does not seek any pecuniary penalty.
3 In addition to the question of penalty, I also have before me a question of exoneration. It is submitted by the defendant that the court should exercise its discretion under s.1317S or s.1318 to relieve the defendant from the liability to which the making of the s.1317E declarations exposes him, including, of course, the liability to suffer a disqualification order of the kind the plaintiff seeks.
4 Mr Gasic of counsel, who appeared for the defendant, made it clear that the application based on ss.1317S and 1318 should be approached by reference to the same evidence as has been put before the court for the purposes of penalty, including character evidence. The general proposition advanced on behalf of the defendant is, as I understand it, that the whole of the evidence adduced on the further hearing before me should be assessed for these purposes and that the court should, on the basis of that evidence, conclude that there are grounds for an order granting relief under s.1317S or s.1318, failing which, the court should be satisfied that no grounds sufficient to warrant an order of disqualification have been shown. While, in some cases, the matter of relief and the matter of penalty might be considered separately, following the making of declarations of contravention under s.1317E(1) (see, for example, Australian Securities and Investments Commission v Vines (2005) 56 ACSR 528), there is no reason why the two should not be considered together particularly where, as here, the defendant has acquiesced in such a course.
5 I adopt in these reasons the abbreviations and labels set out in paragraph [2] of the judgment of 24 August 2005. For that and more general reasons, the two must be read together.
The approach on exoneration
6 Each of s.1317S and s.1318 poses two central questions. The first is whether the defendant "has acted honestly". The second question is whether, having regard to all the circumstances, the person "ought fairly to be excused" for the shortcoming in conduct.
7 Mr Gasic submitted on behalf of the defendant that s.1317S and s.1318 should be approached by reference to considerations made relevant to the discretion of criminal courts to dismiss charges without conviction upon the finding of guilt. He referred to s.10 of the Crimes (Sentencing Procedure) Act 1999 and decisions of the Court of Criminal Appeal on that section. I do not accept that any useful analogy may be drawn from the criminal sphere in this connection. The relevant provision of the Crimes (Sentencing Procedure) Act refers to a number of specific matters, including the inexpediency of other than nominal punishment or the expediency of release on a good behaviour bond, promoting the treatment or rehabilitation of the relevant person, personal factors such as age, health and mental condition, the trivial nature of the offence and extenuating circumstances in which the offence was committed. Neither expressly nor by implication do these matters play any part in the assessment called for by s.1317S and s.1318. The two basic questions to which I have already referred are the determinants of the applicability of those provisions.
8 The first question relevant to exoneration under each provision is whether the defendant acted "honestly". Referring to observations in both Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 and Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80, Austin J, in Australian Securities and Investments Commission v Vines (above), equated honesty, for these purposes, with lack of moral turpitude. Such a meaning of "honestly" may also be gathered from the judgment of Bollen J in R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93 at p.110:
"I think that the word 'honestly' [scil: 'dishonestly'] may comprehend conduct which is not criminal but which is morally wrong in the commercial sense. It comprehends conduct which is not straightforward. Moreover, I think it may comprehend such conduct viewed objectively. The evidence does not prove that Elrington intended to misrepresent or disregard the position to customers or disregard the advice given him by McNamara nor that he intended to profit by failure to make the position clear."
9 The last part of this passage emphasises that dishonesty may exist in the absence of any subjective intention to deceive. And as was observed by Allen J in Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503 at p.506, deception and defrauding are not necessary ingredients of dishonesty. The same view was expressed by Madgwick J in Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339 at p.346 in the following passage which dealt with the meaning of "dishonestly" in circumstances bearing a resemblance to those of this case:
"That Mr Morton did not subjectively intend outright to defraud customers of the company cannot avoid a conclusion that his behaviour in this regard was both unreasonable and dishonest. Any reasonable person in the position of a director of the company in its circumstances must have realised that at any given time its liabilities substantially exceeded its assets and that, by reason of the dishonoured cheques and the practice and/or entrenched fact of excessive delays in meeting customers' orders, the company could only meet its debts as they fell due by falling into default in relation to obligations to customers. That is not an ability to pay debts as they fall due, and any reasonable person would understand this. The extent of what I have called the entrenched fact of excessive delays in meeting customers' needs and the established practice of making unrealistic representations to them about how soon and how reliably they would get their equipment indicates that the boundary between self-deception as to the company's prospects and conscious deception of its customers had been crossed, and crossed at Mr Morton's behest. That was, in the ordinary meaning of the word, dishonest behaviour in relation to the affairs of the company."
10 If a finding of honesty is made, the court must next consider whether the defendant "ought fairly to be excused", having regard, in particular, to enumerated matters. The basic question there is whether the defendant "has acted honourably, fairly, in good faith and in a common sense manner as judged by the standards of others of a similar professional background": Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 at p.295 per Olssen J.
The approach on penalty
11 Authoritative guidance as to the approach the court must take upon an application for a penalty under the civil penalty provisions is to be found in the judgments in Rich v Australian Securities and Investments Commission (2004) 220 CLR 129. The joint judgment of Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ approved (at [38]) the focus in earlier cases "upon why the orders sought should be made and what purposes might be achieved by their making". The nature of the inquiry to be undertaken was elucidated in the judgment of McHugh J (at [43]):
"In exercising their discretion, however, courts which administer the legislation do not concern themselves solely with the issue of whether the defendant now is or in the future will be a fit and proper person to manage corporations. They take into account a wide variety of factors in addition to determining whether any and, if so, what period of disqualification should be imposed. They consider more than the present and future fitness of the defendant to manage corporations. They take into account factors such as the size of any losses suffered by the corporation, its creditors and consumers, legislative objectives of personal and general deterrence, contrition on the part of the defendant, the gravity of the misconduct, the defendant's previous good character, prejudice to the defendant's business interests, personal hardship and the willingness of the defendant to render assistance to statutory authorities and administrators. No doubt some -- maybe all -- of these matters are relevant in determining whether the defendant ought to be disqualified or the period of disqualification that is required in order to protect the public. But in practice courts do not use these matters merely as evidentiary indicators of the time when the defendant will, if ever, be fit to manage corporations. Rather, they become part of a synthesis from which the judges make a value judgment concerning whether to order disqualification and, if so, the period of disqualification that should be imposed. It is not the practice of judges to say: "On the evidence, I find that after (say) five years, the defendant will be sufficiently reformed to make it safe for him or her to manage corporations." This suggests that the disqualification provisions are not purely protective in nature."
12 McHugh J expressly approved a series of fifteen propositions formulated by Santow J in Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (above) at [56]:
"The cases on disqualification gave orders ranging from life disqualification to 3 years. The propositions that may be derived from these cases include: