4.2.2.2 Ms Caddick's conduct
256 ASIC relied on the same categories of conduct the subject of its detailed particulars (see [232] above) to support its contention that Ms Caddick carried on a financial services business.
257 ASIC submitted that there were two broad reasons why it contended that Ms Caddick breached s 911A of the Corporations Act: firstly, because the authorities supported its contention that both the company and its sole director were liable for the same contravening conduct; and secondly, because given the nature of the conduct this is the type of case in which the Court would pierce the corporate veil.
258 As to the first reason ASIC relied on four authorities: Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781 (ASIC v Marco (No 6)), Re McDougall [2006] FCA 427; (2006) 57 ACSR 175, Re PFS Wholesale Mortgage Corporation Pty Ltd [2006] VSC 192; (2006) 57 ACSR 553 and Australian Securities and Investment Commission v Activesuper Pty Ltd (2015) 235 FCR 181. Not much was said about these authorities by ASIC in its submissions. In order to understand their relevance it is convenient to set out a summary of each focussed on those aspects relied on by ASIC.
259 In ASIC v Marco (No 6) ASIC alleged that each of the defendants operated a scheme by which investors executed a declaration of trust with the first defendant, Mr Marco, who guaranteed very attractive returns on maturity of their investment. ASIC alleged that Mr Marco represented that his ability to generate high returns was because of his access to, and participation in, "Private Placement Programmes". The evidence revealed that investors' funds were used by Mr Marco and the second and third defendants, AMS, to purchase real estate and vintage cars. Mr Marco and his son, Damon Marco, were the directors of AMS and Mr Marco was its sole shareholder. By trust deed executed in July 2013, AMS became the trustee of the AMS Holdings Trust and it was in that capacity that AMS was named as third defendant.
260 By the time of the proceeding, work undertaken by interim receivers, who had been earlier appointed on ASIC's application, confirmed that there was a significant shortfall, amounting to hundreds of millions of dollars, owing to investors.
261 Among other things, ASIC sought a declaration that each of the defendants contravened s 911A of the Corporations Act by carrying on a financial services business without holding an AFSL. At [94] McKerracher J found that the evidence demonstrated that all relevant actions were conducted by Mr Marco but that "he was also the guiding mind and will of (and controlled) AMS in both its capacities", that "[t]o the extent actions were performed using AMS, those actions were controlled by Mr Marco" and that "AMS only acted on direction from Mr Marco and at his instance". At [95] his Honour continued:
The defence has called no evidence at all in this final hearing in which relief was sought against all defendants. No conclusion is sensibly open, other than that all actions performed by AMS in both capacities were performed at the relevant times at the instance of, and jointly with, Mr Marco. I consider that the position of the respective defendants cannot be relevantly distinguished. Liability is established against all of them. In light of the following matters and for the same reasons that the defendants all carried on a managed investment scheme, but also by reference to the definition of persons in s 2C of the Acts Interpretation Act, it has been established that the defendants all carried on a financial services business.
262 At [96]-[99] McKerracher J referred to the facts based upon which his Honour found that Mr Marco was dealing in financial products and thus carrying on a financial services business. At [100] his Honour said:
While it may have been the case that the positive acts of 'dealing' in the financial products (whether by issuing or varying them) were performed by Mr Marco in his personal capacity, and while Mr Marco represented to investors that their funds would be used in 'private placement programmes' in which he alone would partake, it is clear that AMS' property holdings formed an essential element of the business as a whole. This is demonstrated by the evidence as to the transfer and application of investor funds, between and by both defendants, as addressed at [74]-[147] of the Gomm Affidavit and evidenced in the primary bank statements exhibited to the Lim Affidavit. While AMS' role in the Scheme may have been completely internal and not 'investor-facing' its operation of the Scheme was central to Mr Marco's ability to deal in the interests created by the Scheme such that it also carried on the financial services business: MyWealth (at [125]) and Australian Securities and Investments Commission v Arafure Equities Pty Ltd (2005) 56 ACSR 429; [2005] QSC 376 (at [30]).
263 In Re McDougall ASIC relevantly sought declarations of contravention of s 911A of the Corporations Act in relation to an unregistered managed investment scheme and injunctions restraining the defendants, Mr McDougall and the company of which he was sole director, BTS Management Pty Ltd, from contravening that provision. The scheme was conducted by BTS under the business name "Chargeitcards", the business name registration for which recorded that both BTS and Mr McDougall carried on business under that name. Mr McDougall and BTS did not oppose the making of the declarations and consented to the orders sought by ASIC.
264 At [39] Young J held that both Mr McDougall and BTS contravened s 911A and thereafter set out his reasons for reaching that conclusion. Relevantly, in relation to Mr McDougall's conduct at [50]-[51] his Honour said:
[50] I consider that McDougall, as the sole director and controller of BTS and as one of the registered owners of the business name Chargeitcards, was also carrying on an unlicensed financial services business in contravention of s 911A(1). Further, and in any event, McDougall was acting as a representative of BTS in offering and promoting memberships in the scheme. As such, McDougall was only exempt from the requirement that he hold an Australian financial services licence if BTS itself held such a licence, and it did not.
[51] Numerous cases have held that s 911A of the Act extends to a company director who conducts or is involved in a company's carrying on of a financial services business without an Australian financial services licence: see Australian Securities and Investments Commission v Giann & Giann Pty Ltd (2005) 141 FCR 278; 23 ACLC 45; [2005] FCA 81; Australian Securities and Investments Commission v Manito Pty Ltd (2005) 53 ACSR 56; [2005] FCA 386; Australian Securities and Investments Commission v Drury Management Pty Ltd [2004] QSC 068.
265 In PFS Wholesale ASIC sought declarations against that a number of the defendants had contravened several provisions of the Corporations Act, injunctions consequent upon such declarations as may be made and orders disqualifying the personal defendants from managing corporations. There were 14 defendants, 11 of whom were companies comprising the PFS group. The twelfth defendant, Mr White, was a director of each of those companies and the remaining two defendants, Mrs White and Mr Tolson, were each a director of one or more of the corporate defendants. The PFS group carried on three businesses: a business of establishing and managing self-managed superannuation funds on behalf of clients; a property development business; and a mortgage and finance broking business. There was substantial inter-relationship between the first two of those businesses as the trustees of self-managed superannuation funds were encouraged to invest superannuation moneys in developments undertaken by the property development business.
266 Commencing at [355] Hargrave J considered whether any of the defendants carried on a financial services business by recommending to potential clients that they establish self-managed superannuation funds or invest in PFS group property developments. His Honour concluded that certain of the defendants engaged in a financial services business in that way. His Honour then turned to consider which of the defendants contravened s 911A of the Corporations Act by carrying on a financial services business without an AFSL. In relation to the personal defendants, after finding that none of them held an AFSL in their own names, at [360] his Honour said:
In my view the evidence establishes that each of the personal defendants carried on a financial services business. Shaun White did so by his overall control of the PFS group. An example of particular recommendations made by him is to be found in the information pack which he prepared and which was distributed to persons interested in establishing SMSFs. In her administrative role, Nicole White was involved, at the very least, in the varying of the superannuation interests of PFS group clients. Tolson admits that he recommended to friends and family that they establish SMSFs. Further, there is no question that he recommended that persons, including Aaron Kendon through his SMSF, invest in redeemable preference shares in Nycam Werd.
267 In Activesuper, among other things, ASIC alleged that the defendants referred to as the "ActiveSuper" defendants, provided financial services when, at the relevant times, none of them held an AFSL covering the provision of those services and those defendants thereby contravened s 911A(1) of the Corporations Act. The "ActiveSuper" defendants were the first defendant, ActiveSuper, the second defendant, a company referred to as Royale, the third defendant, Mr Burrows, who controlled ActiveSuper and exercised considerable control over Royale, and the fourth defendant. Mr Gibson, who carried out many of the day to day activities of Royale: see Activesuper at [3]-[4].
268 In relation to that allegation at [310]-[311] White J said:
[310] ASIC alleges that the ActiveSuper defendants contravened s 911A(1) in the following ways by their conduct with respect to the establishment and variation of SMSFs:
(1) by making recommendations intended to influence persons in making decisions in relation to the acquisition of superannuation interests;
(2) by arranging for persons to acquire, vary and/or dispose of superannuation interests; and
(3) by arranging for persons to acquire, vary and/or dispose of interests in deposit and payment accounts.
[311] Conduct of the kind alleged by ASIC has been recognised as constituting the carrying on of a financial services business. In Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd, Hargrave J held that the following conduct to constitute the carrying on of a financial services business: making recommendations to clients to vary existing superannuation arrangements or to establish SMSFs (at [357]); making recommendations to potential investors that they invest in identified property developments or other specific projects (at [358], [360]); preparing and distributing information packs which encourage potential investors to establish SMSFs (at [360]); and assisting in varying the superannuation arrangements of clients when employed in an administrative role (at [360]).
269 At [321]-[323] his Honour set out the reasons for his conclusion (at [324]) that the individual defendants, Mr Gibson and Mr Burrows, as well as the corporate defendants, ActiveSuper and Royale, had contravened s 911A(1) of the Corporations Act in relation to the self-managed superannuation funds:
321 It is plain that the conduct of Royale's telemarketers, and of Mr Gibson himself, amounted to recommendations intended to influence the recipient of the cold calls in relation to the acquisition of an SMSF. Two SMSF witnesses, Singer and Mewis, were contacted by a Mr Bartlett, one of the telemarketers. Their evidence indicates that Mr Bartlett made recommendations or statements of opinions intended to influence Ms Singer and Mr Mewis to acquire an SMSF.
322 By their respective defences, each of ActiveSuper and Mr Burrows denied having made recommendations intended to influence persons in making a decision to acquire vary and/or dispose of an interest in a SMSF. In his s 19 examination on 23 April 2012, Mr Burrows did however admit:
[O]nce we get the application forms we'll organise the trust deeds to be established and all the relevant minutes. We use a third party provider to provide those. Then once we receive those documents … [we send] a welcome pack out to the client and they need to execute those documents and get them back so that we can have that fund created. So we'll do the registration of the fund and make sure it gets created.
He also referred to the assistance which he and ActiveSuper provided in the establishment of the Macquarie Accounts, in dealing with client enquiries about the "roll over" of funds into the new SMSF, and to the banking by ActiveSuper of the cheques into the Macquarie Accounts.
323 Quite apart from the activities of Mr Burrows himself, I am satisfied, for the reasons given earlier, that the conduct of Royale and Mr Gibson should be attributed to Mr Burrows and ActiveSuper.
270 Against that background, I turn to consider Ms Caddick's conduct.
271 Having regard to the matters set out above, I am of the opinion that all of Maliver's actions were undertaken or performed at the relevant times at the instigation of, and jointly with, Ms Caddick. Further ASIC has established that Ms Caddick (as well as Maliver) carried on a financial services business by providing financial product advice. My reasons for reaching that conclusion include:
(1) Ms Caddick was the sole director and guiding mind of Maliver. She was intimately involved in its day to day operations and, indeed, was the only person at whose instigation it operated and took steps;
(2) at all relevant times Ms Caddick was the person who made representations on behalf of Maliver to investors. To the extent that Ms Caddick relied on her employees, the evidence establishes that any tasks they undertook were administrative in nature and were undertaken on instruction from Ms Caddick. Ms Caddick attended all meetings with clients including initial meetings, annual review meetings and any other discussion that took place concerning investments;
(3) all key correspondence from or on behalf of Maliver was signed by Ms Caddick and, I would infer, prepared by her. In addition Ms Caddick provided the pre-investment documents, including the Maliver FSG which, in turn, nominated her as the "adviser", and worked with prospective clients to understand their respective risk profiles and asset and liability positions. On a monthly basis Ms Caddick despatched, on behalf of Maliver, Portfolio Valuations to investors; and
(4) Ms Caddick advised on and assisted in the establishment of self-managed superannuation funds and their subsequent administration and assisted in the establishment of bank accounts with the CBA through which moneys would be transferred to Maliver. She often advised on and directed the quantum and timing of transfers of funds to Maliver.
272 These matters are borne out by the evidence of the Investor Witnesses which is set out in detail above. The evidence comfortably establishes that Ms Caddick dealt in a financial product by issuing the facility and that she gave financial product advice in relation to the facility and acquiring securities in the manner particularised by ASIC (see [232] above). My findings in relation to each of those breaches, set out at [227]-[271] above, apply equally to Ms Caddick. It is not necessary to repeat them.
273 As to the second reason, ASIC submitted that the Court could comfortably conclude that Maliver was Ms Caddick's alter ego which she used to perpetrate an elaborate fraud. Specifically Maliver was formed by Ms Caddick to disguise a fraudulent Ponzi scheme which she masterminded. ASIC submitted that in those circumstances the corporate veil could not be maintained and the only sensible conclusion is that the positions of Maliver and Ms Caddick could not be relevantly distinguished. ASIC contended that both the creation and use of Maliver was integral to the perpetration of the fraud and the Court would have no hesitation in disregarding Maliver's separate legal personality. ASIC submitted that while each of Maliver and Ms Caddick was carrying on a financial services business that business was in fact a sham and an elaborate façade for Ms Caddick's fraudulent Ponzi scheme.
274 ASIC relied, in particular, on two decisions in support of that proposition. The first was Commissioner for Fair Trading v TLC Consulting Services Pty Ltd [2011] QSC 233. In that case the plaintiff, the Commissioner for Fair Trading, brought an application for an order that the third respondent, Ms Dimitrijevski, be punished for contempt for breach of an order made by the court in April 2003 (April Order) which restrained her from carrying on an "introduction services" business. The central question before the court on that application was whether, notwithstanding that the prohibition in the April Order was not worded to expressly prohibit Ms Dimitrijevski from engaging as a director or shareholder or an employee of a company in carrying on the business of introduction services, Ms Dimitrijevski (either by herself or by her servants or agents) had breached the April Order through the involvement of the company Love Network Qld Pty Ltd. The sole shareholder of Love Network was Southport Central Property Pty Ltd of which Ms Dimitrijevski was the sole shareholder, director and secretary.
275 The Commissioner's primary submission was that the circumstances of the case were an example of where the corporate veil of Love Network could be pierced to show that its incorporation and the conduct of business by it were a sham or device used by Ms Dimitrijevski to avoid the obligations imposed on her by the April Order and to enable her to conduct the business proscribed by that order: TLC Consulting at [31]. Commencing at [34] Philippides J, by reference to the Commissioner's submission, surveyed the authorities (at [34]-[35] and [37]-[40]) including as follows:
[34] The applicant relied on the following statement of principle in Ford's Principles of Corporations Law (at [4.250]), concerning the use of a company structure for the sole or dominant purpose of avoiding an existing legal obligation:
It is acceptable for someone embarking on an enterprise which may attract future obligations and liability to form a limited company to carry on the enterprise. However, the position is different where persons who are already under an existing obligation form or acquire a company to engage in conduct which, if engaged in by those obligors, would be breaches of their obligation, and the avoidance of that obligation is the sole or the dominant intention of the obligors in forming or acquiring the company. If the company engages in the conduct, the Court may ascribe the company's conduct to the obligors.
[35] Reference was made to Gilford Motor Company Ltd v Horne [1933] Ch 935 and Jones v Lipman [1962] 1 WLR 832 as leading cases for lifting the corporate veil in circumstances where there is an attempt to avoid an existing transaction. The use of a sham or device was also considered in Artedomus v del Casale [2006] NSWSC 146, upon which reliance was placed. In that case, the defendant was alleged to have breached, inter alia, the express terms of a covenant and agreement associated both with the termination of his employment and with a sale of shares in a company in which he was interested and requiring him not to compete with the company for a period of three years. The court held that the restraint was not able to be circumvented by the defendant carrying on business through the vehicle of another company as it was found to be a sham. Burchett AJ stated:
[19] The first difficulty confronted by the plaintiff, in so far as it relies upon the agreement by Mr Del Casale "not to compete with the Company for a period of three years", is that the clause does not contain the words usually inserted in such clauses "directly or indirectly", and the importation and sale of stone, which plainly does compete with the plaintiff, has been carried out through the company Stone Arc, not in the name of Mr Del Casale personally. However, it was part of the plaintiff's case that Mr Del Casale's incorporation of Stone Arc was an act done for the very purpose of competing with the plaintiff and that his subsequent attempt to dissociate himself from it under the cloak of a transfer of his interest to Mr Savini, which was not shown, certainly in the period of the establishment of its business, to have been properly documented and formalised, was a mere veil, sham or device. In J.D. Heydon on The Restraint of Trade Doctrine, 2nd edition (1999) at 243-244 it is stated:
But the covenantor cannot evade the covenant by carrying on a business under a title, or by forming a limited company which is a mere veil for the convenantor's own activities, or by using a nominee for this purpose.
[20] A number of authorities are cited in support of this proposition. In Gilford Motor Company Ltd v Horne [1933] 1 Ch 935, as is made clear in the judgment of Farwell J at 937, the case against the defendant company was "put on the ground that the defendant company [was] merely the creature of the first defendant [an individual who had been the managing director of the plaintiff and had entered into a covenant not to entice away customers], and the first defendant is committing breaches of the covenant by the agency of the defendant company". Lord Hanworth MR made it clear (at 956) that he accepted this view of the case, and Romer LJ expressed the same conclusion in the following terms (at 969):
[T]his defendant company was formed and was carrying on business [emphasis added] merely as a cloak or sham for the purpose of enabling the defendant Horne to commit the breach of the covenant that he entered into deliberately with the plaintiffs on the occasion of and as consideration for his employment as managing director.
On that basis, an injunction was granted against both defendants. This view of the law was in accordance with a dictum of Lindley LJ in Smith v Hancock [1894] 2 Ch 377 at 385:
If the evidence admitted of the conclusion that what was being done was a mere cloak or sham, and that in truth the business was being carried on by the wife and Kerr for the Defendant, or by the Defendant through his wife for Kerr, I certainly should not hesitate to draw that conclusion, and to grant the Plaintiff relief accordingly.
… The dictum of Lindley LJ was applied by Beyers J in Scheckter v Kolbe where the respondent, who had given a covenant in restraint of trade upon the sale of his business, was afterwards involved as a manager of a competing company, shares in which were owned by his brother, the respondent having lent the brother money in order to enable him to acquire the shares and given a guarantee to the company's bankers. Beyers J said (at 114), after citing the dictum of Lindly LJ:
I find it difficult to resist the conclusion that the respondent is carrying on the business, through the Company, for his brother. It is submitted on the respondent's behalf that the fact of his being a creditor of the Company does not give him an "interest" in the business. That may be so; but the cumulative effect of the evidence is that the respondent has interested himself in the business to the extent that he may be described as the deus ex machina thereof.
…
[41] But something more needs to be said about the other provision of clause 6 by which Mr Del Casale agreed "not to compete with [Artedomus] for a period of three years". As I have pointed out, this is not expressed to include competition by a company, even if owned or partly owned by Mr Del Casale. Yet, in the modern world, a company may be very much the alter ego of an individual. The principles of construction stated in J D Heydon, op cit, to which I have already referred, would suggest attention should be given to "the object" of the clause, being "protection … against rivalry in trade", and the agreement should be understood as embracing competition by the use of a company. In any case, I have concluded that I should accept the submission of counsel for the plaintiff that the company was used as a mere cloak for Mr Del Casale's activities in conjunction with Mr Savini, so as to attract the application of the dictum of Lindley LJ in Smith v Hancock to which reference has been made. Subsequent events strongly confirm this. There was much evidence that Mr Del Casale, while purporting to act as a contractor contracting independently with Stone Arc, has actually been treated by it as if he were, and has behaved himself as if he were indeed, an important member of its structure. I do not accept the evidence of Messrs Del Casale and Savini to the contrary.
…
[37] The applicant also relied on Kensington International Ltd v Congo [2005] EWHC 2684, where Cooke J in reviewing the authorities on piercing the corporate veil stated:
The Third Parties rightly state that the principles set out in Salomon v A. Salomon & Co Limited [1987] AC 22 are fundamental, requiring the Court to recognise and respect the separate legal personality and a corporate entity. The authorities make it plain that the separate personality of the company cannot be ignored merely because a court considers that it might be just to do so. There are however a number of cases where the courts have thought it right to "pierce the corporate veil," although the meaning of the expression and its out-working differs in the varying contexts of the authorities concerned.
The words or phrases which appear in the authorities where "piercing" has taken place and which are used in the context of justifying the court's view, involve an element of impropriety and dishonesty. This is made plain by Hobhouse LJ in Ord v Bellhaven Pubs Ltd [1998] BCC 607 at p 615F. Transactions or business structures which are a "device" or "stratagem," a "mask" a "cloak" or a "sham" can give way to the court's examination and determination of what lies behind them and the real situation which obtains. The classic definition of a "sham" appears in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (CA). There Diplock LJ said that, if the word had any meaning in law, it meant "acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intended to create" …
The decision of the House of Lords in AG Securities Limited v Vaughan [1990] 1 AC 417 establishes that "sham" does have a meaning in law, namely an attempt to disguise the true character (of the agreement) which it was hoped would deceive the court …
In Re Polly Peck International Plc [1996] 2 AER 443 at page 444 Robert Walker J (as he then was) quoted Staughton LJ in an earlier decision, pointing out that it was better to speak of "substance", "truth", "reality" and that which was "genuine", rather than use the words "disguise, cloak, mask, colourable device, label, form artificial, sham, stratagem and pretence" …
[38] The applicant also referred to the New Zealand decision of Official Assignee as Assignee of the Bankrupt Estate of Armitage v Sanctuary Propvest Ltd [2009] NZHC 1783 where the Official Assignee of a bankrupt estate sought to recover property held by the respondent company on the grounds the company was a sham and alter ego for the bankrupt and it was appropriate to pierce the corporate veil. The court considered evidence that showed the director of the company was the puppet of the bankrupt, doing as the bankrupt instructed, and the company structure was a façade to hide the involvement of the bankrupt, who was in fact controlling the company and carrying out all actions for the company in disregard for company structure. In determining whether the lifting of the corporate veil could be lifted with the result that the person who created the company was to be treated as the owner of the property, Asher J stated at [39]:
I am satisfied that if a company structure has been set up as a façade, lacking in reality a structure involving shareholders and directors, but rather involving control by a single person in order to avoid or disguise legal duties or obligation on that person, that the Court can look behind that structure. This was the sort of sham that was put to one side in Jones v Lipman [1962] 1 WLR 832.
[39] The applicant pointed to similar jurisprudence in the United States (see Ford's Principles of Corporations Law at [4.255]) to the effect that the corporate veil may be lifted "when the notion of a legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime or where it is used to defeat an overriding public policy".
[40] In Ace Property Holdings Pty Ltd v Australian Postal Corp [2010] QCA 55 at [88], Keane JA, with whose reasons Douglas J agreed, expressed the approach of the court in respect of the principles concerning piercing the corporate veil in the following terms:
On occasion the courts have been willing to penetrate the corporate veil when the concept of separate corporate personality is sought to be used to defeat public convenience, or to justify wrong, or to protect fraud, or to defend crime.
276 At [56] Philippides J set out her conclusion. Her Honour observed that the April Order did not prohibit Ms Dimitrijevski from indirect involvement in the business of providing introduction services by being a shareholder in a company that provided such a service. However, her Honour continued as follows:
But it was an entirely different matter to circumvent the prohibition contained in the [April Order] by interposing a corporate structure to disguise and conceal the reality revealed by the affidavit material that the respondent was in fact directly engaged in the operation of the business and was its controlling mind. The respondent interposed a corporate structure, but then proceeded to bypass that structure in involving herself directly in the day to day running of the business. The corporate vehicle was merely a device adopted to conceal that reality. I am satisfied to the requisite standard on the material before the court that the sole purpose of the company [Love Network] was to conceal the respondent's engagement in the conduct which was proscribed by the [April Order] and to evade the legal obligations stemming from the [April Order]. I conclude that the incorporation and the conduct of the business by the company [Love Network] was a sham or device used by the respondent to avoid the obligations of the [April Order].
277 The second authority relied on by ASIC was Trustor AB v Smallbone and Others (No 2) [2001] WLR 1177. In that case the plaintiff, Trustor, claimed as against the first defendant, Mr Smallbone, compensation and damages for breach of trust and/or his duties owed as a director to it and, as against the first to eleventh defendants, damages on the ground that they had knowingly received funds belonging to it which had been unlawfully obtained by Mr Smallbone. The proceeding had a somewhat complicated history. The background to the application that was then before the court was described at [1] as follows:
On 25 June 1999 Rimer J gave summary judgment under RSC Ord 14 for the claimant, Trustor AB, against the first defendant, Mr Smallbone, for £426,439 and interest. At the same time he discussed an appeal of the second defendant, Introcom (International) Ltd ("Introcom"), from the order of Master Bowman giving summary judgment under the same rule in favour of Trustor for Sw Kr 166.7m, £404,100 and Fin Mk 75.5m. On 9 May 2000, on appeal from the orders of Rimer J, the Court of Appeal indicated that, in their view, Mr Smallbone's liability was not limited to the amount of the judgment against him but extended to a joint and several liability for the much larger amount for which Introcom had been found to be liable. They did not then extend the judgment against Mr Smallbone to the larger amount because counsel for Mr Smallbone had not had adequate opportunity to deal with some of the conclusions of the Court of Appeal. This application was made by Trustor on 12 September 2000 seeking judgment for the additional relief the Court of Appeal had suggested.
278 Trustor submitted that the circumstances were such as to warrant the court "piercing the corporate veil" and recognising the receipt of monies by the second defendant, Introcom, as receipt by Mr Smallbone, noting that the authorities justified that course in three, potentially overlapping, categories including, as the first category, where the company was shown to be a façade or sham with no unconnected third party involved. The issue identified by the court for resolution was whether it was entitled to regard receipt of funds by Introcom as receipt by Mr Smallbone. As to the first category at [20] Sir Andrew Morritt V-C said:
I should also refer to some of the cases relief on by counsel for Trustor. In Gilford Motor Co Ltd v Horne [1993] Ch 935 an individual bound by a non-solicitation covenant after the termination of his employment set up in business through a limited company. The individual was held to be in breach of covenant, notwithstanding the interposition of the company, because the company was formed as the device, stratagem or mask to "the effective carrying on of a business of" the individual: see pp 956, 965 and 969. In each of the passages to which I have referred it was made plain that the conclusion was one of fact. In Jones v Lipman [1962] 1 WLR 832 an individual had contracted to sell land. Wishing to avoid his liability he transferred the land to a company he had acquired for the purpose. A decree of specific performance was made against both the individual and the company on two grounds. The first was that the individual had sufficient control of the company to compel it to perform the contract. The second, following the principle applied in Gilford Motor Co Ltd v Horne, was that the company was the creature of the first defendant, "a device and a sham, a mask which he holds before his face in an attempt to avoid recognition in the eye of equity": see [1962] I WLR 832, 836. In Woolfson v Strathclyde Regional Council 1978 (HL) 90, 96 Lord Keith of Kinkel pointed out that it was appropriate to pierce the corporate veil "only where special circumstances exist indicating that [the company] is a mere façade concealing the true facts". This principle was applied by the Court of Appeal in Adams v Cape Industries plc [1990] Ch 433, 542A-B. Adam's case was follows by the Court of Appeal in In re H (Restraint Order: Realisable Property) [1996] 2 All ER 391, which was applied by Rimer J in Gencor ACP Ltd v Dalby [2000] 2 BCLC 34. These authorities plainly establish the first proposition of counsel for Trustor 1 referred to in paragraph 14 above.
279 At [23] his Honour observed that, in his opinion, the court was entitled to "pierce the corporate veil" and to recognise the receipt of the company as that of the individual in control of it if the company was used as a device or façade to conceal the true facts and thereby avoid or conceal any liability of that individual.
280 The question that arises is whether Maliver was a sham used to disguise Ms Caddick's fraudulent scheme.
281 Maliver was established shortly after Ms Caddick established her investment advice business and was controlled by Ms Caddick, its sole director and shareholder. The evidence reveals that the business carried on by Maliver was a scheme designed to entice investors to invest their funds with Maliver which, in turn, would invest in securities on their behalves as advised and effected by Ms Caddick acting for Maliver. The purpose of the investment was to generate returns.
282 With Ms Caddick's assistance, structures and accounts were established by the investor for that purpose. Although she did not always have control, Ms Caddick usually had complete visibility of those structures and accounts and advised on the movement of funds from the accounts to Maliver purportedly for investment purposes. In fact, and despite representations made to the contrary, those moneys were never invested in shares. Ms Caddick, through Maliver, maintained the façade that they were so invested for many years by, among other things, issuing the Portfolio Valuations, which included purported CommSec accounts showing the current value of the portfolio and which inevitably showed growth, providing annual market updates and meeting regularly with investors to discuss their investments. The evidence establishes that the funds provided by investors were not applied to the purchase of share portfolios on their behalves but were transferred to accounts in the name of or associated with Ms Caddick and used to fund her lifestyle and/or, I infer, to repay those investors who redeemed their investments in part or in whole.
283 In my opinion the evidence establishes that Maliver was a vehicle through which Ms Caddick operated and was able to perpetrate a fraud on investors. That is, it was a sham or façade adopted to conceal the reality and was used by Ms Caddick for that purpose. The reality was that the actions of Maliver were carried out at the behest of Ms Caddick and it was Ms Caddick who took all necessary steps, provided the purported advice and ran the scheme described above. In those circumstances, to the extent that it has been established that Maliver was conducting a financial services business without holding an AFSL in contravention of s 911A, it is apparent that, in fact, Ms Caddick was also carrying on that business and doing so without holding an AFSL in contravention of s 911A of the Corporations Act.
284 It follows from the matters set out above that ASIC has established that Ms Caddick contravened s 911A of the Corporations Act by carrying on a financial services business without holding an AFSL with the contravening conduct occurring both prior to, when she operated on her account, and after Maliver's incorporation.