This could not have been a reference to the defendants' asserting that they were entitled to payment for past and future services, as that assertion was made vigorously in the correspondence between CTC and the auditors.
48 In my view, it is possible to reconcile the findings that the defendants believed they were entitled to be paid for past and future services, with the findings that they did not bona fide believe that the making of the payments was in the best interests of the company. (No question of reconciling these findings arises in relation to the loans which are the fifth to eighth impugned transactions.) In the case of the payment of retrospective and prospective management fees, I take the findings to be that the defendants did not believe in good faith that in approving, making or allowing the payments, they were acting in the interests of CTC, but they did believe that Kamanga and Bisoya were entitled to be paid, at least morally, for past services, and were entitled to be paid management fees prospectively pursuant to the management agreements.
49 Kamanga and Bisoya had no legal entitlement to be paid further management fees for past services. It is consistent with the defendants believing that Kamanga and Bisoya were morally entitled to be paid additional remuneration for past services that they did not have an honest belief that the making of the payments was in the interests of CTC. There is no conflict between those positions.
50 Had there been no finding by Foster AJ as to whether the defendants perceived themselves to be entitled to payment for past and future services, I may well not have accepted their assertions that they had such beliefs. However, it appears to me that where Foster AJ made findings favourable to the defendants, I should act on such findings. The implicit finding in the last sentence of paragraph [144] is such a finding.
51 I have some difficulty in reconciling the finding of Foster AJ (not disturbed by the Court of Appeal) that the defendants perceived themselves to be entitled to payment for future services, with the finding of the Court of Appeal that the defendants knew that the making of such payments was not in the interests of CTC. Those findings can only be reconciled on the basis that the defendants knew that the entry into the management agreements, pursuant to which the third and fourth payments were made, was not in the interests of CTC. Foster AJ said that the fees paid to related entities were paid without regard to the fact that the $6,000,000 was subject to repayment and carried obligations to pay interest, and that whilst the payments were made to related parties, the defendants did not even consider whether shareholder approval should be sought. No express finding was made that the entry into the management agreements, as distinct from the making of the impugned payments under the management agreements, was not considered by the defendants in good faith to be in the best interests of CTC. I consider that to be a necessary implication from the findings in relation to the impugned payments under those agreements. Considered in this light, there is no inconsistency between the findings of the Court of Appeal and Foster AJ.
52 Foster AJ found in relation to Mrs Endresz that "she did not have any significant grasp of the business affairs of CTC and was very much reliant on her son and husband for any knowledge of the company, its affairs or its relationship with Kamanga or Davis Samuel." (at [133]). Insofar as this finding is of benefit to Mrs Endresz on a penalty hearing, as it mitigates the finding of subjective dishonesty, she is entitled to that benefit.
Were the Loans the Subject of the Fifth to Eighth Transactions Repaid?
53 In the Court of Appeal, McColl JA observed (at [280]-[292]) that the defendants contended that Foster AJ had overlooked what was called undisputed evidence that the loans in transactions five, six, seven and eight were repaid. Her Honour did not accept that there was undisputed evidence to that effect, but found it unnecessary to determine whether the evidence demonstrated that the loans had been repaid. Her Honour said that even if that were the case, it did not affect the conclusions that the loans were made in contravention of the Corporations Law (at [291]). Her Honour said that if the loans had been repaid, that might be relevant to the question of penalty.
54 The $75,000 loan to Bisoya was not repaid. Bisoya did not have the means to repay it. On 1 March 2002, Bisoya produced an "account statement" said to be a reconciliation of monthly account movements between the Forge family trust and CTC. The statement showed that a balance of $93,250.13 was owed by CTC to the Forge family trust as at 1 February 2002 and that further consultancy fees had been incurred of $5,416.67 up to 1 March 2002. The "current account balance" was made up of unpaid management fees payable under the management agreement of 20 April 1998. There were set off against these sums the advance of $75,000 and interest at 7% from 27 October 1998 to 1 March 2002. This showed a balance owed by CTC to the Forge family trust of $6,133.24.
55 Accordingly, the purported repayment of the loan to Bisoya was in truth a set-off of debts. However, it inevitably follows from the finding that the payments of management fees made under the management agreements were made in breach of the directors' statutory duties, that the entry into the management agreements was itself a breach of their duties. The alleged repayment of the loan by way of set-off is not a mitigating circumstance.
56 The defendants also claimed that the loan of $350,000 to Kamanga was repaid. On 4 May 2001, shortly after ASIC commenced proceedings, Kamanga produced an invoice addressed to CTC being a purported reconciliation of account movements between Kamanga and CTC. It showed that as at 27 October 1999, the outstanding principal was $320,000. It is not clear how $30,000 of the loan was repaid, but the financial statements of CTC for the year ended 30 June 1999, signed by the directors on 2 June 2003, disclosed that as at 30 June 1999, CTC had made an unsecured loan of $320,000 to the Allan Endresz family trust (which was said to have been subsequently repaid in full with interest).
57 The accounts were audited, but the audit was heavily qualified. The auditors said they were unable to, and did not express an opinion as to whether the report gave a true and fair view of the company's financial position as at 30 June 1999.
58 Mr Forge and the other defendants were cross-examined upon Kamanga's invoice. However, it was not suggested to them in cross-examination that the loan had not been reduced by $30,000. There was no evidence to show how and when the repayment of $30,000 was made. Whilst the evidence is very slight, I accept that the loan was reduced by $30,000.
59 The invoice of 4 May 2001 set off against the outstanding principal of the loan, and accrued interest from 27 November 1998 to 4 May 2001 of $54,496.44, amounts of $266,583.41 and $125,000. The set-off of $266,853.41 was described as the "current account balance owed by CTC to Kamanga 3rd May 2001." This was a reference to the debt purportedly owed by CTC to Kamanga under the management agreement. For the reasons previously given, such a set-off is not a mitigating circumstance.
60 The set-off of $125,000 was said to be for audit fees paid by Kamanga on behalf of CTC. A letter of 3 May 2001 from Kamanga to Mr Brennan of Ernst & Young recorded that an agreement had been made for Ernst & Young to accept a transfer of shares held by Kamanga in a company called Finngold Resources NL, in satisfaction of outstanding audit fees and in prepayment of audit fees for CTC's financial statements for the years ended 30 June 1998, 1999, 2000 and 2001. ASIC did not contend that no agreement as asserted had been made. It did not contend that Kamanga had not effectively paid audit fees to the value of $125,000. In the absence of other evidence, I accept that such a "payment" was made by Kamanga for the benefit of CTC which can properly be regarded as a partial repayment of the advances. Accordingly, of the loan of $350,000, there were repayments, or transactions which had the same effect as repayments, of $30,000 in 1999 and $125,000 in 2001. Such repayments do not affect the culpability of the defendants in approving, permitting or allowing CTC to make the loans totalling $350,000. However, the repayments are a mitigating factor. CTC did not keep the entirety of the amounts advanced. Nonetheless, there still remained $195,000, and interest, which was unpaid.
61 The third loan transaction, and the last of the eight impugned transactions, was the loan of $150,000 made on or about 13 November 1998. A letter from Kamanga to the directors of CTC dated 15 February 1999 set out what was said to be an "update" as to that loan. The letter was sent by Joszef Endresz. It asserted that two payments, each of $60,000, had been made on 26 November 1998 and 4 February 1998 (presumably a misprint for 4 February 1999). Neither party sought to tender the bank statements of CTC or Kamanga, or the cash books of CTC or Kamanga, either to confirm or deny that the payments had been made. The index to the exhibits which formed part of the appeal books which were used at the penalty hearing include what was described as a copy of Kamanga's cash payments/receipt journal. Whilst it recorded Kamanga's receipts up to 30 June 1999, so far as I could determine from the photocopy, it did not include a record of Kamanga's payments for the relevant periods.
62 The letter of 15 February 1999 also recorded that Kamanga had paid accounts for Michell Sillar McPhee of $8,686.45. It also asserted a set-off of consultancy fees for January and February 1999 totalling $40,833.34.
63 CTC's financial statements for the year ended 30 June 1999 do not disclose any unpaid balance for the loan of $150,000.
64 In the absence of any attempt to rebut the statements in the letter of 15 February 1999, including by tendering either CTC's or Kamanga's cash books or bank statements for the period, I accept that repayments of $120,000 of the $150,000 was made, and, in addition, that Kamanga paid debts of CTC to Michell Sillar McPhee of $8,686.45 which were set off against the loan. The balance of the set-off being for consultancy fees purportedly owed under the management agreements is not a mitigating circumstance.
Compensation Orders
65 ASIC did not seek a compensation order pursuant to s 1317HA(1) of the Corporations Law. Nor did CTC intervene to apply for compensation.
Relevant Principles for Making Banning Orders and Ordering Pecuniary Penalties
66 In Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80, Santow J (as his Honour then was) enunciated fifteen propositions that can be derived from cases dealing with disqualification orders. His Honour said (at [56]):
" [56] The cases on disqualification gave orders ranging from life disqualification to 3 years. The propositions that may be derived from these cases include:
(i) Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards: Australian Securities and Investments Commission v Hutchings (2001) 38 ACSR 387 at 395 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 Australian Securities Commission v Forem-Freeway Enterprises Pty Ltd (1999) 30 ACSR 339 at 349-50 Australian Securities Commission v Donovan (1998) 28 ACSR 583 at 602 Australian Securities Commission v Roussi (1999) 32 ACSR 568 at 570-1 Re Strikers Management Pty Ltd; Australian Securities Commission v Dimitri (unreported, Fed C of A, Burchett J, No NG 3789 of 1996, 7 May 1997, BC9702133) Re Tasmanian Spastics Association; Australian Securities Commission v Nandan (1997) 23 ACSR 743 at 751.
(ii) The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office: Australian Securities Commission v Roussi , above, at 570; Re Gold Coast Holdings Pty Ltd; Australian Securities and Investments Commission v Papotto (2000) 35 ACSR 107 at 112.
(iii) Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors: Australian Securities Commission v Roussi at 570; Re Gold Coast Holdings Pty Ltd , above, at 112; Re Tasmanian Spastics Association , above, at 751.
(iv) The banning order is protective against present and future misuse of the corporate structure: Australian Securities Commission v Donovan , above, at 603.
(v) The order has a motive of personal deterrence, though it is not punitive: Re Magna Alloys & Research Pty Ltd (1975) 1 ACLR 203 at 205; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd , above; Australian Securities Commission v Donovan at 607; Re Tasmanian Spastics Association at 751.
(vi) The objects of general deterrence are also sought to be achieved: Australian Securities Commission v Donovan at 602.
(vii) In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company: Australian Securities Commission v Donovan at 607.
(viii) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty: Australian Securities Commission v Donovan at 605-7.
(ix) In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public: Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd ; Australian Securities and Investments Commission v Parkes (2001) 38 ACSR 355 at 386; Australian Securities Commission v Forem-Freeway Enterprises ; Australian Securities Commission v Roussi at 570-1.
(x) It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct: Australian Securities Commission v Donovan at 607; Australian Securities and Investments Commission v Parkes , above, at 386.
(xi) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming: Australian Securities Commission v Forem-Freeway Enterprises at 351.
(xii) The eight criteria to govern the exercise of the court's powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 have been influential. It was held that in making such an order it is necessary to assess:
• character of the offenders;
• nature of the breaches;
• structure of the companies and the nature of their business;
• interests of shareholders, creditors and employees;
• risks to others from the continuation of offenders as company directors;
• honesty and competence of offenders;
• hardship to offenders and their personal and commercial interests; and
• offenders' appreciation that future breaches could result in future proceedings.
Australian Securities Commission v Roussi at 570-1; Re Gold Coast Holdings Pty Ltd at 111;
(xiii) Factors which lead to the imposition of the longest periods of disqualification (that is disqualifications of 25 years or more) were:
• large financial losses;
• high propensity that defendants may engage in similar activities or conduct;
• activities undertaken in fields in which there was potential to do great financial damage such as in management and financial consultancy;
• lack of contrition or remorse;
• disregard for law and compliance with corporate regulations;
• dishonesty and intent to defraud;
• previous convictions and contraventions for similar activities.
Australian Securities and Investments Commission v Hutchings ; Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd ; Australian Securities Commission v Parkes ;
(xiv) In cases in which the period of disqualification ranged from 7-12 years, the factors evident and which lead to the conclusion that these cases were serious though not "worst cases", included:
• serious incompetence and irresponsibility;
• substantial loss;
• defendants had engaged in deliberate courses of conduct to enrich themselves at others' expense, but with lesser degrees of dishonesty;
• continued, knowing and wilful contraventions of the law and disregard for legal obligations;
• lack of contrition or acceptance of responsibility, but as against that, the prospect that the individual may reform;
Australian Securities Commission v Forem-Freeway Enterprises ; Australian Securities Commission v Donovan ; Australian Securities Commission v Roussi ; Re Strikers Management Pty Ltd ; Re Gold Coast Holdings Pty Ltd .
The difficulty with Roussi's case is that disqualification for 10 years was ordered, as this was the period of disqualification that the ASC had sought. Had a longer period been applied for, Einfeld J may have considered giving a longer period: Australian Securities Commission v Roussi at 571;
(xv) The factors leading to the shortest disqualifications, that is disqualifications for up to 3 years were:
• although the defendants had personally gained from the conduct, they had endeavoured to repay or partially repay the amounts misappropriated;
• the defendants had no immediate or discernible future intention to hold a position as manager of a company;
• in Donovan's case, the respondent had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings;
Australian Securities Commission v Donovan ; Re Tasmanian Spastics Association ."
67 In Rich v Australian Securities and Investments Commission (2004) 220 CLR 129, McHugh J observed (at 155) that:
" … the factors taken into account in the criminal jurisdiction - retribution, deterrence, reformation, contrition and protection of the public - are also central to determining whether an order of disqualification should be made under the Corporations Act and, if so, the appropriate period of disqualification. "
68 McHugh J cited with approval the observations of Bryson J (as his Honour then was) in Re One.Tel Limited (in liq); Australian Securities and Investments Commission v Rich (2003) 44 ACSR 682 that only limited guidance can be obtained from other decisions with respect to disqualification orders and the period for disqualification, because each decision is related to its own facts, which are usually complex, and the circumstances of each defendant are special and vary greatly.
69 In Re HIH Insurance Ltd (in prov liq); ASIC v Adler, Santow J enunciated the following propositions as providing guidance in relation to the imposition of pecuniary penalties. His Honour said (at 114-116, [126]):
"[126] Following a review of the relevant cases, I have attempted to summarise the propositions that may be derived. I recognise that, as with banning orders, there is no simple mechanical process for quantifying the appropriate penalty but some guidance can be derived from the principles and factors that are identified below. I should add that in a context where honesty or propriety of purpose is involved, the sphere of discourse applicable to economic legislation such as antitrust law is wholly distinct from corporations law with its emphasis on proper purpose and honesty; see more generally the discussion by ALRC in "Securing Compliance - Civil and Administrative Penalties in Australian Federal Regulation" discussion paper 65, April 2002 esp Ch 18. These propositions have guided me in the present case:
(i) the pecuniary penalty has a punitive character, but it is principally a personal and general deterrent to prevent the corporate structure from being used in a manner contrary to commercial standards. The penalty should be no greater than is necessary to achieve this object: Australian Securities Commission v Donovan at 608;
(ii) to determine whether compensation is to be paid and in what amount it is necessary to consider the prospect of the respondent paying such compensation and the hardship to the defendant from such payment. Compensation has been ordered for an amount less than that lost even though there was little prospect of any of it being recovered: Australian Securities Commission v Forem-Freeway at 351;
(iii) the capacity of the defendant to pay is a relevant consideration in determining a pecuniary penalty: Australian Securities Commission v Forem-Freeway at 351-2;
(iv) in assessing a pecuniary penalty it is important to consider the consequences of an associated disqualification order for the defendant. If the making of such an order has significant consequences, they may operate as a factor in favour of a lesser penalty. Where the disqualification order does not have significant consequences for the defendant, the prohibition order is likely to be only marginally relevant: Re Tasmanian Spastics Association at 751-2;
(v) it is important to assess whether the order will prejudice the rehabilitation of the defendant: Australian Securities Commission v Forem-Freeway at 352;
(vi) the size of the penalty is a question of discretion. The circumstances of one case should not dictate the size of the penalty on another case: Australian Securities Commission v Donovan at 608;
(vii) in Australian Securities Commission v Forem-Freeway civil compensation of $200,000 was ordered. This amount was lower than the losses to the company concerned. This amount was ordered, even though it was highly unlikely that the amount would ever be paid as the respondent was bankrupt. In this case it was held that precision in the amount was therefore unnecessary: Australian Securities Commission v Forem-Freeway at 351;
(viii) a fine was not ordered in Australian Securities Commission v Forem-Freeway . However the ASC was given liberty to apply at a later stage in relation to this matter. The court held that the personal hardship to the respondent, the unintended punitive consequences of the other orders and the lack of capacity to pay, justified such order: Australian Securities Commission v Forem-Freeway at 351-2;
(ix) Factors leading to the order of a penalty in the range of $20,000-$40,000 included:
• defendant was aware of impropriety of actions;
• no intention to deprive company permanently of funds;
• amounts in question not large;
• no deliberate falsification of accounts;
• cases classed as being serious misconduct, but not worst cases.
Re Tasmanian Spastics Association at 752; Australian Securities Commission v Donovan at 609.
(x) relevant factors leading to the court to order the lower range penalties in the range of $4000-$5000 included:
• remorse and contrition shown;
• efforts to repay misappropriated funds;
• acted upon the advice of professionals;
• did not contest the proceedings, or sought to save costs in proceedings;
• tended to not involve dishonesty, but negligence or carelessness;
• previous unblemished character;
• further contraventions unlikely.
Australian Securities Commission v Donovan at 609; Australian Securities Commission v Spencer (1997) 25 ACSR 143 at 144-5."
70 In deciding whether to make a pecuniary penalty order, and if so, in what amount, I will take into account that a banning order will already operate as a penalty.
71 Section 1317EA of the Corporations Law provided that the section applied if the Court was satisfied that a person "has contravened a civil penalty provision". In the present case, the defendants contravened multiple civil penalty provisions in relation to each transaction. Mr Forge, Joszef Endresz and Mrs Endresz were each found to have contravened four provisions of the Corporations Law in relation to the eight separate transactions. Hence, there were thirty-two contraventions of civil penalty provisions for each of those defendants. Allan Endresz was found to have committed twenty contraventions of the Corporations Law. In my view, the fifth and sixth transactions, being the advances of $250,000 and $100,000 by CTC to Kamanga pursuant to a loan agreement under which CTC agreed to lend $350,000 to Kamanga, should, for the purposes of assessing penalty, be considered as two aspects of the one transaction, namely, the making of a $350,000 loan in two tranches.
72 Subsection 1317EA(3) provides that the Court may, as well as making a declaration of contravention, make against the person concerned "either or both of the following orders in relation to the contravention". The orders provided for are an order prohibiting the person from managing a corporation for a specified period, and an order that the person pay a pecuniary penalty of an amount that does not exceed 2,000 penalty units.
73 In ASIC v Rich, McHugh J emphasised the similarities between the imposition of a disqualification order and sentencing for a criminal conviction (at [48], [56]). In Pearce v R (1998) 194 CLR 610, the majority of the High Court (McHugh, Hayne and Callinan JJ) said that a judge required to pass sentence on an offender convicted of more than one offence, containing separate elements, arising from the same incident, was required to fix an appropriate sentence for each offence, and then consider questions of cumulation or concurrence as well as questions of totality (at [45]). There, an offender broke into a house and beat the victim. He was charged with an offence under s 33 of the Crimes Act 1900 (NSW) of maliciously wounding or inflicting grievous bodily harm with the intent to do grievous bodily harm. He was also charged with an offence under s 110 of the Crimes Act of breaking and entering into a dwelling house, and there inflicting grievous bodily harm. Both offences carried a penalty of penal servitude for twenty-five years. The offender was sentenced to a period of twelve years penal servitude for each offence to be served concurrently. The majority said (at [45]-[49]):
[45] To an offender, the only relevant question may be 'how long', and that may suggest that a sentencing judge or appellate court should have regard only to the total effective sentence that is to be or has been imposed on the offender. Such an approach is likely to mask error. A judge sentencing an offender for more than one offence must fix an appropriate sentence for each offence and then consider questions of cumulation or concurrence, as well, of course, as questions of totality.
[46] Sentencing is not a process that leads to a single correct answer arrived at by some process admitting of mathematical precision. It is, then, all the more important that proper principle be applied throughout the process.
[47] Questions of cumulation and concurrence may well be affected by particular statutory rules. If, in fixing the appropriate sentence for each offence, proper principle is not applied, orders made for cumulation or concurrence will be made on an imperfect foundation.
[48] Further, the need to ensure proper sentencing on each count is reinforced when it is recalled that a failure to do so may give rise to artificial claims of disparity between co-offenders or otherwise distort general sentencing practices in relation to particular offences .
[49] Looked at overall, it may well be said that the effect of the sentences imposed on this appellant was not disproportionate to the criminality of his conduct. Nevertheless, we consider that the individual sentences imposed on counts 9 and 10 were flawed because they doubly punished the appellant for a single act, namely, the infliction of grievous bodily harm. Further, to make the sentences imposed on those two counts wholly concurrent may also be said to reveal error in that to do so failed to take account of the differences in the conduct which were the subject of punishment on each count. …"
74 In these proceedings, neither ASIC nor the defendants addressed the question of the appropriate period for which banning orders should be made by reference to each contravention, nor even by reference to each transaction in respect of which it has been declared the personal defendants contravened four separate civil penalty provisions.
75 In ASIC v Adler, Santow J, when speaking of the principles to be applied to the imposition of pecuniary penalty orders, said (at [130]):
"[130] Following Pearce a judge sentencing an offender for more than one offence must now fix an appropriate sentence for each offence and then consider questions of cumulation or concurrence, as well, of course, as questions of totality. Such an approach is necessary in the High Court's view, to avoid the failure to take account of the differences in the conduct which are the subject of punishment on each count. It also avoids artificial claims of disparity between co-offenders: Pearce v R , above, at 623-5. Clearly the analogy is imperfect here; in particular I cannot replicate cumulation or concurrence in sentencing."
76 Santow J did not explain why the analogy was imperfect, or why principles of cumulation or concurrence in sentencing could not be applied to the imposition of banning orders. The reason may be that there is no express provision enabling periods of disqualification to be served concurrently. I see no reason a banning order could not be made to commence on the expiry of another banning order. Nor does the absence of express provision for concurrent banning orders preclude the articulation of the period for which a banning order would be made in respect of each contravention, even though, to give effect to the principle of concurrence, a banning order for a lesser period to be served concurrently with a banning order for a greater period is not made.
77 The key words in s 1317EA(3) are that the orders are to be made "in relation to the contravention". That requires a specification of the particular contravention in relation to which the civil penalty order is to be made.
78 It has not been the practice for courts to specify separate periods of disqualification for each contravention and then consider whether periods of disqualification should be served concurrently or cumulatively, and to consider whether the totality of periods of disqualification imposed in respect of separate contraventions is adequate or excessive. However, as each contravention has separate elements, and having regard to express words of s 1317EA(3), the principles in Pearce must be applicable (Vines v Australian Securities and Investments Commission (2007) 25 ACLC 867 at 870; (2007) 63 ACSR 505 at 509 [18], [19]).
79 One of the reasons for the insistence on separate considerations of sentence for each offence is to avoid disparity of sentences between co-offenders. That issue arises in the present case where the culpability of each defendant in respect of the contraventions of the different transactions is unequal. Moreover, it has not been declared that Allan Endresz contravened the Corporations Law in the same respects as the other defendants.
80 By s 1317EA(4) the Court may not make a banning order under s 1317EA(3)(a) if it is satisfied that, despite the contravention of a civil penalty provision the person is a fit and proper person to manage a corporation. The auditor, Mr Walsh, gave evidence before Foster AJ. His Honour described Mr Walsh as a reliable and impressive witness. He gave evidence (extracted at para [58] of his Honour's reasons) to the effect that Joszef Endresz conducted himself honestly, albeit against the background of managing a company which he considered to be on the fringe and often pushing the boundaries of the law. He had fewer dealings with Mrs Endresz, but had no reason to question her honesty. He regarded Mr Forge as "making up the numbers" and did not consider that he featured strongly in determining the direction of the company. As to Allan Endresz, Mr Walsh said that he had always had a very strong role in relation to the company's activities and took the role of leader. He said that the auditors had not found Allan Endresz to be dishonest in their dealings with him. This was not an endorsement of his fitness and propriety, as Mr Walsh also said that he regarded the company in which Allan Endresz took a leading role, (notwithstanding his disqualification from managing corporations), as acting on the fringe or pushing the boundaries of the law. He described Allan Endresz as "creative" and prepared to push the boundaries of the law. Foster AJ considered Mr Walsh's views as being possibly over-benign, (at [153]). Having regard to the seriousness of the findings of contravention and the paucity of evidence as to the defendants' fitness and propriety (compare Vines v ASIC at 882-885 [86]-[99]; 522-526 [86]-[99]) I am not so satisfied that any of the personal defendants is a fit and proper person to manage a corporation. No submission was advanced based on s 1317EA(4).
81 As with disqualification orders, an order for the payment of a pecuniary penalty may be made under s 1317EA(3) "in relation to the contravention". "The contravention" is the contravention of a civil penalty provision in respect of which a declaration of contravention was made. In ASIC v Adler, Santow J said (at [130]) that the analogy with Pearce v R was imperfect when it came to making pecuniary penalty orders, because notions of cumulation or concurrence in sentencing could not be replicated.
82 In Environment Protection Authority v Barnes [2006] NSWCCA 246, Kirby J, with whom Mason P and Hoeben J agreed, said (at [50]):
"Where there are multiple offences, each punishable by a custodial sentence, the totality principle may find expression through the complete or partial accumulation of sentences, or through making all or some of the sentences concurrent (cf Pearce v The Queen (1998) 194 CLR 610, per McHugh, Hayne and Callinan JJ at 624 (para 45)). However, there is obviously no room for partial accumulation or concurrence in the case of fines. If the sentencing Judge believed that the totality principle required an adjustment to the fines which may otherwise be appropriate, the amount of each fine had to be altered, applying the sentencing principles suggested in Johnson v The Queen (2004) 205 ALR 346."
83 In Mill v R (1988) 166 CLR 59, the High Court quoted with approval the following description of the totality principle in Thomas, Principles of Sentencing, 2nd ed, 1979, pp 56-57:
"The effect of the totality principle is to require a sentencer who has passed a series of sentences, each properly calculated in relation to the offence for which it is imposed and each properly made consecutive in accordance with the principles governing consecutive sentences, to review the aggregate sentence and consider whether the aggregate is 'just and appropriate'. The principle has been stated many times in various forms: 'when a number of offences are being dealt with and specific punishments in respect of them are being totted up to make a total, it is always necessary for the court to take a last look at the total just to see whether it looks wrong'; 'when … cases of multiplicity of offences come before the court, the court must not content itself by doing the arithmetic and passing the sentence which the arithmetic produces. It must look at the totality of the criminal behaviour and ask itself what is the appropriate sentence for all the offences'."
84 In Rahme v R (1989) 43 A Crim R 81, Finlay J, with whom Studdert J agreed, said (at 87) that:
"… once a determination has been made that a fine should be imposed the correct procedure in assessing the appropriate amount of the fine is to determine it by reference to the gravity of the offence for which it is imposed. If the court is satisfied that the offender would be unable to pay the amount determined it may reduce it to take account of the offender's means and impecuniosity."
85 This passage was approved in EPA v Barnes at [66]. In Australian Securities and Investments Commission v Loiterton (2004) 58 ACSR 693, Bergin J imposed substantial pecuniary penalties amounting to $40,000 notwithstanding the defendant's bankruptcy. However, I do not understand her Honour to have adopted any different principle.
86 Her Honour imposed penalties by reference to categories of conduct, rather than by taking each and every declaration of contravention (at [52]). That is consistent with the approach generally taken in such cases. I respectfully doubt whether such a course is open having regard to the strictures in Pearce v R. However, the Court must consider the totality of the penalties imposed, whether they are just and appropriate having regard to the culpability of the defendant's conduct as a whole, and whether the defendant's conduct was a single piece or course of conduct which contravened different provisions of the Corporations Law, or whether it involved separate acts or courses of conduct which involved what in substance, as well as technically, were multiple breaches of the Law. The same outcome should be reached whether pecuniary penalties are assessed by reference to individual contraventions, or by reference to separate transactions, each of which involved multiple contraventions, or by considering the culpability of the defendant's conduct as a whole.
87 By s 1317EA(5) the Court is not to make an order for the payment of pecuniary penalty unless satisfied that the contravention of the civil penalty provision is serious. The contraventions found are all serious. The defendants made no submission to the contrary. In the present case, I propose to make pecuniary penalty orders in relation only to the most serious of the offences in relation to each of the separate transactions. That is appropriate where the same conduct resulted in four contraventions. That is appropriate even though, if the less serious contraventions stood alone, they would warrant the making of a pecuniary penalty order. In each case, the most serious contraventions are the contraventions of subs 232(2). In imposing pecuniary penalties in respect of the fifth and sixth contraventions, I will take into account that they arose from the single act of causing or permitting CTC to enter into the loan agreement with Kamanga for the loan of $350,000.
Banning Orders to be Made Against Mr Forge
88 All of the defendants gave evidence by affidavit at the penalty hearing and were cross-examined on their affidavits. No objection was taken to any of the affidavits, although counsel for ASIC submitted that where the affidavits were clearly inadmissible, those parts should be given little weight.
89 Mr Forge gave evidence that in about 1994, Bisoya purchased five million shares in CTC. It later exercised options to increase its shareholding to about 14 percent of the company. In 1994, Bisoya was controlled by Mr Forge and his wife. Mr Forge said that he provided his services as a consultant for a fee of about $65,000 per annum. This was the justification for the $260,000 of management fees paid by CTC to Bisoya on or about 20 April 1998 for Mr Forge's services from 1994. Mr Forge also gave evidence that when he accepted the role of managing director in September 1994, he was prepared to take a lesser figure than a figure the shareholders had approved as the remuneration for managing director, which was $75,000. He gave evidence that he was prepared to take a lesser figure on the basis that he was absolutely bound to CTC.
90 For the reasons I have given, it is not open to me to proceed on the basis that Mr Forge honestly believed that it was in the best interests of CTC for him, or Bisoya, to be paid moneys in 1998 on the basis that he was entitled to remuneration at $65,000 per year for the work done from September 1994. In any event, I would not for myself, accept that he had such a belief. The shareholders' resolution to which Mr Forge referred was a resolution in 1986. It was passed when the company was a listed public company. Its activities were very different. Under the Articles of Association, the resolutions in relation to the managing directors' remuneration could only have been operative for a period of five years.
91 Mr Forge deposed, and I accept, that he has not been gainfully employed since legal proceedings were commenced against him in the ACT Supreme Court in 1999. Those were civil proceedings commenced by the Commonwealth in relation to the $6,000,000 paid by the Commonwealth to CTC. Apart from being informed that Mareva injunctions were put in place in February 1999 restraining the disposition of the defendants' assets and the assets of Kamanga, I know nothing of the detail of those proceedings. It is not alleged in the present proceedings that the defendants acted improperly in connection with CTC's obtaining the payment of $6,000,000.
92 Mr Forge gave evidence as to his and Bisoya's financial position. Bisoya was the trustee of a trust known as the WA and LO Forge Trust. Mr Forge deposed that the trust has no assets as its funds had been dissipated in failed business investments and in meeting legal and other expenses. Bisoya owns a one-third interest in a property in Albury where Mr Forge resides. He holds the other two-thirds interest in the property. Apart from that property, neither he nor Bisoya has any assets of substance. He does not own a motor vehicle. He describes the home contents, furniture and effects as being of minimal value of less than $2,000. He has a small credit balance with a building society. That balance is exceeded by his personal debts.
93 Mr Forge was not cross-examined on this evidence as to his financial position, which I accept. Mr Forge gave evidence as to not being in good health. However, that is not material to whether a banning order or a pecuniary penalty should be imposed on him.
94 Mr Forge has proffered an undertaking to the Court not to act as a director of a company at any time in the future. Mr Forge gave evidence that the events which led to the proceedings had been given wide publicity in regional and national newspapers. There was other evidence that the findings by Foster AJ had also been given widespread publicity in the national and local press. Mr Forge said that he was "greatly ashamed and embarrassed by what has been reported and I am greatly saddened by the effect it has had on my family." I accept this evidence. Whilst I take into account the shame and embarrassment which Mr Forge has felt as a result of the declarations which have been made and the attendant publicity of the proceedings, that is a natural and proper consequence of the exposure of Mr Forge's improper conduct. It does not carry significant weight in the determination of a proper penalty.
95 In August 2002, Foster AJ made orders, which were set aside in December 2004, prohibiting Mr Forge from managing a corporation. Mr Forge deposed that since August 2002, he has not acted, nor sought to act, as a director of any company and that he does not wish, nor propose, to act as a director of a company at any time in the future.
96 Mr Forge gave evidence that he had been convicted in Western Australia of certain offences. I was referred by Mr Glissan QC to the report of those proceedings (Clark v R; Forge v R (2004) 50 ACSR 592). Counsel indicated that there was no objection to my having regard to the report of the proceedings in the Court of Criminal Appeal in the Supreme Court of Western Australia. It appears from the report that Mr Forge was convicted on 25 March 2004 of six counts of contravention of subs 232(6) of the Corporations Law in knowingly making improper use of his position as an officer of Hallmark Gold NL by dishonestly and intending to gain certain advantages for other persons. He was sentenced to two and a half years imprisonment. It was ordered that he be released after twelve months upon entering into a recognisance release order in the sum of $10,000. The appeals against conviction and sentence were dismissed. The persons for whom Mr Forge was found to have intended to provide an advantage were Davis Samuel Pty Ltd, Kanowna Lights NL, Kamanga, Quancorp Pty Ltd and CTC.
97 Whilst I have considered the judgment for the purposes of considering its relevance to the penalty proceedings against Mr Forge, (as I was invited to do by senior counsel for the defendants), I do not take it into account in relation to any other defendant.
98 The events which gave rise to Mr Forge's convictions occurred in October 1998.
99 A consequence of Mr Forge's convictions is that he is automatically disqualified from managing a corporation for a period of five years after the day on which he was released from prison (Corporations Act, s 206B). That period of five years runs from 25 March 2005.
100 Mr Forge gave evidence that as at 20 April 1998, he understood that as a director of CTC, he had a duty to act honestly, and to exercise a degree of care and diligence in his position, and not to use his position to gain, either directly or indirectly, an advantage for himself or someone else, or to cause detriment to CTC. He said that he was aware of the related party provisions of the Corporations Law, and was aware that the payments could only be made if they fell within one of the exemptions. He was asked whether he thought that what he did in approving the relevant transactions was wrong. He said that with the benefit of hindsight, he would have gone about the processing of the transactions differently. In particular, he would have first sought the approval of the shareholders, rather than making the payments there and then without their prior approval.
101 The first question is whether any disqualification order should be made against Mr Forge having regard to the facts that: