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[2007] NSWSC 1489
Supreme Court of NSW
2007-12-21
White J, Foster AJ
Original judgment source is linked above.
CITATION : Australian Securities and Investments Commission v Forge [2007] NSWSC 1489
CATCHWORDS : CORPORATIONS - Civil penalty orders - multiple declarations of contravention - Application of Pearce v R (1998) 194 CLR 610 to civil penalty orders considered - banning orders prohibiting personal defendants from managing corporations - pecuniary penalties.
Corporations Act 2001 (Cth) LEGISLATION CITED : Corporations Law Crimes Act 1900 (NSW)
Australian Securities and Investments Commission v Forge [2002] NSWSC 760 Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574; 52 ACSR 1; 23 ACLC 1010 Forge & Ors v Australian Securities and Investments Commission [2006] HCA 44; (2006) 229 ALR 223; 80 ALJR 1606; 59 ACSR 1 Forge v Australian Securities and Investments Commission (No. 2) [2007] NSWCA 42 Forge v ASIC [2004] NSWCA 448 R v Pepper [1921] 3 KB 167 R v Martin [1981] 2 NSWLR 640 Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 Marchesi v Barnes [1970] VR 434 Ngurli Ltd v McCann (1953) 90 CLR 425 CASES CITED : Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 Re One.Tel Limited (in liq); Australian Securities and Investments Commission v Rich (2003) 44 ACSR 682 Pearce v R (1998) 194 CLR 610 Vines v Australian Securities and Investments Commission (2007) 25 ACLC 867; (2007) 63 ACSR 505 Environment Protection Authority v Barnes [2006] NSWCCA 246 Mill v R (1988) 166 CLR 59 Thomas, Principles of Sentencing, 2nd ed, 1979 Rahme v R (1989) 43 A Crim R 81 Australian Securities and Investments Commission v Loiterton (2004) 58 ACSR 693 Clark v R; Forge v R (2004) 50 ACSR 592 Briginshaw v Briginshaw (1938) 60 CLR 336
Australian Securities and Investments Commission PARTIES : v William Arthur Forge & 5 Ors
COUNSEL : Plaintiff: D R Stack Defendants: J Glissan QC, M R Ellicott
SOLICITORS : Plaintiff: Solicitor for ASIC Defendants: Ken Cush & Associates
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST
2338/01 Australian Securities and Investments Commission v William Arthur Forge & 5 Ors JUDGMENT 1 HIS HONOUR: This judgment concerns civil penalty orders sought against the defendants following declarations made by Foster AJ on 28 August 2002 that the defendants had contravened certain provisions of the Corporations Law. Foster AJ went on to make orders that the individual defendants be prohibited from managing corporations for specified periods and imposed pecuniary penalties (Australian Securities and Investments Commission v Forge [2002] NSWSC 760). 2 The declarations of contravention were made pursuant to s 1317EA(2) of the Corporations Law. The orders prohibiting the individual defendants from managing corporations and imposing pecuniary penalties were made pursuant to s 1317EA(3) of the Corporations Law. 3 An appeal to the Court of Appeal was partially successful. The appeals against the making of declarations of contravention were dismissed. However, the Court of Appeal held that the defendants had been entitled to a separate hearing on penalty after the outcome of the application for declarations of contravention was known. The Court of Appeal held that the defendants had not been allowed the right to elicit evidence and make submissions on the issue of penalty. The proceedings were remitted to the Equity Division for a separate penalty hearing (Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574; 52 ACSR 1; 23 ACLC 1010 at [410]-[427]). 4 Following the judgment of the Court of Appeal, the defendants instituted separate proceedings in the Supreme Court and in the High Court, and sought special leave to appeal to the High Court. They challenged the validity of Foster AJ's appointment as an acting judge. They challenged the validity of the transitional provisions of the Corporations Act 2001 (Cth), and the Court of Appeal's construction of those provisions. On 5 September 2006, the High Court refused special leave to appeal, upheld demurrers to the defendants' fresh proceedings, and answered the questions as to the validity of Foster AJ's appointment and as to the construction and validity of the transitional provisions of the Corporations Act adversely to the defendants (Forge & Ors v Australian Securities and Investments Commission [2006] HCA 44; (2006) 229 ALR 223; 80 ALJR 1606; 59 ACSR 1). 5 The leading judgment in the Court of Appeal was given by McColl JA, with whom Handley & Santow JJA agreed. In her reasons for judgment, McColl JA recorded that counsel for the defendants (the then appellants) had submitted that a separate penalty hearing should be conducted by a judge different from the primary judge. On 12 October 2006, the defendants filed an interlocutory process seeking orders that the imposition of civil consequences be dealt with by Foster AJ and that if Foster AJ was unable to deal with such contraventions, then the proceedings be stayed until the contraventions were reheard de novo by another judge. On 13 October 2006, that interlocutory process was dismissed. The defendants then accepted that it was not open to a single judge to make the orders sought, because the Court of Appeal had remitted the matter to the Equity Division for hearing on penalty only. On 27 February 2007, the Court of Appeal dismissed an application to vary the orders made on 7 December 2004 to substitute an order for a general rehearing (Forge v Australian Securities and Investments Commission (No. 2) [2007] NSWCA 42). Background 6 There were six defendants to the proceedings. The first defendant, Mr Forge, the second defendant, Mr Joszef Endresz, and the third defendant, Mrs Endresz, were directors of CTC Resources NL ("CTC"). The fourth defendant, Mr Allan Endresz, was held to be an officer of CTC. Allan Endresz is the son of Mr Joszef and Mrs Dawn Endresz. The fifth defendant, Kamanga Holdings Pty Ltd ("Kamanga"), was the trustee of the Allan Endresz family trust. It was wound up and proceedings against it were stayed. After it was wound up, it was removed as trustee of the Endresz family trust. The sixth defendant, Bisoya Pty Ltd ("Bisoya"), was the trustee of the Forge family trust. 7 CTC was formerly called Emu Hill Gold Mines NL. At relevant times, it had about 1,200 shareholders. It was listed on the Australian Stock Exchange on 16 August 1984. It was delisted on 18 December 1990. On 20 December 1990, Joszef Endresz and Allan Endresz were appointed as directors of CTC. A related entity of Joszef and Allan Endresz, CTC Nominees Pty Ltd, held 51 per cent of the issued shares in the company. 8 Mrs Endresz was appointed as a director of CTC in April 1991. On 11 June 2003, Allan Endresz was convicted and fined for offences against subs 124(1) and s 125 of the Securities Industry Code, and of offences against the Company (Acquisition of Shares) Code. As a result of those convictions, he was prohibited for a period of five years from managing a corporation, without the leave of the Court (Corporations Law s 229(3)). The prohibition extended to him being in any way (whether directly or indirectly) concerned in or taking part in the management of a corporation (Corporations Law s 91A(2)). 9 Allan Endresz ceased to be a director of CTC and Kamanga on 11 June 1993. 10 Mr Forge was appointed as a director of CTC on 9 September 1994. At relevant times, he was a director of Bisoya. 11 According to CTC's financial statements for the year ended 30 June 1991, its principal activities during that year were the maintenance of an investment portfolio in the shares of mining and related industries. The same statement of principal activities appears in 1992 and in subsequent years. 12 CTC's financial statements for the year ended 30 June 1997, adopted by a resolution of its directors on 21 January 1998, showed that the company then had a deficiency of assets to liabilities of $1,427,273. This was substantially funded by financial accommodation provided by Kamanga. The audited accounts for that year show that Kamanga was then owed $1,101,657. This debt was secured by a fixed and floating charge over the company's assets. That charge had been registered in 1992. The company had accumulated losses of $9,391,820. The operating losses from 1989 to 1997 are summarised in paragraph [94] of McColl JA's judgment in the Court of Appeal. The Transactions that led to the Declarations of Contravention 13 On 20 April 1998, CTC received $6,000,000 from the Commonwealth of Australia as a subscription for 600,000 shares described as "redeemable convertible non-cumulative 'A' Class preference shares at an issue price of ten dollars each (comprising $0.01 par value and $9.99 premium)." By a letter signed by Joszef Endresz addressed to the Department of Finance and Administration and dated 17 April 1998, CTC stated that the preference shares were issued on terms which included that they were redeemable for $10 cash four years from the date of issue ("the Redemption Date"); that the Redemption Amount would be Capital Guaranteed on the Redemption Date; and that they would each be entitled to an annual non-cumulative preferential dividend of 6.5 per cent paid annually. 14 There was evidence that a meeting of CTC's directors was held on 20 April 1998. A document which purported to be minutes of that meeting was in evidence. Foster AJ said (at [124]) that he was left in some degree of doubt as to whether the meeting was actually held or "whether the minutes were simply constructed to give effect to arrangements otherwise concluded." The minutes record that a resolution was passed (when Mr Joseph Endresz had retired from the meeting) to accept an invoice issued by Kamanga for past management fees totalling $2,205,000, calculated as to $245,000 per annum over nine years. The minute records a resolution that "this represented the enormous management contribution provided by Kamanga over the company's most difficult and turbulent years in its corporate history." The minutes also record a resolution that a Management Retainer be entered into with Kamanga on the basis of a minimum sum of $245,000 per annum, being paid to Kamanga for a period of five years. This was "to ensure that the Company retains Kamanga and its professional staff for such a minimum period". 15 According to the minutes, after these resolutions were passed, Mr Joszef Endresz rejoined the meeting. Mr Forge then retired from the meeting. According to the minutes, a resolution was passed to accept an invoice issued by Bisoya for past management fees totalling $260,000, being fees calculated as to $65,000 per annum over four years. The minutes record a further resolution to execute a Management Retainer with Bisoya on the basis of paying a minimum of $65,000 per annum to Bisoya for a period of five years. 16 Between 1990 and 1997 "management fees" were paid to Kamanga, or to CTC Nominees Pty Ltd, a trustee company of which Joszef and Mrs Endresz were directors. From 1991 the financial statements recorded that the fees were paid for the provision of office services and facilities. The amounts paid were: 1990 - $6,500 1991 - $38,730 1992 - $21,275 1993 - $66,875 1994 - $107,800 1995 - $11,717 1996 - $850 1997 - $1,000
Eight Impugned Transactions 17 Declarations of contravention were made in respect of eight separate payments made by CTC. They were as follows:
" [144] In my opinion, the contraventions are amply demonstrated. In general terms, I am satisfied that the first, second, third and fourth defendants simply regarded the acquisition by CTC of the amount of $6 million on 20 April 1998 as amounting, virtually, to a provision of funds for their own private use. The amounts covered by the transactions were paid out, in the form of fees or loans to related entities, without regard to the fact that the $6 million itself was subject to repayment and also carried with it obligations to pay interest. Despite protestations in the case that shareholder approval was not required because of the attitude of shareholders in the past, I am of the view that the question of shareholder approval was not even considered in relation to any of these payments or loans. All that mattered was their own perceived entitlement to payment for past and future services." 41 McColl JA held (at [248]) that those findings demonstrated that: " the primary judge was clearly of the view that the appellants' approval of the transactions was not bona fide and that the approved the transactions knowing that what they were doing was not in the interests of CTC. " 42 I am bound to determine questions of penalty arising from the contraventions of s 232(2) of the Corporations Act, on the basis of these findings. 43 Before the Court of Appeal, the defendants argued that the breaches of duty found by Foster AJ had been subsequently ratified by the shareholders. That argument was rejected on a number of grounds. One of the grounds upon which it was held that the ratification was ineffective was because the shareholders did not exercise their voting power for the benefit of the company as a whole in the sense referred to in Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 at 438 (at [376]). In reaching this conclusion, McColl JA said: " [371] The primary judge's conclusion that the transactions resulted from the appellants taking advantage of the 'golden opportunity' afforded by the receipt of the $6m was tantamount to a conclusion that they had misappropriated the moneys the subject of the transactions. … [376] In my view the ratification resolutions were ineffective because they sought to cure the appellants' wrongful taking of CTC's resources. Further, the shareholders did not exercise their voting power for the benefit of the company as a whole in the sense referred to in Ngurli Ltd v McCann . The Commonwealth either remained a preference shareholder or was a creditor of CTC if it had validly rescinded the preference share allotment. The shareholders were not asked to take into consideration the interests of the Commonwealth either as a preference shareholder or as a creditor in recouping its $6m . Indeed they were encouraged to focus on the claims CTC had against the Commonwealth. " 44 The reference to the primary judge's conclusion of the defendants having taken advantage of a "golden opportunity" was to Foster AJ's finding extracted at [40] above. 45 The findings at [135] and [144] of Foster AJ's judgment were findings of fact which provided the basis both for his Honour's findings of contravention, and the Court of Appeal's finding that the defendants were subjectively dishonest. In determining penalty, I am bound to proceed on the basis of the findings of fact made by Foster AJ, and by the Court of Appeal's determination that those findings amount to a finding of subjective dishonesty. 46 I do not regard the McColl JA's statement at [371] that Foster AJ's findings were tantamount to a finding of misappropriation of the moneys the subject of the transactions, as going beyond the primary findings of fact made by Foster AJ. 47 In the last sentence of paragraph [144] of his judgment, Foster AJ impliedly accepted that the defendants perceived themselves to be entitled to payment for past and future services. That finding was not disturbed by the Court of Appeal. In upholding Foster AJ's findings in paragraphs [135] and [144], McColl JA observed (at [248]) that: "It is hardly remarkable that his Honour took the view that the appellants' versions of events were 'no more than colourable after-thoughts' particularly in light of the fact that their explanations had not emerged during the stream of the correspondence between CTC and Ernst & Young."
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:
(a) he has not served as a director of a company since a banning order was made by Foster AJ on 28 August 2002;
(b) he is, in any event, disqualified from managing a corporation up to 26 March 2010;
(d) he proffers an undertaking to the Court not to act as a director of any company at any time in the future. 102 The proffered undertaking is in narrower terms than a banning order. A banning order would prohibit Mr Forge from managing a corporation. That expression is defined by s 91A of the Corporations Law. It extends to the person being in any way (whether directly or indirectly) concerned in or taking part in the management of a corporation. However, I understood that the proffered undertakings were intended to extend to managing a corporation in this sense, as well as being a director of a corporation. It was submitted for Mr Forge that the proffered undertaking would fully protect the public. Indeed, unless a disqualification order were made for life, it was said that the public would have greater protection by the acceptance of such an undertaking than it would if a disqualification order were made. That is because the undertaking is proffered as a perpetual undertaking. 103 I do not accept this submission. A disqualification order is protective of the public for the period of disqualification against misconduct by the person disqualified. However, that is not its only purpose. The object of general deterrence is also of great importance. That object is served by the public disapproval of the impugned conduct being marked not only by a declaration that the conduct has contravened the Act, but by an order for disqualification of the contravener from managing a corporation either for a fixed period or for life. The shame or embarrassment which accompanies such an order is not designed as punishment, although it might have that effect, but serves as a general deterrent to others who might be tempted to breach their duties as directors or officers of a company. In my view, the objective of general deterrence would not be sufficiently served by the acceptance of the proffered undertaking. 104 Breach of the proffered undertaking would be punishable as a contempt. Breach of a disqualification order would be both a contempt and a separate offence (Corporations Law s 1317EF; Corporations Act s 206A). 105 Counsel for ASIC submitted that Mr Forge, Joszef Endresz, and Mrs Endresz fell within the mid category of contraveners described by Santow J in ASIC v Adler, that is, persons whose contraventions, those serious, were not the "worst cases" and where periods of disqualification had ranged from between seven to twelve years. 106 In ASIC v Adler, Santow J did not purport to lay down three separate and water-tight categories of case leading to disqualification orders. The three categories of case his Honour identified were those in which disqualification orders had been made either for twenty-five years or more, or for periods between seven and twelve years, or for periods of three years or less. Inevitably, there are cases when the appropriate period of disqualification will fall outside any of those periods: that is, for more than twelve years and up to twenty-five years, and from more than three years and up to seven years. 107 The Court is not bound to impose a disqualification period no longer than that for which ASIC contends. That is particularly so where ASIC has contended that Allan Endresz bore significantly greater responsibility for the contraventions than does any of the other three defendants. It will be necessary to consider that contention when dealing with Allan Endresz. 108 On any view, Mr Forge's contraventions were serious. The findings of contravention are that in approving the payment of $2,205,000 to Kamanga, $75,000 to Bisoya, together with allowing or permitting the payment of management fees after entering into the management fee agreements, and in approving or permitting the payments of unsecured loans, he was conscious that he was not acting in the interests of CTC. He benefited personally from the payments made to Bisoya. I am satisfied on the balance of probabilities, (and having regard to the principles in Briginshaw v Briginshaw (1938) 60 CLR 336), that he approved of the payments to Kamanga, at least partly because payments were to be made to Bisoya. The losses to CTC were substantial. After repayments, they totalled $2,801,666. Bisoya improperly received $325,000, none of which has been repaid. 109 In considering the propensity of Mr Forge to engage in similar conduct in the future, I take into account that his conviction for offences against the Corporations Law in relation to his conduct as a director of Hallmark Gold NL in about October 1998 shows that his contraventions of duty as a director of CTC were not isolated occurrences. 110 Mr Forge has shown some degree of remorse and contrition. However, his evidence that he would do things differently by seeking shareholder approval for the transactions in advance demonstrates that he has not grasped the seriousness of the Court of Appeal's findings. Part of the Court of Appeal's findings were that the shareholders could not ratify the payments because to do so was a fraud on the minority, namely, the Commonwealth as a preference shareholder, or on a creditor (at [376]-[377]). Whilst I accept that Mr Forge suffers some remorse and is contrite, the grounds for those feelings do not demonstrate that he has a proper appreciation, even now, of the duties of a director of a public company. 111 It submitted for Mr Forge (as it was for the other defendants) that a mitigating factor is that the shareholders in CTC ratified the transactions. Ratification resolutions were passed at a meeting of shareholders on 26 June 2003. The Court of Appeal held that the resolutions were ineffective for a number of reasons, including that the shareholders could not ratify the defendants' wrongful taking of CTC's resources; the shareholders did not exercise their voting power for the benefit of the company as a whole in the sense explained in Ngurli v McCann at 438; the resolutions prejudiced the right of a third party, the Commonwealth, in pursuing rights against CTC to recover its $6,000,000; there was no full and frank disclosure to shareholders; the information put forward was an apologia asserting matters which Foster AJ had rejected; and the shareholders were not informed either of CTC's rights against the defendants nor the effect of the ratification resolutions (Forge v ASIC at [362]-[404]). 112 The defendants led evidence before me from a director and shareholder of CTC, Mr Barton, that he was aware of CTC's rights against the defendants and of the effect of the ratification resolutions, and his vote would have been unchanged had further disclosure been made. He gave evidence, without objection, that he believed the defendants had acted in the interests of the company and that the company was disadvantaged by the action taken against them. Mr Barton was an unsatisfactory witness. His views as to the propriety of the defendants' conduct are irrelevant. I do not accept that the ratification resolution of the shareholders, given in the circumstances described by McColl JA at paras [376], [377], [394]-[398] and [401]-[402], is a mitigating factor. 113 Notwithstanding ASIC's submissions, in my view, a banning order of less than twelve years would not sufficiently recognise the seriousness of the contravention and the risk to the public demonstrated by Mr Forge's propensity to engage in such conduct as evidenced by his conviction for offences in relation to the affairs of Hallmark Gold NL. 114 I am conscious that Foster AJ made a banning order against Mr Forge for a period of eight years. His Honour made that order after he had the benefit of seeing Mr Forge give evidence at the hearing in 2002. However, as his Honour's orders were set aside, it cannot be suggested that I am limited by the banning orders and pecuniary penalty orders which his Honour imposed. I must also take into account Mr Forge's convictions of offences in relation to Hallmark Gold NL, which did not occur until after the hearing before Foster AJ. Further, although Foster AJ made findings which the Court of Appeal held amounted to findings of subjective dishonesty, the basis upon which Foster AJ held that the defendants had contravened subs 232(2) of the Corporations Law, was that they had not acted as honest men and women in their position would have acted. The Court of Appeal went further, and held that the defendants were conscious that they were not acting in the interests of CTC. The way in which Foster AJ determined that the most serious of the offences, namely, the contravention of subs 232(2) had occurred, may well have influenced his Honour's assessment of the appropriate penalty. 115 Mr Forge is entitled to credit in respect of the period of disqualification imposed from 28 August 2002 until he became disqualified by reason of his conviction of offences in relation to Hallmark Gold NL from managing corporations. Those convictions were pronounced on 25 March 2004. I also consider that he is entitled to credit for the period from the date of conviction up to the date of this judgment, where he has not acted as a director or managed corporations. It is true that he was prohibited from doing so by s 206B of the Corporations Act but I also accept that irrespective of that conviction he would not have sought to act as a director or to have managed a company following Foster AJ's declarations of contravention. The unlimited undertaking he proffered corroborates that that was his intention. 116 In my view, the appropriate banning order in respect of Mr Forge's contravention of s 232(2) of the Corporations Law, through failing to act honestly as a director, in relation to the payment of $2,205,000 from CTC to Kamanga for past management services, is a period of twelve years. The appropriate banning order for his contravention of s 232(4) of the Corporations Law in relation to that transaction, (that is, failure to exercise the required degree of care and diligence), is a period of six years. The appropriate banning order for his contravention of s 232(6) in relation to that transaction (making improper use of his position as a director of CTC to gain an advantage for Kamanga or to cause detriment to CTC) is a period of eight years. The appropriate period for his contravention of s 243ZE(3) in relation to that transaction (by being involved in, or being recklessly concerned in a contravention of s 243H(1), namely, the giving by CTC of a financial benefit to a related party) is a period of nine years. However, as each contravention relates to the same conduct, albeit that the contraventions have different elements, the periods in relation to this transaction should be served concurrently. 117 Mr Forge's contravention of s 232(2) of the Corporations Law in relation to the second transaction was more serious in some respects and less serious in others than his contravention of that section in relation to the first transaction. It was more serious in that he personally benefited from the payment of $250,000. It was less serious in that the sum involved was substantially smaller than in the first transaction. In considering his culpability in relation to the first transaction, I have taken into account that the defendants' decision to pay retrospective management fees to Kamanga and Bisoya was part of the same course of conduct, albeit that it led to two payments which have been characterised as two transactions and findings of eight separate contraventions. The decisions to pay past and future management fees to Kamanga and Bisoya were linked, notwithstanding that (according to the minutes) Joszef Endresz absented himself whilst his wife and Mr Forge resolved to accept an invoice from Kamanga in respect of past management services and to enter into a management agreement with Kamanga in respect of future years, and that like resolutions were passed by Joszef Endresz and Mrs Endresz in Mr Forge's absence in relation to Bisoya. In my view, the same periods of disqualification are appropriate in respect of the declared contraventions of s 232(2), 232(4), 232(6), and 243ZE(3) in respect of the second transaction as the first, with those periods to be served concurrently with the periods of disqualification to be ordered in respect of the first transaction. 118 For the reasons in paras [48]-[51] there is a close linkage between the defendants' culpability in respect of the third and fourth transactions and the first and second transactions. The sums involved were substantially less than in respect of the first two transactions. The Court of Appeal held (at para [299]) that Foster AJ accepted Mr Walsh's statement that he had never received evidence which established that the fees provided for in the management agreements were validly incurred or commercial. The same periods of disqualification should apply in relation to each of the third and fourth transactions. In respect of each contravention of subsection 232(2) in relation to the payment of $40,833.34 to Kamanga and $10,833.34 to Bisoya made on or about 28 May 1998, Mr Forge should be disqualified from managing corporations for a period of four years. In respect of each contravention of s 232(4) in relation to those payments, he should be disqualified for a period of two years. In relation to each contravention of s 232(6) in relation to those payments, he should be disqualified for a period of two years and nine months. In relation to each contravention of s 243ZE(3) in relation to those payments, he should be disqualified for a period of three years. Those periods should be served concurrently and should also be served concurrently with the periods of disqualification in respect of the first and second transactions. 119 I consider next the three loans to Kamanga (being the fifth, sixth and eight transactions) and the loan to Bisoya (the seventh transaction). As previously noted, the two payments constituting the fifth and sixth transactions concerned a single loan paid in two instalments. I have found that Mr Forge and the other defendants are entitled to the benefit of mitigation in that $155,000 of the $350,000 loan (the fifth and sixth transactions) was repaid, and all but $128,686.45 of the $155,000 loan (constituting the eighth transaction) was repaid. 120 Mr Forge attended a directors' meeting of CTC on 27 October 1998 at which Joszef Endresz and Mrs Endresz were present. As with the meeting of 20 April 1998, according to the minutes, Joszef Endresz absented himself when the other directors resolved to confirm a loan agreement signed by Joszef Endresz on behalf of Kamanga on 27 October 1998 confirming acceptance from CTC of an unsecured loan of $350,000. Mr Forge was also present at the meeting of 13 November 1998 where a similar resolution was passed in the same way in connection with the loan of $150,000. Mr Forge gave evidence on affidavit before Foster AJ in relation to these transactions (as well as the other transactions). He deposed that he gave "due consideration" to various matters in deciding to cause CTC to enter into the loans. The affidavit was in a common form with other affidavits relied on by the defendants before Foster AJ and it is clear that the evidence given in those affidavits was not accepted by Foster AJ, nor the Court of Appeal. The minutes of directors' meetings of CTC suggest that separate meetings were held on 27 October 1998 to approve the loan agreements for the advance of $350,000 to Kamanga and $75,000 to Bisoya. According to the minutes, the meeting approving the loan to Bisoya took place at 10am on that day and the meeting to approve the loan to Kamanga took place at 2pm. Nonetheless, I infer that the transactions were again linked. In assessing culpability for each of the loans of the fifth, sixth and seventh transactions, I should take account that when the loan to Bisoya was approved the directors anticipated that the loan to Kamanga would also be approved, if indeed it had not already been so approved. Likewise, when the loan to Kamanga was approved it was done in the knowledge that the loan was to be made to Bisoya. 121 There were no detailed findings either by Foster AJ or the Court of Appeal as to Mr Forge's role in relation to the loans. However, Foster AJ held that in making the loans, all of the first to fourth defendants regarded the moneys received from the Commonwealth as funds available for their private use, and the loans were made without regard to the fact that the $6,000,000 received was subject to repayment and carried obligations to pay interest. His Honour also held (in findings that were upheld in the Court of Appeal) that the directors did not consider the question of obtaining shareholder approval. The implicit finding that the defendants perceived that Kamanga and Bisoya were entitled to be paid for past and future services is not relevant to the making of the unsecured loans. Accordingly, there are strong findings of dishonesty in connection with the loan transactions.
Mr Forge gave evidence that when the directors of CTC resolved to make the loan of $350,000 to Kamanga, he had no idea at the time what it wanted the money for. It was sufficient for his purposes that he was satisfied that the consultancy agreement was in place and he believed that this guaranteed that the loan would be repaid. He regarded the commitment of CTC to Kamanga under the consultancy agreement as greatly exceeding the amount of the loan. The findings of contravention of s 232(4) of the Corporations Law would indicate that even if this evidence were accepted, Mr Forge did not exercise the required degree of care and diligence. Given the finding of dishonesty, and particularly the finding in the Court of Appeal of subjective dishonesty, it may be taken that the evidence was not accepted, although it was not specifically addressed in the Court of Appeal's reasons. Nonetheless, it indicates a close connection between the consultancy agreement and the loans. 122 Having regard to the partial repayment of the $350,000 loan (transactions five and six) and the $150,000 loan (transaction eight) but having regard also to Mr Forge's personal interest in the transactions through their being linked to the making of a loan to Bisoya, and having regard to the findings of subjective dishonesty, a substantial period of disqualification is called for in respect of the loans made to Kamanga. In relation to each contravention of s 232(2) of the Corporations Law in relation to the payments of $250,000 and $100,000 made on 28 and 30 October 1998 to Kamanga, I consider that Mr Forge should be disqualified from managing a corporation for a period of eight years, those periods to be served concurrently. For the contravention of s 232(4) of the Corporations Law in relation to both transactions, he should be disqualified for a period of four years to be served concurrently and concurrently with the period of disqualification for contravention of s 232(2). In respect of the contravention of s 232(6), he should be disqualified for a period of six years, such periods to be served concurrently and concurrently with the disqualification for contravention of s 232(2). For the contravention of s 243ZE(3) he should be disqualified for a period of seven years, such periods to be served concurrently and concurrently with the periods of disqualification for contravention of s 232(2). 123 Having taken into account in assessing Mr Forge's culpability in relation to the loan of $350,000 to Kamanga that he knew Bisoya was to receive a loan of $75,000, no additional period of disqualification should be ordered in respect of the seventh transaction. For each of the contraventions of s 232(2), 232(4), 232(6), and 243ZE(3) in relation to the seventh transaction, Mr Forge should be disqualified from managing a corporation for the same periods as the periods of disqualification for the contraventions of the same provisions in respect of the fifth and sixth transactions. The period of disqualification for the contraventions in relation to the seventh transaction should also be served concurrently with the period of disqualification for contraventions in relation to the fifth and sixth transactions. 124 The same considerations of subjective culpability apply to the eighth transaction. The damage suffered by CTC is less in relation to this transaction because of the substantial repayment made. However, that does not affect Mr Forge's culpability. It is not suggested that he was in any way responsible for the repayment. In my view, the same periods of disqualification apply in relation to each contravention in relation to the eighth transaction, and that the period of disqualification should be served concurrently with the period of disqualification for the fifth, sixth and seventh transactions. 125 The question then is whether the periods of disqualification in relation to the fifth to eighth transactions should be served cumulatively or concurrently with the period of disqualification for the first to fourth transactions, or whether they should be partly cumulative and partly concurrent. It is also necessary to consider the "totality principle". There are obvious differences in the conduct concerning the payment of management fees and loans. The transactions took place at different times, concern substantially different amounts, and were different in substance. However, the findings made by Foster AJ which the Court of Appeal held amounted to findings of subjective dishonesty, were that the first to fourth defendants regarded the $6,000,000 received by CTC as amounting virtually to a provisions of funds for their private use. So regarded, it would be of little moment whether the payments were characterised as management fees or loans, except that the payment by way of loan carried an obligation of repayment. Hence, the culpability in relation to the making of the loans was less than in relation to the payment of management fees. 126 Given that no separate findings were made in relation to the defendant's dishonest purpose in the different transactions, given the close connection between the transactions, and having regard to the totality principle, I consider that the period of disqualification in respect of the loan transactions (transactions five to eight) should be served concurrently, and not cumulatively or partly cumulatively, with the period of disqualification for the first to fourth transactions. 127 It follows that it is only necessary to make a disqualification order in respect of the contravention of s 232(2) which was the subject of the declarations in relation to the first and second transactions. In respect of those contraventions, I will order that the first defendant be prohibited from managing a corporation for a period of twelve years from 28 August 2002. That period will expire at midnight on 27 August 2014. Pecuniary Penalty Orders Against Mr Forge 128 In assessing an appropriate amount of the penalty in the case of Mr Forge, I do take into account that his only available assets with which to pay penalties is his house, which is partly owned by Bisoya. 129 In relation to the contravention of s 232(2) of the Corporations Law by approving, permitting or allowing CTC to pay $2,205,000 to Kamanga on or about 20 April 1998, the appropriate pecuniary penalty, having regard to his resources and to the banning order made, is $75,000. 130 In relation to Mr Forge's contravention of subs 232(2) of the Corporations Law by approving, permitting or allowing CTC to pay $260,000 to Bisoya, the appropriate pecuniary penalty is $60,000. 131 In relation to Mr Forge's contravention of subs 232(2) of the Corporations Law by approving, permitting or allowing CTC to pay $40,833.34 to Kamanga on or about 28 May 1998, the appropriate penalty is $5,000. 132 In relation to the contravention of subs 232(2) of the Corporations Law in relation to Mr Forge's approving, permitting or allowing CTC to pay Bisoya $10,833.34 on or about 28 May 1998, the appropriate penalty is $5,000. 133 In relation to the contravention of subs 232(2) of the Corporations Law by Mr Forge's approving, permitting or allowing CTC to pay $250,000 to Kamanga on or about 28 October 1998, the appropriate pecuniary penalty is $10,000. 134 In relation to the contravention of subs 232(2) of the Corporations Law by Mr Forge's approving, permitting or allowing CTC to pay $100,000 to Kamanga, the appropriate pecuniary penalty is $10,000. 135 In relation to the contravention of subs 232(2) of the Corporations Law by Mr Forge's approving, permitting or allowing CTC to pay $75,000 to Bisoya, the appropriate penalty is $20,000. 136 In relation to the contravention of subs 232(2) of the Corporations Law by Mr Forge's approving, permitting or allowing CTC to pay $150,000 to Kamanga on or about 13 November 1998, which was substantially repaid, the appropriate penalty is $2,000. 137 The total of these penalties is $187,000. In deciding that those amounts are appropriate penalties in relation to each such contravention, I have taken into account Mr Forge's limited means. Nonetheless, I consider a further reduction of pecuniary penalties is warranted having regard to the totality principle, and taking into account the connection between the various contraventions. I consider the total penalties of $187,000 should be reduced to $140,000. That will be a significant punishment. The pecuniary penalty for the contravention s 232(2) in relation to the first transaction will be reduced by $15,000. The penalty for the second will be reduced by $10,000. The penalty for the third and fourth will be reduced by $4,000 each. The penalty for the fifth and sixth will be reduced by $4,000 each. The penalty for the seventh will be reduced by $5,000. The penalty for the eighth will be reduced by $1,000.
Banning Orders Against Joszef Endresz 138 Joszef Endresz gave evidence before me that in 1982 he joined his son, Allan, in a company called Corporate Trading Co Pty Ltd which was involved in share trading and corporate advisory services. It was through this association he became involved with CTC and was appointed a director in December 1989. Since the order of Foster AJ on 28 August 2002, Joszef Endresz has not sought to, nor acted as, a director or officer of any proprietary or public company. He gave evidence that he had no intention of being involved in the management or affairs of any company. 139 Joszef Endresz gave evidence that at the time he engaged in the conduct which was found to have contravened the Corporations Law, he believed he was acting in good faith. He accepted that that belief was contrary to the view of Foster AJ. In oral evidence, Joszef Endresz said that he believed that Kamanga was entitled to be paid its management fee of approximately $2,200,000. He said that he had to accept the Court's decision because he was not a lawyer, but he did not consider he had done anything wrong. 140 Whilst Joszef Endresz understands that directors have a duty to be honest, to exercise the care and diligence expected of someone in their position, and to act in the interests of the company and not in the interests of third parties, including directors, I do not accept that he properly appreciates how those duties should be carried out. Had he a proper understanding of a director's duties, he could not fail to see that he had acted improperly. 141 Joszef Endresz gave evidence before Foster AJ that he drafted the consultancy agreement with his son Allan. He discussed with his son that as soon as there was sufficient money in CTC's bank account, Kamanga would be paid for both past and future services. He gave evidence that he determined by himself the figure of $65,000 a year as the moneys to be paid to Bisoya. He said he arranged for the loans to Kamanga because Kamanga needed some short-term working capital. He gave evidence of approving a request by Mr Forge for a personal loan. He said that he did not ask Mr Forge why he wanted the loan but was told it was for personal reasons and so he agreed to pay Mr Forge the money by way of loan from CTC. He said that the management contract in place with Bisoya gave him the security for recovery of the loan. Of course, that assumes the validity of the agreement, and that Bisoya would perform its obligations under the agreement and be entitled to continued payments. 142 Joszef Endresz also gave evidence that the widespread adverse publicity attaching to the proceedings had been stressful and upsetting and had caused him deep distress. As with Mr Forge, I do not regard that as being a mitigating factor to be taken into account in the making of a banning order or the imposition of pecuniary penalties. 143 Joszef Endresz gave evidence that he received financial support from his family and business associates. He said that he did not maintain a bank account, nor a building society account and had no credit cards. He said his other assets comprised clothing and some furniture and effects. His wife owns the family home. 144 Kamanga had been the trustee of an Endresz family trust. It had been replaced as trustee but the trust still exists. He was asked whether the trust was a very valuable trust. Initially he agreed but then retracted that agreement. When asked whether it had "a lot of assets" he answered by saying "well, whatever it has got". Later in his evidence, he asserted that the trust did not have any assets. 145 There was no evidence as to what became of the sums Kamanga received from CTC. Even if the repayments referred to earlier in these reasons were made from the moneys paid to Kamanga by CTC, there is no explanation as to what became of more than $2,200,000 that Kamanaga received. In his evidence of August 2002, Joszef Endresz asserted that all of the moneys could readily be repaid from the assets of the trust. He then said that Kamanga was capable of repaying all of the moneys drawn "at any time we want". He said he personally could repay the Bisoya loan if Mr Forge did not procure its payment. 146 There was no explanation as to why, following the findings of breach of duty made by Foster AJ, the moneys were not repaid. None of Joszef Endresz, Allan Endresz or Mrs Endresz has tried to make amends. Their very qualified expressions of contrition carry no weight when set against their failure to attempt to make amends, and their failure to provide any explanation as to what happened to the moneys Kamanga received. I do not accept their evidence in relation to the assets of the trusts as being in any way reliable. No financial statements were produced. The position is that the Court does not know what is the financial positions of the trusts because Joszef Endresz, Allan Endresz and Mrs Endresz chose not to put any verifiable material before the Court about that. 147 I consider that Joszef Endresz's culpability in relation to the payment of $2,205,000 to Kamanga to be greater than the culpability of Mr Forge. He stood personally to gain from that transaction, whereas Mr Forge stood to make a much smaller gain from the payment to be made to Bisoya. Although the evidence was not very clear, and was coloured by self-interest, Joszef Endresz was more actively involved in the transaction than was Mr Forge. He gave evidence that he drafted the consultancy agreement with his son Allan and inserted into the document the amount he thought was appropriate for Kamanga's services, being $245,000 per year. He arranged for the invoice to be drafted. He also came to the figure of $65,000 per year to be paid to Bisoya by himself, that is, without input from Mr Forge. He said that he was not interested in whether Mr Forge was happy with the figure of $65,000 per year or not but "he takes it or leaves it". 148 Joszef Endresz is 69 years old. He also proffered an undertaking to the same effect as that proffered by Mr Forge. As with Mr Forge, I accept that he does not intend to take part in the management of a company in the future. But for the same reasons as I gave with respect to Mr Forge, the interests of general deterrence require the making of a banning order for a period which reflects the seriousness of the contraventions. 149 I consider that the appropriate period for which Joszef Endresz should be prohibited from managing a corporation in relation to the contravention of s 232(2) of the Corporations Act in respect of the first transaction is a period of fourteen years. Because he has not sought to act as a director or to manage a corporation since declarations were made by Foster AJ, it is appropriate that that period run from the date of those declarations. That is to say, as the period of disqualification is set having regard, inter alia, to protection of the public interest, and as that interest has been protected in the interim by Joszef Endresz not having sought to manage a corporation, it is appropriate that the period of disqualification run from 28 August 2002. 150 In reaching my conclusion that a period of fourteen years is appropriate, I have regard in particular to my finding that Joszef Endresz does not properly appreciate his duties, such that the public interest requires an extensive period of protection against a future misuse of the corporate structure. The contravention of s 232(2) in relation to this transaction was undoubtedly serious. Given Joszef Endresz's view as to the propriety of his conduct, there is significant risk that he could engage in similar conduct in the future if, contrary to his present intentions, he were to resume management of a company. I see no significant likelihood of his reforming. 151 As contravention of s 232(2) is the most serious of the offences in relation to the first transaction, I would not make a banning order in relation to the other contraventions concerning this transaction for any longer period. I would make a banning order for his contravention of s 232(4) in relation to the first transaction, (that is, failure to exercise the required degree of care and diligence), for a period of seven years. In relation to his contravention of s 232(6) in relation to the transaction (making improper use of his position as a director of CTC to gain an advantage for Kamanga or to cause detriment to CTC), I would make a banning order of nine years. In relation to the contravention of s 243ZE(3) in relation to this transaction, I would make a banning order for ten years. As with Mr Forge, the periods in relation to each such banning order should be served concurrently. 152 For similar reasons as I gave in relation to Mr Forge, I would make banning orders for the same periods in relation to each contravention of the Corporations Law in relation to the second transaction. It was part of the same course of conduct. Although Joszef Endresz did not personally benefit from the payment to Bisoya, he was instrumental in fixing the amount of the payment, and, on his own evidence, presented it to Mr Forge on the basis of take it or leave it. The periods of disqualification in relation to the second transaction should operate concurrently with the periods of disqualification in relation to the first transaction. 153 Likewise, periods of disqualification for the third and fourth transactions should operate concurrently with the periods of disqualification in relation to the first and second transactions. For the reasons given in relation to Mr Forge, there is a significantly lower degree of culpability in relation to those transactions. In relation to each of the third and fourth transactions, I would make a banning order for a period of seven years in the case of the contravention of s 232(2), three years in the case of the contravention of s 232(4), four years in the case of the contravention of s 232(6), and five years in the case of the contravention of s 243ZE(3). 154 It appears that Joszef Endresz was instrumental in procuring the loans to Kamanga. I consider he is more culpable in relation to the loan transactions than was Mr Forge. However, for the same reasons as I gave in relation to Mr Forge, the banning period in relation to the contraventions concerning the loan transactions should operate concurrently with the banning period in connection with the first and second transactions. In any event, it would be appropriate for the banning periods in relation to the fifth and sixth transactions to operate concurrently as they were both for the same loan. It is highly technical that there should be separate declarations of contraventions in relation to the payments of the loan rather than in relation to the decision to make the loan. I would make banning orders for the following periods in relation to the fifth transaction:
a. for the contravention of s 232(2) - twelve years b. for the contravention of s 232(4) - six years; c. for the contravention of s 232(6) - nine years; d. for the contravention of s 243ZE(3) - ten years. 155 I would make banning orders for the same periods in respect of each contravention in relation to the sixth transaction, such periods to be served concurrently. 156 In relation to the seventh transaction where Joszef Endresz did not receive a personal benefit, I would make banning orders for the following periods:
a. for the contravention of s 232(2) - eight years; b. for the contravention of s 232(4) - four years; c. for the contravention of s 232(6) - six years; d. for the contravention of s 243ZE(3) - seven years. 157 Again, the periods of disqualification should be served concurrently with the other periods. 158 In relation to the eighth transaction, where the loan was substantially repaid, I would make banning orders for the following periods:
a. for the contravention of s 232(2) - six years; b. for the contravention of s 232(4) - three years; c. for the contravention of s 232(6) - four years; d. for the contravention of s 243ZE(3) - five years. 159 Again, the periods of disqualification should be served concurrently with the other periods. 160 Having identified the period of operation of a banning order in relation to each contravention and considered questions of cumulation or concurrence and totality, it is only necessary to make a banning order in respect of the most serious of the contraventions. In relation to the contravention of s 232(2) of the Corporations Law in respect of the first and second transactions, I will make an order under s 1317EA(3)(a) prohibiting Joszef Endresz from managing a corporation for a period of fourteen years from 28 August 2002. The prohibition will expire at midnight on 27 August 2016. Pecuniary Penalty Orders Against Joszef Endresz 161 For the reasons given in relation to Mr Forge, I propose only to make pecuniary penalty orders in respect of the contraventions of s 232(2) which are the subject of the declarations numbered 1, 5, 10, 14, 19, 23, 27, and 32. Unlike the case of Mr Forge, I am not satisfied that an otherwise appropriate pecuniary penalty should be reduced on the ground that Joszef Endresz lacks adequate means to pay the penalty and that the penalty would cause him significant financial hardship. For the reasons I have given, I consider that he is also more culpable than Mr Forge. Subject to considering the totality of the penalties to be ordered, I will impose the following penalties in relation to the contraventions of s 232(2) as follows:
a. in respect of the first transaction - $96,000; b. in relation to the second transaction - $54,000; c. in relation to the third transaction - $6,000; d. in relation to the fourth transaction - $3,000; e. in relation to the fifth transaction - $15,000; f. in relation to the sixth transaction - $15,000; g. in relation to the seventh transaction - $9,000; h. in relation to the eighth transaction - $3,000. 162 The total of these penalties is $201,000. I do not consider the penalties ought to be reduced on the principle of totality. I consider that fines of about $200,000 to be an appropriate penalty for Joszef Endresz in respect of the totality of his conduct.
Banning Order Against Mrs Endresz 163 Mrs Endresz was a director of CTC from 1991 until she resigned in 2000 due to ill health. She has no criminal convictions and has never been charged with a criminal offence. She deposed that: " I accept that my actions have been found to be in breach of the Corporations Law. At the time I voted on the various transactions I did not know that I was acting unlawfully. " (Emphasis added.) 164 She maintained under cross-examination that she believed that she had done the right thing for the company and the shareholders, and that she had not done anything wrong. Although she asserted that she knew the duties of directors, as with Joszef Endresz, I am not satisfied that she has a proper appreciation as to how those duties should be performed when put to the test. 165 Mrs Endresz gave evidence that she was not paid for her services as a director. However, companies in which she was interested, in particular Kamanga and CTC Nominees Pty Ltd, received payments for management services, or for the provision of office services and facilities, in the amounts indicated in para [16] in this judgment. In any event, the relevance of her not having been paid for her services as a director would be whether she honestly thought there was a proper basis for payment to Kamanga for past management fees. The finding of the Court of Appeal that she and the other personal defendants acted dishonestly in relation to those payments determines that matter. 166 Mrs Endresz said that she had nothing to do with Kamanga. She said that that trust was run by her husband and her son Allan. She had an interest in a different family trust. 167 Although Mrs Endresz gave evidence before Foster AJ that she took an active role in the companies, she described that role as being essentially secretarial. She gave evidence before Foster AJ of having discussed with Mr Forge the proposal to pay management fees to Kamanga for about 25 minutes to half an hour. It does not appear that his Honour accepted that evidence. His Honour certainly did not accept her assertions as to why the payment was in the interests of CTC. As noted in para [51] above, Mrs Endresz is entitled to the benefit of the finding of Foster AJ that she was very much reliant on her son and her husband for any knowledge of the company and its relationship with Kamanga and did not have a significant grasp of the business affairs of CTC. 168 Mrs Endresz gave evidence before Foster AJ that she had no idea what the loans the subject of the fifth, sixth, seventh and eighth transactions were for. She gave evidence that it was "just a common occurrence here and there. I mean Kamanga had lent to CTC in the past. It was just back and forwards. It was very commercial, at arm's length, and nothing unusual about it, and it had always been repaid and I had no concern at all because if Kamanga had defaulted on their loans of that transaction payment, it could be offset against the CTC management fees and the same with Bisoya, no problem." 169 Kamanga had advanced funds to CTC in the past. A significant difference was that the loan by Kamanga to CTC was secured by a charge over CTC's assets. The explanation that there was a proper basis for making an unsecured loan to Kamanga because if the loan were unpaid the debt could be off-set against management fees payable to Kamanga assumed that Kamanga would continue to provide management services and would be properly entitled to the management fees. The explanation advanced by Mrs Endresz cannot stand with the findings of Foster AJ and the Court of Appeal, in particular the finding of the Court of Appeal that she acted with subjective dishonesty in approving, permitting or allowing CTC to make the loan advances. 170 Mrs Endresz is 64 years old. She also proffered an unlimited undertaking not to act as a director or to manage corporations. I accept that she has no intention of doing so. But reasons of general deterrence require the making of a banning order which reflects the seriousness of her contraventions. 171 I have concluded that banning orders for the periods set out below are appropriate in respect of each of the contraventions. I apply the same principles as to the concurrence of the periods for which the banning orders should apply as set out earlier in these reasons in relation to Mr Forge and Joszef Endresz. For the same reasons as apply to Joszef Endresz, the banning order should take effect from 28 August 2002. 172 In relation to the first transaction, I have concluded that the appropriate period for banning orders in relation to the declared contraventions are as follows:
a. for the contravention of s 232(2) - ten years b. for the contravention of s 232(4) - five years; c. for the contravention of s 232(6) - seven years; d. for the contravention of s 243ZE(3) - eight years. 173 For the same reasons as apply to the banning orders for Mr Forge and Joszef Endresz, I consider the same periods should apply to the contraventions in relation to the second transaction. 174 In relation to the third transaction, I have concluded that the appropriate periods for a banning order are:
a. in relation to the contravention of s 232(2) - five years b. for the contravention of s 232(4) - two years; c. for the contravention of s 232(6) - three years; d. for the contravention of s 243ZE(3) - four years. 175 In relation to the fourth transaction, I have concluded that the following would be the appropriate periods for a banning order:
a. for the contravention of s 232(2) - three years b. for the contravention of s 232(4) - 0 years; c. for the contravention of s 232(6) - one year; d. for the contravention of s 243ZE(3) - two years. 176 In relation to the fifth and sixth transactions, I have concluded that the following would be the appropriate periods for a banning order to be served concurrently:
a. for the contravention of s 232(2) - eight years b. for the contravention of s 232(4) - four years; c. for the contravention of s 232(6) - five years; d. for the contravention of s 243ZE(3) - six years. 177 In relation to the seventh transaction, I have concluded that the following would be the appropriate periods for a banning order:
a. for the contravention of s 232(2) - five years b. for the contravention of s 232(4) - two years; c. for the contravention of s 232(6) - three years; d. for the contravention of s 243ZE(3) - four years. 178 In relation to the eighth transaction, I have concluded that the following would be the appropriate periods for a banning order:
a. for the contravention of s 232(2) - four years b. for the contravention of s 232(4) - one year; c. for the contravention of s 232(6) - two years; d. for the contravention of s 243ZE(3) - three years. 179 As I apply the same principles of concurrence, it is only necessary to make an order under s 1317EA(3)(a) in relation to the first and second transactions prohibiting Mrs Endresz from managing a corporation for a period of ten years from 28 August 2002. That period will expire at midnight on 27 August 2012. Pecuniary Penalty Orders Against Mrs Endresz 180 The pecuniary penalty orders to be made against Mrs Endresz will reflect my assessment of her level of culpability compared with that of Joszef Endresz. I do not consider that the pecuniary penalty order should be further discounted to reflect the fact that both she and her husband will be liable to pay the penalties. They are individually culpable. Moreover, my earlier observations that no proper evidence was adduced as to the financial position of the trusts from which the Endresz family obtain benefits, and no explanation was given as to what happened to the receipts from Kamanga apply to Mrs Endresz. She gave evidence that her financial position was strained due to numerous legal proceedings commenced since 1999 such that she had to borrow to pay rates on the family property in Albury to avoid legal proceedings being taken by the Council in the Local Court. The penalties which will be payable by Joszef Endresz will affect his ability to provide financial assistance to his wife and vice versa. I take those matters into account. However, I also take into account the absence of evidence as to the financial position of the trusts in which they are interested and the absence of evidence as to how the moneys received from CTC were dealt with. 181 The penalties payable by Mrs Endresz compared with those payable by her husband should reflect their respective degrees of culpability. I have concluded that Mrs Endresz should be ordered to pay pecuniary penalties in amounts which are two-thirds the penalties which I have found should be payable by Joszef Endresz. Banning Orders Against Allan Endresz 182 Foster AJ found that Allan Endresz' contraventions were significantly more serious than those of the other defendants (at [153]). His Honour was satisfied that Allan Endresz "was in effect the leader in the series of contraventions in which he was involved relating to the disbursement of the moneys received on 20 April 1998." His Honour found (at [100]) that Mr and Mrs Endresz, as directors of CTC, were very reliant upon the advice and assistance of their son. 183 Although relevant to questions of penalty, these were not findings which were material to the declarations of contravention. I do not consider that I should adopt those findings as my own. 184 ASIC submitted that I should in any event come to the same conclusions. On the question of penalty, the question is whether I am satisfied that Allan Endresz was the leader who brought about the disbursement of the moneys received from the Commonwealth. 185 It appears from Allan Endresz' own affidavit that the proposal to pay Kamanga $2,205,000 for past services and to be put on a future retainer of $245,000 per year originated with Allan Endresz. In his affidavit, he deposed to his father having approached him saying that it was time that CTC raised its own working capital and he was thinking about "one of your preference share issues". They then discussed a preference share issue which Allan Endresz was to arrange. Allan Endresz deposed that on the morning of 20 April 1998, his father told him that the shareholders wanted to tie Allan Endresz down on SIBS (being a share incentive bonus scheme) and get first rights to "all your projects". Allan Endresz deposed that he responded by saying that he was happy to do a deal, but there would be a few conditions. The conditions he stipulated included a retainer of $245,000 payable monthly in advance and that Kamanga receive $2,205,000 for past services. He gave evidence that his father said that he would think about it and come back to him. He said that the next day, Joszef Endresz told him that "I am comfortable with the proposal from Kamanga's point of view. Could you knock up a draft invoice and an agreement for me to consider and if it's OK I will pass it on to Bill and Dawn." 186 There is a lot of self-serving material in this evidence which Foster AJ and the Court of Appeal evidently did not accept. But, on his own evidence, Allan Endresz was the person who proposed the first and third of the impugned transactions. This is a serious aggravating feature of Allan Endresz' culpability for the first and third impugned transactions. Allan Endresz gave oral evidence that having told his father what he required to keep operating as the corporate adviser, his father told him that subject to Mrs Endresz and Mr Forge agreeing, then he was in agreement with what Allan Endresz required. I also consider he was the leader in causing the payments for management fees to be made to Kamanga. 187 It is an aggravating feature of Allan Endresz' conduct that he contravened the Corporations Law in connection with these transactions when he was still disqualified from taking part in, or being concerned in, the management of companies. The finding that he was an officer necessarily connotes a finding that he breached s 229(3) of the Corporations Law. However, he was not charged with an offence under s 229(3). He should not be punished for having contravened s 229(3), being an offence with which he has not been charged. 188 The findings that he was concerned in the management of CTC prior to the expiry of five years after his conviction, rebut any suggestion that he is entitled to any leniency on the ground that the contraventions found against him were isolated acts of corporate misbehaviour. Having regard to his prior conviction, and the period over which the contraventions were found to have occurred, I do not think such a submission would have been plausible in any event. I have decided that I should not increase the period of disqualification or the pecuniary penalty because he has been found to have engaged in conduct that amounted to a contravention of s 229(3). 189 I do not adopt Foster AJ's finding (upheld in the Court of Appeal) that Allan Endresz had a strangely arrogant attitude in representing himself and the other defendants before Foster AJ. That finding was relevant only to credit, or possibly to whether he had a propensity to act arrogantly and therefore might disregard laws or conventions protective of the public. The finding is not binding on me, and is not one I would be prepared to make. 190 No declaration of contravention was made against Allan Endresz in respect of the second, fourth and seventh transactions involving payments to Bisoya. 191 Although Allan Endresz took the primary role in the establishment of the consultancy agreement pursuant to which the payments of management fees were made, the evidence did not establish that he was primarily responsible for the making of the loans by CTC to Kamanga which are the subject of the fifth, sixth and eighth transactions. The evidence rather was that Joszef Endresz was the person who proposed those loans. Allan Endresz indirectly benefited from those loans. I consider that banning orders for a slightly shorter period than applicable to Joszef Endresz should be made in respect of those transactions. 192 Allan Endresz said that he accepted the decision of Foster AJ, and that he did believe that he had done something wrong. He came to that realisation when the defendants did not have success in the High Court. This was not a statement of contrition. Rather, it was an acceptance that the defendants had exhausted their rights of appeal from the declarations of contravention. He also gave evidence that he understood that officers of corporations had duties of honesty, care and diligence, and were obliged not to use their position to gain an advantage for themselves or some third party, or to cause detriment to the company. Whilst Allan Endresz understands that directors and officers of corporations have such duties, I do not accept that he understands, or if he does understand that he is prepared to carry out, what those duties entail. 193 I have serious reservations as to the accuracy of Allan Endresz' evidence. In his affidavit, he deposed that the loans the subject of transactions five, six, seven and eight had been repaid in full with interest. That was not accurate. To a substantial extent, the amounts which Allan Endresz described as repayments were the setting off of management fees purportedly payable pursuant to the management agreements with Kamanga and Bisoya, which the defendants caused CTC to enter into in breach of their duty as directors and officers of CTC. 194 Allan Endresz also gave oral evidence that the auditors had taken a "very hard line position" and "did not accept these matters should have gone to shareholders for approval." I do not accept that evidence. There is no material to support it. It was not suggested to Mr Walsh when he was cross-examined before Foster AJ that the auditors had resisted or not accepted that the matter should have gone to shareholders. Rather, the simple fact was that the directors and Allan Endresz did not place the matter before shareholders. The attempt to cast blame on the auditors in this respect reflects adversely on Allan Endresz's credit. 195 Allan Endresz gave evidence that the only asset he owned is a property in Albury which he owns jointly with his wife. The property is subject to two mortgages. He did not give evidence as to the value of the property or the amounts secured by the mortgages. He gave evidence that the property was subject to injunctions ordered by the ACT Supreme Court. However, there is no reason that such injunctions would not be modified to allow the property to be realised so that Allan Endresz' share of the net proceeds could be used to satisfy pecuniary penalty orders. Allan Endresz gave evidence that his wife did not consent to the sale of the property. However, as a joint owner, he would be entitled to orders for the appointment of trustees for sale. Allan Endresz gave evidence that he was dependent upon the financial assistance of friends and business associates, and had been unable to pay debts relating to motor vehicle finance and credit cards. The evidence was given in very general terms. 196 I can infer that Allan Endresz is a beneficiary of the Allan Endresz family trust, the trustee of which is currently CTC Nominees Pty Ltd. Allan Endresz gave evidence of two other trusts of which CTC Nominees Pty Ltd is the trustee. As I have already observed, there was no evidence of the current financial position of those trusts and no explanation as to how Kamanga dealt with the moneys it received. The absence of such an explanation speaks volumes against any true contrition. 197 I do not accept that Allan Endresz will not be able to earn income during the period he is disqualified from managing a corporation. He gave evidence that following his disqualification in 1992, he was able to make a "relatively smooth transition from director to professional corporate adviser". Kamanga and a company called Quancorp Pty Ltd became partners in a business conducting corporate advisory services known as the Davis Samuel Partnership. The services provided by Kamanga were provided through Allan Endresz. He also held a power of attorney giving him authority to act on behalf of the Davis Samuel Partnership. Allan Endresz gave evidence that the Davis Samuel Partnership received substantial fees and annual retainers. One annual retainer provided in 1996 was for a sum of $240,000. He deposed that the Davis Samuel Partnership had been profitable. Its after-tax profits as at 30 June 1996 and 30 June 1997 were $2,054,992 and $1,369,045 respectively. 198 Allan Endresz deposed that he was dependent upon the financial assistance of friends and business associates. He was not directly challenged on that evidence, although counsel for ASIC did seek to probe the question of what assets of the various family trusts might have been available. In the absence of the records of those trusts, that was not a fruitful line of inquiry. I do not accept that Allan Endresz is likely to remain dependent upon the financial assistance of friends and business associates. 199 Whereas none of Mr Forge, Joszef Endresz or Mrs Endresz has acted as a director or officer of a company after the declarations of contravention were made by Foster AJ on 28 August 2002, that is not the position in the case of Allan Endresz. Following the decision of the Court of Appeal on 7 December 2004, he resumed office as a director of Davis Samuel Pty Ltd. Whilst he is entitled to credit for the period from 28 August 2002 to 7 December 2004 when he was prohibited from managing a corporation, he is not entitled to further credit after that date. 200 For the contravention of s 232(2) of the Corporations Law in relation to his approving, permitting or allowing the payment of $2,205,000 to Kamanga, where he was conscious that the making of the payment was not in the company's interests, and where he had proposed the transaction, I consider that a very substantial period of disqualification is required. In my view, the appropriate period is sixteen years. 201 For the same reasons as given in respect of banning orders to be made against Joszef Endresz, I consider that the periods for a banning order in respect of the lesser contraventions concerning the first transaction should be served cumulatively with the period of the banning order for contravention of s 232(2) of the Corporations Law. Further, the banning order in respect of the third transaction involving the payment of $40,833.34 should be served cumulatively with the banning order for the declared contravention in respect of the first transaction. They both have their origin in their entry into the consultancy agreement. 202 Whilst I have concluded that Allan Endresz has a greater culpability and should be subjected to a longer banning period than Joszef Endresz in respect of the first (and therefore third) transactions, that is not so in the case of the loans which are the fifth, sixth and eighth transactions. In respect of those transactions the banning periods for Allan Endresz should be a little less than those for Joszef Endresz, but, in any event, should also be served cumulatively with the banning period in respect of the first transaction. 203 In relation to each of the declared contraventions of Allan Endresz, I would make an order under s 1317EA(3)(a) for the periods specified below. In respect of the first transaction I would make such an order:
a. In relation to the contravention of s 232(2) - sixteen years b. for the contravention of s 232(4) - eight years; c. for the contravention of s 232(6) - ten years; d. for the contravention of s 243ZE(3) - twelve years. 204 I would make such an order in relation to each declared contravention in relation to the third transaction (to be served concurrently) for the following periods:
a. for the contravention of s 232(2) - eight years b. for the contravention of s 232(4) - four years; c. for the contravention of s 232(6) - five years; d. for the contravention of s 243ZE(3) - six years. 205 I would make such an order in relation to each declared contravention in relation to the fifth and sixth transactions for the following periods (to be served concurrently with each other and with the other orders):
a. for the contravention of s 232(2) - eleven years b. for the contravention of s 232(4) - five years; c. for the contravention of s 232(6) - eight years; d. for the contravention of s 243ZE(3) - nine years. 206 I would make such an order in relation to each declared contravention in relation to the eighth transaction for the following periods (to be served concurrently with the other periods):
a. for the contravention of s 232(2) - five years b. for the contravention of s 232(4) - two years; c. for the contravention of s 232(6) - three years; d. for the contravention of s 243ZE(3) - four years. 207 As all of the periods of banning would be served concurrently, and as I have articulated the banning orders I would make in relation to each contravention, it is only necessary to make a banning order in respect of the first declared contravention. Pursuant to s 1317EA(3)(a), I will order that Allan Endresz be prohibited from managing a corporation for a period of 13 years, 8 months and 20 days from the date of these orders. That period will expire at midnight on 10 September 2021. Pecuniary Penalty Orders Against Allan Endresz 208 As with the other defendants, in fixing pecuniary penalties in relation to the fifth and sixth transactions, I have treated the transaction as a single transaction and divided the penalty in two. Allan Endresz bears a significantly higher degree of culpability in relation to the first transaction and the third transaction than the other defendants. That is not the case in relation to the fifth, sixth and eighth transactions. I already have given my reasons as to why the pecuniary penalties to be payable by Allan Endresz should not be reduced to reflect claimed financial hardship. I will make orders under s 1317EA(3)(b) that Allan Endresz pay to the Commonwealth pecuniary penalties in relation to the declared contraventions of s 232(2) as follows:
a. for the contravention in relation to the first transaction - $120,000; b. for the contravention in relation to the third transaction - $8,000; c. for the contravention in relation to the fifth transaction - $13,000; d. for the contravention in relation to the sixth transaction - $13,000; e. for the contravention in relation to the eighth transaction - $2,000; Pecuniary Penalty Orders Against Bisoya 209 Foster AJ declared that Bisoya contravened s 243ZE(2) of the Corporations Law on three occasions by receiving the sums of $260,000 on or about 20 April 1998 (declaration 9), by receiving the sum of $10,833.34 on or about 28 May 1998 (declaration 18), and by receiving the sum of $75,000 between about 27 October and 30 October 1998 (declaration 31). These were the second, fourth and seventh transactions. It contravened the provision because it was a related party of CTC and received a financial benefit from it, where CTC contravened the prohibition in s 243H(1) against a public company giving a financial benefit to a related party except as permitted by Pt 2E.4 or 2E.5. 210 The contraventions by Bisoya were serious and would ordinarily warrant a substantial penalty. However, Bisoya acted through Mr Forge. Bisoya was the trustee of the Forge family trust. Bisoya owns a one-third interest in the property in Albury in which Mr Forge has a two-thirds interest. Mr Forge gave unchallenged evidence that the assets of the Forge family trust have been dissipated in failed business investments and in meeting legal and other expenses associated with various proceedings. Shares held by Bisoya in CTC were sold for $30,000 to meet legal costs. 211 It was because of Mr Forge's conduct that Bisoya received the payments. I have imposed no separate penalty on Mr Forge for his contravention of s 243ZE(3) in being involved in or being recklessly concerned in or being a party to the payments by CTC to Bisoya. However, the reason for not doing so is that he is sufficiently penalised in respect of the same acts for his contravention of s 232(2). Given that Bisoya acted through Mr Forge and that Mr Forge is being penalised for his actions, and given that Mr Forge, along with his wife, are the parties interested in Bisoya, there is an element of double punishment if substantial penalties were awarded against Bisoya, because it will be Mr Forge, along with his wife, who will suffer the financial impact of such an order against Bisoya. In considering the financial hardship which Mr Forge would suffer from pecuniary penalty orders against him, I have treated Bisoya's assets as assets available to him, but have nonetheless concluded that the penalties should be modified to reflect the financial hardship he would suffer. 212 In these circumstances, I do not consider it appropriate to make pecuniary penalty orders against Bisoya. The effect of doing so would be to increase the financial hardship to Mr Forge. General deterrence is sufficiently served by the personal orders against Mr Forge. I decline to make such orders against Bisoya. Conclusion 213 For these reasons, I make the orders set out below. The references to the numbered declarations are to the declarations set out at para [405] of the Court of Appeal's reasons in Forge v ASIC [2004] NSWCA 448. In these orders the expression "managing a corporation" has the meaning defined in s 91A of the Corporations Law. Banning Order Against First Defendant
In relation to the contraventions the subject of declarations 1 and 5, the first defendant be prohibited up to and including 27 August 2014 from managing a corporation. Pecuniary Penalty Orders Against First Defendant
In relation to the contravention the subject of declaration 1, the first defendant pay to the Commonwealth a pecuniary penalty of $60,000.
In relation to the contravention the subject of declaration 5, the first defendant pay to the Commonwealth a pecuniary penalty of $50,000.
In relation to the contravention the subject of declaration 10, the first defendant pay to the Commonwealth a pecuniary penalty of $1,000.
In relation to the contravention the subject of declaration 14, the first defendant pay to the Commonwealth a pecuniary penalty of $1,000.
In relation to the contravention the subject of declaration 19, the first defendant pay to the Commonwealth a pecuniary penalty of $6,000.
In relation to the contravention the subject of declaration 23, the first defendant pay to the Commonwealth a pecuniary penalty of $6,000.
In relation to the contravention the subject of declaration 27, the first defendant pay to the Commonwealth a pecuniary penalty of $15,000.
In relation to the contravention the subject of declaration 32, the first defendant pay to the Commonwealth a pecuniary penalty of $1,000. Banning Orders Against Second Defendant
In relation to the contravention the subject of declaration 1 and 5, the second defendant be prohibited up to and including 27 August 2016 from managing a corporation. Pecuniary Penalty Orders Against Second Defendant
In relation to the contravention the subject of declaration 1, the second defendant pay to the Commonwealth a pecuniary penalty of $96,000.
In relation to the contravention the subject of declaration 5, the second defendant pay to the Commonwealth a pecuniary penalty of $54,000.
In relation to the contravention the subject of declaration 10, the second defendant pay to the Commonwealth a pecuniary penalty of $6,000.
In relation to the contravention the subject of declaration 14, the second defendant pay to the Commonwealth a pecuniary penalty of $3,000.
In relation to the contravention the subject of declaration 19, the second defendant pay to the Commonwealth a pecuniary penalty of $15,000.
In relation to the contravention the subject of declaration 23, the second defendant pay to the Commonwealth a pecuniary penalty of $15,000.
In relation to the contravention the subject of declaration 27, the second defendant pay to the Commonwealth a pecuniary penalty of $9,000.
In relation to the contravention the subject of declaration 32, the second defendant pay to the Commonwealth a pecuniary penalty of $3,000. Banning Orders Against the Third Defendant
In relation to the contraventions the subject of declarations 1 and 5, the third defendant be prohibited up to and including 27 August 2012 from managing a corporation. Pecuniary Penalty Orders Against Third Defendant
In relation to the contravention the subject of declaration 1, the third defendant pay to the Commonwealth a pecuniary penalty of $64,000.
In relation to the contravention the subject of declaration 5, the third defendant pay to the Commonwealth a pecuniary penalty of $36,000.
In relation to the contravention the subject of declaration 10, the third defendant pay to the Commonwealth a pecuniary penalty of $4,000.
In relation to the contravention the subject of declaration 14, the third defendant pay to the Commonwealth a pecuniary penalty of $2,000.
In relation to the contravention the subject of declaration 19, the third defendant pay to the Commonwealth a pecuniary penalty of $10,000.
In relation to the contravention the subject of declaration 23, the third defendant pay to the Commonwealth a pecuniary penalty of $10,000.
In relation to the contravention the subject of declaration 27, the third defendant pay to the Commonwealth a pecuniary penalty of $6,000.
In relation to the contravention the subject of declaration 32, the third defendant pay to the Commonwealth a pecuniary penalty of $2,000. Banning Order Against the Fourth Defendant
In relation to the contravention the subject of declaration 1, the fourth defendant be prohibited up to and including 10 September 2021 from managing a corporation. Pecuniary Penalty Orders Against Fourth Defendant
In relation to the contravention the subject of declaration 1, the fourth defendant pay to the Commonwealth a pecuniary penalty of $120,000.
In relation to the contravention the subject of declaration 10, the fourth defendant pay to the Commonwealth a pecuniary penalty of $8,000.
In relation to the contravention the subject of declaration 19, the fourth defendant pay to the Commonwealth a pecuniary penalty of $13,000.
In relation to the contravention the subject of declaration 23, the fourth defendant pay to the Commonwealth a pecuniary penalty of $13,000.
In relation to the contravention the subject of declaration 32, the fourth defendant pay to the Commonwealth a pecuniary penalty of $2,000. Costs 214 Orders for costs were made by Foster AJ and in the Court of Appeal. If any party seeks an order for costs in relation to the hearing before me, I give liberty to apply on not less than 14 days' notice and by arrangement with my associate. Any party making such an application should specify the order sought and provide an outline of submissions in support of the orders sought. If no such application is made pursuant to the liberty to apply by 1 February 2008, there will be no order as to costs in relation to the penalty hearing before me.
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Australian Securities and Investments Commission
Forge
(1998) 194 CLR 610
(2004) 213 ALR 574
(2006) 229 ALR 223
(1953) 90 CLR 425
(2004) 220 CLR 129
(1988) 166 CLR 59
(1938) 60 CLR 336
(2004) 205 ALR 346