Australian Securities and Investments Commission v One Tech Media Ltd

Disqualification orders under s 206E of the Corporations Act 16 Disqualification orders under s 206E of the Corporations Act 2001 (Cth) (Corporations Act) are sought against both Eustace and Ida. Under s 206E of the Corporations Act, the Court has power to order that a defendant be disqualified from managing corporations if (relevantly): (a) the defendant has at least twice contravened the Corporations Act while they were an officer of a body corporate; and (b) the Court is satisfied that the disqualification is justified. The period of disqualification is "the period that the Court considers appropriate". 17 Section 206E(2) provides that, in determining whether a disqualification is justified, the Court may have regard to: (a) the defendant's conduct in relation to the management, business or property of any corporation; and (b) any other matters the Court considers appropriate. 18 Whether disqualification is justified depends on the seriousness of the contraventions and the potential and actual consequences of those contraventions. In Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; 42 ACSR 80, Santow J at 97-9 [56] summarised the principles applicable to disqualification orders under s 206C and s 206E of the Corporations Act. These principles, known as the Santow principles, were usefully restated by Gordon J in Registrar of Aboriginal and Torres Strait Islander Corporations v Murray [2015] FCA 346 at [220] as follows: (1) 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. (2) Disqualification orders are 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. (3) Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors. (4) A disqualification order is protective against present and future misuse of the corporate structure. (5) The order has a motive of personal deterrence, though it is not punitive. (6) The objects of general deterrence are also sought to be achieved. (7) 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. (8) Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty. (9) In assessing the 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. (10) 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. (11) A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming. (12) 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 are influential. The criteria were 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. (13) Factors which lead to the imposition of the longest periods of disqualification (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, lack of contrition or remorse, disregard for law and compliance with corporate regulations, dishonesty and intent to defraud and previous convictions and contraventions for similar activities. (14) In cases in which the period of disqualification ranged from 7 to 12 years, the factors 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 and lack of contrition or acceptance of responsibility, but as against that, the prospect that the individual may reform. (15) The factors leading to the shortest disqualifications, that is disqualification for up to three 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 and the defendant had expressed remorse and contrition, acted on the advice of professionals and had not contested the proceedings. As Gordon J observed at [219], these principles are not a rigid catalogue of matters that must be considered in every case, but they inform the exercise of the discretion as appropriate in each case. Deterrence, both personal and general, are central factors in determining whether an order for disqualification should be made and, if so, for what period: Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; 238 ALR 595 at 604-5 [82]-[87]. 19 ASIC submitted that a period of disqualification of 20-25 years would ordinarily be appropriate for Eustace, except for the factor of his age, being 73. That factor would most likely make a disqualification period of that length artificial and so ASIC submitted that instead he be permanently disqualified. Permanent disqualifications have been ordered in a number of cases: see for example Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; 59 ACSR 373; Australian Securities and Investments Commission v White [2006] VSC 239; 58 ACSR 261; Australian Securities and Investments Commission v Activesuper Pty Ltd (in liq) (No 2) [2015] FCA 527; 106 ACSR 302; Australian Securities and Investments Commission v Managed Investments Ltd (No 10) [2017] QSC 96; Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1065; 55 ACSR 554. 20 In relation to Ida, ASIC has submitted that he should be disqualified from managing corporations for a period of 15-20 years.

Disqualification of Eustace 21 The Court has power to disqualify Eustace from managing corporations because it has declared that he has committed multiple contraventions of the Corporations Act and at the time of those contraventions he was a director of at least one company, being Allianz Australia. Specifically, the Court has declared that he contravened s 911A by carrying on a financial services business (by arranging for One Tech to issue binary options) without holding an Australian financial services licence and contravened s 1012B(3) on 67 occasions by offering to arrange for the issue of a binary option to persons without giving them a product disclosure statement for the financial product at or before the time of the offer or issue. 22 The contraventions are very serious. Holders of an Australian financial services licence have statutory duties imposed on them by div 3 of pt 7.6 of the Corporations Act and are subject to the supervision and enforcement activities of ASIC. The requirement to hold an Australian financial services licence to carry on a financial services business is thus an important part of the regulatory framework for protection of investors and serves an important protective purpose, given the risk of significant financial harm to members of the public when using the services of financial services businesses: Re Vault Market Pty Ltd [2014] NSWSC 1641 at [74]. Likewise, the requirement for product disclosure statements is designed to facilitate informed investment decisions and investments effected with proper protection: Australian Securities and Investments Commission v West [2008] SASC 111; 100 SASR 496 at 547 [187], citing Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 402. Eustace's contraventions of s 911A and s 1012B(3) deprived investors of the protective benefits which the regulatory framework is designed to provide. 23 ASIC speculated that Eustace may not have obtained an Australian financial services licence given his criminal record, or an application might at least have triggered an early investigation into the operation of the Titantrade websites. It was submitted that it was even more likely that if investors had received product disclosure statements which properly explained the risks of the binary options before they authorised each trade, many would have pulled back and saved their money. 24 Eustace accepted the seriousness of the contraventions of the Corporations Act which he committed and accepted that he should be disqualified. However, he submitted that speculation about whether he would have obtained an Australian financial services licence had he applied for one and what might have occurred had there been a product disclosure statement was "just that" and was unsubstantiated by evidence. It was submitted that the Court should be astute not to inflict double punishment on Eustace inadvertently because of his admitted contempts of this Court and his prior convictions from 2002, as he has paid the penalty and costs for his contempts and served his sentence. 25 ASIC's submissions on what might have occurred had Eustace applied for a financial services licence may well be conjecture, but there is evidence before the Court concerning his fitness to manage a company: (a) in September 2002, Eustace was convicted of two counts of theft of approximately $5.4 million, 25 counts of false accounting and one count of obstructing a company auditor and sentenced to seven years imprisonment. The offences arose out of an investment scheme operated by Eustace through a number of companies. The events which gave rise to his criminal conviction also involved the collapse of four companies of which Eustace was a director, which were wound up in insolvency with unsecured creditors losing significant amounts; (b) Eustace admitted to a number of contempts of court in this proceeding. The Court had made freezing orders in respect of the Australian bank accounts opened and operated by Eustace and into which investors had paid moneys. The purpose of the freezing orders was to preserve some moneys for investors pending the determination of the proceeding. Eustace sought and was granted carve-outs permitting him to draw funds from the accounts for his legal fees and living expenses on the basis that he had no other means of support. The orders also enjoined Eustace's companies from paying any money to his son Cameron's company. However, it emerged that Eustace had obtained a loan and was using money drawn from that loan to make payments to Cameron, as well as using money from the loan for living expenses. Meanwhile, Eustace also exhausted the funds in the company accounts in reliance on the carve-out he received for living and legal expenses: Australian Securities and Investments Commission v One Tech Media Ltd (No 3) [2018] FCA 1071 (Moshinsky J). This conduct shows a contumelious disregard of the wrongfulness of his conduct for personal gain. 26 In assessing the appropriate length of disqualification, it is relevant to consider both whether Eustace may engage in similar conduct in the future and the likely harm that may be caused to the public. These matters are relevant to his character and to his fitness to be a director of a company. 27 ASIC also argued that whilst there is no evidence that Eustace was aware that One Tech was operating an unlawful scheme which defrauded Australian investors, it was clear that he was astute to distance himself from the activities of the clients of his paying agency business and careful not to inquire into them. He repeatedly sought to minimise his conduct as being a "paying agent" only. ASIC submitted that although the evidence probably did not rise to the level of wilful blindness to One Tech's unlawful conduct on Eustace's part, it should produce scepticism towards any submission he was blissfully ignorant of that conduct. No such submission was made on Eustace's behalf, but it was submitted that ASIC misunderstood the "lack of remorse" element on the basis that although admitting a contravention is a mitigating factor, defending a proceeding is not an aggravating one. That submission, however, misunderstands the thrust of ASIC's submission, which was to the effect that Eustace lacked insight into his wrongdoing - a submission which can be readily accepted. 28 For the reasons that follow, I consider it is appropriate that Eustace be permanently disqualified from managing corporations. 29 First, the seriousness of the contraventions. 30 Secondly, the contraventions contributed to substantial losses suffered by the three investors, who gave evidence in these proceedings, who deposited money into their Titantrade website accounts using the wire transfer service facilitated by Eustace and Ida and, it may be reasonably inferred, by other investors who traded on the Titantrade websites using the wire transfer deposit method facilitated by Eustace and Ida. 31 Thirdly, the evidence shows a history of misuse of corporate entities by Eustace for personal gain, resulting in large losses to people dealing with him. His prospects of rehabilitation must be considered to be low, considering his conviction for fraud in 2002 and the contempts of court he committed in the present proceeding. 32 Fourthly, the risk of further contraventions by him is high if he is permitted to manage corporations. 33 Fifthly, he has not expressed any contrition for his actions, nor put anything before the Court which would indicate that he has an insight into his wrongdoing or the seriousness of his conduct. Although he "accepts that he should be disqualified due to the serious nature of the contraventions of the [Corporations] Act found to have been committed by him", he has not accepted responsibility for the findings made against him by the Court. 34 Sixthly, given his age, permanent disqualification is akin to the very lengthy period of disqualification which would otherwise be ordered if he was of younger years.

Disqualification of Ida 35 The Court has power to disqualify Ida from managing corporations because it has declared that he has committed multiple contraventions of the Corporations Act and at the time of those contraventions he was a director of multiple companies, including the tenth defendant, IMC Holdings Pty Ltd (IMC). Like Eustace, Ida was also found to have contravened s 911A of the Corporations Act by carrying on a financial services business without holding an Australian financial services licence and to have contravened s 1012B(3) on 68 occasions by offering to arrange for the issue of binary options to persons without giving the person a product disclosure statement for the product at or before the time of the offer or issue. The contraventions were essentially identical to Eustace's contraventions and so the factors concerning the seriousness and impact of the contraventions as stated above in respect of Eustace apply equally to Ida. Those considerations as well as the following other factors support the imposition of a lengthy period of disqualification. 36 First, Ida's conduct caused or contributed to substantial losses suffered by the three investors, who gave evidence in these proceedings, who deposited money into their Titantrade website accounts using the wire transfer service facilitated by Eustace and Ida and, it may be reasonably inferred, by other investors who traded on the Titantrade websites using the wire transfer deposit method facilitated by Eustace and Ida. 37 Secondly, Ida has not led any evidence to show any understanding of the seriousness of his contravening conduct, nor has he accepted responsibility for the findings made against him by the Court or led any evidence of contrition for his contravening conduct. 38 Thirdly, a number of his answers to questions in his examination by the Israel Securities Authority suggest he does not accept responsibility for his unlawful conduct. 39 Fourthly, there is no evidence to indicate that Ida may reform and in circumstances where he has continued to be a director of IMC and one other company, there is a public interest and need for protection of the public from a repeat of the conduct. 40 Unlike Eustace, Ida does not have a criminal record and his previous misuse of corporations does not appear to be as extensive. Ida is also younger than Eustace, at 61 years of age. 41 These matters justify the length of disqualification sought by ASIC and it is appropriate to disqualify Ida from managing corporations for a period of 15 years.

Permanent injunctions 42 ASIC also seeks the following permanent injunctions: (a) an order under s 1101B(1) of the Corporations Act restraining One Tech, Eustace and Ida from carrying on any financial services business for such period as the Court considers appropriate; and (b) an order under s 1324 of the Corporations Act restraining Allianz Australia from carrying on a financial services business for such a period as the Court considers appropriate. 43 It was submitted that the permanent injunctions are required in order to enforce and give effect to the Corporations Act, as well as for specific and general deterrence purposes. 44 Eustace and Allianz Australia agreed that they should each be enjoined from carrying on any financial services business for the duration of Eustace's disqualification and I agree with the period of restraint. No submission was made by Ida. In my view, the appropriate length of the restraint should also be the period for which Ida is disqualified from managing a company. 45 One Tech remains registered and the website www.titantrade.com continues to be accessible in Australia. The seriousness of the contraventions by One Tech as outlined above at [6]-[7], in my view, justify an order permanently restraining One Tech from carrying on any financial services business. I accept the submission for ASIC that the contraventions by One Tech are a particularly egregious example of the kind of conduct that the statutory provisions are designed not merely to prevent, but to dissuade and sanction in the strongest terms. One Tech's contravening conduct was systemic and deliberate, targeting and exploiting vulnerable people, causing them substantial long-term financial detriment through the loss of savings and superannuation used for binary options trading. Such conduct makes it highly likely that harm will continue to be caused to the public if One Tech is not prohibited from providing financial services: Australian Securities and Investments Commission v Financial Circle Pty Ltd [2018] FCA 1644 at [168]-[175].

Costs 46 ASIC seeks the following costs orders: (a) that Allianz Australia, Eustace and Ida pay ASIC its costs of and incidental to the proceeding, including reserved costs; (b) that Allianz Australia, Eustace and Ida pay the sixth, eighth, ninth and tenth defendants their costs of and incidental to the proceeding (Sanderson Order); (c) alternatively to paragraph (b) above, that ASIC pay the sixth, eighth, ninth and tenth defendants their costs of and incidental to the proceeding and Allianz Australia, Eustace and Ida indemnify ASIC in respect of those costs (Bullock Order). 47 Eustace accepted there should be an order that he pay ASIC's costs of the proceeding against him. 48 Allianz Australia accepted that there should be an order that it pay ASIC's costs of the proceeding as against it but since ASIC failed in its case against Allianz Australia based upon s 1012B and s 766E of the Corporations Act, only 80% of those costs should be ordered. In my view that is a reasonable apportionment. 49 The fifth defendant (Sansen), the sixth defendant (Transcomm Australia), the eighth defendant (Bianco) and the ninth defendant (Cameron) each seek an order that ASIC pay their costs of the proceeding and each opposes the Court making either a Sanderson Order or a Bullock Order. 50 A Sanderson Order is an order making the unsuccessful defendants directly liable for the costs of the successful defendants. A Bullock Order is an order requiring the unsuccessful defendants to indemnify the plaintiff for the costs of the successful defendants. The discretion to make a Sanderson Order or Bullock Order is enlivened where a plaintiff succeeds against one defendant but fails against another in circumstances where it was reasonable for the plaintiff to proceed against the successful defendant and the conduct of the unsuccessful defendant makes it fair that it should bear the costs of the successful defendant: see Gould v Vagellas [1985] HCA 75; 157 CLR 215 per Gibbs CJ at 229-30. 51 ASIC submitted that it acted reasonably in proceeding against the successful defendants and the conduct of the unsuccessful defendants makes it fair to visit them with the costs of the successful defendants. The essential basis upon which this submission was put was that it was difficult for ASIC to know which of the various legal persons was responsible and therefore liable for particular acts because of the way in which the unsuccessful defendants conducted the business. Reference was made to [107]-[124] of the liability judgment, where the Court dealt with ASIC's submission that the evidence showed "a web of legal persons and transactions which cannot be easily untangled so as to enable legal responsibility for particular acts to be attributed to particular persons", and the Court should characterise the conduct of Allianz Australia, Eustace, Sansen, Transcomm Australia, Bianco, Cameron, IMC and Ida as the carrying on of a paying agency business through unincorporated joint venture. The Court accepted that Eustace, Ida and their corporate entities Allianz Seychelles and Allianz Australia participated in the contravening conduct, without the need to make a finding as to whether there was a "joint venture" as claimed, but otherwise rejected ASIC's case that, relevantly, Transcomm Australia, Cameron, Bianco, Sansen and IMC were participants in the relevant conduct. 52 Authorities relating to the imposition of Sanderson and Bullock Orders were discussed in Lackersteen v Jones (No 2) [1988] NTSC 72; 38 NTLR 101. At 110 [24] Asche CJ observed that the authorities established the following principles: 1. It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant. 2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other. 3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion. 4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; the second, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful. These principles were approved in Mouratidis v Brown [2002] FCAFC 330 at [80]-[84] per Wilcox and Higgins JJ; Best & Less Pty Ltd v Divergent Technologies Pty Ltd [2002] FCAFC 171 at [34]. 53 It is well established that reasonableness is not determined by asking whether, on the basis of the information available at the time a plaintiff joined the successful defendant, there was a reasonable prospect of success against that party. Rather, reasonableness looks at whether there was a reasonable uncertainty as to which of more than one defendant was potentially liable. However, reasonableness is not to be assessed solely at the time of joinder but is to be assessed up to trial. What is reasonably started may be unreasonably persisted in because more information may become available throughout the proceeding: Atkins v Purslowe [1966] WAR 46 at 47. It was not disputed by Transcomm Australia, Sansen, Cameron or Bianco that their joinder may have been reasonable given the urgency of the commencement of the proceedings, but each submitted that the claims against them were unreasonably persisted in. I agree. 54 The central factual question concerning each of those defendants was whether there was any evidence of "arranging for" the issue of binary options or "offering" to do so. ASIC's case that Sansen "arranged for" anyone to "issue" a binary option, or "offered to arrange for the issue" of a binary option never rose higher than showing that Eustace withdrew amounts from the Allianz Business One Account as commission for his services, which he paid to himself and Sansen, being his family trustee company. Having regard to the very limited facts upon which ASIC relied to connect Sansen with the alleged contravening conduct, I accept that ASIC unreasonably persisted in endeavouring to establish a separate and independent contravention by Sansen. So too in relation to Transcomm Australia. The only evidence ASIC had to connect Transcomm Australia with the contravening conduct was one withdrawal from its account described as a "wiring settlement" the day before Allianz Australia was incorporated. Further, the description of the payment in the account suggested that the payment was unrelated to paying agency business conducted by One Tech in 2016. Further, in any case, that single transaction took place on 4 January 2016, which was outside the timeframe in respect of which ASIC sought relief against Transcomm Australia. So too in relation to Cameron and Bianco. ASIC's case that Bianco and Cameron "arranged for" anyone to "issue" a binary option, or "offered to arrange for the issue" of a binary option, rose no higher than that Cameron established an email address and provided IT support. As against these defendants, ASIC persisted in prosecuting them notwithstanding the paucity of the evidence implicating them and continued to do so, in my view, unreasonably. Furthermore, there is nothing in the conduct of the unsuccessful defendants which has been identified as inducing ASIC to continue to maintain its prosecution of the successful defendants such as to make it fair and reasonable to impose a liability upon them for the costs for the successful defendants. 55 Accordingly, I do not accept that it is appropriate to make either a Sanderson Order or a Bullock Order. ASIC should pay the costs of Transcomm Australia, Sansen, Cameron and Bianco. Otherwise, there should be orders that Eustace and Ida pay ASIC its costs of and incidental to the proceeding as against them, including reserved costs, and an order that Allianz Australia pay 80% of ASIC's costs of the proceeding as against it, including reserved costs. 56 The parties will be directed to provide minutes of orders giving effect to these reasons.

I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.

Associate: Dated: 17 June 2020 SCHEDULE OF PARTIES VID 848 of 2016 Defendants Fourth Defendant: EUSTACE SENESE Fifth Defendant: SANSEN PTY LTD (ACN 111 816 178) Sixth Defendant: TRANSCOMM GLOBAL PTY LTD (ACN 169 503 762) Seventh Defendant: SANDRA SENESE Eighth Defendant: BIANCO PTY LTD (ACN 604 778 305) Ninth Defendant: CAMERON DAVID SENESE Tenth Defendant: IMC HOLDINGS PTY LTD (ACN 138 415 291) Eleventh Defendant: YOAV IDA Twelfth Defendant: WESTPAC BANKING CORPORATION (ACN 007 457 141) Thirteenth Defendant: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) Fourteenth Defendant: BENDIGO AND ADELAIDE BANK LIMITED (ABN 11 068 049 178) Fifteenth Defendant: COMMONWEALTH BANK OF AUSTRALIA (ABN 48 12 12 124) Sixteenth Defendant: CITIGROUP PTY LTD ABN 88 00 325 080