Supreme Court of WA|2002-09-17|Before: Smith J

Australian Securities & Investments Commission v Doyle & Anor [2002] WASC 223 (17 September 2002)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION -v- DOYLE & ANOR [2002] WASC 223

BETWEEN : AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Corporations - Companies - Contraventions of Corporations Law - Prohibition orders and pecuniary penalties

First respondent prohibited from managing a corporation for 2 years

Second respondent prohibited from managing a corporation for 2 years

First Respondent : Mr M J McCusker QC & Mr K L Christensen

Second Respondent : Mr M J McCusker QC & Mr K L Christensen

Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238

Cullen v Corporate Affairs Commission (1989) 7 ACLC 121

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285

Trade Practices Act 1974 v Sony (Australia) Pty Ltd (1990) ATPR 41053

Trade Practices Commission v Axive Pty Ltd (t/as Newcastle Ice & Cold Storage) (1994) ATPR 41,368

Trade Practices Commission v CC (New South Wales) Pty Ltd (No 2) (1995) ATPR 41,431

Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375

1 ROBERTS-SMITH J: These are my reasons for decision in respect of application by the applicant ("ASIC") for penalty orders in respect of contraventions of civil penalty provisions of the Corporations Law by the respondents.

2 The original substantive proceedings were heard between 12 and 26 April 2001.

3 My judgment on the substantive application was delivered on 20 July 2001 (Australian Securities & Investment Commission v Doyle & Anor [2001] WASC 187).

4 Following further submissions by counsel, formal declarations and orders were made that:

1. Pursuant to Corporations Law ("CL") s 1317EA the first respondent, by his presence and by voting at the Board meetings of Chile Minera NL ("the Company") on 21 and 22 November 1996 and by signing the circular resolution dated 22 November 1996 being a director of the Company, made improper use of his position as director to gain directly an advantage for other persons and thereby contravened CL s 232(6).

2. Pursuant to CL s 1317EA the second respondent contravened CL s 232(4) in that he failed to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the circumstances of the Company at the time.

5 I further ordered that the matter be re-listed before me on the question of penalty on a date to be fixed by the Civil Listings Coordinator ("Listings") upon application by ASIC provided that if no such application be made by 4 pm Friday 17 August 2001 the action be otherwise dismissed.

6 ASIC's solicitors wrote to Listings on 23 July 2001 requesting listing of the penalty hearing.

7 By letter dated 25 July 2001 the respondent's solicitors wrote to Listings disagreeing with ASIC's solicitor's estimate that the penalty hearing would take only half a day and advising that it might be necessary to adduce further evidence in relation to that aspect. They suggested that directions would be necessary. They also advised that it was intended to file an application for leave to appeal the primary judgment and the question of directions would be taken up then.

8 By a chamber summons dated 31 August 2001, the respondents sought leave to appeal and an adjournment of the penalty hearing pending determination of the application and appeal.

9 On 19 September 2001 I ordered that the time to apply for leave to appeal be extended to that date but the application for leave to appeal be refused. I declined the respondents' application that the penalty hearing be adjourned and gave directions for the filing of affidavits on penalty. They were that the respondents file and serve affidavits by 17 October 2001, ASIC file and serve affidavits and submissions by 25 October 2001 and the respondents file any submissions in response by 1 November 2001. The parties were thereafter given leave to apply.

10 On 28 May 2002 the penalty hearing was listed to be heard before me on 2 August 2002.

11 In respect of the respondent Doyle ("Doyle"), ASIC seeks orders that he be prohibited from managing a corporation for two years and the imposition of a fine of $50,000. In respect of the respondent Satterthwaite ("Satterthwaite"), ASIC seeks orders prohibiting him managing a corporation for two years and the imposition of a fine of $30,000.

12 The relevant penalty regime is that contained in the Corporations Law as at the time of the respondents' contraventions, namely 21 and 22 November 1996.

13 The principles applicable to the making of prohibition orders and the imposition of fines for breaches of the Corporations Law are not in dispute. They have been comprehensively set out by Santow J in Re HIH Insurance Ltd (In Prov Liq) & HIH Casualty & General Insurance Ltd (In Prov Liq); Australian Securities & Investments Commission v Adler & Ors [2002] NSWSC 483; (2002) 42 ACSR 80, to which I shall return below.

14 There are two preconditions for the making of a prohibition order under CL s 1317EA(3)(a). The first is that the court has made a declaration of contravention under CL s 1317EA(2); the second is that the court is not satisfied that, despite the contravention, the person is a "fit and proper person to manage a corporation" (CL s 1317EA(4)).

15 The principles of law relevant to the second precondition were stated by Merkel J in Re Tasmanian Spastics Association; Australian Securities Commission v Nandan (1997) 23 ACSR 743 at 741:

"Traditionally such a prohibition has been viewed by the courts as being primarily protective of the public rather than penal or punitive; CCA v Bracht [1989] VicRp 72; [1989] VR 821 at 827; [1989] VicRp 72; (1988) 14 ACLR 728; Friend v CAC (1988) 7 ACLC 106 at 115 and Nicholas v CCA (1986) 10 ACLR 792: 5 ACLC 258 at 265-6. The object of s 1317EA(3)(a) is to protect the public by preventing a corporation's structure from being able to be misused to the detriment of the company, its shareholders, creditors, investors and others dealing with the company. That objective is confirmed by s 1317EA(4) which provides that a court is not to make a prohibition order under s 1317EA(3)(a) if it is satisfied that despite the contravention, the person is a fit and proper person to manage a corporation. The objective is achieved by the court being conferred with power to prohibit persons who have contravened a civil penalty provision from managing a corporation for a specified period unless the court is satisfied that the person is a fit and proper person to manage a corporation."

16 In Australian Securities Commission v Donovan (1998) 28 ACSR 583, Cooper J said at [35]:

"Because the power under s 1317EA(3)(a) is predominantly protective, it is relevant to have regard to the officer's prior corporate conduct, to the present activities of the officer, to the likelihood that the officer will repeat or engage in conduct of the type which constituted the contravention of s 232(4) which gives rise to the application, including whether or not the officer shows contrition or accepts responsibility for his or her conduct and the extent to which the officer benefited from the conduct personally or tried to conceal it."

17 The wording of CL s 1317EA(4) makes it clear the court will not thereby be precluded from making a prohibition order unless affirmatively satisfied that, despite the contravention, the person is nonetheless a fit and proper person to manage a corporation.

18 There are also two preconditions for the imposition of a pecuniary penalty under CL s 1317EA(3)(b). The first is that the court has made a declaration of contravention under CL s 1317EA(2). The second is that contained in s 1317EA(5) which is that:

"The court is not to make an order under paragraph (3)(b) unless it is satisfied that the contravention is a serious one."

19 This formulation is to be contrasted with that in section 1317EA(4): here the court must be satisfied of the seriousness of the contravention before a pecuniary penalty can be imposed; under s 1317EA(4), as I have observed, the court may make a prohibition order unless satisfied the person concerned is a fit and proper person to manage a corporation.

20 In my view the nature of a pecuniary penalty order under s 1317EA(3)(b) is punitive in character although its principal objective is deterrence - that is to say, deterrence of corporate officers from using a corporate structure in a manner contrary to proper commercial standards to the detriment of the company, its shareholders, creditors, investors and others dealing with it (see Australian Securities Commission v Donovan (supra) per Cooper J at [37 - 38]; Australian Competition and Consumer Commission v J McPhee & Son (Aust) Pty Ltd (No 5) [1998] FCA 310; (1998) ATPR 41-628 per Heerey J at 40,891 and Australian Competition and Consumer Commission v ABB Transmission & Distribution Ltd [2001] FCA 1343 per Finkelstein J at [11].

21 All relevant circumstances must be taken into account, including the nature and extent of the contravening conduct, the amount of loss or damage caused, the circumstances in which the conduct took place, the deliberateness of the contravention, the period over which it extended and whether the contravention arose out of the conduct of senior management or at a lower level (Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52, 152 - 153 per French J).

22 In Australian Competition and Consumer Commission v Rural Press Ltd [2001] FCA 1065, Mansfield J said at [15]:

"In my view, it is necessary to fix the level of the pecuniary penalties having regard to the maxima prescribed in s 76 and to all the circumstances relevant to the nature and circumstances of the contraventions and of each of the respondent's individual circumstances. In doing so, the court must bear in mind the two deterrent objectives, namely the deterrence of the respondents and deterrence of others in the community from failure to comply with s 45 and s 46 of the Act, which the pecuniary penalties are directed to securing. In relation to the respondents, even though it may be unlikely that a respondent will contravene a provision of Pt IV in the approximate future it is desirable to impose a penalty to ensure that the respondent, as well as the public generally, is reminded of the consequences of contravention."

23 With respect, I accept the principle there articulated is broadly applicable to the present case.

24 On 2 August 2002, additional evidence was adduced by the respondents on the question of penalty. That was contained in the following affidavits, they being of:

5. Paul Millington Goodsall, sworn 12 November 2001

6. Peter Raymond Holsworth, sworn 12 November 2001

11. Derek William Satterthwaite, sworn 3 July 2002.

25 In his affidavits, Christensen deposed to the background and circumstances of the respondents.

26 According to Christensen's affidavit of 20 August 2001, Doyle obtained a Bachelor of Arts in Science (Economic Geology) in 1977 and a Post-graduate Diploma in Mineral Economics in 1978. From 1978 to 1984 he was employed by Pan Continental Mining Ltd as a Technical Coordinator and subsequently as a Computer Systems Manager for the Pan Continental Group of Companies, managing all the computer applications for the technical, financial and corporate divisions. From 1984 he worked at Jackson Ltd, initially as a Senior Mining Analyst, becoming an Associate Director in charge of research. In that capacity his principal duties included analysis of companies, the review of small to medium resource companies, assessing the potential for listing for the Australian market and coordinating research institution presentations between the officers of Jacksons Ltd, both in Australia and internationally.

27 In 1990 he was employed by Bain & Co/Deutsche Bank Ltd as a Senior Mining Analyst where he undertook similar functions to those he had at Jacksons Ltd, albeit now with a greater emphasis on corporate work.

28 In 1990, with Malcolm Turnbull and Neville Wran, he established Turnbull Doyle Resources Pty Ltd ("Turnbull Doyle"). From 1990 to 1996 he was an Executive Director of Turnbull Doyle with a full range of responsibilities associated with that position. Turnbull Doyle was established to provide corporate advice and investment capital raising for emerging Australian companies. Some investments were made in off-shore companies with off-shore assets controlled by Australian companies and provided a great deal of experience in dealing with cross-border transactions. Turnbull Doyle specialised in resource transactions only.

29 Doyle left Turnbull Doyle and in 1996 set up Doyle Capital Partners Pty Ltd ("DCP"). DCP seeks out business situations to provide financial management advice in the initial stage of operation of various companies including those in the resource industry. It acts in a traditional merchant banking role, providing investment capital advice in order to advance a company's prospects. The income earned by DCP is not solely from its role as advisor, but through equity positions which it acquires in its role as merchant banker. In that role, DCP has acted in many situations ranging from listings in the resource industry to arranging takeovers of businesses starting up, by listed companies. DCP and Doyle are said to rely heavily on a very large and reliable contact base in the Australian market-place and in particular in Sydney. DCP takes both underwriting and sub-underwriting positions and arranges such transactions. It is said to maintain a portfolio of investments at various stages of development, having different levels of exposure from time to time.

30 Christensen deposes that as at 20 August 2001, Doyle was currently a director of DCP, Pac-Tech International Pty Ltd, Doyle Resources Pty Ltd, American South-West Holdings Inc (a company listed in the United States of America), Tatens Pty Ltd, Rebecks Pty Ltd, and Azucar Mining Corporation (an unlisted but public company in Canada). He is said to have held other directorships in the past in more than a dozen companies, many of which have been listed on the Australian and American Stock Exchanges. His main function is as a director and manager of companies in which he is involved and he takes up directorships (outside of DCP) to recapitalise and employ the latest management skills. It is said his association with these companies has been successful in many instances and is not dissimilar with his role in capital raising for Chile Minera NL.

31 Christensen deposes that any disqualification would have far-reaching consequences upon his ability to earn income and also the affairs of companies of which he is a director, including DCP, which holds a Securities Dealers' licence. It is said Doyle is unaware of any allegations of a similar nature being made against him in relation to any other company. Finally it is said that a prohibition order in respect of him would be a disadvantage to others, including other persons who have approached DCP for DCP to undertake work of their behalf.

32 In his affidavit dated 30 August 2001 relating to Satterthwaite, Christensen deposes that Satterthwaite was a member of the New Zealand Stock Exchange for 30 years and a senior partner in a large firm in New Zealand until the 1987 stock market crash, after which he became involved as a business consultant in the corporate and mining industries to companies in Australia, New Zealand and other parts of the world including the United Kingdom, Europe, Russia, China, Canada, the United States of America, Chile and South-east Asia. He was said to be currently involved in assisting corporate restructuring of American South-West Holdings Inc; International Precious Metal Inc and International Capital Partners Inc in the United States of America and of Azucar Mining Inc in Chile and Canada. In New Zealand he consults to a wide range of business persons with New Zealand and international business interests and in Australia consults for Helicopter (NZ) Ltd's Australian subsidiary Helicopter (Australia) Ltd. As at August 2001 he was said to be in the process of assisting in the major restructuring of Helicopter (Australia) Ltd and as part of that had accepted an invitation to join the Board of Directors so that changes recommended by him would be fully implemented. He also consults to DCP as and when required, involving both private clients and clients listed on the Australian Stock Exchange.

33 Apart from the affidavits of the respondents, to which I shall turn in a moment, the other affidavits were all in the nature of evidence of Doyle's good character.

34 The affidavit of John McCarrol was quite brief. He is a Senior Dealer with the stockbroking firm JB Weir and deposes that he first met Doyle in 1984 when they worked together at Jacksons Ltd where they were both Associate Directors and McCarrol had many dealings with him in the areas of financing companies and the provision of research materials to clients. More recently Doyle has been a client of McCarrol at JB Weir. While they were working together at Jacksons Ltd, McCarrol formed the view that Doyle always acted in the interests of their employer and he never suspected that at any time Doyle would act otherwise. He deposes that he and Doyle are good friends, that Doyle has taken a keen interest in McCarrol's young family and that Doyle has always demonstrated to McCarrol a very high level of honesty and integrity which, in his opinion, is beyond reproach.

35 William Corkill is an Investigative Accountant. He is the President of Lindisfarne Foundation Ltd which is a body set up for the education of the Lindisfarne Anglican School in the Northern Rivers of New South Wales. He is a former Investigator of the New South Wales Corporate Affairs Commission with over 25 years experience in the detection and investigation of corporate fraud. Since 1985 he has operated his own business as an Investigative Accountant. He has known Doyle for over 40 years during which time he has had ample opportunity to observe Doyle's behaviour and business ethics. He deposes that in the past 25 years he has seen Doyle graduate from University and embark upon a career in mining and later in private banking. In that time he has always observed Doyle as a person of the highest business standards and one who exhibits openly ethical behaviour and who takes his duties as a Company Director seriously. To his observation, Doyle more often than not, seeks the advice of other professionals in his business transactions. Corkill states that he holds Doyle's business and ethical behaviour in the highest regard.

36 Paul Goodsall's affidavit was particularly brief. He is a Chartered Accountant and first met Doyle in 1986 when the latter was an Associate Director at Jacksons Ltd. During that time Doyle was instrumental in formulating and implementing several transactions on behalf of Elders Resource Finance. Goodsall deposes that in the various business dealings he has had with Doyle, the latter has, in his experience, been innovative but at all times an honest and reliable person whose integrity in his view is beyond reproach and with whom he wishes to continue working in the future when opportunities arise.

37 Peter Holsworth is a Chartered Accountant who states that he has known Doyle for approximately six years, during which time he has sat on the Board of Directors of two companies with him and over which period he has asked for, and received, investment advice from Doyle. He states that he has found Doyle's approach in relation to the companies upon whose Board they sat, and the investment opportunities he presented to Holsworth, to be beyond reproach and is of the view that Doyle's honesty and integrity is impeccable.

38 Edward O'Dwyer (incorrectly named in the text of the affidavit as "O'Dyer") is a Catholic priest who has known Doyle in a professional and personal capacity "for a number of years". He states he has observed that Doyle is a person with integrity and one whose professional skills are highly regarded by his peers. Father O'Dwyer states that in the various discussions he has had with Doyle, it has always been obvious to him that Doyle regards essential honesty as an absolute factor in any business in which he is involved.

39 Bryan Frost is a Director of several Australian listed companies and manages an investment bank known as Peregrine Corporate Ltd. He states he has known Doyle for at least seven years, initially through business in which DCP was advising companies with whom Frost was associated and in respect of which he personally has acted upon recommendations made by Doyle. He deposes that from this business association a strong friendship based on trust has evolved and from the time he met Doyle he had, and still has, the highest regard for Doyle's integrity and honesty in business.

40 In his affidavit dated 5 February 2002, Doyle confirms the matters relating to him as set out in Christensen's affidavit sworn 20 August 2001. In addition he deposes that DCP has entered into a transaction at his instigation whereby a South African investment bank PSG Investment Bank Ltd ("PSG") has acquired 63 per cent of the business of DCP. A new company has been formed under the name PSG Doyle Capital Pty Ltd ("PSG Doyle Capital") that is now to carry out DCP's business. PSG has made available to PSB Doyle Capital an initial working capital of $10 million to invest in transactions which require early stage investments or seed capital in order to advance them to a stage where public capital would be more readily available. Doyle states that PSG Doyle Capital was established to fill a void in the small capital companies market created largely by the mergers of broking companies in the 90s which he says effectively eliminated that availability for junior Australian companies.

41 Doyle states that given the initial capital investment of $10 million by PSG and an increase from two to eight in the number of employees, the business is now capitalised to a far larger extent and has significantly more scope for growth both in terms of more staff and additional capital investment as the business grows. He is the Managing Director and Chief Operating Officer of PSG Doyle Capital. He deposes that he has been the driving force behind DCP for many years, particularly in terms of developing its new business and that is his role with PSG Doyle Capital. One of the conditions precedent of the agreement between PSG and PSG Doyle Capital is that if Doyle were to be disqualified from taking part in the management of PSG Doyle Capital, that would allow the termination of the agreement and PSG would have the option of withdrawing from the transaction, in which event PSG Doyle Capital would close down. That would have an impact on the other eight people working for PSG Doyle Capital.

42 A copy of the Shareholders' Agreement and attached Service Contract was received in evidence as Exhibit S1.

43 According to the Shareholders' Agreement, David Ross Hannan and Doyle own 100 per cent of the issued shares of DCP. The agreement itself is between PSG Doyle Capital, PSG and Doyle and Hannan. The condition relevant for present purposes is 19.1.6 which stipulates that:

"Alan Doyle will supply a letter from an Australian lawyer confirming that Doyle is not disqualified (by virtue of a judgment in a recent Supreme Court case in Western Australia) from being a director of a company."

44 The attached "Service Contract" (the copy of which was produced in evidence is not executed) purports to be between Hannan and Doyle (described as "the executive") and PSG Afro-Pacific Ltd. The relevant provision is said to be cl 5.2.4 which provides that the company shall be entitled to terminate the agreement summarily if the executive, for whatever reason, is disqualified from acting as a director of the company at any time before 1 March 2004.

45 Doyle's affidavit sworn 20 June 2002 is relatively brief. In it he states:

"3. I accept the findings of the learned trial Judge in these proceedings made against me.

4. I am remorseful and sorry for my actions that lead (sic) to the findings of (sic) by the learned trial Judge as I have always endeavoured in my business dealings to comply with my obligations as a director and not cause damage to those I deal with in any unfair fashion.

5. I:

5.1 decided to cause Doyle Capital Partners Pty Ltd to retain the monies received from Chile Minera NL;

5.2 defended the proceedings brought against me by Chile Minera NL; and

5.3 defended these proceedings,

based upon legal advice I received that I had a legal entitlement to do so. In saying this I do not, nor do I intend to waive mine or Doyle Capital Partners Pty Ltd legal professional privilege.

6. Similarly I will be appealing the learned trial Judge's decision as I have been advised by my lawyers that I have a legal entitlement to appeal that decision. Again, I say this in the context that I do not, nor do I intend to waive legal professional privilege in relation to that advice."

46 Save for the references to DCP in par 5, Satterthwaite's affidavit sworn 3 July 2002 is in exactly identical terms (including the minor errors).

47 I shall deal first with Doyle. What follows is to be read together with, and in the context of my reasons for decision handed down on 20 July 2001 ("the primary judgment").

48 The first pre-condition for each of a prohibition order and a pecuniary penalty, namely that there has been a declaration of contravention under CL s 1317EA(2) has been met by the declaration made in respect of Doyle on 20 July 2001.

49 As senior counsel for ASIC pointed out, Doyle was a full Director of the Company only for a very short period of some eight days. He was an alternate Director for Mountford prior to that and was a Director in his own right at the meeting on 23 November 1996 and had resigned by 28 November that year. The authorities would suggest that ordinarily such a brief period of directorial responsibility would tend to mitigate the person's conduct rather than otherwise, but the circumstances here were unusual.

50 It is convenient for the moment to return to some of the findings made in the primary judgment and the evidence generally.

51 Doyle was a Director of DCP and owned 50 per cent of its shares (primary judgment [23]). DCP was to receive a fee of $24,000 for raising capital of $400,000 for the company by placing 8,000,000 shares at 50 cents ([25], [28]). DCP itself was to take half the placement, namely 4,000,000 shares and 4,000,000 options (primary judgment [30]). The other half was taken by DCP clients, Rothschild Bank (1,000,000 shares and options) and Cramm Nominees (3,000,000 shares and options).

52 I accept that those who took up the shares did so on the basis and in the expectation that they would be capable of being voted upon and traded in the same way as other ordinary shares of the company and that was the basis of the demand by Doyle on 20 and 21 November 1996 that the $400,000 be repaid to DCP forthwith, failing which legal action would be taken against the Company.

53 In these proceedings it was common ground that in those circumstances Doyle had what Mr Martin QC described as a "stark conflict of interest".

54 Doyle was alternate Director for Mountford when he wrote the letter of demand on 21 November 1996 (that earlier appointment having been announced by the company on 20 November), and attended the meeting on 21 November in that capacity. I refer particularly to my findings as to Doyle's role at the meeting on 21 November 1996 as set out at [179] and [181] of the primary judgment. They were that:

"[179] Doyle was at the meeting with Satterthwaite on 21 November. He was demanding return of the money to DCP. That was why he was there. I accept Satterthwaite's evidence that when Nash said the money would have to be held in trust, Doyle said DCP had a trust account and the money could be put there. Satterthwaite could not have known that unless Doyle had told him. The suggestion that the money be put there did not come from Nash, although I am satisfied he gave his imprimatur to it. In light of the evidence as a whole, and having seen and heard Doyle and Satterthwaite give evidence, I am satisfied Satterthwaite felt himself under great pressure and agreed to Doyle's suggestion (which I have no doubt was forcefully put) that the money be put into the DCP trust account. He did this out of concern about the threat of legal action from the placement shareholders as conveyed to him by Doyle, confirmed as it was in his mind by the advice of Nash that the shareholders had not got what they had been promised and that the directors could be held personally liable, and believing that the money could be held in trust pending a resolution of what to do with it later in light of counsel's opinion. Satterthwaite accepted the proposition that the money could be held in the DCP trust account because that would satisfy Doyle and Nash had said it could be done. He acknowledged in evidence that in acceding to this, he was relying entirely upon Doyle's assurance that if counsel's advice later was that the money had to be returned to the Company, DCP would return it.

...

[181] I find there was no actual vote taken in any formal sense. There was a discussion between Doyle and Satterthwaite in the course of which Doyle demanded the money be paid over. He was there in his capacity as alternate director of the Company. That was the understanding of all concerned and that understanding is reflected in the minutes. By maintaining the demand, by persuading Satterthwaite to agree to it and by proposing Nash's advice could be accommodated by putting the money in the DCP trust account, Doyle was an active participant in the decision made at the meeting. I consider that amounted to Doyle voting in favour of the resolution (as indeed did Satterthwaite's mere agreement with what was proposed) in circumstances in which no formal vote was taken. I am further satisfied Murphy's minutes do not record Doyle as declaring a conflict of interest nor as abstaining, because nothing was said about either. Notwithstanding Murphy's concession in cross-examination that it would be reasonable to conclude he would have recorded Doyle voting if he had done so, I am satisfied he did not do so in these circumstances and that he would certainly have recorded Doyle as having expressly declared a conflict of interest and his abstention had Doyle done that. It was not recorded because Doyle said nothing to that effect. Those present certainly would have realised Doyle had a conflict of interest, but he nonetheless took part in the meeting and indeed, I am satisfied, he took the primary role. I consider Murphy encapsulated the position accurately in his statement (E 8, p 57) that: '... it was something Mr Doyle was pushing for but the Company was unsure about.'

55 I do not accept the submission of senior counsel for Doyle that this is not a case of a deliberate or knowing offence. I am satisfied that Doyle was well aware he had a conflict of interest, but notwithstanding that, he pressed for payment of the placement moneys into the DCP trust account and by his conduct he effectively voted in favour of the motion that the payment be made and he signed the circular resolution to the same purpose. Likewise, the submission that the withdrawal of the moneys and their payment into the DCP trust account pending counsel's advice was made after advice from a solicitor, Mr Nash, and that what the respondents did they thought at the time was right and proper, but they simply got it wrong, at best puts a gloss on what actually happened and at worst, is contrary to the findings already made.

56 The legal advice given by Nash was uncertain. On the one hand there was the concern that Doyle's demand for return of the placement moneys was justified, his threat of imminent legal action unless the moneys were repaid immediately was real and there was the spectre that the Directors of the Company could be held personally liable for the failure to provide the shares contracted for. On the other hand, there was an appreciation that the payment could constitute an unauthorised return of capital, which would be a breach of the Corporations Law with potential consequences flowing from that. In short, the advice was that the legal position was uncertain. That was why, in the face of Doyle's insistence that the money be returned immediately, Nash advised that it could be paid over on condition it went into the DCP trust account to be subsequently released in accordance with counsel's advice.

57 The gravamen of Doyle's contravention is the improper use by him of his position as a Director of the Company by his presence and by voting on 21 and 22 November 1996 to gain an advantage for other persons. Those other persons were DCP (which had the major interest and in which in turn Doyle personally had a 50 per cent interest), and two clients of DCP, Banque de Rothschild and Cramm Nominees.

58 Mr McCusker QC submitted there is no evidence that at the time the moneys were paid to DCP, Doyle had an intent that they be retained by DCP or returned to the allottees even if the subsequent legal advice was that the repayment was an unauthorised reduction of capital.

59 Again, that is not quite so. The situation was that it was Doyle who by his pressure, effectively caused the payment to be made. Further, the evidence was that despite the advice given by Nash and the understanding of Satterthwaite and Murphy that the money could be returned to DCP provided it be held in the DCP trust account and released only in accordance with counsel's advice, the position subsequently expressed by Doyle (see primary judgment [237] and [238]) was that the funds had been received by DCP as a result of cancellation of the placements because the shares had been invalidly issued. The condition upon which he considered the funds were to be held in trust was the return of the share and option certificates (and refund of the $24,000 placement fee) to the Company. I am satisfied that was his position on 21 and 22 November 1996, although it was not one then appreciated by Satterthwaite, Murphy nor anyone else.

60 The fact that Doyle improperly used his position as a Director of the Company to gain the payment to DCP's trust account and it to DCP's control in circumstances in which he was well aware he had a clear conflict of interest, that there was a very real question whether the payment itself was proper and yet in which he was not necessarily agreeing (as a Director of DCP) that the money would be subsequently dealt with in accordance with counsel's advice to the Company, to my mind aggravates the seriousness of his conduct and goes directly to his fitness to manage a corporation.

61 The purpose of the legislation in this regard is to prevent improper use of a corporate officer's position and to protect corporations, shareholders and others from the consequences of such use.

62 The consequence of Doyle's improper use of his position was that the unauthorised return of the placement moneys was the dominant contributing factor to the Company's subsequent insolvency (primary judgment [230]). He was also fully aware of the Company's financial position. This is reflected in the finding at [204] of the primary judgment that:

"... He was also well aware the $400,000 was needed for the preliminary work in Chile and that without it the Company did not have funds to do other things (t 162). He knew the payment of the $400,000 to DCP would be a detriment to the Company since it would be depriving the Company of that money which it then controlled and which it may have been able to keep and apply to its own activities."

63 It is no answer for the first respondent to say that the Company was not insolvent as at 22 November 1996 and it was only later payments, not authorised by him, which caused it to become so (respondents outline [2.1.2]). There is no suggestion there was anything untoward about the subsequent payments, nor that they were made otherwise than in the ordinary course of business, but more to the point, the plain fact is, as was found at primary judgment [230], the Company would not have become insolvent even then, had the payment improperly caused by Doyle not been made.

64 The fact that Doyle was an alternate Director and Director of the Company for such a short period does not here have the mitigating effect it might otherwise have had. Brief though the period was, Doyle was able, by his improper use of his position in the interests of DCP and its clients and in complete disregard of his directorial responsibilities to the Company, to cause it a substantial financial loss and eventual insolvency. He was able to do so precisely because of his forceful personality, his recognised professional experience and standing and his role (and that of DCP) as financial and corporate consultant to the Company. That fact, given his main function as a director of DCP and other companies (now extending to PSG Doyle Capital) was, and still is, to take up corporate directorships to recapitalise other companies and contribute management skills to them at the highest level of decision-making, together with his own assertion that he was the "driving force" behind DCP and that is now his role with PSG Doyle Capital, would indicate a need for some protective order or orders also embodying elements of both specific and general deterrence. In the field in which he is active, namely corporate management and financial consultancy, there is a potential to do considerable financial damage in a short period of time, as the present case itself illustrates (ASIC v Hutchings [2001] 38 ACSR 387).

65 In his affidavit sworn 20 June 2002, Doyle does not say when the transaction establishing PSG Doyle Capital was entered into. The copy Shareholders' Agreement tendered by his counsel indicates that document was executed in October 2001. It is clear from the terms of cl 5.2.4 of the Service Contract that the agreement was made with knowledge of the present proceedings and the decision given on 20 July 2001.

66 The conduct of a person subsequent to a determination that he or she has committed a serious contravention of the Corporations Law may, in certain circumstances militate against the making of a prohibition order or the imposition of a substantial pecuniary penalty where that conduct is such as to demonstrate genuine remorse, an appreciation of the wrongfulness of their conduct and a determination and capacity in future to act in accord with proper corporate practice.

67 By contrast, I have some serious difficulty with the proposition that a person found to have committed a serious contravention of that kind should not be made the subject of a prohibition order (or that the period of the prohibition order should be reduced) because subsequent to the contravention being found, he or she has entered into further business arrangements dependant upon their continuing legal capacity to manage a corporation.

68 Whilst I do take Doyle's current involvement with, and the situation of, PSG Doyle Capital and its employees into account, that is not a factor to which I consider it appropriate to give any appreciable weight (cf Re HIH Insurance, supra, per Santow J at 99, at line 43).

69 At the same time, hardship to an offender and their personal commercial interests is a relevant consideration (Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519) and it is necessary to assess the effect of that in each particular case. A prohibition order would impose considerable hardship upon Doyle given the nature of his professional and business activity. That consequence however, must be weighed against the seriousness of the contravention and, inter alia, the extent to which he has been shown to have (notwithstanding the contravention) a proper understanding of the role of a company director and the duty such a director owes to a company, the propensity that he may engage in similar conduct in the future and the likely harm that may be caused to others were he to do so. These are some of the considerations drawn from the authorities most usefully collected by Santow J in Re HIH Insurance at [55] and [56]. I respectfully adopt the principles summarised by his Honour there as being relevant to the exercise of the discretion in CL s 1317EA(3)(a).

70 It was put to me on Doyle's behalf, and indeed by him in his affidavit of 20 June 2002, that he accepts the findings made against him and is remorseful and sorry for his conduct which led to those findings. At the same time Mr McCusker QC submits that the issue of remorse becomes artificial where the person has acted bona fide. I take that to mean that Doyle had a genuine belief that what he did was right. I have already expressed my view of that submission. Doyle's conduct indicated a lack of understanding of his proper role as a Director of the Company and his duty as a Director of it to act in its best interests, not the interests of others.

71 While a person is in no way to be penalised for exercising their legal rights to appeal, the fact that Doyle has indicated an intention to appeal the findings in the primary judgment is somewhat inconsistent with the assertion that he accepts the findings and is remorseful and sorry for his actions which led to them. So too, the fact that his affidavit of 20 June 2002 and that of Satterthwaite of 3 July 2002 are obviously the same document, suggest their expressions of remorse and contrition are no more than formulaic and mechanical and do not reflect any real understanding of the wrongfulness of the conduct involved, nor a genuine sentiment which would give some assurance that the conduct would not be repeated because of it.

72 I accept that Doyle has a reputation amongst his business associates and friends for a high degree of business acumen and expertise as well as personal honesty and integrity. The particular matters put forward in the affidavits as to his good character do not necessarily demonstrate a proper appreciation by Doyle of the role, duties and obligations of a company director placed in a situation of conflict, which seems to me the salient issue here. Thus, when for example McCarrol states that when he was working with Doyle at Jacksons Ltd he formed the view that Doyle always acted in the interests of his employer, it might well be thought that was precisely how Doyle saw the situation on 21 and 22 November 1996 when he acted in the interests of DCP and DCP clients rather than those of Chile Minera. I note too that McCarrol and Doyle were employees, not directors, of Jacksons Ltd.

73 The affidavits of Corkhill, Goodsall, O'Dyer and Frost are expressed in very general and brief terms and do not indicate any particular close business association with Doyle. None of them has had any experience with him on company boards. Holsworth deposes he has sat with Doyle on the boards of two companies but gives no details of them, the nature and frequency of his contact with Doyle, the circumstances of it, nor any other information which would assist me to any real extent in assessing Doyle's fitness to manage a corporation. I do not discount the evidence of each of these witnesses that in their personal opinion Doyle is a businessman of honesty and integrity who takes his responsibilities as a company director seriously, but in my view their evidence does not go beyond that, and their opportunity to form that opinion from circumstances pertinent to the assessment I am called upon to make, seems to me to have been limited and in some instances, nonexistent.

74 Looking at the circumstances and the evidence as a whole, I am not satisfied that despite the contravention, Doyle is a fit and proper person to manage a corporation. To the contrary, the contravention indicates that he is not and the evidence before me has not satisfied me otherwise.

75 But I do not consider a lengthy period of prohibition is required. It should be no longer than is necessary to serve the object of protection of the public. This was not a case of dishonesty, but rather the use of his corporate position contrary to proper commercial standards to obtain an advantage for others - albeit through DCP Doyle did also have a personal interest. I consider there is a need here for the element of personal, as well as general, deterrence. Given the seriousness of the consequences of a prohibition order to him, I consider a relatively short period would serve to have that effect as well as to impress upon him and others the importance of a company officer not acting in a situation of conflict. Balancing all of the competing considerations, I have come to the conclusion that a period of two years would be the least that would be appropriate and no more than is necessary and I reach that conclusion bearing in mind the pecuniary penalty which will also be imposed.

76 The principal purpose of a pecuniary penalty is to act as a personal deterrent to the offender and a general deterrent to others (see Re HIH Insurance, supra per Santow J at [125] and the authorities there referred to). I am conscious of the risk of "double counting" in the sense of taking the same factor into account adversely to an offender in respect of both the prohibition order and the pecuniary penalty. It would clearly be wrong to do that where the full effect of the factor was reflected in each of those outcomes; it would be proper only to reflect the full effect in only one of them or alternatively to do so by reflecting it partly in one and partly in the other, so that the full effect was reflected in the combination. It is the latter approach I take here.

77 I respectfully agree with and adopt the summary of principles as set out by Santow J in Re HIH Insurance at [126].

78 Although it was known from ASIC's outline of submissions that it was seeking a pecuniary penalty of $50,000 against Doyle, no evidence was put before me specifically as to Doyle's capacity to pay a fine of that or any other amount. Given that, and on the evidence generally, I proceed on the basis that he would have that capacity. Even so, I accept Mr McCusker QC's submission that on anyone's view, $50,000 is a huge fine - especially against a private individual.

79 I must also bear in mind the consequences of the prohibition order. They will no doubt include substantial loss of earnings and reflect adversely on his reputation. I will reduce the amount of the pecuniary penalty I would otherwise have ordered on that account, but I do not consider those consequences should mean no pecuniary penalty order should be made at all.

80 I am satisfied the contravention by Doyle was a serious one and I have regard to that. In particular, Doyle was well aware of his situation of conflict yet nonetheless was the driving force behind the payment, in circumstances in which Satterthwaite, Murphy and their legal advisers were uncertain about the legal situation. The amount involved was substantial and the consequences to the company of its payment were ultimately disastrous.

81 Doyle has not demonstrated any serious remorse nor contrition. Although his conduct did not involve dishonesty, it went well beyond mere negligence or carelessness. He cannot be given the benefit of not having contested the proceedings (although of course, nor can that count against him) although his previous unblemished character must be taken into account.

82 In all the circumstances I consider a pecuniary penalty of $30,000 appropriate.

84 The applicants' case against Satterthwaite was put in the alternative as being either that he breached CL s 232(6) by being knowingly concerned in Doyle's breach of that section, or alternatively, that he contravened CL s 232(4) in that he failed to exercise the degree of care and diligence that a reasonable person in his position as a director of the Company would have exercised in protecting its share capital. Both alternatives were found to have been made out (primary judgment [219] and [254]). In the event the applicant opted to obtain a declaration in respect of the second contravention, namely that in breach of CL s 232(4). That is accordingly the contravention with which I must now deal. It is not the same contravention as was proved in respect of Doyle. The salient factual findings are at [224] - [240] and [252] - [254] of the primary judgment.

85 Satterthwaite's conduct was not dishonest; it is more accurately described as at least negligent if not reckless. But he was acting bona fide and under considerable conflicting pressures. He acted on legal advice insofar as he was advised by Nash that the moneys should be held in a trust account pending counsel's advice and resolution of the legal issues, the principal one being whether payment to the allottees would constitute an unauthorised reduction of capital. Satterthwaite's fault was in succumbing to the pressure from Doyle without ensuring that the funds would be held in trust strictly on condition that they would be dealt with in accordance with counsel's advice and specifically, that they would be returned to the Company if the legal opinion was that they should be. The resolutions which were passed did not reflect that condition at all and no other measures were put in place to do so. Satterthwaite simply passed the funds over to Doyle's absolute control. He failed to take any measures to ensure they would be returned if the payment was found to be an unauthorised return of capital. As a consequence of Satterthwaite's failure to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the circumstances of the company at the time, a substantial part of the capital of the Company passed completely out of its control in circumstances in which its interests in the moneys were entirely unprotected and where the lack of that capital subsequently resulted in the Company's insolvency. In my opinion this was a serious contravention of CL s 232(4).

86 The description of Satterthwaite's business background as set out in Christensen's affidavit of 30 August 2001 is lacking in detail. Even allowing for the pressures to which he was subject and the bona fide nature of his belief that it would be proper and appropriate to put the money into the DCP trust account pending counsel's opinion to the Company, Satterthwaite's failure to do that only when adequate safeguards to secure the Company's interests in the funds were in place, was a fundamental failure on his part.

87 The evidence does not satisfy me, despite that contravention, Satterthwaite is a fit and proper person to manage a corporation. Given the nature of his business activity, namely the provision of advice and more particularly personal involvement in corporate restructuring and management at board level, it seems to me there is potential for him to do substantial corporate and financial damage should he demonstrate similar shortcoming in the future. I consider the prospect of that is real. The pressure upon him in this instance may have been particular, but pressure is a common feature of corporate business, especially at that level.

88 Because of the nature of his business activity, a prohibition order would impose hardship upon Satterthwaite. But, as I have found, his contravention was a serious one. So far as he has expressed remorse and contrition, I take the same view in respect of Satterthwaite as I have expressed in respect of Doyle.

89 To my mind the need to protect the public calls for a prohibition order of two years.

90 A pecuniary penalty should be sufficiently high so as to deter both the particular offender from committing a similar contravention and deter others who may be disposed to engaged in prohibited conduct of a similar kind (Nandan, supra at 752). In Trade Practices Commission v Stihl Chainsaws (Aust) Pty Ltd (1978) ATPR 40-1019, Smithers J said at 17,896:

"The penalty should constitute a real punishment proportionate to the deliberation with which the defendant contravened the provisions of the Act. It should be sufficiently high to have a deterrent quality and it should be kept in mind that the Act operates in a commercial environment where deterrence of those minded to contravene its provisions is not likely to be achieved by penalties which are not realistic. It should reflect the will of Parliament that the commercial standards laid down in the Act must be observed, but not be so high as to be oppressive."

91 Those observations were cited with approval by the Full Court of the Federal Court in Australian Competition & Consumer Commission v Ithaca Ice Works Pty Ltd [2001] FCA 1716 at 241.

92 A deliberate or dishonest contravention having the consequences Satterthwaite's contravention did, would call for a substantial fine as an emphatic deterrent penalty. Satterthwaite's contravention was not of that nature. Nonetheless, company directors must be deterred from performing their duties carelessly or recklessly and an effectively deterrent penalty is called for in the present circumstances. I consider a pecuniary penalty in the sum of $5000 would achieve that purpose.

Australian Securities & Investments Commission v Doyle & Anor [2002] WASC 223

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Australian Securities & Investments Commission v Doyle & Anor [2002] WASC 223 (17 September 2002)

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