dETERMINATION OF cIVIL pENALTY
19 The maximum penalty for any contravention of ss 62(1) and 65(1)(b)(i) of the Act is $220,000: s 196(3), read with s 4AA of the Crimes Act 1914 (Cth).
20 I accept the applicant's contention that the contraventions are serious within the meaning of s 196(4) so as to warrant the imposition of a civil penalty. The object of the Act is relevantly to make provision for the prudent management of regulated superannuation funds. By reference to that object, Logan J in Fitzgeralds at [41] and [42] explained the statutory requirement of regulated superannuation funds:
That, though, is what one might term an immediate object. The long-term object envisaged by the Parliament, to my mind, is to encourage Australians that they must make provision for their retirement, and to do that by the conferring of taxation benefits in return for responsible management of funds. In Holloway's case, to which I have made reference, Mansfield J made reference to this in relation to the in-house asset rule.
"Submission by a superannuation fund to be a regulated superannuation fund under the Act carries with it eligibility for concessional taxation treatment. Each of the relevant superannuation funds by their trustees elected to become regulated superannuation funds … Part 8 of the Act sets out rules about the level of in-house assets …. . Its intent is clearly to ensure that the investments of a regulated superannuation fund should not be exposed to the vagaries of the business of the employer-sponsor."
In the same way, the provisions of section 62 and section 65 can be seen to have a role to play in ensuring that the assets of a fund are indeed available for the members as and when they become eligible in terms of the governing deed, as opposed to being prematurely accessed for unauthorised purposes.
21 Accordingly, the "purpose" requirements of s 62 and the prohibition in s 65 against the giving of financial assistance to members are integral to the regulatory scheme. Especially where, as here, the principal asset of a fund is disposed of other than in accordance with the governing rules of the Fund, removing it totally as a source for the benefits which a superannuation fund is intended to provide, the contravention must be regarded as serious.
22 The contraventions were neither trifling nor insignificant. They were deliberate. They involve sizeable amounts and deprived the Fund of its total assets. They extended over a period of years. On any view, they were serious.
23 The respondent as trustee of the Fund commenced his contraventions at the very first step of the self-management process - the opening of the Fund's Commonwealth Bank account on 21 July 2005. The respondent withheld for his own personal benefit and use $5,500 from the assets of his Fund (the rollover payments) when opening the Fund bank account. Thereafter, he simply took the assets of the Fund from time to time as if they were his own.
24 I have considered the respective submissions of the parties. Inevitably, one seeks an explanation for the contravening conduct.
25 The respondent has a good personal history. He is 47 years of age. He was brought up and educated to Year 10 level in Broken Hill. He then came to Adelaide at the age of 15 under a type of football sponsorship as he was a good sportsman. He played football for some four years or so. He has been in continuous employment since he came to Adelaide, with a variety of employers as a chef and more recently in management in the businesses of food catering or supplies. He has held his present position as the business development and quality control manager of an export fruit and vegetable providore since August 2008.
26 He is divorced. He has two children, now aged about 10 and 8. The birth of his second child involved complications, and his wife consequently suffered severe post-natal depression requiring prolonged hospitalisation. The relationship became strained, and he and his wife were divorced in 2004. His wife was given custody of the children. I accept that in the period 2002 to 2004 he was under considerable strain, dealing with his wife's illness, largely caring for his children, and with a full-time and demanding job. He sought psychological help during that period.
27 When the Fund was established, the respondent was under financial pressure. He was meeting the mortgage on the matrimonial home (in which he was living) and paying child support. He says he simply did not have enough to live on. Although he did not establish the Fund with the intention of using it as a financial resource, the coincidence of its establishment and his financial pressures presented too much of a temptation. The first misappropriation of $5,500 was to repay a debt to his wife. Thereafter, the various withdrawals were to meet relatively minor bills or liabilities, or to meet his daily living expenses.
28 In the period from 2005, he also started drinking heavily and gambling. He says this was partly due to loneliness, and his gambling was in search of a big win to relieve his financial pressures. He acknowledges that he had a gambling addiction, and that is confirmed by the psychotherapist now treating him. Fortunately, he now has a new relationship and he has stopped his heavy drinking and has not gambled for two years or so. The view of both his psychologist and his psychotherapist is that he has a good prognosis. It is, in my view, very unlikely that he would contravene the Act again.
29 The respondent's financial position is just comfortable. He has a good income, but it is committed to mortgage payments, child support payments and school fees, debt repayments (including the tax debt following the reassessment of his taxable income for the year ended 30 June 2006 and other regular outgoings). His only significant asset is his home, which is heavily mortgaged. When his commitment to school fees ends, he intends to replenish the Fund.
30 I accept his explanation of the circumstances in which he came to contravene the Act. I also accept that he is genuinely remorseful for what he did.
31 Each case must be determined on its own facts. The case that is more closely analogous to the present facts than others is Fitzgeralds. In that case, civil penalties of $20,000 and $10,000 on the first and second respondents respectively were imposed where the trustees had misapplied in the order of $148,000 from a self-managed fund to settle a claim by a liquidator against them in respect of a company formerly controlled by them. In a different context, but still under the Act, two other cases have considered the civil penalty provisions. In Holloway, a penalty of $40,000 was imposed on the company and $12,000 on the individual as a result of a wrongful application of $130,000 from a self-managed fund; the total penalty for multiple breaches involving a large number of funds advised by the respondents in that case was $222,000 for the company and $35,000 for the individual. In Derstepanian an agreed penalty of $100,000 was endorsed by the Court, in circumstances where the trustees of a superannuation fund with 17 members (including themselves) effectively misapplied in the order of $160,000 for the use of themselves and a company they controlled, but had subsequently paid compensation in the sum of approximately $226,000.
32 In this matter, in addition to the matters personally concerning the respondent, I take into account the following:
(a) while there were 160 contraventions by the respondent of the Act by the multiple withdrawals, bearing in mind the totality principle the various contraventions may properly be seen as one contravening course of conduct, albeit over a substantial period of time, for which the respondent should be liable to a single maximum penalty of $220,000 (see as to a single act of misbehaviour being characterised as a contravention under more than one provision: Fitzgeralds at [33]; Derstepanian at [31]);
(b) the respondent was first advised on 21 January 2008 that the auditor of the Fund had reported contraventions of the Fund for the financial year ended 30 June 2006 and that he was required to rectify the contraventions immediately; but he continued with his contraventions until 2 February 2009 at which time the total assets of the Fund had been withdrawn by the respondent;
(c) the respondent benefited personally from the contraventions, by using the proceeds of the Fund for his own benefit and use, to meet everyday living expenses and the amounts have not been repaid to the Fund;
(d) the contraventions were deliberate and of a serious kind, involving a complete departure from the respondent's obligations as a trustee of the Fund;
(e) the contraventions had the effect of depriving the Fund of the totality of its assets, thereby impairing the Act's objective that people build their own retirement savings rather than rely on social security benefits;
(f) the respondent also sought to benefit from the availability of concessional tax treatment as a result of operating the Fund, which the legislation confers in return for compliance with the Act (although I observe that the purpose of imposing a penalty is not to recover any amount of tax which ought to have been assessed);
(g) otherwise, no third parties suffered loss as a result of the contraventions as the respondent was not acting as trustees of other persons' retirement savings;
(h) the respondent has cooperated in the proceeding by agreeing the major facts constituting the contraventions.
33 I have reached the view that the agreed proposed penalty is within the range of an appropriate penalty in the circumstances discussed above. It is not useful to indicate whether it is the precise monetary penalty which I would have imposed. I indicate, however, that it is the combination of the proposed monetary penalty and the terms of payment agreed between the parties which enables me readily to conclude that the proposed monetary penalty is an acceptable one.
34 I accept the joint submission of the parties that the Court has the power and discretion to order a penalty by way of instalment payments, based upon the terms of s 196(3) of the Act. The parties have submitted, and I accept for the purposes of this matter, that the conferral of the power to order the penalty carries with it an implied consequential power enabling the Court to make an order enabling periodic payments. A similar capacity is assumed to have existed when imposing pecuniary penalties under s 76(1) of the Trade Practices Act 1974 (Cth), where orders have often been made for instalment payments. Two Full Court Federal Court examples are Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170 at [7] and [35] and Australian Competition and Consumer Commission v High Adventure Pty Limited [2005] FCAFC 247 at [10]-[11]. An order for instalment payments is appropriate in circumstances of financial hardship: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (in liquidation) and Others (2007) 161 FCR 513 at [38].
35 Accordingly, in addition to the declaratory orders sought, I will impose a monetary penalty of $15,000 to be paid in weekly instalments of $192.31, with the first instalment to be paid on or before 31 January 2011. In addition, I order the respondent to pay the applicant's costs of and incidental to the application which, by agreement, I fix at $5000. It is to be paid on the same basis, so that the total sum payable of $20,000 will be paid over a period of two years by 104 weekly instalments of $192.31, with the first instalment to be paid on or before 31 January 2011.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.