Plaintiff v Defendants [2006] VSC 192 | Case summary

Plaintiff v Defendants [2006] VSC 192 | Case summary | Zoe

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INTRODUCTION AND PARTIES

1 In this proceeding the plaintiff, which I will call "the Commission" or "ASIC" seeks declarations against a number of corporate and personal defendants that they have contravened a number of provisions of the Corporations Act 2001 (Cth) ("the Act"), injunctions consequent upon such declarations as may be made and orders disqualifying the personal defendants from managing corporations for such period that the Court considers appropriate.

2 In addition, orders were sought that each of the corporate defendants be wound up. On 8 December 2005, Mandie J ordered that the corporate defendants be wound up pursuant to s. 461(1)(k) of the Act.

3 The proceeding concerns the conduct of a group of eleven companies under the overall control of the twelfth defendant, Shaun White. At all material times, Shaun White was a director of all of the corporate defendants.

4 There are 14 defendants. Eleven of them are the corporate defendants which comprise the PFS Group. The remaining three defendants are Shaun White, his wife Nicole White and Damian Tolson (collectively "the personal defendants"). Each of the personal defendants was a director of one or more of the corporate defendants.

5 The proceedings arise out of complaints made by members of the public in respect of the conduct of businesses trading under the name "Personalised Finance Solutions" or "PFS". These businesses were conducted by some of the corporate defendants and included dealings with the other corporate defendants. For convenience, I will refer to the corporate defendants collectively as "the PFS Group" or "the corporate defendants".

6 In summary, the PFS Group conducted three businesses. First, a business of establishing and managing self-managed superannuation funds ("SMSFs") on behalf of clients. Secondly, a property development business. As will appear, there was substantial inter-relationship between these two businesses. In particular, the trustees of SMSFs were encouraged to invest superannuation moneys in developments undertaken by the property development business. Thirdly, the PFS Group conducted a mortgage and finance broking business.

(1) PFS Business Development Group Pty Ltd ("PFS Business")

7 PFS Business was incorporated in October 2003. It is a company which is wholly owned and controlled by Shaun White. He is the only director, secretary and member of the company. At all relevant times, Shaun White was the sole decision-maker in relation to the affairs of PFS Business.

8 PFS Business marketed to potential clients the service of establishing and managing SMSFs. As a result, it established a number of SMSFs for clients and managed - in many cases mismanaged - those SMSFs.

9 At the time of establishing SMSFs on behalf of clients, PFS Business procured the trustees or proposed trustees to sign a power of attorney appointing "Personalised Finance Solutions" to act on their behalf. "Personalised Finance Solutions" was a business name registered in the name of another of the corporate defendants, Meridian Event Management Pty Ltd. Shaun White used these powers of attorney to open the bank accounts of the SMSFs established and managed by PFS Business and to appoint himself a signatory, often the sole signatory, of those bank accounts. As will appear, Shaun White used his position as signatory on the bank accounts of a number of SMSFs to misappropriate moneys from these accounts. Although enquiries have not been completed in respect of all of the SMSFs managed by PFS Business, misappropriations totalling approximately $808,000 from 34 SMSFs have been established.

10 Further, PFS Business was a party to joint ventures for the development of residential units in Studley Road, Eaglemont ("the Studley Road development"). As will appear, the other joint venturers who invested in the Studley Road development have complained that the moneys invested by them were utilised without their authority and that they have suffered substantial losses.

11 PFS Business also acted as the administration company for the whole of the PFS Group. It paid rent on the business premises, wages and other business expenses.

12 PFS Business was registered for GST and income tax. Substantial taxes are owing. It has not lodged a Business Activity Statement since 31 October 2004 and has not lodged its 2004 or 2005 income tax returns. The Australian Taxation Office has lodged a proof of debt for $93,116.90 and has indicated that the amount of this claim is likely to increase.

(2) PFS Construction Consulting Group Pty Ltd ("PFS Construction")

13 PFS Construction was incorporated on 17 February 2004. Its directors are and were Shaun White and Tolson. Tolson is the secretary. Both Shaun White and Tolson hold six ordinary shares.

14 PFS Construction was incorporated for the purpose of managing the development of four units on a property situate in Ashridge Lane, Wyndhamvale, Victoria ("the Ashridge Lane development") and other future property developments by the PFS Group.

15 PFS Construction has never been registered for GST or income tax purposes and never filed any returns in that regard.

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16 Shaun White and Tolson are and were at all material times the only directors of, and equal shareholders in, each of PFS Ashridge Lane A, PFS Ashridge Lane B and PFS Ashridge Lane C. The purpose of the three separate companies was to facilitate the development and ultimate purchase of four lots in the Ashridge Lane development.

17 PFS Ashridge Lane A entered into a joint venture agreement to develop and purchase Lots 2 and 3 in the Ashridge Lane development.

18 PFS Ashridge Lane B entered into a joint venture to develop and purchase Lot 1 in the Ashridge Lane development.

19 PFS Ashridge Lane C was incorporated to facilitate the development and purchase of Lot 4. There was no applicable joint venture. It appears that Shaun White, who had entered into a contract of sale to purchase the land upon which the Ashridge Lane development was to take place, and had lodged a caveat to support his interest as purchaser, intended that Unit 4 in the Ashridge Lane development would be developed for the benefit of Shaun White personally. There is an issue as to whether Tolson also was intended to benefit from the development of Unit 4.

20 As will appear, no part of the Ashridge Lane development was ever completed. The vendor of the land has rescinded the contract of sale. The moneys invested in the Ashridge Lane development have been lost.

21 None of PFS Ashridge Lane A, PFS Ashridge Lane B or PFS Ashridge Lane C has ever been registered for GST or income tax and has filed no returns in that regard.

(4) Meridian Event Management Pty Ltd ("Meridian")

22 As I have said, Meridian was registered as the proprietor of the business name "Personalised Financial Solutions". It appears that this was the predecessor entity to PFS Business, it having been incorporated in May 2001. Shaun White is and was at all relevant times the only director, secretary and a shareholder of this company. It appears that Meridian has not traded since the incorporation of PFS Business in October 2003. Its last tax return was for the year ended 30 June 2000 and its last Business Activity Statement was for the quarter ended 30 June 2001.

(5) Nycam Werd Pty Ltd ("Nycam Werd")

23 Nycam Werd was incorporated in September 2003 to facilitate the purchase and construction of a development in Harvest Home Road, Epping, Victoria ("the Epping property").

24 Five investors, including SMSFs, have invested in the Epping property. The form of investment was by the purchase of redeemable preference shares in Nycam Werd. The moneys invested have all been lost.

25 Nycam Werd has never been registered for GST or income tax purposes and has never filed any returns in that regard.

(6) Kaluski White & Associates Pty Ltd ("Kaluski White")

26 Kaluski White was incorporated in April 2003. Andrew Kaluski is and was at all relevant times a director, secretary and the only shareholder in the company. Shaun White was a director in the period 16 February 2004 until 6 April 2005. On 14 July 2005, Kaluski White was placed into voluntary administration.

27 The books and records of Kaluski White disclose that Shaun White loaned funds to the company, as a result of which the company resolved to issue shares to Shaun White. If issued, these shares would have made Shaun White a 25 per cent shareholder. However, it appears that these shares were never issued to Shaun White.

28 Kaluski White was incorporated to facilitate the purchase and development of residential properties in Victoria. It appears that Shaun White would find properties of interest and conduct feasibility studies. Mr Kaluski would be responsible for sourcing investors and managing the developments. The company entered into a number of contracts for the purchase and development of residential properties. A number of investors, including SMSFs under the management of the PFS Group, have invested in these property developments and have suffered loss as a result.

29 Mr Kaluski is not a defendant and it is unnecessary that I make any findings as to his conduct, except as may be necessary in the course of considering whether I should make findings against the defendants.

30 In addition to its involvement in property developments, it appears that Kaluski White had some involvement in mortgage broking for which it received a commission. However, there was little evidence in this regard. The evidence which was available was limited to one transaction.

31 There was no evidence as to the taxation status of Kaluski White.

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32 At material times, the directors of Kaluski White Black Gully Road were Shaun and Nicole White and Mr Kaluski. Mr Kaluski was the company secretary. He resigned as both director and secretary on 6 April 2005. Shaun and Nicole White hold the majority of the shares in the company (105,000 shares each). Mr Kaluski holds a minority shareholding (25,000 shares).

33 Kaluski White Black Gully Road was incorporated to facilitate the development of a property situate at 47 Black Gully Road, Diamond Creek, Victoria ("the Black Gully Road property"). However, the contract of sale for the purchase of the Black Gully Road property named Shaun White as the only purchaser. The contract of sale was not performed and has been rescinded.

34 As a public company, Kaluski White Black Gully Road was required to appoint an auditor. In contravention of ss. 327A and 327B of the Act, it did not do so. The evidence does not allow a conclusion as to whether it was registered for income tax or GST. Whether or not it was registered for these purposes, there is no evidence of any tax return or business activity statements being filed by it.

(8) PFS Wholesale Mortgage Corporation Pty Ltd ("PFS Wholesale").

35 PFS Wholesale was incorporated in January 2004 under the name "Mortgage Helpline Pty Ltd". Initially, Shaun White and Mr Kaluski were directors. Mr Kaluski resigned as a director on 10 May 2004. Shaun White and Mr Kaluski each hold half of the issued shares in the company.

36 PFS Wholesale conducted business as a mortgage and finance broker. Shaun White was the sole decision-maker and was in control of the company. He was paid a wage of $1,500 per week by the company. However, the company was not registered for either GST or income tax purposes and has never lodged any return in that regard.

(9) Shaun White Pty Ltd

37 Shaun White is and was at all relevant times the sole director, secretary and shareholder in this company. There was some evidence that this company paid some of the wages and bills of PFS Business. Whether it did so by way of advances to PFS Business, or by direct payment, is not relevant. As appears hereafter, substantial sums which were taken from SMSF accounts, without authority of the account holder, were subsequently transferred to this company's bank account.

38 Shaun White has refused to discuss the affairs of this company with the liquidators and has not completed a "Return As To Affairs" as requested by the liquidator. The company has never been registered for GST or income tax purposes and has filed no returns in that regard.

(10) Complaints about PFS Group and subsequent action by ASIC

39 In early 2005, ASIC received a number of complaints from members of the public relating to the activities of the PFS Group. In general terms, the complaints were as follows:

(1) Employees of the PFS Group were not being paid their salaries.

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"The informality of this document is meant to have no disrespect to the court, I simply do not know in what format to send it.

I apologise for the late submission of this document but as the registrar was unable to tell me who to address it to until this morning, I was unable to send it earlier.

After speaking with you (sic) Associate... I made a phone call to Mr Warren Day of ASIC. I asked him what ASIC was trying to achieve tomorrow, his reply was 'three things. One, have the companies wound up, well that has already been achieved. Two, have yourself, your wife and Damian [Tolson] banned for life as directors and three get a permanent restraint from you dealing in superannuation, financial services.'

We have already consented to the winding up of the companies even though we did not believe them to be insolvent, we simply did not have the money or other resources to fight the allegations made by ASIC. We leave the matter of Director's ban to the wisdom of the Court, we will however draw your attention to the fact that ASIC has drawn the comparison to both ASIC v Rich and ASIC v Vizard, neither of which received lifetime bans. As for the restraint in dealing with superannuation, neither Nicole nor I have any future aspirations of returning to the superannuation industry.

I would like to draw your attention to page 26 of the Liquidator's report, paragraph 6.2.1 ASIC alleges that Anna's SMSF and Zenner's SMSF were used to pay for the deposit on the property at Blackgully Rd, Diamond Creek. Blackgully Rd was purchased on 9 September 2003, both of the superannuation funds mentioned were established up to nine months latter (sic). I believe that this is consistent with the conduct of the ASIC investigation. In Miss Julie McNare's (sic) report she draws attention to a $30,007.50 transaction from the Barnard superannuation fund and infers that it is a card transaction for personal benefit the $7.50 is a bank check (sic) fee, the check (sic) was drawn up for Mr Barnard.

I would also like to state that we did not believe that we were carrying on a financial services business, we believed that the preparation of Trust deeds was providing a form of legal document, and as we believe that you are not required to be licensed to prepare a contract of sale, an employment contract or even a family trust, we did not believe that we needed to be licensed to provide SMSF trust deeds.

I am making no admissions to breaches of director's duties nor does Nicole, I do accept that Nicole and Myself were convicted of an offence on 17 May 2000 and that this disqualified us from acting as a Director's (sic) until 17 May 2005, a fact that we have only recently been made aware of. I do not know what implications this has on the proceedings if any at all but again I will leave that to the wisdom of the Court.

Thank you for considering this document..."

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61 Based upon these acknowledgements, it was submitted on behalf of ASIC that I should dispense with the rules of evidence in relation to these witness statements. Reference was made to the power of the Court under Rule 40.05.[1] I was initially attracted by this submission. However, upon reflection, I took the view that it was inappropriate to dispense with the rules of evidence in such a broad fashion. Although Rule 40.05 is not restricted to formal matters, the evidence contained in the witness statements was of such importance to the issues in the proceeding, and concerned allegations of such a serious kind, that I insisted that it be verified on oath if it was to be relied upon. Further, the mandate of s. 1317L of the Act is in my view inconsistent with such a liberal use of the discretion under Rule 40.05.

62 A further evidentiary issue arose with respect to the admissibility of the provisional liquidator's report.

63 In Australian Securities and Investments Commission v Rich,[2] Austin J considered the admissibility of a number of categories of documents in a proceeding in which ASIC sought, as it does here, declarations of contravention of the Act by certain company directors and disqualification orders against those directors.

64 One category of documents which Austin J considered was a group of reports to creditors prepared by the liquidators of One.Tel Limited and its related companies (collectively "One.Tel"). Some of these reports had been prepared by the liquidators prior to their appointment, at a time when they were acting as administrators of One.Tel. Austin J dealt with the admissibility of all of the reports together, and referred to them compendiously as "the liquidators' reports."[3]

65 There are two aspects in which the decision of Austin J in ASIC v Rich differs from the facts of this case. First, the liquidators here were previously provisional liquidators and not administrators. Secondly, the provisional liquidator's report in this case was not a report to creditors but was a report ordered by this Court. In my view, neither of these distinctions makes the reasoning of Austin J inapplicable to the issue of admissibility of the provisional liquidator's report in this case.

66 In ASIC v Rich, ASIC submitted that all of the liquidators' reports were admissible in evidence under s. 1305 of the Act. Austin J considered this submission in extensive detail, including an examination of all of the relevant authorities, and concluded that all of the liquidators' reports were admissible in the proceeding under s. 1305 of the Act.[4] In this proceeding, it was submitted on behalf of ASIC that I should follow and apply the decision of Austin J in ASIC v Rich and, as a result, admit the whole of the liquidators' report into evidence. I accepted this submission and admitted the liquidators' report into evidence.

67 The question remains as to the use which may be made of the liquidators' report. Section 1305(1) of the Act provides:

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"Section 531 obliges a liquidator to keep 'proper books' in which he or she must cause to be made entries or minutes of proceedings at meetings and such other matters as are prescribed, and creditors and contributories have the right to inspect those books unless the court otherwise orders. Regulation 5.6.01 prescribes, as the matters to be recorded, all matters that are required to give a complete and correct record of the liquidator's administration of the company's affairs. Under s 542(1), where a company has been wound up, all books of the company and of liquidator that are relevant to affairs of the company at or subsequent to the commencement of the winding up are, as between the contributories of the company, prima facie evidence of the truth of all matters purporting to be recorded in those books. By s 542(2), once the company has been wound up, the liquidator must retain the books referred to in subs (1) for a period of 5 years, except in the special circumstances set out in s 542(3).

Is it correct to say that, for the purposes of s 1305, documents kept by the liquidators in that capacity are kept by the body corporate to which they have been appointed; and if it is, are they kept by the body corporate 'under a requirement of [the Corporations] Act'?

When performing their functions and exercising their powers as such, liquidators occupy the position of agent of the company: A R Keay, McPhersons' Law of Company Liquidation, 4th ed, LBC Information Services, Sydney, 1999, p 288, and cases there cited. If, therefore, the liquidators take some authorised step in carrying on the business of the company, that step is binding on the company as principal, just as if it had been taken by or on behalf of the company's board of directors prior to commencement of the voluntary administration. It would have been a step taken by the company as principal.

In my opinion the same consequences flow when the liquidators take a step in the administration of the affairs of the company, since in doing so they are acting as the company's agent. The liquidators' keeping of reports to creditors prepared by them in their capacity as liquidators or administrators, by retaining them, is conduct by them as agent for the company. It follows that the reports are kept by the body corporate, and therefore those documents are books kept by a body corporate for the purposes of s 1305. Clearly, they are books kept under requirements of the Act, namely the requirements set out above which oblige liquidators to keep and retain such documents." [7]

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72 In my view, the provisional liquidator's report was one which the liquidators were obliged to keep under s. 531 of the Act. The provisional liquidator's report is one of the prescribed matters under reg 5.6.01 because it is necessary to record the matters referred to in the report in order to give a complete and correct record of the liquidators' administration of the company's affairs. Further, having been prepared, the liquidators' report is a document which the liquidators are required to retain under s. 542(2) of the Act.

73 I turn next to the question of weight to be attached to the provisional liquidator's report. Austin J considered this issue in the context of the Evidence Act 1995 (NSW) and, in particular, the discretion under that Act to exclude or limit the use of evidence under ss. 135 and 136.[8] There are presently no equivalent provisions in the Evidence Act 1958 (Vic).

74 I will consider the weight of statements in the provisional liquidator's report by reference to each individual statement relied upon by ASIC or Tolson. In doing so, I will take account of the probabilities, the form of the statement in question (in particular as to whether any conclusion or opinion expressed by the provisional liquidators is supported by facts otherwise established or by facts or reasons expressed in the report) and as to the appropriate weight to give to hearsay statements recorded in the provisional liquidator's report.

75 As to hearsay statements made by Shaun White or Nicole White which are recorded in the provisional liquidator's report, I must be especially careful. Given the impropriety of their conduct as established by the evidence as a whole, any hearsay statement which is not in the nature of an admission against their interest must be carefully scrutinised before according it any weight. This is particularly so where ASIC seeks to use hearsay statements by Shaun or Nicole White which are contained in the provisional liquidator's report against Tolson.

76 Further, in assessing weight I will take account of the fact that the provisional liquidator's report is the result of the provisional liquidators both carrying out their statutory functions and complying with orders of this Court. As Austin J said in ASIC v Rich, in respect of a report by the liquidators of One.Tel at a time that they were administrators, "That status gives it [the report] a degree of presumptive probative value".[9]

77 The final issue of significance concerning admissibility of evidence related to the extent to which ASIC could rely upon statements made by the personal defendants at their examinations conducted under s. 19 of the ASIC Act. ASIC sought a ruling that it could rely, as against each of the personal defendants, upon the whole of the transcripts of their s. 19 examinations. The statements on which ASIC sought to rely included statements where, before the statement was made, the defendant examinee claimed that the statement might tend to incriminate him or her. Mr Wilson made substantial written and oral submissions in support of this application by ASIC. However, later in the trial, Mr Wilson informed me that ASIC withdrew its application in this regard and would not, as against the defendant examinee concerned, rely upon statements made by him or her after a claim had been made that the answer might tend to incriminate him or her.

78 At the time that Mr Wilson withdrew ASIC's application in this regard, he stated that, amongst other reasons, the application was withdrawn because this proceeding was not a desirable vehicle for the point to be determined, given that none of the defendants was represented and the Court would not have the benefit of full and vigorous debate from counsel opposing the application.

79 Although the application to rely upon the whole of the s. 19 transcripts as against the individual examinees was withdrawn, I had reached a firm view that the application should be refused. As I have said, this was after I had received substantial written submissions, and heard oral argument, on behalf of ASIC. In these circumstances, the fact that the defendants were unrepresented is of little significance. Further, as the issue may be one of general importance, I will express my views about it notwithstanding that ASIC did not press its application in this case.

80 Section 68(3) of the ASIC Act provides in effect that a statement which is made by an examinee after such a claim for privilege is made is not admissible in evidence against the person in a criminal proceeding or a proceeding for the imposition of a penalty. This proceeding is not a criminal proceeding. The question for determination is whether this is a proceeding for the imposition of a penalty against the personal defendants because ASIC seeks orders banning them from managing corporations in the future.

81 In Australian Securities Commission v Kippe[10] the Full Court of the Federal Court of Australia considered the statutory precursor to s. 68(3) of the ASIC Act. The relevant provision was contained in s. 68(3) of the Australian Securities Commission Act 1989 (Cth) ("the ASC Act") and was in identical terms to s. 68(3) of the ASIC Act. In that case, banning orders were sought prohibiting Kippe from acting as a representative of a dealer in securities or an investment advisor. The Administrative Appeals Tribunal, which heard the case at first instance, refused to allow evidence of statements made by Kippe at his s. 19 examination and in respect of which he had claimed privilege. On appeal, the Full Court disagreed. It was held that the proceedings were not for the imposition of a penalty but were preventative in character. Accordingly, the statements made by Kippe under a claim for privilege were admissible in the proceeding against him in which banning orders were sought.

82 In Rich v Australian Securities and Investments Commission[11] the New South Wales Court of Appeal, by majority, reached a similar conclusion to that in Kippe.[12] That case, like this proceeding, involved a proceeding by ASIC for declarations of contravention of the Act and, as a consequence, orders that the defendants be disqualified from managing corporations.

83 The defendants appealed to the High Court. In Rich v ASIC[13] the High Court (Kirby J dissenting) allowed the appeal. In the joint judgment of Gleeson CJ, McHugh, Gummow, Hayne, Callinan and Heydon JJ, it was held that exposure to a disqualification order under the Act is exposure to a penalty.[14] As a result, the majority held that the decision in Kippe was wrong and should be overruled.[15]

84 However, notwithstanding the decision of the High Court in Rich v ASIC, it was submitted on behalf of ASIC that the decision in Kippe should, because s. 68(3) of the ASC Act was re-enacted as s. 68(3) of the ASIC Act, be treated as representing the presumed intention of Parliament as to the proper construction of s. 68(3) of the ASIC Act. That is, notwithstanding the decision of the High Court to overrule Kippe it should be taken to represent the law. In my view, this submission was wrong and, had the application by ASIC in this regard not been withdrawn, I would have refused it.

85 The submission was based upon the so-called "re-enactment rule" of statutory interpretation. It was submitted that there was a direct "clash" between this rule of statutory interpretation and the decision of the High Court in Rich v ASIC. As to the continuing existence of the re-enactment rule, reliance was placed upon the decision of the High Court in Re Alcan Australia Ltd and ors; Ex parte Federation of Industrial, Manufacturing and Engineering Employees where the High Court stated:

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98 I will accordingly proceed to determine whether the declarations of contravention of the Act which are sought by ASIC are established. As will appear, I am of the view that there have been a number of contraventions. Accordingly, once a reasonable opportunity has been provided to the personal defendants to consider these reasons, I will proceed to conduct a separate hearing on ASIC's application for disqualification orders.

SUMMARY OF AFFIDAVIT EVIDENCE

99 As I have said, ASIC relied principally upon affidavit evidence to establish its case. The following affidavits were relied upon:

100 Colin Moffitt, a lawyer employed in the Enforcement Directorate of ASIC, swore a number of affidavits. In his principal affidavit, Mr Moffitt described the complaints received by ASIC about the conduct of the PFS Group and the results of the subsequent ASIC investigation. He produced as exhibits to his principal affidavit a number of witness statements taken by ASIC officers from previous employees of the PFS Group, trustees of SMSFs established and managed by the PFS Group and investors in PFS Group property developments. As I have said, I was not prepared to accept these witness statements as evidence. As a result, with exceptions which I will mention, affidavits were sworn by these witnesses confirming the truth of the witness statements exhibited by Mr Moffitt.

101 Mr Moffitt deposed to the attempts by ASIC to obtain the books of the PFS Group, his dealings with Shaun White in that regard, and the limited success which was achieved in obtaining the books of the PFS Group.

102 Mr Moffitt also deposed to having been present at, or read the transcripts of, the examinations under s. 19 of the ASIC Act of Shaun White, Nicole White, Tolson and Ms O'Toole. In his affidavit, Mr Moffitt summarised evidence given at these examinations. This included references to portions of the s. 19 transcripts where, before answering questions, the witnesses had claimed that the answers might tend to incriminate them. In considering this evidence of Mr Moffitt, I have proceeded in accordance with my summary of the evidentiary status of the s. 19 transcripts, as set out above.

103 Julie McNair, an accountant employed by ASIC as an investigator in its Enforcement Directorate, also swore a substantial affidavit. Ms McNair deposed that she had examined such of the books of the PFS Group which were available to ASIC, including the limited data which was able to be extracted from the PFS Group computers, and the bank account information produced to ASIC by Australia and New Zealand Banking Group Ltd ("ANZ") relating to PFS Group dealings.

104 Ms McNair also deposed to having been present at the examinations of Shaun White, Tolson and Ms O'Toole pursuant to s. 19 of the ASIC Act. In considering this evidence of Ms McNair, I have proceeded in accordance with my summary of the evidentiary status of the s. 19 transcripts, as set out above.

105 Based upon the banking records produced by ANZ, including as to account opening authorities and signatories, Ms McNair has been able to trace the movement of trust funds from the bank accounts of various SMSFs into the bank accounts of several of the defendants. Ms McNair prepared a number of helpful tables and charts describing the relevant flow of funds between the various accounts. This evidence as to the flow of funds, when combined with the evidence of the owners of the SMSF accounts, demonstrates that there have been many misappropriations of SMSF trust funds by Shaun White in his capacity as signatory to the bank accounts of many SMSFs being administered by the PFS Group.

106 The bank account information which ANZ made available to ASIC pursuant to notices under s. 30 of the ASIC Act is summarised in Ms McNair's affidavit. It is necessary to describe the available records produced by ANZ in some detail, in order to understand the conclusions reached by Ms McNair as a result of her investigations.

107 Shaun White maintained two ANZ bank accounts at all material times. The first account bears the account descriptor "Studley Rd Chq" ("Studley Rd account"). The second account bears the account descriptor "Margaret St cheque ("Margaret St account"). Shaun White was the sole signatory to these accounts and Ms McNair had access to the bank statements for the relevant period.

108 The PFS Group maintained a number of bank accounts:

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109 It appears that neither PFS Ashridge Lane B nor PFS Ashridge Lane C ever maintained a bank account. The evidence does not disclose whether Kaluski White, Kaluski White Black Gully Road or Nycam Werd ever held a bank account.

110 As I have mentioned above, acting upon powers of attorney in favour of "Personalised Finance Solutions", Shaun White was able to open the bank accounts of the SMSFs established and managed by PFS Business and to appoint himself a signatory, often the sole signatory, of those bank accounts. As Ms McNair's affidavit demonstrates, it is apparent that Shaun White used his position as signatory to these SMSF bank accounts to transfer moneys from those accounts to accounts maintained by the PFS Group and to his own personal bank accounts. The affidavits sworn by the holders of these accounts establish that Shaun White transferred these moneys without any authority of the account holder.

111 I will describe the detail of these unauthorised transactions by Shaun White later in this judgment.

112 ASIC also relied upon two affidavits sworn by the liquidator. In his affidavits, the liquidator produced the provisional liquidator's report and described the manner of its preparation. I have considered the admissibility of the statements and opinions contained in the provisional liquidator's report above. Further, the liquidator has deposed to recent dealings concerning the Epping property and has addressed the criticisms by Shaun and Nicole White of his report in their first letter to the Court which is quoted above. I have taken the criticisms by Shaun and Nicole White, and the liquidator's response, into account in making my factual findings.

113 In addition to these principal affidavits, ASIC relied upon a number of affidavits sworn by ex-employees of the PFS Group, SMSF account holders, investors in PFS Group property developments and other affidavits proving specific facts relied upon by ASIC.

114 Tolson did not file any affidavits or give oral evidence. He restricted his evidentiary role in the trial to the cross-examination of two witnesses and the tender of a few documents, which he said he obtained from Nicole White, without objection by ASIC.

FACTS

115 An examination of the conduct of the PFS Group reveals a dispiriting tale of misleading statements, gross mismanagement, breaches of trust and fraud. There have been many contraventions of the Act. The extent to which each of the personal defendants was responsible for, participated in or was aware of this conduct must be examined in order to determine whether there have been any contraventions of the Act by them. Where contraventions are established against a personal defendant, it is necessary to consider the circumstances in which that contravention occurred and, in particular, whether it involved any incompetence, lack of good faith or improper use of his or her position as a director to gain an advantage for him, her or another person. As I have said, it is only when I have made findings and published my reasons in this regard that the Court can give separate consideration to the question of whether any, and if so what, disqualification orders should be made against one or more of the personal defendants.

(1) Shaun White

116 Shaun White was a director of all of the corporate defendants at material times.[36]

117 The evidence establishes that, at all relevant times, Shaun White was the person in overall control of the whole of the PFS Group.

118 On 17 May 2000, Shaun White was convicted by the Magistrates' Court of Victoria at Melbourne of obtaining property by deception in contravention of s. 81 of the Crimes Act 1958 (Vic), which carries a penalty of up to 10 years imprisonment. He was sentenced to a term of 18 months imprisonment as part of an aggregate sentence for this and other offences. As the sentence of imprisonment was suspended, Shaun White was disqualified under s. 206B(2) of the Act from managing corporations for a period of five years after 17 May 2000. This period of disqualification operated throughout the period that Shaun White acted as a director and controlling mind of companies in the PFS Group.

119 As I have said, Shaun White was a signatory to bank accounts of SMSFs which had been established on behalf of clients by Meridian and later PFS Business. In this capacity, Shaun White misappropriated funds from SMSFs for the purposes of the PFS Group or for his own personal use.

120 Further, as will appear, it is apparent that Shaun White used his position as the person in overall control of the PFS Group to bring about "inter-company loans" from PFS Ashridge Lane A to PFS Business, Shaun White personally and in payment of various expenses of the PFS Group or Shaun White personally.

(2) Nicole White

121 Since March 2005, Nicole White has been a bankrupt. Accordingly, she has been disqualified from managing corporations since that time by virtue of s. 206B(3) of the Act. However, notwithstanding this disqualification, Nicole White acted as a director of Kaluski White Black Gully Road since its incorporation and, in addition and more importantly for this proceeding, was actively involved in the management of the SMSF business operated by the PFS Group and, in particular, Meridian and PFS Business.

122 The evidence establishes that Nicole White worked for the PFS Group at all material times and was responsible for both establishing and administering SMSFs on behalf of PFS Group clients. Her business card describes her as "Senior Fund Administrator" and the evidence shows that she performed this function.

123 The evidence establishes that Nicole White benefited personally from her husband's misappropriation of funds from SMSFs and from joint ventures in relation to property developments. The evidence also discloses that Nicole White told lies to cover-up some of her husband's misappropriations, thus indicating that she knew of at least those misappropriations.

(3) Damian Tolson

124 The position of Tolson is not so straightforward. Although he was a director of PFS Construction and of the three PFS Ashridge Lane companies, and a signatory to some relevant bank accounts, he does not appear to have been involved in any deliberate misappropriation of moneys from either SMSFs or joint ventures.

125 At the time of the events in question, he was inexperienced in business and, it would appear, naively did Shaun White's bidding without considering his duties as a director or the contractual duties of companies of which he was a director. These were the first companies of which he was a director and, I find, he had no real appreciation of his duties as a director. Although I find, for the reasons appearing below, that Tolson has breached his duties as a director in material respects, and will make declarations accordingly, my findings against him in this regard are based upon negligence, indeed gross negligence, rather than any deliberate wrongdoing.

126 Tolson is a carpenter by trade. In 2003, he was working as a carpenter with the aim of becoming registered builder. He had known Shaun White since they were teenagers, but they had not spoken for eight or nine years by 2003.

127 At some stage in 2003, Shaun White telephoned Tolson and asked him if he was interested in doing some carpentry work at his father's house and on a property development in Warburton Lane, Melbourne, which he was developing with a partner, Ross Tochi. Tolson accepted the offer of work.

128 When Tolson commenced carpentry work for White and Tochi, he learned that Andrew Kaluski was also involved in the property development business. To Tolson's observation, White, Tochi and Kaluski appeared to be financially successful and he saw an opportunity for future carpentry work on their behalf. In the latter half of 2003, Tolson worked on another small project for White, Tochi and Kaluski and appears to have impressed them with the standard of his work.

129 In December 2003, Tochi parted ways with White and Kaluski. This was at a time when White and Kaluski were about to move into new offices, on which Tolson was carrying out some carpentry work. At this time, White asked Tolson if he was interested in "coming on board". Tolson understood that this invitation was motivated by the need for someone to fulfil the construction manager role previously undertaken by Tochi.

130 Tolson accepted the offer to become a construction manager of the property developments being undertaken by White and Kaluski.

131 In circumstances which were not fully explained in the evidence, Tolson agreed to become a director of PFS Construction and the three PFS Ashridge Lane companies. As I have said, he also became the sole signatory to the PFS Construction account and the PFS Ashridge Lane A account.

132 In time, Tolson's role expanded beyond that of a construction manager. As a director of PFS Ashridge Lane A, and the sole signatory to its bank account, he was involved in what he described as "inter-company loans" from PFS Ashridge Lane A to PFS Construction, other PFS Group companies and Shaun White personally. The funds which were "lent" belonged to investors in joint venturers to which PFS Ashridge Lane A and PFS Ashridge Lane B were parties. Although I have no doubt that all of these "loans" were initiated by Shaun White, Tolson did nothing to stop them. It appears that he trusted Shaun White, who told him that the money would be repaid. These transactions are described in more detail below.

133 Further, towards the end of the operation of the PFS Group businesses, it appears that Tolson became involved in the wider aspects of the business, including acting as a salesman for the property development business by actively seeking investors in the Epping property.

(4) SMSF Business

134 The SMSF business of the PFS Group was inextricably bound up with the property development business. Shaun White's business plan was simple. Using the business name "Personalised Financial Solutions" ("PFS") members of the public would be approached and encouraged to move their superannuation moneys out of existing superannuation funds and into a SMSF established for them by Meridian and, later, PFS Business. As part of the establishment process, clients would be required to sign a power of attorney in favour of "Personalised Financial Solution".[37] Once a SMSF was established, the trustee would be targeted as a potential investor for PFS Group property developments.

135 The manner in which members of the public were encouraged to transfer their superannuation moneys from existing superannuation fund to a SMSF established and managed by the PFS Group, and to sign a power of attorney in the process in favour of PFS, was wholly inappropriate and replete with false and misleading conduct.

136 Shaun White actively engaged untrained and unqualified staff to act as spruikers of the SMSF concept. The prime example was Ned Tibble. Tibble was a lamb-boner employed by the PFS Group as an "introducer". He was paid a fee of $110 for every person referred by him to the PFS Group who established a SMSF.

137 According to Tibble, Shaun White informed him that he did not need to be licensed to act as an "introducer" and market SMSFs to the public. Shaun White told him that PFS was registered with ASIC and the Australian Taxation Office ("ATO") and said "I am the fund administrator. You simply work for me. I hold the licence for you." This was false. None of the defendants held an Australian financial services licence at any time.

138 At or shortly after a training session, in which Shaun White informed "introducers" as to what to say to potential clients, Shaun White told Tibble to say to potential clients that "everything had to go through the ATO before the SMSF was set up and that the ATO audits the SMSF every year".

139 Shaun White also told Tibble that he should inform potential clients that PFS would charge an accounting fee of $990 per year to act as secretary and book keeper of the SMSF and that, for this purpose only, the application form to establish a SMSF contained a "release form" to allow PFS to take these annual fees.

140 Tibble and other introducers were given what Shaun White described as an "information pack" to market the SMSF concept. This was a most misleading document which was designed to encourage people to set up their own SMSF with an investment of as little as $30,000. It is apparent that Shaun White's business plan was, with the assistance of unqualified "introducers", to target unsophisticated people with small balances in their superannuation accounts. Marketing by PFS included random doorknocking, placing leaflets in letterboxes and advertising in newspapers including the Trading Post. The usual method of attracting interest was to inform potential clients that PFS offered the service of finding "lost" superannuation funds. Once the clients' interest was attracted, they were offered the opportunity to roll all of their existing superannuation funds into a SMSF. Tibble and other introducers were also encouraged to market the benefits of establishing SMSFs to friends and family.

141 The information pack was misleading in that, when read as a whole, it gives the appearance of having been prepared by an experienced superannuation fund manager who was licensed under applicable legislation to do so. This illusion is created by numerous references to applicable legislative requirements and the statement:

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146 The evidence establishes that the false statement by PFS - that the power of attorney was limited - mislead many people who established SMSFs with PFS. Those who were mislead believed that, with the exception of the payment of the annual fee of PFS, and other administrative fees, their superannuation moneys could not be used by PFS without their specific direction or authority. This belief was no doubt encouraged by the statement in the information pack that "As trustee of your Fund, you will retain control."

147 As I have said, the Australian Business Number given in the power of attorney changed from that of Meridian to that of PFS Business once PFS Business was incorporated, even though Meridian remained registered as the proprietor of the PFS Business name. There were also other minor changes made to the form of the power of attorney, but these are of no significance. It continued to be an unlimited power of attorney.

148 Shaun White used the powers of attorney to open bank accounts for many SMSFs established by PFS. Each of these SMSF bank accounts was opened at the Eltham branch of ANZ. In most cases, Shaun White appointed himself as the sole signatory. The account opening documentation maintained by ANZ reveals that Shaun White provided ANZ with a copy of the page from the SMSF Application Form which included the power of attorney. I infer that, in reliance upon these powers of attorney, ANZ opened the SMSF bank accounts and appointed Shaun White as a signatory. The conduct of ANZ in doing so is not in issue in this proceeding.

149 Not only did Shaun White appoint himself as the sole signatory to the SMSF bank accounts, he took steps to ensure that all of the bank statements were forwarded to either himself or to the trustees of the SMSF at, or care of, the address of PFS. This had the effect of concealing details of transactions on SMSF bank accounts from the trustees. The trustees became wholly reliant upon PFS for information as to the state of the SMSF bank accounts.

150 As a result, Shaun White was armed to deal with SMSF funds as he saw fit. As will appear, the evidence establishes that Shaun White used his position as signatory to SMSF bank accounts to misappropriate substantial sums from these accounts.

(5) Property development business

151 I have already referred to the involvement of Shaun White in property development. In connection with the SMSF business, Shaun White told the liquidators that the SMSF business concept was based on the belief that people were unhappy with the returns they were earning on their current superannuation funds, and wanted more control over the investment of their superannuation moneys. Shaun White told the liquidators that he offered the service of giving people control of their superannuation moneys, by establishing a SMSF, thus enabling them to invest their superannuation moneys in the property market which, in Shaun White's words, was experiencing "tremendous growth" at the time.

152 The evidence establishes that, in many cases, Shaun White or other PFS representatives were able to convince trustees of SMSFs to invest in property developments under the control of the PFS Group.

153 The usual form of investment in a PFS Group property development was by way of joint venture agreement. These joint venture agreements, if honoured, may well have provided investors with some measure of protection and control over their investment. However, as appears below, the terms of the joint venture agreements were not complied with by the PFS Group.

154 Not all joint venture agreements were entered into by investors using SMSF moneys. Investors also invested their own moneys.

155 There were three joint venture agreements in evidence. One of them involved the investment by the trustee of a SMSF. The other two involved the investment by investors of their own moneys.

156 Each of the joint venture agreements in evidence contained similar terms. In particular, the joint venture agreements each provided that the management of the joint venture would be conducted pursuant to policy established by the parties acting through a "policy committee". The investor was to be represented on the policy committee and to have a vote. As appears below, there were no meetings of any of the policy committees formed under the joint ventures.

157 Further, each of the joint venture agreements provided that the funds of the joint venture were to be kept in a separate bank account which would be under the control of the policy committee. Clause 8 provided:

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167 The discrepancy between the amount of $195,693.20 and $217,420 was not explained in the evidence. However, Ms McNair's analysis of the relevant bank statements establishes that, at the beginning of 30 January 2004, there was only $3,375.03 standing to the credit of the Studley Road account maintained by Shaun White. It was only because of the credits made to that account on that day that Shaun White was able to draw cash cheques totalling $217,693.20. I infer that these cash cheques were used to purchase bank cheques used for the purposes of completing the purchase by Kaluski White of the Warburton Lane property on that day. This inference is further supported by admissions made by Shaun White to the liquidators, and recorded in the provisional liquidator's report, that the moneys which were loaned by him to Kaluski White included funds obtained from SMSFs under Shaun White's control. Further, in response to the liquidator informing Shaun White and Tolson of Mr Kaluski's claims that he did not know that the funds which were lent included moneys sourced from SMSFs, both Shaun White and Tolson stated to the liquidators that they believed Mr Kaluski was fully aware that the moneys included moneys from SMSFs.

168 Ms McNair's analysis of the bank accounts for the SMSFs from which $134,120 was taken on 30 January 2004 indicates that there are some later unidentified deposits into these SMSF bank accounts. These deposits appear to be an attempt by Shaun White and the PFS Group to repay the moneys taken on 30 January 2004. However, with one possible exception, Ms McNair has concluded that in no instance has the full amount which was taken on 30 January from SMSF accounts been repaid. Further, even if all of the moneys had been repaid, the seriousness of this conduct would remain.

169 A number of the trustees of SMSFs in respect of which moneys were taken from their bank accounts on 30 January 2004 swore affidavits or gave evidence. Each of them said that they did not give any authority to Shaun White on 30 January 2004, or at any other time, to take any money from their SMSF bank account in connection with the Warburton Lane development.[39] In all of the circumstances, I infer that none of the other trustees of SMSFs from which moneys were taken on 30 January 2004 gave authority for this to occur.

(b) "Anna's SMSF"

170 In February 2004, with the assistance of the PFS Group, Anna Chirnishova established her own SMSF. She rolled over $84,388.20 from her former employer's fund into Anna's SMSF.

171 The SMSF bank account for Anna's SMSF was established by the PFS Group, with Shaun White as signatory and bank statements directed to the PFS address.

172 After Ms Chirnishova established her SMSF, she tried to find out what had happened to her superannuation moneys. After many unreturned telephone calls, she finally spoke with a PFS employee, Dean Jenkins, in about mid-April 2004. She was assured that her money was safe and was earning interest and there was no need for her to worry.

173 In about early June 2004, Ms Chirnishova realised that she would require her superannuation moneys for settlement of a property that she owned a part interest in and wished to buy the other party out of. She spoke to Jenkins and was told to speak with Nicole White. When she eventually spoke with Nicole White in mid-June 2004, she was told that there was no problem for her in accessing her money and that she would send out a form authorising transfer of the moneys to an account nominated by Ms Chirnishova. Nicole White said that the money would be in her nominated account within three or four days after the form had been returned. When this did not occur, Ms Chirnishova telephoned PFS and sought to speak with Nicole White. She called 15 or 20 times but her calls were not returned. Finally, on 6 August 2004, she asked to speak with the manager and was put through to Shaun White. Shaun White told her that there was a delay in releasing her superannuation funds, and this was probably due to the ATO taking its time to authorise the release. A few days later, on 10 August 2004, Ms Chirnishova received a letter on PFS Business letterhead signed by Nicole White as "Fund Administrator". In that letter, Nicole White stated:

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178 Ms McNair's investigations established that the funds transferred from the Anna's SMSF bank account to the PFS Business account were all used for the purposes of the PFS Group or Shaun White. There was no benefit whatsoever to Ms Chirnishova.

179 One of the payments made from the PFS Business account was for a sum of $2,000 to "Tolstruct", a business name of Tolson. At this time, Tolson's role was that of a construction manager. There is no evidence that he had any knowledge that SMSF trust moneys were being used to pay him. The money was paid by internet transfer from the PFS Business account. In these circumstances, although reliance was placed upon this event by ASIC as against Tolson, I will not consider this payment further.

(c) "Makaze SMSF"

180 The tale of theft from this SMSF bears a striking resemblance to that of Anna's SMSF. Once again, soon after the SMSF was established, White used his authority as signatory to the SMSF bank account to steal the moneys standing to its credit.

181 In mid-February 2004, Martin Zenner attended at the South Melbourne offices of the PFS Group with Tibble. Tibble provided Zenner with some brochures which made similar statements to those contained in the information pack. Zenner said that he was disappointed with the returns he was currently receiving from his employer sponsored superannuation accounts and was interested in setting up a SMSF. Tibble said that if Zenner established a SMSF through the PFS Group, the superannuation funds could be invested in PFS Group property development and promised a return of 22 per cent per annum. Tibble said that this was a higher return than could be obtained in the share market at the time and, in addition, Zenner would have the comfort of knowing that his superannuation moneys were invested on the security of real property. Tibble said that the only choice which Zenner would need to make would relate to the particular property in which he chose to have his superannuation moneys invested.

182 After further conversations and meetings, Zenner decided to establish a SMSF to be administered by the PFS Group. As a result, the Makaze SMSF was established and the PFS Group arranged for a bank account to be opened in its name with ANZ. Shaun White was a signatory to that account.

183 The bank account for the Makaze SMSF was opened on 27 May 2004. In the following month, Mr Zenner arranged to have all of his superannuation accounts rolled over into this account. As a result, the account balance stood at $180,595.84. Within about six weeks, all but a few hundred dollars had been taken from this account and paid to PFS Group bank accounts, as follows:

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185 The result of this theft from the Makaze SMSF bank account is that superannuation moneys in excess of $180,000 have been depleted only to a few hundred dollars.

186 Further, Mr Zenner was also lied to by Shaun and Nicole White when he sought to obtain information about, and the control of, his superannuation moneys. This occurred in the following circumstances.

187 In June 2004, Anthony Warthold of PFS recommended to Mr Zenner that the Makaze SMSF invest in the Ashridge Lane development. After considering this opportunity, Zenner determined to reject it because Warthold was unable to give him any prediction as to the return on an investment in the Ashridge Lane development.

188 When no further property opportunity developments were put forward to Zenner for consideration, he decided that he wanted someone else to manage his SMSF. He spoke with Nicole White and told her of his decision. She replied that no one had ever done this before and said that PFS could not transfer the administration of the Makaze SMSF without written instructions.

189 On 14 July 2004, Mr and Mrs Zenner provided the necessary written instructions. By letter dated 26 July 2004 from Nicole White as "Fund Administrator" of PFS Business, Nicole White acknowledged receipt of the instructions and stated that all documentation relating to the Makaze SMSF would be forwarded to the person nominated by Mr and Mrs Zenner. This did not occur. When Mr Zenner contacted Nicole White on 9 August 2004, she told him that it could take up to three months to prepare the appropriate documentation to transfer Mr Zenner's superannuation moneys to the control of the person nominated by Mr and Mrs Zenner.

190 As a result, Zenner went directly to the Eltham branch of the ANZ Bank with the intention of dealing with his superannuation moneys. He was shocked to discover that the amount standing to the credit of the Makaze SMSF bank account was only $255.84. Prior to this time, Mr Zenner had no idea as to what transactions had taken place in respect of the Makaze SMSF bank account because all bank statements had been posted directly to PFS.

191 Mr Zenner then instructed the ANZ to delete Shaun White as a signatory to the bank account and telephoned Shaun White. Shaun White lied to him. He said that Mr Zenner's superannuation money was held in trust and that it would take over three months for Mr Zenner to gain access to it. Shaun White said that he would go and see Mr Zenner but refused to nominate a time. Thereafter, Mr Zenner tried to speak with Shaun White on many occasions without success. When he spoke with Nicole White, she said that he would need to speak with Shaun White.

192 Mr Zenner attended at the PFS Group offices on random occasions but was unable to speak with Shaun White. Eventually, those premises were abandoned and he was directed, by a change of address notice received in the mail, to a new address. When he attended at this address, he discovered that the premises were "virtual offices" and there were no PFS Group employees in attendance.

193 Mr Zenner then contacted Victoria Police and ASIC.

(d) Brian Barnard SMSF

194 Brian Barnard established his SMSF in October 2003, with an amount of $33,207.24. At the time he established his SMSF, Mr Barnard told Shaun White that he would require $30,000 for a property settlement in the near future. After many requests as this property settlement approached, Mr Barnard was eventually able to collect a bank cheque for $30,000 from the PFS Group offices to enable him to settle the property transaction.

195 Since this time, Mr Barnard has heard absolutely nothing from the PFS Group at all. He has not been provided with any documentation, including bank statements for his SMSF. He believed that the balance of his superannuation account was invested and gaining interest.

196 In fact, the sum of $2,150 was taken from the Brian Barnard SMSF bank account with ANZ on 30 January 2004 and applied towards the Warburton Lane settlement, as described above. The sole signatory to the bank account was Shaun White. Mr Barnard did not give any authority for this to take place.

(e) Beckham SMSF

197 Kerry Beckham and her husband Bill Beckham were friends of Ned Tibble. In early 2003, Tibble approached them and other friends about establishing their own SMSF. A meeting was arranged to discuss the matter in more detail. At the meeting, Tibble told the Beckhams that there were advantages in having their own SMSF rather than leaving their superannuation moneys in an industry fund. He recommended that they establish a SMSF and said that their superannuation money would be safe and they would have control of it.

198 Once the Beckham SMSF was established, Mr Beckham's existing superannuation balance was rolled into the fund. Mrs Beckham said that she had worked at many places and did not know where all of her funds were. Accordingly, she did not roll any funds over, but did give a direction to her employer at the time to pay her superannuation entitlements to the Beckham SMSF.

199 The evidence establishes that the bank account for the Beckham SMSF was opened in April 2003 and that, in the period to 29 April 2005, $22,981.48 was credited to this account as a result of Mr Beckham rolling over his superannuation moneys and Mrs Beckham's regular superannuation entitlements being paid into this account.

200 Shaun White was the sole signatory to the Beckham SMSF bank account. The evidence establishes that the total amount debited to the Beckham SMSF bank account in the period to 29 April 2005 was $21,839.50. Ms McNair's evidence establishes that these moneys were paid as follows:

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201 Mr and Mrs Beckham did not authorise any of the payments from the Beckham SMSF bank account. As the bank statements were directed to the PFS offices, they had no idea what was happening with their superannuation moneys.

202 Mrs Beckham was also misled by Nicole White in relation to the Beckham SMSF. At some time during 2004, Mr and Mrs Beckham decided they wanted to move to New Zealand. In these circumstances, Mrs Beckham telephoned Nicole White and "asked to take out our money". Although it is not clear whether Mrs Beckham was seeking to have personal access to the Beckham SMSF moneys, or was seeking to gain control of those moneys so they could be placed in a superannuation account in New Zealand, the resulting conversation which she had with Nicole White was wholly inappropriate. According to Mrs Beckham, the telephone call lasted for about an hour and involved a substantial argument. According to Mrs Beckham Nicole White said "that PFS controlled the money, not us, and that we had no right to it".

203 Following further unsuccessful attempts to gain access to Mr and Mrs Beckham's superannuation moneys, Mrs Beckham said that she just gave up.

204 Mrs Beckham said that she has never received any reports or other correspondence from PFS or about the Beckham SMSF. Nor has she received any correspondence from the ATO in respect of the fund.

205 As stated above, Mrs Beckham said that she at no time authorised an investment in the Warburton Lane development and, until she was told of it by ASIC, had never heard of that property or a possible investment in it.

(f) Deppe SMSF

206 John Deppe was a friend of Anthony Warthold. He established the Deppe SMSF in April 2004 and Shaun White was a signatory to the bank account. Mr Deppe did not swear an affidavit or give evidence. According to Mr Warthold, who at the time was charged with the responsibility of persuading trustees of SMSFs, or other investors, to invest in PFS Group property developments, Mr Deppe and Shaun White reached an agreement whereby $50,000 of Mr Deppe's superannuation moneys would be invested in a property in Racecourse Road, Werribee for a specified return.

207 However, the evidence concerning this agreement is so vague, and so obviously based on hearsay, that I am not prepared to act upon it.

208 Nevertheless, Ms McNair's evidence of her investigations concerning the flow of funds from the Deppe SMSF bank account appears to establish misappropriation by Shaun White from this account also. Having regard to identity of the recipients of transfers from the Deppe SMSF bank account, I infer that this is so.

209 Approximately $60,000 was paid into the Deppe SMSF bank account during the first half of 2004. By the end of 2004, sums totalling $55,640 were paid out from the Deppe SMSF bank account. In particular, sums totalling $51,080 were paid to the PFS Business account and then utilised for a range of purposes including a payment of $11,660 to Shaun White Pty Ltd, the payment of wages to employees of the PFS Group, payment of a Commonwealth Bank credit card bills and various cheques.

210 Further, amounts were paid directly from the Deppe SMSF bank account to Mr Warthold ($2,500) and to the Leukaemia Fund charity ($1,150).

(8) Misappropriation of moneys invested in joint ventures

211 There was evidence with respect to a number of property developments undertaken by the PFS Group. The detail of this evidence varied considerably. In some cases, the only evidence is contained in the provisional liquidator's report. In respect of some of these property developments, the liquidators have made comments and drawn conclusions about the conduct of Mr Kaluski, who is not a defendant to the proceeding. Given these circumstances, it is sufficient if I deal only with those properties where the evidence was more detailed and goes beyond the information contained in the provisional liquidator's report.

(a) Mills Warthold SMSF investment in Studley Road development

212 At a time which is not established by the evidence but which was obviously before December 2003, Shaun White contracted to purchase land at the rear of 109 Studley Road, Eaglemont for the purpose of constructing two home units or town houses. There is a house located at the front of the land, which does not form part of the development, and is presumably known as Lot 1 or Unit 1.

213 It appears that Shaun White purchased this property on the basis of an extended period for settlement of approximately one year. This was in accordance with the usual practice of Shaun White and the PFS Group. This practice involved paying a deposit and then securing an extended period for settlement. In the meantime, investors would be obtained for the project and the property would be developed with a view to being sold for a profit at the time settlement was due of the original purchase.

214 Shaun White completed his purchase of the Studley Road property in December 2004. At this time, the Studley Road development had not been completed. In any event, the evidence discloses that, at the time of settlement, Shaun White granted a first mortgage in the sum of $350,000. Later, in January 2005, Shaun White granted a second mortgage in the sum of $125,000, which was later increased to $175,000. According to the provisional liquidator's report, the second mortgagee advanced moneys on the basis of a valuation of the land in the sum of $700,000, which valuation was conducted in September 2004 on the basis of land value only.

215 The provisional liquidator's report stated that the Studley Road development "contains two unfinished unit developments that are currently at or nearing 'lock-up' stage". Mr Warthold, who invested in the Studley Road development through the Mills Warthold SMSF, gave evidence that he observed that all construction on the Studley Road development ceased around June 2004. It may be that there was some further construction after this time, but this was not established by the evidence.

216 As appears below, two SMSFs invested a total of $203,000 in the Studley Road development. Further, the provisional liquidator's report stated that moneys from the PFS Business account were able to be traced to payments made in respect of the Studley Road development. There are caveats to protect the two SMSFs which invested and, in addition, the provisional liquidators lodged a caveat in respect of any interest of PFS Business in the property.

217 At the time of the provisional liquidator's report, the liquidator stated that he did not have sufficient funds to complete the Studley Road development. Accordingly, notices having been received from the first mortgagee, the liquidator stated in his report that he intended to consent to a mortgagees sale of the two units on the basis of being kept fully informed of the selling campaign and receiving a full accounting in respect of the proceeds of sale. In this regard, I note that Shaun White told the liquidators that he believed a further $50,000 to $60,000 in total would need to be spent on the two units in order to complete construction.

218 Further, Shaun White told the liquidator that upon completion, he believed that Unit 3 could be sold for between $430,000 and $450,000 and Unit 2 could be sold for between $520,000 and $550,000. If this opinion of Shaun White is substantially correct then, depending on the amount owing to the mortgagees and any amount which may be owing to PFS Business, there is a prospect that the SMSFs which invested in the Studley Road development may be repaid some or all of their investment. However, the evidence does not establish whether the mortgagee sale has taken place, and if so, with what result. It may be that further evidence about this process will be relevant when I consider whether any disqualification orders should be made against some or all of the personal defendants.

219 Against this background, I turn to consider the circumstances of the investment by the Mills Warthold SMSF in the Studley Road development. I do this because, even if it transpires that the Mills Warthold SMSF is able to recover its investment, in whole or part, there have nevertheless been contraventions of the Act by the defendants in connection with the investment.

220 As I have mentioned, Mr Warthold was a senior employee of the PFS Group. In this capacity, he assisted in the marketing and establishment of a number of joint ventures between PFS Group companies and other investors.

221 In respect of the Studley Road development, there were two joint venture agreements. First, PFS Business entered into a joint venture agreement with the "Kos SMSF" on 15 December 2003. According to the provisional liquidator's report, this SMSF invested $112,000 in a joint venture for the development of Unit 2, 109 Studley Road, Eaglemont, Victoria. Further, under this joint venture agreement, the Kos SMSF was to invest a further $342,000 upon settlement of the purchase of the Studley Road property. As I have said, it appears that this did not happen as external mortgagees provided the funds to enable settlement. In any event, there is no further relevant evidence concerning the Kos SMSF joint venture.

222 The second joint venture agreement in relation to the Studley Road development was between the Mills Warthold SMSF and PFS Business on 21 December 2003. Under this joint venture agreement, the Mills Warthold SMSF and PFS Business agreed as follows:

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223 Mr Warthold said that Shaun White told him that Tolson would be the project manager for the Studley Road development, which included having responsibility for making payments to tradespeople and material providers, and keeping all of the records of the Studley Road development. It appears that Mr Warthold may have passed these statements on to another investor, Mr Cech, in conversations with him. However, although I accept that Shaun White may have told Mr Warthold these things, I do not accept that this was accurate. Shaun White, not Tolson, was specified as the project managing partner in the joint venture agreement. Further, at this time, Tolson was still engaged as a contractor doing carpentry work, including for the new PFS premises, and had not yet replaced Tochi as project manager for PFS Group developments. Whether or not Tolson subsequently became project manager for the Studley Road development is a matter which I will consider below.

224 Although the Mills Warthold SMSF agreed to make an initial investment of $91,000 in the Studley Road development, it could only fund a payment of $73,000. Accordingly, Mr Warthold made an agreement with a friend, Gilbert Cech, under which Cech agreed to invest the further $18,000 required "through" the Mills Warthold SMSF. In fact, that $18,000 was advanced by Cech in April 2004. The circumstances relating to the delay in providing these funds were not explored in the evidence. As between Mr Warthold and Mr Cech, they had a gentleman's agreement to split any profits between their respective SMSFs on a pro-rata basis.

225 The $18,000 investment by Cech was made, to the knowledge of Nicole White and, I infer, Shaun White, from Cech's SMSF called "Prague Investments Superannuation Fund". In April 2004, at the request of Nicole White, Cech signed an investment authority authorising the sum of $18,000 to be taken from the Prague Investments SMSF bank account and paid into the Margaret Street account as an investment (through the Mills Warthold SMSF) in the Studley Road development. Although this authority was complied with, the evidence establishes that this money was not maintained in the Margaret Street account and applied solely to the Studley Road development. Ms McNair's investigations reveal that, of the $18,000 invested by the Prague Investment SMSF, at least $8,000 was paid to the Studley Road account (which, despite its name, was not the designated account for the Studley Road development) and was then paid to Shaun White Pty Ltd ($5,500) and Telstra ($2,507.96).

226 Shaun White gave Warthold a written statement containing the bank account details for the Studley Road development. The statement is on PFS letterhead and gives "Holding Account Details" for the Studley Road development. The bank account specified is the Margaret Street account maintained by White personally. This was apparent from the face of the statement.

227 Warthold authorised Shaun White to access the Mills Warthold SMSF bank account for the purpose of making the $73,000 payment as part of the initial investment in the Studley Road development. Warthold says that he did not give this authority until after he signed the joint venture agreement on 21 December 2003. In fact, the sum of $73,000[40] was taken from the Mills Warthold SMSF bank account in the following manner:

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228 In the above circumstances, I infer that Shaun White misappropriated $73,200 from the Mills Warthold SMSF bank account. He had no authority to make any payment from that account in respect of the Warburton Lane settlement. At the time he made the $60,000 payment, the joint venture agreement with the Mills Warthold SMSF had not been signed and he had no authority in that regard. Further, the failure of PFS Business to comply with its obligations under the joint venture agreement to maintain a separate bank account and keep proper books of account has had the effect that the sum of $60,000 paid from the Mills Warthold SMSF bank account to the Margaret Street account cannot be traced as to the purpose for which it was used. As I have said, I infer that, at least in respect of the sum of $23,000 paid to the PFS Plan Commission account, the moneys were not used for the purposes of the Studley Road development. This whole episode is indicative of the failure of Shaun White and the PFS Group to maintain separate bank accounts for separate purposes, as required by joint venture agreements, or to keep proper books of account so as to record the application of funds invested in PFS Group property developments.

(b) Investments in joint ventures for Ashridge Lane development

229 Shaun White purchased the property at 2-8 Ashridge Lane, Wyndhamvale in late 2003. As with other PFS Group developments, the contract of sale provided for an extended settlement period and permitted construction works to be performed on the land prior to completion of the contract of sale. Shaun White lodged a caveat to protect his interest as purchaser.

230 The evidence does not reveal the amount paid for the land or the amount of any deposit.

231 The intention was to develop the land by constructing four units or town houses on it. Two joint venture agreements were entered into in relation to the Ashridge Lane development. First, Gilbert Cech signed a joint venture agreement on 28 January 2004 in which he agreed to invest in two units in the Ashridge Lane development. Secondly, Paul Hanlon (through his company Tomjam Pty Ltd) signed a joint venture agreement dated 22 April 2004 in which he agreed to invest in one unit in the Ashridge Lane development. Although the Cech joint venture agreement states that it is in respect of Lots 1 and 2, and the Hanlon (Tomjam) joint venture agreement states that it is in respect of Lot 1 also, I infer that this was a simple error and that Mr Hanlon's investment was intended to be in Lot 3.

232 There is no joint venture agreement, or other investment arrangement, in relation to Unit 4 in the Ashridge Lane development. The evidence establishes that Shaun White, and perhaps Tolson, intended that Unit 4 would be developed, using the moneys invested by Cech and Hanlon (Tomjam), for his or their personal benefit.

233 The Cech joint venture agreement and the Hanlon (Tomjam) joint venture agreement were both in the usual form. The Cech joint venture agreement was with PFS Ashridge Lane A, and was signed by Shaun White on its behalf. The Hanlon (Tomjam) joint venture agreement was with PFS Ashridge Lane B and was signed by Tolson on its behalf. In each case, Tolson was nominated in the joint venture agreement as the project managing partner.

234 Under the Cech joint venture agreement, Cech agreed to invest $230,000 immediately and a further $210,000 upon settlement of the purchase of the land. Cech borrowed the $230,000 for his investment and this amount was paid into the PFS Ashridge Lane A bank account on 16 February 2004.

235 Under the Hanlon (Tomjam) joint venture agreement, Tomjam agreed to invest the sum of $145,000 immediately and a further $112,000 upon settlement of the contract of sale. Between 30 April and 7 June 2004, Tomjam paid this amount. However, notwithstanding the terms of the joint venture agreement which required a separate bank account for the joint venture between Hanlon (Tomjam) and PFS Ashridge Lane B, PFS Ashridge Lane B never opened a bank account. The $145,000 invested by Tomjam was paid into the PFS Ashridge Lane A account.

236 Cech and Hanlon gave evidence that they knew that construction had commenced in respect of the Ashridge Lane development, which indicated moneys were being spent, even though no policy committee meeting was ever held. However, it appears that they made no objection to this taking place. I infer that they trusted that all was going according to plan because they could see construction occurring. However, at some time between August and October 2004, all construction ceased. An examination of the PFS Ashridge Lane A bank account reveals why this was so. By October 2004, PFS Ashridge Lane A had run out of money.

237 Although a total of $375,000 was invested by Cech and Hanlon (Tomjam) and paid into the PFS Ashridge Lane A bank account, Shaun White and Tolson advised the liquidator that only $100,000 to $140,000 had been expended upon the construction work which had taken place on all four units in the Ashridge Lane development prior to construction ceasing altogether. As appears below, the majority of the balance (at least $235,000) was taken from the PFS Ashridge Lane A bank account and paid to other PFS Group companies for purposes other than the Ashridge Lane development.

238 In approximately October 2004, when Mr White was unable to complete the purchase of the Ashridge Lane property, the vendor rescinded the contract of sale. Although the liquidator has given consideration to whether there is an equitable lien over the works which have been completed on the land, he has insufficient funds to pursue the matter further and it is unlikely that there will be any recoveries for the benefit of either Cech or Hanlon (Tomjam).

239 Each of Cech and Hanlon swore an affidavit. Neither was cross-examined. Each of them said that they were led by Warthold to believe that the moneys which they invested would be paid into a dedicated account for his joint venture, and that he did not give any authority for the moneys which he invested to be used for any purpose other than that joint venture.

240 Each of Cech and Hanlon has made efforts to contact the PFS Group and find out what has happened to the moneys invested by him. In particular, Mr Hanlon was most persistent in this regard. When he saw that construction had ceased in about October 2004, by which time the concrete slabs had been poured and the framing had been erected, he contacted Tolson. After a number of unreturned calls, he finally spoke with Tolson. Tolson told him that the slab had been poured "slightly out" and that this required rectification before further construction works could take place. When construction had not recommenced by December 2004, Hanlon tried to contact Shaun White and Tolson on many occasions, without success. When he tried to speak with Warthold, he was told that he had left the company.

241 Hanlon sent an urgent email to Tolson on 17 December 2004 expressing his concerns. In response, Tolson telephoned him later that day and repeated that there was a problem with the slab which needed to be rectified. Tolson said that he would contact Hanlon when the building industry returned to work. Hanlon has not heard from Tolson since.

242 Ms McNair has conducted an analysis of the disbursement of moneys from the PFS Ashridge Lane A bank account. That analysis reveals payments to PFS Group companies, PFS Group employees, the Studley Road account maintained by Shaun White and some payments to or for the benefit of Tolson.

243 Tolson was the sole signatory to the PFS Ashridge Lane A account and, notwithstanding that some of the evidence given by him at his s. 19 examination was the subject of privilege in this regard, he candidly stated from the bar table that he participated in the making of what he described as "inter-company loans" from the PFS Ashridge Lane A account to PFS Business. Tolson says that he participated in these payments at the direction of Shaun White and this seems to me to accord with the probabilities.

244 Tolson produced to ASIC a schedule of what he referred to as "the inter-company loans". It is clear that not all of the entries are, in fact, loans made from the PFS Ashridge Lane A account to PFS Business. For example, there is a payment of $26,000 to PFS Construction in respect of a "consulting fee" which is not stated to be a loan. The evidence does not enable any findings to be made as to whether this was a proper charge to make for the services provided by PFS Construction in managing the Ashridge Lane development. I note that it was charged on 18 February 2004, which was before any work had been done. In other words, the consulting fee was charged "up front".

245 Further, I note that a sum of $8,000 was paid from the PFS Ashridge Lane A account to "Anthony Warthold P/L" as an "investor fee" and that this is not recorded as a loan. I infer that this is in respect of fees or commissions due to Warthold in respect of securing Cech and Hanlon as investors in the Ashridge Lane development. In the absence of disclosure to Cech and Hanlon, it appears difficult to justify charging this fee against their investments.

246 There is also a loan of $1,000 to Tolson personally. The schedule records this as a loan and states that it has not been repaid. Such a loan should never have been made by Tolson to himself from the PFS Ashridge Lane A account.

247 The "inter-company loans" to which Tolson was referring are the payments totalling $195,000 from the PFS Ashridge Lane A account to PFS Business. The first such "loan" was made in the amount of $130,000 and was on the very day that the $230,000 investment was received from Cech. The second "loan" of $50,000 was made some two weeks later on 2 March 2004. The third "loan" of $15,000 was made on 17 March 2004. I note, however, that this final "loan" recorded in the "inter-company loan" schedule provided by Tolson was not, according to Ms McNair, in fact paid to PFS Business. According to Ms McNair's investigations, this amount was transferred to the Studley Road accounts maintained by Shaun White personally.

248 As I have said, the consulting fee was taken from the PFS Ashridge Lane A account on 18 February 2004 in the sum of $26,000.

249 The result of these "loans" and other payments was that in the period 16 February 2004 when the $230,000 was received from Cech until 17 March 2004 when the "loan" or payment to the Studley Road account of $15,000 was made, $221,000 of Cech's investment of $230,000 was paid to PFS Business by way of loans, PFS Consulting as an "upfront" consulting fee and to the Studley Road account maintained by Shaun White. In other words, the PFS Ashridge Lane A account was almost wholly depleted within one month of it being established with Cech's investment.

250 Between 30 April and 7 June 2004, the $145,000 investment from Hanlon (Tomjam) was received. I infer that it was this money which funded the actual construction which took place in respect of the Ashridge Lane development. It is unlikely that all of Hanlon's investment was used for this purpose. However, the evidence does not permit a finding to be made as to the extent to which the moneys invested by Hanlon were used for purposes other than the PFS Ashridge Lane A Development.

251 There was also evidence of payments from the PFS Ashridge Lane A account to Tolson. $2,574 was paid to him personally, and $2,020 was paid to his business name "Tolstruct". In the absence of Tolson giving evidence, it is difficult to make specific findings, or draw inferences, about these payments. However, these payments may well have been for construction services provided by Tolson in respect of the Ashridge Lane development.

(9) Other property developments

252 The provisional liquidator's report deals with a number of PFS Group property developments which have not been considered above. I do not intend to make findings in respect of all of these property developments. Although the provisional liquidator's report is critical of the conduct of a number of Kaluski White property developments,[41] I do not intend to make any findings in respect of the conduct of any of the defendants in connection with these property developments. Having regard to the adverse comments made by the liquidator concerning the conduct of Mr Kaluski and, perhaps, Mr Tibble, I do not think it is appropriate for me to make findings in their absence as parties to the proceeding. Further, it does not seem to me to be necessary for there to be findings in relation to these properties in order for me to grant the relief which ASIC seeks in the proceeding.

253 There are three other property developments to which it is necessary and appropriate for me to refer.

(a) 47 Black Gully Road, Diamond Creek

254 Shaun White informed the liquidator that Kaluski White Black Gully Road was incorporated for the purpose of purchasing and developing the Black Gully Road property. However, the evidence discloses that, in September 2003, Shaun White personally entered into a contract of sale in respect of this property. A deposit of approximately $170,000 was paid. It appears that this deposit was funded partly by payments from SMSF bank accounts under the control of Shaun White and partly from PFS Group bank accounts. The evidence does not enable any finding to be made as to whether the trustees of the SMSFs whose moneys were used gave authority to Shaun White for this purpose.

255 In his letter to the Court sent on the day before the trial commenced, and which I have quoted in full above, Mr White drew my attention to an error in the provisional liquidator's report concerning the use of moneys from the bank accounts of Anna's SMSF and Zenner's SMSF to fund the payment of the deposit on this property. The liquidator has since sworn an affidavit confirming that this was an error. However, the liquidator has noted in his affidavit that this error was caused by statements made by Shaun White at his s. 19 examination. The liquidator's further affidavit in this regard was not responded to by Shaun White.

256 The contract of sale for this property has been rescinded by the vendor. Shaun White has commenced proceedings in the County Court seeking to recover the amount of the deposit on the basis that the Vendor's Statement given to him does not comply with s. 32 of the Sale of Land Act 1962 (Vic). The evidence does not disclose whether Shaun White is still prosecuting this recovery proceeding.

(b) 8-10 Warburton Lane, Melbourne

257 In the absence of Mr Kaluski as a party, I do not intend to deal with this property in any detail. However, as the conduct of Shaun White is relevant beyond the issues concerning the settlement of the purchase on 30 January 2004, I will refer to his role in relation to this property.

258 The Warburton Lane property was purchased by Kaluski White in May 2003 for $610,000. It appears that settlement took place in early 2005 and, at this time, Kaluski White granted two mortgages for amounts totalling $505,000.

259 Further to this mortgage funding, moneys were raised from other sources to fund the development of this property. First, there was a joint venture agreement under which Ivana Stillitano agreed to advance $160,000 in return for an 18.36 per cent interest in the property when completed. The joint venture agreement provides that the moneys invested by Ms Stillitano were to be kept in a separate bank account, but this did not happen. The moneys were placed in the Kaluski White general account and were not used exclusively for the development of this property.

260 When further funds were required for the development of the property, Shaun White approached Rita Luca and obtained an investment from her in the sum of $90,000. This sum was paid directly to Shaun White. There was no formal agreement signed. There is no evidence that this sum ever found its way into the Kaluski White bank account.

261 Further, Mr Kaluski's mother Irena Kaluski lent, through her SMSF, a further $130,000 to Kaluski White to enable the development to be completed. There is a formal loan agreement which provides that Mrs Kaluski will receive 15 per cent interest per annum, be paid in priority to all other creditors and investors and will be the only party entitled to lodge a caveat over the property. Further, as I have found above, on 30 January 2004 Shaun White misappropriated $217,693.20 from various SMSFs to enable the contract of sale for this property to be completed. Having regard to the fact that the first mortgage of $435,000 was registered on 2 February 2004, it may be that part of the first mortgage funds were used to make the limited repayments to SMSF bank accounts which I have referred to above.

262 Notwithstanding that approximately $1,100,000 has been "invested" in this property,[42] the liquidator has received a "kerbside" appraisal that the property is worth only $520,000 or thereabouts. It appears that the value of the property has been significantly adversely affected as a result of works conducted on the site without valid building or planning permits. As a result, the Melbourne City Council has issued a "stop work order" and has advised the liquidator that it is likely that some of the works will need to be demolished and reconstructed. Having regard to the amounts owing to the mortgagees, either investors are likely to suffer a shortfall or total loss of their investments.

263 A mortgagee auction of this property was scheduled for 28 September 2005. The evidence does not disclose the result of that auction. Whatever the result of the auction, I find that the development of this property has been mismanaged by Kaluski White. [Further, I find that the conduct of Shaun White in securing the investment of $90,000 from Mrs Luca was wholly inappropriate.]

(c) 95 Harvest Home Road, Epping North

264 On 31 March 2005 Nycam Werd executed a contract of sale for the purchase of the Epping property for the sum of $400,000. A deposit of $20,000 was paid. The contract of sale provided that the balance of the purchase price was payable on 24 March 2006. In accordance with the usual practice of the PFS Group in connection with property developments, the contract of sale provides that possession of the property will pass immediately to Nycam Werd for the commencement of development works.

265 In fact, no works have been conducted on the Epping property. It is presently zoned rural, although it appears that there is an application to have it zoned residential.

266 In order to fund the development of this property, a different model was adopted by the PFS Group. Investors were invited to purchase redeemable preference shares in Nycam Werd. In order to market investment in these redeemable preference shares, Shaun White prepared a detailed feasibility study as a marketing document.

267 Tolson approached five investors to invest in the project. He told the liquidator that he could not recall all of their names or details. However, he believed that he had secured investors of approximately $80,000. Both Tolson and Shaun White promised to provide the liquidator with further documents relating to these investments, but neither has done this.

268 Tolson told the liquidator that, although he was not paid a commission for securing investors in the Epping property, Shaun White paid him $20,000 from the funds which were received from investors "to keep him going". The evidence does not establish what has become of the balance of the moneys which were invested.

269 The conduct of the PFS Group and of Tolson in particular is examined below in relation to the marketing of an investment in this property to a particular investor, Aaron Kendon, through his SMSF.

270 Shaun White told the liquidator that he had entered into a contract of sale with friends for the sale of the Epping property for a sum of $550,000. He said that a deposit of $10,000 had been paid. He undertook to provide a copy of the contract of sale to the liquidator, but has not done this.

271 If, as Shaun White advised the liquidator, the Epping property had in fact been sold to friends for $550,000, and the contract was enforceable and due for settlement no later than the date by which Nycam Werd was required to settle its purchase, then there may well have been sufficient funds to repay the investors. However, it appears that there was no such contract of sale or, if there was, the purchasers were not prepared to complete it.

272 Following the completion of the provisional liquidator's report, the solicitors for the liquidator wrote to the purported purchasers of the Epping property and asked for a copy of the contract of sale to be provided within seven days. The letter stated:

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273 The purported purchasers did not respond to this letter.

274 Between October 2005 and February 2006, the liquidator received three valuations of the Epping property. These valuations ranged between $300,000 and $510,000. Due to the substantial variances in the valuations when compared to the purchase price of $400,000, the liquidator disclaimed the interest of Nycam Werd in the contract of sale to purchase the Epping property.[43] As I have said, that contract was due for settlement on 24 March 2006.

275 As the interest of Nycam Werd as purchaser of the Epping property was its only asset, the liquidator has sworn that he does not anticipate that the investors in redeemable preference shares in Nycam Werd will receive any return in its winding up.

(d) Aaron Kendon

276 As I have said, one of the investors in redeemable preference shares in Nycam Werd was Aaron Kendon. He invested through his SMSF called "Aaron's SMSF". Although it is not strictly relevant to the marketing of redeemable preference shares in Nycam Werd there is an issue as to the involvement of Tolson in persuading Mr Kendon to establish Aaron's SMSF. This issue provides the context against which Tolson admittedly marketed an investment in redeemable preference shares in Nycam Werd to Mr Kendon on behalf of Aaron's SMSF.

277 It is first necessary to consider the role of Tolson in relation to the SMSF business at relevant times. In summary, it was submitted on behalf of ASIC that Tolson was substantially involved in the SMSF business conducted by the PFS Group. Tolson submitted that his involvement in the SMSF business was incidental and that the evidence of him doing acts relevant to the SMSF business were of a mechanical nature, such as obtaining signatures to documents, in circumstances where he had only a general understanding as to how the SMSF side of the PFS Group business worked. Further, Tolson relied upon the fact that his role was as a construction manager and that the only companies of which he was a director were companies incorporated for the purpose of managing or conducting property developments.

278 As discussed above, Tolson commenced his involvement with the PFS Group as a carpenter doing contract work on property developments for the PFS Group. Later, when Tochi left the property development business, Tolson's role changed from a contractor working on PFS Group property developments to that of a construction manager. I find that Tolson had assumed this role by at least 17 February 2004, when he became a director and shareholder in PFS Construction.

279 Tolson admitted to the liquidator that he was a person responsible for the management of each of the four companies of which he was a director and shareholder. Indeed, in his submissions, Tolson relied upon his role as a construction manager as limiting his involvement in other aspects of the PFS Group businesses, in particular the SMSF business and, prior to marketing by him of the Epping property, in relation to securing investors for the property developments he was managing.

280 There was evidence of Tolson having occasional involvement in internal training seminars within the PFS Group relevant to the SMSF business and in one seminar presented by the PFS Group to about 20 mortgage brokers in respect of the SMSF business. ASIC accepted that this involvement was limited. However, it was submitted on behalf of ASIC that I should find this limited involvement demonstrated that Tolson was aware of the business model of the PFS Group, which was to market the establishment of SMSFs and then market investments in PFS Group property developments to trustees of SMSFs being administered by the PFS Group. In this regard, I accept the submissions on behalf of ASIC. I find that Tolson knew full well the business model of the PFS Group and, in particular, the fact that the SMSF business was seen as a way of providing a pool of potential investors in PFS Group property developments.

281 However, the issue remains as to whether Tolson was himself actively involved in the SMSF business, or whether his role within the PFS Group was limited to that of a project or construction manager in respect of PFS Group property developments. In this regard, it does appear as though Tolson had some very limited involvement in the SMSF business from late 2004 until the first appointment group was placed in provisional liquidation on 29 July 2005. However, I find that this involvement by Tolson in the SMSF business was mechanical in nature and did not involve any marketing of SMSFs to the public.

282 Although Tolson did not give evidence, and a substantial part of the transcript of his s. 19 examination is not admissible because he claimed privilege, there is nevertheless a significant portion of Tolson's s.19 transcripts which explain his limited involvement in the SMSF business and which, in my view, accord with the probabilities. In reaching this view, I have also taken into account the conduct of Tolson as a self-represented litigant. I observed Tolson's conduct during nine days of hearing and, in particular, was impressed by his preparedness to accept some responsibility for his conduct and to make admissions against his interest, including in respect of matters not established by the evidence.

283 In summary, Tolson's evidence concerning his involvement in the SMSF business, which I accept, was as follows:

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(1) Towards the end of 2004, Tolson became uncomfortable about the construction side of the business, with which he was fully involved. In particular, he was concerned that the so-called "inter-company loans" made from the PFS Ashridge Lane A bank account had not, contrary to promises by Shaun White, been repaid.

(2) In these circumstances, Tolson was prepared to help out wherever he could, including accepting ad hoc tasks relating to the SMSF business, in the hope that things would turn around and PFS Business would be able to repay the "inter-company loans".

(3) The tasks which Tolson accepted in this regard included coordinating appointments for other PFS Group employees to meet with people who had responded to PFS Group advertising, particularly in respect of the service offered by PFS of finding lost superannuation. Tolson was also prepared to do menial office work related to the SMSF business such as photocopying and putting marketing material and correspondence in envelopes. In this regard, Tolson said that he would do anything "if it was for the greater good" and he was just trying "to make everything work" including tasks such as cleaning the toilets.

(4) Tolson acknowledged that there were three or four occasions where Frank Speak, the PFS employee who would visit people who had responded to advertisements about finding lost superannuation, could not attend appointments. He attended in Frank Speak's place and gave people the results of the search for their lost superannuation. At this time, Tolson also informed these potential clients that the PFS Group also offered the services of establishing SMSFs and as a mortgage broker.

(5) The only people who Tolson persuaded to establish a SMSF with the PFS Group were a friend and his brother in law. In my view, this demonstrates that Tolson had an honest belief in the SMSF business concept, to the extent that he understood it, as a legitimate one which offered benefits above those likely to be achieved from investments in large superannuation funds.

(6) As appears hereafter in respect of Tolson's dealings with Mr Kendon, Tolson also acted as a "document officer". This involved him in attending upon persons who had decided to establish SMSFs and having them sign the necessary documentation. This also involved obtaining copies of identity documents necessary to open SMSF bank accounts.

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284 Against this background, it is necessary to consider Tolson's dealings with Mr Kendon concerning the establishment of his SMSF. In a signed witness statement dated 6 July 2005, Kendon stated in summary that Tolson marketed the SMSF concept to him and convinced him to establish his SMSF. He said that it was Tolson who explained to him the benefits of managing his own SMSF. If this evidence was true, it would be inconsistent with Tolson's evidence given at his s.19 examination, and with his submissions, as to the extent of his involvement in the SMSF business. Tolson required that Kendon be made available for cross-examination. As a result, ASIC called Kendon to give evidence and led oral evidence from him. He was then cross-examined by Tolson.

285 I do not intend to canvass the evidence of Kendon in any great detail. When his evidence is viewed as a whole, it is plain that, although I am satisfied he was trying to recall things as best he could, he was a most unreliable witness. His oral evidence, both in chief and in cross-examination contradicted many aspects of his signed witness statement. Further, in cross-examination, he withdrew a number of statements which he made in evidence in chief in a most definite manner.

286 In the end, faced with documents which were put to him by Mr Wilson for ASIC and by Tolson, it became apparent that Kendon must have decided to establish a SMSF prior to him ever meeting Tolson. I find as a fact that Tolson had no involvement whatsoever in dealings with Kendon or his wife as to whether they ought to establish a SMSF. I reject all of the contrary evidence given by Kendon as not being in accordance with the contemporaneous documents or the probabilities.

287 I find that Tolson attended at the Kendon residence on three occasions only. First, Tolson attended on 1 March 2005. At this time, he acted as a "document officer" and secured the necessary signatures of Mr and Mrs Kendon to documents establishing their SMSF. Mr Kendon said there was some discussion with Tolson on this day, but he could not remember the content of it. Secondly, Tolson attended at the Kendon residence on 31 March 2005. He may have signed a further document on that date, but that is not relevant. This was a very brief visit in which Kendon said Tolson was "in a hurry". Tolson photographed some identity documents and left. Kendon could not recall any relevant conversation with Tolson at this time. Thirdly, Tolson visited the Kendons on 24 May 2005. This visit was the result of Kendon telephoning Nicole White and asking what to do about investing the money standing to the credit of his SMSF. By this time, Kendon had received correspondence from ANZ enclosing a deposit book and a cheque book for his SMSF bank account. It was at this meeting that Tolson marketed an investment in the Epping property to the Kendons.

(e) Investment by Aaron's SMSF in the Epping property

288 The 24 May 2005 meeting lasted about three hours. According to Mr Kendon, the discussion was approximately two thirds social and one third related to the investment. Tolson produced an investment report in respect of the Epping property. According to Tolson, this report had been prepared by Shaun White. I accept that this is so. This investment report has a professional appearance and no doubt would have impressed unsophisticated investors like the Kendons. In this regard, I note that Mr Kendon is the manager of a heavy vehicle repair workshop and that there was only about $28,000 in his SMSF.

289 Although the investment report contains a lot of detailed information, including a project budget, itemised cash flow and sensitivity analysis, Mr Kendon could not recall what Tolson said when he briefly took him through the report. In fact, although Mr Kendon says that there was about one hour's discussion about the investment in the Epping property, Mr Kendon could recall virtually nothing about what was said except that Tolson told him that he was "guaranteed" to make a 15 per cent return in 12 months. In his witness statement, Mr Kendon also stated that he recalled some mention of a company called Nycam Werd Pty Ltd but that he could not record in what context.

290 As a result of the discussion, Mr Kendon decided to invest in the Epping North property. He wrote a cheque for $24,000 in favour of a non-existent company, PFS Holdings (Epping North) Pty Ltd.

291 The application form for redeemable preference shares is in the name of PFS Holdings (Epping North) Pty Limited. However, the redeemable preference shares which were in fact issued to Aaron's SMSF were shares in Nycam Werd. It appears that an error was made in the preparation of the application form for redeemable preference shares. This mistake may have been because it was intended to change the name of Nycam Werd to PFS Holdings (Epping North) Pty Ltd. Or it may have been because, at the time, Nycam Werd had registered the business name "Epping North PFS". In any event, as I have said, the redeemable preference shares which were in fact issued were in Nycam Werd. It was Nycam Werd who had entered into a contract to purchase the Epping property. However, as discussed in paragraph 275 above, it appears that shares in Nycam Werd are worthless.

292 In his witness statement, Mr Kendon stated that he decided to invest in the Epping property because he placed trust in Tolson, primarily because Tolson knew several other people at his workplace. In his oral evidence, however, Mr Kendon conceded that it was only after he had decided to invest in the Epping property, and had signed the cheque on his SMSF that, in general conversation, he discussed common acquaintances with Tolson and formed the view that he could trust him.

(10) Non-payment of PFS Group employees

293 A number of ex-employees of the PFS Group swore affidavits. None of them were cross-examined. They said that they had not been paid on time and, in one case, at all. Ms O'Toole, who was responsible for the payment of wages and accounts for the PFS Group, said in her s. 19 examination that employees were paid from which ever company had money in it at the time, whether or not that company was the employer of the employee concerned. The result was that, when employees were paid, they were paid from "different accounts all the time".

294 Joseph Scaffaro commenced working for PFS Construction in about April 2004. He answered to Tolson, who he described as the general manager of that company.

295 Scaffaro's work involved performing design and drafting work for buildings that were to be built by PFS Construction or related companies.

296 Scaffaro said that, when he was paid, it was on a monthly basis. However, towards the end of 2004, he said that his salary payments became erratic. The last salary payment which he received was for the month of September 2004. This salary was paid in two instalments, one in October and one in November 2004.

297 Scaffaro spoke with Tolson about the fact he had not been paid. Tolson told him that he could not be paid until Nicole White transferred sufficient money into the PFS Construction bank account.

298 By about mid-November 2004, the PFS Group was scheduled to move to new offices in Queens Road, South Melbourne. As there was a delay between the PFS Group needing to vacate its previous premises, and the new premises becoming available, Scaffaro was told to wait at home and he would be telephoned when the new premises were available for occupation. At this time, Scaffaro said that Tolson became less and less contactable. He said that he "bombarded" Shaun White and Tolson with telephone calls trying to find out what was happening. He eventually received a call from Shaun White about a week into December 2004. White told him words to the effect "it's a bit tight, no one is going to have a good Christmas". He told Scaffaro to go into work the following week.

299 In fact, none of the employees of the PFS Group were paid at Christmas 2004. By this time, O'Toole had resigned. Someone, Scaffaro cannot recall who, told the staff at a meeting that they would all be paid, as a cheque had come through. No payment eventuated.

300 Scaffaro chased Shaun White with many telephone calls. White did not return any of them. Eventually, the staff were locked out of the Queens Road office of the PFS Group. By this time, Scaffaro was owed approximately $29,000 in unpaid wages, superannuation, holiday pay and professional indemnity insurance.

301 Scaffaro says that Tolson told him that none of the staff were covered by WorkCover.

302 In his affidavit, Scaffaro swore:

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The difficulty with this statement by Scaffaro is that he does not say elsewhere in his affidavit that Tolson made this statement to him. As stated above, his evidence was that Tolson explained that his salary could not be paid until Nicole White transferred money into the PFS Construction bank account. However, Tolson was a director and general manager of Scaffaro's employer, PFS Construction. Scaffaro reported directly to Tolson. Tolson did not cross-examine Scaffaro. In these circumstances, I find that Tolson made statements to Scaffaro to the effect that he would be paid. The fact that Scaffaro continued to work for PFS Construction until, at least, late December 2004 is consistent with this finding.

303 Simon Goss commenced work for PFS Business as a web developer and IT administrator. His written employment agreement provided for an annual salary of $40,000 payable monthly.

304 When the PFS Group moved offices, Goss worked from home during the change over period.

305 Goss was never paid for any of the work he did for PFS Business. When his first monthly salary was not paid on 22 December 2004, he sent an SMS message to Shaun and Nicole White, and left them a voice mail message, asking that they contact him as soon as possible. He received no initial response.

306 Eventually, in the first or second week of January 2005, Goss spoke with Shaun White. White told him that the PFS Group was having a cash flow problem but assured Goss that the company was "in good shape" and had no litigation against it.

307 At about this time, Goss overheard Shaun White telling another employee that no full time employees had been paid since November 2004.

308 Goss stopped working for PFS Business because he was not being paid. He is currently owed approximately $4,500 in unpaid salary, unpaid leave and superannuation entitlements.

309 Anthony Warthold also gave evidence that he experienced difficulties in being paid and, for this reason, ceased attending work in April or May of 2004.

310 Ned Tibble, who worked as an "introducer" for PFS Business on a commission basis was also not paid. He said that each time he complained to Shaun White about not being paid:

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(1) PFS Business is hopelessly insolvent. It has no assets. It owes substantial sums of money to ex-employees in respect of salary and entitlements. In addition to the evidence in this regard which is referred to above, Ms O'Toole said in her s. 19 examination that PFS Business made no superannuation contributions on behalf of employees for the period of her employment, being the majority of the 2004 calendar year. Further, the ATO has filed a proof of debt for $93,116 in respect of outstanding GST and PAYG obligations and further claims by the ATO are expected. PFS Business has not repaid the "inter-company loan" of $195,000 from PFS Ashridge Lane A. Finally, there are the liabilities of PFS Business to repay SMSFs from which moneys were taken and banked into its account, and moneys invested in joint ventures to which it was a party, and which were used for other purposes.

(2) The PFS Ashridge Lane companies have no assets. It is likely that they are indebted to the ATO on a number of grounds. Most importantly, however, PFS Ashridge Lane A and PFS Ashridge Lane B have substantial liabilities to Mr Cech and Mr Hanlon (Tomjam) in respect of the moneys invested by them which have been lost.

(3) Kaluski White is the only company in the PFS Group in respect of which a Return As To Affairs has been received by the liquidator. It was completed by Mr Kaluski. It reveals a hopelessly insolvent company, with assets totalling $600,000[44] and liabilities of $1,534,633. These liabilities include employee entitlements of $85,650, secured creditors of $732,000, unsecured trade creditors of $342,633 and contingent liabilities to joint venture investors of $360,000.

(4) Nycam Werd had, in the opinion of the liquidator as at the date of the provisional liquidator's report, an estimated surplus of $160,000. However, this was based upon the contract of sale of the Epping property from Nycam Werd to friends of Shaun White, in the sum of $540,000 being valid and enforceable. As the subsequent affidavit of the liquidator reveals, White's friends have refused to acknowledge the existence of this contract of sale and, in all the circumstances, the liquidator has disclaimed the Nycam Werd contract of sale to purchase the Epping property. As a result, Nycam Werd has no assets and contingent liabilities to the SMSFs which invested in redeemable preference shares in Nycam Werd.

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317 As to the remainder of the companies in the PFS Group, due to the failure of Shaun White, Nicole White and Tolson to assist the liquidator in his inquiries, and the lack of a complete and accurate accounting record of their dealings, the liquidator is unable to express an opinion on the net asset position of these companies. However, I infer that it is likely that they have negative asset positions and that there are many unpaid debts. In particular, I infer that each of these companies is likely to owe the ATO a substantial amount.

(12) Failure to keep proper books and records for PFS Group transactions

318 As I have said, the liquidator has been hampered in his efforts to estimate the financial position of each of the companies in the PFS Group due to the failure to keep or maintain proper books and records. This is the result of a combination of factors. First, it appears that proper books and records were not kept in the first place. Secondly, it appears that books and records which were maintained have been lost, destroyed or concealed from the liquidator. As a result, it has been necessary for Ms McNair to use the bank records obtained from ANZ to reconstruct, as best she can, the flow of funds into and out of SMSF bank accounts and between bank accounts of the PFS Group and Shaun White.

319 The lack of complete books and records for the PFS Group is notwithstanding notices given by ASIC under the ASIC Act requiring production of all books and records of the PFS Group.

320 In May 2005, a notice under s. 30 of the ASIC Act was served upon each of the corporate defendants except Nycam Werd, Kaluski White and Shaun White Pty Ltd. These notices sought production to ASIC by a nominated time of all books referred to in the schedules. The schedules to the notices comprised a detailed list of books and records of which production was sought. These included management accounts for each of the companies; documents pertaining to creditors; bank statements; documents concerning dealings with the ATO; correspondence and documentation passing between each of the companies; documents evidencing or relating to property held by each of the companies and documents relating to dealings by each of the companies with respect to SMSFs property developments and joint venture agreements.

321 Following service of these notices, Shaun White wrote to ASIC and stated in summary that:

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322 Subsequently, on 14 June 2005,[45] four boxes were delivered to ASIC by an unknown person which, upon examination, contained files relating to SMSFs established by PFS Business on behalf of clients. Other than these documents, and the computers to which I will next refer, there has been no compliance with the s. 30 notices.

323 A further s. 30 notice was served upon Nycam Werd in June 2005. It was not responded to in any way and no documents were produced.

324 During the course of the s. 19 examination of Shaun White, he said that the accounts of PFS Business and PFS Wholesale were maintained by Ms O'Toole using the MYOB accounting system. During this examination, a direction was given to Shaun White to assist in locating the computers containing these accounting records. As a result, Shaun White met with ASIC representatives at a storage facility. At this facility, Shaun White provided ASIC with access to four desktop computers and a computer server, which he said were the computers referred to by him during the course of his s. 19 examination and which contained all of the accounting and other records of the corporate defendants up until February 2005 when they were placed in storage. Shaun White said that one of the four computers was that used by Ms O'Toole.

325 On 13 June 2005, pursuant to a direction given to Shaun White at his s. 19 examination to provide copies of electronically stored data on his computer pertaining to the defendants, Shaun White produced 20 diskettes to ASIC.

326 Next, ASIC examined the computers and the diskettes provided by Shaun White. ASIC had the computers and diskettes interrogated by David Caldwell, a senior manager employed in the forensic information technology area. Caldwell copied all of the available data onto a DVD. In respect of the computer server, Caldwell found that it did not contain a hard disk drive. The two removable disk bays were both empty. There were no other hard disks fitted.

327 The purpose of the examination was to discover whether the computers or diskettes contained proper accounting data relevant to the operation of the PFS Group. Such data as was available was extracted and provided to Ms McNair for analysis. Ms McNair concluded that the only accounting records of the defendants which were recorded comprised limited MYOB data files for the following companies and for the following periods:

(1) PFS Business, between 2 January and 22 April 2004;

(2) PFS Construction, between 18 February and 16 April 2004;

(3) PFS Ashridge Lane A, between 16 February 2004 and 5 March 2004.

328 As appears above, Joseph Scaffaro was employed by the PFS Group during 2004. He produced to ASIC a DVD which was in his possession and which he believed contained a backup of PFS Group company data as at about August 2004. Ms McNair reviewed this data also. Although there was some further data, it was insignificant. It did not cause Ms McNair to change her view that very limited accounting records have been produced to ASIC concerning the corporate defendants.

329 Finally, on the issue of the sufficiency of the books and records which have been produced in relation to the PFS Group, I note that Tolson was able to produce some documents for the purposes of cross-examining Mr Kendon. Counsel for ASIC said he would not object to Tolson putting these documents in evidence, even though some of them could not be verified by any witness, provided that Tolson informed the Court where he obtained the documents from. Tolson stated to the Court that the documents had been obtained by him from Nicole White.

(13) General mismanagement of PFS Group

330 As appears from the facts to which I have already referred, the management of the PFS Group was a complete shambles. Wages and other debts were paid from the account of whichever company happened to have sufficient funds at the time. Moneys were moved from company to company without proper records being kept. Property developments were incompetently managed and the terms of joint venture agreements were simply ignored. Various personal expenses of Shaun White and Nicole White were paid out of whichever company bank account had the funds at the time.

331 Further to the facts referred to above, the failure of the PFS Group to make proper arrangements for the forwarding of mail from its previous address to its new address provides a striking example of the general mismanagement of the PFS Group. It will be recalled that in late December 2003, the PFS Group moved offices. On 20 May 2005 ASIC served a notice under s. 30 of the ASIC Act on the manager of the premises from which the PFS Group moved. In response to this notice, ASIC received a large box containing mail that was addressed to companies in the PFS Group or staff who were associated with those companies. Approximately 99 per cent of this mail was unopened, and the remaining 1 per cent appeared to have been opened by the current occupier of the premises in order to identify it. The correspondence included numerous letters of demand for unpaid debts; a recision notice in respect of the contract of sale for the Ashridge Lane property; 110 letters from the ATO in relation to 44 different SMSFs; four letters from Land Victoria containing notices relating to caveats over land; 102 letters from ANZ relating (mostly) to SMSFs and 15 letters from ASIC. Although most of the correspondence was between 12 and 15 months old, there was also recent correspondence.

332 This neglect in respect of important correspondence highlights the gross incompetence of the PFS Group in the conduct of its own affairs and, perhaps more importantly, in the administration of SMSFs established by it and in respect of which it was charging annual administration fees.

(14) Failure of personal defendants to co-operate with ASIC investigation

333 As appears above, the corporate defendants did not satisfactorily comply with the notices served on them under s. 30 of the ASIC Act to produce the books and records of the PFS Group. The correspondence from Shaun White in respect of these notices demonstrates that he received the notices and assumed the responsibility of complying with them. Further, the evidence to which I have referred establishes that Nicole White remains in possession of some of the books and records of the PFS Group, as she was able to provide these to Tolson.

334 None of the personal defendants has provided the liquidator with a Report As To Affairs in respect of companies of which they are directors, as required by the liquidator under s. 530A of the Act. Further, as referred to above, there are a number of instances in respect of which one or more of the personal defendants has promised to provide information or documents to the liquidator, but has not done so.

335 Finally, there is the breach by Shaun White and Nicole White of the Court order to swear an affidavit describing full details of their assets, liabilities and sources of income.

CONTRAVENTIONS OF THE ACT

336 ASIC seeks declarations that one or more of the defendants have contravened the Act in a number of respects. In summary, ASIC seeks declarations:

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350 It was submitted on behalf of ASIC that the facts of this case demonstrate the making of a financial investment by a number of persons. First, it was submitted that all investors in PFS Group property developments, whether by joint venture or redeemable preference shares, made a financial investment. This was because: (a) they paid money to a company in the PFS Group with the intention that the company would use the payment to generate a financial return; and (b) as a matter of fact, none of the investors had any day-to-day control over the use of their contribution, even though they were intended to do so under the policy committee provisions of the joint venture agreements.

351 Secondly, it was submitted that those persons who established a SMSF made a financial investment. This was because: (a) they contributed to SMSFs with the intention that the trustees of the SMSF would use the contribution to generate a financial return for them; and (b) such contributions were made in circumstances where, having regard to the powers of attorney and the fact that, at least in most cases, Shaun White was the sole signatory to the SMSF bank account, they had no day-to-day control over their superannuation moneys.

352 I accept these submissions on behalf of ASIC. In my view, s. 763B(b) applies wherever the investor has, as a matter of fact, no day-to-day control over the use of the contribution for the purpose of generating a financial return or other benefit. The fact that the structure of the arrangement pursuant to which an investor gives another person money contemplates or provides that the investor will have an element of day-to-day control does not, in my view, exclude the contribution from constituting a financial investment if, as a matter of fact, the investor has no day-to-day control over the investment of the contribution.

353 Further, s. 764A(1)(g) provides that a "superannuation interest" within the meaning of the SIS Act is a specific financial product for the purposes of Chapter 7 of the Act. Section 10 of the SIS Act provides that a "superannuation interest" means a beneficial interest in a "superannuation entity". The definition of "superannuation entity" includes a "regulated superannuation fund". A "regulated superannuation fund" is a superannuation fund in respect of which subsections 19(2) to 19(4) of the SIS Act have been complied with. Section 19(2) provides that a superannuation fund must have a trustee. Each of the SMSFs established by PFS complied with this requirement. Section 19(3) provides that either of two conditions must be satisfied. The form of SMSF trust deed utilised by PFS complied with the provisions of s. 19(3)(b) by providing that the sole or primary purpose of the fund is to provide old age pensions to members on their retirement.

354 In order to comply with s. 19(4) it is necessary for the trustee of the superannuation fund to give a written notice in an approved form to the Australian Prudential Regulation Authority, or such other body or person as is specified in the regulations, electing that the SIS Act is to apply in relation to the fund. There is no direct evidence that this occurred in respect of any of the SMSFs which were the subject of evidence. However, based on the evidence of correspondence from the ATO in respect of many SMSFs, I infer that such a notice was given.

355 It is next necessary to consider whether the defendants or any of them carried on a financial services business by recommending to potential clients that they establish SMSFs or invest in PFS Group property developments. In my view, there is no doubt that certain of the defendants engaged in a financial services business in this regard. I note that my view of the applicable provisions of the Act is consistent with that of Finkelstein J in ASIC v Preston[47] and Nicholson J in ASIC v Manito.[48]

356 The sole remaining question is which of the defendants contravened s. 911A of the Act by carrying on a financial services business without an AFS licence.

(b) Corporate defendants

357 The evidence which I have canvassed above in some detail establishes that PFS Business conducted an unlicensed financial service business by recommending to potential clients that they vary their existing superannuation arrangements and establish SMSFs. Further, prior to PFS Business taking over this aspect of the PFS Group business from Meridian, Meridian conducted an unlicensed financial services business in this regard.

358 The evidence also establishes, in my view, that PFS Construction, PFS Ashridge Lane A, PFS Ashridge Lane B, Nycam Werd, Kaluski White and Kaluski White Black Gully Road carried on a financial services business at material times by recommending to potential investors that they invest in PFS Group property developments.

(c) Personal Defendants

359 An issue arises as to whether the personal defendants, or any of them, carried on a financial services business without an AFS licence. The structure of Part 7.6 of the Act indicates that parliament intended that a director or officer of a company carrying on a financial services business would be exempt from personally obtaining an AFS licence where the company holds an AFS licence.[49] However, where the company does not hold an AFS licence, the individual director, officer or employee is required to hold his or her own AFS licence.[50] Accordingly, each of the personal defendants who made a recommendation to a potential client to establish a SMSF or to invest in a PFS Group property development, and thereby carried on a financial services business, was required to hold an AFS licence. None of the personal defendants held such a licence.

360 In my view the evidence establishes that each of the personal defendants carried on a financial services business. Shaun White did so by his overall control of the PFS Group. An example of particular recommendations made by him is to be found in the information pack which he prepared and which was distributed to persons interested in establishing SMSFs. In her administrative role, Nicole White was involved, at the very least, in the varying of the superannuation interests of PFS Group clients. Tolson admits that he recommended to friends and family that they establish SMSFs. Further, there is no question that he recommended that persons, including Aaron Kendon through his SMSF, invest in redeemable preference shares in Nycam Werd.

(2) False and misleading conduct

(a) Applicable law

361 Sections 12DA and 12DB of the ASIC Act prohibit a person from, in trade or commerce, engaging in conduct in relation to financial services that is misleading or deceptive or likely to mislead or deceive. Section 1041H of the Act makes similar provision concerning conduct in relation to a financial product or a financial service. Section 1041E of the Act prohibits the making of a statement, or the dissemination of information, which is false in a material particular or is materially misleading if the statement or information is likely to induce persons to apply for, acquire or dispose of financial products. Where a person makes a representation concerning a future matter and does not have reasonable grounds for doing so, the representation is taken to be misleading: s. 12BB(1) ASIC Act; s. 769C(1) of the Act.

362 It is clear that, in certain circumstances, silence or failure to reveal relevant and material facts may constitute misleading or deceptive conduct.[51] Whether or not silence constitutes misleading or deceptive conduct is a matter to be judged in all of the circumstances, with particular attention being given to the relationship between the parties and the materiality of the information which is not disclosed.

363 In assessing whether a corporate defendant has contravened the misleading and deceptive conduct provisions under consideration, the state of mind and conduct of the corporation's directors, employees or agents within the scope of their actual or apparent authority is taken to be, in addition to that of the director, employee or agent, the conduct or state of mind of the corporation.[52] For example, conduct by Shaun White in his capacity as a director of PFS Business which is misleading or deceptive will constitute misleading or deceptive conduct by both Shaun White and PFS Business in contravention of the statutory provisions under consideration.

364 In my view, the evidence canvassed above discloses a number of contraventions of these provisions of the Act and the ASIC Act.

(b) Corporate defendants

(i) Meridian and PFS Business

365 Meridian and PFS Business, by their directors, officers and employees, engaged in misleading and deceptive conduct in connection with the SMSF Business in the following respects:

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(1) The "information pack" prepared by Shaun White on behalf of Meridian and PFS Business was misleading and deceptive in numerous respects, as discussed in paragraphs 140-7 above. In particular, the information pack contained the false statement that the SMSF Application Form incorporated "a limited power of attorney".

(2) Shaun White, who was in overall control of Meridian and PFS Business, knew at all times that moneys were taken from SMSF bank accounts without the authority of the trustees of those SMSFs. By failing to inform those trustees of these unauthorised transactions, Meridian and PFS Business engaged in false and misleading conduct. In particular, Shaun White and Nicole White ensured that bank statements for SMSFs were sent to PFS, thus withholding material information from the trustees of those SMSFs as to unauthorised transactions on their bank accounts: see paragraphs 146-9 and 201 above.

(3) Nicole White lied to Anna Chirnishova: see paragraphs 173-5 above.

(4) Nicole White lied to Mr and Mrs Zenner: see paragraph 189 above.

(5) Nicole White lied to or misled Mrs Beckham: see paragraph 202 above.

(6) Shaun White lied to Anna Chirnishova: see paragraphs 173-4 above.

(7) Shaun White lied to Mr Zenner: see paragraph 191 above.

(8) Shaun White stated to employees that PFS Business was solvent and said or inferred that they would be paid. There were no reasonable grounds for making these statements at the time they were made: see paragraphs 303-11 above.

(10) Ned Tibble promised Mr Zenner that funds invested by his SMSF would return 22 per cent per annum: see paragraph 181 above. There were no reasonable grounds for making this statement.

(11) By entering into the joint venture agreement with the Mills Warthold SMSF, PFS Business represented to the trustees of the Mills Warthold SMSF that a separate bank account would be established for all moneys invested by it in the Studley Road development. In fact, no separate bank account was established. The moneys which were invested were paid into the Margaret Street account maintained by White personally. This was not a separate bank account for the Studley Road development. I find that there were no reasonable grounds for the representation by PFS Business in the joint venture agreement that a separate bank account would be established: see paragraphs 222-8 above.

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(1) Each of them failed to comply with the representation contained in the joint venture agreements to which it was a party, that a separate bank account would be opened and maintained for each of the joint ventures. In fact, the PFS Ashridge Lane A account was the only bank account opened. All moneys invested in the Ashridge Lane development were placed in this account: see paragraphs 108(5), 109 and 234-7 above. There was no evidence of any reasonable grounds for the making of these representations.

(2) Investors in the Ashridge Lane development were not told that moneys invested for the purposes of the development were used to make "inter-company loans" to PFS Business and for other purposes not directly associated with the Ashridge Lane development. Further, investors were not told of the consulting fee charged by PFS Business or the investor fee paid to Anthony Warthold Pty Ltd as a commission in respect of securing Cech and Hanlon as investors in the Ashridge Lane development. In my view, the investors were entitled to expect that they would be told if the moneys invested in the Ashridge Lane development were used for these purposes. By failing to inform the investors of these payments from the PFS Ashridge Lane A account, these companies engaged in misleading and deceptive conduct because the investors were induced to believe that their investments were held in a separate bank account for use only in connection with the Ashridge Lane development. See paragraphs 237-49 above.

(3) Tolson, on behalf of PFS Ashridge Lane B, mislead Paul Hanlon about the reasons for construction ceasing on the Ashridge Lane development. Although the concrete slab may have been poured "slightly out", the real reason for construction ceasing was that there was no money left in the PFS Ashridge Lane A account, as a result of the unauthorised use of moneys invested in the Ashridge Lane development. Tolson mislead Hanlon by failing to inform him of this: see paragraphs 240-1 above.

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(c) Personal Defendants

370 The conduct of the personal defendants which was misleading or deceptive has been canvassed above in relation to the corporate defendants. As I have said, any misleading or deceptive conduct by a personal defendant on behalf of a corporate defendant is taken to be misleading and deceptive conduct by both the personal defendant and the relevant corporate defendant.

(3) Breach of director's duties

371 Before setting out the applicable law, I note that there is substantial overlap between the conduct of the personal defendants which I have found to be misleading or deceptive and the conduct of the personal defendants which is in contravention of their duties under the Act as directors or officers of the corporate defendants.

(a) Applicable law

372 Section 180(1) of the Act provides that directors and officers of a corporation must, subject to the business judgment rule in s. 180(2), exercise their powers and discharge their duties with a reasonable degree of care and diligence. Section 181(1) provides that directors and officers of a corporation must exercise their powers and discharge their duties in good faith and for a proper purpose. Section 182(1) provides that directors, officers and employees of a corporation must not improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the corporation.

373 As appears above, Shaun White was a director of each of the corporate defendants at all relevant times.

374 Nicole White was a director of Kaluski White Black Gully Road. More importantly, Nicole White was at all relevant times an "officer" of Meridian and PFS Business, in that she was the person within the PFS Group who at all material times was responsible for the establishment and administration of SMSFs on behalf of PFS Group clients. In this role, Nicole White made or participated in the making of decisions that affected the whole or a substantial part of the business conducted by Meridian and, subsequently, PFS Business. Accordingly, I find that Nicole White was at all relevant times an "officer" of Meridian and PFS Business within the meaning of the Act.[53]

375 Tolson was at all relevant times a director of PFS Construction and of PFS Ashridge Lane A, B and C. Tolson was not, in my view, an officer of any of the other corporate defendants.

376 Because ASIC also seeks declarations against Nicole White and Tolson that they were "involved" in contraventions of ss. 181(1) and 182(1) by Shaun White, it is necessary to consider the elements of these two sub-sections briefly.

377 It suffices for present purposes to refer to the consideration by Santow J in ASIC v Adler[54] of the applicable principles. Relevantly, Santow J stated that issues of good faith, proper purpose and improper use of position are, for the purposes of ss. 181(1) and 182(1), to be determined objectively.

(b) Contraventions of s. 180(1)

378 As I have said, the management of the PFS Group was a complete shambles. Each of the personal defendants must bear some responsibility for this. Obviously enough, the prime responsibility is that of Shaun White and, in connection with the SMSF Business, Nicole White. However, as a director of PFS Construction and the three Ashridge Lane companies, Tolson must also bear some responsibility.

379 I find that the personal defendants contravened s. 180(1) of the Act by failing to exercise a reasonable degree of care and diligence as a director or officer of the corporate defendants, in the following respects:

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(1) The powers of attorney which were granted by trustees of SMSFs established by Meridian or PFS Business did not appoint Shaun White as their attorney. They appointed "Personalised Finance Solution ABN..." as the attorney. Until the establishment of PFS Business, the ABN of Meridian was stated in the powers of attorney. After the incorporation of PFS Business, its ABN was stated in the powers of attorney. Shaun White used his position as a director of Meridian, and later PFS Business, to convince the ANZ Bank to appoint him as a signatory to SMSF bank accounts. In my view, this demonstrates that Shaun White was exercising his powers as a director of Meridian, and later PFS Business, when he used his authority as account signatory for SMSF bank accounts to misappropriate moneys. This conduct by Shaun White was obviously not in good faith, in the best interests of Meridian or PFS Business or for a proper purpose.

(2) Further and in any event, I infer that Shaun White used his position as a director of Meridian and PFS Business to become appointed as signatory of SMSF bank accounts for the purpose of gaining an advantage for himself and his wife. Although it may be that, in the early stages of the SMSF Business, Shaun White did not intend to misuse his authority as account signatory for SMSFs under his control, his conduct in taking steps to have himself appointed a signatory to SMSF bank accounts after he had commenced misappropriating moneys was clearly done in bad faith and for an improper purpose. The continuing pattern of misappropriation establishes this.

(3) By directing Tolson to make the "inter-company loans" and other advances from PFS Ashridge Lane A to PFS Business, Shaun White failed to act in good faith as a director of PFS Ashridge Lane A and PFS Ashridge Lane B. The loans and other payments were directed by Shaun White for his own purposes, or those of PFS Business, and were clearly improper.

(4) The lies told by Shaun White, which I have found to be misleading and deceptive conduct, constitute conduct by Shaun White as a director of PFS Business which was in bad faith, not for the best interests of PFS Business and not for a proper purpose.

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384 I find that Nicole White contravened s. 181(1) of the Act by lying to Anna Chirnishova and Mr and Mrs Zenner: see paragraphs 173-5 and 189.

385 I am not satisfied that Tolson contravened s. 181(1) of the Act. In my view, the conduct of Tolson in this regard to the "inter-company loans" and other payments from the PFS Ashridge Lane A account should be viewed as gross negligence, rather than as a lack of good faith on his part. This is because I infer that Tolson was simply complying with directions from Shaun White in circumstances where, as I have said, he had no real appreciation of his duties as a director.

(d) Contraventions of s. 182(1)

386 In my view, the conduct of Shaun White and Nicole White which I have found to contravene s. 181(1) also contravened s. 182(1).

387 Further, as I have said, the conduct of Tolson in using his position as the sole signatory to the PFS Ashridge Lane A account to make the "inter-company loans" and other payments for purposes other than the Ashridge Lane development constitutes, on any objective view, an improper use by Tolson of his position as a director of PFS Ashridge Lane A to gain an advantage for another. Viewed objectively, it was improper for Tolson to facilitate these loans and payments. At the time, Tolson was a director and the sole signatory to the PFS Ashridge Lane A account. Although I have little doubt that Tolson acted at the direction of Shaun White, this is no answer to a finding of objective impropriety against him in this regard. I note that Tolson made no attempt to ensure, prior to the "inter-company loans" being advanced, that the loans were documented, made on reasonable terms as to the payment of interest or secured in any way. No reasonable director could have properly agreed to the "inter-company loans" being made in these circumstances.

388 In this regard also, the loan by Tolson from the PFS Ashridge Lane A account to himself, in the sum of $1,000, must be seen as an improper use of his position as a director of PFS Ashridge Lane A: see paragraph 246 above.

(4) Involvement in contraventions of others

(a) Applicable law

389 Section 79 of the Act provides that:

[138]

(1) Nicole White is the wife of Shaun White and obviously has a close personal relationship with him.

(2) Nicole White was the direct and indirect recipient of the benefit of moneys misappropriated by Shaun White.

(3) As the "Senior Fund Administrator" of the SMSF Business conducted by Meridian and, subsequently, PFS Business, Nicole White must have known that Shaun White was a signatory, often the sole signatory, of SMSF bank accounts. Further, she must have known that bank statements were forwarded by ANZ to PFS and not to the trustees of the SMSFs under her control as fund administrator.

(4) Even if Nicole White did not know of the early misappropriations by Shaun White of SMSF moneys, there can be no doubt that she well knew of misappropriations by at least mid-June 2004. This follows as a matter of necessary inference from the request by Anna Chirnishova of Nicole White in mid-June 2004 for access to her superannuation moneys and the subsequent lies told by Nicole White to Ms Chirnishova in order to cover up the fact that, by mid-June 2004, $83,000 had been taken from Ms Chirnishova SMSF bank account: see paragraphs 172-8 above. The only reason for Nicole White lying to Ms Chirnishova was to conceal the fact that moneys had been stolen from her SMSF bank account.

(5) Similarly, the only explanation for the lies told by Nicole White to Mr Zenner about his superannuation moneys is that Nicole White was covering up her husband's misappropriation of $178,000 from the Makaze SMSF bank account in July 2004: see paragraphs 183-9 above.

(6) I find that Nicole White knew, from at least mid-June 2004 and probably earlier, of her husband's misappropriations of SMSF trust moneys. Further, I find that she knew that her husband improperly used his position as a director of PFS Business, together with the powers of attorney in favour of PFS Business, to become a signatory to SMSF bank accounts and thus facilitate the misappropriations. If Nicole White did not have actual knowledge of these matters, she was on notice of extremely suspicious circumstances and her failure to inquire into her husband's actions was wilful.

Plaintiff v Defendants

At a glance

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Before

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Judgment (142 paragraphs)

Parties

Cases Cited (19)