Plaintiff v Defendants

Plaintiff v Defendants - [2006] VSC 239 - VSC 2006 case summary — Zoe

INTRODUCTION

1 In this proceeding the plaintiff, which I will call "the Commission" or "ASIC", sought declarations against a number of corporate and personal defendants that they had contravened a number of provisions of the Corporations Act 2001 (Cth) ("the Act") and injunctions consequent upon such declarations as may be made. ASIC also seeks 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. 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.

7 In Forge v Australian Securities and Investments Commission[1], the New South Wales Court of Appeal held that, before a court disqualifies a person from managing corporations, the court should first make findings as to the statutory pre-conditions for the making of a disqualification order. The court should then provide the person with a separate opportunity to be heard as to whether a disqualification order should, in light of the findings, be made.[2]

8 As a result of the decision in Forge, I decided to hear the proceeding in two separate parts. First, as to whether any or all of the defendants contravened provisions of the Act ("the contravention hearing"). Secondly, in the event that contraventions were found by me, as to whether the personal defendants or any of them should be disqualified from managing corporations (a "disqualification hearing").

9 On 29 May, I delivered my reasons for judgment following the contravention hearing. In Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd & Ors[3] ("ASIC v PFS") I held that there had been many contraventions of the Act and of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). As a result, I made a number of declarations of contravention and decided that it was appropriate to make permanent injunctions consequent upon such declarations.

10 In particular, I found that each of the personal defendants had contravened more than one "corporation/scheme civil penalty provision" as defined in s. 1317DA of the Act and made declarations accordingly.

11 Further, in respect each of the personal defendants, I found and declared that they had at least twice contravened the Act while they were an officer of a body corporate.

12 Accordingly, I determined that it was appropriate to hold a disqualification hearing as to ASIC's claims that the personal defendants should each be disqualified from managing corporations.

13 The relevant statutory pre-conditions for the making of a disqualification order against the personal defendants are contained in ss. 206C(1) and 206E(1) of the Act, which provide:

[38]

34 The amount of money involved in this case is substantially less than in ASIC v Hutchings. However, due to the loss or destruction of records, and the failure of Shaun White to co-operate with ASIC or the liquidators in any meaningful way, the extent of the losses suffered by persons dealing with the PFS Group is unable to be quantified. For example, ASIC's investigations concerning moneys misappropriated from SMSFs do not relate to all SMSFs established by the PFS Group. Notwithstanding this, misappropriations of hundreds of thousands of dollars have been identified. Further, losses by investors in PFS Group property developments also involve hundreds of thousands of dollars. In addition, there are unpaid salaries owing to PFS Group employees of approximately $40,000 and the Australian Taxation Office is owed hundreds of thousands of dollars.

35 In Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd[30] Davies AJ imposed a 30 year period of disqualification. This case involved raising money from the public without complying with the applicable provisions of the Act. In this respect, the facts are similar to those considered in ASIC v Hutchings. In addition, the company and the director had been involved in the dissemination of a fraudulent document. The amount involved exceeded $2M. The director, McKim, had been convicted of a criminal offence and ought not to have been acting as a director, because he was disqualified under s. 206B of the Act. In this respect, his position is similar to that of Shaun White.

36 In ordering a 30 year period of disqualification, Davies AJ referred with approval to ASIC v Parkes and ASIC v Hutchings and concluded that a disqualification period of "slightly more" than that ordered in ASIC v Parkes was appropriate.[31]

37 In Platcher v Joseph[32] Stone J ordered a disqualification period of 25 years. In that case, Platcher had contravened the Act by being involved in the management of a corporation at a time that he was disqualified from doing so because he was an undischarged bankrupt. He did so on two occasions, thus enlivening the jurisdiction under s. 206E(1)(a)(ii) of the Act to impose a disqualification order.

38 In giving his reasons for imposing a 25 year period of disqualification, Stone J took the following matters into account:

[42]

40 Notwithstanding these decisions imposing fixed periods of disqualification, in relation to contraventions of a most serious kind, I am of the firm view that this is a case where an actual, as opposed to effective, disqualification for life is appropriate. In my opinion, there are particular circumstances of this case which justify that result.

41 First and foremost, the contraventions by Shaun White of the Act were principally concerned with the superannuation investments of persons seeking to provide for their retirement. These people were misled by Shaun White and those acting under his direction and control to move their superannuation moneys from the safety of established and reputable superannuation managers into SMSFs under the effective control of Shaun White as signatory to the SMSF bank accounts. In many cases, these superannuation moneys were either misappropriated and used for Shaun White's personal purposes or were placed in risky property developments being undertaken by the PFS Group. The fact that Shaun White targeted the superannuation moneys of people in this way, mostly low or middle income earners, was so deplorable as to attract the maximum penalty which the law allows. In my view, principles of protection of the public, retribution and deterrence demand this result.

42 Secondly, there is the complete lack of contrition on the part of Shaun White. He has refused to cooperate with ASIC and the liquidators in any way. In conjunction with his wife, Nicole White, he has been a party to the concealment and/or destruction of material documents and computer data. At every turn, his actions and inactions have made the investigations by ASIC and the liquidators more difficult, more time consuming and more costly. Shaun White did not appear at trial, despite numerous opportunities to do so, and has never offered any explanation for his conduct. In these circumstances, I am of the firm view that he is a person who is likely to abuse any position which he may hereafter hold relating to the management of corporations. He should be prohibited from ever doing so.

43 In so ordering, I note that the possibility of Shaun White making an application under s. 206G of the Act for leave to manage corporations or a particular corporation is not excluded. Such an application must be made on notice to ASIC and supported by appropriate material. It is not, in my view, appropriate for me to fix any conditions as to a period before which Shaun White should be prohibited from making an application under s. 206G, as was done by Windeyer J in ASIC v Hutchings. It is in my view neither necessary nor desirable that such conditions be attached. In ASIC v Adler, Santow J doubted whether there was power to attach such conditions.[41] Whether or not such a power exists, I am of the firm view that it is not appropriate to exercise it by imposing a condition of the kind imposed by Windeyer J in ASIC v Hutchings. Any discretion under s. 206G should be exercised if and when it is invoked, having regard to the evidence then before the Court.

NICOLE WHITE

44 It is first necessary to note that, like Shaun White, Nicole White was convicted of obtaining property by deception in contravention of s. 81 of the Crimes Act 1958 (Vic). As a result, she was disqualified from managing corporations under s. 206B(2) of the Act for the period 17 May 2000 to 17 May 2005. Further, from March 2005, Nicole White was a bankrupt. Accordingly, she was disqualified from managing corporations under s. 206B(3) of the Act. In merely acting as a director of those corporate defendants of which she was a director, and in participating in the management of other corporate defendants, Nicole White was committing an offence under s. 206A of the Act.

45 The contraventions of the Act by Nicole White are not as widespread or serious as those of her husband. However, they are extremely serious. As set out in my reasons for judgment in ASIC v PFS, Nicole White's contraventions included:

[44]

46 In respect of Nicole White, ASIC also seeks an order that she be disqualified from managing corporations for the rest of her life. For reasons which are substantially the same as those which I have given in respect of Shaun White, I accept this submission.

47 In my view, Nicole White should, like her husband, be disqualified for life from managing corporations. This is because she was intimately involved, as the "Senior Fund Administrator", in the SMSF business of the PFS Group. In this role Nicole White was, at the very least, aware of the misappropriations by her husband of very substantial amounts of SMSF moneys. With this knowledge, she lied to cover up her husband's fraudulent conduct. Further, she knowingly took the benefit of moneys stolen by her husband from SMSFs. It is sufficient to refer to the use which was made of the moneys misappropriated from the Makaze SMSF, as described in ASIC v PFS.[47] Further, as with her husband, Nicole White has shown no contrition whatsoever. Like her husband, she has refused to cooperate with ASIC and the liquidators in any way. She has been a party to the concealment and/or destruction of material documents and computer data. I am of the firm view that she is a person who is likely to abuse any position which she may hereafter hold relating to the management of corporations. Principles of protection of the public, retribution and deterrence demand that she be prohibited from ever doing so.

48 As with her husband, Nicole White has the right, upon notice to ASIC and supported by appropriate material, to apply under s. 206G of the Act for leave to manage corporations or a particular corporation. I refer to my comments above in that regard.

DAMIEN TOLSON

49 The position of Tolson stands in stark contrast to that of Shaun and Nicole White. In the first place, there was no prohibition upon him acting as a director when he did so. None of the circumstances mentioned in s. 206B of the Act applies to him. In particular, he has no prior criminal history, either involving offences for dishonesty or at all.

50 Secondly, I found in ASIC v PFS that Tolson did not act dishonestly. There is no evidence that Tolson knew, or had any reason to suspect, that Shaun White was misappropriating SMSF moneys.[48]

51 However, the fact remains that Tolson contravened the Act in material respects. Although I am satisfied that he acted at all times in good faith, his conduct was such as to amount to gross negligence. In particular, I have found that Tolson 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.[49]

52 In my view, Tolson had no real appreciation of his duties as a director at the relevant times. However, having observed him during the course of the trial of the contravention hearing and the disqualification hearing, I am well satisfied that he now has a good appreciation of the duties of a director.

53 The third significant distinguishing feature between Tolson on the one hand and Shaun and Nicole White on the other is Tolson's expressions of real contrition for his actions. Tolson demonstrated this by his conduct during the contravention hearing and the disqualification hearing, including express statements of contrition and the making of admissions against his interest in circumstances where the admitted matters were not established by the evidence.

54 I am satisfied that disqualification of Tolson from managing corporations is not required in order to protect the public. However, the seriousness of his contraventions are such that principles of retribution and deterrence remain relevant. In particular, this is so with respect to the following contraventions by Tolson:

[46]

55 Further, Tolson's conduct when faced with notices from ASIC requiring him to produce documents relating to companies of which he was a director fell short of the standards to be expected of a responsible company director. Tolson produced no documents. His explanation for doing so is that the documents were all in the control of Shaun and Nicole White. Further, his inability to access these documents made it impossible for him to prepare a Report As To Affairs in respect of the companies of which he was a director, as requested by the liquidator. I accept that what Tolson says in this regard is true. However, the appropriate response in these circumstances is not to do nothing. Tolson ought to have responded to the ASIC notices by stating that he believed all of the relevant documents were with Shaun and Nicole White. In response to the liquidator's request for a report as to affairs, Tolson should have stated that he could not prepare such a document because he did not have access the relevant documents.

56 In all the circumstances, an order disqualifying Tolson from managing corporations for a period of seven years is, in my view, justified. In submissions, Tolson referred to the possibility that imposing a period of disqualification upon him would affect his ability to become a registered builder and, perhaps, to obtain insurance if he could become registered. There was no evidentiary basis for this submission. In my view, the appropriate response to it is to refer to the provisions of s. 206G of the Act. If the disqualification order which I will make has the effect of preventing Tolson from continuing his chosen career in the building industry, it will be open to him to make an application under s. 206G of the Act for leave to manage a particular corporation. If such an application is made, the Court hearing it can consider whether it should be granted in light of all of the circumstances then appearing, including any conditions which it may be appropriate to impose upon the grant of any such leave.

CONCLUSION AND ORDERS

57 I will make disqualification orders in accordance with the above reasons.

58 As to costs, I have already heard submissions as part of the disqualification hearing. It was submitted on behalf of ASIC that I should order that the corporate defendants, Shaun White and Nicole White should be jointly and severally liable for all of ASIC's costs, and that Tolson should be severally liable for one-third of ASIC's costs. In respect of the costs orders sought against the corporate defendants, ASIC did not seek priority for all of its costs, but only part of them. In my view, this submission was appropriate and I will accede to it.

59 The issue remains as to whether it is just that Tolson be responsible for one-third of ASIC's costs. In my view, it is not. Although Tolson was one of three officers of the corporate defendants who was proceeded against by ASIC, he was by no means one-third responsible for the conduct examined at trial or the losses which have been suffered. Tolson's conduct as a self-represented litigant was helpful and appropriate throughout, and he did not unnecessarily prolong any aspect of the trial.

60 In my view, it is appropriate to determine Tolson's liability for costs by reference to the period of disqualification imposed upon him, as compared with the combined periods of disqualification imposed upon Shaun and Nicole White. The evidence establishes that Shaun and Nicole White are aged 34 and 36 respectively. Taking into account normal life expectancy and periods of engagement in commercial activity, their life disqualifications equate to at least 30 years each, a total of 60 years. As against this, Tolson has been disqualified for a period of seven years. In these circumstances, I consider that Tolson should be responsible for 10 per cent of ASIC's costs of the proceeding. In arriving at this conclusion I have also taken into account the fact that time was lost at trial due to the need for ASIC to file supplementary evidence concerning matters which were the subject of hearsay evidence, the time taken to argue the possible application of the re-enactment rule[53] and the delay caused by the correspondence from Shaun and Nicole White during the trial.[54] None of these delays were caused by Tolson and he should not be responsible for them.

At a glance

Court

Decision date

Before

Source

Judgment (47 paragraphs)

Parties

Cases Cited (2)