REASONS FOR JUDGMENT
1 In the mid 1980s and in recognition of difficulties which Aboriginal Australians were encountering in securing rental accommodation in Mount Isa in Far North Queensland as a result of the competing demands and, inferentially, superior financial resources of those working in the mining industry, an Aboriginal corporation known as the Aboriginal and Torres Strait Islanders Corporation for Welfare Services was established under the then Aboriginal Councils and Associations Act 1976 (Cth) (Aboriginal Councils and Associates Act). The objects of the corporation were set out in its original rules, registered with the Registrar of Aboriginal Corporations under that Act. Rule 6, which contains the objects, makes reference inter alios to:
Acquire, hold, and dispose of real and personal property to further the attainment of the above objects, or any of them.
2 The "above objects" referred to in rule 6, are:
(a) to provide financial support services to Aboriginal and Torres Strait Islander people;
(b) to develop a range of community and support services for Aboriginal and Torres Strait Islander people;
(c) to create unity in the community between existing Aboriginal and Torres Strait Islander organisations;
(d) to promote dignity and identity and through self help;
(e) to promote a sense of cooperation between Commonwealth departments and Aboriginal and Torres Strait Islander organisations within the community.
3 A considerable amount of public money was made available to the corporation to serve its objects. With that money, houses were purchased and then made available for rental by the corporation to members of the Mount Isa Aboriginal community. By 2009, the corporation had 33 houses in Mount Isa available for rental.
4 Also by 2009, the Aboriginal Councils and Associations Act had come to be repealed and replaced by another Act, the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act). The applicant in the present proceeding, the Registrar of Aboriginal and Torres Strait Islander Corporations, who holds office under the CATSI Act is the successor to the Registrar who held office under the Aboriginal Councils and Associations Act. Corporations originally incorporated under that Act are preserved and continued in existence, and now governed by the CATSI Act.
5 The Registrar's application today is for the imposition of pecuniary penalties, the making of a disqualification order, the ordering of compensation, and for costs of the proceeding in respect of alleged contraventions of the CATSI Act by the chairman of the corporation, Mrs Leigh Kerkhoffs (Mrs Kerkhoffs). Reflecting Mrs Kerkhoffs' timely acknowledgment of the contraventions alleged and her disposition to cooperate in the administration of justice, the parties have agreed as to the facts which are pertinent to the alleged contraventions.
6 A convenient way of recording the relevant facts is to incorporate in a schedule to this judgment the agreed facts, paragraphs 2 through to and including 73. I propose to highlight particular aspects of the agreed facts as well as to deal with matters particular to Mrs Kerkhoffs' personal circumstances and the wider context in which the admitted contraventions have occurred in these reasons for judgment. The detail of the contraventions factually is to be found in the agreed facts which are scheduled.
7 Mrs Kerkhoffs became a director of the corporation in 1997. At that time, her late father was the corporation's chairman. He was an elder of the Kalkadoon community, as is Mrs Kerkhoffs' mother. In 2009, as her father's health failed, Mrs Kerkhoffs came to assume the role of chairman. She did so at a time when the corporation was in very particular financial difficulties. Those difficulties, whilst they had occurred over a period when she was a director, were not difficulties for which she was solely responsible. The difficulties were such that the Registrar applied to the Court for the winding up of the corporation. In her but recently assumed role as chairman of the corporation, Mrs Kerkhoffs made and filed an affidavit which formed the basis of the corporation's opposition to its being wound up.
8 In the result, in February 2010, the winding up application to the Court came to be discontinued by consent. The consent included the proffering of undertakings to the Court in relation to financial reporting. Further, a Mr Ericson, an accountant, was promoted to the Court as appointed to act and did, in fact, act as financial adviser to the board for a period of time. Financial and managerial acumen was always something which the corporation needed. That need was present in 2009, and it remained present up to and including the time when the Registrar appointed a special administrator to the corporation. In initially applying for the winding up of the corporation and in appointing the special administrator, the Registrar was fulfilling the expectations of Parliament in respect of his office.
9 The same applies to his institution of the present proceeding. The Registrar has a particularly difficult role to fulfil in this sense. That Parliament has made separate provision, currently by the CATSI Act, but in earlier times by the Aboriginal Councils and Associations Act, reflects a political value judgment that there is a public interest to be served for all Australians in providing for Aboriginal and Torres Strait Islander Australians to be able to have administration of their affairs. A form in which that self-administration was established was by way of corporations under the Aboriginal Councils and Associations Act and latterly under the CATSI Act.
10 A concomitant, though, of that self-administration is that those who hold office in such corporations must nonetheless observe standards of corporate governance which are akin to those who hold office as a director of a corporation established under the Corporations Act 2001 (Cth). In imposing that particular obligation, necessary as it is, particularly where public funds are deployed, the CATSI Act is pregnant with the potential of a clash between conventional expectations of appropriate corporate governance and directors' behaviours and the very real, heartfelt obligations of clan and tribe to a fellow member of a clan or tribe in the Australian Aboriginal and Torres Strait Islander community.
11 This case has, for that reason, a wider importance, given that, again as a matter of deliberate parliamentary value judgment, in addressing the challenges that were presented by the recognition in Mabo v Queensland (No 2) (1992) 175 CLR 1 of native title, the Parliament, via the Native Title Act 1993 (Cth), has in turn created a mechanism whereby native title can be held by prescribed bodies corporate also established under the CATSI Act. What I mean by that is that the behaviours that have become the subject of these proceedings carry with them, in terms of outcome, very real lessons in terms of the difficulties presented by reconciling legitimate expectations as to good corporate governance with equally worthy expectations as to the ability of Australian Aboriginals and Torres Strait Islanders, not to be the subject of paternal supervision, but instead to have a determinative say in matters touching upon their aspirations and lifestyle.
12 Because of that, there are features of this case where, in my view, general deterrence must have an overriding impact in relation to sentencing, notwithstanding a very human dimension to the behaviours that have led to the contravening conduct. I shall return to that dimension shortly. It is first necessary to give some detail as to the nature of the contraventions which are alleged and admitted.
13 The contraventions concerned occurred over the three year period which followed Mrs Kerkhoffs' election as the chairman of the corporation in April 2009. They may be summarised in this way:
(a) Breaches arising from the forgiveness of rent arrears in the amount of $23,194 owed by Mrs Kerkhoffs to the corporation in respect of rent due for the occupancy of one of the corporation's houses.
(b) Next, unauthorised receipt of financial benefits by way of "wages" for reimbursements from the corporation. The "wages" in respect of payments on these dates, 11 November 2010, 16 November 2010, 30 December 2010, 27 January 2011, 9 December 2011, 16 December 2011, 16 December 2011, and 16 March 2012. The total of these unauthorised wages or reimbursements, when added to the arrears of rental, yields a total of $31,414.17. The Registrar seeks an order that, by way of compensation for the payment of this sum under s 386-1(5) of the CATSI Act. That is not opposed by Mrs Kerkhoffs.
(c) The third source of contravening conduct arises from Mrs Kerkhoffs and her husband's entry into a contract with the corporation for the sale of the property in which they resided and which had hitherto been rented from the corporation to them, in the amount of $248,000. The worth of that property at the time, even on the basis of an affidavit filed by Mrs Kerkhoffs during the earlier winding up proceeding, was $290,000. At the time when the contract was entered into, the corporation was insolvent, as it was, at least inferentially, at the times when the wages or reimbursements were paid.
14 Though it is not the subject of an application for a compensation order, the corporate insolvency is, on any view of the evidence, principally the result of a failure, and it is a concerted failure over many years on the part of the corporation, to recover rent as and when it fell due from tenants. That seems to be a position inherited by Mrs Kerkhoffs when she assumed the role of chairman. I say that having regard to the balance sheet for the corporation for the financial year ending 30 June 2009, wherein arrears of rental in the amount of $388,051.42 is shown by way of an asset with that exact same sum also being shown by way of provision for doubtful debts. That arrears in turn, as the prior year column in that balance sheet discloses, had increased over the year from a sum at the end of the 2008 year of $318,767.42 to $388,051.42.
15 Mrs Kerkhoffs was, of course, a director in 2008, although not then chairman. I have the very strong impression from the facts that the 2008 figure was one which had increased over the years rather than just the result of arrears for the 2008 year.
16 It emerged on closer examination of the composition of the board of directors of the corporation, at a time when the arrears were of this order, that a majority of the board were relatives of Mrs Kerkhoffs. Mrs Kerkhoffs deposed, and I do not doubt, that she felt under considerable family pressure, particularly from her mother and elder in relation to matters touching upon the governance of the corporation. She is, in many ways, a representative respondent. By that, I mean that, while she is individually responsible and while she readily acknowledges individual responsibility, those responsibilities for good corporate governance are not hers alone. They were shared by all of the members of the board.
17 It was put on her behalf that there was nothing surreptitious in the conduct that led to the approval of the particular wages payments or the writing off of rental arrears, including her own, or the entry into the contract for the sale of the property. They are, in one way or another, transactions that are minuted transactions. To that extent, I accept that the conduct was not surreptitious. Indeed, it looks to be conduct which was continuing practices which had developed over time in the corporation. Further, it is possible that some at least of the reimbursements or wages may well have been reimbursements in respect of expenditures incurred on behalf of the corporation by Mrs Kerkhoffs. She acknowledges, though, that she cannot prove this. That in turn is a reflection of the casual way in which matters touching upon the corporation's finances were dealt with, and had been dealt with, at least inferentially for many, many years.
18 One of the other directors of the corporation, Ms Connie Craigie, was, it transpired, also a member of the applicant in a native title case determined by the Court, Doyle on behalf of the Kalkadoon People #4 v State of Queensland (No 3) [2011] FCA 1466. The fact of a determination having been made on behalf of the Kalkadoon people occurred to me in the course of submissions, and upon reading Mrs Kerkhoffs' affidavit, in which she made reference to her being a member of the Kalkadoon people. Upon further investigation, correspondence between one of the directors and the member of the applicant group was revealed. It was that which provoked my reflecting on the wider ramifications of this case in terms of behaviours that are expected of all corporations, which do include prescribed bodies corporate established under the CATSI Act.
19 There are then multiple contraventions which are established as a result of the particular behaviours to which I have briefly referred and which are the subject of greater detail in the agreed statement of facts. In short, they comprise unauthorised payments, unauthorised rental forgiveness, or rental forgiveness where there was a self-interest, an attempt in respect of a sale at under value, and manifest and continuing inadequacy of keeping of books and records.
20 Mrs Kerkhoffs was not a full time or managing director. None of the other directors held full time office. The corporation did have a full time officer. That person was Mrs Kerkhoffs' sister, Mary-Jo. The evidence discloses that Mary-Jo was not qualified in terms of bookkeeping or financial management abilities. Further, she adopted what one might charitably term a casual approach, even in the keeping open of the office of the corporation. The Registrar has, in the affidavit material and, as a result of the investigation that has led to the proceeding, opined that the present is the worst case encountered in respect of the keeping of books and the general organisation of the office.
21 What, then, of Mrs Kerkhoffs' circumstances? She is presently 42 years old. She was born and raised in Mount Isa. Though she attended many different schools, she did complete grade 12 at Kalkadoon High School. The name is surely associated with her clan in Mount Isa. Her previous work experience has included duties as an assistant in a materials testing laboratory, and various social services sector roles. These include particularly, with reference to the Aboriginal community, that of a field officer for the Mount Isa Aboriginal Legal Service, and working for a corporation which represents native title holders.
22 In August 2010, Mrs Kerkhoffs and her husband established a filter cleansing business. That business is operated by a company, Kerkhoffs Transport Proprietary Limited, of which she is director. She and her husband have five children, who range in age from 22 through to 5 years old, the last child born in March 2008. Four of those children live at home with Mr and Mrs Kerkhoffs. The second oldest child has moved away from home. The other four are financially dependent on Mr and Mrs Kerkhoffs.
23 Apart from Kerkhoffs Transport, Mrs Kerkhoffs is also a director of Kalkadoon Community Proprietary Limited. That particular body corporate has a role of negotiating with and liaising with mining companies and other parties who have various agreements with Kalkadoon native title holders, including Indigenous Land Use Agreements. That corporation also assists other Kalkadoon organisations with budgeting.
24 The seed money for Kerkhoffs Transport came from Indigenous Business Australia. The business is one which enjoys modest but undoubted success on the evidence. It looks to be a good example of how such advances can bear fruit for those of Aboriginal background. The business employs five people on a casual basis.
25 In the year ended 30 June 2012, Kerkhoffs Transport had revenue of some $200,000 and a profit of about $20,000. Income from that company and various forms of government assistance provide the major source of income for the family.
26 Mrs Kerkhoffs has the role of director of Kerkhoffs Transport because her literacy and numeracy skills are greater than those of her husband, whom I infer has strengths in one might call hands on work. The two obviously have made a good combination in relation to that particular corporation.
27 Throughout the period which is the subject of the charges, Mrs Kerkhoffs was an officer of the corporation, within the meaning of that term in s 683-1(3)(b) of the CATSI Act. As director and, more particularly, as the chairman, it fell to her to comply with the duties that are imposed by ss 265-1, 265-5, and 265-10 of the CATSI Act. She has contravened those provisions by virtue of the conduct that I have summarised briefly above. It was her task to perform her duties with due care and to the best of her knowledge and expertise. It was also her task to ensure that the corporation complied with its record keeping and reporting requirements which are set out in Pt 7-2 and 7-3 of the CATSI Act.
28 It was likewise Mrs Kerkhoffs' task to bring forward any matters which were within her knowledge which might affect the ability of the corporation to fulfil legal and financial obligations. The forgiveness of rent which she owed and the entering into a contract with the corporation by her and her husband for the purchase of a property at an undervalue were each matters that required disclosure before the board, and further and prudently at least, an abstaining from voting in respect of those matters. That the contract for the sale did not proceed was solely the result of the appointment by the Registrar of the Special Administrator, and that official's termination of the contract.
29 The end result of the special administration, or at least the result to date, has been a need on the part of the corporation to dispose of four of its properties in order to meet debts. Those debts exceeded $600,000. In turn, that means that the pool of rental properties available to Aboriginal Australians in Mount Isa via the corporation has been reduced from 33 to 29. Truly, behaviours on the part of Mrs Kerkhoffs that were deferential to what she saw as Kalkadoon obligations have led to a detriment to Kalkadoon people and other Aboriginal Australians within the Mount Isa area for that reason.
30 I am completely persuaded that an apology proffered by Mrs Kerkhoffs today reflects her deep understanding, and shame for that matter, in respect of that result. I am quite sure that she feels that deeply and that she tried to the best of her ability to balance what she saw as obligations to a mother much respected and an elder with obligations in relation to corporate governance. It is just that the former has triumphed over the latter. Where those particular clan and within clan family obligations are not present, the performance of Kerkhoffs Transport demonstrates that she is not without ability to act as a director.
31 Where particular clan obligations and intimate family obligations have intruded, Mrs Kerkhoffs has succumbed to those obligations, as opposed to observing what one might term wider obligations through the corporation to the Aboriginal community more generally. These are very, very difficult circumstances, and by no means unique to Mrs Kerkhoffs. They disclose in respect of all Aboriginal corporations, a potential risk that balancing between clan obligations and obligations of prudent financial management is a singular challenge to the worthy social experiment represented by incorporation under the CATSI Act and the various roles which such corporations fulfil. Those particular considerations, as I have mentioned, intrude in relation to deterrence, both with respect to pecuniary penalty as well as on the subject of whether there should be disqualification.
32 It was put on behalf of Mrs Kerkhoffs in able and sympathetic submissions advanced on her behalf that there ought not to be a disqualification, having regard to the pecuniary penalty to be imposed. I have given that particular submission very close consideration indeed.
33 In relation to disqualification and with respect to corporations incorporated under what is now the Corporations Act, Santow J in Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 highlighted a number of considerations which are pertinent to disqualification. His Honour did so by reference to earlier authority, particularly Commissioner for Corporate Affairs (Western Australia) v Ekamper (1987) 12 ACLR 519. Having regard to these cases, the following are considerations which, according to the circumstances of particular cases, are relevant to consider:
the character of the offenders;
the nature of the breaches;
the structure of the companies and the nature of their business;
the interest of shareholders, creditors, and employees;
the risk to others from the continuation of offenders as company directors;
the honesty and competence of offenders;
the hardship to offenders and their personal and commercial interests; and
the offenders' appreciation that future breaches could result in future proceedings.
34 It is plain enough that these should not be applied uncritically as if they were but a checklist. Further, it is equally plain that some of these considerations are not germane to a company which is established for charitable purposes such as the corporation. Equally, it is plain that, in their generality, they do not take into account the very particular circumstances which attend the roles which corporations incorporated under the CATSI Act discharge. Mrs Kerkhoffs' character, apart from the conduct which is admitted, is unblemished. Indeed, she has the virtue which has proved to be the vice also, so far as the contraventions are concerned, of a deep interest in and loyalty to values of the Kalkadoon people.
35 The result, though, as I have said, is that there has been an insolvency which was, in its way, spectacular, and a related diminution of houses available to the Aboriginal community in Mount Isa for rental via the corporation. I have the very strong impression that the worthy goal that saw the investment of public moneys, via the corporation, in that housing was not met by the provision of continuing support by way of administrative expertise for the achievement of those goals. By that, I mean it is all very well to invest a large lump sum of public money in the provision of housing for the Aboriginal community, but fraught if one does not accompany that investment with the provision of skills to assist self-administration, initially perhaps by way of external support and then as skills within the Aboriginal community increase, by way of a gradual handover. Just to provide a large lump sum of public money is fraught with the risk of what occurred in this case. This is not to diminish nor, it must be said, has Mrs Kerkhoffs in any way sought to diminish, the contravening conduct on her part, but it is, to put it in a wider and necessary context. Hence my earlier observation that she is, in many ways, a representative respondent. Her failings and those of her fellow directors are also, in an indirect sense, failings of those who have committed public funds without the prudent provision of support for those who are expected to administer them and who may not, through no fault of their own, have the requisite skills.
36 Such is the need to bring home the need for prudent administration of corporations under the CATSI Act, my view is that there is a need for disqualification. In stating that, I wish to make it plain that I do not see this as a case where there should be an uncritical application or translation of that disqualification into the seeking of disqualification by the Australian Securities and Investment Commission of Mrs Kerkhoffs from directorships of companies incorporated under the Corporations Act. There needs to be a very discriminating value judgment to be made as to the imperatives that intruded on the contravening conduct here, and the likelihood or otherwise that they would attend the governance of a corporation that conducts, for example, the business of Kerkhoffs Transport. There is not a direct translation.
37 That said, those who take on the role of board responsibilities in corporations incorporated under the CATSI Act need to understand that that role carries with it duties that are akin to those which fall upon directors of corporations incorporated under the Corporations Act. One does not serve the interests of one's clan or tribal group by failing to adhere to those duties. Whilst I have taken into account that this is a case where a pecuniary penalty is warranted, and warranted to the extent that I shall shortly pronounce, I nonetheless have the view that disqualification is necessary.
38 The Registrar submitted that a period of seven years was necessary. There is no bright line in respect of what would or would not be an adequate period of time. It certainly must be sufficiently long to bring home, not just to Mrs Kerkhoffs but more widely particularly, the unacceptability of the conduct revealed in this case. Neither, though, should it be so long as to prevent someone who does have a deep interest in her people from providing leadership. Balancing those two considerations is difficult. The view that I have reached is that a period of five years is appropriate by way of disqualification.
39 As to pecuniary penalties, and it has been rightly highlighted on behalf of the Registrar and not gainsaid on behalf of Mrs Kerkhoffs, there are particular contraventions. Some are a course of conduct, the ongoing keeping of inadequate books and records being one. Some are separate incidents of contravention. It is necessary to take into account penalties in respect of separate incidents as well as the course of conduct. It is necessary to bear in mind the maximum penalty which can be imposed for individual contraventions. The maximum is $200,000 in respect of the contravention. There is also a need to avoid a checklist approach to the ascertainment of the appropriate penalty.
40 It was put on behalf of the Registrar that, so far as an approach to dealing with multiple contraventions was concerned, that of Foster J in Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 at [73] to [89] offered a recent illustration. I agree with that. I have taken into account what fell from his Honour there. Here, there are particular acts which breach multiple provisions as well, as I have said, as other acts which amount to a course of conduct. In his submissions, and purely by way of illustration as to what might be termed an indicative penalty, counsel for the Registrar tabulated particular individual penalties, and then submitted that one should apply to that a totality principle, as well as taking into account the discount which should be afforded those who cooperate in the administration of justice in the way that Mrs Kerkhoffs has, by ready acknowledgement of contravening conduct and an acknowledgement in a timely way. I have taken into account that particular table. It was acknowledged that there is no precedent based on patterns of behaviour of a like kind. Truly, this is a unique case which requires a unique penalty.
41 The worry with any penalty is ability to pay, which is not great in the case of Mrs Kerkhoffs. For all that, this is a case of serious breaches and breaches also, insofar as there are courses of conduct, which are over a lengthy period. Further, that period occurred after what ought to have been a wakeup call constituted by the Registrar's winding up application, and the benign outcome of that application as it transpired. Further, that benign outcome included expert accounting input from Mr Ericson, whose affidavit I have taken into account in relation to advice offered. Here again, I have the very strong impression that clan and family loyalties proved triumphant over an understanding of what ought to have occurred, having regard to Mr Ericson's advice.
42 As with a disqualification period, there is truly no bright line in relation to penalty. In the end, there is a need for an intuitive value judgment, which reflects, as I have said, justice in terms of a very real need for general deterrence being tempered with mercy arising from particular circumstances, financially and from family, as well as with a ready and timely acknowledgment of contravention.
43 A submission made on behalf of the Registrar was that the imposition of one penalty, which is open as a matter of law to impose, in the amount of $50,000 was appropriate. That sum was not gainsaid on behalf of Mrs Kerkhoffs, but that was in the context that the penalty should be sufficient alone without the additional burden of disqualification. In my view, the amount proposed by the Registrar is sufficient unto this day. In making that observation, I expressly also take into account that there will be a compensation order in the sum that I've mentioned, and, further, that in the ordinary course of events, costs will follow the event.
44 This is one of those cases where it is necessary, unequivocally, to send a wider message. It is for that reason that I have determined the penalty in the amount of $50,000 and disqualification for a period of five years. In so doing, I am very conscious that there will be a particular hardship indeed for Mrs Kerkhoffs, and necessarily more widely for her family with that.
45 There are value judgments to exercise as to the way in which payment will be made. It would be possible, in my view, for the Court to make orders for payment by instalments, but there is apt to be an arbitrariness about that, which may not meet changing circumstances. For that reason, though I have considered that possibility, I choose not to make an order for payment by instalments. Instead, it will be for the Registrar to determine the way in which, and rate at which, repayments of the various debts which will come as a result of the Court's order to be payable to the Commonwealth by Mrs Kerkhoffs are to be paid.
46 Further, there may well be, in the circumstances of this case, humane considerations which may lead to the making of recommendations to the responsible Minister at some stage for the writing off of some or all of particular amounts that are owed. These are not value judgments for me to make. I mention them solely because it is not my intention in making reference to a need for general deterrence to foreclose in any way the prospect of what one might term executive clemency.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.