Consideration
8 I commence my consideration about what relief should be granted and, in particular, whether the orders proposed by the Registrar and Mr Taylor should be made, by reference to the authorities that confirm that it is open to parties, in proceedings like these for relief including pecuniary penalties, to propose suitable outcomes. As observed recently by Moshinsky J in Australian Competition and Consumer Commissioner v Telstra Corporation Limited [2018] FCA 571, at [23]-[27], by reference to well-known authority, where parties agree facts and consequences under legislation like the CATSI Act, it is for them to persuade the Court as to their accuracy and whether the proposed penalty is an appropriate penalty in the circumstances revealed. I proceed on that understanding in this case.
9 Having regard to the facts agreed, it can only be said that Mr Taylor's contraventions are of a most serious kind. I consider the orders proposed by the Registrar and agreed to by Mr Taylor should be made.
10 I turn first to the duty of care and diligence that Mr Taylor owed to the Murchison Region Aboriginal Corporation ICN 500.
11 Section 265-1 of the CATSI Act (equivalent to s 180 of the Corporations Act 2001 (Cth)) requires a director or other officer of an Aboriginal and Torres Strait Islander corporation to exercise his or her powers and discharge his or her duties with the degree of care and diligence that a reasonable person would exercise if that reasonable person were a director or officer of an Aboriginal and Torres Strait Islander corporation in the corporation's circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
12 Pursuant to s 265-1(2) an officer is taken to meet the standard if he or she:
(a) makes the relevant judgment in good faith for a proper purpose; and
(b) does not have a material personal interest in the subject matter of the judgment; and
(c) informs himself or herself about the subject matter of the judgment to the extent he or she reasonably believes to be appropriate; and
(d) rationally believes that the judgment is in the best interests of the corporation.
13 The contravening conduct of Mr Taylor fails the duty imposed on him as an officer of the Corporation at every step. On no basis can it be said he exercised judgement in good faith for a proper purpose. He had a material interest in the subject matter of the decision-making. He does not seem to have informed himself at all about the appropriateness of the judgments he made. He cannot possibly have believed rationally that the judgement he exercised on each occasion was in the best interests of the Corporation.
14 In saying this, it is enough to observe the substantial sums of money that were paid to Mr Taylor on an unsecured and interest free basis, which were not accurately and properly documented in the Corporation's written financial records.
15 His conduct benefitted only himself. The Corporation received no benefit from the loans, which were made to its detriment. There was, as the Registrar submits, no "commercial upside" for the Corporation taking on the considerable risk that staff loans would not be repaid. The adverse consequences of non-repayment to the Corporation were more acute after the Department of Housing's decision to discontinue funding to the Corporation on and from 1 July 2014 - something known to Mr Taylor from at least 22 June 2013.
16 Mr Taylor's conduct materially prejudiced the interests of the Corporation and the interests of its members, by depleting available cash resources. It also materially prejudiced the ability of the Corporation to fulfil its objects and purpose, being to provide suitable housing to disadvantaged Aboriginal and Torres Strait Islander peoples in the Wards of Gascoyne, Geraldton, Meekatharra, Mullewa and Murchison.
17 I find his conduct breached s 265-1 of the CATSI Act and there should be a declaration to that effect.
18 I address also the question of the good faith requirements imposed by the CATSI Act.
19 Section 265-5 of the CATSI Act (equivalent to s 181 of the Corporations Act) provides that a director or officer of a corporation must exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose.
20 The principles applicable in determining whether officers have acted for an improper purpose were relevantly summarised by Ipp J in Permanent Building Society (in liq) v Wheeler and Others (1994) 11 WAR 187 at 218, where his Honour said:
(a) Fiduciary powers and duties of directors may be exercised only for the purposes for which they were conferred and not for any collateral, or improper purpose.
(b) It must be shown that the substantial purpose of the directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties.
(c) Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose. Whether acts were performed in good faith and in the interest of the company is to be objectively determined, although statements by directors about their subjective intentions or beliefs will be relevant to that inquiry.
(d) The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned.
21 The payments here to Mr Taylor did not advance the objects of the Corporation. The Corporation received no benefit from the unsecured and interest free staff loans to the first respondent. Mr Taylor exercised his powers solely to advance his personal interests in circumstances where those interests directly conflicted with the Corporation's interest.
22 I find his conduct was a breach of s 265-5 of the CATSI Act and a declaration should be made to that effect.
23 Next I turn to the question of improper use of position by Mr Taylor.
24 The word "improperly" as it is used in s 265-10 of the CATSI Act (equivalent to s 182 of the Corporations Act) is not a term of art, and is to be understood in its commercial context to refer to conduct which is inconsistent with the "proper" discharge of the duties, obligations and responsibilities of the officer concerned.
25 In Chew v The Queen (1992) 173 CLR 626; [1992] HCA 18, Dawson J said that "improper use" creates an objective standard of impropriety and that a director may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the corporation as a whole. Justice Toohey agreed that the question of "improper purpose" is to be assessed objectively.
26 The objective nature of the inquiry means that it is not correct to require, in order to find a breach of s 265-10, "dishonest and improper intent" by officers "consciously in breach of their duties": Robins and Others v Incentive Dynamics Pty Ltd (in liq) and Another (2003) 175 FLR 286 at [55]; [2003] NSWCA 71.
27 Mr Taylor improperly used his position to gain an advantage for himself, namely the granting and taking of staff loans, which caused detriment to the Corporation. The staff loans resulted in significant cash flow issues for the Corporation, and materially prejudiced the ability of the Corporation to fulfil its objectives: agreed facts, above at [3], at 27.
28 The conduct of Mr Taylor was not in proper discharge of his duties, obligations and responsibilities as an officer of the Corporation, resulted in an advantage to him and placed the Corporation's financial position at risk.
29 I find his conduct was in breach of s 265-10 of the CATSI Act and a declaration to that effect should be made.
30 I consider it appropriate therefore to make the proposed declarations. By doing so, the Court will make it quite blunt, not only to Mr Taylor but also to others who might perform similar roles in other corporations affected by the CATSI Act, as to the nature, extent and seriousness of their responsibilities under the CATSI Act.
31 I consider the proposed disqualification of Mr Taylor for seven years, pursuant to s 279-15 of the CATSI Act, is also appropriate.
32 The Court has the power under s 279-15 of the CATSI Act to make orders disqualifying Mr Taylor from managing Aboriginal and Torres Strait Islander corporations for a period that it considers appropriate, if a declaration is made under s 386-1 that the person has contravened a civil penalty provision and the Court is satisfied that the disqualification is justified.
33 Section 279-15 does not place any limits on the factors which the Court may consider in determining whether disqualification is appropriate and, if so, the appropriate period of disqualification. It provides:
279-15 Court power of disqualification - contravention of civil penalty provision
(1) On application by the Registrar, the Court may disqualify a person from managing Aboriginal and Torres Strait Islander corporations for a period that the Court considers appropriate if:
(a) a declaration is made under:
(i) section 386-1 (civil penalty provision) that the person has contravened a civil penalty provision; or
(ii) section 1317E of the Corporations Act (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision (within the meaning of that Act); and
(b) the Court is satisfied that the disqualification is justified.
(2) In determining whether the disqualification is justified, the Court may have regard to:
(a) the person's conduct in relation to the management, business or property of any Aboriginal and Torres Strait Islander corporation or Corporations Act corporation; and
(b) any other matters that the Court considers appropriate.
34 In exercising the disqualification power under the CATSI Act, courts have drawn upon the body of case law developed in relation to the banning of officers under s 206C and s 206E of the Corporations Act, the former being relevantly identical to s 279-15 of the CATSI Act.
35 Courts have held that the principles developed in relation to s 206C and s 206E of the Corporations Act (often referred to as the "Santow principles") are apt to guide the exercise of the disqualification power contained in the CATSI Act. I consider such an approach to be correct.
36 I have taken into account a schedule of cases provided by the Registrar with the Registrar's submissions which provide comparative examples of cases where penalties have been imposed pursuant to s 279-15 of the CATSI Act or s 206C or s 206E of the Corporations Act.
37 The so called Santow principles derive from those considered and applied by Santow J in Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler and Others (2002) 42 ACSR 80; [2002] NSWSC 483. In this particular case they highlight and make relevant the following matters:
(1) The conduct was deliberate, self-interested, and not as a result of negligence or oversight, and occurred over an extended period of a number of years.
(2) Mr Taylor was in a position of trust and responsibility. His actions were an abuse of the trust placed in him by the board of directors of the Corporation. He held a senior executive position in the Corporation and was paid a salary accordingly.
(3) The payments were not approved by the directors of the Corporation at a directors' meeting or by members of the Corporation at a general meeting. Mr Taylor says he had assumed, but did not take steps to confirm, that the payments were approved by the directors. However, it can never have been Mr Taylor's belief that the directors would have approved loans that effectively stripped the Corporation of almost all its available working capital.
(4) Mr Taylor made the payments in circumstances where he knew, or ought to have known, that:
(e) the amounts borrowed were large sums and interest free;
(f) the Corporation lost opportunities to invest those funds, such as via a term deposit;
(g) the Corporation could not acquire further housing assets and there was a waiting list for its houses; and
(h) from at least 22 June 2013, the Department of Housing proposed to and did in fact discontinue funding to the Corporation on and from 1 July 2014.
38 A lengthy period of disqualification will serve to provide specific and general deterrence to protect Aboriginal and Torres Strait Islander corporations (as well as corporations generally). This means a message is sent, not only to Mr Taylor but also to all persons who occupy similar positions in corporations affected by the CATSI Act, that contraventions such as these are taken very seriously by the Court.
39 In this case, I consider a seven year disqualification is fully justified by way of specific and general deterrence.
40 As to the imposition of a pecuniary penalty, pursuant to s 386-10(1) of the CATSI Act, a pecuniary penalty can be imposed where:
(1) a declaration of contravention of a civil penalty provision has been made under s 386-1; and
(9) the contravention materially prejudiced the interests of the corporation, or its ability to pay its creditors, or the contravention is "serious".
41 In the present case, each of these preconditions will be met upon the making by me of declarations of contravention. As to the second precondition, there is no doubt Mr Taylor's conduct has materially prejudiced the interests of the Corporation, and is serious within the meaning of s 386-10(1)(b)(iii) of the CATSI Act.
42 A statutory maximum penalty of $200,000 applies to each contravention: s 386-10(1).
43 Careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the Court at the time; and thirdly, because in that regard they do provide, taken and balanced with other relevant factors, a yardstick. See Markarian v The Queen (2005) 228 CLR 357 at [31]; [2005] HCA 25, applied in the civil context in cases such as Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 at [67]-[68] and the cases there referred to.
44 The contraventions of Mr Taylor relate to many separate acts. In these circumstances, the proper assessment of penalties, as the Registrar submits, requires consideration of the following principles:
(1) If multiple provisions are simultaneously breached by the same wrongful act it is appropriate to penalise that act by reference to the most serious provision breached (but it should not attract separate and additional penalties for the other provisions which were also breached).
(2) Separate contraventions arising from separate acts should ordinarily attract separate penalties. However, in some cases it may be appropriate to treat the contraventions as forming part of a course of conduct when they are closely interrelated.
(3) A "final check" of the cumulative effect of the proposed penalties must be conducted to ensure the total is just and appropriate. If necessary to do so, the final amount can be moderated by the totality principle.
45 Nonetheless, a contravener should receive a penalty which fairly reflects the substance of the contravening conduct, rather than one which simply reflects the total of penalties for separate offences which technically may attach to the same act. See Pearce v The Queen (1998) 194 CLR 610 at [40]-[42]; [1998] HCA 57.
46 Recently, in Australian Competition and Consumer Commission v Pental Limited [2018] FCA 491, Lee J, at [53]-[58], discussed the question of the imposition of a pecuniary penalty in a "course of conduct" setting. At [55], his Honour considered that what could be drawn from the cases was that it has been common for judges to impose single penalties for multiple contraventions of civil penalty provisions under a number of statutory regimes. He said this was despite the fact that there is no express provision in these regimes to authorise, in explicit terms, the application of this approach to the setting of pecuniary penalties.
47 His Honour made particular reference to Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 271 IR 321; [2017] FCAFC 113 where, at [149], the Court emphasised that in an appropriate case the Court may impose a single penalty for multiple contraventions where that course is agreed or accepted as being appropriate by the parties.
48 The Full Court there added that it may be appropriate for the Court to impose a single penalty in such circumstances, for example, where the pleadings and facts reveal that the contraventions arose from a course of conduct and the precise number of contraventions cannot be ascertained, or the number of contraventions is so large that the fixing of separate penalties is not feasible, or where there are a large number of relatively minor related contraventions that are most sensibly considered compendiously.
49 Quite recently in Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73, the Full Court (Allsop CJ, Middleton and Robertson JJ) had the occasion to review a number of the authorities touching on the imposition of penalties in the case of multiple contraventions, taking into account the "course of conduct" or "single transaction" principles and the question of totality. The Court, at [226], emphasised that these are "principles or tools" to assist the Court in arriving at an appropriate penalty, "not rules".
50 The Court also emphasised, at [227], that it is not appropriate to treat multiple contraventions as just one contravention for the purposes of determining the maximum limit dictated by relevant legislation.
51 The Court also emphasised in that context, at [233], that the application of the course of conduct principle must take account of any statutory context in which the contraventions must be considered, for example, in the case of the Fair Work Act 2009 (Cth), s 557.
52 At [234], the Court emphasised that the course of conduct or one transaction principle means that consideration should be given to whether the contraventions arise out of the same course of conduct or the one transaction, to determine whether it is appropriate that a "concurrent" or single penalty should be imposed for the contraventions. But their Honours added, at [235], that even if the contraventions are properly characterised as arising from a single course of conduct, a judge is not obliged to apply the principle if the resulting penalty fails to reflect the seriousness of the contraventions.
53 Finally, their Honours noted that the course of conduct principle has some overlap with the totality principle, at least to the extent that the aim is to avoid a penalty being imposed which is not proportionate with the offending conduct.
54 I take these elucidations of the "sentencing" principles, especially the latter Full Court explanation, into account in the present circumstances.
55 In this case, Mr Taylor's conduct simultaneously breached the provisions I have already dealt with. The Registrar seeks the imposition of a penalty in respect of only the most serious contravention arising from each wrongful act, which the Registrar contends is the improper use of a position to gain an advantage contrary to s 265-10. The Registrar submits that the wrongdoing encapsulated by s 265-1 and s 265-5 is in each case subsumed into the breach of s 265-10. I consider that submission to be correct and proceed on that basis. As a result, for the contraventions where penalties are being imposed under s 265-10 the Court will not impose penalties for breaches of s 265-1 and s 265-5 as well, as to do would involve Mr Taylor effectively being penalised more than once for the same conduct.
56 As intimated above, while separate contraventions arising from separate acts would ordinarily attract separate penalties, a different principle may apply where separate acts, giving rise to separate contraventions, are extricably interrelated and should be viewed as one "course of conduct". This also means that double punishment is avoided in respect of largely the same conduct.
57 The question always arises as to what contravening conduct may properly be considered to constitute a single course of conduct.
58 The Registrar submits that each staff loan was separately procured by Mr Taylor; that is, each staff loan required a separate positive act on each occasion a payment was made or obtained; and that the unauthorised payments are not a sequence, as the time lapses between them are not uniform and the purported purposes are various. They were obtained over the relevant period.
59 However, the Registrar acknowledges this is not to say that the Court should ignore the similarities and possible points of overlap in the contravening conduct. It is merely to say that any allowance for those matters should be made in a different way, namely:
(1) by imposing penalties which have regard to the circumstances of each contravention, including its place in the context of a series of contraventions; and
(2) if necessary, moderating the cumulative total of such penalties through the totality principle (discussed below) so as to ensure an appropriate final amount.
60 I consider, in the particular circumstances of this case, that this approach is the correct one to adopt. To treat all the payments as constituting one course of conduct would be to ignore the serious consequence of separate contraventions, each of which required Mr Taylor to undertake separate activities over a long period of time in separate reporting periods.
61 The totality principle is another well-recognised principle in the penalty setting context, where it operates as a "final check" to ensure that the penalties to be imposed, considered as a whole, are "just and appropriate". See Mill v The Queen (1988) 166 CLR 59 at 62-63; [1988] HCA 70 reaffirmed by the High Court in Johnson v The Queen (2004) 205 ALR 346 at [4]-[5], [27]; [2004] HCA 15. While having a criminal law sentencing history, the totality principle has been adopted and applied in the civil penalty context. See Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [18], [41]-[46], [90]-[92]; [2008] FCAFC 70; Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357 at [34], [60]; [2008] FCAFC 170; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 at [25], [73]-[74], [102]; [2008] FCAFC 8.
62 I should observe here that s 386-10 does not prescribe a statutory set of factors to be taken into account in assessing a penalty of appropriate deterrent value (and nor does its analogue in s 1317G of the Corporations Act).
63 In Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412; [2014] FCA 27 at [231], Jacobson J, held that it was appropriate, when considering penalties to be imposed under the CATSI Act, to have regard to the "French factors" developed in the context of the pecuniary penalty regime in the Trade Practices Act 1974 (Cth) and commonly applied in relation to a variety of civil penalty regimes. Further, the Court held that the regulatory regime and circumstances of the case called for attention to six of the French factors and a further factor identified by Santow J in Adler, namely:
(i) the nature and extent of the contravening conduct;
(j) the loss and harm arising from the conduct;
(k) the circumstances in which the conduct took place, including the position held in the corporation by the contravener and the degree of dishonesty or carelessness involved in the contravention;
(l) any relevant matters personal to the contravener, such as hardship and capacity to pay;
(m) any steps taken to rectify the harm caused by the wrongdoing;
(n) any contribution or cooperation with the authorities; and
(o) (from Adler) the consequences of an associated disqualification order.
64 In Registrar of Aboriginal and Torres Strait Islander Corporations v Kerkhoffs [2013] FCA 1445 at [42], Logan J held, when considering the issue of calculating the amount of a pecuniary penalty:
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.
65 This observation of Logan J was not directly approved when this matter went on appeal to the Full Court of this Court in Kerkhoffs v Registrar of Aboriginal and Torres Strait Islander Corporations [2014] FCAFC 66, but it is plain from what the Full Court observed at [17]-[21] that this approach to penalty setting was not challenged in the circumstances of that case.
66 In the present case, Mr Taylor's contravening conduct is serious. The contravening conduct which resulted in staff loans to himself:
(1) were obtained on many separate occasions;
(2) were for a total amount of $211,612.41; and
(3) were obtained directly from the Corporation itself, such that losses of a corresponding amount were inevitable if not repaid.
67 The financial consequences of the loans for the Corporation were serious in that:
(1) the Corporation lost opportunities to invest those funds, such as via a term deposit;
(2) the Corporation could not acquire further housing assets and there was a waiting list for its houses; and
(3) for the period ending 31 October 2014 the Corporation suffered a net loss of approximately $195,483.
68 Mr Taylor has only repaid a fraction of his staff loans, being an amount of $29,085 repaid from salary deductions. An amount of $182,527.41 remains outstanding.
69 In his favour, Mr Taylor has consented to the declarations of contravention being made against him. He has also provided instructions to his lawyers to agree the facts put forward by the Registrar, as are now included in the statement of agreed facts, avoiding the need for a contested hearing.
70 Whilst it could be said the action of obtaining staff loans could form a single course of conduct, the facts are that they were obtained on many separate occasions extending over a period of about four years. Given the staff loans were treated as repayable to the Corporation by 30 June of each financial year that the amounts were paid, I accept the Registrar's submission that it is appropriate to treat the staff loans made each financial year as a separate contravention, or that they are bundles of separate courses of conduct capable of incurring a pecuniary penalty, namely:
(1) during the 2011/2012 financial year, Mr Taylor caused the Corporation to pay him money on at least 39 occasions, which totalled $51,120.16;
(2) during the 2012/2013 financial year, Mr Taylor caused the Corporation to pay him money on at least 24 occasions, which totalled $63,072.90;
(3) during the 2013/2014 financial year, Mr Taylor caused the Corporation to pay him money on at least 43 occasions, which totalled $97,329.14; and
(4) during the 2014/2015 financial year, Mr Taylor caused the Corporation to pay him money on at least one occasion, which totalled $90.21.
71 In Matcham, the Court held that where the contraventions consisted of a series of acts which would, but for the course of conduct principle, have been treated as a series of separate contraventions, the course of conduct contravention is to be treated more seriously than a single contravention. The Registrar submits, and I accept, that such an approach is appropriate in this case as the staff loans are in effect a series of conduct that could be considered as a series of separate contraventions. I agree with that submission and proceed on that basis.
72 Taking into account these various considerations, and that Mr Taylor has no relevant prior contravention history, as well as the principle of totality, I consider that a single pecuniary penalty of $250,000, as proposed by the parties, is appropriate in this case because such a penalty takes into account the seriousness and pervasiveness of Mr Taylor's conduct over a period of about four years. That conduct should attract a penalty greater than if the conduct were treated as a single contravention on a single occasion. It also takes account of the multiple contraventions, even if the contraventions in each of the four major periods identified were to be treated as a single course of conduct.
73 Having regard to the totality principle, I do not consider the relief I am about to order, including the pecuniary penalty, is unjust when one considers the nature and extent of the contravening conduct.
74 Plainly, a compensation order should also be made, pursuant to s 386-15(1) of the CATSI Act, against Mr Taylor. The compensation order should be made in the amount of $182,527.41, being the total amount Mr Taylor owes the Corporation, as proposed by the parties.
75 In these circumstances it follows that Mr Taylor should pay the Registrar's costs of the proceeding.
76 I will make the orders set out in the orders page above.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.