William Arthur Forge & 5 Ors v Australian Securities & Investments Commission

William Arthur Forge & 5 Ors v Australian Securities & Investments Commission - [2004] NSWCA 448 - NSWCA 2003 case summary — Zoe

[22]

The Australian Securities and Investments Commission ("ASIC") brought proceedings against the appellants alleging that they had contravened ss 232(2), (4) and (6) and s 243ZE of the Corporations Law . It was successful. The appellants now appeal from declarations made by Foster AJ pursuant to s 1317EA(2) of the Corporations Law that they contravened those sections of the Corporations Law , orders that each be disqualified from managing corporations for periods ranging up to sixteen years and pecuniary penalties ordered pursuant to s 1317EA(3) of the Corporations Law . 4 The first appellant, William Arthur Forge ("Mr Forge"), is the sole director and secretary of the sixth appellant, Bisoya Pty Limited ("Bisoya"), which is his private family company. The second appellant, Jozsef Endresz ("Mr Endresz"), and the third appellant, Dawn May Endresz ("Mrs Endresz"), are husband and wife. The fourth appellant, Allan Paul Endresz ("Allan Endresz"), is their son. The fifth appellant, Kamanga Holdings Pty Limited ("Kamanga"), is a family company of the Endresz family. Mr and Mrs Endresz and Allan Endresz were at different times directors of CTC Resources NL ("CTC"). Mr Forge was a friend of the Endresz family. He became the Managing Director of CTC on 9 September 1994. 5 The action did not proceed against Kamanga because the proceedings against it were stayed (Australian Securities & Investments Commission v Forge & Ors [2002] NSWSC 760 at [145]). The reasons for the stay did not emerge from the judgment or, so far as I could glean, from the evidence or counsel's addresses at trial or on appeal. 6 The proceedings relate to the disbursement by CTC of a sum of $3,596,348.90 by eight transactions entered into between 20 April and 13 November 1998 which were variously said to be either the payment (both retrospective and prospective) of management and consultancy fees and the provision of unsecured loans to Kamanga and Bisoya respectively. ASIC alleged that the transactions were uncommercial (in the sense of improper), not in the interests of CTC or its shareholders, and in breach of the related party provisions of the Corporations Law. 7 ASIC commenced the proceedings by filing a document entitled "Originating Process" in April 2001. The matter came on for hearing in March 2002. During that period the Corporations Law was repealed and the Corporations Act 2001 (Cth) ("the Corporations Act") came into force.

[28]

(f) Whether a Court hearing civil penalty proceedings should, in the event that it makes declarations of contravention, hold a separate penalty hearing. 9 As will become apparent the appellants' challenge to the findings that they had contravened the Corporations Law raised multiple issues. To the extent they attacked the primary judge's factual findings that they had contravened the Corporations Law their approach, in some respects, resembled the approach criticised in Williams v The Minister for Aboriginal Land Rights Act 1983 and the State of NSW [2000] NSWCA 255; (2000) Aust Torts Reports ¶81-578 where Heydon JA (with whom Spigelman CJ and Sheller JA agreed) drew attention to the limits of a rehearing pursuant to s 75A of the Supreme Court Act 1970 (NSW). These remarks were endorsed recently in Adler and Anor v Australian Securities and Investments Commission; Williams v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 (special leave refused 28 May 2004; [2004] HCATrans 182) in which Giles JA (with whom Mason P and Beazley JA agreed) said (at [17] ff): "17 It is necessary that the appellants demonstrate factual error on the part of the trial judge. The observations of Santow JA, with which Meagher and Beazley JJA agreed, in Jones v Bradley [2003] NSW CA 81 at [113] - [116] are pertinent to the appellants' challenges to the findings: "113 In Williams v The Minister for Aboriginal Land Rights Act 1983 and the State of NSW …, Heydon JA delivering judgment for the court gave a detailed exposition of the law in this area. Heydon JA held at [60] that the Appellant 'bore the burden in the appeal not merely of showing that on the facts her contentions might be available or even correct, but of showing that the Trial Judge's conclusions ought to be reversed'. Heydon JA then favourably referred to the Full Federal Court decision of Minister for Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359 at 369 where it was held: '... the court is not obliged to proceed to make new findings of fact on all relevant issues and discharge the judgment appealed from if those findings differ from those of the Trial Judge and do not support the judgment. The court must be satisfied that the judgment of the Trial Judge is erroneous and it may be so satisfied if it reaches the conclusion that the Trial Judge failed to draw inferences that should have been drawn from the facts established by the evidence. The court is unlikely to be satisfied if all that is shown is that the Trial Judge made a choice between competing inferences, being a choice the court may not have been inclined to make but not a choice the trial judge should not have made.' 114 In dismissing the appeal in Williams v The Minister for Aboriginal Land Rights Act 1983 and the State of NSW , Heydon JA highlighted that the Appellant's approach was inadequate to warrant appellate court interference with the judgment at first instance. The impugned approach was characterised by His Honour as [61]: 'The Plaintiff's approach sometimes invited the court to survey for itself, afresh, all the evidence on particular points and arrive for itself at particular conclusions about them, without essaying the necessary task of positively demonstrating that the Trial Judge was wrong. The Plaintiff's approach also paid insufficient regard to the difference between, on the one hand, pointing to difficulties in the Defendants' path of establishing matters which they wished to contend for and, on the other, pointing to sufficient evidence to permit an inference to the contrary of the Defendants' contention.' 115 Heydon JA then favourably quoted from Biogen Inc v Medeva plc [1997] RPC 1 at 45 per Lord Hoffman: 'The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la [vérité] est dans une nuance ), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation. It would in my view be wrong to treat Benmax as authorising or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved.' 116 Thus it is clear that for the Appellant to succeed it is necessary that the Appellant demonstrate more than that there were alternate findings (which this Court may or may not prefer) available. The appellant must demonstrate, positively, that the Trial Judge in making the findings that he did was wrong." 18 Where the facts are undisputed, or are established by the findings of the trial judge, this Court will give respect and weight to the conclusions of the trial judge, and the demonstration of error on the part of the trial judge - "... may not be straightforward where findings or conclusions involve elements of fact, degree, opinion or judgment or when the findings on conclusions in question can be seen as made with the advantage of hearing the evidence in its entirety, presented as it unfolded at the hearing and adjournments for reflection and mature contemporaneous consideration and assessment, in particular in a long and complex hearing ... ". ( Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [24])."

[29]

Legal representation 10 The appellants chose not to be legally represented before Foster AJ. Allan Endresz represented them all. Their choice was not determined by lack of funds. They had legal representation prior to the final hearing, including at a time when consent orders were made for the filing of evidence. They had relinquished those representatives by the time they made an application before the primary judge in March 2002 seeking certain interlocutory orders. These included a challenge to the competence of the proceedings based on the transitional provisions argument. 11 In the course of the appeal Mr Biscoe QC submitted that the primary judge ought to have drawn principles relating to penalty privilege and sentencing to the appellants' attention. It should be noted, in this respect, that "[o]utside a criminal trial there is no requirement that a judge … do more than afford a party a reasonable opportunity to present his or her case. In particular, there is no requirement to point to arguments or evidence that may assist in making the case": Re Media Entertainment & Arts Alliance; ex parte Hoyts Corporation Pty Limited [1993] HCA 41; (1994) 68 ALJR 179 at 185; Gamester Pty Limited & Anor v The Honourable Mr Justice Lockhart (1993) 67 ALJR 547 at 549. The position is otherwise in a criminal trial where there is an obligation on the trial judge to leave to the jury defences which are open on the evidence but not raised in order to ensure the accused has a fair trial according to law: see Pemble v R [1971] HCA 20; (1971) 124 CLR 107 at 117-18, 132-3; Van Den Hoek v R [1986] HCA 76; [1971] HCA 20; (1986) 161 CLR 158 at 161 - 162. 12 In hearing ASIC's application the primary judge was required to apply the rules of evidence and procedure applied in hearing civil matters. However, as Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 78 ALJR 1354 at 1361 - 1362 [30] - [35] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; at 1363 [41] per McHugh J makes plain, that does not deny the fact that civil penalty proceedings may bear the character of both civil and criminal proceedings. As will become plain later in this judgment, the fact that the final stage of the proceedings bore a close resemblance to the sentencing process which occurs in a criminal trial meant that the trial judge was, at least in that respect, under an obligation to draw the appellants' attention to principles of law attendant upon that process.

[31]

"2 … [C]ertain facts … are clearly established in the evidence. The second defendant, Jozsef Endresz ("Mr Endresz") and the third defendant, Dawn May Endresz ("Mrs Endresz") are husband and wife. The fourth defendant, Allan Paul Endresz ("Allan Endresz") is their son. The fifth defendant, Kamanga Holdings Pty Limited ("Kamanga") is a family company of the Endresz family. 3 The first defendant, William Arthur Forge "(Mr Forge") is a friend of the Endresz family and is the sole director and secretary of the sixth defendant, Bisoya Pty Limited ("Bisoya") which is his private family company. 4 Mr and Mrs Endresz and Allan Endresz were at different times directors of the company CTC Resources N.L. ("CTC") which, until 12 March 1991, was named Emu Hill Gold Mines N.L. From 1989 Allan Endresz and Mr Endresz held 51% of the issued shares in this company. Until 18 December 1990 the company was listed on the Australian Stock Exchange ("ASX") but, on that date, was delisted pursuant to an ASX discretionary rule. 5 In April 1991 Mrs Endresz was appointed a director of CTC. On 11 June 1993 Allan Endresz resigned as director and secretary and Mr Endresz was appointed as secretary in his place. Mr Forge was appointed a director of CTC on 9 September 1994. 6 In 1992, a registered fixed and floating Charge of $1,000,000.00 was registered over all the assets of CTC in favour of Kamanga. 7 In the early 1990's CTC retained Davis Samuel Pty Limited ("Davis Samuel") as a corporate advisor. This company was owned as to 50% of its shares by Kamanga. In 1994 CTC brought a claim for damages in the Supreme Court of Western Australia against the ASX, alleging that its delisting had been wrongful. Damages were claimed, ranging between $37,000,000.00 and $1,500,000,000.00. Davis Samuel conducted the action on behalf of CTC, originally in consideration of its receiving 60% of damages recovered. A subsequent variation of these arrangements involved CTC purchasing half of the 60%, whilst the remaining 30% was sold to Kamanga. Instead of the previous arrangements Davis Samuel was given a fee of $60,000.00 per month from 1 May 1998 onwards in consideration of its continuing to prosecute the claim. 8 CTC has about 1,200 shareholders but no annual general meeting of the company was held between 1991 and 1997. On 23 March 1998 an annual general meeting was held in respect of those years. The accounts for 1991 to 1997 were produced to the meeting and were approved. These accounts referred to the fact that CTC was fully supported by Kamanga, the auditors (Messrs. Ernst & Young) expressing doubts as to CTC's ability to continue as a going concern unless provided by support from Kamanga. It was not possible to determine whether Kamanga had the relevant ability to provide support. 9 These accounts, when presented, indicated significant operating losses in the years 1994 to 1997. In 1994 there was a loss of $164,000.00. In 1997 the loss was $344,000.00. Accumulated losses had increased each year with the result that the accounts indicated that shareholders' equity was, in fact, a deficiency of $1,427,273.00 in 1997. The company had earned no income over that period.

[33]

15 The first two transactions involved the retrospective payment by CTC of management fees to Kamanga and Bisoya respectively. The third and fourth involved payment by CTC of future management fees to Kamanga and Bisoya respectively. The final four transactions related to unsecured loans CTC made to Kamanga and Bisoya respectively. Transactions 5 and 6 were two tranches of one loan of $350,000. Transaction 7 was a loan to Bisoya to enable Mr Forge to facilitate a Family Law settlement. 16 ASIC complained that the eight transactions occurred in breach of relevant sections of the Corporations Law. Its Originating Process summarised the application as follows: "This application concerns conduct that occurred in 1998. The application is made under subsection 1317EB of the Corporations Law, which continues to apply to the conduct pursuant to subsection 1473(1) of the Corporations Law. The conduct involved contraventions of certain provisions of the Corporations Law that were in force in 1998, namely subsections 232(2), 232(4), 232(6), 243ZE(2) and 243ZE(3) of the Corporations Law . This application seeks civil penalty orders under provisions of the Corporations Law that were in force in 1998 and which continue to apply regarding the conduct pursuant to subsection 1473(1) of the Corporations Law . The civil penalty orders that the application seeks are declarations under subsection 1317EA(2) of the Corporations Law and orders under subsection 1317EA(3) of the Corporations Law …. ". 17 ASIC complained, in substance, that the eight transactions had been entered into in breach of the appellants' duties as officers of CTC and also fell foul of the related party transaction provisions in the Corporations Law. It sought declarations that the appellants, as officers of CTC, had contravened ss 232(2), (4) and (6) of the Corporations Law by "approving, permitting and allowing" CTC to enter into each relevant transaction. In addition it sought declarations that the personal appellants had each, "by being involved in or by being recklessly concerned in or by being party to" the transactions, contravened s 243ZE(3) of the Corporations Law in relation to CTC. It also sought declarations that Kamanga and Bisoya had respectively contravened s 243ZE(2) of the Corporations Law in relation to the payments they had received as a result of the impugned transactions.

[34]

The legislative framework: substantive provisions 18 ASIC contended that the provisions of the Corporations Law in force at the time of the various transactions governed the proceedings. It relied upon the following provisions. 19 The allegations of breaches of directors' duties related to the following provisions of the Corporations Law: "s. 232(2) An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office. s. 232(4) An officer of a corporation shall at all times exercise a reasonable degree of care and diligence in the exercise of his or her powers and the discharge of his or her duties. s. 232(6) An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation. s.232(6B) Subsections (2), (4), (5) and (6) are civil penalty provisions as defined by section 1317DA, so Part 9.4B provides for civil and criminal consequences of contravening any of them, or of being involved in a contravention of any of them." 20 The following provisions of the Corporations Law were relevant to the related party transaction allegations: "SECT 243F Related party of a public company (1) Each of the following is a related party of a public company: (a) a director of the public company; (b) a director of a body corporate that is a parent entity of the public company; (c) one of the persons constituting an entity (other than a body corporate) that is a parent entity of the public company; (d) a spouse or de facto spouse of such a director or person; (e) a parent, son or daughter of such a director, person, spouse or de facto spouse; (f) an entity (other than a child entity of the public company) over which: (i) a person of a kind referred to in paragraph (a), (b), (c), (d) or (e) has control; or (ii) 2 or more such persons together have control; (g) a parent entity or sibling entity of the public company." "SECT 243H Prohibited financial benefits to related parties of public companies (1) A public company must not give a financial benefit to a related party except as permitted by Part 2E.4 or 2E.5." 21 Sections 243K and 243N, which appeared in Part 2E.4, relevantly provided: "SECT 243K Remunerating officers (1) A body corporate may pay or provide remuneration to a person in a capacity as an officer of the body if it is reasonable for a body corporate in the body's circumstances to pay or provide that remuneration to an officer in the person's circumstances. (2) A body corporate may pay or provide remuneration to a person in a capacity as an officer of the body if: (a) the body does so as required by a contract between the body and the person; and (b) it was reasonable for a body corporate in the body's circumstances to make that contract with an officer in the person's circumstances. (3) An entity may give a financial benefit to a person in the person's capacity as an officer of a body corporate if subsection (1) or (2) would permit the body itself to give the benefit to the person in that capacity. (4) Any of the following paid by a body corporate to an officer of the body as such (however the rate or amount is worked out) is remuneration paid by the body to the officer: (a) salary; (b) wages; (c) bonuses; (d) allowances paid for the sole purpose of meeting expenses incurred in connection with performing services as such an officer. … (8) Subsections (4) to (7B), inclusive, have effect for the purposes of subsections (1), (2) and (3), but nothing in them limits the generality of: (a) the expression "remuneration" in subsections (1) and (2); or (b) anything else in subsections (4) to (7B), inclusive. SECT 243N Financial benefit on arm's length terms (1) A public company, or a child entity of a public company, may give a financial benefit to a related party of the public company if it does so on terms and conditions no more favourable to the related party than those on which it is reasonable to expect that the company or entity, as the case may be, would give the benefit directly if dealing with the related party at arm's length in the same circumstances. (2) In the case of a loan or other financial accommodation, the matters to consider for the purposes of subsection (1) include, for example: (a) the amount of the loan or the extent of the accommodation; (b) what interest or charges are payable; (c) the credit risk; (d) what security is given; (e) the timetable for repayments of amounts owing and for payments of interest or charges." 22 Section 243ZE, which appeared in Part 2E.6 dealing with Enforcement, relevantly provided (notes omitted): "s 243ZE (1) This section applies if: (a) a related party of a public company receives a financial benefit from the public company… (b) the public company contravenes subsection 243H(1) …, by giving the benefit. (2) The related party contravenes this subsection. (3) Subject to subsection (4), a person contravenes this subsection if the person: (a) is involved (as defined in section 79) in; or (b) is, by act or omission, directly or indirectly, recklessly concerned in, or party to the contravention of subsection 243H(1) or (2), or the contravention of subsection (2) of this section. (4) Neither the public company …: (a) is guilty of an offence because of the contravention of subsection 243H(1) or (2); or (b) is taken to be involved in, or concerned in or party to: (i) a contravention of subsection (2) of this section by the related party or by any of the persons constituting the related party; or (ii) a contravention of subsection (3) of this section by a person. (5) Subsections (2) and (3) are civil penalty provisions as defined by section 1317DA, so Part 9.4B provides for civil and criminal consequences of contravening, or of being involved in a contravention of, either of them. (6) In a proceeding against a person for: (a) a contravention of subsection (2); or (b) a contravention of subsection (2) because of section 243ZG, 1317DB, 1317DC or 1317DD; it is a defence if it is proved that the person was unaware of a fact or circumstance essential to the contravention of subsection 243H(1) or (2), as the case requires." 23 Section 79 of the Corporations Law which was referred to in s 243ZE(3)(a) relevantly provided: " s. 79 … A person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention."

[35]

The legislative framework: transitional provisions 24 The transitional provisions argument took its colour both from amendments to the Corporations Law prior to 15 July 2001 and from the change, effective from 15 July 2001, from the regulation of corporations through State and Territory legislation to their regulation by federal legislation, the Corporations Act. The latter change was consequent upon the States enacting the Corporations (Commonwealth Powers) Act 2001 which had the effect of referring matters relating to corporations and financial products and services to the Parliament of Australia under s 51(xxxvii) of The Constitution. The Corporations Act was a product of that referral of power. 25 The legislative matrix which supported the regulation of corporations prior to 15 July 2001 was described by Gummow and Hayne JJ in Re Wakim; ex parte McNally [1999] HCA 27; (1999) 198 CLR 511 at 566 [87] - [88] as follows (footnotes omitted): "87 During 1989 and 1990, the Commonwealth and each of the States passed legislation intended to replace the co-operative scheme of companies and securities codes that had operated between 1982 and 1989. The Commonwealth enacted the Corporations Act 1989 (Cth) ("the Commonwealth Corporations Act ") and the Australian Securities Commission Act 1989 (Cth) and made regulations under those Acts. The Commonwealth Corporations Act provides in s 5: "The Corporations Law set out in section 82 as in force for the time being: (a) applies as a law for the government of the Capital Territory; and (b) as so applying, may be referred to as the Corporations Law of the Capital Territory." Each State passed an Act, the purposes of which were described as being: "(a) to apply certain provisions of the Corporations Act 1989 of the Commonwealth and the Australian Securities Commission Act 1989 of the Commonwealth and of regulations under those Acts as laws of [name of State]; and (b) to apply certain other laws of the Commonwealth as laws of [name of State] for the purpose of the administration and enforcement of the law relating to corporations, the securities industry, the futures industry and some other matters." 88 Section 82 of the Commonwealth Corporations Act sets out the Corporations Law of the Capital Territory. The provisions that are applied by the State Corporations Act s include the Corporations Law set out in s 82 of the Commonwealth Corporations Act ." 26 Prior to 13 March 2000 Part 9.4B of the Corporations Law dealt with the civil and criminal consequences of contravening civil penalty provisions. 27 Division 2 dealt with "Civil Penalty Orders". "Civil penalty order" was defined in s 9 to mean "a declaration or order made under section 1317EA". 28 An application for a civil penalty order could be made by ASIC, a Commission delegate or a person authorised by the Minister (s 1317EB(1)). Applications for civil penalty orders had to be made within six years after the contravention (s 1317EC). In hearing and determining an application for a civil penalty order the Court was required to apply the rules of evidence and procedure that applied in hearing and determining civil matters (s 1317ED(1)). 29 Section 1317EA applied when the Court was satisfied that a person had contravened a civil penalty provision. In such circumstances the Court was required (subject to one exception under Division 4) to make a declaration of contravention of the relevant civil penalty provision (s 1317EA(2)). The Court was also given discretion to make an order prohibiting the person from managing a corporation for a specified period (s 1317EA(3)). Such an order could not be made if the Court was satisfied that, despite the contravention, the person was a fit and proper person to manage a corporation (s 1317EA(4)). 30 The Court could also order the person the subject of the declaration to pay a pecuniary penalty to the Commonwealth (s 1317EA(3)), but such an order could not be made unless the Court was satisfied that the contravention was a "serious one" (s 1317EA(5)). 31 The Corporations Law was amended on 13 March 2000 by the Corporate Law Economic Reform Program Act 1999 (the "CLERP Act"). The CLERP Act repealed Chapters 2D and 2F of the Corporations Law in which the provisions of the Corporations Law to which ASIC's Originating Process referred were found. It inserted a substitute Chapter 2D dealing with "Officers and employees" and a substitute Chapter 2E dealing with "Related party transactions". It repealed Part 9.4B of the Corporations Law and substituted a new Part 9.4B dealing with the civil consequences of contravening civil penalty provisions. It also inserted s 1473 which provided: "s.1473 (1) Part 9.4B of the old Law continues to apply in relation to: (a) a contravention of a civil penalty provision listed in section 1317DA of the old Law; or (b) an offence committed against one of those civil penalty provisions; despite its repeal." 32 "[O]ld Law" meant the Corporations Law as in force immediately before the commencement of Schedule 1 to the CLERP Act: s 1466 CLERP Act. Schedule 1 contained the main amendments to the Corporations Law. 33 Subsections 232(2), (4), (5) and (6) and ss 243ZE(2) and (3) were listed in s 1317DA of the old Law. 34 The Corporations Law of the States and Territories was repealed, with effect from 15 July 2001, and replaced by the Corporations Act. That Act re-enacted (inter alia) Chapters 2D and 2F as enacted by the CLERP Act. 35 Chapter 10 of the Corporations Act deals with Transitional Provisions. I set out below the provisions which are relevant to the appeal. 36 Section 1370 provides: " Object of Part

[37]

"(a) the old Corporations Law and old Corporations Regulations of that State or Territory, and any instruments made under that Law or those Regulations; and (b) the old application Act for that State or Territory, and any instruments made under that Act; and (c) either: (i) when used in relation to a State or the Northern Territory - the laws of the Commonwealth as applying in relation to the old Corporations Law and the old Corporations Regulations of the State or Territory from time to time before the commencement as laws of, or for the government of, that State or Territory because of Part 8 of the old Application Act for that State or Territory, and any instruments made under those laws as so applying; …" 38 "[N]ew corporations legislation" of a particular State or Territory is relevantly defined in s 1371 to mean the Corporations Act. 39 Section 1383 deals with proceedings which had been commenced under the old corporations legislation. It provides: "SECT 1383 Treatment of court proceedings under or related to the old corporations legislation - proceedings other than federal corporations proceedings (1) This section applies to a proceeding, other than a federal corporations proceeding, in relation to which the following paragraphs are satisfied: (a) the proceeding was started in a court before the commencement; and (b) the proceeding was: (i) under a provision of the old corporations legislation of a State or Territory in this jurisdiction; or (ii) brought as, or connected with, a prosecution for an offence against a provision of the old corporations legislation of a State or Territory in this jurisdiction; and (c) the proceeding was not an enforcement proceeding, or an appeal or review proceeding, in relation to an order of a court; and (d) the proceeding had not been concluded or terminated before the commencement; and (e) either: (i) if the proceeding is a primary proceeding - no final determination of any of the existing rights or liabilities at issue in the proceeding had been made before the commencement; or (ii) if the proceeding is an interlocutory proceeding - this section applies… (2) In this section: (a) the proceeding to which this section applies is called the old proceeding ; and (b) the provision of the old corporations legislation referred to in whichever of subparagraphs (1)(b)(i) and (ii) applies is called the relevant old provision. (3) A proceeding ( the new proceeding ) equivalent to the old proceeding is, on the commencement, taken to have been brought in the same court, exercising federal jurisdiction: (a) if subparagraph (1)(b)(i) applies - under the provision of the new corporations legislation that corresponds to the relevant old provision; …" To the extent that the old proceeding, before the commencement, related to pre-commencement rights or liabilities, the new proceeding relates to the substituted rights and liabilities in relation to those pre-commencement rights or liabilities.

[46]

His Honour erred in his interpretation of ss 1383 and 1401 of the Corporations Act . 4. His Honour erred in having regard to the heading of s. 1401 of the Corporations Act when interpreting it. [This ground was not pressed]" 47 The argument Mr Biscoe QC advanced on the appellants' behalf on appeal was more sophisticated than that the primary judge was asked to consider. 48 Mr Biscoe QC's first argument accepted that the proceedings were caught by s 1383(1) of the Corporations Act so that, prima facie, s 1383(3) applied to them. However, he argued that in order that s 1383 could validly deem a new proceeding to have been brought under the Corporations Act, it was essential to identify a provision in the Corporations Act which corresponded to a "relevant old provision" of the Corporations Law: ss 1383(2), 1383(3)(a). He noted that for the purposes of the Corporations Act "corresponds" meant "substantially the same": s 1371(2). He pointed to the provisions relating to directors' duties in ss 180 - 182 and the provisions dealing with related party transactions in ss 208 - 211 and 243N of the Corporations Act and submitted that, even given the meaning of "corresponds" in s 1371(2), those provisions did not correspond with ss 232(2), 232(4) and 232(6) and ss 243ZE(2) and (3) of the Corporations Law. Accordingly, he argued, there was no proceeding before the Court under s 1383. 49 Alternatively, Mr Biscoe QC referred to Note 2 to s 1383 which I repeat for convenience: "Note 2: In all cases, there will be a provision of the new corporations legislation that corresponds to the relevant old provision, either because: (a) the new corporations legislation actually contains a provision that corresponds to the relevant old provision; or (b) the new corporations legislation, because of section 1401 or 1408, is taken to include the relevant old provision (whether with or without modifications), in which case the provision so taken to be included will be the corresponding provision." 50 Turning to s 1401(2), Mr Biscoe QC argued the words in that section "with such modifications (if any) as are necessary" meant that the provisions upon which ASIC relied as against the appellants became modified so as to accord with the provisions of the Corporations Act to which they bore some similarity. He submitted that the trial had proceeded on a different basis and, sub silentio, was invalidated on that basis. 51 ASIC argued that the primary judge's interpretation of the transitional provisions was correct. Mr Stack submitted that his Honour's conclusion was consistent with Shum Yip Properties Development Limited v Chatswood Investment and Development Co Pty Limited & Ors [2002] NSWSC 13; (2002) 166 FLR 451; Australian Securities and Investments Commission (ASIC) v Whitlam (No 2) [2002] NSWSC 591; (2002) 169 FLR 383 (reversed on appeal, Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559, but not on this point) and Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124. 52 In Shum Yip Properties v Chatswood Investment & Development, Austin J considered the transitional provisions in Chapter 10 of the Corporations Act which he, in my view fairly, described as "intricate" (at [9]) and concluded (at [12]) that the effect of ss 1401, 1408 and 1383 of the Corporations Act on proceedings instituted prior to the CLERP Act was that the Court was to continue to apply the substance of the pre-CLERP Act provisions of the Corporations Law, treating those provisions as if they were part of the new Corporations Act. 53 In Australian Securities and Investments Commission (ASIC) v Whitlam (No 2) [2002] NSWSC 591 at [3]; (2002) 169 FLR 383, Gzell J accepted that the effect of s 1401 of the Corporations Act was that ss 1317DA and 1317EA(3) of the Corporations Law were deemed to be included in the Corporations Act. 54 Mandie J reached the same conclusion in Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 where (at [336]) he said: "By virtue of s 1401(2), the new corporations legislation is taken to include the provisions of the old corporations legislation (with such modifications (if any) as are necessary) under which the pre-commencement liability was incurred, together with the other provisions of the old corporations legislation (with such modifications (if any) as are necessary) that applied in relation to the pre-commencement liability. In other words, for the purposes of this proceeding, the Corporations Act 2001 is taken to include the provisions of Pts 5.7B and 9.4B of the Corporations Law which were operative before 13 March 2000." 55 His Honour concluded (at [339]), after a detailed examination of the transitional provisions in Chapter 10 of the Corporations Act, that: "[339] The consequence of the foregoing provisions is that this proceeding (although in law a new federal proceeding under the new Act) continues, for all practical purposes, under the provisions by which any liability was initially incurred being those which also governed the proceeding when it was commenced. That accords with the object of Pt 10.1 of the Corporations Act 2001 as expressed in s 1370(1) …" (footnotes omitted) 56 In the present case, in my view, the appellants' argument failed for the following reasons. 57 The conduct of which ASIC complains took place in 1998. Under the then Corporations Law ASIC had six years to make an application for civil penalty orders: s 1317EC, Part 9.4B. 58 Although Part 9.4B was repealed by the CLERP Act, it continued to apply to a contravention of ss 232(2), (4) and (6) and ss 243ZE(2) and (3) which were listed in s 1317DA by virtue of s 1473 of the Corporations Law. When ASIC commenced proceedings in April 2001 against the appellants, it did so, as its Originating Process made plain, in reliance upon the preserved Part 9.4B. The proceedings were proceedings started before the commencement of the Corporations Act (s 1383(1)(c)) under a provision (Part 9.4B) of the old corporations legislation of a State (s 1383(1)(b)(i)). 59 Having reached this conclusion, it is necessary to determine for the purposes of s 1383(3)(a) whether there is or are provisions of the Corporations Act which correspond to the provisions of the Corporations Law referred to in s 1383(1)(b)(i). This requires consideration of s 1401 and, in particular, identification of the provision of the Corporations Law under which the pre-commencement liability "was acquired, accrued or was incurred": s 1401(2). 60 A contravention of ss 232 and 243ZE did not of itself create civil liability. The civil and criminal consequences of a contravention of those sections were provided for in Part 9.4B of the Corporations Law as in force prior to the commencement of the CLERP Act on 13 March 2000: ss 232(6B) and 243ZE(5); see also ASIC v Plymin, above, at [335]. Thus the civil liability of the appellants for the alleged contraventions of ss 232 and 243ZE was incurred under provisions of the "old corporations legislation" of New South Wales (Part 9.4B) which were no longer in force immediately before the commencement of the Corporations Act, having been repealed by the CLERP Act. This satisfied s 1401(1)(a) of the Corporations Act. 61 Further, the liability the appellants had incurred under Part 9.4B was "in existence immediately before the commencement" having been preserved by s 1473(1)(a) of the Corporations Law during the period 13 March 2000 to 15 July 2001: ASIC v Plymin, above, at [335]. This satisfied s 1401(1)(b) of the Corporations Act. 62 Accordingly, s 1401 of the Corporations Act applied in relation to the liability the appellants had incurred under the old Part 9.4B. That meant the Corporations Act was taken to include both the provisions of Part 9.4B of the Corporations Law under which the appellants' pre-commencement liability was incurred (s 1401(2)(a)) and the provisions of ss 232 and 243ZE of the Corporations Law which applied in relation to that pre-commencement liability (s 1401(2)(b)). 63 As the proceedings had been commenced prior to 15 July 2001, however, it was necessary to have regard to how those proceedings were dealt with under the Corporations Act. Both the appellants and ASIC argued the case on the basis that s 1383 of the Corporations Act was the provision which applied in those circumstances. In my view, s 1384 was the provision which applied to the proceedings as they were "federal corporations proceedings" being proceedings to which the Commonwealth, which for this purpose referred to ASIC, was a party: s 1382(1)(bb); and see Australian Securities and Investments Commission v Edensor Nominees Pty Limited [2001] HCA 1; (2001) 204 CLR 559 at 584 per Gleeson CJ, Gaudron and Gummow JJ and ASIC v Plymin, above, at [337]. 64 Little turns upon whether the question is determined as one to which either s 1383 or s 1384 is applicable because, in both cases, the continuance of the proceedings requires the identification of "the provision of the new corporations legislation that corresponds to the relevant old provision": see s 1383(3)(a) and s 1384(3)(a) and see ASIC v Plymin, above at [338]. Mr Biscoe QC's argument, as I have earlier noted, was that there was no provision of the new corporations legislation which corresponded to the relevant old provision. 65 However, in my view, once it is understood that the effect of s 1401(2) was to treat the Corporations Act as including Part 9.4B as well as ss 232 and 243ZE of the Corporations Law it is plain that the s 1383(3)(a) requirement to identify a provision of the Corporations Act which corresponds to the relevant old provision was satisfied. The provisions are identical. They must, therefore, correspond. 66 Accordingly, the proceedings were either a new proceeding equivalent to the old proceeding taken, on commencement of the Corporations Act on 15 July 2001, to have been brought in the Supreme Court exercising federal jurisdiction under the provisions of the Corporations Act which corresponded with the relevant old provisions of the Corporations Law (s 1383(3)), or were continued in the Supreme Court as if they were and had always been a proceeding in relation to a matter to which the provision of the Corporations Act corresponding to the relevant old provision of the Corporations Law applied (s 1384(3)). 67 This conclusion is reinforced by the provision which appears in both ss 1383 and 1384 that "[t]o the extent that the old proceeding, before the commencement, related to pre-commencement rights or liabilities, the new proceeding relates to the substituted rights and liabilities in relation to those pre-commencement rights or liabilities". When the Corporations Act commenced the appellants incurred a liability, described in s 1401(3) as "the substituted liability", which was equivalent to the liability they had incurred under Part 9.4B of the Corporations Law. 68 In the light of the above analysis Mr Biscoe QC's argument concerning the modifications s 1401(2) effected should also be rejected. It proceeded on a misapprehension of the way the transitional provisions operate. 69 In Shum Yip Properties v Chatswood Investment & Development, above at [12], Austin J referred to the legislative scheme created by the transitional provisions as involving "tangled reasoning". In fairness to the legislature, it should be recalled that the transitional provisions in the Corporations Act operate in the federal legislative context to preserve rights and liabilities which arose or were incurred under the State and Territory legislative regimes I have earlier described. It is not surprising that the drafter, in that context, apparently operating out of more abundant caution, sought to achieve that result by a variety of routes. For example, s 1408 also appears to operate to continue Part 9.4B. The fact that provisions such as s 1401 and s 1408 might overlap was intended to ensure the object of Chapter 10 was achieved. This is made plain by s 1398, which provides: "The provisions of this Division deal at a broad level with concepts and matters in a way that is intended to achieve the object of this Part as set out in section 1370. Some of the provisions of this Division will (depending on the situation) have an effect that overlaps or interacts to some extent with the effect of other provisions of this Division. This is intended, and the provisions of this Division should be not be regarded as dealing with mutually exclusive situations." 70 Having regard to the conclusion I have reached concerning s 1401, it is unnecessary to consider the operation of s 1408. 71 The primary judge was correct to reject the appellants' argument that the proceedings were incompetent. In my opinion the proceedings were validly continued pursuant to the Transitional Provisions of Chapter 10 of the Corporations Act. 72 Grounds 1 to 3 of the appellants' grounds of appeal must be rejected.

[48]

IT WAS RESOLVED to accept the invoice issued by Kamanga in respect of past management fees totalling $2,205,000 and calculated as to $245,000 p.a. over 9 years. This represented the enormous management contribution provided by Kamanga over the Company's most difficult and turbulent years in its Corporate history. IT WAS FURTHER RESOLVED to execute the attached Management Retainer with Kamanga on the basis of a minimum of $245,000 p.a. for a period of 5 years. This is to ensure that the Company retains Kamanga and its professional staff for such a minimum period. Payments to be made on a monthly basis commencing 1st May 1998. Having concluded this matter, Mr Forge invited Mr Endresz to rejoin the meeting and resume the chair." 19 Under the heading "Management Fees Bisoya Pty Ltd., the following is minuted: "Mr Forge advised the meeting that the matter to be considered by the board concerned the past and future management fees and retainers with respect to Bisoya Pty Ltd. In view of his common directorship with Bisoya Mr Forge advised that he would not vote on the matter nor would he be present whilst the board considered the matter pursuant to Section 232A of the Corporations Law . Accordingly, Mr Forge retired from the meeting for the duration of this matter. Mr Jozsef Endresz confirmed that pursuant to the Articles of Association and the Corporations Law , the remaining directors constituted a quorum and the meeting was declared open to consider this matter. IT WAS RESOLVED to accept the invoice issued by Bisoya in respect of past management fees totalling $260,000 and calculated as to $65,000 p.a. over 4 years. IT WAS FURTHER RESOLVED to execute the attached Management Retainer with Bisoya on the basis of a minimum of $65,000 p.a. for a period of 5 years. Payments to be made on a monthly basis commencing 1st May 1998. Having concluded this matter, Mr Endresz invited Mr Forge to rejoin the meeting and resume his board position." 20 It may be noted that the invoice referred to, relating to Kamanga, was dated 20 April 1998 and that relating to Bisoya was dated 21 April 1998." 74 The primary judge made the following unchallenged findings concerning transactions 3 - 8: "39 I find Transaction 3 established, namely a payment of $40,833.34 by CTC to Kamanga on 26 May 1998. This represents two monthly payments to Kamanga, pursuant to a Consultancy Agreement approved at the CTC board meeting of 20 April 1998. The Consultancy Agreement is in evidence and refers to the retainer sum of $245,000 per year, the Principal Officer of Kamanga being Allan Endresz. Kamanga is to perform and provide advisory services including strategic and business planning, marketing, financial and organisational services. It is also to carry out the role of Public Officer of CTC. The payment relates to management fees for the months of May and June. The directors involved in the authorising of the payments are Mr Forge, Mr Endresz, Mrs Endresz and, it is alleged, Allan Endresz. … 40 Transaction 4 involved the payment of $10,833.34 by CTC to Bisoya. Again there is a Management Agreement dated 20 April 1998, the Principal Officer of Bisoya being Mr Forge. The amount represents management fees for May and June. The directors involved are Mr Forge, Mr Endresz and Mrs Endresz. Bisoya is involved as the recipient of the payment.

[50]

Events following the transactions: the auditors' concerns 75 Soon after transactions 1 and 2 were effected, Ernst & Young, CTC's auditors, raised various concerns in relation to the 20 April 1998 transactions. The primary judge placed considerable weight on the contrast between the response the appellants gave to the auditors' concerns and the explanations given for the transactions during the trial. 76 In their draft "Summary Review Memorandum" (the "Review Memorandum") (which, although headed "Year ended 30 June 1997", it was accepted related to the 30 June 1998 financial year), the auditors recorded that CTC had made a loss of approximately $3.8 million for that year compared to $164,000 for the 1997 financial year. The Review Memorandum attributed that loss "predominantly … to the following factors." These factors included the payment of the management fees of $2.25 million to Kamanga (transaction 1) and the management fees of $0.27 million paid to Bisoya (transaction 2). 77 Under the heading "Significant Accounting and Auditing Issues" the Review Memorandum referred to the issue of the 600,000 redeemable convertible non-cumulative preference shares and to the annual dividends payable in respect of them and noted that this should be recognised as a financial liability of CTC. While the Review Memorandum noted that "[t]he Commonwealth Bank has provided a capital guarantee for the full amount to be redeemed", Mr Walsh, the Ernst & Young audit partner responsible for CTC's audit, said in his affidavit of 27 June 2001 that he had issued a bank confirmation request to the Albury branch of the Commonwealth Bank in relation to this "guarantee" but had been "unable to obtain confirmation as to [its] existence". 78 After referring again to the payment of the management fees and noting that these payments were funded from the $6,000,000.00 resulting from the issue of the redeemable convertible non-cumulative preference shares, the Review Memorandum continued under the heading "Potential breach of Corporations Law": "s 243 of the Corps Law governs financial benefits to related parties. S 243H states that a public company must not give a financial benefit to a related party except as permitted by Division 4 or 5.

[52]

Given the financial performance of CTC, it appears difficult to maintain an argument that the remuneration was reasonable. CTC have not notified the ASIC of any of their related party transactions, thus it appears EY are required to notify the ASIC of the breach of s 243H." 79 The Review Memorandum also dealt with the agreement with Davis Samuel relating to the claim against the Australian Stock Exchange as follows: "This agreement was amended in April 1998, whereby CTC paid Davis Samuel $300,000 (plus a monthly retainer of $6,000) in return for CTC increasing their share of any damages awarded to 70%. CTC have attempted to capitalise these costs in the expectation of a substantial damages payment from the claim against the ASX. We have been unable to find adequate evidence supporting the Directors' assertion that a damages payout is likely in the foreseeable future. EY have discussed the status of the claim with Michael McPhee, Partner of Michell Sillar McPhee [the] law firm running CTC's case. Per McPhee, the case has not yet gone to trial and is unlikely to do so before the middle of 1999. McPhee stated that proving CTC had incurred loss as a result of their delisting would be difficult, and that even if judgment was obtained then the ASX had the option of appealing to the full bench of the WA Supreme Court and ultimately the High Court (pending special leave). Based on the above, EY consider any future benefit arising from the legal costs incurred to be uncertain and immeasurable. Client will be asked to expense all legal costs, and failure to [do] so will result in EY qualifying the audit report to reflect the disagreement with management (given the costs are material)." 80 On 24 September 1998, Mr Walsh wrote to the directors of CTC in relation to what his letter described as "a number of related party transactions" which had been encountered in the audit. Reference was then made to transactions 1 and 2 which were characterised as retrospective payments of management fees. The letter also referred to the Management Retainers which committed CTC to future management fees of $245,000 per annum to Kamanga and $65,000 per annum to Bisoya for the next 5 years. The letter then relevantly said:

[61]

II. When did the amounts specified in Point I become due and payable? What event triggered this date? What agreements existed that required the amounts to be paid? III. Why was the portion of remuneration paid to Kamanga and Bisoya in the year ended 30 June 1998 which related to prior periods not disclosed as a contingent or actual liability in prior period accounts?" " 84 Mr Jozsef Endresz responded to Mr Walsh on 15 February 1999, writing: "I. Further evidence with respect to the reasonableness of fees paid to Kamanga Holdings Pty Ltd and Bisoya Pty Ltd includes the following: · As a result of Kamanga's business interests, particularly in Davis Samuel, CTC benefits (at no cost) from an extensive research data base (both legal and corporate) and professional outsourcing. Professionals accessed have included Alan Myers Q.C., Alan Archibald Q.C., Blake Dawson Waldron and Michell Sillar McPhee. In this regard, Kamanga brings to CTC an entire corporate package of not only professional advice but also a dedicated team of Board members who receive no direct salaries or fees as they undertake their duties. The extent of this professionalism is verified in the attached corporate profile of Davis Samuel. · During the past 9 years, Kamanga has incurred additional professional fees for outsourced work to the benefit of CTC. These fees have not (nor will be) invoiced to CTC as Kamanga considers them part of the overall service provided to CTC. To verify this, I refer you to Kamanga's extensive legal and corporate work including (but not limited to) numerous leading Federal and High Court cases (ie. ATO franking credits, Private Ruling System, SIB Resources N.L., Ando Minerals N.L.), drafting and completing numerous corporate proposals and funding packages (ie. Information Memorandums for raising equity and asset acquisitions), major debt settlements (ie. Westpac Banking Corporation), other debt and litigation settlements (ie. Elders Finance and Tivmoss), creditor liaison (three unlisted companies and subsidiaries with over 150 individual creditors), taxation and corporate re-structuring, extensive research and advice on ASX $37 million Damages claim, proposed implementation of marketing and profile strategies for the CTC Premium Bonds, corporate and community based sponsorship programs together with unique and innovative utilisation of Davis Samuel products including substantial proposed takeovers. · Additional professional work undertaken by Kamanga has not been factored into the management fee structure of past years nor the current 5 year retainer. To measure the substantial benefits derived by CTC and therefore the reasonableness of such fees, I refer you to the $120,000 fee rendered by Ernst & Young with respect to taxation aspects of transferring franking credits. Although the concept and a majority of the research was developed and structured by Kamanga (together with external legal advisers), Kamanga did not (nor has) received additional fees for this onerous service. Accordingly, the level of fees rendered must be placed in perspective. The working hours engaged by Kamanga personnel, together with their extensive professional input and research, ensures that the fees rendered are reasonable. · With respect to Bisoya, Mr Forge brings to CTC expertise by virtue of his external public company directorships in the resource sector. In this regard, I refer to his directorships with Growth Resources N.L., Kanowna Lights N.L., and Hallmark Gold N.L. Mr Forge delivers to CTC potentially a number of resource projects and other networking within the resource sector. Management fees paid and or payable to Bisoya are therefore reasonable when compared with fees paid to public company directors.

[66]

As there were no previous agreements in place to bind CTC to paying retrospective management fees, why did CTC pay the amounts if they were not liable to do so ? 4. Are there any other potential invoices to be rendered by Kamanga Holdings Pty Ltd or Bisoya Pty Ltd relating to the period prior to 30 June 1998 or after that date which would require recognition and/or disclosure in the financial statements as at 30 June 1998." (emphasis added) 86 The letter also sought (inter alia) a list of all individuals and companies considered to be "related parties" and "a summary of the professional relationship between CTC and Kamanga Holdings Pty Ltd." Reference was also made to a possible need to notify ASIC if the information was not satisfactory. The letter sought a response by 10 March 1999. 87 It appears that CTC's solicitors responded to this letter in a letter dated 15 September 1999, which referred to the transactions between CTC and Kamanga and Bisoya and stated that "our instructions contemplate that if necessary and appropriate we should seek declaratory relief in the Courts in relation to the transaction". They sought, in effect, time to consider the matter. 88 Mr Walsh replied on 23 September 1999. He advised that CTC had "breached the time deadlines specified in the Corporations Law for issuing their annual report to members, lodging their financial report with ASIC, and holding their AGM". He indicated that, as the solicitors had requested, he would refrain from completing the audit for 14 days, pending receipt of their advice. The solicitors responded that they would not be able to comply with that time limit. 89 On 1 February 2000 Mr Walsh wrote to the directors of CTC again, referring to Ernst & Young's attempts "to finalise the audit for the year ended 30 June 1998 and 30 June 1999". The letter asked that the 30 June 1998 financial statements be completed immediately. It referred to relevant penalties under the Corporations Law which could be imposed upon directors. It enclosed a copy of a letter sent to ASIC the same day in accordance with the auditors' obligations. It pointed to the fact that "the most significant matters outstanding for the 30 June 1998 financial statements" were in relation to payments made to entities associated with directors, namely the payment of $2,205,000.00 to Kamanga Holdings and the payment to Bisoya of $260,000, together with the commitments to each company for the payment of management fees for the next five years. Again, the letter referred to the absence of shareholder approval in respect of those payments and that the information provided in respect of them was inadequate. It further indicated a lack of satisfaction on the part of the auditors that "the transactions are commercial". It sought additional information, in the following respects: " * Payment to Kamanga Holdings Pty Ltd for management fees for the year ended April 1998 and the previous 8 years for a total of $2,205,000. Responses from Jozsef and Allan were inconsistent, with Jozsef's being based on remuneration of individuals (Jozsef, Dawn and Allan) and Allan's being based on payments for work performed.

[110]

(c) Yes. The receipt of substantial funds into the company's bank account was almost immediately followed by payments to director related parties with no independent documentary evidence to support payments. The payment was in my opinion highly irregular, and to the detriment of CTC (loss of funds/income) and represented an immediate gain to director related parties. I have read the argument that the amounts referred to "became due and payable upon receipt of the invoices dated 20th April, 1998. There were no previous agreements that required the amounts to be paid ." [ Reference: Jozsef Endresz' letter of 15th February, 1999 to Mr Roger Walsh (Ernst & Young] and further in that letter '... the liability had arisen on 20th April, 1998 and was therefore neither a contingent nor actual liability in prior period accounts.' I do not find that explanation compelling. I am also not persuaded that the amount involved was 'reasonable remuneration' provided to a director within the meaning of s 211 CL nor do I believe the payment of such a substantial amount was in the best interest of "CTC". The process of agreement by directors to resolve payments by CTC to director related first entity by one "unrelated party", and then a similar transaction by the other clearly suggests advantage obtained by improper procedure for personal gain. Re Transaction 2 (a) No. My opinion is based upon similar reasons as outlined above in relation to Transaction 1. (b) No. My opinion is based upon similar considerations as outlined above in relation to Transaction 1. (c) Yes. The receipt of substantial funds into the company's bank account was almost immediately followed by payments to director related parties with no independent documentary evidence to support these payments. The payment was in my opinion highly irregular, and to the detriment of CTC (loss of funds/income) and represented an immediate gain to director related parties. The process of agreement by directors to resolve payments by CTC to director related first entity by one "unrelated party", and then a similar transaction by the other, clearly suggests advantage obtained by improper procedure for personal gain. Re Transaction 3 (a) No. The directors voting on the resolution were aware payment was to a related party transaction, purporting to be management fees payable under an agreement which had not be (sic, been) ratified by shareholders. The amounts involved were significant, particularly compared to the trading results over the past several years . The directors should also have been aware that the only source of funds was $6,000,000.00 received by CTC under the terms of the alleged investment by the Commonwealth (Department of Finance and Administration, Business Services Trust Account). (b) No. To have acted honestly the directors would have had to act in good faith and in the best interest of the company. The past performance, and obligations to pay a 6.5% dividend on $6,000,000 of Redeemable convertible non-cumulative preference shares annually, (the source of the funds being disbursed) was not considered. (c) Yes. The payment , one month after Transaction 1, was irregular (not supported by a valid contract), and was a payment to the detriment of CTC, who suffered loss of funds (and consequential income) and to the immediate gain of director related parties . Re Transaction 4 (a) No. The agreement to pay management fees for the next five years to a related party without reference to shareholders continued the practice referred to above in relation to Transaction 2 . Payment of fees under that invalid contract contravened the degree of care and diligence for the same reason as referred to above in relation to Transaction 3. (b) No. To have acted honestly the directors would have had to act in good faith and in the best interest of the company. The past performance, and obligations to pay a 6.5% dividend on $6,000,000 of Redeemable convertible non-cumulative preference shares annually, (the source of the funds being disbursed) was not considered. (c) Yes. The payment, one month after Transaction 1, was irregular (not supported by valid contract), and was a payment to the detriment of CTC, who suffered loss of funds (and consequential income) and to the immediate gain of director related parties. Re Transaction 5 (a) No. Directors should have been aware that ratifying a loan by CTC to a related party in the manner recorded and the payment of $250,000 was in contravention of the Corporations Law . Clearly the payment allowed the related party to obtain a financial gain and disadvantaged CTC (the funds were unsecured and the grounds for payment appear unsure) . (b) No. To have acted honestly the directors would have had to act in good faith and in the best interest of the company ( s. 181 CL ). The past trading performance, and obligations to pay a 6.5% dividend on $6,000,000 of Redeemable convertible non-cumulative preference shares annually, (the source of the funds being disbursed) was not considered. (c) Yes. The receipt of substantial funds into the company's bank account was almost immediately followed by payments to director related parties with no independent documentary evidence to support payments. The payment was in my opinion highly irregular, and to the detriment of CTC (loss of funds/income) and represented an immediate gain to director related parties. The process of agreement by directors to resolve payments by CTC to director related first entity by one "unrelated party", and then a similar transaction by the other, clearly suggests advantage obtained by improper procedure for personal gain. Re Transaction 6 (a) No. Directors should have been aware that ratifying a loan by CTC to a related party in the manner recorded and the payment of $100,000 was in contravention of the Corporations Law . Clearly the payment allowed the related party to obtain a financial gain and disadvantaged CTC (the funds were unsecured and the grounds for repayment appear unsure) . (b) No. To have acted honestly the directors would have had to act in good faith and in the best interest of the company (s.181 CL). The past trading performance, and obligations to pay a 6.5% dividend on $6,000,000 of Redeemable convertible non-cumulative preference shares annually, (the source of the funds being disbursed) was not considered. (c) Yes. The receipt of substantial funds into the company's bank account was almost immediately followed by payments to director related parties with no independent documentary evidence to support payments. The payment was in my opinion highly irregular, and to the detriment of CTC (loss of funds/income) and represented an immediate gain to director related parties. Re Transaction 7 (a) No. The directors were aware that the Loan Agreement was undertaken with a related party [ Reference Minutes ] under which that party was obtaining a financial gain. Not only that, but the transaction was also disadvantaging the 1200 other shareholders in CTC as the party involved was suffering financial embarrassment , [Reference letter re divorce proceedings] no security was contemplated, and some doubt must have existed on the ability of the related party to repay within the terms contemplated thus also endangering shareholder interest. No suggestion of shareholder agreement was contemplated . (b) No. To have acted honestly the directors would have had to act in good faith and in the best interest of the company ( s.181 CL ). The past trading performance, and obligations to pay a 6.5% dividend on $6,000,000 of Redeemable convertible non-cumulative preference shares annually, (the source of the funds being disbursed) was not considered. (c) Yes. The receipt of substantial funds into the company's bank account was almost immediately followed by payments to director related parties with no independent documentary evidence to support payments. The payment was in my opinion highly irregular, and to the detriment of CTC (loss of funds/income) and represented an immediate gain to director related parties. The process of agreement by directors to resolve payments by CTC to director related first entity by one "unrelated party", and then a similar transaction by the other, clearly suggests advantage obtained by improper procedure for personal gain. Re Transaction 8 (a) No. The directors were aware that the Loan Agreement was undertaken with a related Party [ Reference Minutes ] under which that party was obtaining a financial gain. Not only that, but the transaction was also disadvantaging the 1200 other shareholders in CTC as no security was contemplated and some doubt must have existed on the ability of the related party to repay within the terms contemplated thus also endangering shareholder interest. No suggestion of shareholder agreement was contemplated. (b) No. To have acted honestly the directors would have had to act in good faith and in the best interest of the company ( s.181 CL ). The past trading performance, and obligations to pay a 6.5% dividend on $6,000,000 of Redeemable convertible non-cumulative preference shares annually, (the source of the funds being disbursed) was not considered. (c) Yes. The receipt of substantial funds into the company's bank account was almost immediately followed by payments to director related parties with no independent documentary evidence to support payments. The payment as (sic, was) in my opinion highly irregular, and to the detriment of CTC (loss of funds/income) and represented an immediate gain to director related parties." (emphasis supplied)

[117]

(iii) Involved in transaction 1. (d) [Mr Jozsef and Allan Endresz] being related parties of Kamanga; (e) [Mr Forge and Mrs Endresz] not being related parties of Kamanga and at no stage being: (i) A director, secretary, executive officer, or employee of Kamanga. (ii) Concerned in or taking part in, the management of Kamanga. (f) [Mr Forge and Mrs Endresz] not having any material personal interest in transaction 1 and being legally permitted to participate in the 20 April 1998 Board Meeting; (g) [Mr Jozsef Endresz], not having any involvement in transaction 1, at the commencement of the 20 April 1998 Board Meeting fully disclosed to [Mr Forge and Mrs Endresz] that he had a material personal interest in transaction 1 and the Consultancy Agreement and immediately removed himself from the meeting in accordance with Section 232A(1) of the Corporations Law and Articles 83 and 107 in Exhibit 3 . (The CTC Articles); (h) The salaries of each non-executive director being set at $7,500 per annum ["Base Salaries"] in accordance with Article 76 in Exhibit 3 as approved by shareholders at the AGM1; (i) Directors performing extra services where CTC shall, in accordance with Article 77 of Exhibit 3 , remunerate such directors by a fixed sum as may be determined by the directors which is in addition to the salaries set in item (i) above ["Additional Salaries"]; (j) The aggregate salary of the joint managing director being set at $75,000 per annum ["Managing Director Salary"] in accordance with Article 95 in Exhibit 3 as approved by shareholders at the AGM1; (k) [Mr Forge and Mrs Endresz] being expressly empowered by Article 115[3] in Exhibit 3 to pay for any services rendered to CTC, including services rendered by executive directors, at their discretion; (l) [Mr Forge and Mrs Endresz] being expressly empowered by Article 115[20] in Exhibit 3 to contract on behalf of CTC with any person or persons or body corporate for the provision to CTC of any services whatsoever; (m) The services provided by Kamanga during the period 20 December 1989 to 20 April 1998 inclusive ["9 Year Period"] where: (i) [Mr Jozsef Endresz] was a full time executive director during the 9 Year Period and did not receive any Base or Additional Salaries; (ii) [Mrs Endresz] was a full time executive director during the 9 Year Period and did not receive any Base or Additional Salaries; (iii) [Allan Endresz] was a full time executive chairman during the period 20 December 1989 to 10 June 1993 inclusive and did not receive any Base or Additional Salaries; (iv) [Allan Endresz] was engaged as a corporate advisor during the period 11 June 1993 to 20 April 1998 inclusive and did not receive any fees or retainers despite being engaged by "arms length" clients on annual retainers in excess of $245,000 per annum; (v) The average weekly wages in February 1998 for non-managerial employees being in excess of $700 per week in accordance with the Australian Bureau of Statistics; (vi) Kamanga provided CTC with a loan re-draw facility and guaranteed its liabilities. As at 30 June 1997 and 1 March 2002, CTC owed Kamanga $1,101,657 and $221,253 respectively. During the period 20 December 1989 to 26 July 1992 inclusive, the loan re-draw facility was provided to CTC on an unsecured basis on commercial terms. Kamanga continues to provide CTC with a $1,000,000 secured loan re-draw facility and guarantees its liabilities; (vii) Kamanga [and its director related entities] was engaged by CTC to provide management services for its listed ASX companies in the Emu Hill Group. Whilst Kamanga had received management fees from CTC during the 9 Year Period totalling $254.747 comprising $6,500, $38,730, $21,275, $66,875, $107,800, $11,717, $850 and $1,000 for the years ended 30 June 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 respectively, CTC had, in turn, received significant management fees totalling $481,495 as a consequence of Kamanga's services. CTC received $154,000, $190,995, $58,500 and $78,000 for the years ended 30 June 1990, 1991, 1992 and 1993. The management fees received by Kamanga do not in any way reflect the services provided directly to CTC. In fact, CTC made a profit of $226,748 as a result of the Kamanga services provided to companies within the Emu Hill Group; (viii) Kamanga provided extensive administrative and professional services and sought no reimbursements for legal costs incurred for the benefit of CTC;

[121]

(ii) Subject to the outcome of proceedings in the ACT Supreme Court, there are reasonable grounds to believe that Davis Samuel Pty Ltd will ensure that a capital guarantee is put in place on behalf of CTC prior to redemption of the Preference Shares." (bold in original) The primary judge's assessment of the appellants' evidence 124 The primary judge observed (at [92]) that the details set out in Allan Endresz's affidavit in relation to the eight transactions had not been provided to Ernst & Young in response to their audit queries nor put to Mr Walsh in cross-examination. The same comment applied to the material provided in the affidavits of the first, second and third appellants. 125 The primary judge noted (at [115]) that Allan Endresz sought to rely upon certain articles of CTC as founding a right in the directors to enter into the transactions without reference to the shareholders. He held that these articles could not prevail over the relevant sections of the Corporations Law and Corporations Act, where contraventions of those sections were established. 126 His Honour also referred (at [116] ff) to Allan Endresz's reliance in his affidavit upon judgments said to be favourable to the SIBS concept and, apparently, supportive of an entitlement to make and receive the payment involved in the first transaction. In respect of ASIC's proceedings in the Victorian Supreme Court in relation to the prospectus sought to be issued by SIB Resources NL, Allan Endresz said, in paragraph 35 of his affidavit, that: "On 26 June 1991, Justice Ryan of the Victorian Supreme Court dismissed the application by the Plaintiff and the Prospectus was then subsequently registered. See ASC v SIB Resources N.L. & Ors [1991] 103 ALR 374." 127 Allan Endresz also said: "On 9 December 1996 CTC launched a $35 million [now $1 Billion] damages claim against the ASX. The ASX sought to summarily strike out the claim, but in a Judgment handed down on 11 April 1997, the application was dismissed. See CTC Resources NL v Australian Stock Exchange Ltd; Odyssey Nominees Pty Ltd v Australian Stock Exchange Ltd [1997] 15 ACLC 743 [WA Sup Ct] Sanderson J, 11 April 1997]]." 128 The primary judge looked at each of those cases, but concluded (at [120]) that they did not support "a general assertion that the payment made to Kamanga in the first transaction was justified on the basis of unremitting endeavours made on behalf of CTC and its shareholders". 129 The primary judge expressed considerable doubt (at [122]) that a conversation with Mr Jozsef Endresz such as that to which Allan Endresz deposed would have taken place in the way Allan Endresz suggested. In his Honour's view "[I]ts purported record, in his affidavit, has all the appearance of contrivance and artifice." His Honour was also not prepared to accept, in the absence of any supporting evidence, that the company's shareholders were requesting that the company enter into a contract with Kamanga in order to secure the future services of Allan Endresz and Mr Endresz. He was: "… far from persuaded that the shareholders knew anything of the arrangements for payment that were to be put in train on 20 April 1998 or that CTC would receive $6,000,000.00 on that day. To the contrary, the shareholders must have been well and truly aware, because of the AGM, which had recently taken place, that the company had significant accumulated losses and negative shareholder equity." 130 He noted (at [123]) that Allan Endresz's justification of the payment to Kamanga in transaction 1 and, presumably, the payment to Bisoya in transaction 2 and the subsequent payments and advances to those entities in the other transactions, appeared to be summed up in a passage in his written submissions, which read: "Aren't people who continue to nurture a company in the face of great difficulties, and who forgo fees during those years in order to keep faith with the shareholders, entitled to fees when the opportunity presents itself in the interests of the company? That opportunity being not just the liquidity of the company but the fact that they honestly believed that the matters they had been working on for some time would now come to fruition." 131 The primary judge said (at [124]) that the evidence of the four personal appellants left him "in some degree of doubt" as to whether the CTC Board Meeting of 20 April 1998 was "actually held or whether the minutes were simply constructed to give effect to arrangements otherwise concluded". 132 Insofar as Mr Jozsef Endresz was concerned, the primary judge concluded (at [124]) that the "underlying concept was that 'any time money had arrived into the company's coffers, [transactions 1 and 2] will be put into place'", as the following questions and answers reveal:

[123]

Q. Presumably you discussed Mr Forge's position as well, and his company did you? A. That's correct. Q. The same idea, I suppose, was agreed to at the same time namely, that Mr Forge will be fixed up both for the past and the future as well? A. That's correct." 133 The primary judge held (at [127]) that the effect of Mr Jozsef Endresz's evidence was that there was also an understanding with Mr Forge that when there was money in the company "we will first priority pay ourselves what we are owed." 134 Insofar as Mrs Endresz was concerned, the primary judge noted (at [129] - [130]) that prior to going to the April 1998 meeting she did not know what it was to involve and that in relation to the payment of $2,205,000 to Kamanga she took the view that insofar as "Joe and Allan hadn't been paid for nine years work" that "now was an opportune time", "it's fair and reasonable…[t]hey had to be paid for what they have done and now CTC was cashed up, we were liquid." She also expressed the view, in a number of ways, that it was in the best interests of the company that the past and future amounts in contemplation be paid to Kamanga. It was in fact a bonus for CTC and the shareholders in that the services of her husband and Allan were being obtained cheaply. According to the primary judge, she did not seem to be aware that CTC had given some seven million shares to Kamanga. 135 Mrs Endresz knew the $6,000,000.00 would have to be repaid eventually and that there were interest obligations attached to it. She believed, apparently, that CTC would be able to repay the $6,000,000.00 because it had plenty of projects tied in with Kamanga and Davis Samuel. The primary judge (at [133]) gained "the strong impression that Mrs Endresz did not have any significant grasp of the business affairs of CTC and was very much reliant upon her son and husband for any knowledge of the company, its affairs or its relationship with Kamanga or Davis Samuel." 136 Mr Forge said that he had no forewarning that Mr Endresz would produce the Kamanga invoice and consultancy agreement at the April meeting. He said he was carrying his own agreement with him in his brief case, where it had been for some weeks and he simply produced it at the meeting because it was an opportune moment to do so. He did not produce an invoice to the meeting but believed that he would have mentioned the figures of $65,000 per annum and the back payment of $260,000 before leaving the meeting, so that Mr and Mrs Endresz could discuss his claim in his absence. So far as the $6,000,000.00 was concerned, he was confident that the company would be able to repay it when it fell due. The primary judge (at [134]) "found his evidence, in general, most unimpressive." 137 The primary judge summarised the appellants' evidence (at [135]) as follows: "135 I am left with the overwhelming impression from the evidence of these four defendants that, in circumstances where CTC had had no significant income for many years, the receipt of the $6,000,000.00 was seen as a golden opportunity for the payment to the director-related entities of Kamanga and Bisoya of significant sums of money for the benefit, ultimately, of the defendants themselves. I am of the view that the claims made in their affidavit and oral evidence that [the] payments were made for the benefit of the company and its shareholders are no more than colourable after-thoughts. I do not accept their evidence in this regard. In particular, I am totally unpersuaded that any of these matters of justification for the payments were in the minds of the first, second and third defendants at the time the resolutions of 20 April 1998 were passed if, in fact, they were passed at a properly constituted meeting." (emphasis supplied)

[125]

Related party transactions: conclusions at trial 140 The primary judge found (at [109]) that Kamanga and Bisoya were related parties of CTC. Insofar as Kamanga was concerned, that finding was based upon the facts that Mr Endresz had been a director of Kamanga since 23 June 1987 and owned 40% of its shares. At all relevant times Allan Endresz owned the remaining 60% so that Kamanga was an entity under the control of Mr Endresz as a director of CTC (see s 243F(1)(a) of the Corporations Law) and of Allan Endresz, his son, (see s 243F(1)(e)) and thus fell within the terms of s 243F(1)(f). Insofar as Bisoya was concerned, Mr Forge, a director of CTC, owned 50% of its shares, while Mrs Forge owned the other 50%. The combined effect of ss 243F(1)(a), (d) and (f) was to make Bisoya a related party at the relevant time. 141 His Honour concluded (at [111]) that Kamanga and Bisoya received financial benefits pursuant to s 243G of the Corporations Law in the following respects: " Kamanga (a) Transaction 1 - involved the payment of $2,205,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 20 April 1998; (b) Transaction 3 - involved the payment of $40,833.34 by CTC Resources NL to Kamanga Holdings Pty Ltd on 26 May 1998; (c) Transaction 5 - involved the payment of $250,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 28 October 1998; (d) Transaction 6 - involved the payment of $100,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 30 October 1998; and (e) Transaction 8 - involved the payment of $150,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 13 November 1998. Bisoya (a) Transaction 2 - involved the payment of $260,000 by CTC Resources NL to Bisoya Pty Ltd on 20 April 1998; (b) Transaction 4 - involved the payment of $10,833.34 by CTC Resources NL to Bisoya Pty Ltd on 28 May 1998; and (c) Transaction 7 - involved the payment of $75,000 by CTC Resources NL to Bisoya Pty Ltd on 30 October 1998." 142 The primary judge noted that in the correspondence with Ernst & Young to which I have earlier referred, the claim had been made that some of the transactions fell within the "reasonable remuneration" exception for the purposes of s 243K of the Corporations Law. Mr Walsh had rejected that application. His Honour was not certain (at [112]) whether the appellants persisted with that argument but held, in any event, that s 243K applied to remuneration paid to persons in their capacity as officers of the body making the payment and that neither Kamanga or Bisoya was such a "person". His Honour then turned to consider whether the "arm's length" exception in s 243N could apply and held (at [112]) that "there is nothing that satisfies me that the transactions could be regarded as at arm's length". 143 The primary judge held (at [136] - [137]) that transactions 3, 4, 5, 6 and 8 were payments to related parties. He found that there was no evidence the transactions could properly be described as arm's length transactions (s 234N). Accordingly he held that transactions 3 and 4 could not be justified on the basis that they fell within the statutory exceptions. Insofar as transactions 5, 6 and 8 were concerned, the primary judge held (at [137]) that there was no acceptable explanation for CTC making unsecured loans from its resources to entities in which its directors had a commercial interest. He concluded that the transactions were prima facie unlawful and that no acceptable explanation had been given for them. 144 The primary judge made the following findings (at [138]) about transaction 7: "138 Transaction 7 This unsecured loan from CTC to Bisoya was made to assist Mr Forge in relation to a property settlement with his estranged wife. As Mr Forge said in evidence, it was paid "for Bisoya's benefit to relieve a loan account that was owed to Lorraine Olive Forge. 139 In relation to this loan Mr Endresz said that he lent the money to Mr Forge who had asked for it 'for personal reasons'. He didn't ask what the loan was for because he didn't want to get involved in it. He didn't worry about security for this loan of public company funds because of the existence of the management contract with Mr Forge and his company Bisoya. In adopting this approach, he displayed the same attitude to the public company funds as he did in relation to the loans to Kamanga, where his explanation was 'Kamanga needed some short term working capital, the money was asked for and we put it in'." 145 His Honour's reference to Mr Endresz displaying the same attitude to transaction 7 as he had to the loans to Kamanga makes it plain, in my view, that, again, he considered the loan was prima facie unlawful and unexplained.

[126]

Directors' duty contraventions: conclusions at trial 146 The primary judge held (at [140] - [145]) that ASIC had established that the appellants had breached s 232(2) of the Corporations Law to the Briginshaw standard. In reaching this conclusion, he applied King CJ's interpretation of s 229(1) of the Companies (SA) Code (which was in the same terms as s 232(2) of the Corporations Law) in Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 272 where his Honour said: "The section therefore embodies a concept analogous to constructive fraud, a species of dishonesty which does not involve moral turpitude. I have no doubt that a director who exercises his powers for a purpose which the law deems to be improper, infringes this provision notwithstanding that according to his own lights he may be acting honestly." 147 The primary judge said (at [141]) that he was satisfied that he could follow the Van Reesema test because he was not dealing with criminal proceedings. It is not clear what his Honour meant by that qualification. Nothing turns upon it for the purposes of considering the appeal. 148 Insofar as s 232(6) was concerned, the primary judge applied R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 at 514 - 515 where Brennan, Deane, Toohey and Gaudron JJ, speaking of s 229(4) of the Companies (SA) Code (the precursor of s 232(6)), said: "Impropriety does not depend on an alleged offender's consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case. When impropriety is said to consist of an abuse of power, the state of mind of the alleged offender is important: the alleged offender's knowledge or means of knowledge of the circumstances in which the power is exercised and his purpose or intention in exercising the power are important factors in determining the question whether the power has been abused. But impropriety is not restricted to abuse of power. It may consist in the doing of an act which a director or officer knows or ought to know that he has no authority to do." 149 The primary judge concluded (at [144] - [147]): "144 In my opinion, the contraventions are amply demonstrated. In general terms, I am satisfied that the first, second, third and fourth defendants simply regarded the acquisition by CTC of the amount of $6,000,000.00 on 20 April 1998 as amounting, virtually, to a provision of funds for their own private use. The amounts covered by the transactions were paid out, in the form of fees or loans to related entities, without regard to the fact that the $6,000,000.00 itself was subject to repayment and also carried with it obligations to pay interest. Despite protestations in the case that shareholder approval was not required because of the attitude of shareholders in the past, I am of the view that the question of shareholder approval was not even considered in relation to any of these payments or loans. All that mattered was their own perceived entitlement to payment for past and future services. 145 Having regard to the width of the definition of "contravention" in s 79 of the Corporations Law , set out above, I am quite satisfied that each of the defendants, with the exception of Kamanga, against whom action is necessarily stayed, has been "directly or indirectly, knowingly concerned in and party to the contraventions "involved in the transactions, in which they are named in the originating process. The first, second and third defendants were each involved by reason of their directorships in CTC and in Kamanga or Bisoya. The fourth defendant, Allan Endresz was, in my view, clearly involved in transactions 1,3 5,6 and 8, because of what I have found to be his disguised, but nevertheless ongoing, managerial role in both CTC and Kamanga.

[129]

Role of Allan Endresz: the primary judge's findings 155 The primary judge concluded (at [145]) that Allan Endresz had played a "disguised, but … ongoing managerial role in both CTC and Kamanga". He reached that conclusion in the following manner. 156 On 11 June 1993 Allan Endresz was convicted (inter alia) of six offences under s 11(2) of the Companies (Acquisition of Shares) (Victoria) Code 1980. The convictions led to him being prohibited, under s 227(2)(c) of the Companies (Victoria) Code 1981, from being a director or taking part in the management of a corporation for a period of five years from the date of the conviction. Accordingly, he resigned from the directorships he then held in CTC and Kamanga. 157 Before the primary judge Allan Endresz asserted that as a result of this prohibition he ensured that between 11 June 1983 and 11 June 1998 he was not a director, secretary, executive officer or employee or concerned in the management of any corporation. Rather, he embarked on a new career as a professional corporate advisor which led to the formation of the Davis Samuel Partnership, which consisted of Kamanga and a company Quancorp Pty Ltd, a trustee company for the family trust of a close friend. 158 Before the primary judge ASIC contended that Allan Endresz was, during the period of the transactions, an "officer" of CTC for the purposes of ss 232(2), (4) and (6). It relied upon s 232(1) of the Corporations Law which relevantly provided: ""officer", in relation to a corporation, means: (a) a director, secretary or executive officer of the corporation …". 159 "Executive officer" was defined in s 9 of the Corporations Law. Prior to 30 June 1998, "executive officer" meant: "… a person, by whatever name called and whether or not a director of the body … who is concerned, or takes part, in the management of the body …". 160 This definition was amended in 1998, with the result that after 30 June 1998 the relevant definition of "executive officer" was: "… a person who is concerned in, or takes part in, the management of the body (regardless of the person's designation and whether or not the person is a director of the body)." 161 The primary judge accepted (at [97]) Mr Walsh's description of Allan Endresz as "his main point of contact with CTC". Mr Walsh gave evidence that he saw Allan Endresz as playing a major role in the management of CTC's affairs. In his oral evidence he referred to Allan Endresz as always having had "a very strong role in relation to the company's activities", being "much more of a leader than a follower in relation to those activities." He described him as "the person who has sought out opportunities which perhaps others wouldn't have seen, in order to convert those opportunities to financial good for the company". The primary judge noted that the "significant letter from CTC to the auditors of 15 December 1998 went out over [Allan Endresz's] signature" and concluded he was its author. He also concluded after seeing Mr Jozsef Endresz giving evidence that the letter of 15 February 1999 forwarded by Mr Jozsef Endresz to Ernst & Young must have been wholly or in large part composed by Allan Endresz. 162 The primary judge found (at [98]) that CTC's main activity in the period 1993 - 1998 related to the SIBS Scheme - work he concluded was Allan Endresz's brainchild and "could only be performed to any significant degree by him". Further, his Honour concluded that the conversation Allan Endresz alleged he had with his father in relation to setting up the 20 April 1998 transactions went beyond mere advice and entered "well into the field of management". 163 His Honour also accepted (at [99]) evidence given by Mr Barned, the bank manager in 1998 for what he referred to as the "Endresz Group", who said "that, during that year, he managed the business banking of CTC, 'liaising on the majority of occasions with Allan Endresz, whom [he] understood to be a representative of CTC'." Mr Barned also recalled discussions with Allan Endresz about the issue of the CTC Capital Bonds and the possibility that the Commonwealth Bank would guarantee the issue. 164 The primary judge noted that Mr and Mrs Endresz were "very reliant upon [Allan Endresz's] advice and assistance". He found (at [100]) "that, upon [Allan Endresz] being disqualified [from acting] as a director in 1993, he adopted the role of commercial advisor in relation to CTC which … was no more than an artifice to avoid the consequences of his disqualification." He noted (at [102] - [103]) that Allan Endresz was the main contact point with the company's auditor for the audit of the 1998 accounts, a role to which the Board appointed him. He was the only person amongst the four defendants who had any accountancy qualifications. 165 The primary judge rejected (at [98]) Allan Endresz's evidence that he was merely a corporate advisor to CTC and that he did not take part in its management during the period of the transactions. He made a significant finding adverse to Allan Endresz's credit in this respect saying (at [107]): "107 I was not impressed by his demeanour under cross-examination. He gave the appearance of defending a carefully prepared position, rather than providing frank answers as to his role in the affairs of CTC. Indeed, the very fact of his acting for the other defendants in these proceedings bespeaks their dependence upon him and his underlying and pervasive managerial role in the affairs of CTC." 166 He held (at [108]) "that, during the period of the transactions in question, Allan Endresz was acting as an "officer" of CTC". 167 Having made that finding, the primary judge then considered a number of matters of defence before he stated his conclusion that the contraventions had been established. I set out the passages in which his Honour held that the contraventions had been established when recording his findings at trial. I repeat them for convenience. He held (at [144], [145] and [147]): " 144 In my opinion, the contraventions are amply demonstrated. In general terms, I am satisfied that the first, second, third and fourth defendants simply regarded the acquisition by CTC of the amount of $6,000,000.00 on 20 April 1998 as amounting, virtually, to a provision of funds for their own private use. The amounts covered by the transactions were paid out, in the form of fees or loans to related entities, without regard to the fact that the $6,000,000.00 itself was subject to repayment and also carried with it obligations to pay interest. Despite protestations in the case that shareholder approval was not required because of the attitude of shareholders in the past, I am of the view that the question of shareholder approval was not even considered in relation to any of these payments or loans. All that mattered was their own perceived entitlement to payment for past and future services.

[138]

The threshold issue 177 If ASIC's submission on the appellants' threshold issue was intended to found the proposition (which I accept was not expressly articulated) that the primary judge was entitled to find against the appellants on a basis not identified in the Originating Process, I would reject it. 178 Although s 1317ED provided that in hearing and determining the application, the Court was to apply the rules of evidence and procedure applied in hearing and determining civil matters, such rules make it plain that ASIC was required, if it proceeded by Statement of Claim, to plead any matter which, if not pleaded specifically, may take the defendant by surprise: Supreme Court Rules Pt 15 r 13. ASIC did not proceed by Statement of Claim, nor by Summons which is the only other mode of commencement of proceedings permitted: Supreme Court Rules Pt 4 r 1. Rather, ASIC commenced the proceedings by a document described as "Originating Process" which was supported by an affidavit. There was no statutory warrant for that document but no complaint was made about it on appeal nor, in my view, could a complaint be made about it at this stage. It was, in substance, a Summons: cf Romeo and Juliet, Act 2, scene 2 ("a rose by any other name" etc). 179 Commencement in that manner did not entitle ASIC to depart from the fundamental proposition that it was required to put the appellants on notice of the case they had to meet: Banque Commerciale SA (in Liq) v Akhil Holdings Ltd [1990] HCA 11; 1990) 160 CLR 279 at 286; Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 at [21] ff per Heydon JA (as he then was) with whom Mason P and Young CJ in Equity agreed. The proceedings were proceedings to recover orders in the nature of penalties: see Rich v Australian Securities and Investments Commission, above; see also Australian Securities and Investments Commission v Loiterton [2004] NSWSC 172 at [40] where Bergin J observed that in "civil penalty proceedings clarity of approach takes on more significance". 180 When close attention is paid to that part of the judgment in which the primary judge expressed his conclusions that the contraventions had been established it is plain that his findings concerning the contraventions of ss 232(2), (4) and (6), subject to one matter, related to the appellants' liability as principals. The conclusion that the appellants had, as a matter of law, been involved in the contraventions concerned the related party transactions, contraventions of which could only be established on the basis of accessorial liability. This is made plain by paragraph [147] where the primary judge made his final findings and distinguished between the s 232 contraventions and the related party contraventions. His Honour only invoked the notion of involvement in that paragraph in the context of the related party transactions. 181 The exception to which I referred in the previous paragraph concerns his Honour's reference (in [145]) to Allan Endresz having been "clearly involved" in transactions 1, 3, 5, 6 and 8 (all of which related to payments to Kamanga) because of his earlier finding that Allan Endresz was "an officer" of CTC. At that stage the primary judge assimilated Allan Endresz's role as a found "officer" in CTC with that of the first, second and third appellants who were "each involved by reason of their directorships in CTC and Kamanga or Bisoya". On one view it might be thought that at that stage the primary judge was referring only to the transactions referred to in the originating process which invoked the notion of involvement, being the related party transactions. Even if that was not the case, however, the position is in my view made plain by paragraph [147] which clearly distinguishes between liability as principals for the purposes of s 232 and liability on an involvement basis for the purposes of the related party transactions. 182 Mr Biscoe QC's threshold question fails.

[145]

191 In Holpitt Pty Limited v Swaab & Ors (1992) 33 FCR 474 Burchett J was required to consider whether the respondent was caught by the insolvent trading provision, s 556 of the Companies (NSW) Code, which imposed both criminal and civil liability for a debt upon "any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred" in circumstances where, in substance, there were reasonable grounds to expect that the company would not be able to pay its debts as and when they become due. 192 Burchett J said (at 476 - 477): "Section 556 is a section which imposes criminal liability, including imprisonment. It would be quite inappropriate to give to the statement of an ingredient of such an offence, 'any person who was a director of the company, or took part in the management of the company', some loose meaning ignoring that context. Particularly is this so when the rationale must be that the person whom the section singles out is an offender because of the significance of his role in the company which incurred the debt. If his role is a junior one, giving him no real influence on the decision, or if his role is that of an outside professional, who might advise, but would certainly not be taking the decision, there is no reason to think that the language of the section should be stretched to include him." 193 His Honour distinguished (at 477) Commissioner for Corporate Affairs (Vic) v Bracht, above, on the basis that s 227 of the Companies (Victoria) Code had to be "given a fairly wide scope if those affected by the way in which companies are managed are to be given the protection the provision is designed to give them". He concluded (at 477) that it was not appropriate to apply that approach as it would have the effect of imposing personal liability on persons who had no control of the decisions which were taken to incur the relevant debt. His Honour concluded (at 477) that, having regard to the context, the expression "took part in the management of the company" in s 556 should be interpreted as embracing "persons whose management role may be likened to that of a director". 194 Holpitt Pty Limited v Swaab & Ors was applied by Gummow J (sitting at first instance in the Federal Court) in Re New World Alliance Pty Limited; Sycotex Pty Limited v Baseler & Ors (No 2) (1994) 51 FCR 425 at 441, another case concerning insolvent trading, on this occasion s 592 of the Corporations Law, which was, relevantly, in the same terms as s 556. His Honour held (at 441) that to be found to have taken part in the management of a company it was necessary to find that the person had some decision-making role of a management nature in the company. 195 Holpitt Pty Limited v Swaab and Re New World Alliance Pty Limited; Sycotex Pty Limited v Baseler were applied by Hodgson J (as his Honour then was) in Standard Chartered Bank Limited v Antico & Ors (No 1) (1995) 38 NSWLR 290 at 323 again in the insolvent trading context. Officer of CTC: conclusion 196 Although the primary judge did not refer to the authorities to which I have referred it is clear that his conclusion turned on him finding that Allan Endresz had a significant role in managing its affairs, both of a business and administrative nature. 197 The concepts of being "concerned in" and "taking part in the management" of a corporation as they appeared in s 9 of the Corporations Law were divorced from the contexts which influenced the outcomes in Commissioner for Corporate Affairs v Bracht and the insolvent trading cases. 198 Although he found Allan Endresz had played a managerial role in CTC, the primary judge did not make an express finding that that role could be likened to that of a director nor conclude that Allan Endresz played a "decision-making role of a management nature", as the insolvent trading cases require, to found the conclusion that he had taken part in the management of CTC. 199 It is unnecessary to decide whether the phrase "take part in the management" as it appeared in s 9 should be given the wide construction adopted in Commissioner for Corporate Affairs v Bracht or the narrower construction adopted in the insolvent trading cases. 200 It is sufficient for present purposes to accept Ormiston J's approach in Commissioner for Corporate Affairs v Bracht concerning the width of the expression "concerned in … the management" of CTC. It is plain, if one was to take merely the primary judge's finding that Allan Endresz had conceived CTC's main activity for the period 1993 - 1998, the SIBS Scheme, and had been responsible for its continued promotion, to conclude that he had been "concerned in" activities which involved both policy and decision-making related to CTC's business affairs as a whole. That is sufficient to constitute him an "executive officer" of CTC. It is also plain that Allan Endresz's role in conducting CTC's relationship with its banker was also sufficient to support the conclusion that Allan Endresz was concerned in CTC's management. 201 The challenge to the primary judge's finding that Allan Endresz was an "officer" of CTC should fail.

[152]

Directors' duty contraventions: the appellants' submissions 208 The appellants submitted that the findings that the transactions contravened the Corporations Law were not justified. They contended that the primary judge erred in his assessment of the evidence and that, notwithstanding his Honour's advantage of observing the demeanour of the witnesses (let alone his credit findings), the contemporary materials, objectively established facts and apparent logic of events did not justify his conclusion: cf Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at 129. 209 Mr Biscoe QC submitted that CTC's articles 77, 83 and 95 were relevant to the question whether the appellants had contravened the Corporations Law. He referred to Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 125 where Tadgell J said that: "What constitutes the proper performance of the duties of a director of a particular company will be dictated by a host of circumstances, including no doubt the type of company, the size and nature of its enterprise, the provisions of its articles of association, the composition of its board and the distribution of work between the board and other officers." 210 He argued that the relevant directors complied with articles 82 and 83 in disclosing their interest in transactions 1 and 2 and absenting themselves from the April 1998 Board meeting. He submitted that the CTC Board had been empowered to approve the retrospective consultancy and management fee payments by article 77 which provided: "77. If any Director being willing shall be called upon to perform extra services or to make any special exertions in going or residing abroad or for any of the purposes of the Company, the Company shall remunerate such Director by a fixed sum as may be determined by the Directors and such remuneration may be either in addition to or in substitution for his share in the remuneration above provided." Transactions 1 and 2: retrospective management and consultancy fees 211 Mr Biscoe QC's fundamental proposition in relation to transactions 1 and 2 was that the CTC Board appeared to have exercised a business judgment when it approved those transactions on 20 April 1998. He used the expression "business judgment" in the sense to which Barwick CJ, McTiernan and Kitto JJ referred in Harlowe's Nominees Pty Limited v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483 at 493: "Directors in whom are vested the right and duty of deciding where the company's interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts. " (emphasis supplied) 212 While the appellants accepted that the receipt of the $6,000,000.00 was a "golden opportunity" to make the payments they argued that did not make transactions 1 and 2 wrong. 213 Mr Biscoe QC submitted that a reasonable director could have regarded the retrospective consultancy fee and management fee payments to Kamanga and Bisoya as reasonable. He contended that if directors or officers laboured for years for the benefit of a company without remuneration in the hope of reward when times improved, a decision by the Board to remunerate them retrospectively in light of improved financial circumstances was not unreasonable. 214 Mr Biscoe QC argued that the "undisputed evidence was that Kamanga had provided the very considerable services of the Endreszs for over nine years and Bisoya had provided the services of Forge for over four years in the face of great difficulties". He submitted that the primary judge was in error in taking the view that this evidence did not justify transactions 1 and 2. 215 Mr Biscoe QC referred to the Board resolution of 20 April 1998 in relation to Kamanga which referred to the "enormous management contribution provided by Kamanga over the company's most difficult and turbulent years in its corporate history". He drew attention in justification of that contribution to the evidence of the services provided by Kamanga set out in a hand-written document exhibited to Allan Endresz's affidavit. He also referred to the passages in Allan Endresz's affidavit which referred, among other activities, to the SIBS concept and the problems CTC had encountered with both the ASC and the ASX to pursue that concept. It will be recalled that these matters did not impress the primary judge as justifying the retrospective management fees. 216 Mr Biscoe QC pointed out that Mr Forge was the managing director of CTC and that while the CTC Board resolution of 16 April 1998 provided for his remuneration (via Bisoya) of $65,000 pa, in contrast, on 16 August 1986 a general meeting of CTC shareholders had approved remuneration for managing directors of $75,000 pa. In other words the April 1998 resolution approved retrospective payments at $10,000 pa less than approved by the shareholders 12 years earlier. 217 Mr Biscoe QC submitted that the primary judge appeared to have found the appellants were in breach of their statutory duties because "he did not accept that the idea that the payments were made for the benefit of the company and its shareholders were in their 'minds' at the time of the resolutions of 20 April 1998" (emphasis in original). 218 Mr Biscoe QC contended that the "contemporaneous, objective evidence of the 20 April 1998 resolutions" evidenced that "the idea that the payments were made for the benefit of the company was in the minds of the appellants at that time and therefore were not 'colourable afterthoughts'." 219 Mr Biscoe QC also relied upon the fact that the minutes of the April 1998 board meeting recorded that Mr Endresz "properly" absented himself during consideration of the resolution for the retrospective payment to Kamanga and that Forge "properly" absented himself during consideration of the resolution for the retrospective payment to Bisoya while Allan Endresz was not present at the board meeting of 20 April 1998.

[160]

Consideration: directors' duty contraventions 233 As will by now be apparent the appellants' attack on the primary judge's conclusion was broad ranging. It fell squarely within the approach impugned by Heydon JA in Williams v The Minister for Aboriginal Land Rights Act 1983 and the State of New South Wales, above, at [61] of inviting this Court "to survey for itself, afresh, all the evidence on particular points and arrive for itself at particular conclusions about them, without essaying the necessary task of positively demonstrating that the trial judge was wrong". 234 The appellants' approach calls to mind, too, the necessity for appellate caution in reversing the primary judge's evaluation of the facts having regard to the advantage he derived from presiding over the trial, an advantage to which respect is still accorded: see Fox v Percy, above at [23] per Gleeson CJ, Gummow and Kirby JJ, at [65] - [93] per McHugh J; cf Callinan J at [131] - [148], particularly where his Honour made credit findings adverse to the appellants: Suvaal v Cessnock City Council [2003] HCA 41; (2003) 77 ALJR 1449 at [68] - [76] per McHugh and Kirby JJ. 235 The primary judge's conclusion that the transactions could not have been believed by the appellants to have been in CTC's best interests was inevitable in my view having regard to the parlous financial situation under which CTC had operated for many years. Further, the appellants treated the $6,000,000.00 without any regard to the obligations attached to its receipt. The $6,000,000.00 was required to be repaid to the Commonwealth in 4 years. It was also subject to an obligation to pay annual, non-cumulative, preferential dividends of 6.5%, at least in years when a profit was made and a dividend declared (see article 122). 236 Prima facie, CTC was obliged to place the $6,000,000.00 in the share premium account or into the capital account, not to pay large quantities of it out to companies in which its directors had a pecuniary interest. It is true that the directors whose companies were to be the beneficiaries of the funds absented themselves from the meetings at which the relevant resolutions were passed, but his Honour also clearly formed the view that even if the 20 April 1998 meetings actually took place, they were merely rubber stamping exercises giving effect to arrangements already made, at least insofar as Mr Endresz, Allan Endresz and Mr Forge were concerned: see judgment at [124] - [127]. 237 In the light of his doubts about the holding of the 20 April 1998 meetings coupled with his views that, in any event, the decision to approve the payment of the management and consultancy fees had been arranged prior to the receipt of the $6,000,000.00, his Honour was clearly entitled to take the view that had the relevant appellants indeed absented themselves from CTC's meetings at the time the subject payments were resolved, that was of little moment in the overall assessment of their conduct. 238 In my opinion the appellants' reliance upon CTC's articles is of no avail. I have earlier identified the substance of articles 77, 82 and 83. While it may be the case that the constraints imposed on a fiduciary in dealing with a person to whom fiduciary duties are owed may be ameliorated to some extent insofar as a director and the director's company are concerned by the Memorandum or Articles of Association of the Company (Furs Limited v Tomkies [1936] HCA 3; (1936) 54 CLR 583 at 592), such articles cannot relieve a director from the obligation to act in the interests of the company as a whole: Re Bright Pine Mills Pty Limited [1969] VR 1002 at 1013; see Australian Growth Resources Corporation Pty Limited v Van Reesema, above, at 268 - 269. 239 Articles 77, 83 and 95 provided some background to the factual matrix in which the appellants claimed the transactions took place. However, the primary judge's factual findings make it plain that he did not accept the appellants had any regard to these provisions. 240 In my view the articles upon which the appellants relied did not detract from the primary judge's conclusion that the appellants had contravened the Corporations Law. As his Honour held (at [115]) those articles could not prevail where contraventions of the Corporations Law were established. 241 As to ground 20 the primary judge was, in my view, entitled to express doubts about whether or not the April 1998 meeting took place. His findings that the concept of payment of the retrospective management fees and retainer had been, in effect, decided weeks before the $6,000,000.00 was received (see [124]) and that the appellants' evidence seeking to justify the transactions were "colourable after-thoughts" provided ample reason in my view for his Honour to doubt whether the April 1998 meeting was in fact held. It may be, as the appellants submit, that it was not put to the appellants that the meetings were not held. However, there could have been no doubt at the trial that ASIC's case was that the appellants' account of and justification for the transactions should not be believed. The primary judge accepted that case. His doubt about whether the April 1998 meeting took place was a passing, and by no means determinative, observation made as part of his consideration of the overall evidence concerning the transactions. 242 In my view the appellants have not demonstrated any error by the primary judge in making the findings referred to in Ground 19. They have not demonstrated that his Honour's conclusions ought be reversed. There was ample evidence to support the inferences his Honour drew. Moreover his Honour's conclusions were based, in part, upon his rejection of the appellants' credit. Contrary to Mr Biscoe QC's submission, his Honour's findings were not undermined by the contemporary materials, objectively established facts and apparent logic of events. Rather the contemporary materials and objectively established facts provided a cogent basis upon which his Honour was entitled to conclude that the appellants had contravened ss 232(2), (4) and (6) and s 243EZ(3) of the Corporations Law. 243 Grounds 9, 19 and 20 should be rejected.

[161]

Contravention of s 232(2) 244 In Marchesi v Barnes, above, Gowans J considered the meaning of the requirement to "act honestly" in the observance of the duties of a director as required by s 124 of the Companies Act 1961 (Vic) (relevantly a precursor to s 232(2)). He said (at 438): "… [T]o 'act honestly' refers to acting bona fide in the interests of the company in the performance of the functions attaching to the office of director. A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge . This constitutes the element of mens rea in the criminal offence created by the statute. If the term "fraud" is applicable in this situation, it is only so in the sense of a "fraud on the power". In effect, the common law obligation in respect of acting honestly, as with the common law obligation to act with due diligence has been made a statutory duty, and failure to perform it, provided there is the proper mental element, has been made a criminal offence." (emphasis supplied) 245 The appellants submitted that the Marchesi v Barnes test was correct and had been followed in Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503, Southern Resources Limited v Residues Treatment & Trading Co Limited (1990) 3 ACSR 207, Feil v Commissioner of Corporate Affairs (1991) 9 ACLC 811 and Fitzsimmons v R (1997) 23 ACSR 355. They drew attention to Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626 at 642 where Dawson J after referring to the passage in Van Reesema upon which the primary judge relied said: "For my own part I cannot, with respect, equate dishonesty in the context of s 229(1) [the precursor of s 232(2)] with mere impropriety. … the use of power for an impermissible purpose, viewed objectively as it should be, may be improper, but it is not necessarily dishonest. Whether the element of dishonesty is adequately encompassed by the remarks of Gowans J in Marchesi v Barnes is something which does not fall for decision in this case, but it is, I think, necessary to give to the word 'honestly' in a provision creating a criminal offence a somewhat wider scope than King CJ was prepared to give it in Australian Growth Resources Corporation Pty Limited v Van Reesema ." 246 The appellants submitted that unless the distinction Dawson J drew in Chew was maintained, there would be no difference in the circumstances of the present case between the application of s 232(2) and s 232(6) which deals with impropriety, which the appellants accepted was determined by an objective test and "does not depend on an alleged offender's consciousness of impropriety": R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 at 514 - 515; see also Macleod v The Queen [2003] HCA 24; (2003) 214 CLR 230 at [39] ff and McCann v Switzerland Insurance Australia Limited [2000] HCA 65; (2000) 203 CLR 579. 247 Assuming in the appellants' favour that the Marchesi v Barnes test requiring the demonstration of subjective dishonesty to attract liability under s 232(2) is correct, in my opinion the primary judge's findings demonstrate that he did find the appellants to be subjectively dishonest in relation to the impugned transactions. Critically, his Honour held that: "135 I am left with the overwhelming impression from the evidence of these four defendants that, in circumstances where CTC had had no significant income for many years, the receipt of the $6,000,000.00 was seen as a golden opportunity for the payment to the director-related entities of Kamanga and Bisoya of significant sums of money for the benefit, ultimately, of the defendants themselves. I am of the view that the claims made in their affidavit and oral evidence that payments were made for the benefit of the company and its shareholders are no more than colourable after-thoughts. I do not accept their evidence in this regard. In particular, I am totally unpersuaded that any of these matters of justification for the payments were in the minds of the first, second and third defendants at the time the resolutions of 20 April 1998 were passed if, in fact, they were passed at a properly constituted meeting…. 144 In my opinion, the contraventions are amply demonstrated. In general terms, I am satisfied that the first, second, third and fourth defendants simply regarded the acquisition by CTC of the amount of $6,000,000.00 on 20 April 1998 as amounting, virtually, to a provision of funds for their own private use. The amounts covered by the transactions were paid out, in the form of fees or loans to related entities, without regard to the fact that the $6,000,000.00 itself was subject to repayment and also carried with it obligations to pay interest. Despite protestations in the case that shareholder approval was not required because of the attitude of shareholders in the past, I am of the view that the question of shareholder approval was not even considered in relation to any of these payments or loans. All that mattered was their own perceived entitlement to payment for past and future services." (emphasis supplied) 248 Those findings demonstrate that the primary judge was clearly of the view that the appellants' approval of the transactions was not bona fide and that they approved the transactions knowing that what they were doing was not in the interests of CTC. It is hardly remarkable that his Honour took the view that the appellants' versions of events were "no more than colourable after-thoughts" particularly in light of the fact that their explanations had not emerged during the stream of the correspondence between CTC and Ernst & Young. 249 Ground 21 should be rejected.

[165]

255 The primary judge held (at [114]) that the proceedings to which this passage referred were interlocutory and the ex tempore judgment, included in Exhibit "8", appeared to cast no light on Allan Endresz's submission. He concluded that "nothing emerged which could reasonably found a holding of bias, actual or ostensible." He regarded Mr Tutt "as an impressive witness, whose expert testimony could be completely relied upon". 256 The appellants submitted that in the light of the evidence of what they described as "Mr Tutt's conflict", his evidence "did not have that degree of impartiality which the Court should require before giving it weight". 257 In my view, the primary judge's conclusion that the appellants had not demonstrated bias on Mr Tutt's part was correct. The litigation to which paragraph 84 of Allan Endresz's affidavit referred was not a matter in which Mr Tutt was involved. It is true that it involved a subsidiary of RSA, but that fact alone was insufficient in my view to found any reasonable apprehension that he was biased against Allan Endresz, SSS or any of the other appellants. 258 Ground 12 should be rejected. 259 Ground 13 arises from this cross-examination of Mr Tutt. Allan Endresz also cross-examined Mr Tutt on this topic. Mr Tutt said he was not involved in the particular transactions, was not a director of the company involved and had become aware of the litigation two weeks before. The primary judge asked Allan Endresz why the questions were being asked. Having established that Allan Endresz sought to establish that Mr Tutt was biased, his Honour asked him whether he wanted to ask Mr Tutt any further questions. Allan Endresz said he did not. It is plain that, contrary to ground 13, the primary judge did not stop Allan Endresz cross-examining Mr Tutt. 260 Ground 13 should be rejected. 261 I have earlier set out Mr Tutt's evidence in detail. In summary he answered "No" to questions in relation to each transaction whether (a) a "careful and diligent director of CTC" would have caused or permitted the transaction, and (b) a director of CTC "acting honestly in the exercise of his or her powers and discharge of the duties of his or her office" would have caused or permitted the transaction, and "Yes" to the question whether (c) a director or employee by causing or permitting CTC to make the payment would have made "improper use of his or her position". 262 The appellants submitted that the primary judge should not have admitted Mr Tutt's evidence because it went to the ultimate legal issue. Alternatively, they argued his Honour should have excluded the evidence in the exercise of his discretion under s 135(a) of the Evidence Act 1995 (NSW) on the ground that its probative value was substantially outweighed by the danger that it might be unfairly prejudicial to the appellants. The appellants accepted that they did not object to the admissibility of Mr Tutt's evidence on this basis or make an application under s 135(a) at the trial. 263 While ASIC noted these submissions had not been advanced at trial, it did not formally object to the Court considering them. Rather, ASIC contended that evidence which went to the ultimate legal issue was not inadmissible: s 80 Evidence Act 1995 (NSW), which states that evidence of an opinion is not inadmissible only because it is about "an ultimate issue". 264 The appellants argued that the reference to "an ultimate issue" in s 80(a) means the ultimate fact in issue and not the ultimate legal issue to be determined by the Court. They relied upon Blackie v Police [1966] NZLR 910 at 919 - 920 where Turner J said: "I approach the problem with an acute sensibility that there is always danger in allowing an expert witness, or indeed any witness, to answer the very question which the Court is called upon to decide. Once this is done and an answer given which is accepted by the court, the chances of success on an appeal on fact are slight indeed, since there is direct and acceptable evidence on the very point at issue. The consequences of the answer may therefore be nothing less than disastrous from the point of view of the defendant. The only justification which can be advanced for allowing the question must be the impossibility or extreme difficulty of arriving at the truth in any other way; and even in such cases it is indispensable that there must be both a high degree of skill and a complete impartiality in the witness called." 265 The appellants pointed out that it has been held that the Court should reject expert opinion evidence that a solicitor was negligent: Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735 at 738; O'Brien v Gillespie (1997) 41 NSWLR 549 at 556 per Levine J. They submitted that an expert may not give an opinion on an ultimate issue where that involves the application of a legal standard, for example that a defendant is negligent: R W Miller & Co Pty Ltd v Krupp (Aust) Pty Ltd (1991) 34 NSWLR 129 at 130 - 131 per Giles J (as his Honour then was); Allstate Life Insurance Co v ANZ Banking Group Ltd (No 6) Allstate Judgment No 33) (1996) 64 FCR 79 at 84 per Lindgren J. See also Naxakis v Western General Hospital [1999] HCA 22; (1999) 197 CLR 269 at 306 per Callinan J [110]; Cross on Evidence (Aust ed) 29,058; Odgers Uniform Evidence Law (4th ed, 2000) 184 - 186. 266 In Allstate Life Insurance Co v ANZ Banking Group Ltd Lindgren J said: "... reference to the legislative background shows that the reference in s 80(a) [of the Evidence Act 1995 Cth] to the 'ultimate issue' was intended to refer to opinion by non-legal expert witnesses or non-expert witnesses on an ultimate issue of fact expressed in language which applies a legal standard." 267 In Barbosa v Di Meglio [1999] NSWCA 307 at [84] - [85] Priestley JA, after referring to this passage from Allstate Life Insurance Co v ANZ Banking Group Ltd and to O'Brien v Gillespie (1997) 41 NSWLR 549 pointed out (at [85]) that "neither Levine J nor Lindgren J was dealing with the application of s 80 to expert opinions of non-lawyers." His Honour appeared to be of the opinion that Lindgren J and Levine J's views should be confined to cases concerning expert evidence given by lawyers concerning the ultimate issue. Ultimately it was not necessary for him to express a considered view on the point. 268 ASIC drew attention to Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at 745 [89] where Heydon JA said "[t]hough Professor Morton's views often go to ultimate issues, they are not on that ground inadmissible: Evidence Act 1995 (NSW) s 80" and to R v GK [2001] NSWCCA 413; (2001) 53 NSWLR 317 at 326 - 327 where Mason P said: "[40] In New South Wales opinion evidence is not inadmissible only because it is about a fact in issue or an ultimate issue ( Evidence Act , s 80(a)). However, judges should exercise particular scrutiny when experts move close to the ultimate issue, lest they arrogate expertise outside their field or express views unsupported by disclosed and contestable assumptions (see Steffen v Ruban [1966] 2 NSWR 622 at 626, Arnotts v Trade Practices Commission (1990) 24 FCR 313 at 350-1, HG v The Queen (1919) 197 CLR 414 at 427-8, Makita )." 269 In Adler v ASIC, above, ASIC's expert dealt with questions which Giles JA described (at [617]) as going: "… fairly directly to the contraventions of the Act alleged in relation to the transactions. As an example, question 1 was, "Would a reasonably careful and diligent director of officer of HIH or HIHC in the position of Mr Adler have caused or procured the payment on 15 June 2000 of $10 million by HIHC to PEE?" 270 Giles JA said (at [622]) that the fact the expert evidence went "fairly directly to the contraventions did not make it inadmissible, see s 80(a) of the Evidence Act although care must be taken 'when experts move close to the ultimate issue'", referring to R v GK, above. He held (at [629]): "proper professional conduct in the sense of due care and obedience to customary practices and ethical rules [was] a field of specialised knowledge [and that] … a company director should have specialised knowledge and be able to speak of directors' duties of due care and proper conduct and their application". 271 The appellants submitted that Adler v ASIC went too far in holding that evidence as to such a question was admissible. Adler v ASIC is a recent unanimous decision of this Court. Mr Tutt's evidence was framed in almost identical terms to the evidence considered in Adler v ASIC. Adler v ASIC is, therefore, a binding authority directly contrary to the appellants' submission. It is consistent with the other Court of Appeal decisions to which I have referred. 272 As Austin J pointed out in Australian Securities and Investments Commission v Vines [2003] NSWSC 1095; (2003) 48 ACSR 291 at [27] expert evidence directed to answering a question of law or fact that is directly before the court for decision "… is likely to be inadmissible not because it goes to the ultimate issue, but because it will not be wholly or substantially based on the expert's specialised knowledge, or it will be irrelevant": Allstate Life Insurance Co v ANZ Banking Group Ltd (No 6) (1996) 64 FCR 79 at 83. 273 I would, however, express reservations about Mr Tutt being asked to express an opinion about whether the appellants had acted "honestly". If he was being invited to give evidence about the appellants' subjective state of mind any response would have been clearly inadmissible. However it is plain, in my view, that Mr Tutt was being asked to express an opinion based on the objective facts of each transaction as it applied to a careful and diligent director. 274 It was not suggested that Mr Tutt's evidence went beyond his expertise or, save as to one matter with which I deal below, was unsupported by the evidence: cf R v GK, above. 275 I was prepared to consider the appellants' ultimate issue argument because it raised only a question of law: cf Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1. However, I would not entertain the appellants' argument that the primary judge ought to have excluded Mr Tutt's evidence pursuant to s 135(e) of the Evidence Act: see Whisprun Pty Limited v Dixon [2003] HCA 48; (2003) 77 ALJR 1598 at [51]. 276 In my view, in any event, Mr Tutt's evidence had evidentiary value and was not of such little weight as to be excluded under s 135: see O'Brien v Gillespie, above, at 558. 277 Finally, in saying (at [114]) that he regarded "Mr Tutt as an impressive witness, whose expert testimony could be completely relied upon", the primary judge was dealing with the appellants' challenge to Mr Tutt based on the allegation that he was biased. He was not saying that he adopted Mr Tutt's evidence uncritically as to the ultimate legal issue concerning the contraventions. It is plain that the primary judge concluded that the appellants had contravened ss 232(2), (4) and (6) of the Corporations Law by applying the relevant legal principles to the facts as he found them. Although he accepted Mr Tutt's evidence, it was only one of the matters he took into account: see eg paragraph [146] of his judgment; and cf Australian Securities and Investments Commission v Vines, above, (at [29]). 278 Further, insofar as the appellants complain (Ground 14) that Mr Tutt considered provisions of the Corporations Act or post 1998 Corporations Law whereas the proceedings against the appellants were for alleged contraventions of the 1998 provisions of the Corporations Law, it is plain that that did not distract the primary judge from considering the issues under the relevant provisions of the Corporations Law. 279 Grounds 11 and 14 should be rejected.

[166]

Repayment of loans 280 The appellants complained that the primary judge overlooked the "undisputed evidence" that the loans in transactions 5, 6, 7 and 8 were repaid. This was said to go to the question of whether ASIC had proved the s 232 contraventions in relation to those transactions. It was also said to go to penalty. It was not the subject of a specific ground of appeal. 281 The "undisputed evidence" to which the appellants referred was an assertion in Allan Endresz's affidavit that the transactions had "been repaid in full as intended" and three pieces of correspondence between Kamanga and CTC respectively. It should be noted, in this context, that Kamanga was the trustee for the Allan Endresz Family Trust ("AEFT") from 1998 - 2001, while Bisoya was the trustee of the Forge Family Trust ("FFT"). 282 Transactions 5 and 6 were referred to in two documents. The first document was a letter on CTC's letterhead signed by Mrs Endresz addressed to the directors of Kamanga and dated 27 October 1999 which purported to confirm that the outstanding balance of the loan of $350,000 as at 27 October 1999 was $320,000 on the basis that principal of $30,000 was paid on 11 March 1999 and "interest in full was received on 26 November 1998". The letter also purported to vary the terms and conditions of the loan agreement by making the principal and interest payable upon determination of litigation in the ACT Supreme Court between CTC and the Commonwealth and to provide that simple interest payable at 7% per annum for the term of the loan calculated on monthly rests was payable at the time the principal was to be repaid. 283 The second document purported to be an "invoice" on Kamanga's letterhead dated 4 May 2001 described as "a reconciliation of account movements between Kamanga and CTC". It showed an amount of $391,583.41 said to be owed by CTC to Kamanga as at 3 May 2001 and then narrated: "LESS: Repayment in full of loan at call advanced by CTC to Kamanga on 27 October 1998 Being outstanding principal 27 October 1999 $ 320,000.00 Being interest for the period 27 November 1998 $ 54,496.44" to 4 May 2001 @ 7% per annum

[169]

286 As will be apparent from my description of the documents said to constitute evidence of repayment, the appellants did not seek to put forward any documents which constituted primary accounting records. 287 In contrast to this "evidence", it might be noted that in the financial accounts provided to the shareholders in connection with the ratification resolutions, the notes to the accounts for CTC's financial statements which the directors (Mr Barton and Mr Erdeljac) opined represented a true and fair view of CTC's financial position as at 30 June of each of the1999-2001 financial years showed in relation to "related party loans receivable": "$320,000 is owed by AEFT on normal commercial terms and is unsecured." 288 The same reports for the 1999 - 2002 financial years showed: "$75,000 is owed by FFT on normal commercial terms and is unsecured." 289 Thus whereas the "undisputed evidence" purported to show transactions 5 and 6 had been repaid as at 4 May 2001, according to the financial statements $320,000 was still owing as at 30 June 2001. Further, whereas the "undisputed evidence" purported to show transaction 7 had been repaid as at 1 March 2002, according to the financial statements that amount was still owing as at 30 June 2001. 290 ASIC did not object to the evidence of repayment at trial. Mr Stack submitted that the evidence did not demonstrate repayment but conceded that having regard to the fact it had been admitted before the primary judge his submission could only go to its weight. He described it as "close to the fairytale line of country". 291 In my view, it is unnecessary to determine whether the evidence demonstrated that the loans had been repaid. Even if that were the case it did not detract from his Honour's conclusion that, when made, the loans were made in breach of the Corporations Law. 292 If the loans had been repaid then that might, as Mr Biscoe QC submitted, be a matter which could be taken into account in dealing with penalty. The evidence in the financial statements to which I have referred was not before the primary judge, but would appear to cast some doubt on the "undisputed evidence" relied upon by the appellants. As will become apparent later in these reasons, in my view the issue of penalty should be remitted for reconsideration. The parties should take such course as they think fit at that stage in relation to this issue.

[170]

Related party transactions 293 The appellants' challenge to the primary judge's conclusion that they had breached s 243ZE of the Corporations Law (which I have earlier pointed out overlapped with a challenge to the conclusion that they had contravened ss 232(2), (4) and (6)) was: "7. On the evidence, his Honour erred in holding that the transactions contravened the statutory provisions and did not fall within the statutory exceptions and that no acceptable explanation had been given for them and that they could not properly be described as arms length transactions." 294 The appellants did not dispute the primary judge's conclusion that Kamanga and Bisoya were related parties. They complained, however, that his Honour had not addressed the questions posed by s 243K and s 243N, whether the terms and conditions of the financial benefit were no more favourable to the related party than those on which it was reasonable to expect CTC would give the benefit directly if dealing with the related party at arm's length in the same circumstances. 295 The appellants made two complaints about the primary judge's conclusions that neither the s 243K or the s 243N exceptions had been established. 296 First, they argued that his Honour misconstrued s 243K on the basis that the reference to "a person in a capacity as an officer" was apposite to apply to a corporate service entity which the officer controlled. They relied upon the definition of "person" in s 85A of the Corporations Law which included a "body politic or corporate as well as an individual". 297 ASIC submitted that the word "person" in s 243K could not be read in isolation from the words in "a capacity as an officer of the body …". It referred to the definition of an officer of a corporation in s 82A of the Corporations Law which relevantly includes "a director, secretary, executive officer or employee of the body or entity …" but does not include either a "body politic or corporate". 298 ASIC also submitted that the primary judge's conclusion that the appellants had failed to satisfy the s 243K exception was entirely correct in circumstances where they had failed to adduce any evidence to support the proposition that transactions 1 - 4 constituted "reasonable remuneration". 299 I do not accept ASIC's submission in its entirety. The appellants did seek to justify transactions 1 - 4 on the basis that the management fees were "reasonable remuneration" in the circumstances of their hard labours on behalf of CTC, however, the primary judge rejected that explanation (at [120] - [125]). He accepted Mr Walsh's statement that he had never received evidence which established that the fees were either validly incurred or commercial. 300 In my view the primary judge was entitled to accept that evidence and conclude that the s 243K exception had not been established. 301 Insofar as s 243N is concerned ASIC submitted that the appellants did not elicit any evidence that any of the transactions was provided to the related parties "on terms and conditions no more favourable to the related party than those on which it [was] reasonable to expect [CTC] … would give the benefit directly if dealing with the related party at arm's length in the same circumstances". In my view, that submission is correct. That, in essence, is what the primary judge said when he held (at [122], [136], [137] and [139]) that there was "nothing that satisfies me that the transactions could be regarded as at arm's length". 302 In the light of my conclusion that the primary judge was correct in concluding that the appellants had not established transactions 1 to 4 constituted "reasonable remuneration" or were at "arm's length" it is not necessary to determine the question whether the appellants' submission that "person" in s 243K can include a body corporate is correct. 303 Ground 7 should be rejected.

[172]

On the grounds stated above, his Honour should have dismissed the proceedings or granted the appellants' application for a stay of proceedings or stayed his said directions." 305 A related ground appeared to be that: "18. It having been indicated to his Honour by Allan Endresz that affidavits had not been filed as directed by the Court to achieve protection against self-incrimination in view of the pending criminal proceedings [transcript 11 March 2002 page 8] and it not having been put to Allan Endresz that it had been calculated to achieve an advantage for the defendants, his Honour should not have held that Allan Endresz had disregarded the direction to file affidavits with the calculation of achieving an advantage for the appellants [paragraph 66]." 306 While the written submissions suggested these grounds were addressed to the primary judge's first judgment, it emerged as they were developed, both in written submissions and orally, that they revolved around the manner in which the primary judge dealt with the appellants' application to file evidence made at the close of ASIC's evidence. By that stage, despite consent directions made on 4 June 2001 (at a time when the appellants had legal representation) requiring them to file and serve affidavits before the trial commenced, no evidence had been filed or served on their behalves. 307 Allan Endresz was then given leave to file affidavits on behalf of the other appellants and himself. This necessitated an adjournment. 308 ASIC's response to these grounds of appeal is that the appellants consented to the order that they file affidavit evidence and did not raise the issue of penalty privilege. 309 Mr Biscoe QC contended in response that ASIC should have drawn the existence of the privilege to the primary judge's attention and to the attention of the, by then unrepresented, appellants. 310 He submitted that the proposition that there was a privilege against filing affidavits in advance of ASIC's case in civil penalty proceedings had been upheld by Sackville J in Australian Competition and Consumer Commission v Amcor Printing Papers Group Limited [1999] FCA 672; (1999) 163 ALR 465 following Heerey J in Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 2) (1997) 77 FCR 217; see also Australian Securities and Investments Commission v Plymin [2002] VSC 56; (2002) 4 VR 168; Australian Competition & Consumer Commission v FFE Building Services Limited [2003] FCAFC 132; (2003) 130 FCR 37; cf Sidebottom & Anor v Commissioner of Taxation of the Commonwealth of Australia [2003] VSCA 2; (2003) 173 FLR 335. 311 ASIC relied upon Adler and Anor v Australian Securities and Investments Commission; Williams v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 at [678] where this Court had held that the principle of prosecutorial fairness which applies in criminal trials did not apply to proceedings the legislature has declared are to be conducted as civil proceedings: see s 1317ED, Corporations Law, s 1317L Corporations Act. 312 Mr Stack also submitted that when the proceedings were before the primary judge the law was uncertain as to whether there was a privilege against filing statements in civil penalty proceedings, a position he suggested persisted at the date of hearing the appeal, referring to Sidebottom & Anor v Commissioner of Taxation, above. 313 The appellants also suggested, somewhat faintly, that the primary judge erred in overlooking the availability of penalty privilege. However it should be noted that when the appellants did raise the "right to silence" issue to which ground 18 appeared to relate, it was in the context of an application that the proceedings be stayed because of criminal proceedings relating to secret commissions (apparently connected to the receipt of the $6,000,000.00) and civil proceedings (for the recovery of the $6,000,000.00) which were pending in the Australian Capital Territory. At that stage the primary judge noted that the appellants had neither identified their defence to ASIC's claims nor put on any evidence. They were not complaining of the order that they file affidavits. Indeed the primary judge concluded that they were prepared to allow the matter to proceed ex parte: judgment, 12 March 2002, p 10. 314 The primary judge observed (at [66]): "Allan Endresz could have been in no doubt as to the Court's prior directions. His disregard of them was, in my view, quite deliberate and calculated to achieve an advantage for the defendants." 315 Mr Biscoe QC submitted that the primary judge ought not to have formed an adverse view of Allan Endresz when he had exercised a recognised legal right. He also contended that the criticism the primary judge had directed to Allan Endresz in this respect had extended to all the appellants because "the judge rather equated everybody with Allan Endresz". 316 Mr Biscoe QC submitted that the effect of the appellants having been required (wrongly in his submission) to file affidavits led to the primary judge making an adverse view of the appellants which coloured his assessment of their credibility to such an extent that his determinations should be set aside. 317 In my view these grounds of appeal should be rejected. It was not until the close of ASIC's case that the appellants said, in effect, that despite their non-compliance with the June 2001 directions, they wanted to file affidavits. By that stage the time had passed when a point might have been made, whether by ASIC or the appellants, that the penalty privilege principles to which I have referred meant that, most probably, the order for the filing of affidavits by the appellants should not have been made. 318 However the appellants were not cognisant of that point of principle. Rather they had, as his Honour was in my view entitled to conclude, to all intents and purposes deliberately flouted a court order. His Honour was equally entitled to conclude, based on his observations of at least Allan Endresz, that he had flouted the Court's order in a manner "calculated to achieve an advantage for the defendants." Moreover, although it is true that the primary judge made remarks which were critical of Allan Endresz in this respect, they were, in the scheme of things, de minimis in the light of his Honour's adverse conclusions concerning Allan Endresz's credit which he formed after observing him giving oral evidence (see [69]). I also do not accept Mr Biscoe QC's submission that the primary judge drew adverse inferences against all the appellants based on the non-compliance with the direction to file affidavits. 319 Finally I note that ground 6 was not addressed in either the appellants' written or oral submissions and, although not formally abandoned, was clearly not pressed.

[175]

326 ASIC submitted that Labrador had no relevance to the appeal. 327 I have earlier concluded that his Honour had found that each appellant had knowledge of all the material facts of the transactions. Further, in my view there is no basis for suggesting that Foster AJ did not do as he said and bear in mind that proof to the Briginshaw standard was required. 328 Ground 16 should be rejected. Ratification: introduction 329 The appellants also sought to reverse the primary judge's decision on the basis that this Court "should hold that CTC's shareholders have ratified the transactions whereby the alleged contraventions cannot be maintained" (Ground 21A). 330 Over ASIC's objection the Court admitted evidence tendered by the appellants which they said demonstrated that the shareholders of CTC had ratified all the transactions on 26 June 2003. The evidence was in the form of an affidavit of Mr Richard Barton, a director of CTC, sworn on 27 June 2003. The appellants also tendered the transcript of proceedings before Finn J in the Federal Court on 24 April 2003 in winding up proceedings between ASIC and CTC (ASIC v CTC Resources NL, Federal Court of Australia, No A3001/2002). 331 The Court admitted the evidence concerning ratification reluctantly, having regard to the appellants' lack of diligence in bringing forward the issue. The Court was strongly inclined to the view that the appellants had elected to conduct the trial on the basis that the transactions had not been ratified and that it was too late to seek to change the outcome by post judgment ratification. It admitted the evidence, however, because ASIC was on notice of the use to which the appellants would seek to put the ratification evidence by its participation in the Federal Court winding up proceedings and did not oppose that course. Thus, as Mr Biscoe QC submitted, it was arguable that a Verwayen type estoppel arose in the appellants' favour at least concerning their ability to seek to pray the ratification evidence in aid on appeal. 332 Mr Biscoe QC submitted that on the basis of the ratification evidence the Court should either treat the fact of ratification as absolving the appellants of any contraventions of the Corporations Law or as constituting a mitigating factor on penalty. 333 ASIC submitted that the purported ratification was ineffective because it was too late, was not based on full disclosure of the material circumstances and prejudiced the interests of, at least, the Commonwealth in relation to its $6,000,000.00. It also submitted the purported ratification was ineffective because CTC's shareholders could not ratify contraventions of the Corporations Law.

[176]

Ratification: the evidence 334 The concept of seeking to ratify the contraventions appears to have emerged in the Federal Court winding up proceedings to which I have referred. The evidence upon which the appellants relied was that on 26 June 2003, at the adjourned EGM, CTC's shareholders had ratified the transactions with the 17% shareholders in CTC, Mr Endresz, Allan Endresz and Mr Forge abstaining from voting. 335 The information provided to CTC shareholders for the 26 June 2003 EGM was said to accord with directions and undertakings given in the Federal Court winding up proceedings before Finn J. It is not clear how the ratification issue came to be the subject of directions and undertakings in the Federal Court winding up proceedings. Nothing turns on that save for the fact, as I have already said, that it put ASIC on notice that a course was being pursued by the directors of CTC which was plainly intended to seek to defeat these proceedings. 336 According to Mr Barton's affidavit the original ground for the winding up application was that CTC had not appointed replacement directors following the orders banning the appellants from acting as directors made in these proceedings. It had originally been intended to put the ratifying resolutions to an Extraordinary General Meeting of CTC in December 2002. However in November 2002 Finn J directed that the ratifying resolutions could not be put to the shareholders until they were given up to date financial information. 337 On 14 December 2002, Mr Barton and a Mr Michael Erdeljac and Mr Sean McShane were elected directors of CTC at the December EGM. That EGM was then adjourned in order to comply with Finn J's directions. 338 In anticipation it appears of the ratifying resolutions being put to the December 2002 EGM and before Finn J's directions, a letter signed by Mr Barton and Mr Erdeljac was provided to CTC's shareholders. It included the following statements: "… CTC is under siege. Although we have provided full details in the attached Explanatory Statement, it is suffice [sic - as in original] to say that … ASIC is seeking to wind up CTC. If the 1998 transactions, election of directors, change of registered office, $200,000 capital raising and opposition to ASIC wind up application resolutions are not approved, CTC will be wound up and we will lose our substantial capital investment and any prospects of recovery through litigation against the ASX and Commonwealth." 339 The Explanatory Statement which accompanied this letter included the following statements: "Since 20 December 1989, Mr William Forge, Mr Jozsef Endresz, Mrs Dawn Endresz and Mr Allan Endresz ("Former Directors") tirelessly devoted their time and money to steer [CTC] through some turbulent periods to make "CTC Premium Bonds" a commercial reality. For the first 9 of those years, they received no remuneration …[the Explanatory Statement then referred to litigation the Commonwealth had commenced to recover the $6,000,000.00] … Simultaneously, the Commonwealth alleges that the Former Directors had "skimmed" or "siphoned" off millions of dollars within days of the alleged fraud. Contrary to these statements, the payments made by the Company were on arm's length terms representing reasonable remuneration ($82,000 per annum for each of Jozsef, Dawn and Allan Endresz over 9 years and $65,000 per annum for William Forge over 4 years) and unsecured loans subsequently repaid in full with interest at commercial rates. … Funded by the secured creditor, the Allan Endresz Family Trust (presently owed $234,033.41), the Company launched a US$4.3 Billion damages counter claim against the Commonwealth … SHAREHOLDERS ARE URGED TO VOTE IN FAVOUR OF ALL RESOLUTIONS TO SEND A CLEAR AND UNEQUIVACLE [sic -as in original] MESSAGE TO THE COMMONWEALTH THAT: · THE 1998 TRANSACTIONS WERE AT ARMS LENGTH AND COMMERCIAL ; · THE COMPANY MUST NOT BE WOUND UP; AND · THE US$4.3 BILLION DAMAGES CLAIM WILL BE VIGOROUSLY PURSUED." … [Under a heading referring to the present proceedings] … Due to financial restraints imposed by defending simultaneous criminal proceedings in the ACT Supreme Court detailed above, Mr Allan Endresz represented himself and the other Former Directors… My fellow shareholders can rest reassured that the Company, Former Directors, advisors, lawyers and nominated directors are determined more than ever to succeed with the US$4.3 Billion damages counter claim and ASX damages claim. LEAVE NOTHING TO CHANCE, VOTE IN FAVOUR OF ALL RESOLUTIONS ." [emphasis in original] 340 Notwithstanding the appointment of the new directors in December 2002, ASIC persisted with its winding up application, contending that financial and audited accounts for CTC had not been lodged for the year ended 30 June 1998 and subsequent years. 341 After Finn J's November 2002 directions and apparently in anticipation of the adjourned EGM to consider the ratifying resolutions being held on 26 April 2003, Mr Barton arranged for the shareholders to be provided with the following information:

[182]

(d) An Opinion from a Canberra counsel which the author appears to have understood he was retained to provide on the basis that Finn J had expressed the view that the resolutions purporting to ratify the transactions should not be placed before the shareholders unless they were "fully informed". It is not necessary to set out the opinion in any detail. It is sufficient to note that while counsel was of the view that s 239 of the Corporations Act implicitly permitted a Court to take into account ratification, he also expressed the opinion that it was unusual for shareholders to ratify conduct which had already been held to contravene a statute, let alone in circumstances where that ratification might prejudice the company's existing creditors when the company was insolvent or near insolvent. He referred to Kinsela v Russell Kinsela Pty Limited (in Liq) (1986) 4 NSWLR 722 and Nicholson v Permakraft (NZ) Ltd (in Liq) [1985] 1 NZLR 242. Counsel also referred, albeit obliquely, to the effect of the proposed ratification on any subsequent attempt by CTC to sue one or some of the persons involved in the transactions. He said: "It is possible, and indeed probable that, in the event of the proposed ratification occurring, and then later … CTC wishes to sue one or some of the persons as involved in the transactions referred to in Foster AJ's decision, such a defendant might well seek to raise an estoppel against the company, based upon the ratification. However, that would appear to be adequately dealt with by the provisions of s 239(1) and (2), whereby the Court is not bound to find for such a defendant and by s 239(2) the Court must have regard to how well informed members were and also whether the ratifying members were acting for proper purposes. " (italics in original) 344 The ratification resolutions in relation to transactions 1 and 2 (resolutions 2 and 3) took a common form to the following effect: "That, for the purposes of the Corporations Act 2001, the Company confirms and ratifies the payment [the details of the transaction were set out] being past management fees calculated [the basis of calculation was set out]." 345 The ratification resolutions in relation to transactions 3 and 4 (resolutions 8 and 9) again took a common form using the introductory phrase set out above then referring to the respective payments and describing them as "consultancy fees for the months of May 1998 and June 1998". 346 Insofar as transactions 5 - 8, the unsecured loans, were concerned, the ratification resolutions (resolutions 12 - 15) again took a common form using the introductory phrase set out above, referring to the details of each loan and concluding with the phrase "being an unsecured loan subsequently repaid in full with interest". 347 On 26 June 2003 the special resolutions purporting to ratify the impugned transactions were carried at CTC's EGM (the "ratification resolutions"). The minutes record that the Chairman, Mr Erdeljac, informed those present that the resolutions had previously been adjourned to provide the shareholders with information as directed by Finn J and that "the orders of Finn J had been complied with". 348 Mr Barton said in his affidavit that the Commonwealth had been given notice of the Extraordinary General Meetings. He did not say whether the materials provided to the shareholders to which I have referred were provided to the Commonwealth. 349 Mr Barton was cross-examined by Mr Stack. He was asked whether he had sought any advice as to whether CTC was entitled to seek compensation from the appellants. He agreed he had received legal advice that CTC was entitled to commence proceedings against the appellants for the recovery of the monies that had been paid to them in circumstances found to have constituted breaches of the appellants' duties to CTC. He said that no such proceedings had been commenced: "… because there's been an injunction over the assets, basically a freezing of assets and our direction was more focused on receiving or pursuing avenues that would be more - would be profitable in the way of recovery to the company, that is the ASX case - damages case in principle, and the litigations - actions."

[183]

Ratification: the appellants' submissions 350 The appellants relied upon Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 150 where Lord Russell said of the Regal directors who had committed a breach of fiduciary duty "[t]hey could, had they wished, have protected themselves by a resolution (either antecedent or subsequent) of the Regal shareholders in general meeting". They also referred to Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285 at 295 where Mason, Deane and Dawson JJ said of a director who had committed a breach of his fiduciary duties in issuing shares for an improper purpose (to ensure his former wife and their daughters would not gain control of the company on his death), that "any ratification of the purported allotment of shares would need to have been by the company acting through its shareholders". 351 They also submitted that even if directors had acted in bad faith and from an improper motive in making an allotment of shares, any such impropriety could be and had been waived by a majority of the votes of shareholders at a general meeting relying on Bamford v Bamford [1970] Ch 212 which was applied by the Court of Appeal in Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666. They referred to Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583 at 592.4 where Rich, Dixon and Evatt JJ said: "Except under the authority of the provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all the material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so, or all the shareholders acquiesce". 352 They also relied upon Whitlam v Australian Securities & Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559 at [153] where Hodgson JA, Ipp JA and Tobias JA said in their joint judgment: "153 … Even in voting their own shares, directors do not generally owe a duty to act in the interests of the company. In North-West Transportation Co Ltd v Beatty (1887) 12 App Cas 589, the Privy Council found to be legitimate the narrow approval by shareholders of a contract between a director/shareholder and the company to buy a boat from him, in circumstances where most of the votes cast in favour of the resolution were those of the director/shareholder himself. The Court found that all shareholders, including a majority shareholder, are entitled to vote in the manner they wish, provided it is not unfair, improper, illegal, fraudulent or oppressive towards those shareholders opposing the resolution: see H A J Ford, R P Austin & I M Ramsay , Ford's Principles of Corporations Law , 11th ed (2003) Sydney, LexisNexis Butterworths, at 548. As there noted, that decision has not been departed from in Australia, although there may be circumstances in which a director/shareholder may come under a fiduciary duty to other shareholders (see Brunninghausen v Glavanics (1999) 46 NSWLR 538), and there have been some statutory qualifications to the principle." 353 The appellants drew attention to the conflicting authorities with respect to ratification of breach of directors' statutory duties. They referred to Miller v Miller (1995) 16 ACSR 73 at 89 where Santow J stated that: "ratification cannot cure a breach of statutory duty, more especially one imposing criminal liability …" 354 They submitted the "contrary and preferable view" was that expressed in Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737 at 772 per Debelle J that: "There is, however, a nice question whether shareholders can relieve a director from a breach of his duties. But, as the statutory duties reflect the duties of a director at common law and in equity, I do not think there is any impediment to the shareholder excusing a breach of statutory duty". 355 Finally the appellants submitted that members of a solvent company have wide freedom to take honest but stupid business risks in authorising or ratifying acts of directors provided the acts are not fraudulent, referring to Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services Ltd [1983] Ch 258 per Lawton and Dillon LJJ, Pascoe Ltd (in liq) v Lucas [1999] SASC 519; (1999) 75 SASR 246; (1999) 33 ACSR 357 at 384 - 88; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 732G, Ford's Principles of Corporations Law 11th ed 2003 [8.394] and Gower's Principles of Modern Company Law (6th ed 1997). 356 The appellants submitted that the evidence demonstrated that CTC was solvent when the ratification resolutions were passed. They said the accounts showed that all current liabilities had been paid. In particular they contended that the $6,000,000.00 received from the Commonwealth in April 1998 (which was still outstanding) was a non-current liability and was not payable except out of profits or a share issue for that purpose. It would be fair to say that the justification given for the latter stance was somewhat convoluted. 357 The appellants accepted that the 600,000 redeemable, convertible, non-cumulative, non-voting preference shares which they had "issued" to the Commonwealth on receipt of the $6,000,000.00 were redeemable for $10 cash four years from the date of issue and carried rights to an annual, non-cumulative, preferential dividend of 6.5% paid annually. They argued that at the time the moneys were received s 192(2) of the Corporations Law provided that a company should not redeem preference shares except out of profits that would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purposes of the redemptions. Section 192(4) provided that any premium payable on redemption was payable only out of profits or out of the share premium account. 358 The appellants accepted that, in accordance with Accounting Standard AASB 1033 (effective from January 1998), the $6,000,000.00 should be treated as a liability rather than as equity. They contended that Ernst & Young erroneously showed the $6,000,000.00 as a current liability in the 30 June 1998 balance sheet audited in March 2003. They contended that the $6,000,000.00 should have been shown as a non-current liability because it was not redeemable until 17 April 2002. Whereas the 30 June 1998 balance sheet showed that the share premium account stood at $1,378,951.00, the appellants submitted that that was not the relevant time for looking at the share premium account because the shares were not redeemable until 17 April 2002. 359 Next, the appellants pointed out that on 1 July 1998 s 192 was repealed and replaced by, inter alia, ss 254C, 254K and 1447 of the Corporations Law. Section 254C provided that shares of a company have no par value. Consequently, it was no longer possible to issue shares at a premium. Section 254K(b) provided that a company may only redeem redeemable preference shares out of profits or the proceeds of a new issue of shares made for the purpose of the redemption. Section 1447 provided that a company may use the amount standing to the credit of its share premium account immediately before commencement of the new legislation to provide for the premium payable on redemption of redeemable preference shares immediately before commencement. 360 The Corporations Act retained the old ss 254C and 254K but had no provision equivalent to s 1447. Thus, the appellants submitted that, on 17 April 2002 when the Commonwealth preference shares were redeemable, in law they were only redeemable out of profits or the proceeds of a new issue of shares made for the purpose of redemption: they were not redeemable out of the share premium account. As a matter of fact they were not redeemable because CTC had no profits and there had been no new issue of shares for the purpose of redemption. Thus, the appellants argued the preference shares were a long-term (i.e. non-current) liability and correctly treated as such in the 30 June 2002 accounts audited by Mr Fuller. 361 Equally the appellants argued the annual dividends attaching to the preference shares were only lawfully payable out of profits and if declared by the company in general meeting: ss 254T and 254V Corporations Act; CTC Article 122. Being non-cumulative dividends, any possibility of a dividend for a particular year lapsed if there was no profit that year or no declaration was made to pay the dividend for that year out of that year's profits.

[190]

(g) the ratification resolutions were not approved by the Commonwealth. 363 ASIC pointed out that on 17 April 1998 CTC sent a letter to the Commonwealth which confirmed that it had been issued with 600,000 non-voting redeemable convertible non-cumulative "A" class preference shares at an issue price of $10 per share with $0.01 as par value and $9.99 as premium. In accordance with paragraph 6(b) of CTC's Article 2A in a winding up of CTC the Commonwealth's entitlement to the redemption amount was payable in priority to all holders of all other classes of shares. 364 It drew attention to the fact that in 1999 the Commonwealth had commenced proceedings in the Supreme Court of the Australian Capital Territory against CTC and the appellants (among many others) (the "recovery proceedings") claiming that the $6,000,000.00 had been misappropriated in April 1998 and seeking numerous orders, including a declaration that that payment was void and illegal and an order that each defendant repay the monies received by that defendant. 365 ASIC submitted that the effect of the ratification by the majority of the shareholders in CTC constituted a fraud on the minority shareholders, including the Commonwealth, because ratification sought to prevent the Commonwealth from being able to recover from the appellants the monies which they had wrongly received from CTC. 366 ASIC also submitted that ratification would be ineffective where a company was insolvent or close to insolvency and the ratification may prejudice the interests of third parties. 367 ASIC submitted that there could be little doubt that CTC "was insolvent, or near insolvent, or of doubtful solvency" based upon the most recent version of CTC's accounts for the financial year ending 30 June 2002. It contended that even if the Commonwealth was only a shareholder, as a priority shareholder its interests had to be considered. 368 It contended that CTC's 1998 accounts were incorrect in that they did not include an entry for the share premium received by CTC from the Commonwealth, being $5,994,000. ASIC submitted that ss 191 and 192 of the Corporations Law (which continued to operate pursuant to s 1447 of the Corporations Act) and Chapter 10 of the Corporations Act provided, in effect, that the Commonwealth was entitled to the repayment of its premium out of the share premium account as well as out the profits of CTC. On that basis ASIC contended that if the 1998 accounts had treated the issue of shares as a liability, CTC's liabilities exceeded its assets by $4,297,277. 369 Further, ASIC submitted that ratification was not possible for the related party transactions. It contended that ss 243Q to 243X of the Corporations Law demonstrated a scheme which only enabled shareholder approval for the related party payments before the payment was made. It submitted that ratification after the payment could not override the statutory scheme.

[194]

374 Further, in Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 at 438 the Court (Williams ACJ, Fullagar and Kitto JJ) observed that: "But the powers conferred on shareholders in general meeting and on directors by the articles of association of companies can be exceeded although there is a literal compliance with their terms. These powers must not be used for an ulterior purpose. 'The term fraud in connection with frauds on a power does not necessarily denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term or any conduct which could be properly termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power'…Voting powers conferred on shareholders … must be used bona fide for the benefit of the company as a whole. In Greenhalgh v. Arderne Cinemas Ltd . … Evershed M.R., in a case relating to a special resolution altering the articles of association, said: 'In the first place, I think it is now plain that 'bona fide for the benefit of the company as a whole' means not two things but one thing. It means that the shareholder must proceed upon what, in his honest opinion, is for the benefit of the company as a whole. The second thing is that the phrase, 'the company as a whole,' does not (at any rate in such a case as the present) mean the company as a commercial entity, distinct from the corporators: it means the corporators as a general body. That is to say, the case may be taken of an individual hypothetical member and it may be asked whether what is proposed is, in the honest opinion of those who voted in its favour, for that person's benefit' " 375 After pointing out (at 439) that "[s]hareholders even where they are also directors … as individuals in general meetings can usually exercise their votes for their own benefit" the Court noted that the shareholders' freedom in this respect was limited by "those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities [and] must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded." The Court continued (at 439), in a passage relied upon by ASIC: "Nor can the majority of shareholders exercise their voting power in general meeting so as to commit a fraud on the minority. They must not exercise their vote so as to appropriate to themselves or some of themselves property, advantages or rights which belong to the company." 376 In my view the ratification resolutions were ineffective because they sought to cure the appellants' wrongful taking of CTC's resources. Further, the shareholders did not exercise their voting power for the benefit of the company as a whole in the sense referred to in Ngurli Ltd v McCann. The Commonwealth either remained a preference shareholder or was a creditor of CTC if it had validly rescinded the preference share allotment. The shareholders were not asked to take into consideration the interests of the Commonwealth either as a preference shareholder or as a creditor in recouping its $6,000,000.00. Indeed they were encouraged to focus on the claims CTC had against the Commonwealth. 377 I also note that "[r]atification is not effective where to permit it would unfairly prejudice a third party": Bowstead & Reynolds on Agency (Sweet & Maxwell, 17th ed, 2001 - "Bowstead & Reynolds") article 19. The ratification resolutions, if effective, could have the effect of depriving CTC of its right to recover the monies paid away pursuant to the transactions. This could in turn prejudice the Commonwealth in pursuing its rights in the recovery proceedings against CTC in relation to the $6,000,000.00.

[195]

Ratification: breach of statutory duty 378 Different views have been expressed as to whether ratification can be effective where a court has found directors have acted in breach of their statutory duty. In Miller v Miller, above, at 89 Santow J said (without referring to authority): "It is also clear enough that ratification cannot cure a breach of statutory duty, more especially one imposing criminal liability. The most it can do is remove from the scope of technical dishonesty such actions as issuing shares for a purpose which is not a proper one, in the sense of not being for the benefit of the company as a whole." 379 The Full Court of South Australia (Doyle CJ, Prior and Vanstone JJ) referred to Santow J's statement with approval in Carabelas v Scott [2003] SASC 389; (2003) 177 FLR 334 at [49]. (Special leave to appeal to the High Court was granted on 11 August 2004: see HCATrans 295). 380 A different view was expressed by Debelle J in Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737 at 772 (appeal dismissed on other grounds: [1999] SASC 519; (1999) 75 SASR 246; (1999) 33 ACSR 357) albeit as obiter and without referring to Miller v Miller. His Honour said that "as statutory duties reflect the duties of a director at common law and in equity, I do not think that there is any impediment to the shareholders excusing a breach of statutory duty." The proceedings were not civil penalty proceedings. 381 Mr Biscoe QC submitted that ASIC brought the civil penalty proceedings to protect CTC. That is incorrect. That was only one of the purposes. Another important purpose of the proceedings was to ensure that officers of a company who contravene corporations legislation in the manner found by the primary judge are barred from having that opportunity again, not only in relation to the company of which they were an officer at the time of the transactions, but also in relation to other companies. In this sense civil penalty proceedings involve public rights. The shareholders cannot remove the declaration of contravention by ratifying the original acts. Once a declaration of contravention is made, the Court is entitled to act upon its finding to grant the relief ASIC seeks. 382 It is relevant in this context to note that s 1317JA of the Corporations Law empowered the Court to relieve a person from liability where it appeared that the person had or may have contravened a civil penalty provision. Relief was only available where, inter alia, the person had acted honestly. Section 1317JA supports the proposition that contraventions of the civil penalty provisions cannot be ratified by shareholders. The only relief available to escape liability is that for which the legislature provided. 383 Having regard to the primary judge's conclusion that each of the appellants had failed to act honestly in relation to the transactions the Court could not have relieved them from their liability for the contraventions pursuant to s 1317JA. In my view this supports Santow J's approach in Miller v Miller. 384 I would conclude that even if the shareholders could, contrary to what I have already found, ratify the private law breaches of the directors' duties, the ratification resolutions were ineffective to cure the breaches of statutory duty.

[207]

400 Further, CTC also had remedies in equity against the appellants to recover any profits made in breach of their fiduciary duty: see Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583 and Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626 at 632. 401 In this context it should be recalled that the shareholders were told both in the directors' letter and in counsel's opinion that Finn J was concerned they be "fully informed" prior to considering the ratification resolutions. They were entitled to assume that Finn J's concern was addressed in the information they were given. Yet the shareholders were not told of CTC's rights against the appellants pursuant to s 1317HD or its rights in equity. Nor were they told that the effect of the ratification resolutions, if effective, could be that they would lose those rights. This omission is egregious standing alone. It is of particular concern when it is appreciated that Mr Barton had received legal advice that CTC was entitled to commence proceedings against the appellants for the recovery of the monies that had been paid to them. He did not ensure that advice was placed before the shareholders. Although counsel's opinion referred to the possibility of CTC wishing to sue one or some of the appellants, it did not identify the nature of such an action - in particular that such an action could lead to CTC recouping the management fees and retainers paid under the first four transactions (assuming for present purposes in the appellants' favour that the four loans were repaid). The information provided to the shareholders embellished the prospects of recovering damages in the order of billions of dollars from the ASX and the Commonwealth, but failed to mention the most obvious means of recouping CTC's assets. 402 In my opinion it was necessary for the ratification to be effective that the shareholders be fully informed both of CTC's rights consequent upon the declarations of contravention and that the effect of the ratification resolutions could be that CTC would lose both its statutory and equitable rights. The shareholders were never given that information. Accordingly, in my view the disclosure to CTC's Extraordinary General Meeting was inadequate. The ratification resolutions could not waive the consequences of the contraventions and were, therefore, ineffective.

[220]

15 The first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 16 The first defendant, second defendant and third defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 17 The first defendant, second defendant and third defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 18 The sixth defendant has, by receiving $10,833.34 from CTC Resources N.L. ACN 009 061 036, on or about 28 May 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 19 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 20 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 21 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036.

[229]

35 The first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036." 406 The primary judge acceded to ASIC's application for banning orders pursuant to s 1317EA(3)(a) of the Corporations Law. He concluded (at [153]) that although Allan Endresz's contraventions were fewer in number than those of the first, second and third defendants, they were significantly more serious. He found that Allan Endresz was "in effect, the leader in the series of contraventions in which he was involved, relating to the disbursement of the monies received on 20 April 1998" and "also … a willing participant in the later payments and loans to Kamanga." He concluded that Allan Endresz had "shown a distinct pre-disposition to flout the law, having regard to his earlier convictions" and that "his total lack of contrition and his generally arrogant attitude towards these proceedings, do not suggest that he is likely to restrain himself from committing commercial misdemeanours in the future." Although he took into account the view of CTC's auditor, Mr Walsh, that Allan Endresz was not actually dishonest (a view his Honour regarded as "perhaps over benign"), he held that the period of prohibition should be substantial. He ordered that Allan Endresz be prohibited from managing a corporation for sixteen years from the date of his judgment. 407 In relation to the other individual defendants the primary judge concluded (at [154]) that their continuance in corporate management would pose a lesser, nevertheless significant, threat to the public interest. He found that "each was significantly wanting in the discharge of his and her duties as director of [CTC] and [had] demonstrated no proper understanding of what those duties required". He ordered that each should be prohibited from managing corporations for a period of eight years from the date of his judgment. 408 His Honour considered that the contraventions were sufficiently serious to warrant the imposition of the following pecuniary penalties pursuant to s 1317EA(3)(b): "Transaction 1, He imposed a pecuniary penalty of $120,000 upon Allan Endresz, William Forge, Jozsef Endresz and Dawn Endresz,. Transaction 2, He imposed a pecuniary penalty of $30,000 upon each of William Forge, Jozsef Endresz, Dawn Endresz and Bisoya Pty Limited. Transaction 3, He imposed a pecuniary penalty of $10,000 upon William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz. Transaction 4, He imposed a pecuniary penalty of $5,000 upon each of William Forge, Jozsef Endresz, Dawn Endresz and Bisoya Pty Limited. Transaction 5, He imposed a pecuniary penalty of $30,000 upon each of William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz. Transaction 6, He imposed a pecuniary penalty of $20,000 upon each of William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz. Transaction 7, He imposed a pecuniary penalty of $10,000 upon each of William Forge, Jozsef Endresz, Dawn Endresz and Bisoya Pty Limited. Transaction 8, He imposed a pecuniary penalty of $20,000 upon each of William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz."

[236]

Separate hearing on penalty: consideration 410 Both ASIC and the appellants provided written submissions to the primary judge to which they then spoke. ASIC's written submissions addressed both the issues of contravention and penalty. The appellants' written submissions only addressed the issue of whether the contraventions had been proved. They did not address the issue of penalty despite the fact that during the debate about the filing of the appellants' evidence which took place on 9 April 2002 after ASIC closed its case, the primary judge expressly drew Allan Endresz's attention to the fact that if and when the penalty issue arose he had "no evidence at all on that". 411 The appellants' written submissions appear to have been handed to the primary judge on 1 May 2002 which was the last day of the hearing. They were described by the primary judge as "a very comprehensive set of submissions both on law and fact". However it is plain from the transcript that his Honour had not had the opportunity to read them in detail before he reserved his decision. While his Honour expressly asked Mr Burbidge QC for ASIC to address the issue of the appropriate relief if he found the contraventions established, no like oral invitation was addressed to the appellants. 412 The appellants submitted that the primary judge erred in not having a separate hearing on penalty after he had found the contraventions proved. They contend that this was the "fair and correct procedure" which was followed in Australian Securities and Investments Commission (ASIC) v Adler & Ors [2002] NSWSC 510; (2002) 42 ACSR 74; Australian Securities and Investments Commission (ASIC) v Whitlam (No 2) [2002] NSWSC 718; (2002) 42 ACSR 515 and in ASIC v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124. 413 In Rich v Australian Securities and Investments Commission, above, at 1363 [41], McHugh J observed that: "… what the judges actually do [when ordering disqualification and fixing periods of disqualification under the corporations legislation] is little different from what judges do in determining what orders or penalties should be made for offences against the criminal law. Elements of retribution, deterrence, reformation and mitigation as well as the objective of the protection of the public inhere in the orders and periods of disqualification made under the legislation." 414 Once it is recognised that the task in which the primary judge was engaged at this stage of the trial bore the hallmarks of the sentencing process in a criminal trial, the principles attendant upon that process were invoked. It is a fundamental proposition of sentencing "… that the punishment [must] fit the crime. Apart from mitigating factors, it is the circumstances of the offence alone that must be the determinant of an appropriate sentence": Baumer v The Queen [1988] HCA 67; (1988) 166 CLR 51 at 58. As Gibbs CJ said in R v De Simoni [1981] HCA 31; (1981) 147 CLR 383 at 389, "[T]he general principle [is] that the sentence imposed on an offender should take account of all the circumstances of the offence …". 415 The circumstances of the offender are equally important to the question of the appropriate sentence. In Ibbs v The Queen [1987] HCA 46; (1987) 163 CLR 447 at 452, the High Court in a joint judgment approved Dwyer CJ's statement in Reynolds v Wilkinson (1948) 51 WALR 17 at 18 that: "Crimes bearing the same general description have not equally evil content or characteristics, and offenders also differ in themselves." 416 These propositions were affirmed extra-curially by Gleeson CJ when he said, "the punishment is supposed to fit not only the crime, but also the criminal": see "Individual Justice" (1995) 69 ALJ 421 at 424. 417 Declarations of contravention can lead to the imposition of substantial penalties both by way of disqualification orders and pecuniary penalties such as those which were imposed in this case. In such circumstances the principles that the punishment should fit both the "offence" and the "offender" are reflected in the proposition that it is the duty of a court to hear the "guilty party" on penalty after the "charge" has been proved. 418 This appears clearly from Hall v New South Wales Trotting Club Ltd [1977] 1 NSWLR 378 at 382 where Hutley JA (with whose judgment on this point Samuels JA agreed at 391, Mahoney JA dissenting) said, "[t]he right to be heard in palliation of misconduct is established by authority nearly a century old." Applying that principle, his Honour also said (at 382), in the context of a domestic tribunal, that the tribunal had a duty to hear a person found guilty on the question of penalty and that a "person found guilty cannot really address until he knows of what he has been found guilty". 419 While Hutley JA accepted that a person might waive the right to a hearing on penalty, his Honour said (at 382 - 383) it was incumbent in effect upon the tribunal to draw the right specifically to the person's attention. He said that the tribunal should be guided by "the minimum standards required of the more summary and informal courts" and that it was "… for such a court to take the initiative in maintaining those standards". He referred approvingly to Mayes v Mayes [1971] 2 All ER 397; [1971] 1 WLR 679, where, at the end of the complainant's evidence, magistrates dismissed the case without hearing her solicitor. Bagnall J in the Divisional Court said (at 682; 400): "It seems to me where a court has to act, as all courts have, in accordance with settled practice or rules of natural justice, and that practice or those rules give a person a right to be heard, it must be wrong for the court to proceed to a decision without positively affording that right and that it would be wrong for the court to proceed relying upon the advocate in question to assert his rights." 420 Hall v New South Wales Trotting Club Ltd was followed by Holland J in Malone v Marr [1981] 2 NSWLR 894. His Honour said (at 902) that two things followed from the views expressed by the majority: "First, the requirements of natural justice are not satisfied by showing that when the accused appeared before the tribunal to answer the charges he knew that the tribunal had power to impose a penalty upon him if he should be found to be guilty or that he could have addressed the tribunal on matters going to the question of punishment at the same time as he was heard upon the charge made against him if he had chosen to do so. Second, if the tribunal, after making a finding of guilt, fails in its duty with regard to a hearing on penalty as above described and, in consequence, the decision on penalty is invalid, the tribunal may, if it chooses, rectify its error by re-opening the question of penalty, inviting the accused to tender evidence and/or address on the question of penalty and thereafter re-consider and decide that question." 421 See also Stone v Law Society of the Northern Territory and Others (1992) 108 FLR 332 at 344 where Martin J applied Hall v New South Wales Trotting Club Ltd and Malone v Marr in the circumstance of disciplinary proceedings against a legal practitioner. 422 ASIC submitted that the appellants had been given ample opportunity to reply to ASIC's submissions on penalty. It relied upon the facts that the appellants knew from the Originating Process that relief in the nature of penalties was sought, that Mr Burbidge QC's opening address made plain that ASIC sought the imposition of penalties, that the primary judge had informed Mr Alan Endresz that he did not have any evidence on the issue of penalty and the provision of ASIC's written submissions which addressed the issue of penalty at length. 423 ASIC submitted that the case was similar to Howe v Administrative Decisions Tribunal of New South Wales [2003] NSWSC 157 where Dunford J distinguished Hall v New South Wales Trotting Club Ltd and Malone v Marr. His Honour accepted (at [20]) that "it is generally desirable that addresses on penalty follow a determination of guilt so that the person accused knows precisely the ambit of the findings to which submissions on penalty need to be addressed". He held, however, (at [21]) that "the rule [to which Hutley JA referred] is not inflexible, and provided there is an ample opportunity to address on penalty, there is no breach of any rules of natural justice or procedural fairness". In Howe v Administrative Decisions Tribunal of New South Wales [2003] NSWCA 120 when hearing an application in a proposed appeal from Dunford J's decision for orders having the effect of precluding the Tribunal from making any further orders in the proceedings before it or publishing its outstanding decision as to penalty, Giles JA said (at [14]) he regarded Dunford J's "decision on this point [as] unarguably correct" in circumstances where "the claimant had had the fullest opportunity to address on penalty". 424 Hall v New South Wales Trotting Club and Malone v Marr make plain that the matters upon which ASIC relies are insufficient to displace the appellants' right to be heard separately on the issue of penalty once they were aware of the contraventions which had been found against them. 425 Further it was, in my view, incumbent upon the primary judge to approach the determination of the contravention issue and penalty in the two-stage process dictated by Hall v New South Wales Trotting Club Ltd. He should also have drawn the appellants' attention to their right to elicit evidence and make submissions on the issue of penalty. 426 It was also, in my opinion, incumbent upon ASIC in the circumstances of this case to draw his Honour's attention both to the principles of law referred to in Hall v New South Wales Trotting Club and Malone v Marr as well as to the circumstances of other civil penalty proceedings in which it had been involved in which there were separate hearings on the issue of penalty: see Australian Securities & Investments Commission v Adler [2002] NSWSC 510; (2002) 42 ACSR 74; Australian Securities & Investments Commission v Whitlam (No 2) [2002] NSWSC 718; (2002) 42 ACSR 515. 427 The consequence of the failure to conduct a separate penalty hearing means that the issue of penalty must be revisited. It is appropriate, as counsel for the appellants submitted (and ASIC did not demur), that that exercise be undertaken by remitting the matter to the Equity Division to be heard by a judge different from the primary judge. 428 This conclusion means it is not necessary to deal with grounds 23 - 29.

[238]

His Honour erred in finding that Allan Endresz had indicated in his oral evidence that he had not obtained representation because in his view the proceedings should never have been brought and that this seemed a strangely arrogant attitude which did not reflect well upon his credit [paragraph 69], when in fact what Allan Endresz had indicated in his oral evidence was a view that these proceedings should not have proceeded with other matters, meaning the criminal proceedings pending against him." 430 Ground 15 turned on the proposition that the non-cumulative dividend on the redeemable preference shares was not interest. Accepting that to be the case, his Honour's statement, as Mr Biscoe QC conceded in the course of argument, could not have a material effect on the outcome of the appeal. 431 The same can be said of the complaint regarding his Honour's understanding about why Allan Endresz had not obtained legal representation. To the extent that this ground seeks to undermine the primary judge's conclusion about Allan Endresz's credit, it is plain from reading the judgment on appeal that the adverse view his Honour formed of Allan Endresz's credit was based on the entirety of the evidence including his observation of Allan Endresz's demeanour. 432 Moreover his Honour's observation was made when he was referring to the difficulties under which he was labouring due to the appellants not having legal representation. It is plain from Allan Endresz's cross- examination that the absence of legal representation was not due to lack of finance. Although his Honour's remark did not express the entirety of Allan Endresz's statement in my view his Honour was entitled to form the opinion that "[I]n view of the civil penalties that were being sought against him and the other defendants, this [choosing not to have legal representation] seemed a strangely arrogant attitude". 433 As with ground 15, this remark does not have a material effect on the appeal. 434 Grounds 15 and 17 should be rejected.

Parties

Applicant/Plaintiff:

William Arthur Forge & 5 Ors

Respondent/Defendant:

Australian Securities & Investments Commission

Legislation Cited (10)

Australian Securities Commission Act 1989(Cth)

Trade Practices Act 1974(Cth)

Companies Act 1961(Vic)

Corporations Act 2001(Cth)s 79, s

Evidence Act 1995(NSW)s 80, s, s 80

Supreme Court Act 1970(NSW)s 75A

Supreme Court Rules 1970(NSW)

Corporations Act 1989(Cth)

Customs Act 1901(Cth)

Excise Act 1901(Cth)

Cases Cited (120)

CITATION : William Arthur Forge & 5 Ors v Australian Securities & Investments Commission [2004] NSWCA 448 HEARING DATE(S) : 11 August 2003 to 14 August 2003 30 September 2003, 2 October 2003 (written submissions) JUDGMENT DATE : 7 December 2004

CATCHWORDS : CORPORATIONS LAW - APPEALS - Appeal from declarations of contravention of the Corporations Law, disqualification orders and pecuniary penalties - breach of directors' duties and related party transaction provisions of the Corporations Law - whether proceedings commenced under the Corporations Law validly continued under the Corporations Act 2001 (Cth) - whether fourth appellant was an "officer" for the purposes of s 232 of the Corporations Law - whether primary judge erred in concluding the appellants had contravened ss 232(2), (4) and (6) and s 243ZE of the Corporations Law - subjective or objective test of "honestly" in s 232(2) of the Corporations Law - whether purported ratification of contraventions of the Corporations Law by shareholders effective - whether a separate hearing on penalty should be held in civil penalty proceedings - EVIDENCE - Admissibility of expert evidence going to an ultimate legal issue. (D) Constitution s 51(xxxvii) Corporate Law Economic Reform Program Act 1999 s 1466 Corporations Act 2001 (Cth) s 79, s 180, s 181, s 182, s 208, s 209, s 210, s 211, s 239, s 243N, s 254T, s 254V, s 1317L, s 1332, Ch 10, s 1370, s 1371, s 1371(2), s 1382(1)(bb), s 1383, s 1383(1), s 1383(1)(a), s 1383(1)(b), s 1383(1)(b)(i), s 1383(1)(c), s 1383(2), s 1383(3), s 1383(3)(a), s 1384, s 1384(3), s 1384(3)(a), s 1398, s 1401, s 1401(1)(a), s 1401(1)(b), s 1401(2), s 1401(2)(a), s 1401(2)(b), s 1401(3), s 1408 LEGISLATION CITED : Corporations (Commonwealth Powers) Act 2001 Corporations Law s 9, s 79, s 82A, s 85A, s 191, s 192, s 192(2), s 192(4), s 232, s 232(1), s 232(2), s 232(4), s 232(5), s 232(6), s 232(6B), s 243F, s 243F(1)(a), s 243F(1)(d), s 243F(1)(e), s 243F(1)(f), s 243G, s 243H, s 243K, s 243N, s 243ZE, s 243ZE(2), s 243ZE(3), s 243ZE(5), s 254C, s 254K, s 254K(b), Pt 9.4B, s 1317DA, s 1317DB, s 1317EA, s 1317EA(2), s 1317EA(3), s 1317EA(3)(a), s 1317EA(3)(b), s 1317EA(4), s 1317EA(5), s 1317EB(1), s 1317EC, s 1317ED, s 1317ED(1), s 1317HD(1), s 1317HD(1A), s 1317JA, s 1332, s 1447, s 1473, s 1473(1)(a) Evidence Act 1995 (NSW) s 80, s 80(a), s 135(a), s 135(e) Supreme Court Act 1970 (NSW) s 75A Supreme Court Rules 1970 (NSW) Pt 4 r 1, Pt 15 r 13 Adler and Anor v Australian Securities and Investments Commission; Williams v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 Allstate Life Insurance Co v ANZ Banking Group Ltd (No 6) (Allstate Judgment No 33) (1996) 64 FCR 79 Australian Competition and Consumer Commission v Amcor Printing Papers Group Limited [1999] FCA 672; (1999) ALR 465 Australian Competition & Consumer Commission v FFE Building Services Limited [2003] FCAFC 132; (2003) 130 FCR 37 Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 2) (1997) 77 FCR 217 Australian Growth Resources Corporation Pty Limited v Van Reesema (1988) 13 ACLR 261 Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 41 ACSR 72 Australian Securities and Investments Commission (ASIC) v Adler & Ors [2002] NSWSC 510; (2002) 42 ACSR 74 Australian Securities and Investments Commission v Edensor Nominees Pty Limited [2001] HCA 1; (2001) 204 CLR 559 Australian Securities & Investments Commission v Forge & Ors [2002] NSWSC 760 Australian Securities and Investments Commission v William Arthur Forge and five Others (Supreme Court of New South Wales, unreported, Foster AJ, 12 March 2002) Australian Securities and Investments Commission v Loiterton [2004] NSWSC 172 Australian Securities and Investments Commission v Plymin [2002] VSC 56; (2002) 4 VR 168 Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 Australian Securities and Investments Commission v Vines [2003] NSWSC 1095; (2003) 48 ACSR 291 Australian Securities and Investments Commission (ASIC) v Whitlam (No 2) [2002] NSWSC 591; (2002) 169 FLR 383 Australian Securities and Investments Commission (ASIC) v Whitlam (No 2) [2002] NSWSC 718; (2002) 42 ACSR 515 Bamford v Bamford [1970] Ch 212 Banque Commerciale SA (in Liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 160 CLR 279 Barbosa v Di Meglio [1999] NSWCA 307 Baumer v The Queen [1988] HCA 67; (1988) 166 CLR 51 Blackie v Police [1966] NZLR 910 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Carabelas v Scott [2003] SASC 389; (2003) 177 FLR 334 Chew v The Queen [1992] HCA 18; (1992) 173 CLR 626 Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 77 ALJR 1629 Combined Auctions Pty Ltd v Gray Eisdell Timms Pty Ltd (1997) 16 ACLC 252 Commissioner for Corporate Affairs (Vic) v Bracht [1989] VR 821 Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 Corporate Affairs Commission v Papoulias (1990) 20 NSWLR 503 Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 Feil v Commissioner of Corporate Affairs (1991) 9 ACLC 811 Fitzsimmons v R (1997) 23 ACSR 355 Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 Furs Limited v Tomkies [1936] HCA 3; (1936) 54 CLR 583 Gamester Pty Limited & Anor v The Honourable Mr Justice Lockhart (1993) 67 ALJR 547 George Hill and Co v Hill (1886) 55 LT 769 Giorgianni v R [1985] HCA 29; (1985) 156 CLR 473 Gray Eisdell Timms Pty Ltd v Combined Auctions Pty Ltd (1995) 122 FLR 253 Hall v New South Wales Trotting Club Ltd [1977] 1 NSWLR 378 Harlowe's Nominees Pty Limited v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483 Holpitt Pty Limited v Swaab & Ors (1992) 33 FCR 474 Howe v Administrative Decisions Tribunal of New South Wales [2003] NSWSC 157 Howe v Administrative Decisions Tribunal of New South Wales [2003] NSWCA 120 Hughes v N M Superannuation Pty Ltd (1993) 29 NSWLR 653 CASES CITED : Ibbs v The Queen [1987] HCA 46; (1987) 163 CLR 447 Kinsela v Russell Kinsela Pty Limited (in Liq) (1986) 4 NSWLR 722 Life Savers (Australasia) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431 Macleod v The Queen [2003] HCA 24; (2003) 214 CLR 230 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 Malone v Marr [1981] 2 NSWLR 894 Marchesi v Barnes [1970] VR 434 Mayes v Mayes [1971] 2 All ER 397; [1971] 1 WLR 679 McCann v Switzerland Insurance Australia Limited [2000] HCA 65; (2000) 203 CLR 579 Miller v Miller (1995) 16 ACSR 73 Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services Ltd [1983] Ch 258 Naxakis v Western General Hospital [1999] HCA 22; (1999) 197 CLR 269 Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 Nicholson v Permakraft (NZ) Ltd (in Liq) [1985] 1 NZLR 242 Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 O'Brien v Gillespie (1997) 41 NSWLR 549 Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737 Pascoe Ltd (in liq) v Lucas [1999] SASC 519; (1999) 75 SASR 246; (1999) 33 ACSR 357 Pemble v R [1971] HCA 20; (1971) 124 CLR 107 Permanent Trustee Australia Ltd v Boulton & Lynjoe Pty Ltd (1994) 33 NSWLR 735 Pioneer Concrete Services Ltd v Galli [1985] VR 675 R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 R v De Simoni [1981] HCA 31; (1981) 147 CLR 383 R v GK [2001] NSWCCA 413; (2001) 53 NSWLR 317 R v Newth [1974] 2 NZLR 760 Re Bright Pine Mills Pty Limited [1969] VR 1002 Re Media Entertainment & Arts Alliance; ex parte Hoyts Corporation Pty Limited [1993] HCA 41; (1994) 68 ALJR 179 Re New World Alliance Pty Limited; Sycotex Pty Limited v Baseler & Ors (No 2) (1994) 51 FCR 425 Re Portuguese Consolidated Copper Mines Ltd; Ex parte Badman; Ex parte Bosanquet (1890) 45 Ch D 16 Re Wakim; ex parte McNally [1999] HCA 27; (1999) 198 CLR 511 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Reynolds v Wilkinson (1948) 51 WALR 17 Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 78 ALJR 1354 RW Miller & Co Pty Ltd v Krupp (Aust) Pty Ltd (1991) 34 NSWLR 129 Shum Yip Properties Development Limited v Chatswood Investment and Development Co Pty Limited & Ors [2002] NSWSC 13; (2002) 166 FLR 451 Sidebottom & Anor v Commissioner of Taxation of the Commonwealth of Australia [2003] VSCA 2; (2003) 173 FLR 335 Southern Resources Limited v Residues Treatment & Trading Co Limited (1990) 3 ACSR 207 Standard Chartered Bank Limited v Antico & Ors (No 1) (1995) 38 NSWLR 290 Stone v Law Society of the Northern Territory and Others (1992) 108 FLR 332 Suvaal v Cessnock City Council [2003] HCA 41; (2003) 77 ALJR 1449 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 Van Den Hoek v R [1986] HCA 76; (1986) 161 CLR 158 Whisprun Pty Limited v Dixon [2003] HCA 48; (2003) 77 ALJR 1598 Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285 Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559 Williams v The Minister for Aboriginal Land Rights Act 1983 and the State of NSW [2000] NSWCA 255; (2000) Aust Torts Reports 81-578 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 William Arthur Forge - (1st Appellant) Jozsef Endresz - (2nd Appellant) Dawn May Endresz - (3rd Appellant) PARTIES : Allan Paul Endresz - (4th Appellant) Kamanga Holdings - (5th Appellant) Bisoya Pty Limited - (6th Appellant) Australian Securities & Investments Commission - (Respondent) FILE NUMBER(S) : CA 40854/02 COUNSEL : P M Biscoe QC (1 - 6 Appellants) D R Stack (Respondent) Ken Cush & Associates by their agents Curwood & Partners (1 - 6 Appellants) SOLICITORS : Graeme Plath, Australian Securities and Investments Commission (Respondent)

At a glance

Court

Decision date

Before

Source

Judgment (242 paragraphs)

Parties

Legislation Cited (10)

Cases Cited (120)