FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342

THE COURT ORDERS THAT:

1.    The Applicant is to file and serve, by 24 April 2015, minutes of the orders to be made to give effect to these reasons and findings, together with a short outline (no more than five pages) of the submissions it will make on the period of the injunctions and on question of costs.

2.    Any party intending to contest the appropriateness of the orders proposed by ASIC is to file and serve, by 1 May 2015, minutes of the orders which that party will contend are appropriate to give effect to these reasons and findings, together with a short outline (no more than five pages) of the submissions to be made in support of those minutes.

3.    The matter be adjourned to 10.00am in Brisbane on 8 May 2015 for submissions as to the form of the orders, costs, the oral application of the 14th and 15th Defendants for the discharge of the interlocutory orders made on 3 December 2012, and any other matter necessary to give effect to the Court’s findings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Overview

1    These proceedings concern alleged contraventions by some defendants of the Corporations Act 2001 (Cth) (the Corporations Act) and of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the alleged involvement as accessories of other defendants in those contraventions.

2    The alleged contraventions arise from the circumstances in which numerous Australian investors with relatively modest amounts of superannuation were induced to establish self-managed superannuation funds (SMSFs) and to use their superannuation funds for investment in property in the United States of America and in companies incorporated in the British Virgin Islands (BVI). Most of the invested monies were not used for the purposes contemplated by the investors and have been substantially, if not wholly, lost.

3    Between at least May 2010 and March 2012, the first defendant (ActiveSuper) and the second defendant (to which I will refer as “Royale”, this being an abbreviation of its former name), induced or assisted a number of persons to establish SMSFs. Commencing in at least late 2010, Royale distributed to a number of these SMSFs an “investment opportunity” set out in a document entitled “US Deals Invest Now” (described in the proceedings as the “US Realty Memorandum”). This “opportunity” involved the SMSFs acquiring shares in a yet to be formed American company which would purchase “distressed” real estate in the United States with a view to profit at the end of a five year period.

4    At material times, the third defendant, Mr Burrows, controlled ActiveSuper. Mr Burrows also exercised considerable control over Royale, although much of its day to day activities were carried out by the fourth defendant, Mr Gibson. For convenience, I will refer to ActiveSuper, Royale, Mr Burrows and Mr Gibson as “the ActiveSuper defendants” without thereby implying any pre-judgment of the relationship between them.

5    Approximately 187 SMSF investors acted on the offer and paid in aggregate about $3.1 million to ActiveSuper for investment pursuant to the US Realty Memorandum. ActiveSuper transferred approximately $1.4 million of this sum to bank accounts held by US companies of which it was the shareholder. Of that sum, approximately $455,000 was applied to the purchase of 14 properties in Arizona. These were the only amounts expended on the purchase of properties in the United States. The purchasers of the Arizonan properties were the fifth to eighth defendants (collectively, the LLCs). Mr Burrows was the manager of each of the LLCs.

6    None of the SMSF investors was issued a share in a LLC, or for that matter in any other company acquiring “distressed” real estate in the United States.

7    On or about 19 October 2011, the LLCs entered into a loan agreement with the twelfth defendant, MOGS Pty Ltd (MOGS) for an amount of $1 million (later increased to $1.47 million). However, ultimately approximately $2.15 million of the aggregate sum of $3.1 million invested by the SMSFs pursuant to the US Realty Memorandum was paid, directly or indirectly, to MOGS, to the seventeenth defendant (Mr Gore) or to persons and entities nominated by them. MOGS is an Australian company and was not engaged at all in acquisition of “distressed” real estate in the United States.

8    About one year later, on 13 November 2012, the 14 properties in Arizona were sold, but there has been no accounting of the proceeds to ActiveSuper or to the Australian investors. The amounts invested in the Arizonan properties appear to have been wholly lost.

9    In late 2011, two companies were established in the BVI. These were the ninth defendant, Syndicated Property Group Ltd (SPG), which was formerly known as Syndicated Property Group Arizona Ltd, and the tenth defendant, Worldwide Property Opportunities Ltd (WPO). The eleventh defendant, Cayco Management Ltd (Cayco), was incorporated in January 2012 in the Cayman Islands. Mr Gore was the driving force behind the establishment of SPG, WPO and Cayco. Several of the personal defendants were also involved in the establishment of SPG, WPO and Cayco.

10    SPG and WPO were established as funds to be marketed in particular to the SMSF clients of ActiveSuper and Royale, ostensibly for the principal purpose of investment in real estate. Each of SPG and WPO issued a document entitled “Private Placement Memorandum” (PPM) which was in the nature of a prospectus for the issue of shares. Cayco was established to act as an investment manager of the funds raised.

11    Between about March and May 2012, investment in SPG and WPO was marketed to members of the Australian public and, in particular, by Mr Burrows and Mr Gibson to the SMSF clients of ActiveSuper and Royale. Between 14 March 2012 and 23 April 2012, ActiveSuper received some 53 subscriptions for investments pursuant to the SPG PPM. Acting on those subscriptions, ActiveSuper caused a total of approximately $1,020,000 to be transferred from the bank accounts of the subscribing SMSFs to its own account and then transferred those funds to SPG and/or WPO.

12    Between March 2012 and June 2012, ActiveSuper and/or Royale received 69 subscriptions for a total of approximately $1.38 million pursuant to the WPO PPM. These monies were paid to SPG and/or WPO.

13    However, the monies received pursuant to the SPG and WPO PPMs were not invested in real estate. Instead, they were advanced, directly or indirectly, to Cayco; to MOGS; to its directors, Graeme Stonehouse (fourteenth defendant) and Marina Gore (fifteenth defendant); to Mark Adamson (sixteenth defendant), Craig Gore (seventeenth defendant), and Jeffrey George (thirteenth defendant) (collectively “the MOGS defendants”); to persons associated with them; and were also used to meet a variety of expenses. With the possible exception of the advances to MOGS, this usage of the funds was not contemplated by the PPMs.

14    Mr Adamson is a lawyer now working in the Gold Coast office of Clamenz Evans Ellis Lawyers. He established the Gold Coast office of Evans Ellis Lawyers in February 2011 and, in the course of his employment there, performed considerable work for MOGS. From about August 2011, Mr Adamson’s salary and that of his secretary, as well as the overheads of the Gold Coast office of Evans Ellis (which were in the same premises as the offices of MOGS), were paid directly by MOGS. For much of the period relevant in this case Mr Adamson was also a director of MOGS and at the time of the trial he was still a director of Cayco.

15    Mr Gore, the husband of Marina Gore, worked as a consultant to MOGS. Mr George is a friend of Mr Gore and also one of his creditors. In his examination by ASIC under s 19 of the ASIC Act, Mr Gore described Mr George as a person who “used to run my aircraft”, who “buys and sells aeroplanes”, but who did not know “a lot” about the finance world.

16    It seems that most, if not all, of the amounts invested by the SMSF funds pursuant to the PPMs have been lost. An order for the winding up of MOGS was made during the trial and provisional liquidators had previously been appointed to SPG, WPO, Cayco and to the LLCs.

ASIC’s Claims

17    ASIC alleges a number of contraventions of the Corporations Act and the ASIC Act and seeks declaratory and injunctive relief.

18    The contraventions alleged by ASIC relate to three broad categories of conduct. First, contraventions in relation to the establishment of the SMSFs; secondly, in relation to funds raised from SMSF investors pursuant to the US Realty Memorandum; and, thirdly, in relation to investments by the SMSFs in SPG and WPO.

19    ASIC alleges, first, that the ActiveSuper defendants contravened s 726 of the Corporations Act by offering to Australian investors shares in a non-existent US company when the offers would otherwise have required disclosure to the investors under Part 6D.2 of the Corporations Act.

20    Secondly, ASIC alleges that the ActiveSuper defendants, SPG, WPO and Cayco contravened s 727(1) and (2) of the Corporations Act by offering shares, or by distributing application forms for the offer of shares, in the SPG PPM and WPO PPM, when the offers required disclosure to investors under Part 6.2 of the Corporations Act, and no disclosure documents had been lodged with ASIC.

21    Thirdly, ASIC alleges that the ActiveSuper defendants, SPG, WPO and Cayco provided financial services when, at relevant times, none of them held an appropriate Australian Financial Services Licence (AFSL) covering the provision of those services, and thereby contravened s 911A(1) of the Corporations Act. The conduct alleged by ASIC for this purpose is:

(i)    the making of offers or distributing application forms for the offer of shares in SPG and WPO;

(ii)        the provision of financial product advice by making recommendations intended to influence persons making decisions in relation to superannuation interests (or which could reasonably be regarded as being intended to have such an influence) to acquire an interest in a superannuation interest, namely a SMSF, within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act);

(iii)    the dealing in financial products by arranging for persons to acquire interests in superannuation interests within the meaning of the SIS Act; and

(iv)    the dealing in financial products by arranging for persons to acquire an interest in deposit and payment products (namely, a Macquarie Cash Management Account or Macquarie Cash Management Trust Account).

22    Fourthly, ASIC alleges that Mr Burrows and Mr Gibson contravened s 911B(1)(b)(iii) of the Corporations Act by providing financial product advice and by dealing in financial products without holding an AFSL authorising the provision of those services. The relevant conduct is said to have been the making of recommendations intended to influence persons in making a decision in relation to superannuation interests (or which could reasonably be regarded as being intended to have such an influence) to acquire an interest in a SMSF. The conduct said to amount to dealing in financial products was the arranging for clients to acquire an interest in a SMSF within the meaning of the SIS Act.

23    Fifthly, ASIC alleges that Mr Burrows and Mr Gibson contravened s 992A(1) of the Corporations Act by offering financial products, namely, an interest in a SMSF, for issue in the course of, or because of, an unsolicited meeting with another person, without offering that person an opportunity to register on a “No Contact/No Call” register.

24    Sixthly, ASIC alleges that Mr Burrows and Mr Gibson engaged in misleading or deceptive conduct in contravention of s 1041H of the Corporations Act and s 12DA of the ASIC Act by stating to persons that, if they obtained a SMSF with their assistance, those persons would, or alternatively, could, achieve “safe and secure” “fantastic returns” of between 20% and 25% per annum.

25    For reasons to be mentioned shortly, it is not necessary to address the fourth, fifth and sixth allegations in these reasons.

26    Seventhly, ASIC alleges that the ActiveSuper defendants engaged in misleading or deceptive conduct in contravention of s 1041H of the Corporations Act and s 12DA of the ASIC Act. The conduct relied upon for this allegation is the dissemination of the US Realty Memorandum containing false representations that:

(i)    returns of between 20 and 25 per cent per annum would be paid to investors;

(ii)    the superannuation monies from the SMSFs would be applied to purchase shares in a private limited liability company to be formed and registered in Arizona, would be applied for the purposes of purchasing foreclosed residential property as part of an investment portfolio; and would be “quarantined in an Australian based trust account” until such time as the Arizonan company was capitalised;

(iii)    SPG was currently contracted to handle property purchases for US Deals Ltd in New Zealand;

(iv)    the Manager of the US company was Australian Property Investment Management Arizona Ltd (APIMA), a duly formed company in the State of Arizona.

These representations were described as “the US Realty Representations” and were also alleged to have been made in the course of “cold calls” to potential investors.

27    Eighthly, ASIC alleges that the ActiveSuper defendants, SPG, WPO and Cayco engaged in misleading or deceptive conduct in contravention of s 1041H of the Corporations Act and s 12DA of the ASIC Act by representing that monies invested under the SPG and WPO PPMs would be invested in real estate and by withholding from the investors details concerning the application of monies previously invested under the PPMs, in particular, by withholding information that those monies had not been used by WPO or SPG to purchase property.

28    ASIC alleges that each of the MOGS defendants was, directly or indirectly, knowingly concerned in the contraventions of ss 727(1), 727(2), 911A(1) and 1041H of the Corporations Act, and s 12DA of the ASIC Act, and seeks declarations to that effect. In the case of s 1041H and s 12DA, ASIC’s allegation is that the MOGS defendants were knowingly concerned in only the third of the contraventions alleged against the primary defendants, namely, the contraventions relating to SPG and WPO.

29    In addition, ASIC seeks injunctions pursuant to ss 1101B(1) and 1324(1) of the Corporations Act restraining all defendants from engaging in businesses concerning financial products, financial services and superannuation interests, as well as engaging in other identified activities.

30    The Fourth Further Amended Originating Process indicated that ASIC also sought a declaration of accessorial liability by the MOGS defendants in the alleged contraventions of s 726 by the ActiveSuper defendants. However, ASIC did not pursue this claim. ASIC made no claim for monetary relief, nor for the imposition of pecuniary penalties.

31    Finally, ASIC seeks orders for the winding up of the LLCs, MOGS, SPG, WPO and Cayco.

The Defendants in the Trial

32    The defendants who participated actively in the trial were Mr Stonehouse, Ms Gore, Mr Adamson and Mr Gore. All but Mr Gore had legal representation.

33    Mr Gore did have legal representation at various times during the interlocutory stages of the proceedings. In addition, Mr Gore had access to legal advice during the course of the trial. At the conclusion of the evidence by the other parties, Mr Gore informed the Court that he had been speaking to Mr Darren Eliau of the firm of Clamenz Evans Ellis and to Mr Ian Erskine QC. I granted Mr Gore a short adjournment in order that he may speak to Mr Erskine before announcing his decision as to whether to give or call evidence. I also observed during the trial that there appeared at times to be a degree of cooperation and collaboration between Mr Gore, on the one hand, and those instructing Mr Kirby, who appeared for Mr Stonehouse and Ms Gore.

34    The circumstances of the remaining defendants are as follows.

35    ActiveSuper and Mr Burrows reached agreement with ASIC shortly before the commencement of the trial on 14 October 2013 as to the declarations and injunctions to be made in respect of the allegations against them. In Mr Burrows’ case, the agreement also contained his consent to an order disqualifying him from managing a corporation for a period of 10 years. ASIC accepted that the making of the proposed consent orders would satisfy its claims against ActiveSuper and Mr Burrows.

36    Although declarations can be made by consent (Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCAFC 56; (2012) 201 FCR 378), the Court does need to be satisfied of some threshold matters. In that circumstance, and with the consent of ASIC, ActiveSuper and Mr Burrows, I deferred consideration of the proposed consent orders in the anticipation that the parties would rely on the evidence in the trial for the orders. I excused ActiveSuper and Mr Burrows from participation in the trial.

37    During the interlocutory stages of this matter, Royale and Mr Gibson (its current sole director) were represented by solicitors and counsel. However, on 19 September 2013, the solicitors filed a notice of termination of their retainer. There was no appearance by these defendants at the trial. Mr Gibson’s mother attended at the commencement of the trial and provided some evidence of his medical condition. ASIC accepted that Mr Gibson’s medical condition meant that it was not practical for him to participate in the trial and sought the adjournment of the trial of its claims against Royale and Mr Gibson. I acceded to that application and adjourned the trial of the action against Royale and Mr Gibson to a date to be fixed. Those defendants then took no part in the trial. That circumstance, together with the proposed consent orders involving ActiveSuper and Mr Burrows, explains why it is unnecessary to consider the fourth, fifth and sixth contraventions alleged by ASIC.

38    In the trial against the remaining defendants, the Court received a considerable amount of evidence relating to the activities of Royale and Mr Gibson. It will be necessary to make findings about those activities in order to determine the claims made by ASIC against the other defendants, including the claims of accessorial liability. That is unavoidable, even though Royale and Mr Gibson have not yet been heard.

39    The LLCs, SPG, WPO and Cayco did not participate at all in the proceedings. They did not file an appearance and did not attend at any of the interlocutory hearings. On 14 November 2012, Dodds-Streeton J appointed provisional liquidators to each of the LLCs (Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 1) [2012] FCA 1519) and, on 3 December 2012, Marshall J appointed provisional liquidators to each of SPG, WPO and Cayco. There was no attendance at the trial by the provisional liquidators. They had previously indicated that they did not intend to participate.

40    The firm of Clamenz Evans Ellis Lawyers entered an appearance on behalf of MOGS, Mr Stonehouse and Ms Gore on 10 December 2012, and filed a defence on their behalf on 14 March 2013. However, on 19 March 2013, Gordon J appointed a provisional liquidator to MOGS (Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234) and Clamenz Evans Ellis then ceased acting for it. MOGS has not taken any part in the proceedings since 19 March and its provisional liquidators did not attend at the trial. Clamenz Evans Ellis continued to act for Mr Stonehouse and Ms Gore and instructed Mr Kirby as their counsel in the trial.

41    There is an eighteenth defendant, Mash Investments Pty Ltd, but ASIC indicated that it no longer sought any orders with respect to Mash. It did not participate in the trial.

42    Mr George, the thirteenth defendant, is a citizen of the USA. He is a director of SPG, WPO and Cayco. Mr George filed a conditional appearance and an interlocutory process seeking to have the service of the proceedings on him set aside. However, Mr George did not pursue that application. By letter of 30 March 2013, Forbes Hare, a firm of lawyers in the BVI who identified themselves as the “BVI Counsel of [SPG, WPO and Cayco] of which Mr George is a director” informed the Court that he did not intend to take any further part in the proceedings. Three days later, Complete Legal Solutions, a firm of practitioners in New South Wales, wrote to the Court on Mr George’s behalf saying that he did not intend to take any further part in the proceedings. Mr George did not appear at the trial.

43    At the commencement of the second day of the trial, Mr Smith, counsel for Mr Adamson (the sixteenth defendant), informed the Court that ASIC and Mr Adamson had reached agreement on orders by way of declarations and injunctions which would satisfy ASIC’s claims against Mr Adamson. Those parties proposed that declarations by consent be made that Mr Adamson had, between 13 March 2012 and 23 April 2012, and between 27 March 2012 and 12 June 2012, been knowingly concerned in the contraventions by identified defendants of ss 727(1) and (2) of the Corporations Act, knowingly concerned in the contraventions by identified defendants of s 911A(1) of the Corporations Act, and knowingly concerned in the misleading and deceptive conduct contraventions of certain defendants.

44    There is a question as to whether the Corporations Act contemplates accessorial liability in relation to breaches of ss 727 and 911A, to which I will return. That question bears upon the appropriateness of the first three consent declarations proposed between ASIC and Mr Adamson, as well as on the first six declarations proposed by ASIC and Mr Burrows.

45    When informing the Court of the proposed consent orders, Mr Smith indicated that, despite the agreement involving Mr Adamson, he would continue to participate in the trial. This was with the intention of satisfying the Court that the consent declarations could be made on the basis that Mr Adamson’s culpability arose from his having chosen not to ask pertinent questions in order not to know the answer. Again, there is an issue, to which it will be necessary to return, as to whether wilful blindness of this kind is sufficient for accessorial liability.

46    For the same reasons as given earlier in relation to ActiveSuper and Mr Burrows, I deferred consideration of the proposed consent orders involving Mr Adamson until I had heard the evidence in the trial.

The Evidence

47    The Court received evidence from 21 witnesses. The evidence-in-chief of all but one of these witnesses was provided by way of affidavit. Six of the witnesses who had provided affidavits were required to attend for cross-examination. In addition, the Court received a large amount of documentary evidence.

48    A number of the affidavits of the ASIC witnesses had been filed progressively during the interlocutory stages of the proceedings and not as consolidated witness statements. Because of this, on 25 July 2013, Gordon J ordered ASIC to file and serve a document which identified with precision the paragraphs of each affidavit and the exhibits upon which it intended to rely in the trial. ASIC filed this document on 2 August 2013 (the Precision Document) and it became Exhibit P4. It was the paragraphs and exhibits identified in the Precision Document which were regarded as the evidence in the trial.

49    Although Mr Stonehouse, Ms Gore and Mr Gore had filed and served affidavits containing their proposed evidence-in-chief and each was present during the trial, they did not give evidence. Mr Adamson was the only one of the “active” defendants to give evidence.

50    Subject to two principal qualifications, I regarded the evidence of most of the witnesses who attended for cross-examination as being generally reliable.

51    An exception is Mr Chant. He was employed by MOGS from about September-October 2011 until about February 2012 when he commenced working for Royale. Mr Chant has a Bachelor of Business (Accountancy) degree and a Graduate Diploma in Applied Finance and Investment and is a member of the Institute of Chartered Accountants in Australia. He said that he had been in business for many years and that, from about 2003, had been the chief operating officer and chief financial officer of a business called “Sports Alive”. Mr Chant was involved at a number of stages in the implementation of a scheme (referred to by ASIC as “the BVI Scheme”) which was at the heart of the allegations against the MOGS defendants. His evidence was marked by a remarkable cavilling, caginess, and unwillingness to commit to having had knowledge at relevant times of matters relating to the transactions in which he was involved. On many occasions, he required straightforward questions to be repeated before he would answer them. This was quite inconsistent with the competence suggested by his qualifications and work experience. It often seemed that Mr Chant played for time in which to consider a question. On occasion, he was disinclined to admit what was obvious. It was evident that Mr Chant sought to portray himself as a passive participant in the implementation of the BVI scheme when it is obvious that he had played an active role. I considered that much of Mr Chant’s evidence was unsatisfactory and have taken the view that considerable care is necessary before acting on those parts which are not supported by other witnesses or by contemporaneous documents.

52    Mr Adamson was cross-examined extensively. I considered that in many respects his evidence was a genuine attempt to assist the Court and to be truthful. However, it was also apparent that Mr Adamson has ruminated extensively on his involvement in the events at issue on this trial. He has come to recognise the unlawfulness of aspects of his conduct and shortcomings in other aspects. The former was reflected in his consent to the making of declarations of his accessorial liability in relation to several of the contraventions alleged against the primary defendants. It was evident that Mr Adamson is now embarrassed by much of his conduct at relevant times. Nevertheless, and with due respect to Mr Adamson, I considered that on several topics he sought to minimise his own involvement and knowledge of critical matters. Some parts of his evidence were self-serving in nature. This may have reflected a retrospective rationalisation of his conduct. I accept that that rationalisation may, in part, have been unconscious but the effect is that while I accept that much of Mr Adamson’s evidence is reliable, caution is required in relation to several aspects, and there is some of his evidence which I do not accept at all.

53    I will refer to other aspects of the evidence in the course of my later findings.

54    I mention that the substance of this section of the reasons (as well as of some other sections) was prepared at and around the time at which the Court heard the final submissions and is supported by my contemporaneous notes.

Transcripts of the s 19 examinations

55    ASIC tendered the transcripts of examinations of several of the defendants which it had undertaken pursuant to s 19 of the ASIC Act. Initially, ASIC sought the tender under s 76(1) of the ASIC Act. However, it acknowledged that evidence admitted under s 76(1) is evidence only against the examinee and not against any co-defendant.

56    As ASIC also wished the s 19 transcripts to be evidence in the proceeding more generally, it sought to rely in addition on s 77 of the ASIC Act. Section 77 provides that, when direct evidence by an examinee of a matter would be admissible in a proceeding, a statement made by the examinee at a s 19 examination tending to establish that matter is admissible in the proceeding as evidence of that matter, providing that certain conditions are satisfied. Put generally, the examinee must be unable or unavailable in a practical sense to give evidence or otherwise be called by the tendering party if required by another party to the proceeding to do so.

57    ASIC may have had difficulties in establishing the unavailability or inability of Mr Burrows and possibly Mr Gibson to give evidence. Further, although ASIC said that it was prepared itself to call Mr Stonehouse, Ms Gore, Mr Adamson and Mr Gore, this may have had the consequence that it would be precluded from cross-examining them. ASIC then abandoned the proposed tender under s 77, but persisted with its tender under s 76.

58    Mr Kirby, counsel for Mr Stonehouse and Ms Gore, opposed the tender of the transcripts of their respective examinations. I allowed the tender and said that I would give reasons for doing so as part of these reasons. My reasons for allowing the tender were as follows.

59    Section 76 of the ASIC Act provides:

(1)    A statement that a person makes at an examination of the person is admissible in evidence against the person in a proceeding unless:

(a)    because of subsection 68(3), the statement is not admissible in evidence against the person in the proceeding; or

(b)    the statement is not relevant to the proceeding and the person objects to the admission of evidence of the statement; or

(c)    the statement is qualified or explained by some other statement made at the examination, evidence of the other statement is not tendered in the proceeding and the person objects to the admission of evidence of the first-mentioned statement; or

(d)    the statement discloses matter in respect of which the person could claim legal professional privilege in the proceeding if this subsection did not apply in relation to the statement, and the person objects to the admission of evidence of the statement.

(2)    Subsection (1) applies in relation to a proceeding against a person even if it is heard together with a proceeding against another person.

(3)    Where a written record of an examination of a person is signed by the person under subsection 24(2) or authenticated in any other prescribed manner, the record is, in a proceeding, prima facie evidence of the statements it records, but nothing in this Part limits or affects the admissibility in the proceeding of other evidence of statements made at the examination.

60    The word “statement” used in s 76 of the ASIC Act is defined in s 5, in relation to an examination, to include a question asked, an answer given, and any other comment or remark made, at the examination. This means that the evidence made admissible by s 76 is not confined only to the answers of a witness.

61    Initially, Mr Kirby submitted, referring to s 76(3), that the statements made by Mr Stonehouse and Ms Gore in their respective s 19 examinations were not admissible against them because neither had signed the transcript and there had not been any prescription of alternative means by which a written record of an examination could be authenticated. Later, he withdrew his objection on that basis.

62    I took the view that the absence of signatures by Mr Stonehouse and Ms Gore on their respective examination transcripts did not preclude their reception into evidence. Section 76(3) provides one means by which evidence of statements made by a person at a s 19 examination may be adduced before a court, but it is not the only means. Sections 76 to 79 inclusive do not constitute an exhaustive code relating to the admission into evidence of statements made in s 19 examinations: Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 2) [2009] FCA 424; (2009) 176 FCR 529 at [11]. So much is, in any event, made plain by s 83 and by the concluding clause in s 76(3) itself.

63    Section 76(3) is to be understood as providing a practical means by which evidence of statements made in a s 19 examination, which is made admissible by subs (1), may be adduced. It is a recognition that the provision of a transcript will often be a convenient means of placing that evidence before a court. This being the effect of s 76(3), it would be a mistake to construe it as confining or limiting the means by which evidence of statements made at s 19 examinations may be adduced.

64    Ordinarily, evidence by a witness of the statements made by an examinee in the course of a s 19 examination would be hearsay. But the hearsay rule in s 59 of the Evidence Act 1995 (Cth) (Evidence Act) is subject to exceptions. Sections 62 to 64 of the Evidence Act permit first hand hearsay if the maker of the statements had personal knowledge of the asserted facts. Further, the effect of ss 81 and 82 is that the hearsay rule does not apply to evidence of an admission if the evidence is given by a person who saw or heard the admission being made.

65    The transcripts of the s 19 examinations were no doubt prepared pursuant to a process put in place by ASIC for the recording and transcription of examinations, such that the recorder or transcriber is in a position to give first hand evidence of what was said at the examinations. ASIC did not call the transcriber. However, each of the subject examinations was conducted by Mr Childs, albeit with the assistance of other officers. He is a Senior Investigator employed by ASIC and gave evidence in the trial. Mr Childs heard what was said by each examinee. He too is in a position to give first hand hearsay evidence of what was said.

66    Mr Childs deposed to the correctness of each transcript and his evidence about that was not challenged. There is no reason why a witness who is satisfied as to the accuracy of a transcript as a record of what was said at an examination cannot give evidence, by reference to the transcript, of what was said by an examinee: Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC 192; (2006) 57 ACSR 553 at [93]. That is what Mr Childs has done. I considered, therefore, that Mr Childs’ evidence provided a proper means of proof of the statements made by the individual defendants, independently of s 76(3).

67    The view of s 76 which I have adopted is, on my understanding, consistent with that adopted by Gilmour J in Fortescue Metals at [43].

68    Mr Kirby’s substantive argument in opposition to ASIC’s reliance on the evidence of Mr Stonehouse and Ms Gore at their respective s 19 examinations, was based on s 76(1)(a) of the ASIC Act. That subsection incorporates by reference s 68(3) of the ASIC Act, which precludes from admission into evidence in a criminal proceeding or in a proceeding for the imposition of a penalty, statements made at a s 19 examination for which claims for the privilege against self-incrimination or the privilege against self-exposure to a penalty were made. Mr Kirby submitted that the present proceeding was one for the imposition of penalties with the consequence that the statements made by Mr Stonehouse and Ms Gore after claiming one or other of these privileges could not be admitted.

69    As noted earlier, ASIC seeks by way of relief declaration as to the contraventions of the defendants and injunctions. The injunctions are sought pursuant to ss 1101B(1) and 1324(1) of the Corporations Act, restraining each of the defendants, whether by themselves or by others, from carrying on a business concerning financial products or financial services, from providing financial product advice or from dealing in financial products within the meaning of s 761A of the Corporations Act and from carrying on any business related to or concerning superannuation interests within the meaning of the SIS Act. Mr Kirby submitted that a relief of this kind meant that the proceedings were properly characterised as proceedings for the imposition of a penalty. He relied on Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129 in which the High Court held that proceedings seeking the disqualification, pursuant to s 206E of the Corporations Act, of Mr Rich from managing corporations on the ground that he had contravened the Corporations Act were proceedings for the imposition of a penalty such as to attract the privilege against self-exposure to a penalty. The plurality said:

[37]    If a disqualification order is made, the person against whom the order is made ceases to be a director, alternate director, or a secretary of a company, unless given permission under s 206F or s 206G of the 2001 Act to manage the corporation concerned. The order for disqualification thus causes the person against whom it is made to forfeit any office then held in a corporation and forbids that person from holding office in a corporation for the duration of the disqualification order. Those consequences, whether taken separately or in combination, when inflicted on account of a defendant's wrongdoing, are penalties. That the penalty is not exacted in the form of a money payment does not deny that conclusion. As the authorities referred to earlier in these reasons reveal, equity's concern with penalties was never confined to pecuniary penalties. If exposure to loss of office or exposure to dismissal from a police force is exposure to penalty, exposure to a disqualification order is exposure to a penalty.

(Emphasis in the original and citations omitted)

70    The Court also held that the decision of the Court in Australian Securities and Investments Commission v Kippe (1996) 67 FCR 499 should be overruled. In Kippe the Full Court had held that proceedings seeking a banning order under the former ss 829 and 830 of the Corporations Law were not provisions for the imposition of a penalty for the purposes of s 68(3).

71    The reasons of the plurality in Rich demonstrate how equity’s acceptance that a penalty may be more than a monetary exaction has been adopted by the common law. The consequence is that detriments of diverse kinds have come to be regarded as penalties, thereby enlivening the application of the privileges against self-incrimination and self-exposure to penalties. It is pertinent, however, that the Court did not regard the possible imposition of a detriment of any kind at all in consequence of a contravention of an enactment as constituting a penalty.

72    The plurality rejected the notion that the characterisation of a court order as a penalty or otherwise could be determined by reference to the purpose for which it is imposed, saying at [34]:

The question is how the general principles of the privileges against exposure to penalties and forfeiture find application in the particular circumstances of these proceedings. That inquiry is not assisted by examining why the orders sought in the proceedings might be made or what purposes might be achieved by their making. Rather, attention must be focused upon the nature of the orders that are sought.

(Emphasis added)

73    It is pertinent, in my opinion, that the plurality referred to “the nature” of the order and not to its effect. The two concepts are not synonymous. The effect of an order may inform its nature but the character of an order is to be determined by reference to considerations extending beyond the effect it would have in the circumstances of a particular case.

74    In the case of s 1324, the order is referred to as an “injunction”. Although the Court’s power is statutory in origin, the order which is authorised has some similarities with the equitable remedy. The order may be issued to restrain actual or proposed conduct or even in respect of past conduct, when this may have a deterrent effect on other potential contravenors: Australian Securities and Investments Commission v Storm Financial Ltd (Receivers and Managers Appointed) (in liq) (No 2) [2011] FCA 858 at [49]. The exercise of the Court’s power under s 1324 does not require proof of an actual contravention of the Corporations Act. Although there is some authority to the contrary (Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128 at 137), other authority establishes that the injunction may be issued on the application of ASIC or of a person whose interests are affected by the conduct, so that it is not only a regulator’s remedy: Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161 at 166-7. These factors suggest that an injunction under s 1324 is intended to be remedial in character. The remedial nature of an order under s 1324(1) is reinforced by subs (10) which authorises an order for the payment of damages in addition to, or in substitution for, an injunction.

75    An order under s 1101B is not styled as an “injunction”. The section does (subject to one qualification) require the Court to be satisfied that a contravention of a statutory provision of an identified class has occurred and restricts the persons who may apply for the order. There is a sense in which a s 1101B order is more closely aligned with the enforcement of the Corporations Act rather than providing a remedy in the nature of a civil remedy. However, the examples of the kinds of orders that may be made contained in subs (4), which include orders restraining persons from carrying on a business or engaging in classes of action in relation to financial products or financial services, seem more remedial than punitive in character.

76    The orders sought in this case would have the effect of restraining the defendants from engaging in the identified activities. They are not in the nature of positive orders of disqualification or of prohibition, although it may be accepted that the difference in effect between such orders and orders by way of negative restraint may be a matter of degree only.

77    These considerations point against proceedings which include claims for orders under s 1101B(1) and s 1324 as being proceedings for the imposition of a penalty.

78    Following the decision of the High Court in Rich, s 1349 of the Corporations Act was enacted so as to limit the availability of claims of privilege against self-incrimination or self-exposure to penalty. Of relevance presently is s 1349(4):

(4)    Paragraph 597(12A)(d) of this Act, and paragraph 68(3)(b) of the ASIC Act, do not apply to a proceeding for the imposition of a penalty by way of:

(a)    a disqualification under Part 2D.6 of this Act; or

(b)    a declaration under section 853C of this Act; or

(c)    a suspension or cancellation under section 915B of this Act; or

(d)    a suspension or cancellation under section 915C of this Act; or

(e)    a banning order under section 920A of this Act; or

(f)    an order under section 921A of this Act; or

(g)    a cancellation or suspension under Division 3 of Part 9.2 of this Act; or

(h)    a requirement to give an undertaking under paragraph 1292(9)(b) or (c) of this Act; or

(i)    a cancellation or suspension under Division 2 of Part 9.2A of this Act; or

(j)    an order under section 12GLD of the ASIC Act.

Paragraph 597(12A)(d) is a counterpart to s 68(3)(c) of the ASIC Act.

79    Section 1349(4) has the effect that proceedings for orders of the identified kinds, which would be characterised as proceedings for the imposition of a penalty, are not subject to s 68(3)(b). On one view, it could be said that the absence of references in subs (4) to an order pursuant to s 1101B(1) and to an injunction pursuant to s 1324(1) indicates that proceedings for those kinds of orders, although proceedings for the imposition of a penalty, are still subject to s 68(3). I take the opposite view. In my opinion, a legislative intention can be inferred from the omission of inclusion in s 1349(4) of orders and injunctions pursuant to s 1101B(1) and s 1324 respectively that proceedings in which those orders are sought are not to be regarded as proceedings for the imposition of a penalty. If it were otherwise, one would have expected that they too would have been included in the s 1349(4) list because, on that basis, it is difficult to identify a sound reason for their exclusion. In this respect, the proper reach and application of s 597(12A)(d) and its counterpart in the ASIC Act (s 68(3)(b)) is informed by s 1349(4) and its history.

80    One cannot exclude altogether the possibility that the legislature had overlooked s 1101B(1) and s 1324 or had misunderstood their effect. However, given that the evident intention was to overturn the effect of the decision in Rich, one would not readily give effect to such a view.

81    I observe that in Australian Securities and Investments Commission v HLP Financial Planning (Aust) Pty Ltd [2007] FCA 1868; (2007) 164 FCR 487 at [18], Finkelstein J held that s 68(3) of the ASIC Act was inapplicable to proceedings in which ASIC sought only declarations and injunctions.

82    For these reasons I ruled that s 68(3) of the ASIC Act did not preclude reliance by ASIC on the evidence given by Mr Stonehouse and Ms Gore in their s 19 examinations.

83    As noted earlier, the evidence of the statements made by each defendant in the s 19 examination is admissible only against that defendant.

84    Since preparing these reasons, my attention has been drawn to two decisions. First, the decision in In the matter of Vault Market Pty Ltd [2014] NSWSC 1641 in which Brereton J at [83] made some comparison between s 206E and s 1101B of the Corporations Act:

[83]    … The functions of the two sections are not entirely analogous: s 206E operates, in a manner broadly similar to the power to disqualify holders of a motor vehicle driver’s licence, to protect the public both directly (while the disqualification operates) and indirectly (as a deterrent). The context and content of s 1101B indicates that its purpose is protective and remedial, rather than deterrent, in nature. While acknowledging that the example in s 1101B(4)(a), which refers to “an order restraining a person from carrying on a business … in relation to financial products or financial services, if the person has persistently contravened, or is continuing to contravene“ a provision of Ch 7, is but an example and is expressed to be “without limiting subs (1)“ — which empowers the court to make such order or orders as it thinks fit — I would nonetheless treat it as an illustration of what Parliament had in mind, and be influenced by its terms to think that what was contemplated was an injunction to restrain misconduct that was ongoing, or to remove the risk of future misconduct when such a risk was suggested by a history of persistent past misconduct.

I regard that passage as consistent with my understanding of the effect of s 1101B(1).

85    The second is Australian Securities and Investments Commission v Monarch FX Group Pty Ltd, in the matter of Monarch FX Group Pty Ltd [2014] FCA 1387, delivered on 17 December 2014, in which Gordon J took the view, opposite to my own, that s 68(3)(b) did preclude the admission into evidence of a s 19 transcript in circumstances such as the present. I have considered whether, in the light of the decision in Monarch, the hearing in this matter should be re-opened so as to give the parties the opportunity to make further submission on the topic. I have decided against that course, essentially for two reasons. As will be seen, I have relied very little on the s 19 transcripts and I think it undesirable that judgment in this matter be further prolonged.

Evidence admissible against some defendants only

86    There was other evidence adduced at trial which was not admissible against all defendants. I proceeded on the basis that if the evidence was admissible against at least one defendant it would be received and that the parties should address in their final submissions the use to which the evidence received could be put. I note that this approach is consistent with that taken by Austin J in Australian Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282.

Standard of proof

87    By reason of s 1332 of the Corporations Act, ASIC has to establish its case on the balance of probabilities. Much of the evidence on which ASIC relied was of a circumstantial kind. The parties were agreed that in determining the appropriate inferences, the Court should have regard to the seriousness of ASIC’s allegations and the gravity of the consequences for the respondents: Briginshaw v Briginshaw (1938) 60 CLR 336 at 362. Section 140 of the Evidence Act requires this in any event. I accept also that, on those matters on which ASIC carries the onus for proof, it will not be sufficient if the evidence on which it relies gives rise to conflicting inferences of equal degrees of probability: Australian Competition and Consumer Commission v Pauls Ltd [2002] FCA 1586 at [99].

Authenticity of documents

88    During Mr Adamson’s cross-examination, an issue arose as to the requirement for proof of the authenticity of a document before it could be tendered. Mr O’Bryan SC for ASIC cross-examined Mr Adamson by reference to a document which appeared on its face to be an email from Mr Gore to Mr Burrows on Wednesday, 14 December 2011 by which Mr Gore sought an urgent advance of funds. Mr Adamson was not shown on the document to have been a recipient of the email. Mr O’Bryan SC tendered the document. Mr Smith for Mr Adamson objected to the tender on the basis that the authenticity of the document had not been established through Mr Adamson. The submission was, in effect, that proof of authenticity was a pre-condition for the admission of a document into evidence.

89    Mr Kirby had earlier made a similar objection in relation to a different document but, for reasons which need not be mentioned presently, it was not necessary for the Court to determine that objection. Nevertheless, it was evident that an objection of the same kind as those made by Mr Smith and Mr Kirby was likely in relation to further documents.

90    I overruled Mr Smith’s objections for brief reasons which I gave at the time and said that I would provide further reasons later. I provide the following brief reasons.

91    Section 48(1) of the Evidence Act provides (relevantly):

(1)    A party may adduce evidence of the contents of a document in question by tendering the document in question or by any one or more of the following methods:

    …

(b)    tendering a document that:

(i)    is or purports to be a copy of the document in question; and

(ii)    has been produced, or purports to have been produced, by a device that reproduces the contents of documents;

…

(e)    tendering a document that:

(i)    forms part of the records of or kept by a business (whether or not the business is still in existence); and

(ii)    is or purports to be a copy of, or an extract from or a summary of, the document in question, or is or purports to be a copy of such an extract or summary;

…

92    Section 58 permits the Court to examine a document the relevance of which is in question and to draw inferences from the document as to its authenticity. It provides:

58 Inferences as to relevance

(1)    If a question arises as to the relevance of a document or thing, the court may examine it and may draw any reasonable inference from it, including an inference as to its authenticity or identity.

(2)    Subsection (1) does not limit the matters from which inferences may properly be drawn.

93    Mr Smith and Mr Kirby relied upon the consideration of these provisions and of s 51 by Bryson J in National Australia Bank Ltd v Rusu [1999] NSWSC 539; (1999) 47 NSWLR 309, at [26]-[27]:

[26]    Section 51 does not abolish or in any way affect the need to prove that a document tendered is the document which it purports to be, and subs 48(1) does not authorise the adduction of evidence merely by tendering a document in the absence of any evidence establishing what the document is. Subsection 48(1) is not an enactment to the effect that documents are to be received in evidence on the basis of what appears on their own face. Subsection 48(1) prescribes the means of adducing evidence of the contents of documents, and leaves untouched the need to establish that a document is what it purports to be; it does not mean that documents prove themselves, as if judicial notice must be taken of them.

[27]    If subs 48(1) meant that all that had to be done to establish the authenticity of a document was to tender it, it would dispense with the need to prove the authenticity of a document and put the Court entirely in the hands of whatever a document which a party chose to tender purported to be, subject to whatever opportunity another party had of overcoming its apparent effect. I would regard an enactment to that effect as absurd, and I would look for other constructions; however I do not think that subs 48(1) has that effect.

Earlier, at [17] Bryson J had held that before a business record or any other document is admitted into evidence, it was necessary that there should be an evidentiary basis for finding that it was what it purported to be because documents are not ordinarily taken to prove themselves.

94    However, the correctness of this aspect of the decision in Rusu has been doubted in some decisions: O’Meara v Dominican Fathers [2003] ACTSC 24; (2003) 153 ACTR 1 at [85]; Lee v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCAFC 305 at [25]. In Australian Competition and Consumer Commission v Air New Zealand Ltd (No 1) [2012] FCA 1355; (2012) 207 FCR 448, Perram J held at [94]-[104] that the decision was plainly wrong and declined to follow it. Perram J gave detailed reasons for that conclusion with which I respectfully agree. It is not necessary to repeat that reasoning presently.

95    Perram J noted that the New South Wales Court of Appeal in Daw v Toyworld (NSW) Pty Ltd [2001] NSWCA 25; (2001) 21 NSWCCR 389 at [46] had cited Rusu with apparent approval. He considered, however, that the reference to Rusu in Daw v Toyworld was an obiter dictum and so not binding on him. Mr Smith and Mr Kirby submitted that Perram J had been mistaken in that respect and should have regarded himself as bound by the principle stated in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492 that:

[U]niformity of decision in the interpretation of uniform national legislation … is a sufficiently important consideration to require that an intermediate appellate court – and all the more so a single judge – should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.

96    In Daw v Toyworld, the Court of Appeal gave two separate reasons for rejecting a ground of appeal, one of which was of the approach in Rusu. On my understanding, each of the two reasons seems to have been sufficient by itself for the rejection of the ground so that in that sense neither was, of itself, essential for the Court’s decision. In that sense, the approval of the Court of Appeal can be said to be obiter.

97    However, even if that view be incorrect, Perram J did conclude that Rusu was plainly wrong and, although not referring expressly to Marlborough Gold Mines, did have regard to the underlying principle: at [99]. In these circumstances, I am not satisfied that the reasons of Perram J in Air New Zealand miscarried in a way which makes it inappropriate now to adopt the same reasoning.

98    For these reasons, I permitted the tender of the document which became Exhibit P76.

Factual Background

99    In this section of the reasons, I set out some factual background to the issues which arise for the Court’s determination. Some of this section involves findings of fact on material which was not contested, and some findings on disputed evidence.

ActiveSuper

100    ActiveSuper was incorporated in May 2007. After Mr Burrows’ former wife resigned as director in May 2011, he continued as its sole director. Mr Burrows is also its sole shareholder so that, at material times, it was his company.

101    The principal business of ActiveSuper, at least until the events in issue in this case, appears to have been the establishment and administration of SMSFs for clients. By his defence, Mr Burrows admitted that, at material times, he and ActiveSuper had:

(a)    promoted ActiveSuper as being in the business of providing superannuation administration services to SMSFs, including by providing a range of administration, compliance and reporting duties to trustees of SMSFs;

(b)    received and processed completed application forms for the establishment of SMSFs, including forms received from Royale;

(c)    assisted with the establishment of Macquarie Bank Deposit Accounts for newly established SMSFs (Macquarie Accounts) and obtained debit authorities permitting him to act on the Macquarie Accounts;

(d)    assisted with the rolling over of funds from existing superannuation accounts to the Macquarie Accounts;

(e)    assisted with the registration of trustee companies for SMSFs with ASIC and the lodgement of details with the Australian Taxation Office.

102    By its defence, ActiveSuper admitted (a), (b) and (e) of these allegations but not (c) and (d). It did, however, admit that it had received Macquarie Account forms from clients in the course of providing administration services. ActiveSuper charged an establishment fee for SMSFs of either $1,350 or $1,950 as well as an annual administration fee of $1,650.

103    ASIC’s evidence indicates that between 24 May 2010 and 28 October 2011, some 320 persons established SMSFs as a result of the activities of the ActiveSuper defendants. There is also evidence that another 116 persons established SMSFs after 21 October 2011.

104    Until about March 2012, ActiveSuper’s business premises were on Hope Island. ActiveSuper then moved to Southport. Apart from Mr Burrows, ActiveSuper had one other employee. It has never held an AFSL, nor has it been an authorised representative of the holder of such a licence.

105    An order for the winding up of ActiveSuper was made on 4 July 2014. On 13 August 2014, the Court ordered that the claims against ActiveSuper proceed in respect of the claims for the declaratory relief, and that no further steps be taken thereafter with the leave of the Court.

Royale

106    Royale was established on 24 May 2010. Initially, Mr Burrows and Mr Gibson held equal shares but since 6 June 2012, Mr Gibson has been the sole shareholder. Mr Burrows was the sole director until 21 March 2011 when he resigned his directorship. Since then Mr Gibson has been Royale’s sole director.

107    Although Mr Burrows ceased as a shareholder and director of Royale on 6 June 2012, he continued to be the sole signatory on the Royale bank account. ASIC’s case is that, at the times relevant in this litigation, Mr Burrows exercised effective control of Royale and that its function was to generate business for ActiveSuper.

108    Between 15 April 2011 and 21 October 2011, Royale and Mr Gibson were each a Corporate Authorised Representative (CAR) of Romad Financial Services Pty Ltd (Romad) which was the holder of an AFSL. They resigned as a CAR of Romad on or about 21 October 2011, following the commencement of an ASIC investigation of Romad. Royale (but not Mr Gibson) became a CAR of Spring Financial Group Pty Ltd (Spring Financial) on or about 25 October 2011. Mr Gore was instrumental in Spring Financial appointing Royale as a CAR.

109    Royale conducted its business from the same premises as did ActiveSuper, initially on Hope Island and later at Southport.

110    Royale’s business involved principally the promotion of the establishment of SMSFs, the marketing of services associated with the establishment of SMSFs, the marketing of certain investments, and the provision of advice to potential investors concerning those investments. It commenced these activities shortly after its incorporation in May 2010. Its principal method involved cold calling by telemarketing.

111    Mr Harden was an employee of Royale until June 2012. Mr Harden said that he had commenced as an employee of Royale in October 2009 but, given that it was not incorporated until May 2010, he must be mistaken about that. Initially, Mr Harden was employed as a telemarketer himself but later he became a manager of other telemarketers. At the peak of its operations in June 2010, Royale employed six telemarketers in addition to Mr Harden as manager.

112    Although Mr Harden was mistaken about the times at which some events occurred, I regarded his evidence as generally reliable and accept it. He described Royale’s method of operation. The telemarketers were given “leads” by Mr Gibson. These were names and telephone numbers together with some indication of the connection between the persons named and Mr Gibson. The telemarketers would telephone the “leads” with a view to arranging appointments between them and Royale’s “sales people” to discuss the establishment of a SMSF and “membership” of Royale. The number of calls Mr Harden made each day varied between 100 and 350, depending on the number who were interested.

113    The telemarketers used a script given to them by Mr Gibson. These scripts underwent a continuing process of development and revision. A script which Mr Harden identified as having been used in November 2011 was tendered.

114    According to the script, the telemarketer commenced with a suggestion to the recipient that they had spoken some 8-12 months previously in relation to superannuation. Mr Harden acknowledged that that suggestion was usually false and that the calls were true “cold” calls.

115    The telemarketer indicated that he or she was calling from Royale and described Royale’s current members as having achieved “fantastic returns” in the last financial year. The telemarketer would then elicit some brief and general information about the recipient’s superannuation arrangement, and inform them that “the number 1 industry super fund” had provided a return of only 2.9 per cent over the previous three years. The telemarketer offered the recipient the prospect of a “free online super comparison” and asked if they would like to have a call back from a consultant. If the recipient answered in the affirmative, the telemarketer then obtained some further detail and indicated that someone from Royale would contact them over the next few days to arrange a consultation.

116    The witnesses, Toye, Bolton, de Saxe, Osborne, Stagoll, Irwin and Kingdon (who, with the witnesses Mewis and Singer, I will refer to as the “SMSF witnesses”) each deposed to receiving a cold call of this kind from a telemarketer. Ms Singer and Mr Mewis were referred to Royale by acquaintances.

117    Several, but not all, of the SMSF witnesses expressed interest in being contacted by a consultant regarding their superannuation arrangements. Shortly afterwards, all (apart from Ms Singer, Mr Mewis and Mr Kingdon) received a telephone call from Mr Gibson. This included some who had not expressed any interest to the telemarketer. The content of the conversations described by the SMSF witnesses varied, but nevertheless had much in common. Mr Gibson spoke of the benefits of establishing an SMSF fund, comparing the superior returns said to have been achieved by Royale clients compared with those being achieved by most superannuation funds. In some cases, he referred the SMSF witness to the Royale website which contained an example of the performance of one client’s SMSF. In some cases, Mr Gibson telephoned the SMSF witness more than once. It is very apparent from the evidence of these witnesses that Mr Gibson set out to persuade them to establish an SMSF.

118    When the SMSF witness agreed to do so, Mr Gibson (or others on his behalf) sent them a package of material, including an application form. That form described itself as “Royale Capital ActiveSuper Application Form” and referred throughout to “Royale Capital ActiveSuper”. The application form required applicants to indicate the name of their existing superannuation fund or funds and to provide their membership number(s) in that fund. It asked applicants to identify the amount in their existing funds which they wished to roll over into their new SMSF. The application form included an authority from applicants for the establishment of a bank account in the SMSF name and an authority to “Royale Capital ActiveSuper” to deduct fees and costs from that account. Mr Gibson informed the applicant that Royale would charge $5,900 for the establishment of the SMSF and that this amount would be deducted from the SMSF bank account once established. In addition, SMSF investors were to be charged the annual administration fee by ActiveSuper to which I referred earlier.

119    Royale provided the investors with instructions for the establishment of a share trading account with BBY Ltd and the form of application to Macquarie Bank for the establishment of the Macquarie Accounts. Applicants were requested to return the completed form to “Royale Capital ActiveSuper”. Royale and/or ActiveSuper then established the SMSF for the applicant. Having done that, Royale then sent to the SMSFs a series of documents including the SMSF trust deed, establishment minutes, tax file number advice, the Australian Taxation Office acknowledgement of registration of superannuation fund, roll over benefit statements and a Macquarie Bank welcome letter, deposit/cheque book.

120    It is reasonable on the evidence to infer, and I do infer, that Mr Gibson engaged in the conduct described by the SMSF witnesses in relation to each of the SMSF investors who, following a call from a telemarketer, established an SMSF fund through Royale and ActiveSuper and who subsequently made investments pursuant to the US Realty Memorandum, the SPG PPM or the WPO PPM.

121    Mr Harden said that Mr Burrows was “for all intents and purposes ... the boss of Royale Capital” and gave instances of how this was manifest in the daily operations of Royale. I will refer to this evidence later.

MOGS

122    MOGS, which was incorporated on 7 April 2009, was engaged in property development, in particular, the sale of house and land packages to investors. Its shareholders after June 2011 were Mr Adamson, Mascard Pty Ltd (a company associated with Mr Stonehouse), MAC Enterprises (Aust) Pty Ltd (a company associated with Ms Gore) and a Mr and Mrs Anseline. Mr Stonehouse and Ms Gore were its initial directors. Mr Adamson became an additional director on 23 May 2011 and continued as such until 23 April 2012.

123    MOGS initially conducted its business from offices at Paradise Point (Qld) but in about September 2011 moved to premises at Gaven (Qld) at which Mr Adamson also had offices. It used the name “Realestatestock.com.au” to describe itself and its business .

124    MOGS’ general business model in relation to ordinary (non-SMSF) investors involved the acquisition by MOGS or one of its subsidiaries of house lots and the sale of those lots to investors on the basis that MOGS would coordinate the construction of homes on them by builders from whom it had obtained agreements as to price. The purchasers paid the purchase price of the land initially and the construction costs by progress payments. MOGS sought to achieve a profit on each property of between $20,000 and $30,000. It did not deal directly with the purchasers but engaged financial planners to do so.

125    In the case of SMSF investors, the model changed as only completed homes could be sold to them. MOGS accepted that the effect of ss 67 and 67A of the SIS Act was to preclude superannuation funds from borrowing to finance the construction of a building. This meant that MOGS had to finance both the purchase of the land and the construction of the building and had to meet the costs of doing so. MOGS commenced selling to SMSF investors in a significant way in the latter half of 2011 and sought out SMSF investors as potential purchasers. Mr Slijderink, who was the chief executive officer of MOGS between May 2011 and March 2012, gave evidence which I considered to be reliable. He said that by late 2011, approximately 50% or more of MOGS business was targeted to SMSF investors.

126    MOGS’ increased sales to SMSF investors meant that its need for finance was significant as it had to fund both the purchase of the house allotment and the construction of the home. Usually, some six or so months elapsed from the time of agreement with an SMSF investor and the completion of the construction when MOGS could receive payment. It had difficulties in obtaining the necessary finance and was often unable to make payments in accordance with the terms of its contracts. I am satisfied that this explains in large measure the desire of those involved in MOGS to make use of the funds invested by SMSF investors pursuant to the US Realty Memorandum and later pursuant to the PPMs of SPG and WPO.

127    The Court made an order for the winding up on MOGS on 15 October 2013, on the second day of trial. The Court also ordered that the proceeding be prosecuted to the entry of judgment only, and that no further steps be taken without the leave of the Court.

128    The MOGS Unit Trust (the MUT) was established on 1 January 2011. MOGS was the trustee of the MUT. The business operations of MOGS were transferred to MUT on or around 1 January 2011.

129    The beneficiary of the MUT was Mash Investments Pty Ltd as trustee for the Mash Investments Unit Trust (the Mash Trust). A number of person and entities held units in the Mash Trust. These included Mascard Pty Ltd as trustee for the Mascard Trust, MAC Enterprises (Aust) Pty Ltd as trustee for the MAC Bloodline Trust and Mr Adamson as trustee for the MGA Trust.

130    Unless it is necessary to do so, I will not distinguish between MOGS and MUT. That is consistent with the parties’ conduct of the proceedings.

Craig Gore

131    Mr Gore and Marina Gore are husband and wife. On 23 November 2010, Mr Gore entered into a personal insolvency agreement (PIA) under Part 10 of the Bankruptcy Act 1966 (Cth). The PIA required Mr Gore to ensure that one or other of two entities, GFC09 Pty Ltd and ACN 146 231 487 Pty Ltd, paid to the appointed trustee $1 million each year for a period of three years, by means of monthly instalments of $83,333.33, as well as providing other benefits to creditors. GFC09 Pty Ltd had been established on 4 November 2010.

132    On or about 9 May 2011, MOGS and GFC09 Pty Ltd entered into a consultancy agreement relating to the provision of services by Mr Gore to MOGS (although he was not referred to by name in the agreement). The agreed remuneration was a “base fee” of $2 million per annum. By the agreement, GFC09 Pty Ltd was to provide the following services:

(a)    [To be] available to manage and coordinate the pursuit of all necessary development approvals and operational works approvals for all projects pursued by MOGS and its related activities;

(b)    Assist with the negotiation and appointment of consultants as required;

(c)    Promote the projects of MOGS;

(d)    Promote the interests and welfare of MOGS and the MOGS related entities;

(e)    Promote the reputation and integrity of MOGS and the MOGS related entities;

(f)    Provide services and direction necessary to achieve the objectives of the MOGS Board;

(g)    Identify any problem areas and recommend strategies to the Board of MOGS;

(h)    Liaise with various levels of Government and all statutory instrumentalities as may be required from time to time as directed by the Board of MOGS;

(i)    Provide regular reports to the Board of MOGS in relation to the Services as directed by the Board of MOGS.

133    Mr Adamson acknowledged that he had prepared the consultancy agreement. Mr Stonehouse is the sole director of GFC09 Pty Ltd. Ms Gore and Mr Stonehouse were the authorised signatories on the bank account which Mr Stonehouse caused to be established with the Westpac Bank. Ms Gore (using her maiden name) executed the consultancy agreement with GFC09 Pty Ltd on behalf of MOGS and Mr Stonehouse executed the agreement on behalf of GFC09 Pty Ltd. It is obvious that MOGS consultancy agreement with GFC09 Pty Ltd was not an arms-length arrangement.

134    It seems that from about May 2011 Mr Gore provided services to MOGS under the consultancy agreement. On its face, the “base fee” of $2 million per annum constituted a very significant liability for MOGS as its net assets at 30 June 2011 and 30 June 2012 were only $29,000 and $150,000 respectively. It is very evident that if MOGS was to meet its obligation to Mr Gore under the consultancy agreement, and he in turn his obligations under the PIA, it had to increase its income considerably.

135    Ultimately, Mr Gore was made bankrupt on 18 April 2012.

136    The evidence indicates that Mr Gore exercised considerable control and influence over the affairs of MOGS in the latter part of 2011 and the first part of 2012. I will return to that evidence later. Mr Gore’s role was not, as he submitted, merely to “develop sales with third party advisors to sell MOGS properties”.

The US Realty Memorandum

137    The authorship of the US Realty Memorandum was not the subject of direct evidence. However, I draw the inference that Mr Burrows played at least some part in its preparation. He is mentioned by name in the Memorandum twice: first, as being the sole director of APIMA Ltd, the manager of the company to be formed; and, secondly, the Memorandum discloses that he is both a director and shareholder of ActiveSuper and Royale. In addition, the pro forma application contained an authorisation by the investor to either ActiveSuper or Royale to deduct the subscription for shares from their SMSF monies. I draw the inference that these provisions would not have been included in the Memorandum without, at the least, Mr Burrows’ knowledge and approval.

138    The US Realty Memorandum had been finalised by at least 8 February 2011 when a copy of it was sent by a Mr John Palmer to Mr Burrows, but it is likely to have been some months earlier. As Mr Gore pointed out in his final submissions, the bank account of ActiveSuper shows that the first transfers to it, which were apparently related to the US Deals Memorandum, occurred on 20 December 2010. Those transfers seem to have been from the Macquarie Accounts of SMSF investors.

139    The US Realty Memorandum identified Mr Palmer as the director of US Realty Deals Arizona Ltd, an Arizonan registered company. The document also described Mr Palmer as having 27 years’ experience in the property industry in Australia, New Zealand and the US, and as being, in addition, a director and shareholder of US Deals Pty Ltd and US Deals Ltd. The Memorandum had as its heading “US Deals: Invest Now!” and described US Deals as “Residential Property Investment Specialists”, and as having been contracted by Syndicated Property Solutions Arizona Ltd (SPSA Ltd). There then followed a sub-heading “Memorandum of Understanding” with the document announcing itself in the following terms:

This document is both a Protocol and an Agreement for investors to purchase shares in a private company registered in the State of Arizona, USA for the purposes of purchasing foreclosed residential property as part of a portfolio to achieve sustainable high net yields and the expectation of excellent capital gains over a five year period.

The Memorandum then went on to outline, in optimistic terms, the opportunities for profit from the purchase of properties abandoned by owners who could no longer meet their mortgage commitments and whose equity in the properties had been lost.

140    Investors were offered the opportunity to purchase shares in a company to be formed in Arizona. That company was to be managed by APIMA whose sole director was to be Mr Burrows. The Memorandum indicated that the manager would have sole “signatory rights” to the bank account of the company to be formed. Later, however, and inconsistently, the Memorandum provided that the “promoters”, i.e. US Realty Deals Arizona Ltd, would be “signatories” to the bank account of the company to be formed. It foreshadowed a five year term for the investment and, apart from initial fees to SPSA Ltd, indicated that the promoters and managers would not charge ongoing management fees to the company to be formed. Instead, at the end of the five year term, it would retain the balance of funds, if any, generated by the company to be formed after providing to investors a 20% per annum (non-compounding) return on their initial investment, pre-tax.

141    The Memorandum outlined that once the company to be formed was fully capitalised to US$120,000 (being 120,000 shares at US$1 each), it would purchase three properties conforming to identified criteria. It specified that, prior to the capitalisation of the company, shareholders’ funds would be “quarantined” in an Australian based trust account. It then contemplated that, once the properties had been purchased, they would be “leveraged” to a maximum of 60%, thereby allowing the purchase of a further three properties meeting the same criteria. In addition, the purchased properties would be rented with a view to generating rental income. At the end of the five year period, the properties would be sold with a view to realising the anticipated profit.

142    The Memorandum concluded with a form of application for shares in the company to be formed, expressed in rather simplified terms. The form provided for the investor to authorise either ActiveSuper or Royale, or both, to deduct the funds to meet the purchase of the shares “from my Self-Managed Superannuation Scheme” and for those monies to be held in trust until the capitalisation of the company to be formed.

143    The evidence indicates that Royale was still providing the US Realty Memorandum to potential investors during February and March 2012.

144    Between March 2011 and mid-March 2012, some 187 investors paid a total of $3.1 million to ActiveSuper for the purpose of investing in the “opportunity” outlined in the US Realty Memorandum.

145    None of these 187 investors acquired shares in, or received share certificates for, a limited liability company formed and registered in Arizona, or in any company which acquired foreclosed residential property as part of an investment portfolio. Some later received share certificates for Syndicated Property Group Arizona Ltd which, on 6 March 2012, changed its name to SPG. As previously noted, SPG was established in the BVI and not Arizona. It has not acquired any foreclosed residential property as part of an investment portfolio and has not at any time acquired distressed property in the United States.

146    Some of the monies raised pursuant to the US Realty Memorandum were invested indirectly in distressed US real estate. Mr Burrows caused the four LLCs to be incorporated in Arizona in March 2011. Mr Burrows was the sole shareholder and director in each of the LLCs, and, until 4 September 2012, their sole manager. Each of the four LLCs purchased real estate in Arizona. Mr Burrows, acting on advice from Mr Palmer, made the decision as to the properties to be purchased. A total of $3.1 million was raised pursuant to the US Realty Memorandum.

147    All the monies raised between February 2011 and 19 October 2011 (in the order of $1.4 million) were transferred to US bank accounts held by each of the LLCs. Mr Burrows gave the instructions for, or made personally, the transfers, he being the sole signatory on the ActiveSuper and Royale bank accounts.

148    Of the sum of $1.4 million, some US$455,000 was used to buy the 14 properties in Arizona (the LLC properties) in 2011. Around $320,000 was spent on commission and transfer costs. In his final submissions, Mr Gore submitted that the commissions were paid to Mr Burrows and Mr Gibson but the evidence does not indicate, one way or the other, whether that was so.

Loan Agreement between the LLCs and MOGS

149    On or about 19 October 2011, the four LLCs entered into a written loan agreement with MOGS. The agreement, which was prepared by Mr Adamson, provided for a facility of AUD $1 million to be available to MOGS; for drawdowns from time to time as required by MOGS; that MOGS could use the funds under the facility for the purposes it required; for a term expiring on 30 October 2013, with the facility to be fully repaid at that time; and for an interest rate of 15%, with the interest payable, at the option of MOGS, either on 30 October 2013 or quarterly in arrears. Mr Stonehouse and Ms Gore signed the loan agreement on behalf of MOGS. Mr Burrows signed the agreement on behalf of each of the four LLCs.

150    The facility was secured by a guarantee provided by one Christine Need (a friend of Mr Stonehouse) on 19 October 2011, which was supported by a mortgage in favour of the LLCs over a property at Macclesfield in Victoria. Mr Adamson had prepared the guarantee and it was executed by Mrs Need at the offices of Evans Ellis Lawyers in Melbourne. The mortgage had been prepared by Mr Darren Eliau of Evans Ellis Lawyers. Mr Adamson, Mr Stonehouse and Mr Eliau were present when Mrs Need executed the guarantee and the mortgage. On the following day, Mr Adamson took the guarantee, the mortgage, the title deed to Mrs Need’s property and the loan agreement to Mr Burrows for his safe keeping and execution. Mr Burrows later executed the loan agreement on behalf of the four LLCs.

151    On or about 22 November 2011, the LLCs and MOGS executed a deed of variation, the effect of which was to increase the facility limit to $1.47 million. The deed of variation was prepared by Mr Adamson at the request of Mr Gore. It was executed by Mr Burrows on behalf of the LLCs and by Mr Stonehouse and Ms Gore on behalf of MOGS.

152    After the execution of the loan agreement on 19 October 2011, ActiveSuper and Royale ceased transferring monies subscribed by SMSF investors pursuant to the US Realty Memorandum to the bank accounts of the LLCs in the United States. Instead, the invested amounts were paid to MOGS or to other persons or entities at its request. Some $320,000 remaining in one LLC account was also transferred to MOGS (by Mr Burrows).

153    By 28 November 2011, some $1,075.000 had been transferred. Mr Burrows arranged those transfers. Ultimately, around $2.15 million of the US Realty funds was paid to MOGS or its associates.

154    The provision to MOGS of monies raised pursuant to the US Realty Memorandum was a breach of the terms of that Memorandum in, at least, the following respects:

(a)    the amounts invested by the SMSFs were not used for the purchase of shares in an Arizonan company purchasing “distressed” real estate in the United States;

(b)    SPSA Ltd, a company said in the US Realty Memorandum to have 25 years’ experience in residential property investment, was not involved in the investment of the contributed monies, as contemplated by the Memorandum;

(c)    the contributed funds were not “quarantined” in an Australian-based trust account until the United States company to be formed was sufficiently capitalised to make the contemplated investment in “distressed” real estate.

155    The first drawdown by MOGS on the facility occurred on 21 October 2011. Some of the monies drawn down by MOGS were transferred to GFC09 Pty Ltd.

The BVI Scheme

156    Even before the execution of the loan agreement between the LLCs and MOGS, Mr Gore, Mr Burrows, Mr Adamson and others were discussing the establishment of a fund to be marketed to SMSF investors. There is also evidence that Mr Gibson was involved in some of these discussions. The discussions about the development of such a fund continued and developed after 19 October 2011. They culminated in the establishment of SPG, WPO and Cayco, and in offers to Australian SMSFs of shares in SPG and WPO. It is convenient to use the shorthand expression “BVI Scheme” to describe the establishment of SPG, WPO and Cayco, and the marketing of the shares in SPG and WPO to Australian SMSF investors.

157    The principal elements of the BVI Scheme were the establishment of SPG and WPO in the BVI, the development of documents in the nature of prospectuses for the issue of shares in SPG and WPO (the PPMs) which indicated, on their face, that the subscribed monies would be used for investment in real estate; the establishment of Cayco to be the manager of the invested monies; the entry by SPG and WPO (or their subsidiaries) into loan agreements with MOGS; and the disbursement of the subscribed monies to MOGS, to other defendants, and to persons or entities associated with them.

158    I am satisfied that Mr Gore was the principal promoter of the BVI Scheme. He conceived and promoted the scheme and was, for reasons I will give later, the organiser of its implementation.

159    It is very apparent (and I so find) that the purpose of the BVI Scheme was to provide a source of funds for the operations of MOGS. I will refer later to the evidence supporting that conclusion.

160    The BVI Scheme evolved and developed over a period of time. The following is an outline of the principal steps and events in the development of the scheme.

161    On 12 September 2011, Mr Smerdon (a witness in the trial) introduced Mr Gore to Mr Burrows. I regarded Mr Smerdon’s evidence as reliable and make the following findings by reference to it. At the meeting, Mr Gore learnt something of the businesses of ActiveSuper and Royale and, in particular, learned that ActiveSuper was establishing about 10 new SMSFs each week. He told Mr Burrows that he was not aware of the “gold mine” on which he was sitting. Later Mr Gore told Mr Adamson that Mr Burrows and Mr Gibson had “an unbelievable business” and “[did] not know just how good it is”. At the meeting, Mr Burrows told Mr Gore that he was offering SMSF investors investment properties in the United States through LLC companies. Either at that meeting or very shortly afterwards, Mr Gore saw the opportunity for a fund from which MOGS could obtain monies to finance its operations. In addition, he saw the potential for MOGS to sell properties to the SMSF clients of ActiveSuper and Royale.

162    Mr Smerdon said that a week or so later he met Mr Gore, a Mr Hunter (from Murphy Dawson and Partners, a financial planning firm), Mr Chant, Mr Gibson and Mr Burrows at Royale’s office. Mr Gibson showed those attending around “the call centre” and showed an example of the call script used by the telemarketers. From then until the end of 2011, Mr Gore was a regular (weekly) visitor to the Royale office.

163    Other meetings followed. Mr Smerdon deposed to a meeting in the first week of October 2011 at MOGS’ premises. At that meeting, Mr Gore indicated that MOGS needed finance of approximately $4 million. He suggested that Royale could raise that money and lend it to MOGS, secured by a fixed and floating charge over the assets of MOGS together with personal guarantees from MOGS’ directors.

164    At another meeting a week or so later which he chaired, Mr Gore proposed the establishment of an entity to be called the Royale Capital Financial Services Group Ltd (RCFSG). The attendees at the meeting (apart from Mr Gore) were Mr Smerdon, Mr Adamson, Mr Stonehouse, Mr Burrows, Mr Gibson, Mr Chant, Mr Hunter and two representatives from Platinum Finance Pty Ltd. At the meeting, Mr Gore proposed that each person at the meeting had an interest in the services which RCFSG could provide and therefore that each should have a stake in the proposed company.

165    Mr Smerdon then deposed as follows:

[37]    Gore also said that this entity should be based overseas. Gore said that if the entity set up a fund in the BVI (British Virgin Islands) and investors were introduced to that fund through a website set up in the BVI, then we would not be subjected to the same regulatory issues as if the fund was set up in Australia … I recall Burrows asking “what is BVI?”. Gore laughed and said it was the British Virgin Islands. At that time I also did not know what BVI meant.

Although Mr Smerdon was challenged on some aspects of his account of this meeting in his cross-examination, I accept his account as reliable.

166    On 7 October 2011, a few days before the meeting at which Mr Gore proposed the establishment of RCFSG, he, Mr Adamson, Mr Burrows and Mr Kern from Kern Consulting Group had consulted Minter Ellison Lawyers. Mr Adamson said that at that meeting there was “general discussion about incorporation or the establishment of a fund” which would be regulated under the managed investment scheme provisions of the Corporations Act.

167    I am satisfied that between the meeting at the office of Minter Ellison on 7 October 2011 and the meeting at the office of MOGS on 12 October 2011, at which Mr Gore proposed the establishment of RCFSG, Mr Gore had come to consider that the establishment of a fund which would not be subject to regulation by Australian law was preferable.

168    From mid-October 2011, the evidence indicates the pursuit of two strategies. First, the lending to MOGS of monies raised pursuant to the US Realty Memorandum. Secondly, the development of funds based in the BVI which could be a source of finance for MOGS.

169    On 13 and 14 October 2011, Mr Gore circulated the draft of an Information Memorandum for a “SMSF Resolution Fund”. The draft of 13 October indicated on its face that it had been prepared by Mr Gore, but the draft of 14 October showed instead that it had been prepared by Mr Burrows. In fact, all the early drafts were prepared by Mr Gore, as he acknowledged in his final submissions. The document of 14 October 2011 included the following under the heading “Strategy”:

•    To identify and undertake investment activities by way of Resolution Construction funding to third parties/building companies. Investment funds are to be limited by way of superannuation funds only and be invested for the purposes of servicing property to and for the benefit of self-managed super funds.

•    Create a Resolution Investment Fund.

•    To provide a legitimate SMSF investment resolution for SMSFs to acquire completed residential investment property in accordance with Australian legislation.

•    To identify suitable residential investment property opportunities to cater for the growing demand of SMSFs.

•    Develop the Resolution Funding market “First in the Market” opportunities.

The fund structure was described as:

Pooled investment scheme incorporated in the British Virgin Islands LLC.

The minimum investment was stipulated as $30,000 with further increments of a minimum of $5,000 allowed.

170    The document indicates that Mr Gore contemplated a pooled investment fund being established in the BVI; that investment would be confined to SMSFs, and that the principal purposes of the fund would be to provide funding to building companies and to invest in real estate.

171    There were numerous subsequent iterations of a draft Information Memorandum for the SMSF Resolution Fund, although some were differently titled. Mr Gore was either the author of each version or, by request or instruction, caused it to come into existence. The provisions in the later iterations concerning the fund strategy and structure, and proposed minimum investment were the same as those in the version circulated on 14 October 2011.

172    On 17 October 2011, Mr Gore wrote by email to Forbes Hare, a firm of lawyers in the BVI. He said:

As discussed I am working with a company which currently holds approximately 900 individual funds each with FUM of $250K AUD total $225M AUD. Additionally the company arranges a further 100 funds of equal value every month $25M AUD. The company intends to establish a pooled fund in the jurisdiction of Cayman or BVI using the framework of legislation to create appropriate tools to invest in Australia, the USA and Europe via a number of different options. It is anticipated FUM would grow monthly. Essentially at the outset we would only use a portion of available funds to establish the process and once established continue to develop the model.

We would be pleased if you could provide us the available structures. We understand (Private and Professional Funds) are probably the most suited out of the BVI. In saying that we have not discounted Cayman save we have not yet investigated this in any detail. We would like to establish the fund/s prior to Xmas and begin raisings with client at the establishment of the fund. It should be noted a direct relationship already exists with the clientele.

We have not at this point established a relationship with a vendor to provide the services of establishing the company and/or the trust and funds, however we are talking to a number of parties both in the BZVI (sic) and on the mainland of both the UK and USA.

Mr Gore went on to request a time for discussion of the option and indicated an intention to travel to the BVI in the near future.

173    Mr Gore sent an identical email on the same date to a Mr Richard May at the firm of Maples and Calder, which appears to have been a firm of lawyers in either the BVI or in the Cayman Islands.

174    As can be seen, Mr Gore contemplated the establishment of a pooled fund or funds in the jurisdiction of the Cayman or the BVI. I am satisfied that the company to which Mr Gore referred in the first paragraph of this email, although expressed in the singular, encompassed both ActiveSuper and Royale. Mr Gore’s statements concerning the funds under management, and the number of additional funds each month of ActiveSuper and Royale, were not accurate. I am satisfied that Mr Gore knew at the time that he made those statements that they were not correct.

175    On 24 October 2011, Mr Gore and Mr Adamson flew to Los Angeles. They then flew on to New York and shortly afterwards to the BVI. I accept Mr Adamson’s evidence that all of the flight bookings for these journeys had been made before they left Australia.

176    In Los Angeles, Mr Gore and Mr Adamson met Mr George, and had meetings with some lawyers named Baumann and Simbro, and with a Mr Gordon Johnson. Mr Gore told those at the meetings that he represented Mr Burrows and, through him, ActiveSuper and Royale. He outlined the business of those two companies and referred to the opportunity to establish a fund into which SMSFs could invest. Mr Gore spoke of the possibility of the fund ultimately being listed on the NASDAQ.

177    On 26 October 2011, Mr Gore, Mr Adamson and Mr George met a Mr Jose Santos, a member of Forbes Hare. Those discussions too concerned the establishment of a fund in the BVI.

178    Mr Gore, Mr Adamson and Mr George arrived in the BVI on 28 October 2011. They had meetings with Forbes Hare. In addition, they met members of a firm named Osiris and discussed the establishment of a fund which was then proposed to be entitled “World Wide Property and Distressed Opportunities Fund”. It later became WPO. Osiris was a potential fund manager or administrator.

179    Forbes Hare was retained to establish WPO as the fund and Caledonian Fund Managers was retained as a fund administrator instead of Osiris. The precise means by which they were retained was not disclosed in the evidence, but it must have been by one or more of Mr Gore, Mr Adamson and Mr George.

180    WPO was registered in the BVI on 31 October 2011. Mr Adamson and a Mr Todd (from Osiris) were its directors until 17 February 2012. They were replaced by Mr George who has remained as a director. Mr Burrows was appointed a director on 1 March 2012 and remained a director until 17 August 2012. From 1 March 2012, Limestone Consulting held 99 Management Shares and Cayco one Management Share. Under WPO’s Articles, the Management Shares had voting rights only. The Participating Shares which were issued to investors had rights to dividends but no voting rights. Mr Burrows was the sole shareholder and director of Limetree Consulting which meant that he had control of WPO.

181    On 1 November 2011, Mr Gore gave instructions to Mr Santos to establish a second fund to be entitled Syndicated Property Group Arizona. This company was registered on 2 November 2011 and later became SPG. In these reasons, I will refer to this fund by the name by which the company became known ultimately, namely, SPG. Mr George was initially the sole director. Mr Burrows was appointed as a director on 9 November 2011 and remained a director until 17 August 2012. From 9 November 2011 until 17 October 2012, he held the single Management Share in SPG. Investors were to receive Participating Shares. The rights attaching to the Management Shares and Participating Shares in SPG were the same as those applying in WPO.

182    Mr Santos recommended that a corporate entity be established as investment manager of the two funds. Cayco was incorporated on 31 January 2012 for this purpose. The evidence did not disclose why Cayco was incorporated in the Cayman Islands, whereas WPO and SPG were incorporated in the BVI. Mr George and Mr Adamson were the directors of Cayco with effect from 7 March 2012. The shareholder in Cayco at relevant times was WWPDAF Ltd, a company incorporated in the BVI on 3 November 2011. Its shareholders were ESY.FC Ltd (a company of which Mr Adamson was the sole shareholder and director) and SMBLA Ltd (a company controlled by Mr George). Mr Adamson was the sole director of WWPDAF Ltd.

183    Mr Gore, Mr Adamson and Mr George (or one or more of them) gave the instructions to Mr Santos for the incorporation of Cayco, WWPDAF Ltd, SMBLA Ltd and ESY.FC Ltd and another company NOEB Ltd. The names of the latter four companies were acronyms. Each company was incorporated in the first week of November 2011.

184    The firm of Deloittes was retained as auditor to the two funds.

185    While Mr Gore and Mr Adamson were in the BVI, a proposal emerged for Mr Burrows to transfer the shares which he held in the four LLCs to SPG. The evidence does not permit a finding as to who initiated that proposal. However, I do accept Mr Adamson’s evidence that, on or about 1 November 2011, following a telephone discussion between Mr Burrows and Mr Gore, Mr Burrows instructed him to prepare an agreement for the transfer of the shares which he held in the four LLCs to SPG.

186    At this time, Mr Burrows also provided to Mr Gore a list of the clients who had invested in each of the four LLCs, together with the amounts of their investments. Mr Burrows was anxious that shares in SPG should be allotted to these clients and that the share certificates be issued to them as soon as practicable, having regard to the audit requirements for the SMSFs in Australia.

187    Thereafter, Mr Burrows periodically sent to Mr Adamson lists of the clients in respect of whom share certificates were required. Mr Adamson provided those lists to Forbes Hare who must, in turn, have provided them to Caledonian Fund Managers. Thereafter, share certificates for shares in SPG were issued to at least some of the SMSF investors.

188    The agreement for the transfer of Mr Burrows’ shares in the LLCs to SPG was first executed by Mr George on behalf of SPG on 9 November 2011. The consideration for the transfer was $10. The completion of the transfers was delayed because US lawyers advised that additional documentation and assignments were necessary and there were, in any event, apparently some shortcomings in those originally executed. The agreements and transfers were finally executed on 14 November 2011. Forbes Hare commenced issuing share certificates to the SMSF investors on 24 November 2011.

189    Mr Gore and Mr Adamson remained in the BVI until about 9 November 2011. They then returned to Australia. It seems that Mr George remained in the BVI and, amongst other things, was a point of contact for those in Australia with Forbes Hare, Deloittes, Caledonian Fund Managers and others.

190    After the return of Mr Gore and Mr Adamson to Australia, the focus of activity was on the completion of the PPMs for each of WPO and SPG.

191    The PPMs were subject to a process of development and refinement between mid-November 2011 and mid-March 2012. Those who contributed to the development of the PPMs included Forbes Hare, Mr Gore, Mr Adamson, Ms Gore, Mr George, Mr Chant, Ms Erskine-Shaw (a MOGS employee), Mr Quinn (a MOGS employee), Mr Smerdon and Mr White at Deloittes in the BVI. Mr Smerdon’s involvement in the preparation of the PPMs was relatively limited. It appears to have been confined to making some suggestions concerning the early drafts and ceased, in any event, on or about 12 December 2011.

192    I will make findings later concerning the involvement of Mr Burrows in the preparation of the PPMs.

193    Mr Burrows, Mr and Ms Gore and Mr Chant travelled to the BVI in late February 2012. Their principal purpose was to finalise matters concerning WPO and SPG, although Mr and Ms Gore also took a holiday at the resort on nearby Scrub Island. After the return of Mr Burrows and Mr and Ms Gore to Australia, Mr Chant remained in the BVI as a point of contact.

194    At about this time, work commenced on the preparation of a loan agreement between WPO and MOGS, Mash Investments Pty Ltd as trustee of MOGS Unit Trust, MOGS (SA) Pty Ltd and MOGS (Qld) Pty Ltd. Subsequently, lending policy manuals, facility agreements and compliance plans were developed for each of WPO and SPG. There is no suggestion in any of the evidence that loan agreements with any entities other than MOGS and its subsidiaries or affiliates were contemplated or established, and I find that they were not.

195    Mr Chant also coordinated the development of a website for Cayco with separate pages for WPO and SPG. The website was established so that potential investors could, on using a password provided to them, access the website as part of the marketing and promotion of investment in the funds.

196    By letter dated 6 March 2012, Mr Eliau and Mr Arora from the firm of Evans Ellis Lawyers provided advice to Forbes Hare (identified as acting on behalf of SPG) to the effect that investment in SPG was an appropriate form of investment for Australian SMSFs. By some means not identified in the evidence, that advice also came into the hands of Mr Gore as, on the same day, he sent a copy to Mr Burrows.

197    The SPG PPM was finalised on 8 March 2012. Marketing by Royale of investment in SPG to SMSF investors then commenced almost immediately. The WPO PPM was finalised on 23 March 2012 and, again, the marketing by Royale of the investment in WPO to SMSF investors commenced almost immediately.

198    The marketing was successful. The flow of monies from SMSF investors commenced in mid-March 2012. ActiveSuper and Royale transferred the subscribed monies to SPG and WPO according to the investor’s application. SPG and WPO transferred some of the monies they received to the bank account of Cayco. Transfers of monies out of the Cayco account were then made as follows:

199    Until 10 May 2012, none of Cayco, WPO or SPG had entered into any loan agreement with any entity or person at all.

200    In late March/early April 2012, Mr Gore directed Mr Adamson and Mr Chant to travel again to the BVI to finalise loan agreements. Mr Adamson and Mr Chant did so. The terms of the loan agreements and supporting guarantees were negotiated with Forbes Hare in the period commencing on or about 18 April and concluding on 10 May 2012.

201    On 10 May 2012, subsidiaries of WPO entered into a number of loan agreements with MOGS and/or its subsidiaries pursuant to which WPO’s subsidiaries agreed to lend funds to those entities. MOGS was paid around $2 million of the money raised pursuant to the SPG and WPO PPMs. This was in addition to the $2.15 million it received from the funds raised pursuant to the US Realty Memorandum.

202    On 22 April 2013, this Court ordered that receivers and managers be appointed to the property of the MUT. Mr Killer and Mr McCann were appointed as joint and several receivers and managers. Mr Killer provided a report to the Court dated 6 June 2013 which was tendered by ASIC. I accept the contents of the report as reliable. Mr Killer identified the use of funds by MUT as follows:

(a)    To Ms Gore

(i)    Payment of $465,863 to the MAC Trust in the 2012 financial year. As already noted Ms Gore controls the MAC Trust;

(ii)    Salary of $320,418 and $59,292 respectively in the 2012 and 2013 financial years;

(iii)    Loans to Ms Gore of $241,044 and $44,458 respectively in 2012 and 2013 financial years;

(iv)    Loans of $188,292 and $220,865 respectively to the MAC Trust in the 2012 and 2013 financial years.

(b)    To Mr Gore

(i)    $1,681,609 to GFC09 Pty Ltd in the year ending 30 June 2012. As already noted this was the vehicle by which Mr Gore provided consultancy services to MOGS and one of the vehicles by which he made payments to his creditors pursuant to the PIA during the 2012 financial year;

(ii)    Payments of salary of $32,603 and $35,863 respectively in the 2012 and 2013 financial years;

(iii)    Loans of $41,413 in each of the 2012 and 2013 financial years;

(iv)    Loans of $80,869 and $81,688 respectively to the Gore Family Trust No 2 in the 2012 and 2013 financial years.

(c)    To Mr Adamson

(i)    Salary of $199,028 and $42,192 respectively in the 2012 and 2013 financial years;

(ii)    Loans of $16,892 and $65,992 respectively in the 2012 and 2013 financial years;

(d)    To Mr Stonehouse

(i)    $36,907 to the Stonehouse Properties Trust in the 2012 financial year;

(ii)    Loans of $37,345 and $48,895 respectively in the 2012 and 2013 financial years;

(iii)    Salary of $139,591 and $47,785 respectively in the 2012 and 2013 financial years.

(e)    To Mr George

(i)    Payments totalling $75,084 in the period between January and October 2012.

(f)    To Thaya Morgan-Phoenix (Mr Gore’s former wife)

(i)    Payments totalling $274,012.31 in the period between 21 October 2011 and 31 July 2012.

(g)    To Contractors’ fees

(i)    Payments totalling $664,932 and $79,421 respectively in the 2012 and 2013 financial years.

203    It also seems that MOGS may have made a number of other payments which benefited Mr and Ms Gore or members of their family but it is not necessary to make separate findings about that.

204    The figures given above for the 2013 financial year relate to the nine month period ending on 31 March 2013.

The Issues in the Trial

205    Against that background, I turn to the issues for determination in the trial.

Section 726: Offering securities in a non-existent company

206    ASIC alleges that the ActiveSuper defendants contravened s 726 of the Corporations Act in the period from at least February 2011 to March 2012.

207    Section 726 proscribes offers of securities for issues in a non-existent company if disclosure would be required under Pt 6D.2 of the Corporation Act if the company was in existence. It provides as follows:

A person must not offer securities of a body that has not been formed or does not exist if the offer would need disclosure to investors under Part 6D.2 if the body did exist. This is so even if it is proposed to form or incorporate the body

208    Section 706 of the Corporations Act has the effect that an offer of securities will require disclosure to investors under Part 6D.2 unless exempted by ss 708 or 708AA. Defendants have the onus of establishing that one or other of the exceptions for which ss 708 and 708AA provide is applicable: Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 71 ACSR 1 at [40].

209    Chapter 6D of the Corporations Act applies to offers of securities which are received in Australia, regardless of where any resulting issue, sale or transfer occurs: s 700(4).

210    Although ASIC alleges that each of the ActiveSuper defendants contravened s 726 by the dissemination of the US Realty Memorandum, this decision concerns only the claim against ActiveSuper and Mr Burrows. That claim involves four issues: first, was the US Realty Memorandum an offer of securities to Australian investors; secondly, was the offer for securities in a non-existent USA company; thirdly, did ActiveSuper and Mr Burrows make the offers; fourthly, did s 726 require disclosure to the investors if the US company had been in existence? This fourth issue requires attention to the exceptions for which s 708 provides.

211    In considering these issues, I keep in mind that ActiveSuper and Mr Burrows did not ultimately contest ASIC’s claim. Instead, as previously noted, both consented to declarations that, during the period commencing no later than 10 February 2011 and concluding on or about 9 March 2012, they had contravened s 726 by making offers of shares in an unnamed entity when, at the time the offers were made, the unnamed entity did not exist.

Were there offers of securities?

212    The securities to which s 726 refers include shares: see ss 700(1) and  761A of the Corporations Act.

213    The US Realty Memorandum was undoubtedly an offer of shares for issue. It commenced with a statement that it was both a “Protocol and an Agreement for investors to purchase shares in a private company registered in the State of Arizona” and concluded with a pro forma application for the issue of the shares. The Memorandum contained the usual indicia of an offer, describing the nature of the securities offered, stating the price at which they could be acquired, providing for the means by which the offer could be accepted, and setting out various terms of the offer: see Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2) [2005] NSWSC 267; (2005) 53 ACSR 305 at [99].

214    The evidence of the SMSF witnesses indicates that the offers were made to Australian investors. Seven of them annexed to their affidavits a copy of the US Realty Memorandum provided to them. All made investments pursuant to the Memorandum. I accept their evidence.

215    Having regard to the evidence of these investors, to that of Mr Harden as to the modus operandi of Royale and ActiveSuper, and to the evidence of the amounts contributed by SMSFs pursuant to the US Realty Memorandum (around $3.1 million), it is reasonable to conclude (and I do so conclude) that the offers were made to numerous Australian SMSF investors. They were therefore offers within the geographical coverage of s 726.

Were the offers for securities in a non-existent company?

216    The US Deals Memorandum specified on its face that the company in which investors would be acquiring shares was yet to be formed. The pro forma application, expressed in the first person, required investors to state that they applied for shares in a company “to be formed”. Investors were required to give an authorisation for the transfer of monies from their SMSF accounts, but that authorisation specified that the monies were to be held on trust until the capitalisation of the company “to be formed”.

217    The four LLCs which are defendants in the proceedings were formed on 14 March 2011. It is possible that they had already been formed when some of the SMSF investors subscribed for shares. However, it is evident that Mr Burrows contemplated the incorporation of a succession of LLC companies in the USA which would issue shares to subscribing SMSF investors. The evidence did not indicate how many of the LLCs were later established, nor the timing of their establishment. Nevertheless, the very terminology of the US Deals Memorandum indicates that it was an offer of shares in a company yet to be formed. It is, considered objectively, to be construed as an offer of that character.

218    ActiveSuper admitted the allegation in 2FASC [66] that the offers made in the US Realty Memorandum were to acquire shares in companies which were not then in existence. Mr Burrows’ defence does not contain a corresponding admission. It pleads instead:

[The third defendant] does not plead in response to paragraph 66 as that paragraph does not contain allegations against him.

Mr Burrows’ assertion that the plea in 2FASC [66] did not contain an allegation against him is mistaken. Plainly, [66] did contain such an allegation as it was one of the matters upon which ASIC relied for its plea that he had contravened s 726.

219    The effect of Mr Burrows’ plea to [66] in the 2FASC is that he is taken to have admitted it. That is the consequence of r 16.07 of the Federal Court Rules 2011, which provides:

16.07    Admissions, denials and deemed admissions

(1)    A party pleading to an allegation of fact in another party’s pleading must specifically admit or deny every allegation of fact in the pleading.

(2)    Allegations that are not specifically denied are taken to be admitted.

(3)    However, a party may state that the party does not know and therefore cannot admit a particular fact.

(4)    If a party makes a statement mentioned in subrule (3), the particular fact is taken to be denied.

See also Triangle Cables (Aust) Pty Ltd v Czuchwicki [2012] FCA 718 at [11].

220    Accordingly, it is appropriate to proceed on the basis that Mr Burrows is deemed to have admitted that the offers made in the US Realty Memorandum in the period from at least February 2011 to March 2012 related to companies not in existence at the time.

Did ActiveSuper and Mr Burrows make the offers?

221    A person will offer securities for the purposes of s 726 if the person has the capacity, or agrees, to issue or transfer the securities if the offer is accepted (s 700(3)). ASIC alleged that ActiveSuper and Mr Burrows had that capacity.

222    A person may make an offer of securities in a number of ways including personally, by an employee or agent (Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310, (2002) 41 ACSR 561 at [63]), or by authorising and approving an offer (Pegasus at [63]); Australian Securities and Investments Commission v Narain [2008] FCAFC 120, (2008) 169 FCR 211 at [19], [98]).

223    The substantive allegation in para 21 of the 2FASC is as follows:

From at least February 2011 to March 2012, Burrows, Gibson, ActiveSuper and Royale Capital marketed to their Australian SMSF clients and potential clients a purported investment opportunity pursuant to a document headed “US Deals Invest Now” (US Realty Memorandum).

The 2FASC particularised this allegation by reference to the conduct of Royale and/or Mr Gibson. It did not contain any plea of the facts or circumstances said to make the conduct of Royale or Mr Gibson attributable to ActiveSuper and Mr Burrows. There was however a cross-reference to the pleas in paras 19 and 20 which described the activities of each of ActiveSuper and Royale. They included allegations that Royale and Mr Gibson solicited clients for ActiveSuper and generated business for it.

224    By their respective defences, Royale and Mr Gibson admitted the allegation in para 21 but it was denied by each of ActiveSuper and Mr Burrows.

225    The evidence established that Royale and Mr Gibson marketed the US Deals Memorandum by telling potential SMSF investors of the offer and, if they showed interest, sending a copy of the Memorandum to them.

226    ASIC submitted that no distinction should be drawn between this conduct of Royale and Mr Gibson, on the one hand, and that of ActiveSuper and Mr Burrows, on the other. The manner by which the conduct of Royale and Mr Gibson was to be attributed to ActiveSuper and Mr Burrows was not particularised. However, ASIC’s case seemed to be that, by reason of the close connection between Mr Burrows and Royale, the manner of conduct of the respective businesses, and the apparent purpose of Royale’s activities, Royale and Mr Gibson should be regarded as the instruments by which ActiveSuper and Mr Burrows achieved their business purposes (cf: Keller v LED Technologies Pty Ltd [2010] FCAFC 55; (2010) 185 FCR 449 at [404]-[408]). In short, ASIC alleged a form of agency, albeit not the conventional kind discussed by Ward J in an analogous context in Re Idylic Solutions Pty Ltd; Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276 at [1344]-[1355].

227    There is evidence to support this conclusion. As already noted, when Royale was incorporated on 24 May 2010, Mr Burrows was its sole director, although he and Mr Gibson had equal shareholdings. Mr Burrows continued as sole director until 21 March 2011, and thereafter Mr Gibson was the director. Despite that change, the evidence indicates close control by Mr Burrows of the activities of Royale.

228    Mr Burrows worked in close proximity to Royale’s telemarketers. He had a separate office in the Hope Island premises approximately 10 m away from the telemarketers. The Southport offices were open plan and Mr Burrows was separated from the telemarketers by only a glass barrier.

229    Mr Burrows was the sole signatory of Royale’s bank account. This enabled him to exercise practical control of a number of aspects of its operations. Amongst other things, it meant that Mr Burrows determined when Royale’s employees were paid and Mr Harden described Mr Burrows exercising that power from time to time. Mr Harden described Mr Burrows as being “for all intents and purposes” the boss at Royale. He referred in particular to Mr Burrows reprimanding staff at Royale, including Mr Gibson, and summoning Mr Gibson away from activities in which he was then engaged. It seemed to Mr Harden while he was working for Royale that its business and the business of ActiveSuper were “one and the same”. There was no suggestion in Mr Harden’s evidence that there had been any change in Mr Burrows’ exercise of control over the activities of Royale after March 2011 when he resigned as its director.

230    Another indication of Mr Burrows’ role in relation to Royale is seen in Mr Adamson’s evidence concerning the circumstances in which Royale ceased to be a CAR of Romad. Mr Adamson’s evidence, which on this topic I accept, was to the effect that, on Saturday, 22 October 2011, Mr Burrows telephoned him. Mr Burrows told him that Romad’s AFSL had been suspended by ASIC, and that he (Mr Burrows) did not wish to be associated with Romad. Mr Burrows requested him to prepare a letter terminating “our” agreement with Romad. Shortly afterwards, Mr Burrows sent to Mr Adamson a copy of the email from Romad announcing the suspension of its licence and, at Mr Adamson’s request, provided him with a copy of the CAR between Romad and Royale. I regard this evidence as indicating a significant involvement by Mr Burrows in October 2011 in the conduct of Royale’s business.

231    Mr Adamson also said that he had understood before 22 October 2011 from his previous meetings with Mr Burrows and Mr Gibson that Mr Burrows was “heavily involved” in the administration and management of the business of Royale, and had not thought it unusual that Mr Burrows was speaking to him about Royale’s licensing issues.

232    There are other indications. Three of the SMSF witnesses received a letter from Royale, dated 15 August 2011, 2 October 2011, and 1 December 2011 respectively, signed by Mr Burrows who described himself as “Head of SMSF Administration”. Given the pro forma nature of these letters and the span of time over which they were sent, I infer that Mr Burrows sent letters of this kind to many, if not all, of the SMSFs which were established as a result of the activities of Royale.

233    One of the SMSF witnesses, Mr Bolton, attended at Royale’s office at Hope Island in early July 2011. Mr Gibson introduced Mr Bolton to Mr Burrows who then spoke to him for about 10 minutes regarding the way in which Royale conducted its business.

234    Mr Bolton also observed ActiveSuper banners in the Royale office. Mr Burrows told him that ActiveSuper was the company which “they” used in the Royale business. Mr Bolton also received a letter from Royale dated 15 August 2011, signed by Mr Burrows who again described himself as “Head of SMSF Administration”, by which he was requested to complete the application form for the establishment of a bank account for his superannuation fund.

235    Ms Singer and Mr Osborne, two of the SMSF witnesses, each received a letter from Royale dated 16 December 2011 enclosing a Syndicated Property Group Arizona Ltd Share Certificate. Those letters were signed by Mr Burrows, again describing himself as “Head of SMSF Administration”.

236    I note again that the application forms provided by Royale did not distinguish between Royale and ActiveSuper. Instead, the application forms referred throughout to “Royale Capital ActiveSuper”. In addition, Mr Smerdon said that Mr Burrows had spoken for both ActiveSuper and Royale at the meetings which he had attended.

237    The close connection between Royale and ActiveSuper is also indicated by the benefit which the activities of the former achieved for the latter. Between May 2010 and March 2012, ActiveSuper established more than 320 SMSFs as a result of Royale’s activities. ActiveSuper charged either $1,350 or $1,950 for the establishment of each SMSF. Plainly, Royale was a major source of income for ActiveSuper. The anticipation of this financial benefit provides a ready explanation for Mr Burrows’ control of Royale.

238    In considering the connection between ActiveSuper and Royale’s activities in distributing the US Realty Memorandum, it is appropriate to have regard to the absence of any apparent direct benefit to Royale from those activities. It does not seem that Royale itself received any financial benefit from investors who subscribed pursuant to the US Realty Memorandum. That Memorandum on its face indicated that SPSA Ltd (which was Mr Palmer’s company) would receive fees in respect of the properties purchased in the USA. In addition, US Realty Deals Arizona Ltd (another of Mr Palmer’s companies) and APIMA Ltd (of which Mr Burrows was the sole director) would profit to the extent that the proceeds of sale of a US property provided a return exceeding 20% per annum to the investors. There was, however, no provision for Royale to be remunerated in respect of its activities in distributing the US Realty Memorandum. However, it may be that the Court has not received evidence of all matters bearing upon the remuneration of Royale or Mr Gibson, and I am reluctant to attach significant weight to this consideration.

239    There was some evidence that Mr Burrows took steps to maintain a distinction between the businesses of ActiveSuper and Royale. Mr Chant said that Mr Burrows was at pains to ensure that the two businesses were distinct and separate. He said that Mr Burrows had “often indicated to me that his role was purely as fund administrator for the ActiveSuper business, and that Justin Gibson ran and controlled the Royale Capital business”. Mr Chant also said that he observed that, while the businesses were in the one premises, they were separated by “a fixed wall and a locked door” and that it had appeared to him that the conduct of each business was controlled separately.

240    However, given the evidence from Mr Harden and the documentary evidence just summarised, I am not prepared to act on this evidence of Mr Chant. As noted earlier, I did not regard Mr Chant as a generally reliable witness and, in any event, Mr Chant had only limited opportunities to observe the day to day functioning of the two businesses. It is possible that, by resigning his directorship of Royale in March 2011, Mr Burrows had sought to separate himself to some extent from the Royale business. However, I have the impression that these steps were taken by Mr Burrows for the purposes of appearance and did not reflect the reality of the situation. An indication that this was so is that when Mr Smerdon offered to introduce Mr Burrows to Mr Gore, Mr Burrows said that he was not in “the sales game” and was “not authorised to provide investment advice”. He told Mr Smerdon that his “business partner”, Mr Gibson “was looking to introduce new deals to clients of his business”. Nevertheless, Mr Burrows proceeded to have numerous meetings with Mr Gore.

241    I conclude therefore that Royale and Mr Gibson were instruments through which Mr Burrows and ActiveSuper acted. I accept ASIC’s submission that, other than in matters of form, ActiveSuper and Royale were for practical purposes a single business. Accordingly, it is appropriate to regard the conduct of Royale and Mr Gibson in providing the US Realty Memorandum to SMSF investors as being also the conduct of ActiveSuper and Mr Burrows.

Did Pt 6D.2 require disclosure?

242    Mr Burrows undoubtedly had the capacity to issue the shares in the company to be formed. That capacity arose from the circumstance that he was the sole director of APIMA, the manager of the company or companies to be formed in which the SMSFs would invest. It is also evident in the circumstance that it was Mr Burrows who later caused share certificates to be issued by SPG to SMSFs which had, before SPG was established, invested pursuant to the US Realty Memorandum.

243    Sections 708 and 708AA contain the exceptions to the obligation for disclosure to investors to be made in respect of an offer of securities. Section 708AA, relating to rights issues, is not presently pertinent.

244    Section 708 contains a number of exceptions: if the offers do not result in a breach of the 20 investors ceiling or the $2 million ceiling (subs (1)); if the offers are made to “sophisticated investors” (subs (8)) or to “professional investors” (subs (11)); if the offers are made through a financial adviser (subs (10)); and in some other circumstances which need not be mentioned presently.

245    As noted, defendants have the onus of establishing that disclosure in accordance with s 706 is not required: Cycclone Magnetic at [40]. The defences of ActiveSuper and Mr Burrows do not include an allegation to the effect that one of the s 708 exceptions applies. In particular, there is no suggestion in the pleadings or in the evidence that the exception relating to personal offers not resulting in the amount raised by the company to be formed not exceeding $2 million in any 12 month period is applicable. In this respect, the consent by ActiveSuper and Mr Burrows to a declaration that they contravened s 726 is pertinent.

246    In all these circumstances, I find that s 726 did oblige the requisite disclosure to the SMSF investors on the basis that such disclosure would have been necessary had the company to be formed, to which the US Realty Memorandum referred, been in existence.

Conclusion

247    Accordingly, I find that ActiveSuper and Mr Burrows have contravened s 726 of the Corporations Act, as alleged by ASIC and that a declaration to that effect is appropriate.

Section 727: Offering securities without a disclosure document

248    ASIC alleges that each of the ActiveSuper defendants, SPG, WPO and Cayco contravened s 727(1) and 727(2) of the Corporations Act by making offers of shares, or by distributing application forms for the offer of shares in SPG and WPO.

249    As ASIC’s claims of accessorial involvement by the MOGS defendants include the alleged contraventions of s 727 by Royale and Mr Gibson, it is necessary on this occasion to make findings as to their conduct.

250    Section 727 provides (relevantly):

Offer of securities needs lodged disclosure document

(1)    A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC.

Offer form to be included in or accompanied by disclosure document

(2)    A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless:

(a)    if a prospectus is used for the offer—the offer or form is:

    (i)    included in the prospectus; or

(ii)    accompanied by a copy of the prospectus; or

(b)    if both a prospectus and a profile statement are used for the offer—the offer or form is:

(i)    included in the prospectus or profile statement; or

(ii)    accompanied by a copy of the prospectus or profile statement; or

(c)    if an offer information statement is used for the offer—the offer or form is:

(i)    included in the statement; or

(ii)    accompanied by a copy of the statement.

Note:    Sections 706, 707, 708, 708AA and 708A say when the offer needs disclosure to investors under Part 6D.2.

…

Issue or transfer not to breach section 708 ceiling

(4)    If a person relies on subsection 708(1) to make offers of securities without disclosure to investors under Part 6D.2, the person must not issue or transfer securities without disclosure to investors under that Part if the issue or transfer would result in a breach of the 20 investors ceiling or the $2 million ceiling (see subsections 708(3), (4), (5), (6) and (7)).

…

Contraventions of s 727(1)

251    As can be seen, s 727(1) prohibits two distinct forms of conduct in circumstances in which a disclosure document is required but has not been lodged with ASIC: the offering of securities and the distribution of an application form for the offer of securities: Australian Securities and Investments Commission v Axis International Management Pty Ltd (No 5) [2011] FCA 60; (2011) 81 ASCR 631 at [199]-[200].

252    ASIC’s allegation is that each of the ActiveSuper defendants, Cayco, SPG and WPO contravened s 727(1) in one or other of the proscribed manners, namely, by offering shares in SPG and WPO and, or alternatively, by distributing application forms for the offers of shares in SPG and WPO. In the case of each of SPG and WPO, the alleged contravention relates only to the making of offers and distribution of application forms for the offer of shares in itself, and not in the other.

253    Section 727(1), like s 726, contains an absolute prohibition. Persons will contravene it if they make an offer or distribute an application form without a necessary disclosure document having been lodged, even if they do not know that the offer or the distribution requires disclosure: Axis International at [201].

254    The elements of a contravention of s 727(1) are these:

(a)    the alleged contravenor made an offer of securities or distributed an application form for an offer of securities;

(b)    the offer needed disclosure to investors under Pt 6D.2;

(c)    no prospectus, profile statement or offer information statement had been lodged with ASIC.

255    Accordingly, the contraventions of s 727(1) alleged by ASIC give rise to four separate issues: did the PPMs of SPG and WPO contain an offer of securities or application forms for an offer of securities; did ActiveSuper, Royale, Mr Burrows, Mr Gibson, Cayco, SPG and WPO make the offers in the PPMs, or distribute the application forms in the PPMs; did the offers require disclosure under Part 6D.2 of the Act; and, finally, was a disclosure document lodged with ASIC?

256    In considering these issues, I again keep in mind that each of ActiveSuper and Mr Burrows has consented to declarations that, in the period from 13 March 2012 until on or about 23 April 2012 they had contravened s 727(1) and (2) by making offers of securities in SPG, and that in the period commencing 27 March 2012 until on or about 12 June 2012 they also contravened s 727(1) and (2) by making offers of securities in WPO. Further, I keep in mind that Mr Adamson has consented to a declaration that, in the period commencing no later than 13 March 2012 and concluding on or about 23 April 2012, he was knowingly concerned in the contraventions of s 727(1) and (2) by the first four defendants and the BVI defendants in relation to SPG and, likewise, in the period commencing no later than 27 March 2012 and concluding on or about 12 June 2012 in relation to WPO.

Did the PPMs of SPG and WPO contain an offer of securities and/or application forms?

257    The respective PPMs of SPG and WPO were undoubtedly offers for shares. The statements in the first two paragraphs of the SPG WPM made this plain:

This revised Private Placement Memorandum (the “PPM”) is submitted to you on a confidential basis solely in connection with your consideration of an investment in shares in Syndicated Property Group Ltd, a British Virgin Islands business company. … Prospective investors should read the whole of this document.

(Emphasis added.)

The first part of the PPM then contained a number of cautionary statements about investment in SPG. It specified that the PPM did not constitute an offer to sell, or a solicitation of an offer to buy, any shares in a jurisdiction in which such offer or solicitation would be unlawful. This disclaimer did not alter the character of the document, objectively considered.

258    The balance of the SPG PPM was in the nature of a prospectus for the issue of shares. It indicated that shares in SPG were offered for subscription at a price of AUD$1 per share; that SPG expected to provide a return to investors of 15% per annum non-compounding; that its objective was to take advantage of the significant downturn in property values in the USA and in Australia; that the directors of SPG were Mr Burrows and Mr George; that the registered office of SPG was in the BVI; that Caledonian Fund Services (BVI) Ltd was the Fund Administrator and Registrar; that Cayco was the Investment Manager; that Evans Ellis Lawyers were the Australian legal counsel to the Fund and Investment Manager; that Forbes Hare were the BVI legal counsel to the Fund; that Simbro & Stanley, PLC were the US legal counsel to the Fund; and that Deloittes were its auditors.

259    In other respects, the SPG PPM contained all the indicia of a prospectus-based offer of shares. It specified a minimum subscription of AUD$5,000 for participating shares. In one place the PPM indicated that an investor wishing to apply for shares should obtain an application form from the Administrator, complete it in accordance with the instructions on the form, and then send it together with payment in full for the required number of shares by bank draft or telegraphic transfer to identified bank accounts. However, the PPM also included the pro forma application form to be used.

260    The WPO PPM dated 23 March 2012 contained many of the same provisions. It described WPO as being a 10 year closed-ended fund and indicated that the minimum initial subscription was AUD$15,000 for participating shares with a minimum of AUD$5,000 for further subscriptions. It also indicated that WPO was authorised to issue 50 million shares consisting of 1,000 “management shares” having a par value of AUD$1 each and 49,999,000 “participating shares” of AUD$1 par value each. The details of the directors of WPO, its registered office and appointed managers and counsel were the same as those of SPG. The procedure for an investor to apply for shares was essentially the same as that contained in the SPG PPM described above.

261    In short, the two PPMs were offers of securities with application forms of the kind contemplated by s 727(1) and (2).

262    I will refer to some further features of the two PPMs later in these reasons.

Did the first four defendants and the BVI defendants make the offers or distribute application forms?

263    I note again, that a person may make an offer, or distribute an application form for the purposes of s 727 in a number of ways. This includes acting personally or by employee or agent and by authorising and approving an offer. However, by virtue of s 700(3) of the Act, the person who offers securities is the person who has the capacity, or who agrees, to issue or transfer the securities if the offer is accepted.

264    Plainly, each of SPG and WPO offered to issue shares in itself by their issue of their own PPM.

265    Given that neither Mr Burrows nor Mr Gibson gave evidence, the evidence about the manner in which the PPMs and application forms were distributed to potential investors was not detailed. However, the evidence indicates that Cayco established a website with separate pages for SPG and WPO. Access to the website was restricted by the use of a code. Mr Adamson’s evidence, which on this topic I accept, is that Mr Gore told him that the access code would be provided to financial planners with a view to the financial planners distributing the PPMs to clients entitled to receive them. Mr Gore told Mr Adamson that Mr Gibson, and possibly a Mr Hunter from Murphy Dawson, would be the only planners given the access codes.

266    The SPG PPM confirms this as it stipulated that invitations to subscribe for shares would be issued only to persons who were clients of, or associated with ActiveSuper, Royale or Murphy Dawson Partners.

267    The evidence indicates that the plan to publish the PPMs on the Cayco website was implemented. ASIC tendered documents obtained by accessing the Cayco website in 2012. These included the two PPMs and application forms for shares in each of SPG and WPO.

268    The SPG PPM was finalised on 8 March 2012 and the WPO PPM on 23 March 2012. On 8 March 2012, Mr Gore who was then in the BVI with Ms Gore and Mr Chant, emailed to Mr Burrows, Mr Adamson and others saying:

We are going live today. Just finishing of (sic) on website and ancillary docs but this baby is done. Next worldwide which hopefully we can punch out tomorrow. Mel, as you can see no doubt because so many people were involved they did not follow process and mark up changes in your document. However I would like you to look at the Cayco website and ammend (sic) to suit.

(Emphasis added)

By another email the same day, Mr George provided Mr Gore with copies of some pages for the Cayco website. The evidence indicates that some refining of the Cayco website continued over the ensuing days.

269    Following the finalisation of the WPO PPM on Friday, 23 March 2012, Mr Gibson emailed Mr Chant (copied to Mr Gore) on Sunday, March 25 2012 saying:

Hi Steve, just thought that I would let you know that as soon as I enter a temporary code into the system the times (sic) start to run out. Is there any way that the 24 hour time starts once they enter the code to access the site?

Mr Gore responded on Monday, 26 March 2012 to Mr Gibson and Mr Chant saying:

Should be the case let’s start selling. I will call you in 30 mins.

WWP today please.

On Wednesday, 28 March 2012, Mr Gore sent an email to Mr Chant in which he said, amongst other things, “they only really started raising funds yesterday for WWPO”.

270    I take this evidence to indicate that the webpage for SPG was established on 8 March 2012 and commenced to be used the same day, and that Mr Gibson commenced using the webpage for WPO on at least 25 March 2012.

271    The subscriptions for shares by SMSF investors through ActiveSuper and Royale, which were made pursuant to the PPMs, also provide confirmation that their planned distribution occurred. Between 14 March 2012 and 23 April 2012, ActiveSuper and/or Royale received approximately 53 subscriptions for shares pursuant to the SPG PPM and approximately $1,020,000 was credited to the ActiveSuper account in respect of those investments. Between 23 March 2012 and 12 June 2012, ActiveSuper and/or Royale received 69 subscriptions for shares pursuant to the WPO PPM and approximately $1.38 million was paid into the accounts of ActiveSuper and Royale in respect of those investments.

272    In relation to Royale and Mr Gibson, ASIC referred to the evidence of two of the SMSF witnesses.

273    The first of these witnesses, Mr Toye, had in January 2012 made an investment pursuant to the US Realty Memorandum. He said that in March 2012 Mr Gibson contacted him by telephone with an offer which was similar to the US Realty Memorandum investment. He agreed then and there to purchase 10,000 shares in that investment. On 3 April 2012, the sum of $10,000 was debited to his SMSF Macquarie account with a description of “Royale Capital WWPO Investment”. The identity of the author of that description was not the subject of evidence, but it is reasonable to infer that Mr Gibson must have had some role. I accept that the reference to “WWPO Investment” was a reference to WPO.

274    The evidence of the SMSF witness Mr de Saxe was to similar effect. He too had invested in 2011 pursuant to the US Realty Memorandum. Mr de Saxe deposed that Mr Gibson contacted him by telephone promoting an investment which was similar to the US Realty Memorandum offer but involved purchasing “distressed” property in Australia with a view to holding it for 10 years. Mr Gibson told him that returns of between 12-15% per annum were expected. Subsequently, Mr Gibson sent him a partially completed application form, indicating an investment of $5,000. Mr de Saxe completed the remaining details and returned the form to Mr Gibson. On 15 March 2012, $5,000 was debited to the de Saxe SMSF account with the Macquarie Bank with the description “Royale Capital US Property”. Then, on 31 March 2012, Caledonian Fund Services (BVI) Ltd sent an email to Mr de Saxe with the subject title “Syndicated Property Group Ltd Subscription Application” and confirming receipt of his application.

275    However, neither Mr Toye nor Mr de Saxe referred to being provided with a copy of a PPM or to accessing the Cayco website. Mr Toye said that he did not recall seeing a prospectus or signing any application form for his investment, and Mr de Saxe said that he did not recall receiving a memorandum or other disclosure document.

276    Accordingly, the evidence of these two witnesses does not permit the conclusion that Mr Gibson and Royale had made offers of shares in either SPG and WPO by providing access to the Cayco website. Mr de Saxe’s evidence does however support the conclusion that Mr Gibson and Royale had distributed an application form for shares in one or other of SPG and WPO.

277    Having regard to the evidence of the proposed method of marketing investment in SPG and WPO, and the amounts subsequently invested in each, I conclude that Royale and Mr Gibson must have distributed application forms for the offer of shares in SPG and WPO to many other SMSF investors. It is implausible that ActiveSuper and/or Royale would have received, in the period 14 March 2012 to 23 April 2012, approximately 53 subscriptions for investments pursuant to the SPG PPM without, at the least, offers of shares in SPG (or at least application forms for such offers) having been made to them. Similarly, it is implausible that, in the period between 23 March 2012 and 12 June 2012, 69 SMSFs would have subscribed for investment in WPO without offers or application forms relating to the investment having been made or provided to them in the manner planned.

278    It is reasonable to conclude, and I do so conclude, that Mr Gibson obtained the application forms from the Cayco website, and this was a form of offer approved by Cayco.

279    ASIC contended that ActiveSuper and Mr Burrows also made the offers in the relevant sense. In addition to Mr Burrows’ role in Royale, ASIC relied for this purpose on the evidence concerning Mr Burrows’ role in relation to SPG and WPO. At relevant times he controlled the management shares in each and he was one of the two directors of each. He can be taken to have authorised the publication of the two PPMs on the Cayco website and the subsequent issue of the shares. It is plain that he had the capacity to do so. The fact that he left the actual work in doing so to others is immaterial.

280    Although by their defences, ActiveSuper and Mr Burrows denied the allegation in the 2FASC that they had made offers of shares in SPG and WPO and/or distributed application forms for the offers of shares, they did contain an admission which is pertinent. It is sufficient to refer to the plea by Mr Burrows that he “only processed applications forms already completed by SMSFs who wished to invest pursuant to the SPG/WPO PPMs and which were provided to him by Royale Capital and/or Gibson”. From this it can be inferred that there were application forms in relation to the offer of shares in SPG and WPO, that these had been provided to and completed by the SMSF investors and then delivered to Royale. Those admissions (admissible only against ActiveSuper and Mr Burrows) form part of the circumstantial case indicating that those defendants had made offers and distributed application forms.

281    As noted earlier, the effect of s 700(3) of the Corporations Act is that the person who offers securities is the person who has the capacity, or agrees, to issue or transfer the securities if the offer is accepted. Plainly, each of SPG and WPO had the capacity to issue shares in themselves. It is also evident that Mr Burrows and ActiveSuper (by Mr Burrows) had the capacity to issue shares in SPG and WPO. Even if that not be correct, the conduct of Royale and Mr Gibson in distributing the application forms is, for the reasons given earlier, to be attributed to ActiveSuper and Mr Burrows.

282    It is not so obvious that Cayco had the capacity, or had agreed, to issue the shares in either SPG or WPO. The investment management agreement between SPG and Cayco related only to Cayco’s duties and powers to invest the monies subscribed by participating shareholders. It did not include any Share Registry function. The investment management agreement between WPO and Cayco was not in evidence.

283    In its final submissions, ASIC acknowledged that Cayco did not have the power to issue shares in either SPG or WPO but submitted nevertheless, that it had contravened s 727(1) by publishing the application forms as part of the PPMs on its website. That contention should be upheld as the publication was a form of distribution of an application form for the offers of shares in SPG and WPO.

284    This means that I am satisfied that SPG, WPO and Mr Burrows had made offers of shares and that each of ActiveSuper, Mr Burrows, Royale, Mr Gibson, SPG, WPO and Cayco had, in the relevant sense, distributed an application form for an offer of securities in SPG and WPO. In the case of SPG and WPO, their conduct related only to shares in themselves, and not to shares in the other.

Did the SPG and WPO offers require disclosure?

285    The considerations mentioned in relation to the US Realty Memorandum to which I referred when addressing the alleged contravention of s 726 are also applicable presently. The offers of shares, being made in Australia to Australian SMSF investors, required disclosure unless exempted by ss 708 or 708AA.

286    None of the defendants alleged in their filed defences that one of the s 708 exceptions applied. Nor did any submit that any of those exceptions was applicable.

287    I note in any event that the number of subscriptions made for shares in each of SPG and WPO exceeded the 20 investor ceiling (s 708(1) and (3)), and it is very evident that the offers were made to persons who were not the “sophisticated investors” contemplated by s 708(8).

288    None of the defendants contested ASIC’s contention that each of SPG and WPO offers required a disclosure document to be provided to investors and lodged with ASIC under Pt 6D.2 of the Corporation Act.

Was a disclosure document lodged with ASIC?

289    Neither PPM was lodged with ASIC. Nor was any prospectus, profile statement or offer information statement lodged with ASIC.

Contravention of s 727(2)

290    Section 727(2) proscribes the offering of securities, or the distribution of an application form for an offer of securities which needs disclosure to investors under Part 6D.2 unless the offer or form is included in, or accompanied by, the prospectus, profile statement or offer information statement used for the offer, as the case may be. Section 705 provides that a prospectus, short form prospectus, profile statement or offer information statement are the disclosure documents to be used if an offer of security requires disclosure to investors under Part 6D.2. A prospectus, profile statement or offer information statement for the purposes of s 727(2) means a document lodged with ASIC: see the definitions in the Dictionary (s 9).

291    The matters discussed in relation to s 727(1) indicate that subs (2) was also contravened by these defendants. No defendant submitted to the contrary.

Conclusion

292    For these reasons, I am satisfied that ASIC has made out the contraventions of s 727(1) and (2) by the first four defendants and the BVI defendants.

Section 911A: Unlicensed provision of financial services

293    Section 911A(1) proscribes the carrying on of a financial services business in Australia without an AFSL covering the provision of those services. It provides:

(1)    Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services.

294    Subsection (2) contains some 19 separate exemptions from the general prohibition contained in subs (1). None of the defendants alleged to have contravened s 911A(1) pleaded reliance on any of the exemptions.

295    The expression “financial services business” is defined in s 761A to mean “a business of providing financial services”. The notion of carrying on a financial services business is informed by s 761C and by ss 18 to 21 of the Act.

296    Subject to some qualifications which are not presently pertinent, a person provides a financial service if, amongst other things, the person provides “financial product advice” or deals in a “financial product” (s 766A(1)). Section 766B(1) of the Corporations Act defines “financial product advice” to include a “recommendation or a statement of opinion, or a report of either of those things” which is intended to influence a person in relation to a particular financial product or an interest in a particular financial product, or which could reasonably be regarded as being intended to have such an influence. Accordingly, a recommendation, statement of opinion or report will be of the defined kind if it was the subjective intention of the maker to have the prescribed influence or if, considered objectively, the recommendation, statement of opinion or report could be regarded as having been intended to have such an influence.

297    There are two types of financial product advice: personal advice and general advice (s 766B(2)). Personal advice is financial product advice given or directed to a person in circumstances in which the provider of the advice has considered one or more of the person’s objectives, financial situation and needs or in which a reasonable person might expect the provider to have considered one or more of those matters (s 766B(3)). It is, in other words, financial product advice given after taking account of the recipient’s personal circumstances or in which it is reasonable to expect that such account has been taken.

298    General advice is financial product advice that is other than personal advice (s 766B(4)).

299    By s 766C(1), conduct (whether engaged in as principal or agent) constitutes dealing in a financial product if, amongst other things, it involves applying for or acquiring a financial product, or issuing a financial product. Arranging for a person to engage in conduct of this kind also constitutes dealing, unless the conduct in so arranging amounts of itself to the provision of financial product advice (subs (2)).

300    Section 764A of the Corporations Act defines a large number of products as “financial products”. These include securities (defined in s 92(1) of the Corporations Act to include shares) (s 764A(1)(a)); superannuation interests within the meaning of the SIS Act (s 764A(1)(g)); and deposit-taking facilities made available by an authorised deposit-taking institution within the meaning of the Banking Act 1959 (Cth) (s 764A(1)(i)). The effect of the definitions in s 10 of the SIS Act and of s 19 of the SIS Act is that the SMSFs are “superannuation interests” within the meaning of that Act.

301    ASIC contended that Macquarie Bank Limited is an authorised deposit-taking institution (ADI) for the purposes of the Banking Act 1959 (Cth). Although it did not adduce evidence that that was so, no party contested the proposition and I consider it reasonable to proceed on the basis that ASIC’s contention is correct.

302    The defendants alleged to have contravened s 911A(1) of the Corporations Act are the ActiveSuper defendants, SPG, WPO and Cayco. Of these defendants, only Royale and Mr Gibson held an AFSL, or an authority under an AFSL, at any relevant time.

303    Between 15 April and 21 October 2011, Royale and Mr Gibson were authorised representatives of Romad which did hold an AFSL. The scope of their respective authorities was enlarged on 4 October 2011 but, because of the termination of the Romad authority 17 days later, that enlarged authority had only a limited duration. From 25 October 2011 to 1 June 2012, Royale alone was an authorised representative of Spring Financial, the holder of an AFSL.

304    Under the Romad authority in force from 15 April 2011, Royale was authorised only to “deal” in deposit products, securities, derivatives, futures products and FOREX products to both retail and wholesale clients. Under that same authority, Mr Gibson was authorised only to provide “general financial product advice” and to “deal” in financial products of the same kind as Royale.

305    The authority which came into force on 4 October 2011 authorised Royale to “deal” in a larger range of financial product and, relevantly, included “deposit products” and “superannuation products”. In Mr Gibson’s, case the enlarged authority continued to authorise him to provide general financial product advice only but to deal in a larger range of financial products. These included (relevantly) “deposit products” and “superannuation products”.

306    Under the Spring Financial authority, Royale was authorised to provide general financial product advice only for a number of classes of financial products. Of those classes, only deposit and payment products, securities and superannuation are relevant presently. Royale was not authorised to provide personal financial product advice nor to deal in any financial products at all.

307    In its closing submissions, ASIC summarised the AFSL position of the defendants alleged to have contravened s 911A(1) as follows:

(a)    Before 15 April 2011, none of ActiveSuper, Royale, Mr Burrows or Mr Gibson (or for that matter any other defendant) held an AFSL;

(b)    From 15 April 2011 to 21 October 2011, only Mr Gibson was authorised to provide advice, but that was general advice only;

(c)    Other than during the 17 day period between 4 October and 21 October 2011, none of ActiveSuper, Royale, Mr Burrows or Mr Gibson was authorised to establish or vary interests in SMSFs; and

(d)    From 21 October 2011, none of ActiveSuper, Royale, Mr Burrows or Mr Gibson was authorised to deal in financial products including interests in SMSFs or securities and the Spring Financial authority authorised Royale to provide general financial product advice only.

I accept that summary as accurate.

308    ASIC alleges that s 911A was breached in relation to three different activities. It is convenient to deal with each of these separately. It is appropriate to note that each of ActiveSuper and Mr Burrows consented to the making of declarations that, in the period commencing no later than 6 August 2010 to on or about 12 June 2012, they had contravened s 911A(1) in each of the manners alleged by ASIC.

309    As the MOGS defendants are alleged to have been knowingly concerned in the contravention of s 911A concerning the BVI Scheme, it is necessary to make findings about the conduct of Royale and Mr Gibson.

Contraventions of s 911A by the ActiveSuper defendants with respect to SMSFs

310    ASIC alleges that the ActiveSuper defendants contravened s 911A(1) in the following ways by their conduct with respect to the establishment and variation of SMSFs:

(1)    by making recommendations intended to influence persons in making decisions in relation to the acquisition of superannuation interests;

(2)    by arranging for persons to acquire, vary and/or dispose of superannuation interests; and

(3)    by arranging for persons to acquire, vary and/or dispose of interests in deposit and payment accounts.

311    Conduct of the kind alleged by ASIC has been recognised as constituting the carrying on of a financial services business. In Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC 192; (2006) 57 ACSR 553, Hargrave J held that the following conduct to constitute the carrying on of a financial services business: making recommendations to clients to vary existing superannuation arrangements or to establish SMSFs (at [357]); making recommendations to potential investors that they invest in identified property developments or other specific projects (at [358], [360]); preparing and distributing information packs which encourage potential investors to establish SMSFs (at [360]); and assisting in varying the superannuation arrangements of clients when employed in an administrative role (at [360]).

312    By its defence at [3], Royale admitted ASIC’s allegation that it was at all material times engaged in the business of marketing services associated with the establishment of SMSFs, providing investment advice, marketing investments, and making investment offers, including offers of shares in corporations or interests in other investment vehicles and Mr Gibson made a like admission. However, each claimed in their filed defences that they were authorised to engage in those businesses by the Romad authority. Neither ActiveSuper nor Mr Burrows adopted that claim in respect of the allegations against them and it is not in any event borne out by the terms of the Romad authority.

313    The unchallenged evidence of some of SMSF witnesses establishes that personal financial product advice was provided to them at times when the defendants did not have any authority under an AFSL at all. Mr Stagoll, Mr Osborne and Mr Mewis received their call and follow up calls from Royale in January or February 2011, February 2011 and March 2011 respectively, that is, before the first grant of the authority from Romad. Each was told the benefits for them in establishing a SMSF, including the personal nature of the advice.

314    In the period between 15 April 2011 and 21 October 2011 when Mr Gibson was authorised to provide only general financial advice and ActiveSuper and Mr Burrows did not have any authority at all, personal financial product advice relating to the establishment of an SMSF was given to each of Mr Toye and Mr Kingdon in July 2011, to Mr Irwin in August 2011, and to Ms Singer in September 2011 when they received their cold calls and subsequent follow up calls from Mr Gibson or a Mr Bartlett.

315    The evidence indicates that, between December 2010 and 15 April 2011 when none of the defendants held an authority under an AFSL, 80 clients of Royale established Macquarie Accounts and each of those Accounts showed ActiveSuper as the advisor and dealer. In addition, a list provided by Royale shows that 62 new clients opened SMSF accounts with it in the period between August 2010 and 15 April 2011.

316    A list provided by Macquarie Bank of accounts opened by Royale SMSF clients shows that at least 220 Macquarie Accounts were established with it in the period between December 2010 and 4 October 2011 when none of the ActiveSuper defendants was authorised to deal in superannuation interests.

317    116 Royale clients established Macquarie Accounts after 21 October 2011 and each lists ActiveSuper as the advisor and dealer. Royale’s own records indicate the establishment of 42 SMSFs after 21 October 2011.

318    I accept ASIC’s submission that the evidence concerning the modus operandi of Mr Gibson and Royale warrants the conclusion that Royale and Mr Gibson had, on numerous occasions, offered, arranged and facilitated the establishment of SMSFs and Macquarie Accounts when not authorised to do so.

319    The evidence of Mr Harden and of the SMSF witnesses summarised earlier makes it plain that Royale by its telemarketers and Mr Gibson himself made recommendations or statements of opinions intended to influence persons to establish their own SMSF. In his conversations with those persons who expressed interest, Mr Gibson made arrangements for them to acquire a superannuation interest and later facilitated that acquisition. He also arranged for those persons who agreed to establish an SMSF to establish a Macquarie Account. The very business of Royale involved the marketing and establishment of SMSFs and the making of investments by SMSF investors. The content of the call scripts used by the telemarketers and by Mr Gibson himself make plain the conduct of Royale and Mr Gibson. The call script used by the telemarketers in the first call to a member of the public included the following:

I wanted to have a general open chat with you initially, provide you with the facts so we don’t waste each other’s time, is that ok?

Before we go any further, our current members are achieving FANTASTIC returns in the last financial year. I am sure that a FANTASTIC return would be GREAT to see for a change?

…

Are you aware that the number 1 industry super fund has only returned 2.9% over the last 3 years?

If we could show you a SIMPLE way to get your super into your own name and own bank account that you control would that be of interest to you?

….

As you can appreciate, we speak to a lot of people who are motivated to make a change to a better superannuation solution. Are you genuinely interested in getting a call back from a consultant?

(Emphasis in the original)

320    The sales consultant’s call script included the following:

Before we go any further, our current members are achieving FANTASTIC returns over the last financial year, and [first caller name] said that you would love to see a FANTASTIC return in your superannuation right? …

I specialise in helping people of your age group generate reliable and consistent forms of cash flow and equity growth.

We do this out of financial and property markets and have called this Authorised Investing, the advantage that my clients love the most is the ability to stay in complete control of their money without having to sit in front of a PC all day. And have the right opportunities always in front of them with all the research and assistance of the transaction done for them!

I’m sure you could see the advantage in that?

(Emphasis in the original)

321    It is plain that the conduct of Royale’s telemarketers, and of Mr Gibson himself, amounted to recommendations intended to influence the recipient of the cold calls in relation to the acquisition of an SMSF. Two SMSF witnesses, Singer and Mewis, were contacted by a Mr Bartlett, one of the telemarketers. Their evidence indicates that Mr Bartlett made recommendations or statements of opinions intended to influence Ms Singer and Mr Mewis to acquire an SMSF.

322    By their respective defences, each of ActiveSuper and Mr Burrows denied having made recommendations intended to influence persons in making a decision to acquire vary and/or dispose of an interest in a SMSF. In his s 19 examination on 23 April 2012, Mr Burrows did however admit:

[O]nce we get the application forms we’ll organise the trust deeds to be established and all the relevant minutes. We use a third party provider to provide those. Then once we receive those documents … [we send] a welcome pack out to the client and they need to execute those documents and get them back so that we can have that fund created. So we’ll do the registration of the fund and make sure it gets created.

He also referred to the assistance which he and ActiveSuper provided in the establishment of the Macquarie Accounts, in dealing with client enquiries about the “roll over” of funds into the new SMSF, and to the banking by ActiveSuper of the cheques into the Macquarie Accounts.

323    Quite apart from the activities of Mr Burrows himself, I am satisfied, for the reasons given earlier, that the conduct of Royale and Mr Gibson should be attributed to Mr Burrows and ActiveSuper.

324    For these reasons I am satisfied that ASIC has established contraventions of s 911A(1) by the ActiveSuper defendants in relation to the SMSFs.

Contraventions of s 911A by the ActiveSuper defendants with respect to the BVI Scheme

325    ASIC alleges that each of the ActiveSuper defendants contravened s 911A(1) by making offers and/or distributing application forms for offers of investment pursuant to the respective PPMs of SPG and WPO.

326    As noted earlier, conduct, whether engaged in as principal or agent, constitutes dealing in a financial product if, amongst other things, it involves applying for or acquiring a financial product, or issuing a financial product (s 766C(1)). Arranging for a person to engage in conduct of this kind also constitutes dealing, unless the conduct in so arranging amounts of itself to the provision of financial product advice (s 766C(2)).

327    It is plain that ActiveSuper and Mr Burrows arranged for SMSF investors to apply for and acquire shares in SPG and WPO and that Mr Burrows arranged for shares in those entities to be issued to the SMSF investors. Further and in any event, Mr Burrows and ActiveSuper have consented to orders relating to their contravention of s 911A(1) in this respect.

328    Similarly, it is plain that Royale and Mr Gibson arranged for SMSF investors to apply for, and to acquire, shares in SPG and WPO. I have referred above to the evidence justifying these conclusions.

329    The evidence indicates that between 14 March 2012 and 23 April 2012 approximately 53 SMSF investors subscribed for shares pursuant to the SPG PPM and a total of $1,020,000 was credited to the ActiveSuper account (controlled by Mr Burrows) in respect of those investments. Mr Burrows then caused those monies to be transferred to SPG.

330    Between March and June 2012, 69 SMSF investors applied for shares in WPO pursuant to the WPO PPM and funds totalling some $1.38 million were transferred from the accounts of those SMSF to the accounts of Royale and ActiveSuper. Those funds were transferred to WPO and in turn to MOGS and Cayco.

331    Further, Mr Burrows plainly had the capacity to issue shares in SPG and WPO to the SMSF investors. At material times, he was one of only two directors of SPG and WPO; he held the management share in SPG and was the sole shareholder of Limetree Consulting Ltd which held the majority of the management shares in WPO.

332    ASIC has made good these allegations of contraventions by the ActiveSuper defendants of s 911A(1).

Contraventions of s 911A by SPG, WPO and Cayco

333    ASIC’s submission concerning the contraventions by SPG, WPO and Cayco was as follows:

[120]    SPG and WPO made offers of securities as the entities with the ability to issue securities to investors. Cayco, as the investment manager of SPG and WPO, distributed and facilitated offers pursuant to its website. It thereby arranged for investors to apply for or acquire shares in SPG and WPO, and/or it arranged for SPG and WPO to issue their shares to prospective investors. In doing so, the BVI companies were dealing in financial products, and thereby providing a financial service for the purposes of s 766A(1) of the Act.

334    The factual propositions contained in the first two sentences of this submission were not contested and are, in any event established on the evidence. However, Mr Kirby, counsel for Mr Stonehouse and Ms Gore, submitted that this conduct did not amount to a contravention of s 911A(1) because:

(a)    Each of WPO and SPG were exempt from compliance with s 911A by virtue of s 766C(4) of the Corporations Act (the self-dealing exemption) and by ASIC Class Order CO03/911;

(b)    Cayco did not carry on a financial services business “in this jurisdiction” simply by causing the PPMs to be posted on its website.

Mr Gore made an almost identical submission. These submissions should not be upheld.

335    In relation to the second limb of the submission, s 911D of the Corporations Act provides that, for the purposes of Ch 7 (which includes s 911A), a financial services business is taken to be carried on in this jurisdiction by a person if, in the course of the person carrying on the business, the person engages in conduct which is intended to induce people in this jurisdiction to use the financial services the person provides or which is likely to have that effect, whether or not the conduct is intended or is likely to have that effect in other places as well.

336    The conduct of Cayco relied upon by ASIC satisfies that description. Even if one puts to one side the circumstances in which the PPMs came into existence, it is apparent on their face that they are directed to inducing Australian investors to subscribe for an issue of shares. Cayco may be taken to have intended that result. Each PPM uses the Australian dollar as the currency for the offer; each fixes the minimum subscription for shares and the authorised share capital of the company in Australian dollars; the SPG PPM indicates on its face that invitations to subscribe are to be made only to investors with an existing relationship or association with ActiveSuper, Royale and Murphy Dawson Partners Pty Ltd; and the SPG PPM indicates that that the type of investments which the fund will make will include “self-managed superannuation property in Australia”. The WPO PPM is more explicit by saying that it has “identified a unique opportunity for Australian self-managed super funds (“SMSFs”) to access residential and commercial property developments not normally available to SMSFs”. It is plain therefore that Cayco was publishing the PPMs on its website with a view to inducing Australian investors to acquire shares in SPG and WPO.

337    Mr Kirby submitted that Cayco’s publication of the PPMs on its website was “too passive a role to [constitute] carrying on a financial services business”. He noted that Cayco was not the author of the PPMs and submitted that a distinction should be drawn between the role of an author, on the one hand, and that of a publisher, on the other, particularly given the absence of evidence that Cayco had actively adopted or endorsed the PPMs to any investors. Mr Kirby referred to Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; (2013) 249 CLR 435 at [3] in this respect.

338    In my opinion, this submission overlooks the effect of s 911D(1). ASIC is not required to show that the publication of the PPMs on the Cayco website constituted by itself the carrying on of a financial service business. It is instead sufficient if, in the course of the business carried on by Cayco, it engaged in conduct of the requisite kind.

339    In Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 205 FCR 120, Besanko J accepted at [22] that the facilitation of online access for the purpose of acquiring financial products was a provision of financial services within the meaning of s 766A(1) of the Corporations Act. Mr Kirby submitted that Stone Assets was distinguishable because in that case the whole business of Stone Assets Management had been conducted through its website platform. In my view, that is an insufficient basis for distinction. It is plain that the Cayco website was intended to be, and was, a significant means by which Cayco sought to attract investments in SPG and WPO.

340    In relation to the first limb of the submissions, Mr Kirby’s reference to s 766C(4) does not assist the defendants. The effect of s 766C(4) is that a transaction entered into by a body corporate which relates only to securities of that corporate is taken not to be a dealing in a financial product. However, by virtue of s 766C(5) that exception does not apply if the body corporate carries on a business of investment in securities, interests in land or other investments and, in the course of carrying on that business, invests funds subscribed, whether directly or indirectly, after an offer or invitation to the public made on terms that the funds subscribed would be invested. The businesses of SPG and WPO answer this description even though, in the events which happened, they did not use the subscribed funds for their intended purpose.

341    There are further reasons why the submission should not be accepted. Mr Stonehouse and Ms Gore raised the exception in s 766C(4) for the first time in final submissions. It was not, as it should have been, a subject of their pleading. ASIC submitted that it had thereby been denied the opportunity of leading further evidence on the issue. It was implicit in the submission that ASIC had, or considered it could obtain, further evidence, and I am prepared to assume that is so. Further, Mr Stonehouse and Ms Gore did not tender ASIC Class Order CO03/911 on which they relied in part for the submission, and it was not suggested that it was material of which the Court could take judicial notice.

342    Finally, strictly speaking, the submissions made by Mr Kirby and Mr Gore in this respect are not open to them as, by their pleadings they are deemed to have admitted the ASIC allegations concerning the contraventions by SPG, WPO and Cayco of s 911A(1). By [31] of the defence of Mr Stonehouse and Ms Gore, those defendants pleaded that the relevant pleas in the 2FASC did “not concern, nor make any allegation of material fact” against them and accordingly did not plead to them. Mr Gore made an identical plea with respect to two of the ASIC pleas and said that he did not know and could not admit the third.

343    Plainly, the ASIC pleas did concern Mr Stonehouse and Mr and Ms Gore because of the allegations of accessorial liability which are made against them in respect of the pleaded conduct. That is why they made submissions on the topic. As these defendants had not complied with r 16.07 of the Federal Court Rules, ASIC submitted that they are to be deemed to have admitted these pleas. I accept that submission. I emphasise however, that I am satisfied that the submissions of Mr Stonehouse and Mr and Ms Gore fail even if the pleading point is put to one side.

344    I conclude, therefore, that ASIC has made good the allegation that SPG, WPO and Cayco contravened s 911A(1) by making offers and/or distributing application forms for offers for investment pursuant to the PPMs of SPG and WPO.

Misleading or deceptive conduct and the US Realty Memorandum

345    By para 14 of its Originating Application, ASIC sought a declaration that the first eight defendants, that is, the ActiveSuper defendants and the four LLCs, had engaged in conduct which was misleading or deceptive, or likely to mislead or deceive, in contravention of s 1041H(1) of the Corporations Act and s 12DA(1) of the ASIC Act by their dissemination of the US Realty Memorandum. However, the 2FASC did not refer at all to the LLCs in this respect and it was apparent that ASIC pursued this claim only in respect of the ActiveSuper defendants.

346    As there is no claim of accessorial involvement in respect to these contraventions, it is not necessary presently to consider the claims against Royale and Mr Gibson.

347    Section 1041H of the Corporations Act provides (relevantly):

1041H Misleading or deceptive conduct (civil liability only)

(1)    A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.

(2)    The reference in subsection (1) to engaging in conduct in relation to a financial product includes (but is not limited to) any of the following:

(a)    dealing in a financial product;

(b)    without limiting paragraph (a):

(i)    issuing a financial product;

…

…

348    The effect of s 1041H(1) and (2)(a) and (b) is that a person must not engage in misleading or deceptive conduct “in relation to” “dealing” in a financial product or in “issuing” a financial product. As already noted, applying for or acquiring a financial product or issuing a financial product constitutes “dealing” in a financial product (s 766C(1)) as does “arranging for” a person to engage in such conduct (providing that the action does not amount to providing financial product advice (s 766C(2)).

349    The expression “in relation to” is generally regarded as one “of broad import” (O’Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 at 374) but the degree of connection between two subject matters can vary according to context: Travelex Ltd v Commissioner of Taxation [2010] HCA 33; (2010) 241 CLR 510 at [25]. Regard must usually be had to the subject matter of the inquiry, the legislative history and the surrounding circumstances. I consider that a detailed consideration of these matters is not necessary presently as the conduct of the ActiveSuper defendants relied upon by ASIC for the alleged contraventions plainly had a close connection with the issue of shares in SPG and WPO and with the acquisition by SMSF investors of those shares.

350    Personal liability for the purposes of s 1041H will attach to a person who is “responsible” for the conduct: Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211 at [19]-[21], [94]-[96].

351    Section 12DA(1) of the ASIC Act is not identical to s 1041H but, in substance, contains the same prohibition. Section 12DA(1) provides:

A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

352    The definition of “financial service” for the purposes of s 12DA is complex. It is sufficient for present purposes to note that a person provides a financial service if they “provide financial product advice” or deal in a “financial product” (s 12BAB(1)). A financial product includes shares (s 12BAA(7)) and financial product advice means a recommendation or statement of opinion or a report of either of those things which is intended to influence a person or persons in making a decision in relation to a particular financial product or which could reasonably be regarded as being intended to have such an influence (s 12BAB(5)).

353    ASIC alleges that the following representations (which I defined earlier as the US Realty Representations) were made to potential investors in the US Reality Memorandum itself or in telephone calls to the prospective clients:

(a)    returns of between 20% and 25% per annum would be paid to investors;

(b)    funds invested in accordance with the US Realty Memorandum would be:

(i)    applied to purchase shares in a private limited liability company to be formed and registered in Arizona, USA;

(ii)    applied for the purposes of purchasing foreclosed residential property as part of an investment portfolio; and

(iii)    “quarantined in an Australian based Trust Account” until after the capitalisation of the investment vehicle;

(c)    Syndicated Property Solutions Arizona Ltd was currently contracted to handle property purchases for US Deals Ltd, New Zealand; and

(d)    the manager of the investment vehicle was APIMA, a duly formed company in the State of Arizona.

354    All but the first of these representations is contained in the US Realty Memorandum itself.

355    ASIC alleges that the US Realty Representations were made with respect to future matters and that there was no reasonable basis for the making of them at all or, alternatively, at least from October 2011 when ActiveSuper commenced transferring all the monies subscribed pursuant to the Memorandum to MOGS.

356    More than 187 persons made investments pursuant to the US Realty Memorandum. Some were given share certificates in SPG but, contrary to the contents of the US Realty Memorandum, that company was not established in Arizona and it never purchased any distressed real estate in the United States or elsewhere.

357    ActiveSuper and Mr Burrows denied the allegations of misleading or deceptive conduct in their defence. However, each has consented to declarations relating to their contraventions of s 1041H of the Corporations Act and s 12DA of the ASIC Act. In particular, each has acknowledged contravening s 1041H and s 12DA in the period commencing no later than 10 February 2011 and continuing to on or about 9 March 2012 by making representations (b), (c) and (d) outlined above. In addition, each has consented to a declaration that in the period commencing no later than 10 February 2011 to on or about 12 June 2012 they engaged in misleading or deceptive conduct by failing to inform clients as to:

(a)    The true application of monies invested by them under the share offer; and

(b)    The fact that invested monies had been applied contrary to the US Realty Memorandum, the SPG PPM and the WPO PPM.

358    Given these consents, it is not necessary to discuss the evidence in further detail. It is sufficient to say that, having regard to the contents of the US Realty Memorandum outlined earlier in these reasons, to the evidence of the SMSF witnesses, and to the use to which the monies subscribed pursuant to the Memorandum were put, findings that the statements were made and were misleading or deceptive are inevitable, particularly from October 2011. The declarations sought by ASIC, ActiveSuper and Mr Burrows should be made.

Misleading or deceptive conduct and the SPG and WPO PPMs

359    ASIC claims that each of the ActiveSuper defendants, SPG, WPO and Cayco made representations which were misleading or deceptive, or likely to mislead or deceive, in contravention of s 1041H of the Corporations Act and s 12DA of the ASIC Act, by statements contained in the PPMs of SPG and WPO and by their failure to inform investors of the true position. The representations said to have been made by these defendants were that monies invested by Australian SMSFs pursuant to the SPG PPM and the WPO PPM:

(a)    in the future would be used for the purchase by SPG and WPO of property;

(b)    in the past had been used for the purchase by SPG and WPO of property;

described collectively as the “Application Representations”.

360    ASIC’s case is that the Application Representations commenced to be made in March 2012.

361    ASIC pleaded that the representation in (a) was made in each of the SPG and WPO PPMs. It pleaded that the representation in (b) was made in each case by omission, through the failure of these defendants to inform investors proposing to make investments pursuant to the SPG PPM and the WPO PPM that monies raised from previous investors had not been used by SPG or WPO to purchase property.

362    ASIC relied on its allegation in [50] of the 2FASC that the ActiveSuper defendants, SPG and Cayco had:

(a)    marketed an investment scheme to members of the Australian public by and in accordance with the SPG PPM;

(b)    made offers for investment pursuant to the SPG PPM;

(c)    distributed application forms for investment pursuant to the SPG PPM; and

(d)    made recommendations for SMSFs to make investments pursuant to the SPG PPM.

It also relied upon its plea in [54] of the 2FASC of identical conduct by the same defendants (but with WPO in lieu of SPG) in relation to the WPO PPM.

363    The mere making of a promise which is not performed, or a prediction which is not fulfilled, is not, without more, misleading or deceptive: Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2008] FCAFC 53 at [91]. See also Global Sportsman Pty Ltd v Mirror Newspapers (1984) 2 FCR 82 at 88. Section 769C of the Corporations Act and s 12BB of the ASIC Act each provide that a representation as to a future matter will be misleading if it is made without reasonable grounds.

Representations as to investment in real estate

364    There are numerous representations in the SPG PPM to the effect that the funds raised pursuant to it would be used for investment in property. Submissions made by Mr Kirby and by Mr Gore make it appropriate to refer to several of them. Under the heading “Introduction”, the SPG PPM states:

The Fund was formed for the purpose of investing in the general real estate market. …

The investment manager will use the proceeds from the initial offering of the Fund’s Shares and all subsequent subscriptions for Shares to employ the strategies in which the Fund will invest from time to time.

….

(Emphasis added)

365    Under the heading “The Investment Objective”, the PPM stated:

The fund is expecting to provide a return to investors in the Fund of 15% per annum non compounding. The objective of the fund is to take advantage of the significant downturn in property values particularly in the United States and Australia. … The objectives (sic) of this fund is to focus on the upside opportunity currently available to cash buyers with the capacity to identify upside property investment opportunities. The fund will seek out and acquire properties meeting exacting criteria (as established by the Fund) across the United States, Australia and other areas that may be approved by the Board from time to time. The objective of the fund will be to enter into property acquisitions with a medium to long term investment horizon. …

The fund will seek to achieve [an annualised internal rate of return of 15%] by focusing on opportunities in the real estate sector in both the United States and Australia, and by opportunistically pursuing attractive real estate investment opportunities elsewhere worldwide. The Fund will seek to take advantage of emerging economic and real estate trends through development opportunities, repositioning opportunities and distressed opportunities arising from general lack of liquidity in the property sector. …

(Emphasis added)

366    Under the heading “Investment Strategy” the SPG PPM stated:

The investment strategy of the fund is to identify for investment and undertake investment opportunities in Real Estate markets generally. The Fund will provide a unique opportunity for investors to access residential and commercial property developments that would normally not be accessible.

These investments will include but not be limited to:

•    Single residential properties

•    Multi family dwellings

•    Acquisition of foreclosed investment properties

•    Commercial properties (both retail and commercial leasing)

•    Self-managed Superannuation Properties (in Australia)

•    Green Field development sites

•    Approved property developments

•    Hotels/serviced apartment complexes

•    Self-contained property opportunities

Each property acquired by the fund will be acquired using specific criteria established by the Fund to ensure the maximum return possible for investors in the Fund. Whilst the investment criteria of the Fund will vary in nature for each property category the basic principles are similar and will be explored prior to undertaking any investment by the Fund.

…. The Fund anticipates making each of its investments through one or more special purposes entities established in appropriate jurisdictions for the sole purpose of directly or indirectly holding one or more Fund investments …

… The Fund will only invest in real estate properties provided any such investment satisfies and meets the criteria set out in the Fund’s Acquisitions Guide.

(Emphasis added)

367    In a section headed “Investment Manager”, the SPG PPM states:

This PPM offers an opportunity to those who would not normally have sufficient capital or leverage ability to purchase property for themselves.

(Emphasis added)

368    The SPG PPM also lists a number of risk factors, many of which are property related. For example, “Investments in Property are Relatively Illiquid”, “Property Valuation is Inherently Subjective and Uncertain”, “Development and Construction Risks” and “Risks to Properties”.

369    The very strong impression created by these and other statements in the SPG PPM is that it is a fund established for investment in property. Mr Kirby emphasised, however, that the SPG PPM does indicate that investments may not be exclusively in property, and that it specifically contemplated that funds may be lent to others. That is so. The section headed “The Investment Objective” concludes with the paragraph:

To further enhance the capacity of the Fund and to better leverage the fund capacity to meet the 15% target range, the Fund may also invest by participating in residential real estate lending transactions and related security instruments such as mortgages over real estate property, fixed and floating charges and other lending instruments directly related to the property industry as determined from the Board from time to time.

The section headed “Investment Strategy” includes the statement:

The Fund will only enter into loan finance transactions and related security instruments, in particular real estate construction finance, if such lending meets and satisfies and meets the criteria set out in the Fund’s Lending Policy Manual.

The SPG PPM contains a section headed “Investment Restrictions” with the following content:

There are no investment restrictions.

Neither the Memorandum or Articles of Association of the Fund contain any restrictions on the investment powers of the Fund. It is not intended that the Fund will be subject to any investment restrictions.

370    In addition, the section on risks identified one of the risks which the fund faced as “Construction Loan Risks”.

371    Although the SPG PPM does not indicate that investment in real estate would be the exclusive destination of invested funds, I conclude that it did represent that that was the principal form of investment contemplated. Investors would reasonably have understood that they were being invited to subscribe for shares in a company whose primary purpose was investment in real estate, although they would also have understood that the company may, to a lesser extent, engage in secured lending in relation to real estate. That direct investment in real estate would be the principal purpose, and not lending, is particularly so having regard to the statement in “The Investment Objective” that lending would be to “enhance further” the Fund’s capacity and that the Fund may “also” engage in lending. These statements suggested that this use of funds would be ancillary to the Fund’s main purpose. The notion that SPG may act wholly or principally as a financier is inconsistent with the PPM as a whole. Investors would not reasonably have understood that activities of that kind were intended as its major activities.

372    The WPO PPM made more explicit the prospect of WPO lending its funds to others. However, again the overall tenor of the PPM is that the fund would itself invest in property. Under the heading “Investment Outline”, the PPM stated:

The fund seeks long-term capital growth by investing in a portfolio of investment products directly related to the housing construction and development lending markets (see “Investment Objectives”).

(Emphasis added)

The section headed “Investment Objective” makes explicit the intention to invest in real estate:

The investment objective of the Fund is to achieve superior risk-adjusted returns through investment in a diversified portfolio of commercial, retail and residential properties either by way of direct acquisition of such properties or by funding residential and commercial property developments. The objective of the Fund is to invest counter cyclically and deploy capital in emerging real estate markets.

The goal of the Fund is to take advantage of the current upheaval and uncertainty in markets due to the global financial crisis and to be an opportunistic investor in distressed, depressed and/or alternative assets at historically low prices. The fund intends to achieve long term capital appreciation, as the Fund’s objectives are long term.

(Emphasis added)

The PPM then gave an explanation of the cyclical nature of real estate values and included a graph of the movements in USA housing prices between 1890 and 2010, seemingly to indicate the recovery of real estate prices after slumps. It continued:

The global financial crisis of 2008 (the “GFC”) saw some of the largest declines in absolute asset values in a generation and is considered by many economists to be the worst financial crisis in recorded history. This Fund was established to take advantage of the resulting unique upside opportunities available to well-capitalised vehicles through the purchase of distressed, depressed and/or alternative assets at historically low prices.

Real estate is made up of thousands of local markets each with its own unique economic and social influences. We believe the Investment Manager, its advisors and consultants can identify the most realisable property with long term capital appreciation for distressed assets in each market by applying the Investment Manager’s development experience and market expertise. By applying current market revenue and absorption assumptions against forecast cost to complete data, depth marketing assessment, financing assumptions and investment return hurdles, the Investment Manger believes it can identify potential long term property investment opportunities globally.

(Emphasis added)

373    The content of the section under the heading “Investment Strategy” was similar to that of the counterpart section in the SPG PPM. This section is replete with references to investment in “property”.

374    However, unlike the SPG PPM, the WPO PPM included a section headed “Lending” with the following content:

The Fund has identified opportunities for superior rates of return in the direct lending markets. The fund intends to lend directly into this fast growing market and to capitalise on what it believes will be greater investment returns. The Fund expects to be able to capitalise on income from lending transactions currently not available in the housing, construction and property development industries. It is the Fund’s view returns on investment from this form of lending could see returns on capital deployed directly into specialised lending instruments to be significant.

The Fund intends to invest directly into lending transactions via numerous debt facility arrangements and specialist financial instruments to facilitate liquidity in this fast growing market through a number of special purpose vehicles. The Fund expects to capitalise on the high income from these lending instruments given the nature of the investment and security provided. …

In order to facilitate the Fund’s investment strategy, the Fund also intends to finance development loans. These loans must be secured by high-quality collateral deemed to be acceptable by both the Investment Manager and the Fund. In such transactions, the Fund will receive interest on the loans. As outlined above, it is expected these returns to be superior to similar lending instruments available in the current market.

375    Thus, the prospect of WPO using its subscribed capital for lending purposes was made more obvious than in the case of the SPG. I observe, however, that the matters identified in the section headed “Risk Factors” related more to direct investment in real estate than to the provision of finance to others. The section on the cyclical nature of real estate values is also significant in this respect.

376    Mr Kirby, counsel for Mr Stonehouse and Ms Gore, and Mr Gore himself, emphasised the necessity of reading the representations in the PPMs in context and as a whole: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at [38]-[39]. They contended that, viewed in this way, the Application Representations as to the future use of the subscribed funds were not misleading. Mr Kirby referred in this respect to the statements, summarised above, that funds may also be used for financing real estate developments and other form of lending and submitted, accordingly, that the PPMs were not misleading. He also submitted that the statements in the WPO PPM set out in 2FASC [55] did not say “obliquely or unequivocally that WPO will directly buy property” and that no reasonable reader could have understood the statements as conveying that effect.

377    I do not accept these submissions. The emphasised portions of the PPMs set out above make it plain that direct investment in real estate was the principal contemplated form of investment, particularly in the case of SPG, and investors would have understood reasonably that that was so.

378    I also reject the submission that the Application Representations as pleaded were outside the pleaded particulars contained in 2FASC [50]-[55]. Paragraph 55 of the 2FASC did not purport to be an exhaustive statement of the representations in the WPO PPM on which ASIC relied and, in any event, contained some of the statements quoted above. These included the statement that the objective of WPO was to invest “in diversified portfolio of commercial, retail and residential properties, either by way of direct acquisition of such properties or by funding residential and commercial property developments”.

No investments in real estate

379    The representations in the SPG PPM as to the use of the fund were not fulfilled. SPG did not acquire any real estate. All, or nearly all, of the funds raised by SPG were provided to MOGS. Mr Chant exhibited to his affidavit a spreadsheet which he had prepared, apparently in late 2012, which demonstrated the flow of funds subscribed pursuant to the US Realty Memorandum and the SPG and WPO PPMs. Mr Chant said that in preparing this spreadsheet he had undertaken a “fairly detailed” review of all amounts invested by Royale clients pursuant to the US Realty Memorandum and pursuant to the SPG and WPO PPMs. He had had regard to the bank statements relating to ActiveSuper’s own account and to the accounts held by SPG and WPO with the Caledonian Bank. The spreadsheet indicated that the funds transferred by ActiveSuper into the SPG Bank Account were transferred to WPO and on lent to MOGS. Although Mr Chant was cross-examined about some aspects of the spreadsheet, it was not suggested that he was incorrect in stating that the funds received by SPG had been transferred by it to WPO. It also appeared that at least some of the contents of the spreadsheet were confirmed by the Caledonian Bank account statements for Cayco. Accordingly I accept this particular evidence of Mr Chant.

380    I also accept Mr Chant’s evidence that WPO transferred the monies which it received pursuant to the WPO PPM and from SPG to MOGS or Cayco, with the majority of the money going to MOGS. Accordingly, the representations as to the future use of the funds invested pursuant to the WPO PPM were not fulfilled either.

No reasonable grounds for representation that funds would be invested in real estate

381    In my opinion, the evidence that the ActiveSuper defendants and SPG, WPO and Cayco made the representations that monies invested by SMSF investors pursuant to the SPG and WPO PPMs would be used for the purchase by SPG and WPO of property without having reasonable grounds for those representations is overwhelming. None of those persons or entities could have understood, let alone have had reasonable grounds for understanding, at the time when the PPMs were published on the Cayco website and provided to SMSF investors, that either SPG or WPO would themselves purchase property. Instead, everyone involved contemplated that the funds subscribed would be made available to MOGS and/or its subsidiaries. In reaching that conclusion, I proceed on the basis that the knowledge of Mr Burrows and Mr George, at the least, may be attributed to SPG and WPO as they were the directors of each, and that the knowledge of Mr George and Mr Adamson may be attributed to Cayco, as they were its directors.

382    The matters on which I rely for the conclusion that there were no reasonable grounds for the representations that the subscribed monies would be invested in real estate are as follows:

(a)    no steps were taken by SPG, WPO, or anyone else on their behalf, before or after the finalisation of the PPMs, with a view to purchasing real estate, nor were there any preparatory steps, such as identifying potential purchases or appointing agents to locate properties, or putting in place systems for the appraisal of possible acquisitions;

(b)    the transfers of funds to MOGS commenced almost immediately after the first subscriptions were received by each of SPG and WPO;

(c)    there is no evidence of any decision being made to the effect that the funds should be advanced to MOGS rather than being invested in real estate, nor is there evidence of any consideration of how the advance of the funds to MOGS would affect the ability of SPG and WPO to invest in real estate. That is because those matters were not contemplated;

(d)    the whole purpose of the BVI Scheme, as conceived and developed, was that SPG and WPO would be a source of funds for MOGS;

(e)    MOGS had invested considerable resources, both in time and money, in the establishment of the BVI Scheme. I refer in particular to the time of Mr and Ms Gore, Mr Adamson, Mr Chant and to the costs which MOGS incurred in flying those persons to the BVI and in accommodating them there. In addition, Mr Stonehouse and other MOGS employees expended time and effort in the development of the BVI Scheme and in the finalisation of the PPMs. It is reasonable to infer that all understood that MOGS had made this investment because of the mutual expectation that the funds raised through the BVI Scheme would be made available to it;

(f)    MOGS had already come to rely upon funds subscribed by SMSF investors of ActiveSuper and Royale as a source of its finance. It had entered into the loan agreement with the four LLCs on or about 19 October 2011 and had subsequently varied that agreement so that it could borrow up to $1.47 million. As previously mentioned, ultimately, some $2.15 million of the funds raised pursuant to the US Realty Memorandum was provided to MOGS;

(g)    Mr Gore had told Mr Adamson on 21 October 2011 that if a fund of the kind he had discussed at the meetings in October 2011 was established, it “will advance monies to MOGS to assist MOGS to deliver 20 houses a month to clients of Royale Capital”;

(h)    by at least early March 2012, a draft loan agreement was being prepared for a proposed loan from WPO to MOGS, Mash Investments, MOGS (SA) Pty Ltd and MOGS (Qld) Pty Ltd. Mr Adamson was involved in reviewing and finalising the loan agreement. In fact loan agreements and guarantees were not executed until 10 May 2012. All involved, including Mr Burrows, Mr George and Mr Adamson, must have known that the subscribed monies were being provided to MOGS from 8 March 2012 until 10 May 2012 without any loan agreements or guarantees in place, and that unsecured lending was thereby occurring;

(i)    in contrast to the absence of evidence of activities in relation to the acquisition of property, there is considerable evidence of work being done by many, including Mr Burrows, Mr George and Mr Adamson, on the development of lending policy manuals and compliance plans, indicating a focus on lending rather than acquisition of real estate;

(j)    immediately after the establishment of the SPG PPM, Mr Gore pressed Mr Burrows for monies to be transferred to MOGS. On 7 and 8 March 2012, the following email exchange occurred between Mr Gore and Mr Burrows:

Gore to Burrows:    [A]bout to send you the website version it looks incredible. Tomorrow I will do an email that covers of (sic) on the licence structure …

Mate also spoke to Justin. He tells me 30k landed and we really need at least 300k. Any chance we process that 30k today PLEASE. BTW you sent one of the deposits direct to us that has been sent back to EEL and they will then pay that back to Active or you. Mate I am in a real spot tomorrow so anything you can do to help would make a huge difference.

Burrows to Gore:     All good, have just transferred $30k to MOGS.

Gore to Borrows:    Thanks mate. Any chance you can find another 20k. It would really help me out mate.

(k)    Mr Adamson and Mr Burrows were actively involved in procuring WPO to send funds to a third party, Mr Johnson. Evidence is seen in Mr Adamson’s email to Mr Burrows on 26 March under the subject heading “MOGS Pty Ltd Advance from Syndicated Property Group Limited”. Mr Adamson said:

I confirm that I act on behalf of MOGS Pty Ltd.

I am instructed to request, which I hereby do, that the next tranche of funds to be paid to MOGS Pty Ltd, namely US$125,000, be paid into the following account [giving the account details for Mr Johnson].

    Mr Adamson gave evidence that the subject heading for this email was wrong as MOGS had been a borrower from WPO and not SPG but, for present purposes, that is immaterial. Mr Adamson was conveying in effect a request that monies subscribed by SMSF investors should not to be used for the purchase of real estate but instead be sent elsewhere. In fact, because Mr Adamson had drawn up and signed an irrevocable authority granted by MOGS to Mr Johnson on 22 March 2012, he was aware that the monies were being paid to discharge an indebtedness of MOGS to Mr Johnson and, accordingly, were not being used for the purposes of development or construction finance, let alone the purchase of real estate;

(l)    Mr George was involved in procuring the payment of investor’s funds for purposes other than investment in real estate. On 29 March 2012, he provided Mr Gore with details of an account of Cayco in the United States. It is unclear how that account came to be established. Mr Gore then, by email dated 30 March, requested Mr Burrows to transfer “400K AUD” into the MOGS account and “100K USD” into the Cayco account that same day. The other evidence indicates that monies in the Cayco account were used to make payments of $100,000 to Mr Johnson on 3 April 2012 and $150,000 to Meronymy Consultants LLC on 12 April 2012. As noted earlier, Meronymy is a company associated with Mr George. The evidence did not disclose any basis for this payment as, in November 2011, Mr George had agreed to accept $30,000 in consideration of his performance of duties as a director of the companies then proposed to be established. Later, Mr George caused $69,000 to be paid to a Wells Fargo Account in the name of Ms Gore, and other sums to his sister and former wife.

(m)    Mr George, Mr Burrows and Mr Adamson must have been aware that there were no lending agreements in place between SPG, WPO and MOGS, or of any other entity associated with MOGS. Each was present on 10 May 2012 when the loan agreements and the guarantees were executed.

(n)    no monies were in fact invested in real estate.

383    These particular factors are sufficient by themselves to indicate that each of Mr Burrows and ActiveSuper, SPG, WPO and Cayco by their respective directors, must have known and understood at the time of circulation of the PPMs that the monies subscribed would not be invested in real estate but would instead be provided to MOGS or to others at its direction. Mr Gibson, and through him Royale, must also have known this. Even after 10 May when the lending agreements and guarantees were signed, the overwhelming majority of the monies were not paid for development or construction purposes.

384    In his final submissions, Mr Gore drew attention to statements in the PPMs to the effect that the investments were for experienced investors, that the proposed investment programs were speculative and entailed substantial risk, that there could be no assurance that the funds would achieve their investment objectives, and that only those investors who were able to bear the risk of loss should make investments. Each PPM included a section entitled “Risk Factors” identifying a number of classes of risks bearing upon investment in SPG and WPO. Mr Gore’s submissions seemed to be that the presence of these statements in the PPMs mitigated their misleading effect.

385    I agree that the PPMs should be read as a whole, including the statements to which Mr Gore drew attention. However, I do not accept that these statements operated as some kind of balm salving the misleading effect of the PPMs. On the contrary, the circumstance that investment in SPG and WPO was speculative and involved substantial risk made it even more important that prospective investors be informed accurately and completely of all matters bearing upon the nature and extent of the risks about which they were being warned and of the use to which it was intended investment monies would be put. It is plain that they were not.

386    For these reasons, I consider that ASIC has made good its allegation that the ActiveSuper defendants, SPG, WPO and Cayco made representations that monies invested by Australian SMSFs pursuant to the SPG and WPO PPMs would in the future be used for the purchase by SPG and WPO of property when there was no reasonable basis for doing so. The representations were made in trade or commerce and were misleading or deceptive, and contravened both s 1041H of the Corporations Act and s 12DA of the ASIC Act.

The representation by omission as to past use of invested funds

387    ASIC’s allegation is that the ActiveSuper defendants, SPG, WPO and Cayco represented to investors that monies invested pursuant to the SPG PPM and the WPO PPM had in the past been used for the purchase by SPG and WPO of property. These representations are said to have been made by omission, through the failure to inform investors proposing to make investments pursuant to each of the PPMs that monies raised from previous investors had not been used by SPG or WPO to purchase property.

388    The principles relevant to this part of ASIC’s claim are settled. Many of the principles were discussed in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357, in particular, at [16]-[21] (French CJ and Kiefel J). I take the applicable principles to be as follows:

(1)    Conduct involving silence or omission may, in some circumstances, constitute misleading or deceptive conduct;

(2)    In considering whether conduct is misleading or deceptive, silence is to be assessed as a circumstance like any other;

(3)    Mere silence without more is unlikely to constitute misleading or deceptive conduct. However, remaining silent will be misleading or deceptive if the circumstances are such as to give rise to a reasonable expectation that if some relevant fact does exist, it will be disclosed;

(4)    A reasonable expectation that a fact, if it exists, will be disclosed will arise when either the law or equity imposes a duty of disclosure, but is not limited to those circumstances. It is not possible to be definitive of all the circumstances in which a reasonable expectation of disclosure may arise but they may include circumstances in which a statement conveying a half-truth only is made, circumstances in which the representor has undertaken a duty to advise, circumstances in which a representation with continuing effect, although correct at the time it was made, has subsequently become incorrect, and circumstances in which the representor has made an implied representation;

(5)    In considering whether a party engaged in commercial dealing may have a reasonable expectation that a fact, if it exists, will be disclosed, it is appropriate to keep in mind that it will often be the case in such dealings that one party has more knowledge about a relevant matter than the other and yet will not, in accordance with ordinary commercial expectations, be guilty of misleading or deceptive conduct in failing to make that knowledge known to the other.

389    Ultimately, the determination of whether a failure to disclose a matter is misleading or deceptive requires examination of all the circumstances. If, in the circumstances assessed objectively, the representees would have been entitled to expect or infer (that is, have a reasonable expectation) that particular matters would be disclosed and they were not, the representor may have engaged in misleading or deceptive conduct: Clifford v Vegas Enterprises Pty Ltd [2011] FCAFC 135 at [198]. French CJ and Kiefel J in Miller said in relation to the concept of reasonable expectation, at [19]:

The language of reasonable expectation is not statutory. It indicates an approach which can be taken to the characterisation, for the purposes of s 52, of conduct consisting of, or including, non-disclosure of information. That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiations. …

(Citation omitted)

390    Neither ASIC’s pleadings nor its submissions particularised the period during which the representations by omission were said to have been made. The period cannot have commenced on the initial publication and use of the respective PPMs of SPG and WPO because at that time neither SPG nor WPO had any history of use of funds about which investors could be informed. It is not altogether clear on the evidence when each of SPG and WPO first used subscribed funds for purposes other than investment in real estate. The Caledonian Bank Account statement for Cayco shows that it received the funds from SPG on 30 March 2012 which were transferred to Mr Johnson on 3 April 2012, and that it received funds from WPO on 12 April 2012 which were transferred to Meronymy Consultants LLC the same day. Accordingly, I proceed on the basis that it is the representations made to investors after those respective dates upon which ASIC relies for this allegation.

391    The gist of ASIC’s allegation is that investors were invited to subscribe for shares in SPG and WPO on the basis that the primary use of their funds would be investment in real estate when in fact the funds subscribed by earlier investors were not being used for that purpose, and the investors were not told of that fact. ASIC’s complaint is not based on the circumstance that investors were not informed that, not only were their subscribed funds not being used for the purchase of real estate, they were being lent to a single borrower, namely MOGS, without any loan agreements or security in place and without any indication that those funds would be used for development or construction purposes.

392    ASIC’s claim that investors would have had a reasonable expectation that they would be informed that monies raised from earlier investors had not been invested in real estate faces the difficulty that each of the PPMs and, in particular, the WPO PPM indicated that the funds may engage in some forms of lending. Investors may well have had a reasonable expectation that they would be informed that SPG and WPO were not using the funds for the purposes contemplated by the respective PPMs but it seems improbable, to my mind, that in the context that the investors were told that SPG and WPO may also engage in some financing activity, they would be told that the funds earlier subscribed had not been used for investment in real estate. That is to say, I am not prepared to find that investors had the form of reasonable expectation upon which ASIC relies for this allegation.

393    In his final submissions, Mr O’Bryan SC, senior counsel for ASIC submitted that “insofar as the investment memoranda said – and they did say – that the people involved had invested in real estate markets in the past, and successfully and that they intended to do so again, that to the extent that that statement was false, because they were not relevant investments that had been made in the past, that was misleading or deceptive conduct”. It is not necessary to consider and determine the elements of that submission as the representation to which it refers is not the application representation as to the past pleaded by ASIC in [92] of the 2FASC.

394    For these reasons, ASIC’s second allegation of misleading or deceptive conduct by the ActiveSuper defendants, SPG, WPO and Cayco fails.

The Accessory Claims

395    ASIC alleges that the MOGS defendants were knowingly concerned in the contraventions of the primary defendants of ss 727(1) and (2), 911A and 1041H of the Corporations Act and of s 12DA of the ASIC Act. In the case of s 1041H and s 12DA, it is only the contraventions arising from the SPG and WPO PPMs in which the MOGS defendants are alleged to have been knowingly concerned.

396    Although ASIC seeks declarations to the effect that the MOGS defendants were knowingly concerned in the contraventions, it does not contend that they thereby contravened s 727, s 911A, s 1041H and s 12DA themselves.

Involvement as an accessory: General principles

397    In view of some of the submissions, it is appropriate to set out some of the principles relating to accessory liability.

398    In order for a person to be knowingly concerned in a statutory contravention, that person must have been an intentional participant, with knowledge of the essential elements constituting the contravention: Yorke v Lucas (1985) 158 CLR 661 at 670. It is not, however, necessary that a person with knowledge of the essential elements making up the contravention also know that those elements do amount to a contravention: Yorke v Lucas at 667; Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) [1999] FCA 1161; (1999) 95 FCR 302 at [186]; Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289; (2003) 135 FCR 1 at [8]-[13]. An accessory does not have to have appreciated that the conduct was unlawful: Giraffe World at [186].

399    Actual knowledge of the essential elements constituting the contravention is required. Imputed or constructive knowledge is insufficient: Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; (2012) 293 ALR 537 at [11].

400    Proof that a person had actual knowledge of each of the essential elements making up the contravention may be derived from direct evidence but more commonly will be a matter of inference from all the circumstances found to be proved. In some cases, actual knowledge can be inferred from the combination of a defendant’s knowledge of suspicious circumstances and the decision by the defendant not to make inquiries to remove those suspicions. The High Court referred to knowledge in these circumstances in Pereira v Director of Public Prosecutions (1988) 82 ALR 217 at 220:

[A] combination of suspicious circumstances and failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter. In a case where a jury is invited to draw such an inference, a failure to make inquiry may sometimes, as a matter of lawyer’s shorthand, be referred to as “wilful blindness”. Where that expression is used, care should be taken to ensure that a jury is not distracted by it from a consideration of the matter in issue as a matter of fact to be proved beyond reasonable doubt.

401    The caution enjoined by the last sentence in this passage is emphasised by the observations of Wilson, Deane and Dawson JJ in Giorgianni v The Queen (1985) 156 CLR 473 at 505:

[A]lthough it may be a proper inference from the fact that a person has deliberately abstained from making an inquiry about some matter that he knew of it and, perhaps, that he refrained from inquiry so that he could deny knowledge, it is nevertheless actual knowledge which must be proved and not knowledge which is imputed or presumed.

And later (at 507-8):

The fact of exposure to the obvious may warrant the inference of knowledge. The shutting of one’s eyes to the obvious is not, however, an alternative to the actual knowledge which is required as the basis of intent to aid, abet, counsel or procure.

Their Honours appear in this passage to have been giving a different emphasis to that given by Gibbs CJ in Giorgianni when he said (at 482) that one qualification to the proposition that actual knowledge of the essential matters is necessary is that “wilful blindness, the deliberate shutting of one’s eyes to what is going on, is equivalent to knowledge”, and to that given by Mason J (at 495) that “it is enough if the defendant has deliberately shut his eyes to a relevant fact or has deliberately abstained from obtaining knowledge by making an inquiry for fear that he may learn the truth”.

402    Any difference in approach in Giorgianni in these passages appears to have been resolved by the unanimous judgment in Pereira in the passage quoted above. It means that only actual knowledge of the essential matters will be sufficient but that that knowledge may be able to be inferred from a defendant’s knowledge of matters raising suspicion, together with a deliberate failure to make the enquiries which may have confirmed those suspicions.

403    The determination that a person has actual knowledge in this manner is not always easy. Amongst other things, it requires consideration of the defendant’s knowledge of matters giving rise to suspicion, the circumstances in which the defendant did not make the obvious enquiry, and the defendant’s reasons, to the extent that they are known, for not making the enquiry. It is necessary to keep in mind that it may not be every deliberate failure to make enquiry which will support the inference of actual knowledge. In several cases, including Official Trustee in Bankruptcy v Mitchell (1992) 38 FCR 364 at 371; Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 at 693-4; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [209], this Court has referred with approval to a passage from the advice of Lord Sumner in The Zamora (No 2) [1921] 1 AC 801 at 812-3, in which his Lordship noted two senses in which persons may be said not to know something because they do not wish to know it:

A thing may be troublesome to learn, and the knowledge of it, when acquired, may be uninteresting or distasteful. To refuse to know any more about the subject or anything at all is then a wilful but a real ignorance. On the other hand, a man is said not to know because he does not want to know, where the substance of a thing is borne in upon his mind with a conviction that full details or precise proofs may be dangerous, because they may embarrass his denials or compromise his protests. In such a case he flatters himself that where ignorance is safe, ‘tis folly to be wise, but there he is wrong, for he has been put upon notice and his further ignorance, even though actual and complete, is a mere affectation and disguise.

In the former circumstance described by Lord Sumner, the person will not have actual knowledge of the matter. In the latter circumstance, the person does have that knowledge but deliberately refrains from asking questions or seeking further information in order to maintain a state of apparent ignorance. That is not a circumstance of constructive or imputed knowledge, but of actual knowledge reduced to a minimum by the person’s wilful conduct: Richardson & Wrench at 694 (Burchett J). It stands in contrast to the circumstance of “honest ignorance” to which Brennan J referred in Yorke v Lucas at 677.

404    Although courts have held on several occasions that actual knowledge by a person of the essential elements of a contravention may be able to be inferred from proof that the person had knowledge of suspicious circumstances but deliberately refrained from making enquiry (Richardson & Wrench at 693-4; Cassidy at [71]; Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 5; Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC 192, (2006) 57 ACSR 553 at [390]; Forge v Australian Securities and Investments Commission [2004] NSWCA 448, (2004) 213 ALR 574 at [202], there are few instances of actual knowledge being found to exist in those circumstances. This has the consequence that there is relatively little practical analysis in the authorities of the way in which actual knowledge can be inferred on the basis of knowledge of suspicious circumstances and a failure to make enquiry.

405    The requisite actual knowledge must be present at the time of the contravention. A later acquisition of knowledge of the essential matters is not sufficient: Australian Investors Forum at [113]-[118].

406    A company may be knowingly concerned in a statutory contravention. The intention and knowledge of the directing or governing mind and will of a company may be imputed to the company for this purpose: Tesco Supermarkets Ltd v Nattras [1972] AC 153 at 170-1; Hamilton v Whitehead (1988) 166 CLR 121 at 127. See also the approach of Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 and the discussion by Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 2) [2001] FCA 1861 at [806]-[810].

407    As noted, being knowingly concerned requires that the person participate intentionally in the contravention, with knowledge of the essential elements constituting the contravention. In Trade Practices Commission v Australian Meat Holdings Pty Ltd (1988) 83 ALR 299 Wilcox J at 357 quoted with approval the following passage from the judgment of the Full Court of the Supreme Court of Western Australia in Ashbury v Reid [1961] WAR 49:

The question which a Court should ask itself in determining whether an act or omission on the part of an individual comes within the terms of s 54 is whether on the facts it can reasonably be said that the act or omission shown to have been done or neglected to be done by the defendant does in truth implicate or involve him in the offence, whether it does show a practical connection between him and the offence.

408    This statement in Ashbury v Reid was approved in R v Nifadopoulos (1988) 36 A Crim R 137 at 140 (Kirby ACJ with Maxwell and Carruthers JJ agreeing):

[Ashbury v Reid] correctly establishes the meaning of the expression “knowingly concerned in” and is wholly in accordance with the common law that a person cannot become criminally involved in an act made unlawful by mere knowledge or inaction on his part – some act or conduct on his part is necessary.

409    In R v Tannous (1987) 10 NSWLR 303, a drug importation case, Lee J said at 308:

The “concern” to which the section speaks is not a concern personal to the appellant in the sense of being in his mind, but it is a concern which can be demonstrated objectively by reference to his association, whatever it may be, with the importation.

410    In Emwest Products Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2002] FCA 61; (2002) 117 FCR 588 at [34], Kenny J spoke of the expression “concerned in” requiring conduct, by act or omission, which implicates or involves the alleged accessory in the offence or shows a practical connection between the alleged accessory and the offence.

411    Many of the authorities to which I have just referred concerned s 75B(1) of the Trade Practices Act 1974 (Cth). The jurisprudence developed in relation to s 75B may be applied in relation to the relevantly identical s 79 of the Corporations Act: Roumanus v Orchard Holdings (NSW) Pty Ltd [2012] FCA 775; (2012) 90 ACSR 677 at [178].

Are accessory claims available in respect of ss 727 and 911A?

412    The defendants submitted that it was not open to the Court to make declarations, or issue injunctions against them pursuant to s 1324, on the basis that they were knowingly concerned in the contraventions by the primary defendants of s 727(1) and (2) and s 911A. They did not make this submission in respect of the contraventions by the primary defendants of s 1041H and s 12DA.

413    Mr Kirby submitted that a person could not be liable as an accessory in respect of contraventions of s 727 and 911A. Despite the fact that Mr Adamson was consenting to declarations that he had been knowingly concerned in the contraventions of s 727(1) and (2) and of s 911A, his counsel, Mr Smith, made a like submission. Both counsel made a further submission to the effect that s 1324 of the Corporations Act did not authorise the issue of an injunction to restrain conduct which was not itself a contravention of the Corporations Act. I understood Mr Gore to adopt those submissions in his own case.

414    In order to understand the basis for the submissions of the defendants, it is necessary to set out some further background and to refer to ss 79, 1101B(1) and s 1324. Initially, ASIC had indicated that it sought declarations under s 1101B(1) of the Corporations Act to the effect that the MOGS defendants had been knowingly concerned in the contraventions of the primary defendants. However, s 1101B(1) authorises the Court to make orders on the application of ASIC only if it appears to the Court that (relevantly) a person has contravened a provision in Ch 7 of the Corporations Act. The submissions of Mr Kirby and Mr Smith seemed to assume implicitly that, in addition, s 1101B(1) authorised the making of orders only against the person contravening the provision in Ch 7. It is not necessary to consider the correctness of that assumption because ASIC is also entitled to seek declarations pursuant to s 21 of the Federal Court Act 1976 (Cth). During the trial ASIC amended (with leave) the Originating Application to make it plain, amongst other things, that it was doing so. Contrary to the submission of Mr Kirby, s 1317J(4) of the Corporations Act does not preclude the grant of a declaration on the application of ASIC under s 21 of the Federal Court Act.

415    Acting on the implicit assumption just mentioned, Mr Kirby and Mr Smith submitted that the Corporations Act did not contemplate that s 727(1) and (2) and s 911A would be contravened by a person who was knowingly concerned in the contravention. They noted that, unlike numerous other provisions in the Corporations Act, neither s 727 nor s 911A provides that accessories are themselves contravenors of those provisions. This evidenced, it was said, a legislative intention that there was not to be accessory liability in respect of ss 727 and 911A. This submission is supported by the decision of Brereton J in Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373, to which I will return shortly.

416    Counsel also submitted that s 79 of the Corporations Act could not be invoked to make good this “gap”. Section 79 provides:

A person is involved in a contravention if, and only if, the person:

(a)    has aided, abetted, counselled or procured the contravention; or

(b)    has induced, whether by threats or promises or otherwise, the contravention; or

(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.

417    Again, counsel referred to Maxwell as supporting this submission as Brereton J had held that s 79 has no application to contraventions of s 727. Brereton J’s reasoning was as follows:

[57]    ASIC alternatively alleges that Mr Nahed aided, abetted, counselled or procured or was knowingly concerned in or party to contraventions by ProCorp, Mr Maxwell and BEST, and Coakleys of ss 727 and 734. This allegation picks up the terminology of Corporations Act, s 79(a) and (c), which define when a person is “involved” in a contravention by another. However, ss 727 and 734 — unlike ss 181, 182 and 183 — do not provide that a person who is “involved in” a contravention of the section, thereby himself or herself contravenes the section. In my view, the availability of s 79 to impose accessorial liability has been carefully and deliberately marked out through the Act — see ss 181(2), 182(2), 183(2) and 1041I(1) — and it was not made available in connection with ss 727 and 734. In that way, the Act specifies when, for the purposes of the Act, consequences attach being “involved” in a contravention. No such consequences are specified for being “involved” in a contravention of ss 727 or 734. Accordingly, the accessorial liability provisions of s 79 are not available, or do not have any relevance, in respect of these sections, which are in any event not civil penalty provisions.

As can be seen, Brereton J relied upon the absence in s 727 of any counterpart provision to ss 181(2), 182(2), 183(2) and 1041I(1). The first three of these provisions state explicitly that persons involved in a contravention of their provisions do themselves contravene those provisions.

418    ASIC submitted that Maxwell should not be followed in this respect. It referred to Australian Securities and Investments Commission v Manito Pty Ltd [2005] FCA 386, (2005) 53 ACSR 56; Australian Securities and Investments Commission v Oxford Investments (Tasmania) Pty Ltd [2008] FCA 980, (2008) 169 FCR 522; and Australian Investors Forum as cases in which the contrary view has been adopted or acted upon. However, in my opinion, neither of the first two authorities can be regarded as strong authority against the conclusion of Brereton J in Maxwell. Nicholson J in Manito did not address the issue at all as he was satisfied on separate grounds that the declaration sought by ASIC in that case was inappropriate. In Oxford Investments, Heerey J made orders by consent on an agreed statement of facts and the applicability of s 79 was not raised as an issue. However, in Australian Investors Forum at [213]-[214], Palmer J did seem to accept that s 79(3) could be applied so as to find accessorial involvement in a contravention of s 727. I note that the decision in Australian Investors Forum preceded that of Brereton J in Maxwell.

419    The defendants may well be correct in contending that a person may not be liable as an accessory in respect of contraventions of ss 727 and 911A, in the sense that an accessory will also contravene those provisions. Unlike ss 181, 182 and 183, ss 727 and 911A do not contain any stipulation that persons who are involved in contravening its provisions are themselves contravenors. However, even if the defendants’ submissions be correct, it does not foreclose the question of whether a declaration that a person has been knowingly concerned in a contravention of those provisions may be made and an injunction issued.

420    ASIC does not rely on s 79 for the declarations and injunctions it seeks. It does not seek to establish contraventions by the MOGS defendants of s 727 or s 911A at all, let alone by reference to s 79. If it did, it would be necessary to consider the application of the reasoning of Brereton J in Maxwell. ASIC seeks instead to establish a basis for an injunction under s 1324.

421    Section 1324(1) provides:

(1)    Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a)    a contravention of this Act; or

(b)    attempting to contravene this Act; or

(c)    aiding, abetting, counselling or procuring a person to contravene this Act; or

(d)    inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e)    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f)    conspiring with others to contravene this Act;

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

As can be seen, subs (c)-(f) inclusive are in the familiar terminology of accessory liability and are, relevantly, in the same language as s 79. They permit the Court to grant an injunction if satisfied that a person has engaged, or is proposing to engage, in conduct of that kind. However, s 1324 does not use the expression “involved in a contravention”, so that reference to s 79 is not necessary in order to ascertain its proper application. Even if s 79 is not available to establish accessorial liability, s 1324(1) has an independent operation. That independent operation makes it necessary to consider the conduct of the alleged accessories in respect of whom an applicant seeks an injunction. A declaration that a defendant has engaged in the alleged conduct may be appropriate as a precursor to the grant of an injunction under s 1324.

422    Section 79 should not be regarded as imposing any liability. It is a definitional provision, as is indicated by its own terms and by its location in Pt 1-2 Div 7. Its purpose is to give content to the expression “involved in the contravention” used elsewhere in the Corporations Act. The question of whether s 79 is available in relation to ss 727 and 911A does not arise because the expression “involved in a contravention” is not used in either provision.

423    The submission that s 1324(1) does not authorise the issue of an injunction restraining a person other than a contravenor of the Corporations Act cannot be accepted. Section 1324(1) is a remedial provision and should not be construed narrowly. On its own terms, it distinguishes between persons engaging in conduct which constitutes a contravention of the Corporations Act and conduct as an accessory and contemplates orders against both. There is no reason to suppose that it is confined only to those accessories who are regarded themselves as having contravened the primary proscription.

424    Further, it should not be thought that the Corporations Act uses the expression “involved in a contravention” only in the context of accessories who also contravene a statutory proscription. The expression is also used when the Corporations Act wishes to establish a means of civil recovery when being involved in a contravention is not itself a contravention of the primary proscription (for example, ss 670E, 1022B, 1041I, 1043L and 1073D) and to authorise the making of other forms of remedial orders in like circumstances (for example, ss 920A, 1324B and 1325). These circumstances do not depend upon the accessory being liable as a contravenor of the primary provision. Indeed, if they did, the very wording would be unnecessary.

425    For these reasons the submissions of the defendants that declarations may not be made that they were knowingly concerned in the contraventions of ss 727 and 911A and that injunctions may not be issued, cannot be accepted.

426    Section 12GD(1) of the ASIC Act is in relevantly identical terms to s 1324(1). Accordingly, it is not necessary to address it separately.

The elements of being knowingly concerned in a contravention of s 727(1)

427    ASIC submitted that proof of the accessory involvement of the MOGS defendants in the contravention of s 727(1) required it to establish only that those defendants knew the matters which gave rise to the contravention, namely, that there had been an offer of securities or the distribution of an application form for an offer of securities and that no disclosure document had been lodged with ASIC. It contended that it was it not necessary for it to establish, in addition, that the MOGS defendants knew that the offers needed disclosure to investors under Pt 6D.2 and, in particular, that it was not necessary for it to establish that none of the exemptions contemplated by s 708 was available.

428    Mr Stonehouse and Mr and Ms Gore contested these propositions.

429    In Yorke v Lucas, the question was the state of mind required of an accessory to a contravention of s 52 of the Trade Practices Act 1974 (Cth) (the TPA). The Court held that the accessory liability provisions in s 75B, being drawn from the criminal law, should be given the same meaning which they have in the criminal law. This required that the accessory have the requisite mental element. This lead the plurality to conclude (at 670):

There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention.

…

In our view, the proper construction of par. (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.

(Emphasis added)

The plurality also held (at 668) that, even when intent was not an element of the primary contravention, it was an element of acting as an accessory in relation to that contravention.

430    Brennan J wrote a separate judgment but expressing the same conclusion. His Honour said (at 673-4):

Civil liability is … imposed only on those who engage in the conduct prescribed by s 75B with the state of mind which the criminal law calls mens rea. … A person whose act or omission brings him within the literal terms of the provision is not held liable, however, unless he engaged in the conduct therein specified (aiding, abetting, etc) with a state of mind that amounts to mens rea. …

In Giorgianni v The Queen, this Court decided that a person cannot be held liable for aiding, abetting, counselling or procuring the commission of an offence, even a statutory offence involving strict liability, without intent based upon knowledge of the essential facts which constitute the offence.

(Emphasis added and citations omitted)

431    In Giorgianni, Wilson, Deane and Dawson JJ had stated the mental element required for an accessory to a crime in the following passage at 506:

[T]he offences of aiding and abetting and counselling and procuring … require intentional participation in a crime by lending assistance or encouragement. They do not, or course, require knowledge of the law and it is necessary to distinguish between knowledge of or belief in the existence of facts which constitute a criminal offence and knowledge or belief that those facts are made a criminal offence under the law. The necessary intent is absent if the person alleged to be a secondary participant does not know or believe that what he is assisting or encouraging is something which goes to make up the facts which constitute the commission of the relevant criminal offence. He need not recognise the criminal offence as such, but his participation must be intentionally aimed at the commission of the acts which constitute it.

(Emphasis added)

432    Similarly, Gibbs CJ said at 482:

[T]he person charged must have intended to help, encourage or induce the principal offender to bring about the forbidden result. In other words, both knowledge of the circumstances and intention to aid, abet, counsel or procure are necessary to render a person liable as a secondary party …

(Emphasis added)

433    These statements of principle indicate that both intention and knowledge of the essential elements of the contravention are necessary for accessorial liability.

434    The identification of the essential elements of a contravention of which an alleged accessory must have knowledge in order to be knowingly concerned in it requires close attention to the elements of the contravention and, in turn, to the terms of the provision contravened. I identified the elements of the contravention of s 727(1) earlier in these reasons as being the contravenor making an offer of securities or distributing an application form for an offer of securities; the offer needing disclosure to investors under Pt 6D.2; and no prospectus, profile statement or offer information statement having been lodged with ASIC. The requirement that an accessory have knowledge of the first and third of these elements is not controversial presently. It is the second which is less clear.

435    I referred earlier to s 706 of the Corporations Act but it is convenient to quote its terms presently:

706 Issue offers that need disclosure

An offer of securities for issue needs disclosure to investors under this Part unless section 708 or 708AA says otherwise.

436    The effect of s 706 is that an offer of securities requires disclosure to investors under Pt 6D.2 unless exempted by ss 708 or 708AA. Considered in the abstract, the inapplicability of any of the exemptions for which ss 708 and 708AA provide is an integer of the identification of an offer of securities which needs disclosure to investors under Pt 6D.2. However, an allegation that a person was an accessory occurs in a particular factual, as well as statutory, context. This suggests that it is appropriate to identify the essential elements of which the alleged accessory must have knowledge by reference to those matters which the applicant must establish in the given case in order to prove the particular contravention alleged. The exemptions for which ss 708 and 708AA provide are not matters of this kind, as they are matters in respect of which an alleged contravenor carries the onus: Cycclone Magnetic at [40]. If there is no evidence of those matters then, providing the applicant has established the other elements, a contravention of  727(1) will be proved.

437    This was the approach taken by Giles JA (with whom Mason P and Beazley JA agreed) in Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1. Adler concerned, amongst other things, accessorial involvement in a contravention of the financial assistance provisions in s 260A(1) of the Corporations Act. Section 260A(1) provides that a company may financially assist a person to acquire its shares only if one or other of three conditions are satisfied. The Court of Appeal upheld the trial Judge’s view that the onus of proving the existence of one of those conditions was on the defendant company. This meant that it was not an element of a contravention of s 260A(1) to be established by ASIC. Giles JA then said in respect of proof of the liability of the alleged accessory:

[413]    Onus of proof is more than a question of practice and procedure, and what governs the substantive question is the principle thoroughly established in Yorke v Lucas. If the burden of proving that the giving of financial assistance does not materially prejudice the interests of the company lies upon the company, upon proof of giving financial assistance and with no evidence at all on that subject, the contravention is made out. Facts showing no material prejudice are not essential facts constituting the contravention, and there can be intentional participation in the contravention if there is knowledge of the giving of financial assistance without proof that the alleged participant did not know of facts negativing material prejudice. …

438    The reasoning in Adler is not however conclusive of the position in relation to s 727. Although it indicates that ASIC does not have to establish that the MOGS defendants knew that none of the exemptions for which ss 708 and 708AA were applicable, there remains the question of whether it must establish that they knew that the offer needed disclosure to investors under Pt 6D.2, in the general sense that public offers of shares require a disclosure document.

439    In contending that it did not, ASIC referred to Rafferty v Madgwicks [2012] FCAFC 37; (2012) 203 FCR 1. One of the questions in that case was whether the firm of Madgwicks had been knowingly concerned in a contravention of s 51AD of the TPA. Section 51AD provided that “a corporation must not, in trade or commerce, contravene an applicable industry code”. The Franchising Code was such a code. The Rafferty parties contended that it was not necessary for them to establish that Madgwicks knew that the Franchising Code applied to two agreements which contravened s 51AD. The Full Court upheld that contention, saying:

[257]    Where the Franchising Code is the applicable industry code, the existence of a franchise agreement, or an agreement to enter into a franchise agreement is the sine qua non of any contravention of s 51AD. Thus in order for Madgwicks to hold the requisite intent, Madgwicks had to be aware that [the relevant defendant] in the case of the [Rights Agreement], and Embleton in the case of the [Heads of Agreement], were entering into a franchise agreement and an agreement to enter a franchise agreement respectively. Consistently with Rural Press, Madgwicks was not required to make the correct legal judgment that the Code applied, nor was Madgwicks required to know that the relevant conduct was a contravention of s 51AD. However, Madgwicks was required to know that the [Rights Agreement] was a franchise agreement and the [Heads of Agreement] was an agreement to enter a franchise agreement.

[258]    Accordingly, having regard to our identification of the essential elements of the s 51AD contraventions in this case, we accept, as the Rafferty parties submitted, that, in order to establish that Madgwicks fell within s 75B as a person involved in the contraventions of s 51AD by [the relevant defendant] and Embleton, it was not necessary for the Rafferty parties to establish that Madgwicks knew that the Code applied to or in relation to the [Rights Agreement] and the [Heads of Agreement]. It was, however, necessary for Madgwicks to know, with respect to the [Rights Agreement], that [the relevant defendant] was entering into a franchise agreement and, with respect to the [Heads of Agreement], that Embleton was entering into an agreement to enter into a franchise agreement. In view of our conclusion on this point, it is unnecessary to address the submissions of the Rafferty parties that essential elements of a contravention could only be composed of matters of fact and not matters of fact and law.

440    Relying on these passages, ASIC submitted that, by analogy, in the present case it was required to establish only that the MOGS defendants knew that shares were being offered, or application forms for the issue of shares on offer were being distributed, and not the additional circumstance that the offer required disclosure under Pt 6D.2.

441    On its face, the reasoning in Rafferty v Madgwicks seems also to be applicable in the case of s 727. Just as knowledge that the Franchising Code was applicable to the agreements in question was not necessary in that case, so knowledge of the requirement for disclosure under Pt 6D.2 should not be necessary in this case. However, there are other considerations.

442    There are cases in which an essential element in an offence or contravention is the presence or absence of a qualification or authority required by law or the presence or absence of a document having a legal characterisation. In such cases, the liability of the alleged accessory may turn on whether he or she had knowledge of that circumstance. Wilson v Dobra (1955) 57 WALR 95, Smith v Jenner [1968] Crim LR 99 and Bateman v Evans (1964) 108 Sol Jo 522 are examples. In Wilson v Dobra, the Full Court held that it was necessary for the prosecution to prove that the alleged accessory engaged in a sale of goods knowing that the sale was made without a requisite authority and in a way not permitted by statute (at 97). In Smith v Jenner, it was held that a driving instructor could not be guilty of aiding and abetting the unlicensed driving by a learner driver in the absence of knowledge that the driver’s provisional licence had expired so that the driver was unlicensed. Similarly, in Bateman v Evans, it was held that the aiding and abetting of a person to a commit an offence of driving while disqualified required knowledge by the accessory that the driver was disqualified.

443    Accordingly, there are circumstances in which knowledge of the legal characterisation or effect of a document can be an essential element of which an accessory must have knowledge.

444    The position with respect to s 727(1) was considered by Palmer J in Australian Investors Forum. A director of AIF was alleged to have been knowingly concerned in its contravention of s 727 resulting from the offer of shares under an AFSL. The director contended that AIF had not been required to lodge a disclosure statement. He relied on s 708(10) which exempts offers made by a licensee under an AFSL if certain conditions are satisfied, including the provision to the offeree of a statement of reasons (subs (10)(c)) and the provision by the offeree of a required form of acknowledgment (subs (10)(d)). In that context, Palmer J said at [144] and [145]:

[144]    … The essential factual ingredients of a contravention of s 727(1) relevant for the purposes of the present case are:

(i)    an issue of shares in AIF is being offered by AIF to potential investors;

(ii)    no disclosure statement in respect of the issue has been lodged with ASIC;

(iii)    the offer is made through a financial services licensee (here, AIF);

(iv)    before or at the time the offer to a particular potential investor is made, AIF has not given to the offeree a statement of reasons pursuant to s 708(10)(c);

(v)    before or at the time of the offer the offeree has not signed an acknowledgment pursuant to s 708(10)(d).

It does not have to be proved that [the director] knew the name of each potential investor to whom a contravening offer was to be made. It is sufficient that [the director] knew that the offers were to be made to a class of investors which included the particular investor to whom the contravening offer was made.

[145]    There cannot be the slightest doubt that [the director] had actual knowledge of facts (i), (ii) and (iii) as at the time AIF made an offer to each person in respect of whom ASIC alleges a contravention of s 727(1). The essential question is whether, in respect of the contraventions proved, the evidence shows to the requisite standard on the balance of probabilities that [the director] had actual knowledge of facts (iv) and (v) prior to, or at the time of, this occurrence.

445    As can be seen, Palmer J treated the director’s knowledge that a statement of reasons had not been given under subs (10)(c) and that the offeree had not provided a signed acknowledgment under subs (10)(d) as essential elements for the existence of accessory liability.

446    Mr Kirby submitted that Australian Investors Forum supported his submissions as to the requisite knowledge of the accessory as it indicated that ASIC must negative knowledge by the alleged contravenor of a circumstance of exemption under s 708 and, implicitly that ASIC must establish that an alleged contravenor knew that an offer required disclosure to investors.

447    ASIC submitted that Palmer J’s statement of the essential elements of which the alleged accessory had to have knowledge was a product of the manner in which the trial had been conducted in that case, including the fact that the director was unrepresented, had given evidence, and had particularised the matter said to remove the requirement for disclosure to investors. Further, Palmer J did not advert to the relevance of the onus of proof of the application of subs (10) being on the primary defendant.

448    I consider that there is force in ASIC’s submissions, particularly having regard to the decision in Adler and to the way the issues had been framed in Australian Investors Forum. In these circumstances I consider it inappropriate to regard this aspect of the decision in Australian Investors Forum as being persuasive, one way or the other, in the present trial as it turned very much on its own circumstances.

449    Another consideration is that accessorial involvement does require the element of intention, with knowledge of the essential matters making up the contravention the sine qua non for the existence of that intention. The law does not hold as accessories those who are entirely innocent. If it be the case that knowledge that an offer required disclosure is not required, then a person who knowingly assists in the making of an offer in the honest but mistaken belief that disclosure is not required will nevertheless be liable as an accessory. That does not seem consistent with the notion of intent to which the High Court referred in Giorgianni and in Yorke v Lucas, especially having regard to the origins of accessorial liability in the criminal law.

450    To my mind there is some incongruity in holding that a contravention of s 727(1) by a primary contravenor involves three elements and that an accessory must have knowledge of each but then concluding that knowledge of only two will be sufficient. This seeming incongruity is not resolved by reference to the principle that it is not necessary for an accessory to know that the conduct in question amounts to a statutory contravention. Knowledge that the offers in SPG and WPO did require disclosure under Pt 6D.2 might go a fair way to establishing knowledge that the statute was being contravened, but the two circumstances are not identical: see Potter v Fair Work Ombudsman [2014] FCA 187 at [79]-[81].

451    These matters indicate that there is force in the defendants’ submission that ASIC is required to establish that they had knowledge that the offers of securities in SPG and WPO required disclosure under Pt 6D.2. Nevertheless, given that the decision in Rafferty v Madgwicks is a decision of the Full Court and is relevantly indistinguishable, I intend to proceed on the basis that ASIC is required to establish, in proof of accessorial involvement in the contraventions of s 727(1), that the MOGS defendants knew only that the offers of shares in SPG and WPO were being made, or that application forms for the issue of shares were being distributed, and that no disclosure document had been lodged with ASIC. ASIC is not required in addition to prove that these defendants knew that the offer required disclosure to investors under Pt 6D.2 of the Corporations Act.

The elements of being knowingly concerned in a contravention of s 727(2)

452    This aspect of the case was not the subject of detailed submissions by any party, but the knowledge elements are similar to those just discussed in relation to s 727(1).

453    The substance of s 727(2) is a prohibition on the making of an offer of securities, or the distribution of an application form for an offer of securities, unless the offer or the application form, as the case may be, is included in or accompanied by a disclosure document which has been lodged with ASIC, whether that be a prospectus, profile statement or offer information statement. For the reasons given in relation to s 727(1), I consider that ASIC must establish that the MOGS defendants knew, first, that offers of shares in SPG and WPO were being made or that application forms for offers of shares in SPG and WPO were being distributed and, secondly, that the offer and the form were not included in or accompanied by a disclosure document lodged with ASIC.

The elements of being knowingly concerned in a contravention of s 911A

454    ASIC must establish that the MOGS defendants knew that the ActiveSuper defendants were carrying on financial services businesses in Australia and that they did not hold an AFSL covering the provision of the financial services.

455    This requires ASIC to establish that the MOGS defendants knew, first, that the ActiveSuper defendants were carrying on a business which included the provision of advice or recommendations intended to influence SMSF investors in relation to investment in SPG or WPO or which included the arranging for SMSF investors to acquire shares in SPG or WPO and, secondly, that when doing so, they did not hold an AFSL, or an authority under an AFSL, entitling them to do so.

The elements of being knowingly concerned in contraventions of s 1041H and s 12DA

456    In a case of misleading or deceptive conduct by representation, the applicant must establish that the alleged accessory knew that the representation was being made and had knowledge of the matters making the representation was false: Yorke v Lucas at 677. However, ASIC does not have to establish that the MOGS defendants knew that the representations were false or misleading, only that they knew of the matters which warrant the representations being characterised in that way: Cassidy at [15] (Moore J with whom Mansfield J agreed). Although Stone J took a different approach and there have been differing views about the correctness of the majority position in Cassidy, it has generally been followed.

457    In the present case, the representations which I have found to be misleading or deceptive were those in the SPG PPM and the WPO PPM to the effect that monies invested by Australian SMSFs pursuant to those PPMs would in the future be used for the purchase by SPG and WPO respectively of property. Section 769C of the Corporations Act and s 12BB of the ASIC Act apply. They provide that a representation as to a future matter will be misleading if it is made without reasonable grounds. This means that ASIC must establish that the MOGS defendants knew that the representation was made and the matters which made it misleading or deceptive, ie, that there were no reasonable grounds for that representation.

Further findings of fact regarding the accessory claims

458    I referred earlier to Mr Gore being the principal promoter of the BVI Scheme. It is convenient to repeat and to elaborate aspects of the development of that Scheme. Much of what follows is drawn from the documentary evidence. In part I have relied on evidence from Mr Adamson and others. I indicate the evidence of Mr Adamson which I do not accept.

459    When Mr Gore was introduced to Mr Burrows in September 2011 and learnt about the businesses of ActiveSuper and Royale, he appreciated very quickly the potential advantages to MOGS if the SMSF investors were a source of funds for its operations and a market for its house and land products. Within a matter of weeks of meeting Mr Burrows, Mr Gore was proposing that Royale raise money from SMSF investors and lend it to MOGS secured by a fixed and floating charge over the assets of MOGS. Shortly afterwards he proposed the establishment of the RCFSG.

460    This led him in turn to arrange for advice to be obtained from Minter Ellison regarding the establishment of an RCFSG Fund in Australia. An email from Ms Erskine-Shaw to Mr Burrows, and copied to Mr Gore dated 6 October 2011, included an attachment identifying the purpose of the meeting at Minter Ellison as being:

•    To discuss

•    the Parties

•    the Proposed Transaction(s)

•    the applicable legislation

•    the possible Structures

•    Short-term

•    Long-term.

I am satisfied that Ms Erskine-Shaw sent this email on the instructions of Mr Gore. He was the one who organised the meeting, although others also attended.

461    As noted earlier, Mr Adamson said that the meeting with Minter Ellison on 7 October 2011 involved a general discussion about the establishment of a fund regulated under the managed investment scheme provisions of the Corporations Act. Although there was no direct evidence of what was said at the meeting (Mr Adamson raised a claim of legal professional privilege) it is reasonable to suppose (and I so find) that those present received advice on, amongst other things, the “applicable legislation”.

462    Five days after that meeting, Mr Gore proposed the establishment by RCFSG of a fund in the BVI to which potential investors could be introduced through a website. He chaired a meeting on 12 October 2011 at which he explained to the attendees, who included Mr Adamson, Mr Stonehouse and Mr Burrows, that a fund in the BVI “would not be subject to the same regulatory issues as if the fund was set up in Australia”. The BVI Scheme was the implementation of this proposal.

463    Mr Gore told Mr Slijderink that his intention was “to avoid the stringent ASIC requirements which would delay the advancement of funds”.

464    I am satisfied that a purpose of Mr Gore right from the initial conception of the BVI Scheme was the avoidance of the Australian regulatory regime, and that this was known to Mr Adamson, Mr Stonehouse, Mr Burrows. Ms Gore must also have known of this purpose. This finding as to Mr Gore’s purpose supports the inference that he had some knowledge of the Australian law which he sought to avoid.

465    Mr Gore submitted that Mr Burrows had been the prime mover in the establishment of the BVI Scheme and that his own role had been more in the nature of providing assistance. There is some evidence which is consistent with this. Mr Gore pointed out that before October 2009 Mr Burrows had established an overseas investment scheme, as well as overseas bank accounts. This was the scheme to which the US Realty Memorandum related.

466    Mr Adamson said that Mr Gore had told him in 2011 that it was Mr Burrows who did not wish to proceed with the establishment of an Australian fund. Mr Adamson also said that Mr Gore had told him that Mr Burrows had asked him (Mr Gore) to assist in the establishment of a fund overseas which would advance monies to MOGS for its operations. It is not necessary to decide whether Mr Gore did in fact say these things to Mr Adamson as I consider that, even if they were said, they did not reflect the reality of the situation at the time. The evidence indicating Mr Gore’s conception and promotion of the BVI Scheme is overwhelming. It is very evident that it was Mr Gore who sought the establishment of an overseas fund which could be a source of finance for MOGS. Mr Burrows was a willing participant but he was not the concept’s originator or prime mover.

467    It is pertinent to note in this respect the significant disparity between the corporate experience of Mr Gore, on the one hand, and Mr Burrows, on the other. In 2011, Mr Gore had been, or was a current, director of more than 100 companies, including some who apparently operated businesses associated with finance and investment and some who operated development businesses. Mr Burrows on the other hand was a current or prior director of only three companies (in addition to ActiveSuper and Royale). The fact that Mr Burrows had to ask what Mr Gore meant by “BVI” when Mr Gore first mentioned it is an indication of his lack of sophistication relative to Mr Gore in relation to the establishment of an overseas fund.

468    As early as 14 October 2011, Mr Gore sent to Mr Burrows, Mr Stonehouse, Ms Gore, Mr Adamson and Mr Chant a document entitled “SMSF Resolution Fund Information Memorandum” relating to a pooled investment scheme incorporated in the BVI. It was this Information Memorandum which became the basis for the WPO PPM. The substance of Mr Gore’s accompanying email was:

Subject: Information Memorandum First dra[f]t based on conversations and input

… Lots of work to do here guys, let’s talk over the weekend. Your feedback is important so please read it carefully. I will not distribute this document to anyone especially in the BVI and States until we have it close. We need to be clear before we seek approval from them.

(Emphasis in the original)

It is implicit in this email that Mr Gore believed that he had contacts in the BVI and in the USA to whom the Information Memorandum could be circulated when it was ready. There is no evidence that Mr Burrows had any such contacts. In his final submissions, Mr Gore acknowledged that he had introduced Mr Burrows to Minter Ellison, to legal counsel in the USA, the BVI and the United Kingdom, as well as to the auditors, Deloittes.

469    An earlier version of the Information Memorandum showed Mr Gore as its author but the version circulated on 14 October 2011, as well as later versions, showed instead that Mr Burrows was the author. Nevertheless, all versions were circulated by Mr Gore or by someone in the MOGS office who, I am satisfied, did so at Mr Gore’s direction. In his final submissions, Mr Gore accepted that the evidence established that he had drafted the early versions of the PPMs. I infer that the change in author was made by Mr Gore in a poor attempt to make Mr Burrows’ participation in its preparation appear significant and to disguise his own involvement.

470    It was Mr Gore who decided that he and Mr Adamson would travel to the USA and to the BVI in October 2011. He gave Mr Adamson only two days’ notice that he would be going. The bookings were made by MOGS at Mr Gore’s direction, and before their departure. He had the contacts and made the appointments with the persons they met in the USA and in the BVI. It was Mr Gore who initiated the contact with Forbes Hare in the BVI by his email of 17 October 2011, an extract of which was set out earlier in these reasons.

471    During October and November 2011, Mr Gore himself sent, or caused to be sent by someone at MOGS, numerous emails attaching versions of the draft Information Memorandum or seeking information which could be included in it. Some of the emails were also sent to Mr Stonehouse and Ms Gore. An email of 27 October 2011 from Mr Gore to Ms Gore, Mr Stonehouse, Mr Adamson and Mr Chant attached an Information Memorandum for Worldwide Property and Distressed Investment Opportunities Fund (WWPDIO Fund) and said:

I made these changes on the plane to NYC so they don’t include the changes and spelling that Marina made. Rather than me fucking it up by attempting to load them in I thought I could send them back to you and you could do so I don’t fuck up wat (sic) Marina has done.

The “Marina” to whom Mr Gore referred was Ms Gore. The email indicates that Ms Gore was providing active assistance in the development of the Information Memorandum.

472    The draft Information Memorandum indicated that the WWPDIO Fund would be a “private investment company incorporated in the British Virgin Islands LLC” and would be offered to, those amongst others, who had a “continuing relationship” with ActiveSuper, Royale and MOGS. Under the heading “Why Are We Based in the British Virgin Islands” the Information Memorandum stated:

The BVI was chosen as the corporate headquarters for the WWPDIO Fund (1) after careful consideration of the foundation shareholders. It was determined that the BVI could during the term of the fund provide a stable backdrop to the implementation of the business strategies being proposed to be deployed from the fund. The BVI is recognised globally as a financial services powerhouse with some of the world’s largest and most dynamic companies based in or working out of the BVI.

(Spelling corrected)

I infer that it was Mr Gore who drafted this passage.

473    An indication that Mr Gore was aware that the making of offers of shares may be regulated is seen in an email from Mr Gore to Mr Burrows on 17 October 2011. In this email, which had the subject heading “The Private Offering Exemption Under Arizona Securities Law”, Mr Gore attached an article, apparently downloaded from the internet, with the title “The Private Offering Exemption Under Arizona Securities Law”. The attachment related to the circumstances in which a private offering exemption under Arizona securities law would apply, indicating that it was available only for offerings made by issuers, without any advertising or general solicitation, to a limited number of sophisticated investors with access to information which would ordinarily be included in the registration statement. The article dealt with this subject in considerable detail. In his accompanying email, Mr Gore said:

Mate I have highlighted the areas you need to review. DO NOT TAKE THIS UP WITH ANYONE SPECIFICALLY ANYONE IN THE USA AT THIS STAGE. I have a 8.10am meeting and will come and see you after that. Been on the phone tonight to the USA Attorneys and the story is clear. Have resolution and plan but need to discuss. MUST ACT TO RESOLVE.

DON’T PANIC STAY FOCUSED.

PRINT AND DELETE.

(Emphasis in the original)

474    I infer from this document that Mr Gore had become aware that Mr Burrows had not complied with Arizonan law in relation to his investment of SMSF investors’ money in the LLCs or in property in Arizona. He had drawn this to Mr Burrows’ attention and was providing further detail as well as reassuring him that he had a plan to resolve the consequences of Mr Burrows’ non-compliance. The significance for present purposes is that it serves to indicate that both Mr Gore and Mr Burrows must have been conscious that there were, or were likely to be, regulatory requirements relating to the offering of shares in the companies to be established to the SMSF investors.

475    Mr George joined Mr Gore and Mr Adamson for the meetings with lawyers in Los Angeles and with Mr Santos of Forbes Hare in New York. Although there is no evidence of how that occurred, it must have been arranged by Mr Gore and it seems likely that he arranged for MOGS to pay the associated costs.

476    In a meeting with the firm Osiris in the BVI on 28 October 2011, Mr Gore made a “whiteboard presentation". Mr George and Mr Adamson were in attendance. Mr Gore explained that he represented Mr Burrows and Mr Gibson who were establishing 40 SMSFs a month or 10 funds each week, that Mr Burrows and Mr Gibson believed that as much as AUD$100 million could be raised from the SMSFs, and that there was a synergy between the business of Mr Burrows and Mr Gibson and Realestatestock.com.au. The Osiris representatives explained the services which they could provide in connection with a fund. During the course of the meeting, Mr Gore asked the Osiris representatives to incorporate a company with the name Worldwide Property Opportunities with Mr Adamson as director. Mr Gore told Mr Adamson that he would need to be a director until Mr Burrows was appointed.

477    Two days later, Mr Gore, Mr George and Mr Adamson met Mr Santos and others at the offices of Forbes Hare. Mr Santos recommended Caledonian Fund Managers and Beacon Fund Managers in lieu of Osiris. They discussed processes and procedures for establishing entities in the BVI and the regulatory regime surrounding closed ended funds in the BVI.

478    On 1 November 2011, Mr Gore obtained the agreement of both Mr Burrows and Mr George to the latter being made a director of the proposed fund in the BVI. Mr Gore told Mr George that he would receive a base salary of $30,000.

479    In another meeting with Forbes Hare on 1 November 2011, Mr Gore told Mr Santos that Mr Burrows had demanded to be the person in control of the funds and the bank accounts. Mr Santos then recommended the establishment of a company in the BVI to hold the majority of the management shares of the WPO as well as an investment manager. Mr Gore instructed Forbes Hare to take the necessary steps to incorporate an investment manager and told Mr Santos that Mr Adamson and Mr George would be its directors. This became Cayco. Mr Adamson said that, when told that he would be a director of Cayco, the following interchange occurred:

Mr Adamson:        If I’m to act as a director of Cayco, what would I have to do?

Mr Santos:    You would be required to attend the BVI annually to attend board meetings and approve the accounts for the fund once those accounts have been audited. Where the fund asks for advice then you would be required to give it advice. By give it advice it will be necessary for you to either give advice directly or arrange for external accountants and/or lawyers to provide advice to the fund.

Mr Adamson:    OK.

Mr George:    OK.

Mr Adamson then deposed:

[282]    I said I was willing to act in the role as a director of Cayco because based on my discussions with Jose Santos I understood that I would not be required to have a day to day hands on role in the business and management of the fund.

480    I consider this account to be implausible and do not accept it. Mr Adamson was in 2011 an experienced lawyer especially in matters concerning corporate law. He must have known in some detail the duties of a director of a company. In that context it is improbable that he would have asked the question just outlined and even more improbable that he would have accepted the answer of Mr Santos as a statement of his duties. I had the firm impression that this aspect of Mr Adamson’s evidence was an attempt to diminish his own responsibility for the later conduct of Cayco.

481    In the same meeting, Mr Gore gave instructions to Mr Santos for the establishment of a second fund, saying words to the effect that:

I also want to establish a second fund on behalf of Jason Burrows. Jason Burrows has previously raised monies in the States. He wants the second fund to be audited and wants to be able to issue share certificates.

Mr Gore told Mr Santos that the fund should be named “Syndicated Property Group Arizona” and that Mr George and Mr Adamson were to be the commencing directors. This company became SPG.

482    Later in the same meeting, Mr Gore gave instructions for the establishment of four new companies. Those companies became WWPDAF, SMBLA, NOEB and ESY.FC. Mr George and Mr Adamson must have been willing participants as they owned and were directors of SMBLA and ESY.FC respectively.

483    Mr Adamson’s evidence indicates that Mr Gore reported his activities to Mr Burrows by telephone each night. In one telephone call on 1 November 2011, Mr Gore handed the phone to Mr Adamson. Mr Burrows then instructed him to prepare a share transfer agreement for the transfer of the shares held by him in the LLCs to SPG, to provide the draft agreement to him for review and further instructions, and, in addition, to provide a copy of the draft to Mr George. However, even before that telephone call, Mr Gore had already instructed Mr Adamson to prepare a share sale agreement for the transfer of Mr Burrows’ shares in the LLCs. The fact that it was Mr Gore who gave that instruction to Mr Adamson before he received the instruction from Mr Burrows is indicative of the extent of Mr Gore’s involvement.

484    Mr Adamson provided a draft share transfer agreement to Mr Burrows on 2 November 2011 and indicated that he would provide a copy to Mr George when Mr Burrows was ready for that occur. Mr Adamson’s draft did not identify the proposed purchaser. On Mr Burrows’ instructions, Mr Adamson provided a copy of the draft agreement to Mr George the same day and Mr George sent it to Mr Bruce at Forbes Hare, saying that he would like to discuss the draft with him. A revision prepared by Mr Bruce identified SPG as the purchaser of Mr Burrows’ shares in the LLCs.

485    It is evident from the number of emails to and from Mr Adamson and from his own evidence concerning telephone conversations which he had with Mr Burrows that he was involved to a significant extent in the preparation and finalisation of the share sale agreement between Mr Burrows and SPG in relation to the shares in the LLCs. In an email of 11 November 2011 to Mr Bruce and copied to Mr Burrows and Mr George, Mr Adamson described himself as “instructed to assist Mr Burrows to complete this matter” and forwarded copies of the executed copy of the share sale agreements.

486    It is apparent that some of the MOGS defendants were conscious of some of the restrictions imposed by Australian law in relation to SMSFs. On Sunday, 6 November 2011, Mr Adamson sent to Mr Bruce and Mr Santos at Forbes Hare a summary which he had obtained of the investments permissible for SMSFs, as well as Australian Taxation Office brochures. The particular documents were not in evidence. Mr Adamson was reluctant to acknowledge that Mr Santos had asked him whether any Australian law might apply to the creation of a fund in the BVI or to the offering of securities in the fund, saying only that he was responding to a specific question about whether a SMSF could invest in the proposed fund. I considered that that evidence was implausible.

487    Mr Adamson also referred to a conversation which he had had with Ms Gore before February 2012 in which she had asked him whether or not it was possible for “people” to invest in “the PPMs”. He denied being asked by Ms Gore in that conversation whether or not the proposed “transactions” were regulated by Australian law. Again, I found this evidence implausible, it being unlikely that Ms Gore would have asked only such a precise question. It is more probable that Ms Gore would have been asking generally about any restrictions or requirements imposed by Australian law.

488    From early November 2011, Mr Burrows pressed Mr Adamson and Forbes Hare for the issue of share certificates in SPG to the SMSF investors. He said that he would provide a client list so that this could be done and explained that the SMSF investors needed the share certificates in order to satisfy the audit requirements for SMSFs.

489    On 7 November 2011, Mr Burrows sent to Mr Adamson a list of SMSF clients in respect of whom share certificates relating to shares in SPG should be issued. He sent further lists on 16 November 2011, 28 November 2011, 9 December 2011 and 23 January 2012. Each list was an attachment to an email. Mr Adamson forwarded these lists on to Forbes Hare.

490    In his email of 11 November 2011, Mr Adamson asked Forbes Hare to confirm that they could now send the share certificates being sought by Mr Burrows. In fact there was some delay in the share certificates being issued because Forbes Hare took the view that they should have the share sale agreements reviewed by lawyers in the USA and that share certificates in SPG should not be issued until they had the executed versions.

491    Forbes Hare commenced sending share certificates to Mr Adamson on 23 November 2011. Mr Adamson then forwarded those certificates on to Mr Burrows. Mr Burrows had to sign and date the certificates. He asked Mr Adamson what date he should use for this purpose. Mr Adamson referred that query to Forbes Hare saying “I do not want to suggest anything that will not be consistent with your records”.

492    On 15 November 2011, Mr Santos sent to Mr Adamson by email, copied to Mr Gore, a revised draft of the SPG PPM. His email included the following:

I would ask that you review the PPM thoroughly and fill in any missing information having regard to any potential Australian disclosures and restrictions that will need to be incorporated into the PPM. In addition, both the investment strategy and investment objectives of the Fund need to be enhanced with direct input from your Client. Consider whether there should be also a tax disclosure specifically relating to Australia.

493    Page 4 of the attached draft PPM contained a notation in bold that Australian counsel were to provide the appropriate terminology for the restrictions on investment which should be disclosed in the PPM in addition to those contained in the draft relating to the USA and to the UK. Mr Adamson acknowledged in his cross-examination that he had understood on receiving the email that he was being asked to provide that detail. He said that he had not done so and that that proposed section was later deleted “in part … by me”. This was because “the PPM was not going to be registered in any jurisdiction”. Mr Adamson said that he did provide a copy of Mr Santos’ email to Mr Burrows. The evidence on this topic is significant as it indicates that the attention of Mr Burrows, Mr Adamson and Mr Gore was drawn to the prospect of restrictions on the persons to whom the PPM could be provided, and that Mr Adamson, at least, considered the question of “registration” in Australia.

494    Mr Burrows, Mr Gibson, Mr Adamson and Mr Smerdon attended a meeting with Mr Gore at MOGS’ office on 15 November 2011. Mr Smerdon said that Mr Gore discussed the “proposed new BVI fund structure”, saying that funds raised by Royale would be placed into a BVI fund account and then loaned to MOGS or its subsidiaries for the purpose of construction finance. Mr Gore told Mr Burrows and Mr Gibson that MOGS could not offer mortgages because its properties were “optioned” but that security could be offered by way of a fixed and floating charge over the assets of MOGS which would include project building sites. He also said that Mr Stonehouse and Ms Gore would provide guarantees, in their capacity as directors of MOGS. I consider it improbable that Mr Gore would have proposed these guarantees without first having discussed the matter with Mr Stonehouse and Ms Gore.

495    A meeting of the directors and executives of MOGS was held on 21 November 2011. The attendees included Mr Stonehouse, Ms Gore and Mr Adamson as directors and Mr Gore and Mr Chant as consultants. The minutes of the meeting recorded that “the proposed resolution funding was discussed and it was noted that RES should prepare for seven build commencements during December 2011”. From this, I infer that Mr Gore and/or Mr Adamson had reported on the developments in relation to the BVI fund and the likely availability of finance from that source.

496     During November and December, work on finalising the WPO PPM continued. Mr Gore was actively involved as is evidenced by his emails relating to revisions through this period. Mr Gore’s email of 12 December 2011 attaching a “final version” of a PPM for the WPDIO Fund Ltd was sent to Mr Stonehouse, Ms Gore, Mr Adamson and Mr Chant. Mr Gore said in the email:

Final version of the document for your review. If it is not issued this week no further funds will flow. I am sure you are all aware of that and on top of those matters relating to the business but I thought I should raise it with you.

It is evident that Mr Gore was attempting to impress on the addressees the urgency of the situation as he perceived it.

497    The attached PPM related to WPO and was entitled “Prospectus”. It too included the notation that Australian counsel were to provide the appropriate terminology relating to restrictions on distribution of the PPM in Australia.

498    On 13 December 2011, Mr Stonehouse sent an email to Ms Gore, Mr Adamson, Mr Chant and Mr Gore under the heading “Re Royale and SMSF property sales”. The subject of the email concerned MOGS tightening financial position. Mr Stonehouse said that he wished to raise three points with the Board of MOGS “for review and discussions URGENTLY”. The three matters were commissions, building contracts and current commitments, and “set up cost”. In relation to “set up cost”, Mr Stonehouse said:

I understand we have committed money to set up cost but it is important we have clear guidelines to this expenditure which is now in excess of 500K.

What I want to understand better is how we are going to fund these plans. Whilst [I] agree with the direction and the plans themselves I think it is important we have the funds to cover these expenses so that Royale and SMSF sales can be accommodated without putting our business at risk. This is an imperative to moving forward.

Funds need to flow more consistently and more in line with the needs rather than the other way. We need a plan so Xmas doesn’t become a disaster.

Let’s talk URGENTLY this morning.

499    Although Mr Adamson was cross-examined about this email and the Board meeting which followed, there was no direct evidence as to the nature of the “set up cost” to which Mr Stonehouse referred. ASIC submitted that it was a reference to the cost of establishing the BVI Scheme. Mr Kirby disputed that characterisation and submitted that Mr Stonehouse must have been referring to the establishment costs in relation to MOGS acquisition of properties and construction of houses. I consider the ASIC submission to be correct. Mr Stonehouse seems to have encompassed the costs being incurred by MOGS in its own business under the headings “Commissions” and “Building Contracts”. It also seems unlikely that Mr Stonehouse would have used the terminology “I understand we have committed money to set up cost” in relation to the costs of MOGS’ own business. He knew what MOGS’ commitments were in that respect, as is indicated by the terminology he used under the headings “Commissions” and “Building Contracts". The reference to “Royale and SMSF sales” is, in my view, a reference to both the expected source of funds and the expected source of sales which were contemplated as part of the BVI Scheme. In context, Mr Stonehouse is expressing a concern that the substantial sums which MOGS was expending in relation to the BVI Scheme may put MOGS’ core business at risk.

500    Mr Stonehouse’s statement that he agreed with the direction and plans relating to the BVI indicates that he had at least a general understanding of the Scheme and its elements.

501    Mr Adamson did recall the meeting at which Mr Stonehouse’s email was discussed, but provided very little detail regarding its content. I had the impression that Mr Adamson was not being completely forthcoming in this aspect of his evidence. Given the urgent nature of Mr Stonehouse’s concern, I would have expected him to have a much greater recall of what was said at the meeting. I think it likely that Mr Gore did at the meeting provide some detail to those present of the progress in the establishment of the BVI Scheme, but cannot be more particular than that. This is one of the matters which have caused me concerns about the reliability of all of Mr Adamson’s evidence.

502    Mr Stonehouse’s concerns had an effect. On the following day, Mr Gore sent an email to Mr Burrows under the subject heading “CASH” in which he pressed Mr Burrows for an advance of $300,000 saying, amongst other things:

Mate I have put myself in the shit with this but I’m looking to you to help me out. I don’t know what you can do but I need a hand as my board (even Markey) are belting me pretty hard coming into Xmas.

I infer that Mr Gore was by this letter importuning Mr Burrows for a further advance from the funds invested by SMSF investors pursuant to the US Realty Memorandum. The evidence did not disclose what, if any, response Mr Burrows made to this request but I consider it probable that he would have sought to accommodate Mr Gore’s request, if it was possible.

503    Based on the absence of email communications, it seems that relatively little may have been done during January 2012 to further the development of the WPO PPM. However, on 19 January 2012 Mr George sent to Mr White at Deloittes a draft of the WPO PPM. Mr White responded on 24 January 2012 with an email containing a number of requests. Three of the requests were:

•    Copy of the Australian legal opinion showing that SMSFs may invest into this type of structure.

•    Will there be any related party transactions between the Fund and its directors/IM or Investment Advisors?

•    Who are the ultimate beneficial owners of the Investment Manager? Is there any kind of related party connection with any of the entities that will be able to introduce business to the Fund, OR with any entities that will receive investment from the Fund?

504    Mr White’s questions about related party transactions were pertinent. Mr George provided a copy of Mr White’s email to Mr Gore on 25 January 2011. Although Mr Adamson recalled discussion on the first of the quoted questions, he could not otherwise assist with evidence as to the manner in which a response had been provided to Mr White. He said only that he thought Mr George had responded. Again, I was concerned about the completeness of Mr Adamson’s evidence on this topic. Given the intended purpose of the WPO Fund, I conclude that none of Mr Gore, Mr Adamson or Mr George would have been willing to provide a frank response.

505    It is evident, however, that Mr Gore appreciated the need to respond to Deloittes quickly. He sent two emails to Mr Adamson, Mr Burrows and Mr George on the topic on 29 January 2012.

506    Deloittes also sent a similar but not identical request for information regarding SPG. By an email of 31 January 2012, Mr Gore reported to Mr Burrows and Mr Adamson the manner in which Mr George had attempted to respond to Deloittes’ questions in relation to SPG.

507    On 29 January 2012, Mr Gore sent an email to Mr Burrows, Mr Adamson and Mr George. In this email he emphasised the need to get the auditors “to sin (sic) off on the company” as, amongst other things, “all super accounts will become vioded (sic) as they are not auduted (sic) investments and SPGA will not comply with the law and all investors’ funds will be subject to being voided. … I can’t get a PPM issued without auditors listed. And right now we ont (sic) have one because I can’t get them the information.” Mr Gore attached to the email two slightly different drafts of the WPO PPMs.

508    On 30 January 2012, Ms Gore sent by email to Mr Gore a copy of his email of 12 December 2011, which Mr Gore then sent on to Mr George, Mr Adamson and Mr Burrows.

509    Until early February 2012, Mr Burrows and ActiveSuper had been transferring monies raised pursuant to the US Realty Memorandum since 19 October 2011 to MOGS. However, on 6 February 2012 a change in the arrangements occurred. On that day, Mr Mey, the Group Accounts Manager of MOGS, sent an email to Mr Gore (copied to Mr Adamson) under the subject heading “GFC09 Funds”. Mr Mey said:

Craig – upon direction from Mark Adamson, please have the funds transferred to the following account.

510    Mr Mey then gave details of a bank account in the name of GFC09 Pty Ltd. Mr Adamson acknowledged that he had given a direction to the effect set out in Mr Mey’s email and said that he had done so at the request of Mr Gore that same day.

511    Mr Gore then forwarded Mr Mey’s email to Mr Burrows and said:

Call me when you get out of the meeting. I’m getting Mark to provide an authority to transfer INTO THIS ACCOUNT. It is not an inconsistency as this company paid the monies across to MOGS to cover the shortfalls. I am told this is the correct accounting that will be signed of (sic) in the BVI.

Please advise when the transfer today has been done and the amount as discussed.

512    In his cross-examination, Mr Adamson said that he did not know what Mr Gore meant by the reference “to cover shortfalls”. But he claimed that at some time in the past GFC09 had paid monies across to MOGS, saying that this had occurred at a time when the ATO had issued notices to MOGS’ banks, freezing its accounts. He was however, unable to provide any detail as to when this had occurred, or other detail. I considered that Mr Adamson’s evidence on this topic was marked by evasion and that he did not wish to acknowledge what was apparent on the face of the emails, namely, that he had been personally involved in directing that monies advanced by the LLCs to MOGS under the loan agreement be applied other than for the purpose of MOGS business and, accordingly, other than in accordance with the formal lending arrangements.

513    During February and March 2012, there were numerous emails between Mr Gore, Mr Burrows, Mr George, Mr Chant and others regarding the development of SPG, WPO and their respective PPMs. On 24 February 2012, Mr Chant, Mr Burrows and Mr Burrows’ partner flew to the BVI. Mr Gore, Ms Gore, their infant and a nanny followed on 28 February 2012. Mr Chant stayed in the BVI for about four weeks. He said that during that time he “attended regular meetings and attended to email communications in an attempt to finalise the structure of the BVI Share Offer and open the opportunity for public investment”. The contents of the numerous emails occurring during that period confirmed this part of Mr Chant’s evidence. Mr Chant also said that Mr and Ms Gore and Mr Burrows attended meetings during the first week or so that he was in the BVI but that thereafter they did not stay.

514    There is evidence as to Ms Gore’s purpose in travelling to the BVI. Mr Adamson said that, in a conversation before February 2012, Ms Gore had told him that she wanted to do two things:

One, she wanted to go to the BVI to make sure that what was being set up over there was appropriate. And two, she wanted to confirm that – or to enquire that what was being proposed in Australia could be done.

Later, Mr Adamson said:

We had a general discussion as to whether or not persons could invest in the PPM. It wasn’t a request for legal advice, it wasn’t a detailed discussion, it was a general discussion as to whether or not persons were entitled to invest in a PPM could invest in a PPM. And then following on from that, Marina wanted to go to the BVI to make sure that the businesses in the BVI were properly structured businesses and were with people of real value.

That evidence, which I accept, is sufficient by itself to warrant a finding as to Ms Gore’s purpose.

515    I note, in addition, that in her s 19 examination Ms Gore said that she had gone to the BVI because “I wanted to see what this was all about … I wanted to meet the auditors, the accountants, the solicitors” in relation to WPO. She said that she left the BVI “quite happy” having met the auditors Deloittes and the solicitors Forbes Hare.

516    In early March, 2012, Mr Adamson gave instructions to Evans Ellis to prepare an advice concerning the appropriateness of investment by SMSFs in SPG. Evans Ellis provided that advice on 6 March 2012 and, as noted earlier, Mr Gore provided a copy to Mr Burrows that same day. The evidence regarding the obtaining of this advice is an indication that the attention of those involved was drawn to the need for compliance with Australian regulatory requirements.

517    During the first part of March 2012, work also continued in the preparation of loan agreements, compliance manuals and other documents relating to the establishment of SPG and WPO and of the Cayco website. Numerous people were involved, including Ms Gore. On Sunday, 11 March 2012, she sent to Ms Erskine-Shaw at MOGS the graph showing the cyclical nature of real estate values which was ultimately incorporated into the WPO PPM. Ms Gore asked Ms Erskine-Shaw to convert it to high resolution and, on the following day, forwarded it to Mr Chant telling him that it was the graph which Mr Gore wished to have included on the website. Ms Gore was also one of the several recipients to the emails from Ms Boyd at Deloittes and Mr Gore relating to the finalisation of the Cayco website, including emails on 17 March 2012 and 18 March 2012.

518    The proposed final forms of the WPO PPM and its Lending Policies Summary, Compliance Plan Summary, Acquisitions Guide Summary, Compliance Plan for Manager and the latest draft of the Lending Policies Manual were sent to Deloittes on 17 March 2012, asking for any final comments so that the PPM could be launched on 19 March. However, further revision occurred during the following week.

519    It is not necessary at this stage to make further findings regarding the various steps culminating in the establishment of SPG, WPO and the distribution of their respective PPMs. It is apparent that there was a rush of activity in the week before the launch of the SPG PPM on 8 March 2012 and again before the launch of the WPO PPM on 23 March 2012.

520    It is also evident that Mr Gore was anxious to get access to the monies to be raised under the PPMs as soon as practical. In an email of 22 March 2012 to Mr Chant, Mr Gore said:

I don’t wanrt (sic) RC or AS to accumilate (sic) applications. They must be sent within 24 Hrs of receipt. What I am doing at the moment is getting them to send [them] dailt (sic).

What we want to maintain is inflow of funds. That is consistant (sic) transfers and to maintain that we need to have the administrator implement a strict policy in this regard. So whatever applications they receive they must be sent in within 24 Hrs and funds transferred with in 24Hrs from then.

I would like to see the template letters they are proposing to send to applicants.

I am satisfied that the references to RC and AS were to Royale and ActiveSuper respectively.

521    I also note, that on 8 March 2012, Mr Gore said in relation to the finalisation of the SPG PPM and its posting to the Cayco website, “we are going live today” (in an email to Mr Burrows, Mr Adamson and others); that on 18 March 2012 in an email to Mr George, Ms Gore, Mr Adamson and Mr Chant, Mr Gore said (prematurely) in relation to the WPO PPM “we have lift off”; and that on 26 March 2012, to Mr Gibson and Mr Chant, Mr Gore said in relation to the WPO “let’s start selling”.

522    In about March or April 2012, Mr Adamson told Mr Slijderink that Mr and Ms Gore intended that monies invested pursuant to the PPMs would be “shifted” to Ms Gore’s US company and then transferred to MOGS, so that she could transfer them more quickly. Mr Slijderink queried the legitimacy of such an arrangement, and suggested to Mr Adamson that he ensure that monies were not paid to Ms Gore’s account and that he should remove himself as a director. This evidence is admissible against Mr Adamson. I note that Mr Adamson did resign as director in April 2012.

523    On 10 May 2012, there was a significant meeting in the boardroom of MOGS. Mr Gore, Ms Gore, Mr George, Mr Stonehouse, Mr Burrows, Mr Chant and Mr Adamson attended. The purpose of the meeting was to execute the loan agreements and guarantees relating to the loans of funds from WPO and/or SPG and/or Cayco. Mr Adamson said that Mr Gore told those present that the documents were the loan agreements and guarantees which MOGS was prepared to sign and that Ms Gore and Mr Stonehouse would sign as guarantors. The execution of the documents did not proceed immediately as Ms Gore wished to speak to Mr Gore, Mr Stonehouse and Mr Adamson before doing so. She expressed concerns about signing a personal guarantee. Mr and Ms Gore, Mr Stonehouse and Mr Adamson withdrew for 15-20 minutes. Mr Adamson said that Ms Gore had a second concern namely, signing a guarantee without knowing that a lender had met all its obligations. The evidence did not disclose the discussion between Mr and Ms Gore, Mr Stonehouse and Mr Adamson but ultimately Ms Gore agreed to sign the guarantees. All those present then proceeded to sign the documents, which were positioned around the Board table. The loan agreements, described as “Facility Agreements” were between MOGS and/or one of its subsidiaries, on the one hand, and subsidiaries of WPO, on the other (WPO SPV1 Ltd, WPO SFV2 Ltd, WPO SFV3 Ltd, SPO SFV4 Ltd, WPO SFV5 Ltd, WPO SFV6 Ltd, WPO SFV7 Ltd, WPO SFV8 Ltd and WPO SFV9 Ltd). They provided for loans to MOGS or its subsidiaries of amounts ranging between $505,000 and $4,200,590. Once the loan agreements and guarantees had been signed, Mr George packed them into a suitcase and left. Copies of the loan agreements have been provided to ASIC but the present whereabouts of the guarantees is not known to it. Duplicates have not been located.

524    Mr Chant deposed that, in about June 2012, Mr Gore told him that he was interested in having the Arizonan properties owned by the LLCs sold and asked him to obtain a current indicative valuation. Mr Chant said that he obtained a valuation indicating that the Arizonan properties had a value “in the range of US$700,000” and that he passed that information onto both Mr Gore and Mr Burrows. Exercising the caution in relation to Mr Chant’s evidence to which I referred earlier, I accept that evidence.

525    The properties owned by the LLCs were in fact sold in November 2012 for US$0.61 million but there has been no accounting for the proceeds of sale. There is evidence that Mr George at least had a hand in those sales.

526    In his final submissions, Mr Gore referred to an invoice from Forbes Hare dated 20 May 2012 relating to its work in connection with the establishment of WPO. The invoice does not identify Forbes Hare’s client but was sent to Mr Chant and Mr George. Mr Gore noted that the invoice contained reference to himself only twice (both on 3 March 2012) whereas there were numerous references to attendances on Mr Chant, or work performed on the instructions of Mr Chant. Mr Gore submitted that by March 2012, Mr Chant was acting on the direction of Mr Burrows so that Forbes Hare invoice could be taken as an indication that it was, in effect, Mr Burrows who was giving the relevant instructions to Forbes Hare and not himself.

527    Mr Chant’s evidence was that, although he had an initially commenced as a consultant to MOGS in September 2011, he had commenced working at the ActiveSuper/Royale offices in February 2012 on compliance issues.

528    As noted earlier, Mr Chant spent a considerable amount of time in the BVI and was a point of contact for the instructions to Forbes Hare. Accordingly it is not surprising that there are frequent references to him in the Forbes Hare invoice.

529    I do not accept Mr Gore’s submission that the references to Mr Chant can be understood as indicating that it was Mr Burrows, and not Mr Gore, who was directing the establishment of SPG and WPO. That suggestion is belied by the extensive email communications between Mr Gore and Mr Chant (and others) during the period of the establishment of each of the Funds. It is very evident that Mr Gore was exercising supervision of Mr Chant’s activities. This is consistent with what Mr Gore told Mr Slijderink in a meeting with Mr Adamson in late December 2011, namely, that Mr Chant was being groomed to work for the off-shore funds, as this would give Mr Gore control of the funds, without Mr Burrows knowing. Mr Gore was confident that Mr Chant would act in accordance with his wishes.

530    I reject Mr Gore’s submission that it was Mr Burrows who was responsible for the establishment of the Funds and that his role was that of a mere assistant from time to time.

531    The findings which follow are based on these findings of fact and on the findings of fact set out earlier in these reasons.

Being knowingly concerned in the contraventions of s 727(1)

Mr Gore

532    Plainly, Mr Gore knew that the ActiveSuper defendants and SPG, WPO and Cayco, were offering shares in SPG and WPO and distributing application forms in relation to such offers. He was the architect of the scheme which led to that occurring. Mr Gore’s final submissions acknowledged that the evidence indicated that his role had been “extensive”, albeit he contended that it had been in the nature of assistance only.

533    Mr Gore knew that the funds in SPG and WPO were to be raised from Australia SMSF investors. In the circumstances already described, the evidence as to Mr Gore’s knowledge about this is overwhelming. Amongst other things, Mr Gore had familiarised himself with the nature of the business conducted by ActiveSuper and Royale. It must, as a matter of fact, have been obvious to him that most of the clientele of ActiveSuper and Royale was small investors who did not on any view satisfy the description of “sophisticated investors”. Mr Gore knew that the SPG PPM, in particular, said that it would be distributed to SMSF clients of ActiveSuper and Royale. Mr Gore also had the advice from Evans Ellis Lawyers of 6 March 2012 indicating that the PPMs could be marketed to Australian SMSFs. Mr Gore was desperate to secure the advance of funds from the SMSF investor clients of ActiveSuper and Royale.

534    Mr Gore also knew that no disclosure document had been lodged with ASIC. I am satisfied that Mr Gore’s desire to avoid that requirement explained in part his desire to have the Funds established in the BVI. The suggestion in some documents that he wished to have the Funds established in the BVI in order to facilitate a later listing on the Nasdaq is not plausible and is rejected.

535    Quite apart from the implication to be drawn from the establishment of the companies in the BVI, the haste with which Mr Gore had the Funds marketed as soon as the PPMs were finalised and posted to the website is inconsistent with any attempt to have either document lodged with ASIC. Mr Gore wanted ActiveSuper and Royale to start “selling” the offers to SMSF investors immediately as the “we are going live today”, “we have lift off”, and “start selling” statements indicate. I also observe that the extensive communications between the parties and others which are in evidence include no reference at all to arrangements for the lodgement of the PPMs with ASIC. I conclude that that was because Mr Gore in particular did not intend that that should occur.

536    ASIC drew attention to an exchange of emails between Mr Gibson and Mr Gore on 4 and 5 April 2012 bearing the subject headings “Spiels” and “Updated spiels”. It submitted that it could be inferred from these emails that Mr Gore had reviewed Royale’s sales spiels to SMSF investors. The “spiels” sent with the emails were not put in evidence. It seems likely however, that these were the “spiels” used by Royale’s telemarketers when seeking to induce persons to establish an SMSF. This evidence indicates a close interest by Mr Gore in Royale’s sale techniques.

537    In his final submissions, Mr Gore drew attention to aspects of the evidence indicating attempts by him to ensure compliance with applicable regulatory regimes. He instanced his action in drawing to Mr Burrows’ attention his (Mr Burrows’) non-compliance with Arizonan law concerning the establishment of the LLCs, the steps which he took to ensure that Royale had a CAR under an AFSL to which I will refer shortly, and his endeavours to ensure that the PPMs complied with the law of the BVI. Mr Gore submitted that this evidence indicated that, whenever he was aware of a non-compliance, he took steps to have it rectified. From that it could be inferred, he submitted, that he could not have been aware of the essential matters relating to the contraventions of s 727(1) and (2) because it could be expected that he would otherwise have taken action to have these shortcomings rectified.

538    One can accept that submission, at least in part. However, it does not contradict the inferences arising strongly from the circumstances of the establishment of SPG and WPO, and the rationale for that establishment. Those inferences point overwhelmingly to a conclusion that Mr Gore wished to avoid the offers of shares in SPG and WPO being subject to the Australian regulatory regime, and that in turn warrants the inference that he had knowledge of the requirements of Australian law.

539    If it had been necessary to find that Mr Gore knew that the share offers required disclosure to investors under Pt 6D.2 of the Corporations Act, I would have made that finding. That inference can be drawn from the evidence as a whole and, in particular, from the evidence as to the advice which Mr Gore had received, from the very purpose of the establishment of the funds in the BVI, and from Mr Gore’s extensive corporate experience.

540    Again, if it had been necessary to do so, I would have made a finding that Mr Gore knew that the offers were to be made to investors who did not satisfy the description in s 708(8) of sophisticated investors. Mr Gore had obtained sufficient knowledge of the clientele of ActiveSuper and Royale to warrant a finding to that effect.

541    ASIC has established that Mr Gore was knowingly concerned in the contraventions of s 727(1).

Mr Adamson

542    The position with respect to Mr Adamson is similar to that of Mr Gore. By reason of his extensive involvement in the implementation of the BVI Scheme and the finalisation of the PPMs of SPG and WPO, he knew that offers of shares were being made to SMSF investors in Australia. In his cross-examination Mr Adamson said that the BVI had been identified as a suitable jurisdiction in which to establish the funds because they could then be “plugged in” to a structure for “a back end listing” in the United States. I consider Mr Adamson’s evidence on this topic to be implausible. I consider that Mr Adamson was aware, from the time of the meeting on 12 October 2011, that the funds were being established in a place such as the BVI because Mr Gore considered that such a fund, to which investors could be introduced through a website, would not be subject to the regulatory requirements applicable to a fund established in Australia.

543    Mr Adamson acknowledged that he had given consideration to the question of whether the PPMs should be “registered” in Australia, which I take to mean lodged with ASIC. He said that this was in November 2011 and he had formed the view that, because the PPMs were to go to sophisticated investors, they did not have to be lodged with ASIC. He said that he had gained the information that the PPMs would be distributed through financial planners and only to sophisticated investors from Mr Gore.

544    I considered the evidence of Mr Adamson as to his belief to be implausibly self-serving, although it does indicate that Mr Adamson had detailed knowledge about the disclosure requirements in the Corporations Act. I find it improbable that Mr Adamson would have accepted such an assurance from Mr Gore. Even if he did, it must have become very obvious to Mr Adamson later that ActiveSuper and Royale were not offering shares in SPG and WPO only to sophisticated investors. The lists of persons to whom shares certificates were to be issued provided by Mr Burrows to Mr Adamson in attachments to emails and sent by him to Forbes Hare are significant in this respect. Even a cursory glance at these lists must have disabused Mr Adamson of any understanding that the investors involved were sophisticated investors. It is plain from the names of the funds and the amounts contributed, that several must have been small or family superannuation funds only. Mr Adamson acknowledged that was so. However, he said that had not read the lists at the time, and that he had opened Mr Burrows’ attachments only in order to check that the lists were not blank. Mr Adamson’s evidence about this was not convincing and I do not accept it. I am satisfied that Mr Adamson well appreciated when he received the lists of shareholders from Mr Burrows that many of the investors were small SMSFs who did not, on any view, satisfy the statutory description of a “sophisticated investor” and that he is now reluctant to acknowledge that he knew that at the time.

545    In my opinion, Mr Adamson’s knowledge went beyond some form of wilful blindness. He was an experienced commercial and corporate lawyer and it is not conceivable that he did not appreciate that there had not been compliance with the share offering requirements of Australian law.

546    Mr Adamson’s accessorial involvement in the contraventions of s 727(1) is made out.

Ms Gore

547    Plainly, Ms Gore knew that offers of shares were being made and application forms distributed. She had played an active role in the development of the PPMs and in the establishment of the Cayco website. Ms Gore had travelled to the BVI in February 2012 because she had wanted to see what the BVI Scheme was all about and to meet with the auditors, accountants and solicitors. It is evident that she had familiarised herself with the elements of the scheme and knew that the PPMs were to be provided to investors. Ms Gore admitted as much in her s 19 examination, although it is not necessary to rest these findings on that admission.

548    Mr Kirby submitted that, while there was evidence that Ms Gore had seen the SPG PPM, there was no evidence that she had seen the final version of the WPO PPM. However, that submission is contradicted by the documentary evidence indicating that Ms Gore was provided with copies of the WPO PPM on 12 December 2011 (and that she had provided that document to Mr Gore on 30 January 2012), 17 March 2012, 18 March 2012 as well as having received or been copied in on numerous other emails regarding the finalisation of the WPO PPM and other documents associated with WPO. It was not suggested that the final WPO PPM was relevantly different from that provided on 17 and 18 March 2012.

549    Ms Gore’s involvement in the establishment of SPG and WPO was so extensive that she must, as a matter of fact, have known that neither document was lodged with ASIC. I reach that finding having regard to the Briginshaw standard of proof. I consider it highly probable that Ms Gore had learnt from Mr Gore or others that a principal purpose for the establishment of the funds in the BVI was to avoid compliance with the Australian regulatory regime. That is especially so given the express statements in the SPG PPM that the fund’s shares would not be registered under the United States Securities Act 1933 and that distribution to persons in the United Kingdom was restricted without there being any reference to the counterpart position in Australia. Given the close review of the PPMs which Mr Gore required of Ms Gore, it is improbable that the possible relevance of the Australian regulatory regime escaped her attention. This is especially so given the care and attention she evidenced by travelling personally to the BVI to obtain assurance about the implementation of the scheme. The plain intention to market the funds to SMSF investors in Australia makes it probable that Ms Gore must have considered whether or not the funds were to be “registered” in Australia and that she had been told that the documents were not to be so “registered”. This inference can be drawn with greater confidence given Ms Gore’s absence from the witness box, despite her being in the courtroom for the greater part of the trial: Jones v Dunkel (1959) 101 CLR 298 at 308; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11, (2011) 243 CLR 361 at [63]-[64].

550    However, I would not have been prepared to make a finding that Ms Gore knew that the offers did require a disclosure under Pt 6D.2 of the Corporations Act, had it been necessary to do so. The evidence is not sufficient to support that inference, especially having regard to the Briginshaw standard.

Mr Stonehouse

551    Mr Stonehouse was not involved in an active way in the establishment of either SPG or WPO, nor in the development of their PPMs. I am satisfied that he knew that shares in SPG and WPO were being offered to Australian SMSF investors but the limited nature of his involvement does not permit a conclusion that he had actual knowledge that the PPMs had not been lodged with ASIC. ASIC submitted that a Jones v Dunkel inference could be drawn, but there is no evidence supporting Mr Stonehouse’s knowledge on this topic which could be supported by such an inference. Nor is there a basis for a finding of wilful blindness in the requisite sense.

552    Had it been necessary to make a finding, I do not consider that it could be concluded that Mr Stonehouse had actual knowledge that the offers required disclosure to investors under Pt 6D.2 of the Corporations Act. ASIC’s claims of his accessorial involvement in the contraventions of s 727(1) are not made out.

553    I add that Mr Kirby submitted that a finding that Mr Stonehouse and Ms Gore had the requisite knowledge for them to be liable as accessories could not be made because the 2FASC did not contain a pleading to that effect. As part of that submission, he contended that Mr Stonehouse and Ms Gore had been denied procedural fairness. I do not accept that submission. The 2FASC contains a pleading of knowledge in paras 45, 75, 80 and 97, relevantly on this topic, paras 45 and 75.

554    In any event, a lack of pleading would not be fatal to such a finding. One has to keep the purpose of pleadings in mind. A principal purpose is the avoidance of unfairness to the opposing party: Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-7. In this case there has been no unfairness. Apart from anything else, ASIC’s Precision Document filed on 2 August 2013 identified the evidence in the affidavits upon which ASIC relied, and the purpose of that reliance. It served to put Ms Gore and Mr Stonehouse on notice of the evidential case to be presented against them. Further, Ms Gore and Mr Stonehouse had the advantage of an extensive written opening from ASIC provided seven days before the hearing. That too put them on notice of ASIC’s evidential case. Finally, and in any event, ASIC’s claim must have been obvious to Mr Stonehouse and Ms Gore, so that it could not be said that there has been a denial of procedural fairness.

MOGS

555    ASIC submitted that the knowledge of each of the directors of MOGS should be attributed to it for the purposes of determining its accessory involvement.

556    In addition, ASIC submitted that the knowledge of Mr Gore should be attributed to MOGS on the basis that he was a de facto director. Subparagraph (b) of the definition of “director” in s 9 of the Corporations Act provides that, in the absence of an apparent contrary intention, a person will be a director of a company if the person, although not validly appointed as a director, acts in a position of a director or if the directors of the company are accustomed to act in accordance with the person’s instructions or wishes. ASIC submitted that Mr Gore was such a person.

557    As indicated earlier, the evidence shows that Mr Gore was engaged as a consultant to MOGS pursuant to an arrangement which involved the payment to GFC09 Pty Ltd of a very substantial sum. Although this was plainly not an arms-length arrangement, the very size of the payment implies that Mr Gore was to have a significant role in MOGS.

558    Several witnesses spoke of the control which Mr Gore exercised over the affairs of MOGS. Mr Slijderink, the chief executive officer of MOGS between May 2011 and March 2012 said that Mr and Ms Gore were “intimately involved in running the company”. He said that he commonly took directions from Mr Gore and that, until at least late 2011, Mr Gore had chaired the majority of the Board meetings attended by Ms Gore, Mr Stonehouse, Mr Adamson and himself.

559    Mr Slijderink said that, at a meeting in late 2011, Mr Gore gave an instruction to the Board members and to senior management that they should give the appearance that he was not running MOGS and that subsequently an attempt was made to comply with that instruction. That included those involved in Board meetings having a meeting at which Mr Gore was present immediately before to the convening of the formal Board meeting and then, after Mr Gore had left the room, the matters discussed at the meeting with Mr Gore being recorded as part of the minutes of the Board’s own meeting.

560    Despite this change, Mr Slijderink said that he continued to receive his instructions directly from Mr Gore and not from Board members. Mr Slijderink elaborated on Mr Gore’s control in his cross-examination, saying that “if Craig said no, then I just had to find another way to solve the problem”, “if Craig said that it shouldn’t happen, then it didn’t happen”. Even when Mr Gore was overseas he contacted him for his instructions. Mr Slijderink also said that Mr Gore controlled the overall budgets, allocations and costings for the MOGS business prior to their implantation by Ms Gore and that Mr Gore participated in the management of MOGS finance and accounting functions. I regarded the evidence of Mr Slijderink as reliable and accept it.

561    Mr Chant gave evidence to similar affect saying that Mr Gore gave instructions to staff, attended Board meetings, and set the agendas for meetings. It is evident that, in addition to Mr Slijderink, Mr Gore gave directions to Mr Chant and to Mr Adamson. This evidence is consistent with the evidence of others and I accept it.

562    Mr Smerdon said that Mr Gore had told him in September 2011 that, because of his PIA, he could not be involved in the ownership of MOGS or Realestatestock.com.au but that he could “mentor, drive, advise and consult the business”. As previously indicated, I regarded the evidence of Mr Smerdon as reliable and accept it. I consider that Mr Gore’s self-description describes accurately a significant part of his role in the business of MOGS.

563    It is in any event evident that Mr Gore conceived and drove the development of the BVI Scheme and MOGS arrangements with ActiveSuper. There is no evidence that Mr Gore’s activities were, in any real sense, controlled by the Board of MOGS.

564    In my opinion, the evidence justifies a finding that the directors of MOGS were accustomed to act in accordance with Mr Gore’s instructions and wishes in the sense contemplated by subpara (b) of the definition of director. The evidence that this was so is so persuasive that it is not necessary to refer in any detail to the authorities, but I indicate that I have had regard to the decisions in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233, (2010) 77 ACSR 410 (at first instance) and, on appeal, [2011] NSWCA 109, (2011) 82 ACSR 703, as well as to the decision of von Doussa J in Beach Petroleum NL v Johnson (1993) 43 FCR 1.

565    Given that Mr Gore conceived and pursued the BVI Scheme principally in the interests of MOGS and was its agent, it is appropriate to attribute his knowledge of the matters relating to the BVI Scheme to MOGS.

566    Similarly, the knowledge of Ms Gore, Mr Adamson and Mr Stonehouse as directors of MOGS in relation to the BVI Scheme can be attributed to MOGS.

567    On that basis, I am satisfied that ASIC has established that MOGS was knowingly concerned in the contraventions of s 727(1).

Mr George

568    Mr George had an extensive involvement in the establishment of SPG and WPO. He remained in the BVI for several weeks being a contact person for Forbes Hare in relation to the establishment. He was particularly involved in the establishment of Cayco website.

569    In addition, Mr George was a director of each of SPG and WPO as well as being a director of Cayco.

570    Mr George’s extensive involvement in the establishment of the BVI Scheme warrants a finding being made that he knew that shares in each of SPG and WPO were being offered to SMSF investors in Australia. For reasons similar to those given in relation to Mr Gore, he can be taken to have known that no disclosure document had been lodged with ASIC. This is sufficient to indicate that he was knowingly concerned in the contraventions of s 727(1).

571    I add, however, that if knowledge that Pt 6D.2 of the Corporations Act required disclosure to investors is an element of accessory involvement, I would not have been satisfied of that element in relation to Mr George.

Being knowingly concerned in the contraventions of s 727(2)

572    The findings which I have made concerning the involvement of the MOGS defendants in the contraventions of s 727(1) apply also to their involvement in the contraventions of s 727(2). Accordingly, I find that all of the MOGS defendants, other than Mr Stonehouse, were knowingly concerned in the contraventions by the ActiveSuper defendants of s 727(2).

Being knowingly concerned in the contraventions s 911A(1)

573    As noted earlier, it is necessary that ASIC establish that each of the MOGS defendants knew that the ActiveSuper defendants were carrying on a business which included the provision of advice or recommendations intended to influence SMSF investors in relation to investment in SPG or WPO or which included the arranging for SMSF investors to acquire shares in SPG or WPO. In addition, ASIC must establish that the MOGS defendants knew that the primary contravenors did not hold an AFSL, or an authority under an AFSL, entitling them to do so.

574    I am satisfied that each of the MOGS defendants knew that the primary contravenors were, as part of their businesses, providing advice or recommendations to SMSF members by which they sought to influence those investors to acquire shares in SPG or WPO. That finding is inevitable in the light of the factual findings made earlier, and was not seriously contested.

575    However, knowledge by the MOGS defendants that the primary contravenors did not hold a requisite AFSL authority requires more detailed consideration.

576    Mr Gore and Mr Adamson had some knowledge of the AFSL requirements. That is evident in their involvement in securing an AFSL authority for Royale after the termination of the Romad authority. Mr Burrows telephoned Mr Adamson on Saturday, 22 October 2011 informing him that Romad’s AFSL had been suspended and asking him to prepare a letter terminating “our” agreement. At Mr Adamson’s request, Mr Burrows sent to him that same day an email with the subject heading “CRITICAL LICENSING ISSUE – FOR YOUR URGENT ATTENTION!”. Shortly thereafter, Mr Burrows forwarded to Mr Adamson a chain of email communications between Royale and Romad extending back to June 2011 as well as a copy of the CAR between Romad and Royale.

577    On Mr Burrows’ instructions, Mr Adamson prepared and caused to be sent on Monday, 24 October 2011, a letter on the Evans Ellis Lawyers letterhead to Romad terminating Royale’s CAR. The content of the letter makes it apparent that Mr Adamson had read the attached CAR. Although the letter indicated that Evans Ellis Lawyers also acted on behalf of Mr Gibson, it did not refer to his CAR. However, Romad treated his CAR as also having been terminated the same day.

578    Mr Gore must have been informed of the suspension of Romad’s AFSL. Although there is no direct evidence on the topic, I am satisfied that Mr Gore must have appreciated immediately the serious impact which the absence of a CAR could have for MOGS. In particular, he understood that it meant that ActiveSuper and Royale could not promote investment under the US Realty Memorandum with the consequence that the funds contemplated to be available to MOGS under the loan agreement made on 21 October 2011 would not become available. Mr Gore knew a means by which this problem could be addressed.

579    Mr Gore and Mr Adamson were due to leave for the USA and the BVI on Sunday, 23 October 2011. I am satisfied that Mr Gore arranged, at short notice, a meeting with Mr Cullen who was the director of Spring Financial Group which held an AFSL. They arranged to meet in Sydney on 23 October before Mr Gore and Mr Adamson caught their flight to the USA. Mr Cullen thought that the meeting occurred on a week day and had been unarranged but the documentary evidence indicates that he is mistaken about that.

580    At the meeting, Mr Gore asked Mr Cullen if he would consider appointing Royale as a CAR of Spring Financial Group. Mr Cullen then deposed:

[27]    I told Gore that, if Royale were simply providing general assistance to people wanting to set up a SMSF and then introducing them to appropriately licensed and qualified third-parties who provided advice and organised their investments, I did not think that Royale necessarily needed to be a CAR. Gore explained that Royale wanted to be a CAR, and ultimately wanted to obtain its AFS Licence, to ensure it complied with any and all applicable regulatory requirements.

[28]    I told Gore that I was not inclined to appoint any CARs. However, I mentioned to Gore that I may be interested in selling another company that I had, by the name of Spring Equities Pty Ltd ACN 146 937 091 (Spring Equities) which also held an AFS Licence, to Royale.

I accept that evidence. Mr Gore’s request, and his statements as outlined by Mr Cullen, warrant the inference that he had some knowledge of the significance of an AFSL, and its importance to a business dealing in financial products.

581    Mr Gore and Mr Cullen did not reach any agreement at the meeting but a series of phone calls and emails occurred over the following days. By an email to Mr Gore on 24 October 2011, Mr Cullen proposed the sale of a subsidiary, Spring Equities (with the licence attached to it) for $50,000 and the appointment of the purchaser as a CAR of Spring Financial Group to cover the period until the sale was settled. Mr Cullen proposed a fee of $25,000 for the interim CAR. Mr Cullen told Mr Gore that Spring Equities held an AFSL for “personal and general advice for equities; derivatives; managed funds; margin lending; and cash deposit products”.

582    Shortly afterwards, Mr Cullen sent to Mr Adamson a copy of an earlier email to Mr Gore, Mr Burrows and Mr Gibson attaching a draft of the proposed interim CAR for Royale. Mr Adamson, while in the United States, was involved in some of the drafting of the terms of the interim CAR. Copies of the draft interim CAR were also sent to Mr Gore. Mr Cullen also said (and I accept) that on 24 October 2011 he had a conference call with Mr Burrows, Mr Gibson, Mr Gore and Mr Adamson in which the appointment by Spring Financial of Royale as a CAR was discussed. I accept that evidence.

583    Ultimately, a CAR between Spring Financial Group and Royale was executed. The CAR bears the date 25 October 2011 but there is some evidence that it may not have been finally executed until 27 October 2011. As noted earlier, the CAR authorised Royale to provide only “general financial product advice” for a limited range of financial products.

584    On 24 October 2011, Mr Adamson sent an email to Mr Gibson (copied to Mr Burrows and Mr Gore) setting out the terms of a letter which he suggested should be sent to ASIC in relation to the termination of the Romad CAR. The letter suggested by Mr Adamson included the following:

… I will take steps to arrange for another Licence to be put in place in order that I comply with my obligations under the Corporations Act and financial services law generally.

585    I also observe that emails from Mr Gibson in relation to the negotiation of the share sale agreement for Spring Equities addressed, or copied, to Mr Adamson (and also copied to Mr Gore) contained a general advice disclaimer in the following terms:

Royale Capital Pty Ltd [Royale] is a corporate authorised representative [CAR] 403658 of Spring Financial Group Pty Ltd (AFSL 391655) [Spring FG] and is authorised to provide general financial product advice to retail and wholesale clients. Any advice provided by Royale is of a general nature and has been prepared without taking into account your objectives, financial situation or needs …

I recognise that it is easy for the eye to pass over a disclaimer of this type in an email. However, the very subject of the email correspondence concerned arrangements for a CAR for Royale. That makes it more likely that Mr Adamson and Mr Gore read the disclaimer and were reminded thereby that Royale was authorised to provide general financial product advice only.

586    In these circumstances, it can be concluded that Mr Gore and Mr Adamson knew the nature of Royale’s CAR. In the case of Mr Adamson, that inference arises in particular from his involvement in the termination of the ROMAD CAR and in obtaining and settling the terms of the interim CAR with Spring Financial Group. In the case of Mr Gore, it arises in particular from the circumstance that he was a recipient of drafts of the interim CAR, knew of its importance to MOGS and from the circumstances outlined above. The inference can be drawn with more confidence having regard to his failure to give evidence: Jones v Dunkel at 308.

587    The inference that Mr Gore knew that there were limitations on Royale’s CAR is strengthened by an exchange of emails between Mr Cullen and him on 3 and 4 January 2012, in which Mr Cullen expressed concerns that Royale and Mr Gibson were exceeding the authority granted by the interim CAR. In the first email on 3 January, Mr Cullen gave Mr Gore a link to an article on Aussie Stock Forums relating to Royale and Mr Gibson and said:

I don’t put a lot of credence in ASF but this does not look good. These guys are supposed to be offering an SMSF set-up and admin service, not spruiking investment returns.

I’m about to email a please explain to Justin because I can’t afford any backlash on our AFSL from this sort of thing if any of this is correct. Which for now I will assume it is not – but will need validation from Justin.

Mr Gore responded by an email three minutes later saying:

Mate what are you talking about. We discussed this in detail. Talk later.

Mr Cullen responded:

What I was told was that they set up SMSFs and then referred clients to their other service providers mate. … I’m worried about claimed recent sales activity whereby the people posting suggest that they are being told of 25% pa returns from share market trading and supposedly being given records of trades etc.

588    On 4 January, Mr Gore sent an email to Mr Cullen with the following content:

I tried to call you yesterday afternoon as requested in your email. We should talk today and resolve a direction. If your view is there are concerns as to the capacity of Royale acting in the capacity as a AFSL holder, then we should also discus (sic) that.

589    The evidence did not indicate whether there was some further discussion between Mr Cullen and Mr Gore. It does indicate that there were exchanges between Mr Cullen and Mr Gibson.

590    I regard the above exchange of emails as significant as Mr Cullen was reminding Mr Gore that there were limitations on the scope of the interim CAR.

591    Ultimately, Spring Financial Group cancelled its CAR agreement with Royale on 12 June 2012 because of its concerns about the activities of Royale. At about the same time, XOTNUC Pty Ltd acquired the shares in Spring Equities.

592    Mr Adamson deposed to being concerned about the conduct of Mr Burrows and Mr Gibson by early May 2012. Those concerns related in particular to whether their activities were authorised under an AFSL. Mr Adamson said that he received assurances from both Mr Burrows and Mr Gibson that they were complying with the terms of the licence. It is difficult to understand how Mr Adamson could have accepted those assurances at face value.

593    The involvement of Mr Adamson and Mr Gore in Royale’s obtaining of an interim CAR from Spring Financial Group as outlined above warrants the finding that they each had actual knowledge that, after 25 October 2011, none of the primary contravenors held an AFSL, or an authority under an AFSL, entitling them to carry on their activities in relation to investment by SMSF investors in SPG or WPO. Mr Gore and Mr Adamson may not have appreciated the full significance of what they had been told about the nature of the interim CAR granted by Spring Financial Group. Indeed, given the response on 23 October when they were told that Royale may have no CAR at all, it seems likely that they would have taken further action if they did appreciate the effect of the CAR. My finding however is that they did know the nature and extent of the interim CAR even if they were not fully alert as to its significance.

594    For the reasons given earlier, the knowledge of Mr Gore can be attributed to MOGS. Mr Adamson resigned as a director of MOGS on 23 April 2012. At least until that date, his knowledge too can be attributed to MOGS. Despite that resignation, his continuing central role in MOGS’ affairs after April 2012 warrants an attribution of his knowledge to MOGS after that date also.

595    Mr George’s failure to deny the allegation in [80] of 2FASC means that he is taken to have admitted knowing, at relevant times, that the primary contravenors had engaged in the provision of financial services without authority under an AFSL.

596    However, the evidence does not justify findings that Ms Gore and Mr Stonehouse had knowledge of the limitations on the authority of the primary contravenors under an AFSL. Mr Adamson denied that he had discussed the question with Ms Gore and Mr Stonehouse. ASIC submitted that it could inferred from the knowledge of Ms Gore and Mr Stonehouse of suspicious circumstances and their failure to make enquiry that they had knowledge. ASIC did not however identify the suspicious circumstances relating to an AFSL in respect of which these defendants were said to have refrained deliberately from making further enquiry. Further, the ASIC submission seemed to contemplate a form of constructive rather than actual knowledge.

597    ASIC also submitted that the failure of Ms Gore and Mr Stonehouse to give evidence enabled a Jones v Dunkel inference to be drawn. However, such an inference cannot be used to make good an absence of evidence: Australian Competition and Consumer Commission v Kaye [2004] FCA 1363 at [189]. That is this case.

598    For these reasons, I am satisfied that ASIC has established accessorial involvement by Mr Gore, Mr Adamson, Mr George and MOGS in the contraventions by the ActiveSuper defendants of s 911A(1) but not accessorial involvement by Ms Gore and Mr Stonehouse.

Knowing concern in the contraventions of s 1041H(1) and s 12DA

599    As noted earlier, ASIC must establish that each of the MOGS defendants knew that the primary contravenors had represented in the PPMs of SPG and WPO that monies invested by Australian SMSF investors pursuant to the respective PPMs would be used for the purchase by SPG and WPO of property, and that the primary contravenors did not have reasonable grounds for those representations.

600    Rule 16.07 of the Federal Court Rules has the effect of deeming Mr George to have admitted the knowledge on which ASIC relied in its case against him.

601    The factual findings made earlier make it plain that Mr Gore and Mr Adamson had the requisite knowledge. Both had detailed knowledge of the content of the PPMs, both knew that it was intended all along that the monies subscribed by SMSF investors would be provided to MOGS and used by it as it chose, and that the monies would not be invested in real estate. I note again in this context Mr Gore’s insistence that the monies raised pursuant to the PPMs should come to MOGS as soon as practical.

602    An illustration of Mr Adamson’s knowledge is evident in his involvement in the diversion of funds raised pursuant to the SPG PPM to Mr Gordon Johnson in discharge of MOGS’ liability to him under an irrevocable authority. Another illustration is that Mr Adamson knew that Cayco was entitled only to a performance fee under the relevant investment management agreement. Despite knowing this, Mr Adamson caused $100,000 to be paid to Cayco on 30 March 2012 at Mr Gore’s instruction, without knowing the purpose of the payment. I also note that Mr Adamson was unable to explain why $80,000 was paid by WPO to Cayco on 18 April 2012 and why Cayco paid $10,000 to “Executive Aircraft Charter”.

603    It is appropriate to record, in fairness to Mr Adamson, that he did make a number of admissions concerning his culpability in relation to the BVI Scheme. He acknowledged that he had not made enquiries as to the monies which were paid into the Cayco bank account; that he had chosen to be a director of Cayco in name only; that he should have made enquiries as to the day to day affairs of Cayco’s business; that he should have known the circumstances in which Cayco received money; that he had chosen not to ask about it despite being aware of the potential significance of the matters; that he had chosen not to understand properly all the matters relating to the day to day affairs of MOGS; that he had made that choice at the time he was a director of MOGS; that he should have satisfied himself that the recipients of the PPMs in SPG and WPO satisfied the sophisticated investor criterion; that he had not discharged his duties as a director appropriately; and that one of the reasons he had chosen not to ask questions was because he did not wish to know the answers.

604    It seemed to me that the manner in which that evidence was given reflected in part Mr Adamson’s retrospective critique of his own conduct rather than being evidence of his state of mind in the latter part of 2011 and the first part of 2012. Nevertheless, these were significant admissions and it is to Mr Adamson’s credit that he made them, as well as having reached agreement with ASIC as to orders resolving the claim made against him. I indicate however, my satisfaction that ASIC has established actual knowledge by Mr Adamson and not some lesser form of imputed or constructive knowledge.

605    I am also satisfied that Ms Gore had the requisite knowledge. She had been actively involved in the preparation and finalisation of the PPMs, and the development of the Cayco website on which the PPMs were published. Ms Gore knew that the monies raised pursuant to the PPMs were being advanced to MOGS and disbursed at its discretion. She gave some of the directions with respect to that disbursal. A very strong inference arises from the evidence that Ms Gore knew at relevant times that the monies were not to be invested in real estate. Amongst other things, Ms Gore had executed in December 2011 loan agreements relating to the provision of funds to MOGS. Ms Gore was also a signatory to the loan agreements entered into on 10 May 2012 providing for the advance of monies to MOGS.

606    The inference that Ms Gore had the relevant knowledge can be drawn with even more confidence by reason of the Jones v Dunkel inference arising from her failure to give evidence.

607    The claim against Mr Stonehouse is more problematic. Mr Stonehouse did not have the same involvement as the other MOGS defendants in the preparation of the PPMs. Although he was provided with some drafts of the WPO PPM, this was at a relatively early stage of its development: 14 October 2011, being the first draft of the Information Memorandum which became the WPO PPM; 21 October 2011, being a revision of the same Information Memorandum; 27 October 2011, in relation to the Information Memorandum for WPO; and 12 December 2011, when, in an email attaching the “final version” of the prospectus for the WWPDIO Fund, Mr Gore said that “if this is not issued this week no further funds will flow”.

608    There is, however, no evidence that Mr Stonehouse was ever provided with a copy of the draft or final version of the SPG PPM. It may be reasonable to infer that Mr Stonehouse obtained knowledge in a general way regarding SPG, its Fund and its PPM, but in my view there is not a proper basis on which to find that he had actual knowledge of the representation in it upon which ASIC relies. This means that the claim of his being knowingly concerned in the application representation contained in the SPG PPM is not established.

609    If the content of the WPO PPM was relevantly the same, or substantially the same as the drafts of the Information Memorandums for the WPO fund provided to Mr Stonehouse, there might a basis for concluding that he had continuing knowledge. However, the overall tenor of the draft Information Memoranda is, in my view, significantly different from the final WPO PPM. In particular, the initial drafts made it much more obvious that the WPO would be engaged in financing activities rather than direct investment. It cannot, in my opinion, be reasonably concluded that the initial draft Information Memoranda provided to Mr Stonehouse contained the representation as to the use of the monies upon which ASIC relied.

610    I am satisfied that Mr Stonehouse must have had, at the least, a general knowledge of what was involved in the BVI Scheme and, in particular, in relation to SPG and WPO. As his memo of 13 December 2011 indicated, MOGS was expending substantial sums in the pursuit of the BVI Scheme, so much so that Mr Stonehouse was concerned that it may put at risk MOGS own underlying business. It can be inferred that he was reassured by the reports made from time to time, whether at Board meetings or more informally. It can also be inferred that Mr Stonehouse would not readily have been willing to sign the loan agreements and guarantees on 10 May 2012 without some understanding of the elements of the underlying scheme. However, to my mind, the inferences arising from those circumstances are not sufficient to warrant a conclusion that he knew that the PPMs contained the representation upon which ASIC relies. Jones v Dunkel cannot be relied upon to make good this shortcoming, as it does not justify the drawing of an inference which is not otherwise available on the evidence.

611    ASIC also submitted in relation to Mr Stonehouse that he can be taken to have had knowledge of “suspicious circumstances”, so that his failure to make further enquiry evidenced knowledge. ASIC did not, however, identify the particular “suspicious circumstances” upon which it relied for the inference that Mr Stonehouse had actual knowledge of the impugned representation in the PPMs.

612    For these reasons, I consider that ASIC has not established that Mr Stonehouse was knowingly concerned as an accessory in the contraventions of s 1041H and s 12DA.

613    For the reasons given earlier, the knowledge of Mr Gore, Mr Adamson and Ms Gore can be attributed to MOGS. It too had the requisite knowledge and therefore was knowingly concerned in the contraventions of s 1041H and s 12DA by the primary contravenors.

614    Accordingly, ASIC has established that Mr Gore, Mr Adamson, Ms Gore, Mr George and MOGS were knowingly concerned in the contraventions of s 1041H and s 12DA.

Remedies

Declarations

615    ASIC seeks declarations by the Court as to the contraventions and accessory involvements found proved.

616    The Court’s power to grant declarations under s 21 of the FC Act is discretionary: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97-9.

617    The Court may grant declarations by consent: Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCAFC 56; (2012) 201 FCR 378 at [30]. Ordinarily, the Court will grant declarations to which the parties consent if they are within the Court’s jurisdiction to make and are otherwise unobjectionable: Trade Practices Commission v Milreis Pty Ltd (No 2) (1978) 32 FLR 234 at 243. The Court must however be satisfied that the questions are real and not hypothetical, that the applicant has a real interest in obtaining the declarations, and that there is a proper contradictor: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-8.

618    In this case, the Court has received a substantial body of evidence regarding the conduct of ActiveSuper, Mr Burrows and Mr Adamson who consent to declarations and injunctions. It is plain that the threshold conditions for the grant of declarations concerning them are established.

619    In my opinion, it is appropriate for the declarations sought by ASIC to be made in respect of those defendants found to have committed the contraventions or to have been involved in them. This was a significant trial with substantial evidence. That circumstance, and ASIC’s status as regulator, makes it appropriate for there to be declarations giving effect to the Court’s findings. Those declarations will serve to indicate the Court’s findings, its disapproval of the contravening conduct and will provide some measure of vindication to those who have suffered detriments by reason of that conduct. These declarations should be substantially in the form agreed between ASIC, ActiveSuper, Mr Burrows and Mr Adamson and in relation to the remaining defendants should be substantially in the form proposed by ASIC.

Injunctions

620    In relation to the injunctions sought by ASIC, I proceed on the basis that the Court’s power under s 1324 of the Corporations Act is not confined by s 1108B(1): Re Idylic Solutions Pty Ltd; Australian Securities and Investments Commission v Hobbs [2013] NSWSC 106 at [90]-[91]. As previously noted, s 1324 authorises the issue of an injunction against both contravenors and those who are accessories.

621    Section 1323 of the Corporations Act also vests wide powers in the Court with which to protect the interests of those within the defined class of “aggrieved person”: Cullen v Wills (1991) 31 FCR 19 at 27.

622    The principles relating to the exercise of the discretion under s 1324 are settled. In Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd [2002] NSWSC 741; (2002) 42 ACSR 605, Palmer J set out several of the applicable principles at [36]:

(a)    the jurisdiction which the Court exercises under s 1324 is statutory, and not the Court’s traditional equity jurisdiction;

(b)    the Court is not to be confined by the considerations which would be applicable if it was exercising its traditional equity jurisdiction;

(c)    the Court should consider whether the injunction will have some utility or will serve some purpose within the contemplation of the Corporations Act, and that is so whether the application is for a permanent injunction under subs (1) or an interim injunction under subs (4);

(d)    when the application is made by ASIC rather than a private litigant, the Court is likely to give greater weight to the question of whether the injunction will serve a purpose within the contemplation of the Corporations Act.

623    The Court may grant a permanent injunction even when a winding up order has already been made against a corporate defendant: Stone Assets Management at [48]-[49]. Like the making of a declaration, the grant of an injunction under s 1324 may serve to mark the Court’s disapproval of the defendant’s conduct and operate as a deterrent to others: Australian Securities and Investments Commission v Storm Financial Ltd (Receivers and Managers Appointed) (in liq) (No 2) [2011] FCA 858 at [49]; Re Idylic Solutions [2013] NSWSC 106 at [66], [69].

624    In the light of the findings as to their contraventions and involvement and the consent of ActiveSuper, Mr Burrows and Mr Adamson to injunctions, I am satisfied that it is appropriate for the injunctions which those defendants have agreed with ASIC to be issued.

625    I am also satisfied that it is appropriate for the injunctions to be issued against the LLCs and SPG, WPO and Cayco. The same considerations indicate that an injunction is appropriate in the case of MOGS. As noted, provisional liquidators have been appointed to each and I will make orders for their winding up. The grant of injunctions in their case will not cause any prejudice and will demonstrate the Court’s disapproval of their conduct and have a deterrent effect.

626    The injunctions sought by ASIC are appropriate in the case of Mr Gore. On my findings, Mr Gore has been involved in serious contraventions of each of ss 727(1) and (2), 911A(1), 1041H(1) of the Corporations Act and s 12DA of the ASIC Act. The consequences of Mr Gore’s conduct are serious as the superannuation savings of a large number of SMSF investors, including those with limited savings, appear to have been wholly lost. ASIC has calculated that more than $1.7 million of the investors’ savings were paid for the apparent benefit of Mr Gore. Mr Gore’s conduct continued over several months and involved the promotion and development of a scheme designed intentionally to avoid the application of Australian law. I am satisfied that there is a very real risk that left unrestrained, Mr Gore will engage in like activity in the future, especially as there was no recognition by him of the wrongfulness of his conduct during the course of the trial. The Court should do what it can to protect investors from such conduct.

627    The considerations just mentioned in relation to Mr Gore apply to a large extent in the case of Ms Gore. She too was a significant participant in the establishment and development of the BVI Scheme and was a personal beneficiary of it. Her involvement in the contraventions of ss 727(1) and (2) and 1041H of the Corporations Act and s 12DA of the ASIC Act has had detrimental effects on SMSF investors of a similar kind to those of her husband. I consider that, if unrestrained, there is a real chance that Ms Gore may engage in similar forms of activity in the future.

628    Injunctions are also appropriate in the case of Mr George. He too played a significant role in the development and implementation of the BVI Scheme. There is evidence, about which it is unnecessary to reach a final conclusion, suggesting that Mr George was involved in the sale of the Arizonan properties owned by the LLCs and the putting of the proceeds of those sales beyond the reach of the provisional liquidators. It is also evident that Mr George was prepared to act in many respects at the direction of Mr Gore. This is an additional consideration indicating the appropriateness of injunctions against him.

629    The parties did not make submissions about the period during which the injunctions should operate. I will give them an opportunity to do so.

Winding up of the LLCs and SPG, WPO and Cayco

630    As already noted, provisional liquidators have been appointed to each of these companies. ASIC seeks orders for their winding up.

631    Each of SPG, WPO and Cayco is a foreign company as defined in s 9 of the Corporations Act. Section 583 of the Corporations Act provides for the winding up of certain foreign companies. Section 583 provides, relevantly:

583 Winding up Part 5.7 bodies

Subject to this Part, a Part 5.7 body may be wound up under this Chapter and this Chapter applies accordingly to a Part 5.7 body with such adaptations as are necessary, including the following adaptations:

(a)    the principal place of business of a Part 5.7 body in this jurisdiction is taken, for all the purposes of the winding up, to be the registered office of the Part 5.7 body;

…

(c)    the circumstances in which a Part 5.7 body may be wound up are as follows:

(i)    if the Part 5.7 body is unable to pay its debts, has been dissolved or deregistered, has ceased to carry on business in this jurisdiction or has a place of business in this jurisdiction only for the purpose of winding up its affairs;

(ii)    if the Court is of opinion that it is just and equitable that the Part 5.7 body should be wound up;

(iii)    if ASIC has stated in a report prepared under Division 1 of Part 3 of the ASIC Act that, in its opinion:

(A)    the Part 5.7 body cannot pay its debts and should be wound up; or

(B)    it is in the interests of the public, of the members, or of the creditors, that the Part 5.7 body should be wound up;

…

632    A “Part 5.7 body” to which s 583 refers is defined in s 9 of the Corporations Act to mean (relevantly):

(a)    …

(b)    a registrable body that is a foreign company and:

(i)    is not registered under Division 2 of Part 5B.2; or

(ii)    is not registered under that Division but carries on business in Australia; or

(c)    …

633    The LLCs, SPG, WPO and Cayco were conducting businesses in Australia and so come within para (b)(ii) of this definition: Australian Securities and Investments Commission v Edwards [2004] QSC 344; (2004) 22 ACLC 1469 at [33]-[34], [38].

634    The evidence of Mr Lewis, one of the provisional liquidators of the LLCs, that they were insolvent by 3 December 2012 was not contested. Having regard to the insolvency of MOGS and the MUT, it is improbable that the LLCs will ever recover the amounts owed to them by MOGS.

635    Mr Lewis’ evidence also indicates that each of SPG, WPO and Cayco is insolvent. That evidence was not challenged.

636    ASIC also relied on the “just and equitable” ground contained in s 583(c)(ii) of the Corporations Act for the winding up of the LLCs and SPG, WPO and Cayco. ASIC relies upon the following matters:

(a)    the involuntary removal of Mr Burrows as a director of SPG and WPO on 17 August 2012, apparently at the instigation of Mr George;

(b)    the sale of the properties in Arizona only a matter of days before a hearing in this Court at which ASIC sought orders restraining the defendants from dealing with the properties and after notice had been given to the defendants of the orders sought by ASIC;

(c)    the difficulties which the provisional liquidators have had in obtaining information from Mr George regarding the sale of the properties;

(d)    their omission of the LLCs, SPG and WPO to maintain proper accounting records of the financial transactions in which they engaged;

(e)    the making of large loans to MOGS for purposes not in accordance with the US Realty Memorandum;

(f)    the appointment of Cayco as “investment manager” by SPG and WPO despite Mr George, one of Cayco’s directors, also being a director of SPG and Cayco’s other director (Mr Adamson) also being a director of the beneficiary of the funds (MOGS);

(g)    the disbursal of the funds by Cayco in a manner which was inconsistent with its interests and obligations.

637    In the circumstances, I accept ASIC’s submission that the winding up of the LLCs, SPG, WPO and Cayco is appropriate because the Court cannot have confidence in their proper management and in order to provide some measure of protection to investors.

638    The orders for the winding up of the LLCs, SPG, WPO and Cayco will be made.

Dissolving the interlocutory injunctions made on 3 December 2012

639    At the conclusion of the submissions, Mr Kirby made an oral application on behalf of Mr Stonehouse and Ms Gore for the discharge of interlocutory injunctions made by Marshall J on 3 December 2012. In broad terms, those injunctions related to the defendants’ ability to deal with funds, the defendants’ ability to deal with property purchased with SMSF funds, the disposal of books and records, the making of offers of securities, the engagement in financial services, and securing the defendants’ passports. The interlocutory injunctions have since been varied in some respects which it is not presently necessarily to outline.

640    It is appropriate for the interlocutory injunctions to be reviewed in the light of these reasons and the orders which the Court will make in due course. For that reason, I will not address the oral application of Mr Stonehouse and Ms Gore in these reasons.

Summary

641    I have found that ActiveSuper and Mr Burrows contravened s 726(1) of the Corporations Act.

642    I have found that ActiveSuper, Royale, Mr Burrows, Mr Gibson, SPG, WPO and Cayco contravened s 727(1) and (2) of the Corporations Act and that MOGS, Mr George, Ms Gore, Mr Adamson and Mr Gore were knowingly concerned in those contraventions.

643    I have found that ActiveSuper, Royale, Mr Burrows, Mr Gibson, SPG, WPO and Cayco contravened s 911A of the Corporations Act and that MOGS, Mr George, Mr Adamson and Mr Gore were knowingly concerned in those contraventions.

644    I have found that the ActiveSuper defendants, SPG, WPO and Cayco contravened s 1041H(1) of the Corporations Act and s 12DA(1) of the ASIC Act in the representations as to the uses to which monies subscribed pursuant to the SPG and WPO PPMs would be put and that all of the MOGS defendants, other than Mr Stonehouse, were knowingly concerned in those contraventions. I have found that ASIC has not established its claims of misleading or deceptive conduct by silence or omission.

645    I have found that each of the LLCs, SPG, WPO and Cayco should be wound up.

646    I have found that ASIC has not established any of its claims against Mr Stonehouse and that it has not established that Ms Gore was knowingly concerned in the contraventions of s 911A.

647    It has been necessary to make some findings in respect of the conduct of Royale and Mr Gibson despite their absence from the trial because that conduct was, in part, conduct on which ASIC relied for its case against ActiveSuper and Mr Burrows and for its claims concerning accessorial involvement by the MOGS defendants. However, as ASIC’s claims against Royale and Mr Gibson were adjourned because of Mr Gibson’s illness, judgment is not to be entered against those defendants. I will adjourn consideration of ASIC’s claims against Royale and Mr Gibson to a date to be fixed.

648    The actions against the corporate entities ordered to be wound up or subject to provisional liquidation, were ordered to proceed to the point of entry of judgment only. I will hear submissions as to any further orders to be made with respect to those defendants.

649    I am satisfied that declarations as to the contraventions and accessorial involvement of the remaining defendants (other than Mr Stonehouse) should be made and that the injunctions sought by ASIC pursuant to s 1324(1) of the Corporations Act should be made, again, other than against Mr Stonehouse. I will hear from the parties as to the periods of restraint and as to the precise terms of the injunctions.

650    ASIC is directed to file and serve by 24 April 2015 minutes of the orders to be made to give effect to these reasons and findings, together with a short outline (no more than five pages) of the submissions it will make on the period of the injunctions and on the question of costs. Any party intending to contest the appropriateness of the orders proposed by ASIC is to file and serve by 1 May 2015 minutes of the orders which that party will contend are appropriate to give effect to these reasons, together with a short outline of the submissions (no more than five pages) to be made in support of those minutes.

651    The matter is adjourned to 10.00am in Brisbane on 8 May 2015 for submissions as to the form of the orders, costs, the oral application of the 14th and 15th defendants for the discharge of the interlocutory orders made on 3 December 2012, and any other matter necessary to give effect to the Court’s findings.

Associate:

Dated:    14 April 2015

Schedule

Defendants:

Second Defendant:    ACN 143 832 053 PTY LTD (ACN 143 832 053)

Third Defendant:    JASON GRANT BURROWS

Fourth Defendant:    JUSTIN LUKE GIBSON

Fifth Defendant:    U.S. REALTY INVESTMENTS #1, LLC (L-1666059-6)

Sixth Defendant:    U.S. REALTY INVESTMENTS #2, LLC (L-1666058-5)

Seventh Defendant:    U.S. REALTY INVESTMENTS #3, LLC (L-1668734-4)

Eighth Defendant:    U.S. REALTY INVESTMENTS #4, LLC (L-1668736-6)

Ninth Defendant:    SYNDICATED PROPERTY GROUP LTD

Tenth Defendant:    WORLDWIDE PROPERTY OPPORTUNITIES LTD

Eleventh Defendant:    CAYCO MANAGEMENT

Twelfth Defendant:    MOGS PTY LTD

Thirteenth Defendant:    JEFFREY GEORGE

Fourteenth Defendant:    GRAEME STONEHOUSE

Fifteenth Defendant:    MARINA GORE

Sixteenth Defendant:    MARK GORDON ADAMSON

Seventeenth Defendant:    CRAIG KIRRIN GORE

Eighteenth Defendant:    MASH INVESTMENTS PTY LTD (ACN 149 597 384)