FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Wooldridge [2019] FCAFC 172

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 206C of the Corporations Act 2001 (Cth) (the ‘Act’), Dr Wooldridge be disqualified from managing corporations for the following periods:

(a)    the period commencing on 23 December 2014 and concluding on 10 August 2016; and

(b)    the period commencing on 11 October 2019 and concluding on 22 February 2022.

2.    Pursuant to s 1317G of the Act, Dr Wooldridge pay to the Commonwealth a pecuniary penalty of $20,000.

3.    Dr Wooldridge pay ASIC’s costs of and incidental to his appeal in proceeding VID753/2014 (excluding the costs for those proceedings the High Court ordered must be paid by ASIC).

4.    ASIC’s cross-appeal in proceeding VID753/2014 be dismissed with no orders as to the costs of that cross-appeal.

5.    There be no order as to the costs of this proceeding.

6.    This proceeding otherwise be dismissed.

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

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 206C of the Corporations Act 2001 (Cth) (the ‘Act’), Mr Jaques be disqualified from managing corporations for the following periods:

(a)    the period commencing on 23 December 2014 and concluding on 10 August 2016; and

(b)    the period commencing on 11 October 2019 and concluding on 22 February 2022.

2.    Pursuant to s 1317G of the Act, Mr Jaques pay to the Commonwealth a pecuniary penalty of $20,000.

3.    Mr Jaques pay ASIC’s costs of and incidental to his appeal in proceeding VID784/2014 (excluding the costs for those proceedings the High Court ordered must be paid by ASIC).

4.    ASIC’s cross-appeal in proceeding VID784/2014 be dismissed with no orders as to the costs of that cross-appeal.

5.    There be no order as to the costs of this proceeding.

6.    This proceeding otherwise be dismissed.

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

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 206C of the Corporations Act 2001 (Cth) (the ‘Act’), Mr Butler be disqualified from managing corporations for the following periods:

(a)    the period commencing on 23 December 2014 and concluding on 10 August 2016; and

(b)    the period commencing on 11 October 2019 and concluding on 22 February 2022.

2.    Pursuant to s 1317G of the Act, Mr Butler pay to the Commonwealth a pecuniary penalty of $20,000.

3.    Mr Butler pay ASIC’s costs of and incidental to his appeal in proceeding VID783/2014 (excluding the costs for those proceedings the High Court ordered must be paid by ASIC).

4.    ASIC’s cross-appeal in proceeding VID783/2014 be dismissed with no orders as to the costs of that cross-appeal.

5.    There be no order as to the costs of this proceeding.

6.    This proceeding otherwise be dismissed.

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

ORDERS

THE COURT ORDERS THAT:

1.    The application for an extension of time to file an amended notice of appeal in proceeding VID752/2014 made on 1 April 2019 be dismissed.

2.    Pursuant to s 206C of the Corporations Act 2001 (Cth) (the ‘Act’), Mr Lewski be disqualified from managing corporations for the following periods:

(a)    the period commencing on 23 December 2014 and concluding on 10 August 2016; and

(b)    the period commencing on 11 October 2019 and concluding on 22 February 2033.

3.    Pursuant to s 1317G of the Act, Mr Lewski pay to the Commonwealth a pecuniary penalty of $230,000.

4.    Mr Lewski pay ASIC’s costs of and incidental to his appeal in proceeding VID752/2014 (excluding the costs for those proceedings the High Court ordered must be paid by ASIC).

5.    ASIC’s cross-appeal in proceeding VID752/2014 be dismissed with no orders as to the costs of that cross-appeal.

6.    There be no order as to the costs of this proceeding.

7.    This proceeding otherwise be dismissed.

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

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    These appeals, now on remittal before us, call on us to determine whether and to what extent the pecuniary penalties and disqualification orders imposed by the primary judge on the first respondents in each of the relevant proceedings ought to be disturbed, and to make the appropriate orders as to costs. It is also necessary for us to deal with the cross-appeals brought by the Australian Securities and Investments Commission (‘ASIC’) in each of the four remaining matters.

2    To put this task in context, it is appropriate to outline the background to the proceedings (and cross-appeals) to which these reasons relate.

BACKGROUND

Before the primary judge

3    At first instance, the primary judge found that Australian Property Custodian Holdings Limited (‘APCHL’) (being the responsible entity of a managed investment scheme) and its board of directors contravened various provisions of the Corporations Act 2001 (Cth) (the ‘Act’). The contraventions occurred when the board resolved to lodge with ASIC an amended constitution of the managed investment scheme, the form of which had been approved at an earlier meeting. The effect of the amendments was to introduce, without any corresponding benefit to the members of the scheme, substantial new fees which would be payable to the responsible entity upon the occurrence of certain events, including the successful listing of the scheme on the Australian Stock Exchange. The primary judge made declarations of contraventions, imposed pecuniary penalties and made orders disqualifying all five board members from serving as company directors for certain periods of time: see Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) [2014] FCA 1308; (2014) 322 ALR 45 (the ‘Penalty Reasons’), which followed the primary judge’s determination of liability in Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342; (2013) 31 ACLC 13-073 (the ‘Liability Reasons’).

Full Court appeal

4    The five board members subsequently appealed to this Full Court on the question of liability, and ASIC cross-appealed on the question of penalties: see Lewski v Australian Securities and Investments Commission [2016] FCAFC 96; (2016) 246 FCR 200. A separate appeal was also commenced by APCHL in respect of the primary judge’s determination of the liability of that entity: see Lewski v Australian Securities & Investments Commission (No 2) [2017] FCAFC 171; (2017) 352 ALR 64. The Full Court allowed the appeals and accordingly quashed all the declarations and orders made by his Honour. Because the primary judge’s determinations on liability had been overturned, the Full Court did not need to determine ASIC’s cross-appeals on the question of penalties.

High Court appeal

5    On 18 May 2018, ASIC obtained special leave to appeal to the High Court of Australia in respect of the Full Court’s determination regarding four of the five board members of APCHL, each of whom filed a notice of contention: Australian Securities and Investments Commission v Lewski & Ors [2018] HCATrans 91. Those four board members – being Messrs Lewski, Jaques and Butler and Dr Wooldridge – are the first respondents in each of the proceedings to which these reasons relate (the ‘Directors’). ASIC did not seek leave to disturb the Full Court’s orders in relation to the fifth board member, Mr Clarke.

6    On 13 December 2018, the High Court allowed ASIC’s appeal in part and dismissed the Directors’ notices of contention: Australian Securities and Investments Commission v Lewski [2018] HCA 63; (2018) 362 ALR 286. Relevantly, the Court endorsed the primary judge’s determination in respect of the Directors’ liability for all contraventions save for those in respect of s 209(2) of the Act. The Court accordingly quashed the Full Court’s orders so as to have the effect of reinstating the declarations made by the primary judge other than those that related to the Directors’ contraventions of s 209(2) of the Act (and of course those that related to Mr Clarke).

Remittal to Full Court

7    The High Court relevantly ordered that:

1.    Appeal allowed in part.

2.    Set aside orders 2 to 6 of the orders of the Full Court of the Federal Court of Australia made on 1 November 2017 and in their place order that:

a.    the appeal be allowed in part;

b.    declarations 13, 21, 29, 37, 40, 41, 42, 43, 44, 45, 46, and 47 of the declarations and orders 1.1 to 1.4 and 2.1 to 2.5 of the orders made by the primary judge in proceeding VID 594 of 2012 ("Trial Proceeding") dated 2 December 2014 be set aside;

c.    order 3 of the orders made in the Trial Proceeding be set aside and in its place order that the second to fifth defendants pay the plaintiff's (namely, ASIC's) costs of and incidental to the proceeding; and

d.    the first respondent (namely, ASIC) pay the appellant's costs of and in connection with the dispute as to the form of orders.

3.    Remit the matter to the Full Court of the Federal Court for determination of penalty and disqualification orders, costs, and the cross-appeal to that Court.

4.    The first respondent pay the appellant's costs of the appeal to this Court.

8    The relevant proceedings (one for each of the four Directors) were thus remitted by the High Court to this Full Court for determination with respect to the pecuniary penalties and disqualifications ordered by the primary judge. The High Court stated (at [91]):

As to the pecuniary penalties and disqualifications ordered by the primary judge, the effect of dismissing the appeals on the third ground is that part of the basis for the orders made by the primary judge against each Director is removed. Each matter should be remitted to the Full Court for determination of what, if any, effect this has on (i) the pecuniary penalties and disqualifications that the primary judge ordered against each Director other than Mr Clarke, and (ii) the orders as to costs. This issue can be determined together with ASIC's cross-appeals to the Full Court concerning the pecuniary penalties and disqualifications ordered by the primary judge.

9    In order to identify the ‘part of the basis for the orders made by the primary judge’ that has been, in effect, removed by the High Court’s determination, it is at this juncture convenient to set out the various declarations made by the primary judge in respect of the Directors. It is noted that, in respect of each of the Directors, materially identical declarations were made. For convenience, only those declarations made against Mr Lewski are extracted.

IN RELATION TO THE SECOND DEFENDANT, WILLIAM LIONEL LEWSKI, THE COURT DECLARES THAT:

8.    The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(b) of the Corporations Act 2001 (Cth) (the Act), in that, in his capacity as a director of Australian Property Custodian Holdings Limited (Receivers and Managers Appointed)(In Liquidation)(Controllers Appointed) (APCHL) in its capacity as the responsible entity (the Responsible Entity) of the Prime Retirement and Aged Care Property Trust ARSN 097 514 746 (the Prime Trust), he failed to exercise the degree of care and diligence that a reasonable person would have exercised if he or she were in Mr Lewski’s position, by acting as follows. On 22 August 2006, at a meeting of the board of directors of APCHL (the Board), Mr Lewski voted in favour of a resolution (the Lodgement Resolution) to lodge with the Australian Securities and Investments Commission (ASIC) an amended constitution of the Prime Trust (the Amended Constitution) to cause the amendments in the Amended Constitution to take effect (the Amendments). The Amendments that were the subject of the Lodgement Resolution purported to create rights in APCHL that, if exercised, would result in a diminution of the assets of the Prime Trust without providing any or any equivalent benefit to the Members of the Prime Trust (the Members). In so doing, Mr Lewski on 22 August 2006:

(a)    failed to consider and understand, and be satisfied that the Board had considered and understood, the effect of a deed of variation dated 22 August 2006, which contained the Amendments;

(b)    failed to consider whether, and be satisfied that, there was a legitimate reason for the Responsible Entity to make the Amendments;

(c)    failed to be satisfied that the Board had considered:

(i)    legal advice that the Amendments, if made without the approval of the Members, would comply with the Act and the existing constitution of Prime Trust (the Existing Constitution); or

(ii)    judicial advice that the Responsible Entity would be justified in making the Amendments without the approval of the Members;

(d)    failed to consider, and be satisfied that the Board had considered, whether the Amendments if made without the approval of the Members would comply with the Act and the Existing Constitution;

(e)    failed to consider, and be satisfied that the Board had considered, the effect of the Amendments on the rights and interests of the Members;

(f)    failed to be satisfied that the Board had considered the effect of the Amendments on the interests of APCHL, Mr Lewski and entities related to and associated with Mr Lewski; and

(g)    failed to consider and be satisfied that the Board had considered how, if at all, the conflict between the interests of the Members and the interests of APCHL could be resolved in favour of the Members.

9.    The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances where:

(a)    he did not give any consideration to whether making the Amendments was in the best interests of the Members;

(b)    the Amendments were not in fact in the best interests of the Members;

(c)    a director of APCHL in the position of Mr Lewski could not reasonably have believed that the Amendments were in the best interests of the Members; and

(d)    there was a conflict between:

(i)    the interests of APCHL in being paid the additional fees provided for by the Amendments and the interests of the members in paying only the fees under the Existing Constitution; and

(ii)    the interests of APCHL in being paid the additional fees and its duties to act in the Members’ best interests.

10.    The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act and so contravened s. 601FD(1)(e) of the Act, in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an advantage to APCHL, in voting in favour of the Lodgement Resolution on 22 August 2006, in circumstances including the following:

(a)    the Lodgement Resolution advantaged APCHL, because the Amendments purported to create rights in APCHL that would, if exercised, benefit APCHL;

(b)    by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and

(c)    the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the following (collectively, the Five Principal Factors):

(i)    the fees to be payable pursuant to the Amendments were payable to APCHL in its personal capacity (and through it to Mr Lewski) and were to come from property held on trust by APCHL for the members. APCHL was acting as a trustee;

(ii)    consideration of the Amendments created self-evident conflicts:

(A)    between APCHL’s interest in becoming entitled to the additional fees through the Amendments and the Members’ interests in having APCHL perform its services as Responsible Entity for the fees in the Existing Constitution; and

(B)    between APCHL’s interest in becoming entitled to the additional fees payable pursuant to the Amendments and its statutory duty to act in the best interests of the Members and to give priority to their interests;

   (iii)    the nature of the proposed additional fees was that:

(A)    APCHL was given contingent rights to take multiple fees to the value of 2.5% of the gross assets of the Prime Trust out of Prime Trust funds. Absent the Amendments the Members had the right to the services of APCHL as Responsible Entity without the additional fees;

(B)    the listing fee payable pursuant to the Amendments (the Listing Fee) imposed a fee if the Prime Trust was listed, in circumstances where under the Existing Constitution the Members were entitled to expect listing to occur without a fee if the directors considered that listing was in the Members’ best interests (as they did);

(C)    the ‘removal fee’ payable pursuant to the Amendments imposed a fee for the exercise of the Members’ right to remove APCHL as Responsible Entity, which the Members could require without a fee under the Existing Constitution;

(D)    the ‘takeover fee’ payable pursuant to the Amendments (the Takeover Fee) substantially increased the fee payable on a third party acquiring shares over certain thresholds;

(E)    the Takeover Fee could be payable on multiple occasions; and

(F)    the fees payable pursuant to the Amendments could be payable notwithstanding that another of the fees had previously been paid;

(iv)    the fees payable pursuant to the Amendments were substantial, each having a value of between about $11.25 million and $21.6 million at the time of the Amendments (which was in the order of 6.7% of the net scheme property of the Prime Trust after borrowings were taken into account); and

(v)    the fees payable pursuant to the Amendments were gratuitous in the sense that no, or no equivalent, countervailing benefit was provided to the Members in return for them -

could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit the Amendments to become effective.

11.    The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(e) of the Act in that, in his capacity as a director of the Responsible Entity, he made improper use of his position as an officer of the Responsible Entity to provide an indirect advantage to those persons who would benefit from the fees payable pursuant to the Amendments, in that:

(a)    the Amendments purported to create rights in APCHL that would, if exercised, by their benefit to APCHL benefit those with an ownership interest in APCHL or rights to share in or receive a proportion of its profits or revenue, namely Mr Lewski, several of his family members and companies associated with him;

(b)    by voting in favour of the Lodgement Resolution, he used his position as a director of APCHL intending to cause the Amendments to become effective; and

(c)    the use of his position was improper because a person properly exercising the powers of a director of a trustee in the circumstances, which included the Five Principal Factors, could not have considered it proper to pass the Lodgement Resolution and would have refused to use his position to permit them to become effective.

12.    The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Lewski’s position to ensure that APCHL complied with the constitution of Prime Trust and the Act, in that:

(a)    in purporting to make the Amendments, APCHL did not comply with the Existing Constitution;

(b)    in purporting to make the Amendments, APCHL did not comply with s. 601FC(1)(m) of the Act; and

(c)    Mr Lewski voted in favour of the Lodgement Resolution:

(i)    intending to make the Amendments effective;

(ii)    without being satisfied that the Board had considered clear legal advice that in making the Amendments without the approval of the Members, the Responsible Entity would comply with the Act and the Existing Constitution;

(iii)    without taking any steps to cause APCHL to obtain judicial advice as to whether APCHL was empowered to make, and justified in making, the Amendments without the approval of the Members;

(iv)    without seeking the approval of the Amendments by the Members; and

(v)    without giving any consideration on 22 August 2006 to the Board’s power to make the amendments or the need for proper legal advice or judicial advice.

13.    The second defendant, William Lionel Lewski, contravened s. 209(2) of the Act (as modified by Part 5C.7 of the Act) by being involved (as that term is used in s. 79 of the Act) in a contravention by APCHL of s. 208 of the Act as modified by Part 5C.7 of the Act, as follows:

(a)    APCHL contravened s. 208 of the Act as modified by Part 5C.7 of the Act, in that:

(i)    on 3 August 2007, it caused to be issued to itself in its personal capacity ordinary units of the Prime Trust with a value of $3,293,994 as and by way of a 10 per cent instalment of the Listing Fee (the First Scrip Instalment);

(ii)    on 13 March 2008, it caused to be transferred $329,399 of the monies held by it as Trustee of Prime Trust to itself in its personal capacity in respect of GST on the First Scrip Instalment,

(collectively, the First Instalment);

(iii)    on 27 June 2008, it caused to be issued to Carey Bay Pty Ltd 9,020,386 units in the Prime Trust valued at $5,000,000; and

(iv)    on 30 June 2008, it transferred $27,610,548.30 of the monies held by it as trustee of Prime Trust to itself in its personal capacity,

(collectively the Second Instalment),

without obtaining the approval of the Members and notwithstanding that, as a matter of law, the First Instalment and the Second Instalment and each component of them were not provided for in the constitution of Prime Trust;

(b)    Mr Lewski participated in the meetings of the Board on 26 June 2007 and 27 July 2007 and assented to the resolutions passed at those meetings that authorised the payment of the First Instalment to APCHL in circumstances where he knew that:

(i)    payment of the First Instalment was “a financial benefit” (as that expression is used in s. 208(1) of the Act);

(ii)    the First Instalment was given by APCHL as Responsible Entity;

(iii)    the First Instalment was given out of the scheme property of Prime Trust (Scheme Property);

(iv)    the First Instalment was given to APCHL itself; and

(v)    APCHL did not obtain the Members’ approval for the payment of the First Instalment.

(c)    Mr Lewski:

(i)    `on 28 April 2008 executed the Heads of Agreement;

(ii)    participated in the meeting of the Board on 27 June 2008 and the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;

when he knew that:

(iii)    payment of the Second Instalment was “a financial benefit” (as that expression is used within s. 208(1) of the Act);

(iv)    the Second Instalment was given by APCHL as Responsible Entity;

(v)    the Second Instalment was given out of Scheme Property;

(vi)    the Second Instalment was given partly to APCHL itself and partly to Carey Bay which was a related party of APCHL; and

(v)    APCHL did not obtain the Members’ approval for the payment of the Second Instalment.

14.    The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(c) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to act in the best interests of the Members and failed to give priority to the interests of the Members over the interests of APCHL, in that he:

(a)    voted in favour of or otherwise assented to the resolution on 26 June 2007 in the following terms:

“the Listing fee be taken by the Responsible Entity as Units in the Trust of which approximately ten per cent is to be issued to the Responsible Entity at the time of allotment and official quotation of Prime Trust’s units on the ASX. The balance of the listing fee will be deferred and payable in tranches”; and

(b)    voted in favour of or otherwise assented to the resolution on 27 July 2007 to the effect that APCHL would take the first tranche of the Listing Fee ostensibly payable pursuant to the Amendments as units; and

(c)    participated in making the decision to pay the balance of the Listing Fee by:

    (i)    executing the Heads of Agreement on 28 April 2008;

(ii)    attending in the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;

  (collectively the decisions to pay the Listing Fee) in circumstances where:

(d)    he did not give any consideration to whether making payment of the Listing Fee gave rise to any conflict of interest;

(e)    a director of APCHL in the position of Mr Lewski would have been alive to APCHL’s conflict of interests and conflict of interest and duty, and would have considered and sought to resolve these conflicts in favour of the members before making a decision to pay the Listing Fee;

(f)    payment of the Listing Fee was not in fact in the best interests of the Members;

(g)    a director of APCHL in the position of Mr Lewski could not in the circumstances reasonably have believed that payment of the Listing Fee was in the best interests of the Members; and

(h)    the proposed payment of the Listing Fee gave rise to a conflict between the interests of APCHL and the interests of the Members which should have been resolved in favour of the Members by APCHL deciding not to make the payment.

15.    The second defendant, William Lionel Lewski, contravened s. 601FD(3) of the Act by reason of him having contravened s. 601FD(1)(f) of the Act, in that, in his capacity as a director of the Responsible Entity, he failed to take all steps that a reasonable person would have taken if that reasonable person were in Mr Lewski’s position to ensure that APCHL complied with the Act, in that he participated in making the decisions to pay the Listing Fee by:

(a)    voting in favour of or otherwise assenting to the resolutions on 26 June 2007 and 27 July 2007;

(b)    executing the Heads of Agreement on 28 April 2008;

(c)    attending the meeting of the Board on 27 June 2008 and joining in the resolution passed at that meeting which authorised the execution on behalf of APCHL of the Deed of Acknowledgement under which APCHL agreed to pay the Second Instalment;

in circumstances where:

(d)    a reasonable person in his position would not have done so without obtaining:

(i)    clear legal advice or a judicial direction that the Amendments had been effective, that APCHL had a right to be paid the fee under the constitution of Prime Trust and the Act, and that payment of the fee would not contravene s. 208 of the Act (as amended by s. 601LC of the Act); or

(ii)    the approval of the Members for payment of the fee to be made; and

(e)    he did not take any step towards obtaining further legal advice or a judicial direction as to the Amendments or towards obtaining the Members’ approval for the payment of the Listing Fee.

10    Of the declarations extracted above (numbered 8 through 15), the orders of the High Court had the effect of reinstating all save for declaration 13 which concerned Mr Lewski’s contravention of s 209(2) of the Act. Again, for the avoidance of doubt, materially identical declarations were made in respect of each Director, and the declarations concerning each Director’s contravention of s 209(2) were not reinstated.

11    For reasons that will become apparent, it is at this point appropriate to divide the remainder of these reasons into two main sections: one dealing with the circumstances of Messrs Lewski, Jaques and Butler (being the first respondents in proceeding numbers VID131/2019, VID129/2019 and VID130/2019 respectively), and another dealing with the circumstances of Dr Wooldridge (being the first respondent in proceeding number VID128/2019).

MESSRS LEWSKI, JAQUES AND BUTLER

12    The day before the commencement of the hearing of these proceedings on remittal, the Full Court was advised that ASIC and Messrs Lewski, Jaques and Butler had resolved the matters in issue in each of their respective proceedings. Jointly prepared draft orders and submissions were filed in each matter. Save for an additional bespoke draft order in respect of Mr Lewski regarding his draft amended notice of appeal (discussed further below), the draft orders for Messrs Lewski, Jaques and Butler are to the following effect:

(1)    pursuant to s 206C of the Act, the relevant Director be disqualified from managing corporations for a specified period;

(2)    pursuant to s 1317G of the Act, the relevant Director pay to the Commonwealth a pecuniary penalty of a specified amount;

(3)    the relevant Director pay ASIC’s costs of and incidental to the relevant Director’s appeal in the relevant proceeding with the exception of the costs that the High Court has ordered are to be paid by ASIC;

(4)    ASIC’s cross-appeal in the relevant proceeding is dismissed with no orders as to the costs of the cross-appeal; and

(5)    the relevant proceeding is otherwise dismissed with no orders as to costs of the proceeding.

13    The proposed periods of disqualification (draft order (1) above) and the proposed amount of pecuniary penalties (draft order (2) above) differed amongst the three Directors who settled with ASIC.

14    In respect of Mr Lewski, he and ASIC submit that the appropriate disqualification period is (1) the period of time between 23 December 2014 and 10 August 2016 (being the period of time between the date on which the primary judge’s orders took effect and the date on which we made orders staying all of the primary judge’s orders, this period being referred to as the ‘Time Served Period’) and (2) a further 13 years and 134 days from the date of this Court’s order. They submit that the appropriate pecuniary penalty is $230,000.

15    In respect of each of Messrs Jaques and Butler, each of them and ASIC submit that the appropriate disqualification period is (1) the Time Served Period and (2) a further 2 years and 134 days from the date of this Court’s order. They submit that the appropriate pecuniary penalty for each is $20,000.

16    The amount of any pecuniary penalties imposed and any period of disqualification ordered are matters that, notwithstanding the joint submissions, are ultimately for this Full Court to decide: Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 (‘FWBII’), [48].

17    The remainder of the orders sought (that is, draft orders (3) through (5) above) were the subject of consent between the parties, and were therefore accepted by this Court.

Principles governing agreed penalties

18    The principles that govern the Court’s assessment of pecuniary penalties and disqualification orders that are the subject of agreement between the parties are well-established.

19    In the High Court’s decision in FWBII it was held that in the context of civil penalty provisions (such as those which are engaged in these proceedings), it is open to the Court to receive submissions, including joint submissions, as to an appropriate penalty. At [46], French CJ, Keifel, Bell, Nettle and Gordon JJ (with whom Keane J agreed) relevantly held:

… there is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. As was recognised in Allied Mills and authoritatively determined in NW Frozen Foods, such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.

20    Their Honours further held (at [57]-[58]):

… in civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences. There is also very considerable scope for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy. Accordingly, settlements of civil proceedings are commonplace and orders by consent for the payment of damages and other relief are unremarkable. … it is entirely consistent with the nature of civil proceedings for a court to make orders by consent and to approve a compromise of proceedings on terms proposed by the parties, provided the court is persuaded that what is proposed is appropriate.

Possibly, there are exceptions to the general rule. There is, however, no reason in principle or practice why civil penalty proceedings should be treated as an exception. Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and, for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty. To do so is no different in principle or practice from approving an infant’s compromise, a custody or property compromise, a group proceeding settlement or a scheme of arrangement.

21    As summarised by Wigney J in Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2016] FCA 1516; (2016) 118 ACSR 124 (‘ACCC v ANZ’) at [103], the High Court’s decision in FWBII made clear that:

the Court’s primary task, when faced with civil penalty proceedings that have settled on the basis of agreed facts and joint submissions advocating an agreed penalty, is to consider whether the agreed penalty is an appropriate penalty having regard to all relevant matters.

(Emphasis in original)

22    If the penalty proposed (be it a pecuniary penalty, a disqualification order, or both) meets that description, then it is ‘highly desirable’ that the agreed penalty be accepted and imposed: FWBII at [58]; ACCC v ANZ at [160].

23    The size of the penalty is a matter of the Court’s discretion: Australian Securities and Investments Commission v Adler (No 5) [2002] NSWSC 483; (2002) 42 ACSR 80 (‘Adler’) at [126]. While by no means exhaustive, the relevant factors to be considered include:

(1)    the extent to which the contravention was the result of deliberate or reckless conduct, as opposed to negligence or carelessness;

(2)    the number of contraventions, the length of the period over which the contraventions occurred, and whether the contraventions comprised isolated conduct or were systematic;

(3)    the capacity of the respondent to pay;

(4)    the degree of the cooperation with the regulator, including any admission of an actual or attempted contravention;

(5)    the impact or consequences of the contravention on the market or innocent third parties; and

(6)    the extent of any profit or benefit derived as a result of the contravention.

See Australian Securities and Investments Commission v Chemeq Limited [2006] FCA 936; (2006) 234 ALR 511 at [99]; Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; (2017) 254 FCR 68 at [103]-[104].

24    The Court is also bound to have regard to the maximum penalty for a given contravention, and to consider where on the spectrum of conduct (that extends from the least serious instances of offending to the worst category) the contravention in question lies: R v Kilic [2016] HCA 48; (2016) 259 CLR 256 at [19].

25    Ordinarily, separate contraventions attract separate penalties. However, in circumstances where separate acts giving rise to separate contraventions are inextricably interrelated, they should be viewed as a single ‘course of conduct’. The course of conduct principle need not be used in every given case, but it is a useful tool of analysis that can help avoid double punishment for those parts of legally distinct contraventions which involve wrongdoing: see e.g. Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159; (2017) 258 FCR 312 at [421]-[424]; Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 at [234].

26    In cases where there are a number of contraventions, the totality principle is applied as a ‘final check’. This is to ensure that, overall, the penalty is appropriate and that the sum of the penalties imposed for several contraventions does not result in the total of the penalties exceeding what is proper having regard to the totality of the contravening conduct involved: Australian Competition and Consumer Commission v Optus Mobile Pty Limited [2019] FCA 106 at [41].

27    Finally, it is to be recalled that the process for arriving at appropriate relief involves ‘intuitive or instinctive synthesis’: see e.g. Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 at [6].

The parties’ joint submissions

28    The settling Directors and ASIC jointly contended that, as a result of the manner in which the primary judge analysed the Directors’ conduct and applied the course of conduct and other relevant principles, the High Court’s determination that the Directors’ conduct did not contravene s 209(2) of the Act would not result in any alteration to the penalties and disqualification periods imposed by the primary judge.

29    Before going any further, it is worth noting that of the three settling Directors, Mr Lewski’s situation was slightly novel. Unlike Messrs Jaques and Butler, Mr Lewski challenged (by way of draft amended notice of appeal dated 1 April 2019) the basis on which various of the primary judge’s determinations as to penalty and disqualification were founded in the Penalty Reasons. Mr Lewski ultimately contended that any penalty or disqualification period in excess of what was proposed in the agreed form of orders (summarised above at [14] of these reasons) would not be warranted. Because of this, the joint submissions prepared by ASIC and Mr Lewski specifically stated that the penalty and disqualification period agreed between them fell within the available range ‘whether the task is approached as one of comparison with how the trial judge applied relevant principle to arrive at his determinations on penalty and disqualification, or whether the assessment is to be undertaken afresh’ – being an endeavour which Mr Lewski (uniquely amongst the settling Directors) invited this Full Court to embark upon. That said, having regard to the conclusion we have reached in respect of the settling Directors (including Mr Lewski), and in light of the inter partes agreement in respect of the dismissal of Mr Lewski’s application for an extension of time to file an amended notice of appeal, we need not discuss this issue any further.

30    Now turning back to the circumstances which apply to each of the settling Directors, the joint submissions explained that as part of his Honour’s decision on penalty the primary judge identified two distinct courses of conduct:

(1)    one course of conduct consisted of the ‘Lodgement Resolution Contraventions’ (being those that arose from the passing of the resolution on 22 August 2006) (see Penalty Reasons at [51]); and

(2)    the other course of conduct consisted of the ‘Decisions to Pay Contraventions’, which included:

(a)    the contraventions of s 601FD that occurred in relation to the board resolutions in 2007 and 2008 to pay the ‘listing fee’; and

(b)    the contraventions of s 209(2) by the Directors being knowingly concerned in the actual payment of the listing fee (which his Honour termed the ‘Ancillary Liability Contraventions’) (see Penalty Reasons at [52]).

31    While the primary judge identified that there was a distinction between the two categories of contraventions that comprised the second course of conduct, his Honour determined that the Ancillary Liability Contraventions (i.e. the contraventions of s 209(2)) should be grouped with the Decisions to Pay Contraventions. At [45] of the Penalty Reasons, his Honour observed:

I accept that the Ancillary Liability Contraventions should be grouped with the Decisions to Pay Contraventions as ASIC argues. The ancillary liability breaches arise from the Directors’ involvement in APCHL’s payment of the Listing Fee in 2007 and 2008 which in turn result from APCHL’s and the Directors’ Decisions to Pay the fee in 2007 and 2008. The Decisions to Pay the Listing Fee and its actual payment are closely interrelated.

32    Having identified the two courses of conduct, his Honour imposed penalties for each of the two courses of conduct. His Honour then made the penalty for the Decisions to Pay Contraventions concurrent as to 50% with the Lodgement Resolution Contraventions. At [294]-[295] and [332] of the Penalty Reasons, his Honour held as follows:

[294]    … When they approved the Amendments and later the Lodgement Resolution the Directors (except for Mr Clarke) must be taken to have intended that the Listing Fee would be payable when listing later occurred. At the time each Director (including Mr Clarke) made the Decisions to Pay he genuinely believed that the Amended Constitution provided for payment of the Listing Fee. In that sense the Decisions to Pay flow out of the earlier approval of the Lodgement Resolution and there is some overlap in the two courses of conduct.

[295]    In my opinion the overlap between the two courses of conduct justifies 50% of the penalties imposed for the Decisions to Pay Contraventions being served concurrently with the penalties for the Lodgement Resolution Contraventions.

…

[332]    Having regard to the extent to which the two courses of conduct are interrelated and in order to avoid punishing Mr Lewski twice for the same conduct, I consider that half of the disqualification for the Decisions to Pay Contraventions should be served concurrently with the disqualification for his Lodgement Resolution conduct. This reduces the effective disqualification period to 15 years.

33    In our view, the most significant factor which influenced the primary judge’s evaluation of the seriousness of the Decisions to Pay Contraventions was his Honour’s acceptance that each Director ‘genuinely believed the amendments were valid and effective, and that each Director made the decisions to pay the listing fee based upon that genuine, albeit mistaken, view’ (see Penalty Reasons at [206]). In our view, this factor led his Honour to the conclusion that the Decisions to Pay Contraventions were significantly less serious than the Lodgement Resolution Contraventions. This was reinforced by his Honour at [225]:

In my view the Lodgement Resolution Contraventions are serious in their nature and in their effect on the Members’ interests. The seriousness of each Director’s contraventions are demonstrated by the magnitude of the additional fees that were created by the wrongful conduct and the importance of the statutory fiduciary duties that each of them breached in order to generate those fees. The Decisions to Pay Contraventions are less serious because the Directors genuinely believed the Listing Fee was validly included in the Constitution, and because the conclusion that it was invalid was only reached after detailed legal argument, and by reference to later authorities.

34    With the above sketch of the primary judge’s decision on penalties in mind, we now turn to briefly summarise the parts of the High Court’s decision that bear on the penalty question.

35    As the High Court has held, the primary judge was in error in finding (at [720] of the Liability Reasons) that it was unnecessary for ASIC to plead or prove for the purposes of s 209(2) of the Act that the Directors knew that the constitution of the managed investment scheme did not provide for the payment of the listing fee. In discussing the terms of s 208 (which operates as the primary provision, a contravention of which an individual can be ‘involved in’ under s 209(2)), the High Court noted (at [83]) that:

Although a matter falling within an exception referred to in s 208(1)(e) is a matter that must be pleaded and proved by the person seeking to rely upon it, each of the elements in s 208(1)(a) to (d) is a matter that must be pleaded and proved by the person alleging the contravention. ASIC submitted that s 208(3) was, in effect, another exception to liability like s 208(1)(e) that must be pleaded and proved by the person seeking to rely upon it. That submission should not be accepted. Properly interpreted, s 208(3) operates to define the scope of s 208(1)(d), noncompliance with which is a matter that must be proved by ASIC.

(Citations omitted)

36    If ASIC had been required to prove that fact it would have failed because of the finding that the Directors had a genuine belief to the contrary (see Liability Reasons at [709]). Within the framework of the primary judge’s analysis however, that genuine belief was no defence to the contravention. It was nevertheless a belief in a state of affairs that if true would have meant there was no contravention. This was, in our view, a significant factor reducing the seriousness of the contravention of s 209(2).

37    Further, as the High Court made clear at [71]-[73], the contraventions of the ‘Loyalty Duties’ (as defined by the High Court at [28]) arising from the decisions to pay the listing fee did not turn on the belief or otherwise of the Directors that the constitution provided for the payment of the listing fee. Rather, they were committed despite that belief. That conclusion by the High Court was sufficient to show that the Full Court was in error in holding that the belief was a complete answer to the alleged contravention. However, the primary judge found (see Liability Reasons at [752]-[761]) that the Loyalty Duties were contravened even if the constitution had provided for the fee and notwithstanding their belief that it did, because the Directors could not reasonably have considered it was in the best interests of the members to make the payment having regard to the circumstances in which the provision for the listing fee was added to the constitution. This reasoning is reflected in the language of the High Court (at [73]):

In summary, it was not sufficient for compliance with either of the Loyalty Duties that the Directors acted honestly, having regard to their belief that the Constitution had been amended. The primary judge correctly concluded that none of the Directors could reasonably have believed that it was in the best interests of the members to bring the Amendments into effect by the Lodgement Resolution or to make the accelerated Listing Fee Payments by the Payment Resolutions. His Honour also correctly concluded that the Directors should have voted against the Lodgement Resolution in order to prioritise the members’ interests in having APCHL comply with the Constitution over the conflicting interest of APCHL in receiving the fees.

38    Thus, the belief that the constitution provided for the listing fee does not mitigate the seriousness of the other Decisions to Pay Contraventions to the same extent as it does the Ancillary Liability Contraventions.

39    As alleged by ASIC and declared by the Court, the acts of the Directors which gave rise to the contraventions of the Loyalty Duties and s 209(2) in 2007 and 2008 were the same. They were constituted by their participation in the board meetings that approved the payments and the execution of the heads of agreement relating to the second instalment. No further act of the Directors relating to the actual transfer of funds by APCHL was alleged or found. They are thus examples of contraventions of two separate provisions of the Act arising from the same conduct. They also had the same consequences, namely the payment out of trust property to the value of approximately $33 million. The degree of wrongdoing involved in the conduct was not measurably increased by the fact that it constituted two contraventions rather than one.

40    The other contravention arising out of the Decisions to Pay Contraventions was of the ‘Compliance Duties’ (as defined by the High Court at [28]) in s 601FD(1)(f)(i) requiring the Directors to ensure the responsible entity complied with the Act.

41    The relevant non-compliance with the Act by APCHL was its payment of the listing fee in contravention of its duties under s 601FC(1)(c) and 601FC(1)(k) and s 208: see Liability Reasons at [765]. The fact that the constitution did not provide for the listing fee was an essential element of those contraventions by APCHL. However, the contravening conduct of the Directors was the failure to take reasonable steps to ensure that APCHL complied with the Act. At [78] of its reasons, the High Court referred to those steps, being ‘all steps that a reasonable person in [the Directors’] position would take’:

… The unreasonableness of the vote in favour of the Lodgement Resolution has been addressed above. As for the Payment Resolutions and related acts, the relevant declarations of the primary judge recorded that a reasonable person in the position of each Director would have obtained clear legal advice, a judicial direction, or member approval for the Listing Fee Payments. In the circumstances of the highly unusual and equivocal nature of the solicitors' legal advice, in addition to the circumstances of acceleration of the Listing Fee Payments, this conclusion was correct.

(Citations omitted)

42    The steps identified above were steps designed to ensure that the belief that the constitution did authorise the payments was well-founded. The fact that the belief was held does not mitigate the seriousness of this contravention at all.

43    The contravention of s 601FD(1)(f) is also to be distinguished from the other Decisions to Pay Contraventions in that it was not constituted by the same acts of the Directors, but rather was an omission to act.

44    In summary, the ultimate effect of the High Court’s decision in relation to the s 209(2) contraventions is that a course of conduct which at trial was found by the primary judge to comprise breaches of three provisions of the Act, now comprises breaches of just two provisions of the Act. The conduct constituting the Ancillary Liability Contraventions is the same conduct that constitutes one of the remaining Decisions to Pay Contraventions, as are the consequences. The remaining Decisions to Pay Contraventions are not rendered any less serious on account of the High Court’s excision of the s 209(2) contraventions.

Disposition as to Messrs Lewski, Jaques and Butler

45    The primary judge carefully set out his considerations relevant to penalty and disqualification. We can discern no error in his approach. In the above described circumstances, ASIC and the settling Directors submit – and we accept – that no adjustment to the primary judge’s determination of penalty is either necessary or appropriate following the High Court’s excision of the contraventions of s 209(2).

DR WOOLDRIDGE

46    Unlike the other three Directors, Dr Wooldridge did not reach an agreement with ASIC as to the appropriate pecuniary penalties and disqualification orders. The matter therefore remains contested. It is important to recall that Dr Wooldridge has no appeal against the orders of the primary judge and ASIC still maintains its cross-claim.

47    As will become apparent, the contentions of Dr Wooldridge and the contentions of ASIC approach the task in quite different ways.

48    On the one hand, Dr Wooldridge’s position is that, on account of the High Court’s remitter, this Court must undertake the sentencing task afresh ‘in the circumstances that now pertain’ and within the scope of the remitter. In so doing, this Court ought to take account of practical realities that have faced Dr Wooldridge which have meant that he has not been able to take on company directorships (or obtain work from State or Federal Governments) ever since ASIC sought to appeal this Court’s overturning of the primary judge’s determination as to liability. Accordingly, Dr Wooldridge urges this Court to, in effect, reduce the disqualification period ordered by the primary judge.

49    On the other hand, ASIC’s position is that this Court ought to reconsider only the pecuniary penalty element of the sentence imposed by the primary judge. ASIC does not urge this Court to reconsider the primary judge’s pecuniary penalty in the circumstances that now pertain. Rather, ASIC contends (through its outstanding cross-appeal) that the pecuniary penalty imposed by the primary judge was ‘manifestly inadequate’ having regard to Dr Wooldridge’s incompetent conduct, qualified contrition, limited acceptance of responsibility, and the risk posed by such conduct in a field where there was potential to cause great financial harm. ASIC therefore seeks for this Court to increase the pecuniary penalty imposed by the primary judge on Dr Wooldridge.

50    In these circumstances, it is convenient to deal with each of the parties’ positions discretely.

ASIC’s contention: is the pecuniary penalty ‘manifestly inadequate’?

51    ASIC seeks a pecuniary penalty of $100,000 in respect of Dr Wooldridge’s contraventions. ASIC submits that, while the primary judge correctly identified the relevant sentencing principles and correctly identified the circumstances of Dr Wooldridge’s contravening conduct, the calculus which his Honour undertook when imposing both the pecuniary penalty and the disqualification order was ‘manifestly inadequate’. More particularly, ASIC claims that the primary judged erred by applying a ‘discount’ (to account for the impact the orders would have on Dr Wooldridge’s earning capacity) to both the pecuniary penalty and the period of disqualification.

52    ASIC says that such a discount, which it concedes was correctly identified by the primary judge as applicable in the circumstances, should only have been applied to one form of relief, namely the disqualification order. Accordingly, ASIC’s cross-appeal is squarely focused on the sum of the pecuniary penalty imposed on Dr Wooldridge, which it says should not have been subject to the ‘discount’ and therefore should have been higher.

53    To the extent ASIC says the penalty was ‘manifestly inadequate’, the inadequacy must be ‘obvious, plain, apparent, easily perceived or understood and unmistakeable. It must be so far outside the range of reasonable discretionary judgement as to itself bespeak error’: Hanks v The Queen [2011] VSCA 7 at [22]; Zerafa v The Queen [2013] VSCA 42 at [41]. Mere disagreement, or a difference of opinion, between an appellate court and a primary judge over the penalty imposed is not sufficient.

54    According to ASIC the manifest inadequacy arises in this way. ASIC contends that the primary judge’s error in the present case was his Honour’s application of a discount on both the pecuniary penalty and the disqualification order to take account of Dr Wooldridge’s reduced income earning capacity. ASIC does not cavil with the application of discounts per se. Indeed, the primary judge applied discounts to the pecuniary penalties to be paid by Mr Jaques and Mr Butler on account of their parlous financial position and their inability to pay a significant financial penalty. ASIC’s complaint is that the same ‘discounted’ pecuniary penalty was also imposed on Dr Wooldridge not because of his financial circumstances and perceived inability to pay, but because of the loss of income that the disqualification order would cause. ASIC says that in so doing the primary judge in effect double-counted the ‘discount’ having already applied to Dr Wooldridge in the course of assessing the appropriate disqualification period.

55    We are not persuaded that we should disturb the approach of the primary judge. We have reached this view for the following reasons.

56    First, as the primary judge recognised (see Penalty Reasons at [398]), the setting of an appropriate pecuniary penalty must necessarily be influenced by the existence of a disqualification order:

It is uncontentious that the question of whether to impose a pecuniary penalty, and if so the quantum of the penalty, must be approached against the background of any disqualification imposed.

57    This is why, as was recognised by Santow J in Adler (at [126]), courts must assess the question of disqualification prior to pecuniary penalties:

… in assessing a pecuniary penalty it is important to consider the consequences of an associated disqualification order for the defendant. If the making of such an order has significant consequences they may operate as a factor in favour of a lesser penalty. Where the disqualification order does not have significant consequences for the defendant, the prohibition order is likely only to be marginally relevant.

58    The primary judge identified and acknowledged (at [402] and [413] of the Penalty Reasons) that, as a consequence of the two year and three month disqualification order, Dr Wooldridge would suffer ‘significant financial loss’:

[402]    A pecuniary penalty must be framed to provide a measure of punishment to Dr Wooldridge in light of the nature and seriousness of his contraventions. It must to an extent reflect this punitive character although it should not go beyond the level necessary to deter others from using companies in a manner contrary to commercial standards: Adler at [126](i). Taking into account the disqualification order and that Dr Wooldridge will suffer significant financial loss as a result, the pecuniary penalty need not in my view be severe.

…

[413]    While there are cogent arguments for a longer disqualification I have not made such an order because Dr Wooldridge is an honest man who is ordinarily conscientious, he was not motivated by personal gain in committing to contraventions, he made no personal gain from the contraventions, there is no requirement to deter him from future breaches as there is no real risk that he will reoffend, he has made a significant contribution to society over many years, he and his family have already suffered significantly through intense adverse media reports, and the two year disqualification will cause loss of income of $328,000 (and perhaps more if when the disqualification ends he is not reappointed or cannot replace his directorships). In all the circumstances a longer period would be excessive.

(Emphasis added)

59    Second, it was open to the primary judge, when exercising his discretion to determine the appropriate penalty, to take into account a range of different factors that may have mitigated the seriousness of the contraventions. Relevantly, these included the following:

(1)    the contraventions were ‘honest (albeit serious) mistakes’:

[176]    I accept this contention. I have not made a finding that any Director’s conduct was dishonest which reduces the seriousness of the contraventions. In particular:

(a)    I am satisfied that Dr Wooldridge is an honest man and I see his contraventions as honest (albeit serious) mistakes; and

…

[344]    ASIC did not contend that Dr Wooldridge did not honestly carry out his responsibilities as a director, nor did it contend that he understood that he was acting in breach of his duties. I accept that he is an honest man. He has an impressive record of public service and respected members of the community attest to his conscientiousness, character and integrity.

…

[364]    Second, his evidence, his record in public life and on boards, and the impressive character evidence, have led me to conclude that he is a man of honesty and integrity. This fact, together with the expense and stress of the proceedings, the intense adverse media reports he has suffered, the declarations of contravention I have made, and the damage he has suffered to his reputation and standing through the breaches, means he is unlikely to make the same mistakes again.

(Emphasis added)

(2)    his conduct was not ‘self-serving’ in the manner which it was found to be in respect of Mr Lewski:

[366]    Dr Wooldridge’s conduct was not self-serving like Mr Lewski’s but it is vital that other directors of responsible entities are strongly encouraged to be scrupulous in their commitment to the members’ best interests and to be careful to identify conflicts of interest, to exercise a high degree of care, caution and prudence when a conflict of interest exists, and not to rationalise it away.

(3)    Dr Wooldridge was not as intimately involved in procuring and influencing APCHL’s solicitor’s advice as Mr Lewski:

[218]    The context in which the [Directors other than Mr Lewski] contravening conduct occurred was quite different. Amongst other things, the other Directors … :

…

   (b)    did not procure the Madgwicks Advice;

(c)    did not provide instructions in regard to the Madgwicks Advice or influence the content or presentation of that advice;

60    Equally, it was open to the primary judge to take account of Dr Wooldridge’s otherwise unblemished career as a company director and record of public and community service. His Honour did so (at [375]-[377] of the Penalty Reasons) as follows:

[375]    The character evidence indicates that Dr Wooldridge is a man of honesty and integrity which points away from a need for a disqualification order. His work as a Minister, and the role he has taken on important advisory boards and committees, tends to show that he is conscientious, competent and hard-working. I expect that he would conduct himself in the same way when acting as a company director.

[376]    Each of the character witnesses considers that Dr Wooldridge made a great contribution in their respective areas, and that he would likely continue to do so. This also points away from disqualification.

[377]    Dr Wooldridge is a person who has given significant service to the community and this is relevant to penalties. In my view he should be allowed to draw from the well to which he has substantially contributed.

(Citations omitted)

61    The taking into account of factors such as these were plainly within the purview of the primary judge.

62    Third, as the primary judge concluded, the Decisions to Pay Contraventions were less serious than the Lodgement Resolution Contraventions. Dr Wooldridge genuinely believed the amendments were valid and effective and that the decisions to pay the listing fee were based upon that genuine view – thereby reducing the seriousness of the Decisions to Pay Contraventions.

63    Fourth, ASIC identified no basis for challenging the primary judge’s reasoning that 50% of the penalties imposed for the Decisions to Pay Contraventions should be served concurrently. As the primary judge recognised, the decision to pay the first instalment of the listing fee in 2007, and the decision to pay the second instalment of that fee in 2008 were factually and legally related such that they should be treated as part of the same course of conduct. As already rehearsed, at [294]-[295] of the Penalty Reasons, his Honour noted:

[294]    … When they approved the Amendments and later the Lodgement Resolution the Directors (except for Mr Clarke) must be taken to have intended that the Listing Fee would be payable when listing later occurred. At the time each Director (including Mr Clarke) made the Decisions to Pay he genuinely believed that the Amended Constitution provided for payment of the Listing Fee. In that sense the Decisions to Pay flow out of the earlier approval of the Lodgement Resolution and there is some overlap in the two courses of conduct.

[295]    In my opinion the overlap between the two courses of conduct justifies 50% of the penalties imposed for the Decisions to Pay Contraventions being served concurrently with the penalties for the Lodgement Resolution Contraventions.

64    Finally, the primary judge took into account parity. His Honour reasoned (at [575]-[581] of the Penalty Reasons) as follows:

[575]    I consider his significantly higher penalties are in just proportion with the penalties imposed on the other Directors.

[576]     The conduct of Dr Wooldridge, Mr Butler and Mr Jaques and its context are broadly similar. While there are some differences they are not important in my view.

[577]     The differences include that, as Chairman, Dr Wooldridge was in control of the process of the meetings and had a responsibility to see that Mr Lewski did not participate in Board meetings when he had a conflict of interest, and that the Board gave proper consideration to the relevant issues: see AWA Ltd v Daniels trading as Deloitte Haskins & Sells and Others (1992) 7 ACSR 759 at 867 per Rogers CJ. In Australian Securities and Investments Commission v Rich and Others (2003) 44 ACSR 341 at [61] Austin J sought to confine Rogers CJ’s remarks to the chairmen of publicly listed companies, but I respectfully disagree with his Honour’s approach. I can see no reason in principle why a chairman of a responsible entity of a registered managed investment scheme, particularly a large responsible entity such as APCHL, should not have similar responsibilities to a chairman of a listed company.

[578]    However, ASIC pleaded and ran its case on the basis that the non-executive directors all had the same care and responsibility and the parts played by Dr Wooldridge, Mr Butler and Mr Jaques in the contraventions were essentially the same. It did not suggest that the particular responsibilities of Dr Wooldridge as Chairman were specifically relevant to the contraventions. In Healey (No 2) at [193]-[194] confronted with similar circumstances Middleton J declined to apply a differential treatment to the Chairman. I do not consider it appropriate to differentiate Dr Wooldridge’s culpability by reference to his responsibilities as Chairman.

[579]    Dr Wooldridge seeks (lightly) to differentiate his conduct from Mr Butler and Mr Jaques on the basis that he took more care at the 19 July 2006 Board meeting. I accept that he did so but I give it little significance when his consideration of the relevant issues was quite inadequate.

[580]    Another difference is that Mr Butler had a material conflict of interest at the time he participated in the Decisions to Pay in April 2008 which makes his conduct more culpable than Dr Wooldridge and Mr Jaques. However, it makes little difference in differentiating the penalties because, first, ASIC did not suggest that Mr Butler’s Decisions to Pay in 2008 were motivated by a desire to obtain his bonus and I accept that he genuinely believed the Listing Fee was validly included in the Constitution at that time. Second, the penalties imposed for the Decisions to Pay Contraventions are relatively small.

[581]    It is the different personal and mitigating circumstances of Dr Wooldridge, Mr Butler and Mr Jaques which largely underpin the differences in their penalties.

65    We see no reason to disturb any of the above analysis of the primary judge.

66    The important point to recall is that the primary judge did not distil any separate facts relevant to disqualification on the one hand or penalty on the other. The primary judge looked, correctly, at the whole package of orders to make in the context of Dr Wooldridge’s circumstances. The primary judge undertook the ‘intuitive or instinctive synthesis’ approach, weighing up all the factors which relate in different ways to penalty and disqualification. We see no error, or manifest inadequacy, in the overall orders made in respect of Dr Wooldridge.

67    We should also indicate that we have considered the submissions made by Dr Wooldridge in light of the conclusions as to penalty we have now reached in respect of the settling Directors. We have considered the parity of penalties and disqualification periods in relation to all the Directors, taking into account the matters raised by Dr Wooldridge before us. These matters were essentially those addressed by the primary judge. As we have said, we can see no error in the primary judge’s approach. We are satisfied that the orders made against all the Directors are appropriate having regard to each Director’s involvement in the contraventions.

68    Accordingly, we will order that ASIC’s cross-appeal on the question of penalties be dismissed.

Dr Wooldridge’s contention: should this Court take account of ‘the circumstances that now pertain’?

69    We now turn to consider Dr Wooldridge’s submissions in respect of reconsidering the sentence imposed by the primary judge in the circumstances that now pertain – that is, upon the remitter from the High Court which calls on the Full Court to determine the effect, if any, that the High Court’s excising of the s 209(2) contraventions has on the pecuniary penalties and disqualifications ordered by the primary judge.

70    As we have already indicated, we consider the primary judge correctly analysed and applied the principles relating to penalty and disqualification relevant to Dr Wooldridge. Nothing said by Dr Wooldridge’s counsel indicated to the contrary; and in any event Dr Wooldridge does not appeal the primary judge’s decision.

71    Dr Wooldridge says that the effect of the High Court’s orders is that, as matters stand as at the date of the Full Court hearing, he is not subject to any disqualification order or to any order requiring him to pay a pecuniary penalty. He says that is because the orders made by the High Court set aside the primary judge’s orders as to penalty but restored the primary judge’s orders as to liability, save for in respect of the contravention of s 209(2). On this analysis, Dr Wooldridge contends that it now falls to this Full Court to determine penalty and disqualification orders afresh (but subject to, and within the scope of the High Court’s remitter).

72    The Full Court being faced with this task, Dr Wooldridge submits that, in the circumstances that now pertain, he should only be the subject of orders disqualifying him for the period from 2 December 2014 to 10 August 2016, being the period for which he has already been disqualified. The effect of such an order, if made by this Full Court, would be to reduce the duration of Dr Wooldridge’s disqualification order to time already served.

73    In support of this proposition, counsel for Dr Wooldridge explained that, save for certain corporations in respect of which Dr Wooldridge obtained Court approval on 30 January 2015, his client has not been involved in the management of corporations for a period of time well in excess of the two years and three month sentence imposed by the primary judge. It was said that the effluxion of time as the proceedings have moved through the appellate courts, and the inherent uncertainty in litigation, had the effect of fettering Dr Wooldridge’s activities and – notwithstanding this Court’s stay on and setting aside of the primary judge’s orders (which would have left Dr Wooldridge legally unencumbered to serve on company boards) – his ability to be involved in the management of corporations. Evidence from Dr Wooldridge also suggested that the spectre of ASIC’s proceeding against him has meant that he has ‘not sought out work from State or Federal Governments or sought further appointments to the boards of public companies’ since 10 August 2016. Submissions were then made on Dr Wooldridge’s behalf regarding the circumstances of his offending with a view to persuading this Court to accede to Dr Wooldridge’s contention that, in effect, no further period of disqualification should be imposed.

74    In response, ASIC says that there is no good reason to truncate the disqualification period imposed by the primary judge in respect of Dr Wooldridge in the context of this redetermination. It says that the matters now complained of by Dr Wooldridge were already taken into account by the primary judge when his Honour imposed the disqualification order. For example, ASIC highlights that as part of his submissions before this Full Court, Dr Wooldridge complains of the reputational damage and loss of income he has suffered as a result of the ‘substantial and widespread negative publicity’ surrounding the proceeding. However, ASIC submits that the primary judge took this into account at the time of sentencing, and the redetermination to be conducted by the Full Court now presents no occasion to disturb the primary judge’s findings. In relation to reputational damage, specific reference was made to [351]-[357] of his Honour’s findings in the Penalty Reasons:

[351]    Dr Wooldridge suffered a storm of negative media reports through the proceedings and following the Court’s findings. There can be no doubt that he has suffered severe reputational damage as a result, and I accept that the diminution of his good reputation, garnered over many years, has been very painful for him and his family. Nor is there any question that his career has suffered as he has been required to resign from some positions and has not been offered others. He does though continue to serve on the boards of two public companies.

[352]    In Healey (No 2) at [177], Middleton J held that the widespread media reports of the breaches of duty by the directors in that case, and the associated embarrassment and reputational damage they suffered, made the need to impose disqualification orders or pecuniary penalties for reasons of general deterrence “much less than it would otherwise be”. His Honour made declarations of contravention and declined to impose any penalties. I note though that the decision did not turn on publicity and reputational damage alone and many other factors were considered.

[353]    Sackville AJA took a somewhat different approach in Gillfillan at [242]. His Honour noted that Middleton J did not suggest that widespread publicity given to contraventions necessarily meant that there was no requirement for penalties in the interests of general deterrence. At [243] his Honour explained:

The publicity accorded to this case and the severe reputational damage suffered by the Australian Directors are factors to be taken into account in determining whether a disqualification order or other penalty is justified. I do not accept, however, that these matters eliminate the need for penalties to reflect the objective of general deterrence. To accept that submission would be to give too much weight to the vagaries of media reporting or public commentary on particular cases. Moreover, in the absence of major financial reverses or reports of corporate wrongdoing, very few directors of large public corporations do not enjoy high standing and a reputation for integrity and competence. The potential for a diminution of reputation is no doubt a powerful deterrent to carelessness and an incentive to discharge responsibilities diligently. But it should not be assumed that the prospect of disqualification, with the attendant financial consequences and public obloquy attributable to the fact of disqualification, cannot have a powerful additional deterrent effect. In addition, the publicity accorded to particular contraventions does not necessarily diminish the importance of the law maintaining appropriate standards of corporate conduct by imposing disqualification orders on contravenors.

(Emphasis added.)

[354]    I respectfully agree. I take into account the intense negative publicity and the reputational damage suffered by Dr Wooldridge which I see as a significant mitigating factor. However I do not accept that it means that penalties should not be imposed. While the risk of adverse media coverage is a powerful incentive for directors to pay close attention to their obligations, in my view court-ordered disqualification and pecuniary penalties together with the further loss of reputation they entail, will usually have a further strong deterrent effect. The need for general deterrence is fundamental to my decision in relation to Dr Wooldridge (and in relation to each of the Directors).

[355]    In my view the deterrent effect of court-ordered penalties will often be more than the deterrent effect of negative publicity alone. A director who has committed serious breaches of the Act may be able to minimise the reputational damage he or she suffers through adverse media reports by arguing (within his or her own circle and/or publicly) that the media reports are unfair or inaccurate. The director may be able to continue to hold his or her head high because of the natural scepticism of the public in regard to media reports.

[356]    But it is another thing for a director to plausibly argue that he or she has done no wrong when a Court, after careful consideration of the evidence, finds that penalties are appropriate. Imposition of a penalty is also likely to itself be the subject of negative media reports.

[357]    Second, as Sackville AJA observed, many directors of large corporations enjoy a reputation for competence and integrity and have high standing in the business community. Their high standing means, almost inevitably, that allegations or a finding of breach will bring media coverage and loss of reputation. Yet the legislature has set penalties for such breaches having regard to the need to protect the public through personal and general deterrence. This indicates that negative publicity does not necessarily mean that penalties should not be imposed.

(Emphasis in original)

75    Similarly, in respect of the notoriety generated by the litigation and the findings of contraventions made by Dr Woodridge and the other Directors, ASIC referred to [392]-[393] of the Penalty Reasons:

[392]    The proceeding, the liability judgment, and the adverse media reports have had a significant effect on Dr Wooldridge’s reputation, have caused distress to him and his family, and have caused him financial loss.

[393]    Dr Wooldridge has not sought or accepted any offer of work at a State or Federal Government level since commencement of the proceeding, and he was required to step aside as the Chairman of the Co-operative Research Centre for Oral Health which he had worked on for more than a decade.

76    Counsel for Dr Wooldridge drew the Court’s attention to the decision in Gillfillan v Australian Securities and Investments Commission [2012] NSWCA 370; (2012) 92 ACSR 460 (‘Gillfillan’). In that case, the Court of Appeal took into account the fact that the disqualification order made by the primary judge was later set aside by the Court of Appeal but then restored by the High Court. This meant that although between the dates of the Court of Appeal’s decision and the decision of the High Court the relevant company officers were not the subject of a disqualification order, the practical effect of the circumstances was that from the date that the regulator sought special leave to appeal to the High Court, the company officers were prevented from acting as such.

77    Counsel for Dr Wooldridge invited this Full Court to do the same: take account of his inability to act as a director ever since the High Court made orders remitting the matter to this Court and effect an equivalent reduction in Dr Wooldridge’s disqualification period ordered by the primary judge.

78    We do not consider this Full Court, on the remittal from the High Court, and in view of the clear direction of the High Court, should so proceed. The circumstances of this proceeding are very different from those in Gillfillan. In Gillfillan, the Court of Appeal had an appeal before it on the question of the appropriate pecuniary penalty and disqualification orders. That, in our view, gave the Court of Appeal wide powers to deal with those matters. In this proceeding, we do not have such an appeal by Dr Wooldridge; all we have is a remittal from the High Court to consider the effect, if any, the excision of the breaches of s 209(2) of the Act has on the sentences imposed by the primary judge. Those circumstances mean that, unlike in Gillfillan, it would be inappropriate to allow new evidence of the wrongdoer’s personal circumstances that may bear upon the question of the relief now to be granted to ASIC on the remittal to this Court.

Disposition as to Dr Wooldridge

79    Accordingly, we agree with ASIC’s submissions: now does not present the proper occasion to disturb the primary judge’s findings in respect of the length of the disqualification period imposed on Dr Woodridge. There may be another avenue for Dr Woodridge to obtain relief once orders are pronounced by this Court, such as making an application under s 206G of the Act but we make no comment on the appropriateness of the granting of any relief under that provision.

Costs in relation to Dr Wooldridge

80    As we have explained above, neither ASIC nor Dr Wooldridge has been successful in prosecuting their positions before us on remitter. ASIC was not successful in its cross-appeal, and Dr Wooldridge was not successful in persuading us that, as in Gillfillan, this Court should adjust the disqualification period imposed by the primary judge to take account of the circumstances that now pertain to Dr Wooldridge.

81    As costs would ordinarily follow the event, this would see ASIC pay Dr Wooldridge’s costs of and incidental to its cross-appeal, and Dr Wooldridge would pay ASIC’s costs of and incidental to his application on remitter for this Court to reconsider the primary judge’s disqualification order.

82    In the circumstances, we consider such costs orders would give rise to unnecessary taxation and be unduly complicated. The fair result is that in respect of this proceeding (VID128/2019) there be no order as to costs, the effect of which will be that each party bears its own costs in respect of each aspect of this hearing (including ASIC’s cross-appeal). We will, however, make a separate order regarding the costs of Dr Wooldridge’s original appeal (VID753/2014), which will reflect the fact that ASIC succeeded in appealing that decision in the High Court.

83    We will make orders in relation to Dr Wooldridge that reflect the above reasoning.

Associate:

Dated:    11 October 2019