Deputy Commissioner of Taxation (Superannuation) v. Lyons

[2014] FCA 1353

(Judgment by: BENNETT J)

Deputy Commissioner of Taxation (Superannuation)
v. Lyons

Court:
Federal Court of Australia

Judge:
BENNETT J

Subject References:
SUPERANNUATION
penalties
agreed facts
Superannuation Industry (Supervision) Act 1993 (Cth) ss 62, 65, 84 and 109
regulated superannuation fund
self-managed superannuation fund
in-house assets
related party
seriousness of contraventions
reasonable reliance on information supplied by another person

Legislative References:
Superannuation Industry (Supervision) Act 1993 - 62; 65; 84; 109

Case References:
ACCC v Energy Australia Pty Ltd - [2014] FCA 336
ACCC v Flight Centre (No 3) - [2014] FCA 292
ACCC v Qantas Airways Limited - [2008] FCA 1976
Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith - (2008) 165 FCR 560
Australian Prudential Regulatory Authority v Derstepanian - [2005] FCA 1121
Barbaro v The Queen; Zirilli v The Queen - [2014] HCA 2
Clean Energy Regulator v MT Solar Pty Ltd - [2013] FCA 205
Global One Mobile Entertainment Pty Ltd v ACCC - [2012] FCAFC 134
Markarian v The Queen - (2005) 228 CLR 357
Mornington Inn Pty Ltd v Jordan - (2008) 168 FCR 383
NW Frozen Foods Pty Ltd v ACCC - (1996) 71 FCR 285
Olesen v Eddy - [2011] FCA 13
Olesen v MacLeod - [2011] FCA 229
Raelene Vivian, suing in her capacity as Deputy Commissioner of Taxation v Robert Burley Fitzgeralds - [2007] FCA 1602
Trade Practices Commission v CSR Ltd - [1990] FCA 521

Judgment date: 12 December 2014

Sydney


Judgment by:
BENNETT J

REASONS FOR JUDGMENT

1 The Respondent, Mr Lyons, who is the trustee of the Lyons Family Superannuation Fund (Fund) has admitted multiple contraventions of ss 62, 65, 84 and 109 of the Superannuation Industry (Supervision) Act 1993 (Cth) (Act). The only issue left to be determined is that of penalty.

2 The parties jointly submit to the Court that it would be appropriate for the Court to make orders:

·
for a declaration in the form set out in Annexure A of these reasons;
·
that Mr Lyons pay a monetary penalty of $32,500 under s 196 of the Act;
·
that Mr Lyons pay $5,000 towards the Deputy Commissioner's costs.

3 As a preliminary matter, the Deputy Commissioner draws to the Court's attention the decision of the High Court in Barbaro v The Queen; Zirilli v The Queen [2014] HCA 2 (Barbaro). The majority (French CJ, Hayne, Kiefel and Bell JJ) there held that criminal prosecutors should not make submissions to a sentencing judge as to the 'available range' of sentences. Their Honours held that such a submission was no more than a statement of opinion which could not properly be taken into account by a sentencing judge.

4 In accordance with long-established practice in civil penalty matters, the Deputy Commissioner has made submissions to the Court about penalty amounts which it considers would have appropriate deterrent value. This is in accordance with the decision of Middleton J in ACCC v Energy Australia Pty Ltd [2014] FCA 336 who decided (although as his Honour recognised, without the benefit of a contradictor) that the High Court in Barbaro did not implicitly or otherwise intend to exclude the making of submissions (jointly or otherwise) by the parties as to appropriate orders to make as to penalty in civil penalty cases (at [150]). His Honour referred (at [151]) to the contrary conclusion reached by Logan J in ACCC v Flight Centre (No 3) [2014] FCA 292, but decided that he need not follow the approach taken in that case. I agree with the approach taken by Middleton J, and with the detailed reasons given by his Honour for taking that approach.

FACTS

5 The facts in this section are taken from a Statement of Agreed Facts filed by the parties.

·
The Fund was registered as a self-managed superannuation fund on 6 June 2008.
·
At all material times, being from 6 June 2008 until 19 November 2012, Mr Lyons and his former wife Mrs Julianne Marie Lyons were the trustees of the Fund.
·
At all material times Mr and Mrs Lyons were the only members of the Fund.
·
Between at least 6 June 2008 and March 2010 Mr and Mrs Lyons carried on a retail business on the Sunshine Coast. During this period the business suffered financial difficulties.
·
Mr and Mrs Lyons became bankrupt on their petitions in March 2010 as a result of personal debts incurred in the carrying on of the business.
·
Between 1 and 3 July 2008 the Fund was capitalised by rollovers from other complying superannuation funds, being Q Super and Rio Tinto Staff Fund. The following amounts were deposited into the Fund's bank account: $35,853.36; $55,479.06 and $102,127.02.
·
As at 3 July 2008 the Fund had cash assets of $193,459.44.

Contravention of s 65 of the Act

6 On 3 July 2008, Mr Lyons in his capacity as trustee of the Fund commenced lending money to his brother-in-law, Paul Ellis. Paul Ellis immediately transferred the loan funds to the Lyons' retail business account to provide working capital to support Mr and Mrs Lyons' retail business. Mr and Mrs Lyons were advised by a Mr Steve Skeen, Financial Planner, that they could liberate monies from the Fund by entering into those arrangements. This advice was wrong.

7 It is possible to liberate monies from a fund in the case of severe financial hardship. However, for this condition to be met, a trustee must be satisfied that Mr Lyons was in receipt of Commonwealth income support for a continuous period of 26 weeks and that he was unable to meet reasonable and immediate family living expenses. Even if so satisfied, there is a cashing restriction of up to $10,000 for any 12 month period (reg 6.01(5) and Sch 1 of the regulations to the Act). None of these conditions of release were capable of being satisfied. Mr Lyons did not seek another expert's advice.

8 A "Debtors Factoring Agreement" was entered into between Paul Ellis and the trustees which had the effect of disguising the true purpose of the loans. Mr Skeen prepared the "Debtors Factoring Agreement" and advised generally on the process of witSUBHDRawal.

9 The following table sets out the loans that were made back-to-back to Paul Ellis to support the business. Mr Lyons admits that each loan was a contravention of s 65 of the Act, a civil penalty provision, because Paul Ellis was a relative of Mr Lyons (the spouse of Mr Lyons's sister) for the purposes of the Act.

Date of Loan Loan Amount Repayment Balance
03/07/2008 $35,000.00 Nil $35,000.00
07/07/2008 $50,000.00 Nil $85,000.00
07/07/2008 $15,000.00 Nil $100,000.00
21/07/2008 $20,000.00 Nil $120,000.00
10/10/2008 $20,000.00 Nil $140,000.00
25/05/2009 $50,000.00 Nil $190,000.00
TOTAL $190,000.00 Nil $190,000.00

Contravention of section 62 of the Act

10 The value of the Fund's assets as at 30 June 2009 was $193,939 and the market value of the Fund's in-house assets as at 30 June 2009 was $190,000. The in-house assets, being the loans to Paul Ellis, were not recoverable. Accordingly, Mr Lyons managed the Fund contrary to the core purposes and ancillary purposes set out in section 62 of the Act. Section 62 is a civil penalty provision.

Contravention of section 84 of the Act

11 The market value ratio of the Fund's in-house assets as at 30 June 2010 was 97.96% and as such exceeded 5%. Exceeding the market value ratio and failing to implement a plan to reduce the ratio to 5% is a civil penalty provision under s 84 of the Act.

Contravention of section 109(1)

12 The loans were made to Paul Ellis in the expectation that they would not be repaid to the Fund. Accordingly there was a failure to ensure arm's length dealing with respect to the loans.

Consequences of the contraventions and other facts relevant to penalty

13 The Fund's auditor in respect of the 2009 financial year lodged with the Australian Taxation Office (ATO) an Auditor Contravention Report in respect of the loans made to Paul Ellis.

14 The ATO commenced an audit on 5 May 2011 (Audit). Mr Lyons complied fully with the requirements of the auditors, including by making himself available on three occasions for interview, as well as providing to the ATO all relevant documentation that had been sought during the course of the Audit.

15 The result of the Audit was to issue a notice of non-compliance in respect of the 2009 income year on the basis of illegal early access to superannuation benefits. This had the effect of making the Fund non-complying and therefore cancelling the concessional tax treatment of the Fund.

16 However, because the Fund had negligible assets immediately prior to the start of the 2009 income year (the Fund received the first substantial roll-over amount only on 1 July 2008), the trustees of the Fund were only assessed on assets of $2,480. The trustees were not assessed by reference to the assets acquired during the 2009 income year, being the roll-over amounts which had enjoyed concessional tax treatment. Had the roll-over amounts of $193,459.44 been paid into the Fund by 30 June 2008, the trustees would have been assessed for additional tax of $82,138.95: $182,531, being the taxed component of the roll-over amounts, x 45%. By reason of the Fund being declared non-complying, the illegal early access payments (the loans) were treated as exempt income in the hands of the members of the Fund (see Division 305 of the Income Tax Assessment Act 1997(Cth)).

17 For the avoidance of doubt, the Deputy Commissioner does not suggest, and Mr Lyons does not admit, that the roll-over consequences identified in [16] above, formed part of a scheme to obtain a taxation benefit. That concessional taxation treatment was merely an unintentional consequence of the timing.

18 Mr Lyons does not rely upon a Defence in these proceedings that alleges, by reason of his and Mrs Lyons' reliance on advice, that he should escape civil penalty for breaches of his statutory or fiduciary duties in respect of the contraventions outlined. Mr Lyons accepts that, as a trustee of a regulated superannuation fund, he should have ensured compliance with his statutory obligations and that he bears principal responsibility for the material non-compliance. Mr Lyons says, and the Deputy Commissioner accepts, however, that those matters are relevant to the quantum of penalty to be imposed.

Additional facts relevant to specific contraventions

19 Superannuation funds are regulated to ensure that retirement benefits are available when persons meet qualification criteria. Taxation concessions apply in respect of certain contributions to and the income derived by such funds.

20 The loans made to Paul Ellis, resulting in 97.96% of the Fund's assets being non-recoverable, breached the retirement income policy of the Commonwealth.

THE REGULATORY FRAMEWORK ESTABLISHED BY THE ACT

21 The Act provides for the supervision of superannuation funds by either the Australian Prudential Regulation Authority or the Commissioner of Taxation. The Act makes the Commissioner the regulator of small superannuation funds, including self-managed funds.

22 The principal obligation to comply with the Act is placed on trustees of regulated funds. Where the trustee is a corporation, the obligation lies with the responsible officers of the trustee. The obligations are diverse and are aimed at managing funds in a way that ensures that retirement benefits are available for members of those funds when conditions of release are satisfied. The sanctions under the Act for non-compliance fall into four broad categories:

·
Administrative sanctions such as disqualifying trustees (s 126A) and making funds non-complying (s 40) with effect that the funds lose their concessional taxation status.
·
Court imposed civil sanctions for contravening civil penalty provisions (s 196).
·
Court imposed criminal sanctions for offences defined to be civil penalty provisions contravened with dishonest or fraudulent intent (s 202).
·
Administrative penalties introduced from 1 July 2014 (these do not apply on the facts of this case).

23 On 13 March 2012, the Commissioner issued a notice of non-compliance for the income year ended 2009.

24 Sections 62 (sole purpose test), 65 (prohibition on lending to members of regulated superannuation funds), 84 (compliance with in-house asset rules) and 109 (investments to be made and maintained at arm's length) are all civil penalty provisions.

25 By s 62, trustees of a regulated superannuation fund must ensure that the fund is maintained solely for one or more of the Act's core purposes or ancillary purposes. In general these are, respectively, retirement benefits or benefits consequent upon termination of a member's employment.

26 Section 65 is a specific prohibition on a trustee of a regulated superannuation fund from lending money or giving financial assistance using the resources of the fund to a member or a relative of a member. Mr Ellis is included in the definition of 'relative' for the purposes of s 65.

27 Sections 81 to 84 regulate the proportion of in-house assets that a fund may acquire. The market value ratio of a fund's in-house assets must not exceed 5% and if it does the trustee must prepare a written plan setting out steps to reduce the market value ratio so as not to exceed 5%.

28 Finally, s 109 obliges a trustee to make investments at arm's length or to deal with the other party on an arm's length basis.

29 The making of the loans to Mr Ellis infringed each of these provisions.

30 Part 21 of the Act sets out civil and criminal consequences of contravening civil penalty provisions. The Court may make declarations (s 196(2)) and order monetary penalties (s 196(3)) if it is satisfied that the contraventions are serious (s 196(4)). Penalties are payable to the Commissioner on behalf of the Commonwealth (s 200).

THE SERIOUSNESS OF THE CONTRAVENTIONS AND THE CIRCUMSTANCES IN WHICH THEY OCCURRED

The nature and extent of the contraventions

31 The Fund was established only a short time, about one month, before the first loan was made. Mr and Mrs Lyons witSUBHDRew approximately equal amounts from their respective complying superannuation funds in order to capitalise the Fund.

32 The contraventions took place over a period of approximately 11 months. The diminution of the value of the assets of the Fund by reason of the contraventions is approximately $190,000.

33 The back to back loan arrangement with Mr Ellis had the effect of concealing the fact that the monies loaned were immediately paid into the Lyons' business bank account to provide working capital to support their struggling business.

34 As stated above, although the regulations to the Act provide for the partial release of benefits in circumstances of severe financial hardship (a condition of release), Mr and Mrs Lyons did not qualify for release of benefits on that basis.

35 Responsible officers of trustees of self-managed superannuation funds are placed in a special position of trust because they can allocate a fund's assets without supervision and without seeking another's authority to do so. I note that Mr Lyons engaged a private auditor for the Fund. This is consistent with his lack of realisation that the payments constituted a contravention of the Act. The private auditor lodged an Audit Contravention Report in respect of the 2009 income year on 7 January 2010.

The loss and harm arising from the conduct

36 $190,000, being almost all of the assets of the Fund of $193,459.44, was lent and is irrecoverable. The Deputy Commissioner has stated that he does not intend to commence proceedings against Mrs Lyons, although she was a knowing participant in the establishment of the Fund and the making of the loans. The obligations on trustees are designed to protect against the use of regulated superannuation funds for private purposes. Concessional taxation treatment of concessional contributions to, and earnings of, a fund is a feature of retirement incomes policy in Australia. The Deputy Commissioner points out that Mr Lyons will not have the $190,000 and the investment returns that were reasonably expected from that sum from which to pay retirement benefits. This, he contends, is likely to thereby increase the Lyons' reliance on Commonwealth income support when reaching retirement age.

MONETARY PENALTIES

37 The Court may impose a monetary penalty under s 196 of the Act.

38 As to the appropriate monetary penalties to be imposed under s 196, it is necessary to take into account the following so as to identify an appropriate penalty amount for each contravention:

(k)
The particular contraventions which should be the subject of a separate penalty.
(l)
The principles which guide the assessment of an appropriate penalty for separate contraventions.
(m)
The central object of imposing penalties, namely the need to secure deterrence.
(n)
Whether the cumulative final penalty should be moderated by reference to the 'totality' principle.

(a) Identifying how penalties ought be attached to the multiple contraventions

39 These proceedings relate to many separate acts, breaching four provisions, over a period of 11 months. Accordingly, the proper assessment of appropriate penalties requires consideration of three well-recognised principles regarding the treatment of multiple contraventions:

·
If multiple provisions are simultaneously breached by the same wrongful act it is normally appropriate to penalise that act by reference to the most serious provision breached. However, by s 196, the Act allows for a single penalty for multiple contraventions constituted by the same act and does not differentiate between the contraventions by reference to the maximum penalty. The maximum penalty is 2000 penalty units (at the time a penalty unit was $110 or $220,000) for any civil penalty contravention of the Act.
·
Separate contraventions arising from separate acts should ordinarily attract separate penalties. However, in some cases it may be appropriate to treat the contraventions as forming part of a 'course of conduct' when they are closely interrelated.
·
A 'final check' on the cumulative effect of the proposed penalties must be conducted to ensure the total is just and appropriate. If necessary to do so, the final amount can be moderated by the 'totality' principle.

40 Although related, it is important that these principles not be conflated with one another. For example the separate and distinct nature of the 'course of conduct' principle and the 'totality' principle has been repeatedly recognised by the Full Court, for example, in Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 (Australian Ophthalmic Supplies). As the High Court emphasised in Pearce v The Queen (1998) 194 CLR 610 (in the context of criminal sentencing) this is not a mere matter of form: identifying how the principles have been addressed in a given case serves an important regulatory purpose by making clear to the parties, the public, other potential contraveners and courts in future cases, how and why the ultimate penalties were imposed (at [45]-[48]). Even where the ultimate penalty is moderated by reference to the totality principle, the process of assessing the appropriate 'starting point' penalty provides an important regulatory signal to other would-be contraveners.

Same act breaching multiple provisions: separate contravening acts to attract separate penalties unless a 'course of conduct'

41 In the context of sentencing offenders for criminal offences, it is well recognised that the same act may give rise to a number of technically distinct offences. Such an offender should be given a sentence which fairly reflects the substance of the offending conduct, rather than a purely mathematical accumulation of sentences for each separate offence which may be able to be technically 'attached' to the same act. The same principle is well-recognised as applying to the imposition of civil penalties.

42 Separate contraventions arising from separate acts should ordinarily attract separate penalties. A different principle may apply where separate acts, giving rise to separate contraventions are nonetheless so inextricably interrelated that they should be viewed as one multi-faceted 'course of conduct'. In the criminal sentencing context, the course of conduct approach is a 'tool of analysis' which can be used to avoid any double punishment for those parts of the legally distinct offences which involve overlap in wrongdoing. Again, the same principles are now accepted as applying in the civil penalty context.

43 The question which arises in each case is whether the contraventions should be treated as being truly a single course of conduct. This is a factual enquiry to be made having regard to all of the circumstances of the case. The Deputy Commissioner does not seek the imposition of separate penalties for breaches of each provision. I consider that position appropriate in the circumstances of this case, such that a single penalty should be imposed on a 'course of conduct' basis for the making of the six loans. Although there were multiple separate contraventions for each of these loans (ss 62, 65, 84 and 109), the circumstances are such that it is appropriate to impose one penalty for such course of conduct.

The 'totality' principle

44 The question of totality requires answering what the appropriate penalty would be for each contravention and then determining whether a discount for totality is warranted, having regard not only to the total amount of the appropriate pecuniary penalties but also to the compensation and disqualification orders to be made.

(b) Principles for determining an appropriate penalty for each contravention

45 The following principles guide the determination of an appropriate penalty for each separate contravention or, in this case, the contravening course of conduct.

The statutory maximum penalties

46 A statutory maximum penalty of $220,000 applies to each contravention: s 196(3). In Markarian v The Queen (2005) 228 CLR 357 (Markarian) it was held that (at [31]):


...careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick.

47 These remarks have been held to apply in the context of civil penalties (see, for example, Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 (CER v MT Solar) at [67]-[68] and the cases cited therein) .

48 When considering the maximum penalty for a course of conduct, it is important to bear in mind that the statutory maximum for one contravention is not converted into a maximum for the entire course of conduct. The maximum of $220,000 continues to apply to each contravention which forms part of the course of conduct. Accordingly, if appropriate, penalties can be imposed for the course of conduct which exceed, perhaps greatly exceed, the statutory maximum for a single contravention.

Deterrence

49 The central purpose of imposing civil penalties is to ensure compliance with the relevant Act by deterring contraventions, both by the present contravener (specific deterrence) and other would-be contraveners (general deterrence).

50 The centrality of deterrence was discussed in the context of the Trade Practices Act 1974 (Cth) by French J (as he then was) in Trade Practices Commission v CSR Ltd [1990] FCA 521 (TPC v CSR). His Honour referred to the "primacy of the deterrent purpose in the imposition of penalty" and described deterrence, both specific and general, as the "principal, and I think probably the only, object of the penalties" and identified the various penalty factors relevant to "the assessment of a penalty of appropriate deterrent value" (at [40]-[42]). This approach has been consistently followed and reinforced (e.g. from NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 at 293-5 to Global One Mobile Entertainment Pty Ltd v ACCC [2012] FCAFC 134) and is apposite to the regulation of superannuation under the Act.

Factors to be taken into account in determining a penalty of appropriate deterrent value

51 In the absence of statutory provision of factors required to be considered in imposing a pecuniary penalty of appropriate deterrent value under the Act, the Court has found it helpful to have regard to a variety of factors, in particular, the factors identified by French J in TPC v CSR, with such modification as is appropriate to the different nature of the regulatory regime and the different circumstances of the case.

52 In the present case the following factors arise for consideration:

·
The nature and extent of the contravening conduct, including the length of time over which it extended, the number of loans made and the amounts in question.
·
The loss and harm arising from the conduct and the circumstances in which the conduct took place, including the position and role of Mr Lyons.
·
Any relevant matters personal to Mr Lyons.
·
Any steps taken to repair or rectify the harm caused by the wrongdoing.
·
Any contrition or co-operation with authorities.

53 Such factors are not to be treated as a "rigid catalogue of matters for attention" (Australian Ophthalmic Supplies at [91] per Buchanan J). They are, however, relevant considerations.

'Instinctive synthesis' of the relevant factors

54 It is necessary to weigh together all relevant factors, rather than starting from some pre-determined figure and making incremental additions or subtractions for each separate factor (Markarian [36]-[39] and [69]-[73]) so that the 'synthesis' of the penalty is transparent (CER v MT Solar at [72]).

(c) The central purpose - ensuring deterrence

55 As the Deputy Commissioner submits, deterrence has two aspects: general deterrence of others who may be disposed to engage in prohibited conduct of a similar kind and specific deterrence in respect of the actual contravener.

General deterrence

56 There are a number of reasons why contraventions such as those committed by Mr Lyons should attract penalties which will act as a strong deterrent to others:

·
A failure to address non-compliance through significant penalties will undermine the effectiveness of the retirement incomes policy through superannuation funds, particularly in the self-managed superannuation sector. It is an accepted fact that there are currently some 500,000 self-managed superannuation funds in Australia.
·
The effective operation of superannuation funds relies heavily upon voluntary compliance with the Act.
·
Non-compliance is not readily detected because typically detection only occurs when a private auditor is engaged to prepare the Tax and Regulatory Return.

57 The imposition of substantial penalties for this kind of conduct will provide a strong incentive to officers to take care to understand and ensure compliance with the requirements of the Act and reduce the risks of non-compliance.

Specific deterrence

58 Although the contraventions involved deliberate activity, Mr Lyons has demonstrated remorse, having agreed to participate in a negotiation with the Deputy Commissioner which has led to the agreement to submit to the Court appropriate penalties and costs. Accordingly, the necessary specific deterrent effect will be met by a penalty which is adequate to achieve general deterrence.

(d) Applying the principles to determine a penalty for each contravention

59 In Raelene Vivian, suing in her capacity as Deputy Commissioner of Taxation v Robert Burley Fitzgeralds [2007] FCA 1602 (Vivian), Logan J listed ten relevant factors which are to be considered in fixing what should be an appropriate penalty (at [35]). The factors relevant to the present case are addressed in turn below.

The nature and extent of the contravening conduct

60 As set out in [31] -[35] above, the conduct in this case was relatively serious in that the contraventions occurred on six separate occasions over an eleven month period, that is, a single financial year

The loss and harm arising from the conduct

61 See [36] above.

The size of the 'organisation'

62 It is not in dispute that the size of the 'organisation', being the Fund's membership, was small. In Vivian, Logan J said (at [37]) that a fund ought to be regarded as a small fund where membership is confined and that that is a relevant consideration that sits in favour of a contravening trustee, recognising the role of even a small fund in the operation of superannuation and retirement savings regimes. It was only the trustees themselves, who were also members, who were directly affected by the contravention.

The deliberateness or otherwise of the contravention

63 Mr Lyons accepts and acknowledges that as a co-trustee of the Fund he and his wife jointly bore ultimately responsibility for the Fund's compliance with the Act. His actions, as trustee, were deliberate, in that they were conscious decisions. However, Mr and Mrs Lyons sought and implemented the advice of a financial advisor who advised that the trustees could witSUBHDRaw funds from the Fund, without advising that the purposes of the witSUBHDRawals were not authorised under the Act.

Any relevant matters personal to the contraveners

64 Accepting that there is no defence to claim financial necessity, Mr Lyons proffers in his submissions additional matters not disputed by the Deputy Commissioner:

65 Mr Lyons says that:


With respect to the nature of the contravening conduct, the trustees (being in a domestic partnership at the time), together faced extreme financial difficulties in their small business (a convenience store). Related to the financial stress and the stressors leading to the breaches was the acute mental illness of one of the trustees (Mrs Lyons), who was a partner of the business.

Mr Lyons' co-trustee's illness was of such an acute type that Mr Lyons found himself in circumstances where he was, in effect, solely responsible for the care of his family and for the ongoing operation of the distressed business.

Any steps taken to repair or rectify the harms caused by the wrongdoing

66 Mr Lyons has not rectified the breaches and a notice of non-compliance was issued with the consequence that a notice of assessment was issued. It is apparent that Mr Lyons did not, and does not have the financial capacity to rectify the breaches.

The degree of co-operation provided by Mr Lyons

67 Co-operation with authorities in the course of investigations and subsequent proceedings will be a mitigating factor that may reduce the penalty that would otherwise be imposed, to reflect the fact that such co-operation:

·
Can be evidence of contrition and an acceptance of responsibility.
·
Increases the likelihood of co-operation in a way that furthers the object of the legislation.
·
Frees up the regulator's resources, thereby increasing the likelihood that other contraveners will be detected and brought to justice.
·
Reflects a willingness to facilitate the course of justice.

68 The size of the discount will vary depending on the circumstances of the case. There may be no discount, or only a low one, where the admissions come late in the proceedings and amount to little more than an acceptance of the inevitable (Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 per Stone and Buchanan JJ at [76]-[78]). In cases involving the fullest possible co-operation, such as self-reporting contraventions prior to detection, establishment of significant compliance programs, assisting authorities in taking action against other contraveners, reaching agreement as to the penalty to be imposed and taking extensive remedial action, the discount may be as high as 50% (ACCC v Qantas Airways Limited [2008] FCA 1976 at [65]-[69]).

69 Mr Lyons did not take steps independently to report the contraventions to the relevant regulators. However, it is apparent that it was the engagement by Mr Lyons of the auditor which led to the Deputy Commissioner becoming aware of the contraventions. Mr Lyons made himself available to representatives of the Applicant for interviews on 18 October 2011, 9 November 2011 and 16 November 2011, where he made full and frank admissions. Mr Lyons forwarded all relevant bank statements in a timely fashion. Mr Lyons thereafter made further admissions in correspondence to the Applicant's representatives on 2 December 2011.

70 Mr Lyons cooperated with the Deputy Commissioner's representatives in identifying relevant materials and facts at an early opportunity and immediately entered into negotiations with the Deputy Commissioner.

71 That is, although there was a course of conduct involving a sustained series of contraventions rather than a single contravention, there was early co-operation on the part of Mr Lyons. The requirements for deterrence are such that the penalty should reflect the loss in value of a fund's assets. The Deputy Commissioner has provided a schedule derived from previous decisions which demonstrates that penalties of between one fifth and a quarter of the loss of the fund's assets have been imposed.

Contrition

72 Mr Lyons has not pleaded a defence that in any way seeks to shift responsibility to his advisor. However, he maintains, and I accept, that the advice of Mr Skeen is a relevant matter to the question of penalty. Further, his acceptance of responsibility constitutes a full and early admission of liability. This, in itself, amounts to act of contrition.

Past record

73 Mr Lyons has no past record.

Personal financial position

74 Although not determinative as to penalty, and not raised as relevant by the Deputy Commissioner, it is not in dispute that the proposed penalty constitutes a significant amount by comparison with Mr Lyons' present financial position. Further, in light of the fact that the Deputy Commissioner is not proceeding against Mrs Lyons, Mr Lyons bears the penalties alone. Accordingly, Mr Lyons submits that the overall penalty imposed upon should:

·
Take into account the range of penalties that the Courts have previously imposed, relative to the seriousness of the contraventions and the quantum of the breaches involved in other cases.
·
Arrive at a figure that would have been imposed by way of penalty had both trustees been pursued.
·
Permit him a notional reduction of the amount of penalty that would have been imposed upon Mrs Lyons had she been a party to these proceedings.
·
Permit him a further notional reduction of that component of the costs that would have been borne by Mrs Lyons had she been pursued.

(e) Totality

75 While there were six separate witSUBHDRawals that constituted breaches of the Act - the fact remains that, when imposing a civil penalty, a court must have regard to the principle of totality in Australian Prudential Regulatory Authority v Derstepanian [2005] FCA 1121, cited with approval in Vivian (at [83]). Justice Weinberg said (at [31]): Both offences arose out of the [sic] precisely the same facts and circumstances. In essence, ss 62(1) and 109(1) are simply different ways of characterising the same misbehaviour. It is a well-recognised principle of sentencing that a person not be punished twice for what is, in substance, the same conduct, even if that conduct can be viewed as giving rise to two separate offences.

76 Having regard to the aggregate of the maximum penalties available and the mitigating factors, the penalties submitted by the parties do not, in my view, infringe the totality principle.

CONCLUSION

77 I have had regard to the agreed facts, the submissions of the parties and the fact that both parties submit that the proposed orders are appropriate, including an order for payments by instalments, to reflect Mr Lyons' capacity to pay. I have also taken into account the facts and principles outlined in these reasons. I note that the discount that is proposed is advanced on the basis that it takes into the account the circumstances of this case, including the fact that Mr Lyons relied on professional advice, in effect self-reported (through his auditor) and gave early and full cooperation, and has not sought to join his professional advisor or, indeed, to seek payment from his former wife.

78 These, of course, are the matters relevant to Mr Lyons and specific deterrence. I have also considered the question of general deterrence and the other matters that are not dependent on Mr Lyons' personal mitigating factors, such as the course of action that constituted the contravening conduct. Taking all the relevant matters into account, and giving each due weight, I am of the view that the proposed orders are appropriate.

79 As to the figure of the penalty, I note that the proposed penalty is proportionally less than that imposed in the relatively comparable cases advanced by the Deputy Commissioner (e.g. Vivian, Olesen v Eddy [2011] FCA 13 and Olesen v MacLeod [2011] FCA 229). Mr Lyons has submitted that the one case in which a lesser penalty was imposed (Olesen v Parker & Anor [2011] FCA 1096) should be regarded as "an outlier" because in that case repayments were made to the relevant fund in respect of a number of contraventions, whereas Mr Lyons has made no repayments. In my view the proposed penalty is appropriate, as are the proposed orders.

80 As to the question of costs, the agreement between the parties is that Mr Lyons pays $5,000 towards the costs of the Deputy Commissioner. The Deputy Commissioner says that this represents a significant compromise of his right to seek costs.


Annexure A

(1) Mr Lyons, as a trustee of the Lyons Family Superannuation Fund ("the Fund") caused the Fund:

(a) On 3 July 2008 to lend to Paul Ellis, a relative of Mr Lyons, the sum of $35,000 from the Fund without authorisation of the governing rules of the Fund;

(b) On 7 July 2008 to lend to Paul Ellis, a relative of Mr Lyons, the sum of $50,000 from the Fund without authorisation of the governing rules of the Fund;

(c) On 7 July 2008 to lend to Paul Ellis, a relative of Mr Lyons, the sum of $15,000 from the Fund without authorisation of the governing rules of the Fund;

(d) On 21 July 2008 to lend to Paul Ellis, a relative of Mr Lyons, the sum of $20,000 from the Fund without authorisation of the governing rules of the Fund;

(e) On 10 October 2008 to lend to Paul Ellis, a relative of Mr Lyons, the sum of $20,000 from the Fund without authorisation of the governing rules of the Fund; and

(f) On 25 May 2009 to lend to Paul Ellis, a relative of Mr Lyons, the sum of $50,000 from the Fund without authorisation of the governing rules of the Fund.

(2) By way of the conduct set out above in (1), Mr Lyons contravened:

(a) Section 62 of the Superannuation Industry (Supervision) Act 1993 (Cth) (Act) by failing to ensure that the Fund was maintained solely for one or more of the purposes prescribed in s 62(1) of the Act, instead maintaining the Fund for the purpose or significant purpose of making back-to-back loans to provide working capital for Mr Lyons' retail business.

(b) Section 65 of the Act by lending money using the assets of the Fund to a relative of Mr Lyons, who was a member of the Fund.

(c) Section 84 of the Act by failing to take all reasonable steps to ensure that the provisions of Division 2 and Division 3 of the Act were complied with in respect of the Fund, instead making loans to a relative of a member which caused the market value ratio of the Fund's in-house assets to exceed 5% and failing to prepare a plan setting out steps to ensure the disposal of in-house assets in excess of the 5% limit.

(d) Section 109 of the Act by making investments in his capacity as trustee of the Fund in circumstances where Mr Lyons and the other parties to those transactions failed to deal with each other at arm's length in respect of each transaction, or the terms and conditions of those transactions were more favourable to the third party than those which it is reasonable to expect would have applied if the trustee was dealing with that third party at arm's length in the same circumstances.


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