FEDERAL COURT OF AUSTRALIA
Australian Prudential Regulation Authority v Holloway and Anor
[2000] FCA 1245
Mansfield J
2 August, 6 September 2000 - Adelaide
Mansfield J. On 12 May 2000 I published reasons for my findings that Holloway & Co Pty Ltd (Holloway & Co) and Anthony Philip Holloway (Mr Holloway) each contravened s 85(1) of the Superannuation Industry (Supervision) Act 1993 (Cth)) (the SIS Act). The contraventions arose out of each respondent entering into or carrying out a scheme in relation to certain regulated superannuation funds in respect of the investments by those funds in certain unit trust in the amounts, and upon the dates, specified in the schedule to these reasons. In these reasons, I shall adopt the definitions of the relevant entities as given in the schedule.
2 The parties have now had the opportunity to adduce evidence and to make submissions about the terms of the orders which should be made in the light of my findings, and on the topic of the monetary penalties which the applicant Australian Prudential Regulation Authority (APRA) seeks, and in relation to the costs of the proceedings.
3 The respondents did not submit that, in the light of my findings, I should not make declaratory orders that Holloway & Co and Mr Holloway had contravened s 85(1) of the SIS Act. The contraventions were over a period of in excess of 3 years and, as I have found, were deliberate and serious. In my view, it is appropriate to make declaratory orders to reflect those findings.
4 The parties' submissions centred on the amount of the monetary penalties, and the costs of the proceedings.
Monetary penalties
5 Part 21 of the SIS Act deals with the consequences of contravening civil penalty provisions. Section 85(1) is a civil penalty provision: s 193. Section 196 empowers the court to declare that a person has contravened a civil penalty provision in relation to a specified superannuation entity if it is satisfied of the contravention. It also empowers the imposition of a monetary penalty. The relevant subsections are s 196(3)-(5) which provide:
- (3) The Court may also make against the person an order that the person pay to the Commonwealth a monetary penalty of an amount specified in the order that does not exceed 2,000 penalty units.
- (4) The Court is not to make an order under subsection (3) unless it is satisfied that the contravention is a serious one.
- (5) The Court is not to make an order under subsection (3) if it is satisfied that an Australian court has ordered the person to pay damages in the nature of punitive damages because of the act or omission constituting the contravention.
6 There is nothing to suggest that s 196(5) applies.
7 Section 4AA of the Crimes Act 1914 (Cth) provides that, in a law of the Commonwealth, penalty unit means $110, unless the contrary intention appears. No submission was made to suggest that any contrary intention appears in the SIS Act. Section 4AA of the Crimes Act 1914 (Cth) was introduced by s 19 of the Crimes Legislation Amendment Act 1992 (Cth). It then provided that a penalty unit was $100. The figure was altered to $110 by s 3 and cl 9 of Sch 1 of the Crimes and Other Legislation Amendment Act 1997 (Cth), which relevantly came into force on 7 April 1997. For the contraventions which occurred before 7 April 1997, the applicable definition of penalty unit is $100 for the purpose of determining the monetary penalties and in respect of the contravention which occurred after that date I have proceeded on the basis that the applicable definition of penalty unit is $110: see s 4F(1) of the Crimes Act 1914 (Cth).
8 Section 4D(1) of the Crimes Act 1914 (Cth) has the effect that the prescribed pecuniary penalty is taken to be the maximum pecuniary penalty applicable to the contraventions.
9 APRA's submission is that the most significant factor in determining the amount of the pecuniary penalties is that they should be of sufficient magnitude to operate as a strong deterrent to the respondents and to others who might otherwise engage in conduct in contravention of the SIS Act. It contends, further, that s 196 does not provide different numbers of penalty units for the principal offender, and for a person involved in that contravention, so the court should not impose different pecuniary penalties on Holloway & Co and on Mr Holloway. It further contends that each contravention should attract a separate pecuniary penalty, and that the appropriate pecuniary penalty should be fixed in the same amount for each contravention. It submits that that pecuniary penalty should be $30,000 for each contravention, so that the court should impose a pecuniary penalty in total of $540,000 on Holloway & Co (that is eighteen times $30,000) and separately and additionally a pecuniary penalty in total of $540,000 on Mr Holloway.
10 It is necessary by reason of s 196(4) of the SIS Act to be satisfied that each of the contraventions is a serious one. The respondents did not really contend to the contrary except in the case of the transaction involving the Dalgleish SBF. The nature of the contraventions strikes at a significant component of the regulatory regime imposed by the SIS Act. The object of the SIS Act is to make provision for the prudent management, inter alia, of regulated superannuation funds. Submission by a superannuation fund to be a regulated superannuation fund under the SIS Act carries with it eligibility for concessional taxation treatment. Each of the relevant superannuation funds by their trustees elected to become regulated superannuation funds under s 19 of the SIS Act. Part 8 of the SIS Act sets out rules about the level of in-house assets of regulated superannuation funds. Its intent is clearly to ensure that the investments of a regulated superannuation fund should not be exposed to the vagaries of the business of the employer-sponsor as it restricts the extent of the investment permitted into the employer-sponsor. It is clearly an integral element of the regulatory scheme. The trustees of each fund had to give to APRA (or its predecessor) a return in the prescribed form. That return contained information upon which APRA, in part, was able to ensure that the particular regulated superannuation fund was complying with that regulation. It is clear that APRA considered that return in the issuing of a certificate of compliance, upon which the concessional taxation treatment depended: see Pt 5 Div 2 and Div 3 of the SIS Act. In my view those considerations indicate that the contraventions established, which were each intended to subvert that regulatory control, were serious. I include the transaction involving Dalgleish SBF, although the amount of that investment was relatively small. Its size was dictated by the extent of the obligation of Holloway & Co to have made leave payments to Mr Dalgleish. I do not regard its size on that circumstance as weighing sufficiently against the other general factors to which I have referred to lead to the conclusion that it was not a serious contravention.
11 It is clear that deterrence is a very significant factor in determining the appropriate penalties for the contraventions. It is therefore important that the court impose penalties for the contraventions which have the effect of deterring the respondents from engaging in such conduct in the future. Mr Holloway is an experienced accountant. At least for a time, he had other accountants working under his supervision. The practice of Holloway & Co involved providing accounting advice and services to small to medium sized family companies, partnerships and individuals. I have found that the contraventions involved the intention, on the part of the respondents, that each of the transactions giving rise to the contraventions would result, or be likely to result, in an artificial reduction in the market value ratio of the in-house assets of the several regulated superannuation funds. There is no direct evidence about the size of the practice of Holloway & Co, but I infer that it is a moderately sized suburban practice. In my view, those matters are relevant to determining penalties which will deter the respondents from engaging in further contraventions of the SIS Act, although I suspect that in reality there is very little prospect of that occurring in the future.
12 It is also important that the court impose penalties for the contraventions which will act as a deterrent to others involved as trustees of or advisers to regulated superannuation funds from engaging in conduct which is in contravention of s 85 of the SIS Act. Again, I consider that the nature and size of the business of Holloway & Co is relevant to that consideration. The court should impose penalties which are sufficiently high to demonstrate the importance of not contravening Pt 8 of the SIS Act, but not so high as to be oppressive: cp NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 141 ALR 640 per Burchett and Kiefel JJ (with whom Carr J agreed) at 648. The perception of the community, particularly those who are trustees of or advisers to, regulated superannuation funds will be reflected by its understanding of the nature and size of the business of Holloway & Co.
13 My attention was directed to many cases discussing considerations relevant to the imposition of penalty for contraventions of provisions in the Trade Practices Act 1974 (Cth) or the Corporations Law. In my view, those decisions are only of indirect relevance because the purposes of that legislation are different, as is the significance to the community of contraventions of provisions under that legislation. In addition, of course, the legislation itself is in different terms including, in the case of the Trade Practices Act 1974 (Cth), that different levels of penalties are prescribed for corporations and for natural persons involved in contraventions by reason of s 75B of the Trade Practices Act 1974 (Cth). I note also that s 76 of the Trade Practices Act 1974 (Cth) prescribes some factors relevant to the imposition of penalty. I have nevertheless derived some assistance from the general approach of the court in those cases, including the emphasis which the court has placed on the element of deterrence: see eg J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission [2000] FCA 365 per Black CJ, Lee and Goldberg JJ at [157]; N W Frozen Foods at 648; Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 per French J at 52,153; Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 per Smithers J at 17,896; Australian Securities Commission v Donovan (1998) 28 ACSR 583 per Cooper J at 608-9.
14 Beyond that general consideration, however, in my view it is appropriate to have regard to the particular legislation and the facts and circumstances pertaining to the contraventions and to the respondents themselves in determining the appropriate monetary penalties. The decisions in other cases, particularly under other legislation, are not likely to be of particular assistance in that task: see the remarks of Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 at 47 and 52, and of Northrop J in Trade Practices Commission v Carlton and United Breweries Ltd (1990) ATPR 41-037 at 51,549.
15 In this matter, it is not necessary to determine whether punishment is a factor relevant to the determination of the appropriate penalty. That issue has been addressed in relation to the factors relevant to the assessment of penalty under s 76 of the Trade Practices Act 1974 (Cth) (see the discussion of that issue in McPhee at [170]). That is because APRA accepted that it was not a factor of moment in this case, essentially because any significance it might have was overwhelmed by the significance of the element of deterrence. It therefore did not contend that the reasoning of Burchett and Kiefel JJ in NW Frozen Foods at 650 needed to be considered in determining the penalties for the contravention.
16 Both APRA and the respondents referred to the fact that, apart from the Holloway & Co transaction, the contraventions were part of the process of advice given by the respondents to clients. APRA pointed to the fact that the trustees of the several regulated superannuation funds had placed their trust in the respondents, and that the respondents advised clients to undertake the transactions as part of the marketing of the accounting practice. It further pointed to the fact that APRA has now given notices of non-compliance to each of the regulated superannuation funds (apart from All Sweat SBF) under s 40(4) of the SIS Act in respect of the financial years to which the contraventions respectively relate. The consequence is that those funds are vulnerable to the concessional taxation benefits being withdrawn, and to there being revised taxation assessments issued in respect of those years of income for those funds. The respondents, for their part, submitted that it is relevant to the appropriate level of penalties that the respondents did not gain directly from the contraventions, except in the case of the Holloway & Co transaction, and that the contraventions occurred because the respondents were endeavouring to act in the interests of the clients rather than in their own interests; the satisfaction of the clients was predominant, rather than securing additional fees associated with advice concerning the transactions or than securing or maintaining clients who might otherwise have gone elsewhere for accounting services. The direct benefits to Holloway & Co were modest.
17 I accept each of those submissions, It is for that reason that I consider it necessary to deal separately with the Holloway & Co transaction, as it concerned Mr Holloway's own superannuation fund. I have had regard to each of those matters in determining the appropriate monetary penalties.
18 In my judgment, it is appropriate to treat the contraventions in the following blocks:
- (a) the 2 transactions involving investments by Feeney SBF and Herreen SBF of 13 February 1995
- (b) the transactions involving investments by All Sweat SBF on 30 June 1995, by Unley Glass SBF on 29 June 1995 and by Kino SBF on 22 June 1995
- (c) the transactions involving investments by Dalgleish SBF on 28 June 1996, by Pishas SBF on 30 June and 23 July 1996, by Feeney SBF and Herreen SBF each on 28 June 1996, by Hyde Park SBF on 20 June 1996, by Driving Centre SBF on 30 June 1996, and by Kino SBF on 20 June 1996
- (d) the transaction involving investment by Holloway SBF on 28 June 1996
- (e) the transaction involving investment by Hyde Park SBF on 6 August 1996
- (f) the transaction involving investment by Driving Centre SBF on 21 April 1997, and
- (g) the transactions involving investments by Pishas SBF on 25 June 1997, and by Feeney SBF and Herreen SBF each on 27 June 1997.
19 Although each of the contraventions was separate and distinct, and involved disparate parties, I have blocked the contraventions together in that way as they represent the action taken by Holloway & Co at particular periods of time in accordance with a course of conduct pursuant to what APRA called the Glaser system. In a sense, each block of contraventions was part and parcel of the conduct of Holloway & Co at a particular time to implement the Glaser system (cp. the comments of the full court in McPhee at [182-183]). In fixing penalties, I have also regarded the investments by Herreen SBF and Feeney SBF at each of 3 separate times as in effect being one contravention because those contraventions occurred as part of the one course of conduct by Holloway & Co in advising together the Feeney and Herreen interests. My findings about those transactions indicate why that is so. In effect, therefore, I have treated the 6 contraventions involving the Feeney SBF and the Herreen SBF as being in substance 3 contraventions because of the interlocking nature of the conduct in relation to those 2 regulated superannuation funds. Of course, the consequence is that the amount involved in those investments is the sum of each of the 3 sets of those 2 investments in each case. In adopting that course, I am endeavouring also to ensure that the total penalty does not exceed what is proper for the conduct of the respondents in respect of all the contraventions. That is, I am endeavouring to give effect to the totality principle discussed in McDonald v The Queen (1994) 48 FCR 555 and applied in respect of civil penalties, eg in Safeway at 53 and by Burchett J in TPC v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,169.
20 I do not accept that it is appropriate to impose the same monetary penalty in respect of each contravention (putting aside the Holloway & Co contravention) as urged by APRA. Although each contravention is a serious one, in my view it is relevant to have regard to the amount of the investment which contravened s 85 of the SIS Act. Deterrence, which is the principal factor relevant to the appropriate monetary penalty, does not require that there be no differentiation between, for example, the contravention involving Kino SBF by its investments of $55,000 on 20 June 1996 and the contravention involving Dalgleish SBF by its investment of $4829.08 on 28 June 1996. The extent to which the in-house asset rules were contravened in a particular instance, that is whether the investment pushed the in-house asset ratio just over the prescribed limit or represented most or all of the assets of the particular fund, might also be relevant in certain circumstances. None of the parties made any submission on that latter topic in this matter, so I have not had to consider it.
21 In fixing the pecuniary penalties, in particular in giving appropriate weight to the deterrence factor, I have also had regard to the fact that the identification of conduct which contravenes the SIS Act may be difficult to detect. Here, the returns to the Insurance and Superannuation Commission claimed that the in-house asset ratio in each instance was nil. The investigation of contraventions is both complex and expensive. I note that Heerey J in Australian Competition and Consumer Commission v Simsmetal Ltd [2000] FCA 818 at [16], and Northrop J in Carlton Breweries at 51,550 had regard to that aspect with respect to a contravention of the Trade Practices Act 1974 (Cth).
22 APRA's submission is that the court should impose separate monetary penalties upon Holloway & Co and upon Mr Holloway, not diluted in any way, even though in effect Mr Holloway's actions and state of mind in relation to the contraventions was the basis for Holloway & Co's contraventions of the SIS Act. The respondents contended that because Mr Holloway and Holloway & Co were in essence one person, monetary penalties should be imposed only on Holloway & Co for the contraventions to avoid imposing a double penalty.
23 It is correct, as APRA contended, that s 194 of the SIS Act renders Mr Holloway a principal in the contraventions by reason of his involvement in them. Section 17 provides that involvement may arise from the usual forms of accessory liability. It is clear, therefore, that the SIS Act indicates an intention that he should be regarded as being a party to the contraventions. However, in my view, it does not follow that I should disregard the fact that, for practical purposes, Mr Holloway is the human face of Holloway & Co. He is its principal, its manager and its working director. He principally gave instructions and advice on its behalf. He and his wife are its shareholders. The contention of APRA, if correct, would result in the decision by Mr Holloway that the accounting practice should be conducted through the medium of a registered corporation being visited with the consequence of monetary penalties in total being double those which would apply if he had chosen to conduct that practice as a sole principal. In the exercise of my discretion in determining the appropriate monetary penalties, I do not propose to ignore those matters.
24 Counsel did not refer me to any authorities which deal directly with the present circumstances, where the person directly and immediately responsible for the contraventions by the corporation and its alter ego is also liable as a principal for those contraventions. I note that, in the criminal law context, Dixon J in Mallan v Lee (1949) 80 CLR 198; 4 AITR 363 said, in relation to the then s 230 of the Income Tax Assessment Act 1936 (Cth), at CLR 215; AITR 390:
It would be an inversion of the conceptions on which the degrees of offending are founded to make the person actually committing the forbidden acts an accessory to the offence consisting in the vicarious responsibility for his acts.
25 That passage was noted in Yorke v Lucas (1985) 158 CLR 661 at 671. Mason ACJ, Wilson, Deane and Dawson JJ said, concerning possible accessory liability under s 75B of the Trade Practices Act 1974 (Cth), that a difficulty may have arisen in visiting accessory liability upon the working director of a company which was liable as principal for his actions. It was not necessary to pursue that question further in that case. Hamilton v Whitehead (1988) 166 CLR 121 at 126-9 makes it clear that the observations of Dixon J in Mallan do not apply where the company is liable directly, rather than vicariously. In that circumstance, both the company and the director whose actions resulted in the contravention by the company may both be liable, the director as a person involved in the contravention. The Court (Mason CJ, Wilson and Toohey JJ) at 129 indicated that the observations in Yorke to which I have referred were made out of an abundance of caution. In this matter, I have found that Holloway & Co is liable directly, and not merely vicariously, for the contraventions and Mr Holloway as a person involved in those contraventions is also liable for them. However, Hamilton did not address the relevance of the relationship of the company and its accessory in determining the appropriate level of penalties to be applied to each of them for their contraventions.
26 I note also, but incidentally, that s 4B(3) of the Crimes Act 1914 (Cth) provides:
That provision relates only to offences, and not to civil penalty provisions in legislation such as the SIS Act.Where a body corporate is convicted of an offence against a law of the Commonwealth, the court may, if the contrary intention does not appear and the court thinks fit, impose a pecuniary penalty not exceeding an amount equal to 5 times the amount of the maximum pecuniary penalty that could be imposed by the court on a natural person convicted of the same offence.
27 Ultimately, the question must be one of legislative intention. As I have found, Mr Holloway's role and position in relation to Holloway & Co does not excuse him from also being liable for the contraventions. There is then a clear legislative intention that, provided the contraventions are serious, a person so liable should be exposed to monetary penalties. In my judgment, because s 194 has the effect of rendering Mr Holloway as a person who committed the contraventions by reason of his involvement in them, it is not appropriate to impose no monetary penalties upon Mr Holloway.
28 In fixing the level of pecuniary penalties, I have had regard to the fact that Mr Holloway is in reality the alter ego of Holloway & Co. I think it is relevant to recognise that monetary penalties imposed on Holloway & Co are for conduct which is essentially, although not entirely, the conduct of Mr Holloway and that it is his state of mind which is the state of mind of Holloway & Co. The comments of Dixon J in Mallan set out above have practical reverberations in determining the level of monetary penalties to be imposed on Mr Holloway. In Tiger Nominees Pty Ltd v State Pollution Control Commission (1992) 25 NSWLR 715, a partnership of corporate employers had been found vicariously responsible for the conduct of employees in contravening s 16 of the Clean Waters Act 1970 (NSW). Each corporate employer was separately fined. On appeal, it was unsuccessfully contended that the sentencing judge had failed to take into account the fact that it was only a matter of technicality that there were 2 employers instead of one. Gleeson CJ (with whom Mahoney JA and Campbell J agreed) added at 722:
It is, of course, easy to imagine cases where justice would require that penalties be reduced below what otherwise might be in recognition of the circumstance that a multiplicity of offenders is accidental and quite unrelated to the merits of the case.
29 The role of Mr Holloway, and his relationship to Holloway & Co, are matters which, in my view, justice requires that I have regard to in fixing monetary penalties for the contraventions.
30 I therefore propose to impose significant monetary penalties upon Holloway & Co for its role in the contraventions, and to impose significantly lesser monetary penalties upon Mr Holloway himself. In determining the penalties, in each instance, I have particular regard to the need to fix penalties of sufficient magnitude to deter each of the respondents from any further conduct contravening the SIS Act, and to signify to the community at large the serious consequences which may flow from contraventions of s 85 of the SIS Act so as to deter others who are trustees of, or advisers to, regulated superannuation funds from engaging in such conduct.
31 There are a number of other matters which, the parties submitted, were necessary to be addressed in determining the appropriate penalties.
32 APRA submitted that the conduct of the respondents in relation to its investigation of the contraventions, the fact that it put APRA to full proof during the hearing, and that Mr Holloway gave evidence which in a number of respects was not accepted, are also factors which militate towards a heavier penalty than would otherwise be the case. I do not accept that submission. It is certainly correct that the facilitation of an investigation, or of a hearing, by the making of admissions will lead to a penalty which may be significantly less than would otherwise be the case. That is because the community has been saved the expenditure of resources of time, effort and cost by such cooperation. It is included in the guide as to matters relevant to penalty under the Trade Practices Act 1974 (Cth) set out by French J in CSR at 52,152-52,153 and approved and adopted in a number of other cases, including recently by Goldberg J in Safeway at 44 where his Honour lists a number of those cases. However, I do not accept the obverse proposition, namely that the conduct of the respondents in the course of an investigation or at the hearing involving the failure to make admissions will lead to an increased penalty. Nor do I accept that the views I formed about Mr Holloway's credibility should lead to higher monetary penalties than would otherwise be the case. Those propositions do not logically flow from the reduction in penalty which cooperation or admissions attract (see also Burchett J in TNT at 40,170). Furthermore, the SIS Act contains provisions obliging persons to cooperate in certain ways with investigations being conducted by APRA under the SIS Act. If there has been a breach of any such obligations, the appropriate remedy is to be found in proceedings in respect of any such contravention. Moreover, I am not satisfied that the respondents engaged in any improper conduct in relation to the investigation or at the hearing. In my view, the respondents did not unduly prolong the hearing by testing witnesses needlessly or without purpose; the cross-examination was confined in all cases to discrete issues and was not prolonged. The respondents did not challenge APRA's analysis of documentary materials, or of its calculations made to determine in-house asset ratios at the end of each relevant financial year for the funds in question. They pointed out early in the case the grounds of their defence, and adhered to those grounds throughout. I have given the respondents credit for that degree of refinement of the issues at the hearing, and the acknowledgments they made about APRA's calculations and the material underlying those calculations, in the assessment of penalty.
33 However, the fact remains that the contraventions took place over a considerable period of time. They were, as I have found, deliberate and a number of them involved substantial sums of money. In several instances, the contraventions involved investments by the same regulated superannuation fund over a period of 2 successive financial years, and 3 years in the case of the Herreen SBF and Feeney SBF investments.
34 I have also had regard to the fact that the respondents, in committing the contraventions, were endeavouring to secure benefits for the clients of Holloway & Co. The advice given was generally that funds from an investment by a regulated superannuation fund should be made available to an employer-sponsor only upon commercial terms. Also, there is nothing to suggest that in fact the investments which constituted in-house assets have not maintained their value so as to continue to be available to provide for the future of the members of the particular funds, although that is but a minor consideration, especially as the contraventions are relatively recent. In addition, I have had regard to the fact that neither of the respondents is said to have previously engaged in any conduct in contravention of the SIS Act, or it predecessor.
35 In respect of most of the contraventions Mr Holloway was directly involved as the person who orchestrated the transaction. I have found that the investments by Pishas SBF of $30,000 for units in Angelou Trust on 21 June 1996 and of $3000 on 23 July 1996, and of $30,000 for units in Angelou Trust on 25 June 1997, were effected under the direction of Mr Dalgleish following the establishment of Pishas SBF and Angelou Trust on 1 June 1996. Those investments were, however, made pursuant to the plan Mr Holloway formulated when the establishment of Pishas SBF and Angelou Trust was being discussed. I have not found that Mr Dalgleish caused those investments to be made on the specific instructions of Mr Holloway given towards the end of each financial year, but probably because he understood that that is what Mr Holloway intended to occur when those entities were established. That intention was the basis for Mr Holloway's involvement in those contraventions. That circumstance means that Mr Holloway's involvement in those 2 contraventions is slightly more remote than in most other cases. I have had regard to that aspect in determining penalty.
36 I do not consider that the timing of the Feeney SBF and Herreen SBF investments of $51,000 and $56,000 respectively on 13 February 1995 is of any particular significance in the assessment of penalty. The investments were made at that time as a consequence of financial restructuring, and as I found, to be tax effective. Nor do I consider that the timing of the investment of Hyde Park SBF of $19,176 on 6 August 1996 should tend to reduce the appropriate monetary penalty. It was an investment made from funds available through the refund of provisional tax, and was specifically earmarked ultimately to reduce Hyde Park's fully drawn bank advance. I have found that Mr Dalgleish gave the instructions for that investment, but at the specific direction of Mr Holloway. The 2 investments by Driving Centre SBF were effected at the instruction of Mr Dalgleish, but again I have found that Mr Dalgleish acted at the specific direction of Mr Holloway. I do not think that that circumstance warrants any reduction in the monetary penalty applicable to Mr Holloway on the basis that he was not directly involved in those investments.
37 I have also taken into account the fact that the investment by Kino SBF of $45,000 on 22 June 1995 led to $18,006 only being on lent to Kino, and the balance was probably repayment of a loan by Kino to Onik. I found that the investment itself was an in-house asset. However, the fact that $18,006 only was "exposed" to the vagaries of Kino's future prospects puts the significance of the amount involved in that contravention in a slightly different perspective. The investment by Kino SBF of $55,000 in Onik as 20 June 1996 also led to Onik lending $44,000 only to Kino, but I was unable to make any finding as to the reason for the difference. The difference is not sufficient to make any real difference to my assessment of the appropriate penalties.
38 The Holloway & Co transaction is the only one which involved directly the respondents' financial interests. Holloway SBF was the regulated superannuation fund of which Mr Holloway was both a director and a beneficiary. Holloway & Co benefited directly from the superannuation contribution being a deductible expense, and Holloway SBF gained the benefit of concessional taxation treatment by its receipt even though, through Katon, the contribution was returned by way of a loan to Holloway & Co. In my judgment, the Holloway & Co transaction involves a more serious contravention than the other contraventions by that direct and substantial financial involvement. The nature of this transaction, in my view, also warrants a proportionately larger monetary penalty upon Mr Holloway than in respect of the other contraventions.
39 Having regard to all those matters, in my judgment it is appropriate to impose the following monetary penalties upon Holloway & Co and upon Mr Holloway:
- (a) in
respect of the contravention by the investments by Feeney SBF and by Herreen
SBF on 13 February 1995:
(i) upon Holloway & Co $20,000 (ii) upon Mr Holloway $ 2,500
- (b) in
respect of the contraventions by the investments by All Sweat SBF on 30 June
1995, by Unley Glass SBF on 29 June 1995, and by Kino SBF on 22 June
1995:
(i) upon Holloway & Co $25,000 (ii) upon Mr Holloway $ 3,000
- (c) in
respect of the contraventions by the investments by Dalgleish SBF on 28 June
1996, by Pishas SBF on 30 June and 23 July 1996, by Feeney SBF and by
Herreen SBF on 28 June 1996, by Hyde Park SBF on 28 June 1996, by Driving
Centre SBF on 30 June 1996 and by Kino SBF on 20 June 1996:
(i) upon Holloway & Co $80,000 (ii) upon Mr Holloway $ 9,500
- (d) in
respect of the contravention by the investment by Holloway & Co on
28 June 1996:
(i) upon Holloway & Co $40,000 (ii) upon Mr Holloway 12,000
- (e) in
respect of the contravention by the investment by Hyde Park SBF on 6 August
1976:
(i) upon Holloway & Co $5,000 (ii) upon Mr Holloway $1,000
- (f) in
respect of the contravention by the investment by Driving Centre SBF on
21 April 1997:
(i) upon Holloway & Co $2,000 (ii) upon Mr Holloway $ 500
- (g) in
respect of the contraventions by the investment by Pishas SBF on 25 June
1997 and by Feeney SBF and by Herreen SBF on 27 June 1997:
(i) upon Holloway & Co $50,000 (ii) upon Mr Holloway $ 6,500
The effect of the totality principle is to require a sentencer who has passed a series of sentences, each properly calculated in relation to the offence for which it is imposed and each properly made consecutive in accordance with the principles governing consecutive sentences, to review the aggregate sentence and consider whether the aggregate is 'just and appropriate'. The principle has been stated many times in various forms: 'when a number of offences are being dealt with and specific punishments in respect of them are being totted up to make a total, it is always necessary for the court to take a last look at the total just to see whether it looks wrong [']; 'when … cases of multiplicity of offences come before the court, the court must not content itself by doing the arithmetic and passing the sentence which the arithmetic produces. It must look at the totality of the criminal behaviour and ask itself what is the appropriate sentence for all the offences'.
40 Goldberg J in Safeway at 53 referred to that passage in the context of monetary penalties imposed under the Trade Practices Act 1974 (Cth). I am satisfied that such consideration results in total monetary penalties that are just and appropriate in all the circumstances.
Costs
41 The parties also made submissions on the topic of costs which were widely divergent. APRA sought an order that the respondents pay 80% of APRA's costs to be taxed. The respondents submitted that it was appropriate that there be no order for costs.
42 The respondents submitted that it is a factor weighing against any order for costs in favour of APRA that there is a public interest element in these proceedings: cp National Mutual Life Association of Australia Ltd v Windsor (1991) 28 FCR 214 at 229 per Heerey J. I do not accept that submission. It is apparently the case that this matter is the first concerning the provisions of Pt 8 of the SIS Act. In that sense, it was described by counsel for APRA as a "test" case. It has been necessary to address issues which had not previously been the subject of judicial decision. But primarily the application was brought not to establish some matters in the public interest, but to establish that the respondents had contravened s 85 of the SIS Act. It is in the public interest that contraventions of s 85 be brought out into the open, and that they be appropriately penalised. In my view, that is a different public interest to the public interest in the maintenance of proceedings which might warrant an order that there be no costs of the proceedings. That situation may arise, for example, when it is desirable for a contentious issue as to the proper application of particular provisions of an enactment to be clarified. I do not accept that the purpose of these proceedings had that character, or had any other particular character which warrants the court declining to order costs in favour of APRA if that is otherwise appropriate. In reaching that conclusion, I have been guided by the consideration given to this issue in Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166 at 170-1 per Burchett J and in Council of the Municipality of Botany v Secretary, Department of the Arts, Sport, the Environment, Tourism and Territories (1992) 34 FCR 412 at 415-7 per Gummow J.
43 In exercising my discretion as to costs under s 43 of the Federal Court of Australia Act 1976 (Cth), I have had regard to the general rule that, in the normal course, a successful party should have its costs of the application: Ritter v Godfrey [1920] 2 KB 47; Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136.
44 In this instance, there are a number of matters which justify some departure from that general rule. APRA's contention recognises that some of them may be relevant. The first consideration is that APRA succeeded in establishing contraventions of s 85 of the SIS Act in 18 only of the 32 transactions which it alleged. The second consideration is that, in respect of the contraventions alleged, APRA contended unsuccessfully that s 85 could be contravened by the making of a scheme which results, or is likely to result, in an artificial reduction in the market value ratio of the in-house assets of a regulated superannuation fund and where that artificial reduction was in fact in the historical cost ratio of a regulated superannuation fund, so as to avoid the application of one or more of ss 76-80 of the SIS Act. I found that the "artificial reduction" referred to in s 85(1)(b) of the SIS Act was relevantly confined to an artificial reduction in the market value ratio of the in-house assets of a regulated superannuation fund contrary to s 83 of the SIS Act. Sections 81 and 82, on their terms, did not apply at the time of the impugned conduct.
45 Those 2 features, in my view, provide some reason to depart from the general rule as to costs: see eg Forster v Farquhar [1893] 1 QB 564. It is not necessarily the case that a successful applicant should be deprived of some or all the costs of the proceeding, or be ordered to pay some costs, where the claim fails in part of where the applicant fails on a particular issue or issues. It is always necessary to consider the justice of the particular circumstances: see Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 206-10 per Fisher J; Cretazzo v Lombardi (1975) SASR 4 at 11-12 per Bray CJ; Cromer v Harry Rickards' Tivoli Theatres Ltd [1921] SASR 325 at 335-8 per Angas Parsons J. Here, the 32 contraventions needed to be separately addressed. Ms Tonks' evidence dealt with each of them individually, and in detail, and separate witnesses dealt with each of the transactions although there was some overlap in the case of 2 or more transactions involving the one regulated superannuation fund. In my judgment, those unsuccessful claims by APRA can and should, in fairness, be treated separately for the purposes of the costs of the proceedings.
46 The issue concerning whether s 85(1)(b) could refer to historical cost ratios prescribed by ss 76-80 was also an important one. It was the principal assumption underlying much of Ms Tonks' evidence, including her calculations. Whilst I accepted her evidence, essentially unchallenged on matters of fact and on calculations, it was necessary to use that evidence to determine the market value ratios of the in-house assets of the regulated superannuation funds in question rather than simply to accept her calculations. The issue did not take a great deal of time at the trial, simply because the respondents accepted her calculations but challenged their applicability. The argument on the issue was relatively short. There was no other evidence which related directly to that issue. However, the preparatory work for the hearing on the part of APRA to establish the facts necessary to support the findings on that issue, if the argument of law were to succeed, was clearly substantial. I do not consider that the respondents should have to pay all of those costs. However, as much of that preparatory work was of use to the court in ultimately determining the market value ratio of the in-house assets of particular regulated superannuation funds at the time the challenged investments took place, in my view it would also be unfair to APRA to deprive it of any order for costs for a significant proportion of that pre-trial work.
47 APRA also alleged that the investment by the several regulated superannuation funds in their respective unit trusts was, in terms of s 71(1) of the SIS Act, an in-house asset of those funds by in substance amounting to a direct loan to or investment in the relevant employer-sponsor. It contended that the interposed unit trust was really no more than a sham. It also failed on that issue. I found that the relevant investments were in-house assets by reason of the operation of s 71(2) of the SIS Act. I think that APRA's failure on that issue ought also to be reflected in the appropriate order for costs. The hearing time was somewhat taken up by that issue, because at least part of the affidavits and of the evidence of those involved in discussions with the respondents at material times was directed to that issue.
48 The respondents further submitted that APRA succeeded in establishing contraventions only due to an amendment to its claim made relatively late in the proceedings. When the application was issued, APRA confined its allegations to the claim that the artificial reduction in the market value ratio of the in-house assets of the several regulated superannuation funds would result in the avoidance of ss 76 and 80 of the SIS Act. They are sections which prescribe historical cost ratio restrictions on the in-house assets of a fund. Directions were given for the matter to proceed to trial on that basis. The trial was to commence on 12 April 1999. APRA did not succeed on the claim as so expressed. On 12 February 1999 APRA was given leave to file and serve an amended statement of claim. It was in that document that it first expressed its claim that the scheme alleged would result in the artificial reduction in the market value ratio of the in-house assets of the several regulated superannuation funds, and that the artificial reduction would avoid the application of s 83 of the SIS Act. That is, it was only at that point that APRA expressed the claim that s 83 imposed market value ratio restrictions upon the in-house asset ratio of the several regulated superannuation funds in issue in relation to the investments alleged, so that the s 83 application had been avoided by the scheme or schemes. It was only on that basis that APRA succeeded in establishing the contraventions of s 85 of the SIS Act.
49 In Monier Ltd v Metalwork Tiling Company of Australia Ltd (No 2) (1987) 43 SASR 588, Jacobs J awarded limited costs to a successful defendant because the ground upon which the defence had succeeded was raised only belatedly at the commencement of the trial. Tingay v Harris [1967] 1 All ER 385 and Cheeseman v Bowaters United Kingdom Paper Mills Ltd [1971] 3 All ER 513 provide further illustrations of where the order for costs was influenced by the time of an amendment to the claim which added to the causes of action alleged, or which added to the nature of the damage alleged; in each of those cases the consequence of the amendment was that the plaintiff recovered an amount in excess of a filed offer to submit to judgment but would otherwise have recovered less than the filed offer. They illustrate the need to consider each case on its merits.
50 In this matter, the foundation for APRA's claims against the respondents was expanded by the reliance upon s 83 of the SIS Act. But for that amendment, its claim would have failed. But the evidence about the nature of the transactions proved to be essentially the same in any event. The trial was not really prolonged by the reliance upon s 83 of the SIS Act. The witnesses who deposed to their dealings with the respondents were equally relevant to the original claims or to the claims as reformulated. The evidence of the financial status of the several regulated superannuation funds at the times of the investments in question did not alter, and the trial was not prolonged in any real way because Ms Tonks' calculations as a matter of arithmetic or as to the materials she relied upon were not challenged. The picture is, therefore, in my judgment simply that the amendment enabled APRA to succeed where otherwise it would not have succeeded. It may be that, if APRA confined its allegations to those based upon the avoidance of the application of s 83, less transactions would have been alleged. That factor can be reflected in the weight I give to the failure of APRA to succeed on 14 of the 32 transactions alleged.
51 There were some other matters which, the respondents contended, had been unsuccessfully pursued by APRA and which therefore should be reflected in the order for costs. Those matters concerned the alleged failure of Mr Holloway to cooperate in its investigations as a matter adversely impacting upon his credibility, including the allegation that he concealed the Anaequip letter, and the relevance of Mr Malkin's evidence. Those matters were dealt with in the reasons for decision given on 12 May 2000. I do not consider that any of them was of sufficient moment to warrant their separate consideration in the order for costs which I propose to make. In the course of complex litigation, there are many issues which arise and which, in the result, prove to be not very important or which are procedural or evidentiary issues. Almost always, the parties have proper reasons for ventilating those issues and they take a little time to resolve. It would not be useful if the court, in exercising its discretion as to costs, had to revisit each of those issues and keep a tally of the "wins and losses" on such matters. I do not think that justice requires that to be done. In my view, those additional matters referred to by the respondents fall into the category of issues which arise incidentally in the course of the proceedings and which in the present matter do not call for separate consideration on the issue of costs.
52 In the light of those considerations, it is necessary to reach a decision on the question of costs which is just and equitable in all the circumstances. It is not a decision reached simply as a matter of arithmetic. Having regard to the matters I have discussed, in my judgment APRA should recover 35% of its costs of the application to be taxed.
53 Accordingly, I make declarations that:
- (1) there was an artificial reduction within the meaning of s 85(1) of the SIS Act in respect of the market value ratio of the in-house assets of each of the regulated superannuation funds as specified in the schedule annexed to these reasons by the investment by each of those regulated superannuation funds of units in the unit trust specified in that schedule upon the dates and in the amounts specified in that schedule.
- (2) Holloway & Co
and Mr Holloway entered into and carried out a scheme in relation to each
fund in respect of the investments by those funds in each corresponding
unit trust in the schedule within the meaning of s 85(1) of
the SIS Act with the intention that:
- (i) the scheme would result in, or be likely to result in, an artificial reduction in the market value ratio of each of the funds in-house assets; and
- (ii) that the artificial reduction would avoid the application of s 83 of Pt 8 of the SIS Act in relation to each of the funds
- in contravention of s 85(1) of the SIS Act on the dates listed in column 3 in the said schedule.
54 I also order that Holloway & Co do pay to the Commonwealth monetary penalties totalling $222,000 in respect of the contraventions of the SIS Act the subject of those declarations. The monetary penalties applicable to each of the contraventions, or to the contravention to the extent that they are treated together, are set out in para 39 of these reasons.
55 I further order that Mr Holloway do pay to the Commonwealth monetary penalties totalling $35,000 in respect of the contraventions of the SIS Act the subject of those declarations. The monetary penalties applicable to each of the contraventions, or to the contravention to the extent that they are treated together, are set out in para 40 of these reasons.
56 Finally I order that the respondents pay to APRA 35% of its costs of and incidental to this application to be taxed.
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