Reported Decision : 69 ACSR 1 New South Wales Supreme Court CITATION : ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 5 – 8, 12 – 15 May, 10 – 12, 16 – 19 June, 4, 5 & 14 August, 1 - 2, 4 - 5 & 25 September 2008 JUDGMENT DATE : 21 November 2008 JURISDICTION : Equity JUDGMENT OF : Hamilton J DECISION : Some claims that third defendant committed breaches of his duties as a director established, others rejected. CATCHWORDS : APPEAL AND NEW TRIAL [102] – Appeal – General principles – Points and objections not taken below – When not allowed to be raised on appeal – Questions not raised on pleadings or in argument – Particular cases – Other matters – Claims not encompassed in statement of claim – Whether relief on those claims may be granted – Whether parties choose to fight the case on issues chosen at the trial - CORPORATIONS [1245], [1246], [1247] – Management and administration – Duties and liabilities of officers of corporations – Fiduciary and related statutory duties – Of care, skill and diligence – To act honestly – Duties involving conflicts of interest – Generally – Ambit of foregoing duties - TRADE AND COMMERCE [80] – Trade Practices and related matters – Consumer protection – Misleading, deceptive or unconscionable conduct – Character and attributes of conduct – Representations – As to future matters – Reasonable grounds for making representations – Evidentiary burden on representor to prove reasonable grounds – TPA s 51A, ASIC Act s 12BB – Sections do not apply where it is alleged that director caused or permitted company to make the impugned representations. Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12BAB, 12BB, 12DA, 12DB, 12DF, 12GB, 12GF & 33 Companies (New South Wales) Code s 229 Corporations Act 2001 (Cth) ss 9, 45A, 95A, 180 – 182, 191 – 195, 206C, 257A, 285, 286, 314, 319, 533(2), 589, 601ED, 700, 706, 708, 708A, 728, 729, 734, 761A, 761G, 764A, 766A, 766B, 911A, 911B, 1010A, 1018A, 1041H, 1041I, 1101B, 1305, 1311, 1317E, LEGISLATION CITED : Corporations Law s 232 Evidence Act 1995 s 140 Trade Practices Act 1974 (Cth) s 51A Uniform Civil Procedure Rules 2005 rr 14.28, 28.1, 29.9 CATEGORY : Principal judgment Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 ASIC v Elm Financial Services Pty Ltd [2005] NSWSC 1033 ASIC v Enterprise Solutions 2000 Pty Ltd [2003] 1 Qd R 135 ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 796 ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 814 Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 Australian Securities and Investments Commission v Online Investors Advantage Incorporated (2005) 194 FLR 449 Australian Securities and Investments Commission v Oxford Investments (Tasmania) Pty Ltd [2008] FCA 980 Australian Securities and Investments Commission v Rich (2005) 191 FLR 385 Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46 Australian Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623 Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex Relatione Corporate Affairs Commission (1981) 148 CLR 121 Banque Commerciale SA en liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Brian Cassidy Electrical Industries Pty Ltd (in prov liq) v Attalex Pty Ltd [1984] 3 NSWLR 52 Briginshaw v Briginshaw (1938) 60 CLR 336 Burton v Arcus (2006) 32 WAR 366 Clowes v Federal Commissionier of Taxation (1953) 91 CLR 209 Daniels v Anderson (1995) 37 NSWLR 438 Dare v Pulham (1982) 148 CLR 658 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544 Fasold v Roberts (1997) 70 FCR 489 Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 FGT Custodians Pty Ltd v Fagenblat [2003] VSCA 33 Gamble v Hoffman (1997) 24 ACSR 369 CASES CITED : Gate Gourmet Australia Pty Ltd (In Liq) v Gate Gourmet Holding AG [2004] NSWSC 149 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546 Hope v Bathurst City Council (1980) 144 CLR 1 Hungier v Grace (1972) 127 CLR 210 In re Griffin: ex parte the Board of Trade (1890) 60 LJQB 235 Iso Lilodw' Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (Cth) (2002) 42 ACSR 561 Lewis v Doran (2004) 184 FLR 454; (2005) 219 ALR 555 Linton v Telnet Pty Ltd (1999) 30 ACSR 465 Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd (1997) 37 IPR 599 Maguire v Makaronis (1997) 188 CLR 449 Minlabs Pty Ltd v Assaycorp Pty Ltd (2001) 37 ACSR 509 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 New Cap Reinsurance Corporation Ltd (in liq) v A E Grant [2008] NSWSC 1015 Permanent Building Society (in liq) v McGee (1993) 11 ACSR 260 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 Re Allebart Pty Ltd (in liq); Re Home Holdings Pty Ltd (in liq) [1971] 1 NSWLR 24 Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282 Re PFS Wholesale Mortgage Corporation Pty Ltd; Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553 Rejfek v McElroy (1965) 112 CLR 517 Sandell v Porter (1966) 115 CLR 666 Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 The Queen v Byrnes; The Queen v Hopwood; Byrnes v The Queen (1995) 183 CLR 501 Vines v Australian Securities and Investments Commission (2007) 62 ACSR 1 Walker v Wimborne (1976) 137 CLR 1 Wanted World Wide (Aust) Ltd v Commissioner of Taxation (Cth) (2004) 139 FCR 205 Wright v TNT Management Pty Limited (1989) 15 NSWLR 679 TEXTS CITED : Austin and Ramsay, Ford's Principles of Corporations Law (online edition) [8.080] Australian Securities and Investments Commission (P) Sydney Investment House Equities Pty Ltd (D1) Sydney Investment House Capital Ltd (D2) Edwin James Goulding (D3) Stephen Geagea (D4) PARTIES : Sydney Investment House Pty Ltd (D5) Sydney Investment House (Newcastle) Pty Ltd (D6) Sydney Investment House (Beaconsfield) Pty Ltd (D7) Melbourne Investment House Pty Ltd (D8) Melbourne Investment House (Hawthorn) Pty Ltd (D9) Melbourne Investment House (Collingwood) Pty Ltd (D10) FILE NUMBER(S) : SC 2941/06 A J McInerney & D J Barnett (P) COUNSEL : In Person (D3) No other appearances Kim Turner, Solicitor (P) SOLICITORS : In Person (D3) No other appearances IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J FRIDAY, 21 NOVEMBER 2008 2941/06 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v SYDNEY INVESTMENT HOUSE EQUITIES PTY LTD & ORS JUDGMENT (amended 28 November 2008 and 4 March 2009) 1 HIS HONOUR: TABLE OF CONTENTS 1 CONTENTS [1] 2 INTRODUCTION [2], [3] 3 FACTUAL FRAMEWORK [4] – [16] 4 THE CONTRAVENTIONS ALLEGED [17] – [21] 5 THE LAW [22] 5.1 Breaches of directors' duties [23] – [48] 5.2 Indirect breaches of directors' duties [49] – [51] 5.3 Solvency [52] – [57] 5.4 Evidence: company records [58] – [63] 5.5 Evidence: standard of proof [64] – [65] 5.6 Orders which depart from the pleadings [66] – [74] 6 CREDIT OF WITNESSES [75] – [93] 7 MR GOULDING'S GENERAL SUBMISSIONS [94] – [98] 8 THE INDIVIDUAL BREACHES [99] 8.1 The making of loans [100] – [184] 8.2 "Roll overs" [185] – [202] 8.3 Misappropriations [203] – [252] 8.4 Conduct by Equities of unregistered managed investment scheme [253] – [271] 8.5 Capital's failures to report [272] – [282] 8.6 Carrying on by Equities and Capital of unauthorised financial services business [283] – [385] 8.7 Provision of unauthorised financial services [386] – [401] 8.8 Advertising by Equities of financial products without complying with requirements [402] – [421] 8.9 Misleading or deceptive conduct by Equities and Capital [422] – [473] 8.10 Ad hoc dealings with investors by Capital, Newcastle, Melbourne and Hawthorn [474] – [503] 9 FINDINGS SOUGHT [504] – [514] 10 CONCLUSION [515] – [535] Ann A Control and Ownership of SIH Group and Goulding Trusts [6] Ann B Equities Loan Agreements entered into by investors in Equities [9] Ann C "Roll over" Transactions [14] Ann D Intercompany Loans and Drawdowns [15] Ann E Money paid to Mr Goulding by Category, Year and Company [17] Ann F Examples of Payments from SIH Group Bank Accounts apparently for Mr Goulding's Private Purposes [17] Ann G Misrepresentations Ultimately Relied on by ASIC [422] 2 INTRODUCTION 2 In these proceedings, the plaintiff ("ASIC") seeks declarations and orders against the third defendant ("Mr Goulding"). The declarations sought are that Mr Goulding was guilty of various breaches of the Corporations Act 2001 (Cth) ("the CA") and of the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act") in his conduct as director of various companies in the Sydney Investment House Group ("the SIH Group") and orders that for an appropriate period he be disqualified from managing corporations and restrained from providing financial services in Australia. No claim is made for the imposition of penalties or for orders for the payment of compensation. 3 The proceedings were originally brought by ASIC against eight companies in the SIH Group, Mr Goulding and the fourth defendant ("Mr Geagea"). Mr Goulding and Mr Geagea were or acted as directors of all or most of those companies. The companies are now all in liquidation and Quentin Olde ("Mr Olde") is the liquidator of each. ASIC does not proceed against the corporate defendants, as this course would be futile in view of their liquidation. The trial conducted before me commenced against Mr Goulding and Mr Geagea only. On the fourth day of the trial the proceedings were settled as between ASIC and Mr Geagea and I ordered the separate decision of the questions between them so that effect could be given to that settlement before a different Judge, in view of the fact that the proceedings against Mr Goulding were to continue before me. Hammerschlag J in fact made orders giving effect to that settlement on 9 May 2008. The proceedings against Mr Goulding continued to the close of ASIC's case. Mr Goulding then made an application for the dismissal of the proceedings under r 29.9(1)(a) of the Uniform Civil Procedure Rules 2005 ("the UCPR"). ASIC declined to argue the question raised by the application. Mr Goulding submitted that the Court had a discretion to allow the question to be argued, although ASIC had declined to do so. I ruled that the Court had no such discretion: ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 796. Mr Goulding then applied under r 29.10 for judgment in his favour on the plaintiff's claim generally. That application I dismissed: ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 814. Mr Goulding then announced that he did not propose to call any evidence and specifically announced that he did not seek leave under r 29.10(4) to call evidence despite the dismissal of his r 29.10 application. Both parties have subsequently presented me with written and oral submissions on ASIC's case. A very large part of ASIC's case falls to be proved by the evidence of Mr Olde. Mr Olde was the subject of vigorous attack as to his credit by Mr Goulding, which I shall deal with below. But Mr Olde's evidence, like the other evidence led by ASIC, remains uncontradicted. 3 FACTUAL FRAMEWORK 4 I have drawn on ASIC's written submissions for the following statement of facts that are undisputed. 5 The defendants to the proceedings are as follows: (a) 1st defendant – Sydney Investment House Equities Pty Ltd ("Equities"); (b) 2nd defendant – Sydney Investment House Capital Ltd ("Capital"); (c) 3rd defendant – Mr Goulding; (d) 5th defendant – Sydney Investment House Pty Ltd ("House"); (e) 6th defendant – Sydney Investment House (Newcastle) Pty Ltd ("Newcastle"); (f) 7th defendant – Sydney Investment House (Beaconsfield) Pty Ltd ("Beaconsfield"); (g) 8th defendant – Melbourne Investment House Pty Ltd ("Melbourne"); (h) 9th defendant – Melbourne Investment House (Hawthorn) Pty Ltd ("Hawthorn"); and (i) 10th defendant – Melbourne Investment House (Collingwood) Pty Ltd ("Collingwood"). 6 The first, second and fifth to tenth defendants, together with the trusts known as the WSS Unit Trust ("the WSSUT"), the NC41 Hybrid Trust ("the NC41 Trust"), the NC49 Hybrid Trust ("the NC49 Trust") and the NC13 Hybrid Trust ("the NC13 Trust"), are collectively referred to as "the SIH Group". The ownership and structure of the SIH Group is summarised in Annexure A to this judgment, which is based on Exhibit T in the proceedings. In summary, it appears from Annexure A that: (a) Mr Goulding was a director (in most cases the sole director) and either directly or indirectly (through House) a shareholder of the corporate members of the SIH Group; and (b) House or Newcastle was the trustee and a beneficiary of the various trusts that formed part of the SIH Group. 7 On or about 26 March 2003, Equities issued the Equities Information Memorandum. The Equities Information Memorandum summarised the terms of an "investment offer", pursuant to which investors would make loans to Equities of moneys to be on lent to "Approved Development Borrowers". The expression "Approved Development Borrower" was defined in the "Loan Agreement Terms" to mean "a party approved by the Borrower for the purposes of lending moneys for the development of a property development project". 8 The Equities Information Memorandum annexed a standard form of Loan Agreement Execution Deed to be executed by each investor and Equities. Items 9(a) and (c) of the standard form Loan Agreement Execution Deed state that "the loan monies may only be used by the Approved Development Borrower(s) for the purposes of", in effect: (a) acquiring property or rights to property; (b) improving property acquired; (c) paying costs associated with or incidental to the acquisition, improvement, financing, realisation or marketing of property acquired; and (d) the discharge or repayment of liabilities of Approved Development Borrowers "in connection with a property development project undertaken by the Approved Development Borrower(s)". 9 Between about 13 May 2003 and 1 November 2004, Equities entered into some 69 Loan Agreement Execution Deeds with investors. Those Deeds are in evidence. Equities raised approximately $5.2 million pursuant to loans advanced under those Deeds. The loan agreements are tabulated in Annexure B to this judgment. 10 In about October 2004, Capital issued a Prospectus ("the Capital Prospectus"). The Capital Prospectus provided that "The Sydney Investment House Capital Fund will primarily invest all funds raised from this prospectus into the financing of, or in taking an equity position in property development projects". It was stated in the Capital Prospectus that such "investments are also not limited to any one [sic] or group of property developers or to any geographic location, other than to within Australian states and territories". 11 The Capital Prospectus further provided that: "The Sydney Investment House Capital Fund shall only make investments after consideration has been given by the Sydney Investment House Investment Team … No investment decision is binding against Sydney Investment House Capital Ltd as a result of a recommendation from the Investment Team; however, Sydney Investment House Capital Ltd must have received a Recommendation from the Investment Team prior to being able to place an investment of Sydney Investment House Investment [sic] Ltd funds. The Sydney Investment House Fund may invest in projects where directors have a direct or indirect interest provided that the investment is made on an arms [sic] length basis, the directors comply with the Corporations Act 2001 in regard to disclosures, board meeting presence and voting, and similarly the relevant directors abstain from decisions of the Investment Team where there are material conflicts of interest". 12 Provision was made in the Investment Plan, parts of which were extracted in the Capital Prospectus, for the functions and meetings of the Investment Team. It was a requirement for meetings of the Investment Team to be formally minuted and such minutes were required to include "any records, recommendations and actions required". 13 Between about November 2004 and June 2005, Capital issued approximately $7.8 million of preference shares to a large number of investors under the Capital Prospectus. 14 During the same period, ASIC originally alleged that 41 investors in Equities "rolled over" their investment in Equities in an amount of approximately $5.7 million into shares in Capital. The roll overs concerning which complaint was made were ultimately reduced to 31. In summary, the procedure was as follows. The loan that Equities owed to each "roll over" investor was cancelled. The "roll over" investor was issued shares in Capital. No cash changed hands between either the investor and Capital or Equities and Capital as "consideration" for Capital issuing the shares. However, a form of "consideration" or benefit to Capital was recognised in the MYOB records of the SIH Group in the form of the recording of a "transfer" by Equities to Capital of the benefit of inter group receivables and the creation of a new receivable owing to Capital from Equities. A table collating the documentary evidence relating to the 31 "roll overs" ultimately relied on is Annexure C to this judgment. 15 During the period 2003 to 2006, Equities, Capital and various other members of the SIH Group entered into loan agreements with, and advanced funds to, other members of the SIH Group. A table prepared by ASIC showing the loan agreements entered into and the drawdowns or advances actually made is attached as Annexure D to this judgment. This is divided into two sections, of which Section A deals with loans by Equities and Section B deals with loans by Capital. As the table was originally presented by ASIC, it contained a Section C that dealt with loans by other companies in the SIH Group, as these were also the subject of complaint by ASIC during the course of the proceedings. However, ultimately, when it was pointed out that this complaint was not the subject of appropriate pleading allegations in the fifth further amended statement of claim ("the statement of claim"), this portion of the claim was abandoned and only Sections A and B remain. 16 Mr Olde was appointed provisional liquidator of the corporate members of the SIH Group on 27 October 2006 and 21 November 2006 and liquidator of those companies on 24 November 2006 (in the case of Collingwood) and 4 December 2006 (in all other cases). On 21 November 2006, Mr Olde was also appointed receiver and manager of trusts associated with the SIH Group and Mr Goulding, specifically the Alcorn Trust, the Discretionary Property Trust ("the DPT"), the Goulding Family Trust ("the GFT"), the WSSUT, the NC13 Trust, the NC41 Trust, and the NC49 Trust. 4 THE CONTRAVENTIONS ALLEGED 17 ASIC alleges that the Court should find that Mr Goulding committed the following breaches of the CA and the ASIC Act: (1) Mr Goulding acted in breach of ss 180 - 182 of the CA in causing or permitting Equities and Capital to make loans and advance moneys pursuant to those loans to other members of the SIH Group. These loans are alleged to have been made in circumstances where the borrowers were insolvent or virtually insolvent, so that there was no reasonable prospect that the loans would be repaid. It is also alleged that the loans were made in breach of procedures laid down in the Equities Information Memorandum and the Capital Prospectus for the making of such loans. The loans and advances are those summarised in Annexure D to this judgment. (2) Equities and Capital entered into "roll over transactions" with investors, whereby investors in effect exchanged their rights to repayment of their investments in Equities for shares in Capital and Mr Goulding acted in breach of ss 180 - 182 of the CA in causing or permitting Capital to issue shares in this fashion. (3) Mr Goulding acted in breach of ss 180 - 182 of the CA by misappropriating a total of $4.5 million, or in the alternative $3.5 million, from various companies in the SIH Group. ASIC proffered a schedule that is Annexure E to this judgment evidencing the moneys Mr Goulding misappropriated from each relevant entity during each relevant financial year. This schedule is summarised in table form in [209] below. Annexure F contains a non exhaustive list, drawn from bank statements that are in evidence, of withdrawals, apparently for Mr Goulding's private purposes. (4) Mr Goulding acted in breach of ss 180 and 181 of the CA by causing or permitting Equities to conduct an unregistered managed investment scheme in breach of s 601ED of the CA. (5) Mr Goulding acted in breach of ss 180 and 181 of the CA by causing or permitting Capital to fail to report to investors and to ASIC in breach of ss 314 and 319 of the CA. (6) Mr Goulding acted in breach of ss 180 and 181 of the CA by causing or permitting Equities and Capital to carry on a financial services business without the appropriate authorisation in breach of ss 911A and 911B of the CA. (7) In breach of s 911B of the CA Mr Goulding provided financial services without appropriate authorisation. (8) Mr Goulding acted in breach of ss 180 and 181 of the CA by causing or permitting Equities to advertise financial products without complying with s 1018A of the CA. (9) Mr Goulding acted in breach of ss 180 and 181 of the CA by causing or permitting Equities and Capital to engage in misleading or deceptive conduct contrary to ss 12DA, 12DB and 12DF of the ASIC Act and s 1041H of the CA. (10) Mr Goulding acted in breach of ss 180 - 182 of the CA by causing or permitting Capital, Newcastle, Melbourne and House to enter into various ad hoc dealings with investors. 18 The breaches relied on by ASIC may be tabulated as set out below. The sections referred to are of the CA unless otherwise specified. PWS refers to ASIC's written submissions. No Breach Sec PWS 1 Causing or permitting loans to entities which were insolvent or in breach of procedures laid down for making such loans 180 - 182 120 - 183 2 Causing or permitting Capital to issue shares pursuant to "roll overs" 180 - 182 184 – 194 3 Misappropriations 180 - 182 195 - 246 4 Causing or permitting conduct by Equities of unregistered managed investment scheme 180, 181, 601ED 255 - 275 5 Causing or permitting failure by Capital to report to investors and to ASIC 180, 181, 314, 319 276 - 284 6 Causing or permitting Equities and Capital to carry on financial services business without appropriate authorisation 180, 181, 911A 285 – 356 7 Provision of financial services without appropriate authorisation 911B 357 - 368 8 Causing or permitting Equities to advertise financial products without complying with requirements 180, 181, 1018A Supplementary 7 – 23 9 Causing or permitting Equities and Capital to engage in misleading or deceptive conduct 180, 181, 728, 1041H & ASIC Act 12DA, 12DB, 12DF Supplementary 24 - 85 10 Causing or permitting Capital, Newcastle, Melbourne and House to enter into ad hoc dealings with investors 180 - 182 Supplementary 86 – 123 19 If Breaches 6 and 7 are established, this conduct will empower the Court to make an order restraining Mr Goulding from providing financial services in Australia under s 1101B of the CA. If breaches of ss 180 - 182 are established, this will enliven the power of the Court to make declarations of civil penalty contraventions under s 1317E of the CA. That in turn will empower the Court, upon a subsequent "penalty" hearing, to make orders under s 206C of the CA disqualifying Mr Goulding from managing corporations. 20 The precise findings now sought by ASIC against Mr Goulding are set out under the heading Findings Sought at [504] - [514] below. 21 The detail in which those proposed findings are set out is driven in part by s 1317E of the CA, which provides as follows: "(1) If a Court is satisfied that a person has contravened 1 of the following provisions, it must make a declaration of contravention: (a) subsections 180(1) and 181(1) and (2), 182(1) and (2), 183(1) and (2) (officers' duties) …… These provisions are the civil penalty provisions . Note: Once a declaration has been made ASIC can then seek a pecuniary penalty order (section 1317G) or (in the case of a corporation/scheme civil penalty provision) a disqualification order (section 206C). (2) A declaration of contravention must specify the following: (a) the Court that made the declaration; (b) the civil penalty provision that was contravened; (c) the person who contravened the provision; (d) the conduct that constituted the contravention; (e) if the contravention is of a corporation/scheme civil penalty provision - the corporation or registered scheme to which the conduct related." 5 THE LAW 22 This section deals with some areas of law that are applicable to more than one of the breaches alleged and call for discussion at a little length. Matters of law that are straightforward and are relevant to individual breaches are dealt with in the sections relating to those particular breaches. 5.1 Breaches of directors' duties Section 180 23 Section 180(1) of the CA provides: "A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer." 24 Section 180 replaces s 232 of the Corporations Law, which in turn replaced s 229 of the Companies (New South Wales) Code, as a statutory restatement of the duties that the general law of negligence imposed on a company director. 25 The following statement by Clarke and Sheller JJA in the Court of Appeal in Daniels v Anderson (1995) 37 NSWLR 438 at 505 concerning the replaced s 232 of the Corporations Law applies equally to s 180: "We are of opinion that a director owes to the company a duty to take reasonable care in the performance of the office. As the law of negligence has developed no satisfactory policy ground survives for excluding directors from the general requirement that they exercise reasonable care in the performance of their office. A director's fiduciary obligations do not preclude the common law duty of care. Modern statutory company law points to the existence of the duty. In some circumstances the duty will require action. The concept of a sleeping or passive director has not survived and is inconsistent with the requirements of current company legislation such as, at the relevant time, s 229 and s 269 of the Companies (New South Wales) Code … A person who accepts the office of director of a particular company undertakes the responsibility of ensuring that he or she understands the nature of the duty a director is called upon to perform. That duty will vary according to the size and business of the particular company and the experience or skills that the director held himself or herself out to have in support of appointment to the office. None of this is novel. It turns upon the natural expectations and reliance placed by shareholders on the experience and skill of a particular director. The duty is a common law duty to take reasonable care owed severally by persons who are fiduciary agents bound not to exercise the powers conferred upon them for private purpose or for any purpose foreign to the power and placed, in the words of Ford and Austin, Ford's Principles of Corporations Law, 6th ed (1992), at 429, at the apex of the structure of direction and management. The duty includes that of acting collectively to manage the company. Breach of the duty will found an action for negligence at the suit of the company. Negligent directors are tortfeasors within the meaning of s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946." 26 The most compendious statement of the relevant principles is that made in numbered propositions by Santow J in Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 at [372]. 27 The central principles were recently summarised by Brereton J in Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 at [99] - [101] in the following terms: "[99] The statutory duty imposed by s 180(1) reflects, and to some extent refines, that which obtains at general law. As Santow J (as his Honour then was) explained in ASIC v Adler (2002) 168 FLR 253; 41 ACSR 72; [2002] NSWSC 17 at [372], both the common law and equity imposes on directors a duty of care and skill ( Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109; 14 ACSR 109; Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 118 FLR 248; 16 ACSR 607), the content of which is essentially the same as the statutory duty: Sheahan v Verco (2001) 79 SASR 109 at 134; 37 ACSR 117 at 141; [2001] SASC 91 (Mullighan J); Daniels v Anderson at NSWLR 603; FLR 408–9; ACSR 756–7 (Powell JA); see also Australian Innovation Ltd v Petrovsky (1996) 21 ACSR 218 at 222 (Lockhart J). Similarly, the statutory duties imposed by ss 181 and 182 reflect, and to some extent refine, corresponding obligations of directors under the general law. [100] In determining whether a director has exercised reasonable care and diligence, as s 180(1) expressly contemplates, the circumstances of the particular corporation concerned are relevant to the content of the duty. These circumstances include the type of company, the provisions of its constitution, the size and nature of the company's business, the composition of the board, the director's position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees, and the circumstances of the specific case: Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 427; (Romer LJ); Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 125 (Tadgell J); Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43; 11 ACLC 286; Daniels v Anderson at NSWLR 504–5; FLR 310; ACSR 667–8; ASIC v Adler at [372]; explanatory memorandum to the CLERP Bill 1999: para 6.75. [101] Directors are not required to exhibit a greater degree of skill in the performance of their duties than may reasonably be expected for persons of commensurate knowledge and experience, in the relevant circumstances: ASC v Gallagher . And while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company ( Daniels v Anderson at NSWLR 495–505; FLR 300–11; ACSR 659–668), they are entitled to rely upon others, at least except where they know, or by the exercise of ordinary care should know, facts that would deny reliance: Re City Equitable Fire Insurance Co; Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 13 WAR 11; 11 ACSR 785 at 856–8; Daniels v Anderson at NSWLR 502–4; FLR 308–10; ACSR 665–6; Re Property Force Consultants Pty Ltd [1997] 1 Qd R 300; (1995) 13 ACLC 1051 (QSC)." 28 One way in which the duty of care owed pursuant to s 180 may be breached is by causing the company to enter into transactions that expose it to risks without the prospect of producing any benefit for the company. 29 In the Federal Court in Gamble v Hoffman (1997) 24 ACSR 369, Carr J considered the relevant duty of care owed by directors to a company, and whether their conduct constituted negligence for the purposes of s 589 of the CA. That case involved the conduct of directors who caused a company (Tallimba), of which they were in effect the only shareholders and directors, to advance moneys that were unlikely to be recovered to another company (Sunhaven), of which they were the only shareholders. At 373 – 374 Carr J said: "In my view, the respondents' duty of care required them to take the following steps: 1 Assess what benefit, if any, Tallimba would derive from making these payments on behalf of Sunhaven. 2 If there were any benefit so to be derived by Tallimba, to assess whether there was any reasonably foreseeable prospect of detriment to Tallimba? If there was a reasonable prospect of detriment to Tallimba the court has to decide whether that prospect of detriment outweighed the likely benefit to the company to the extent that making the payments amounted, in all the circumstances, to negligence? I adopt, respectfully, the approach along these lines suggested by Ipp J (with whom Malcolm CJ agreed) in Vrisakis v ASC (1993) 9 WAR 395 at 449-50. At the core of this question was the prospect of recovering the money." His Honour concluded at 381: "In my view, the respondents' conduct in causing Tallimba to make the above payments fell short of their duty to take reasonable care in the performance of their office as directors. In summary, I find that there was no benefit which Tallimba would derive from making the payments. There was the relatively minor detriment of interest incurred or interest lost on the monies paid out. But the most important factor was the almost inevitable loss of these amounts by virtue of Sunhaven's inability to repay. The respondents were well aware of that inability." See also the decision of Roberts-Smith J in the Supreme Court of Western Australia in Minlabs Pty Ltd v Assaycorp Pty Ltd (2001) 37 ACSR 509 at 518. 30 One aspect of s 180 (which overlaps with s 181 and s 182) that needs to be borne in mind is the duties of directors in circumstances of actual or potential conflicts between the interests of the company and personal interest. As Santow J stated in his Proposition (14) in ASIC v Adler supra: "(14) Where there is a transaction involving the potential for conflict between interest and duty, as here arose, the duty of care and diligence falls to be exercised in a context requiring special vigilance, calling for scrupulous concern on the part of those officers who become aware of that transaction to ensure that any necessary corporate approvals are obtained and safeguards put in place." 31 In Vines v Australian Securities and Investments Commission (2007) 62 ACSR 1 the Court of Appeal rejected the submission that the degree of negligence that must be established to constitute a breach of the statutory duty is higher than that which would support a finding of negligence at common law: per Spigelman CJ at [63], [152]. Section 181 32 Section 181(1) of the CA relevantly provides: "A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose." This statutory duty reflects the duty owed by a director to the company under the general law relating to fiduciary duties. 33 Its general ambit was stated as follows by Brereton J in ASIC v Maxwell supra at [106]: "As to s 181(1), which requires a director or other officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation, and for a proper purpose, in Chew v R (1991) 4 WAR 21; 5 ACSR 473, Malcolm CJ (at WAR 47; ACSR 499) summarised the requirements of the duty to act in good faith as including that directors: (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company's assets for themselves." 34 It is to be noted that, unlike the former s 232 of the Corporations Law, there is no requirement that the director act honestly. Section 181, when read with s 184, makes it clear that there can be a breach of s 181 where the conduct of the director is not in the interests of the corporation, even if there is no subjective dishonesty. 35 One matter at the heart of the duty under s 181, where the company in question is one of a group of companies, is that each company is a separate legal entity that has its own interests, to which proper regard must be paid. 36 Another matter to be borne in mind in the operation of s 181 is that where a company is insolvent, or its solvency is in doubt, the "corporation" to whose best interests regard must be had includes its creditors. 37 The points in both the immediately preceding paragraphs were dealt with by Mason J (with whom Barwick CJ agreed) in Walker v Wimborne (1976) 137 CLR 1 at 6 – 7 as follows: "Indeed, the emphasis given by the primary judge to the circumstance that the group derived a benefit from the transaction tended to obscure the fundamental principles that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of Asiatic to consult its interests and its interests alone in deciding whether payments should be made to other companies. In this respect it should be emphasized that the directors of a company in discharging their duty to the company must take account of the interest of its shareholders and its creditors. Any failure by the directors to take into account the interests of creditors will have adverse consequences for the company as well as for them. The creditor of a company, whether it be a member of a 'group' of companies in the accepted sense of that term or not, must look to that company for payment. His interests may be prejudiced by the movement of funds between companies in the event that the companies become insolvent." 38 In a group situation, benefits to the company indirectly, which accrue to the company through benefits to the group as a whole, if they are real, may be taken into account. This situation was recently dealt with in the Court of Appeal in Lewis v Doran (2005) 219 ALR 555, where Giles JA (with whom Hodgson and McColl JJA agreed) said at [148]: "It was necessary for the directors to consider the interests of Constructions, as a separate legal entity, in deciding whether to participate in the debt restructuring: Walker v Wimbourne [sic] (1976) 137 CLR 1 at 6–7, 3 ACLR 529 at 532. It has nonetheless been recognised that a transaction benefiting one company in a group may have derivative benefits for another company in the group, even if the companies are not parent and subsidiary. In Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; 93 ALR 385; 2 ACSR 161 Brennan J observed (at CLR 183; ALR 409; ACSR 185) that 'it may be for the benefit of solvent companies in a group to guarantee the liabilities of a holding company in order to benefit the guarantor companies as well as other members of the group'. In Equiticorp Finance Ltd (in liq) v Bank of New Zealand Clarke and Cripps JJA said (at NSWLR 146–7; ACSR 726): 'It may be accepted, therefore, that actions carried out for the benefit of the group as a whole may, in particular circumstances, be regarded as benefiting as well one or more companies in the group. This may occur even where, for instance, a company is providing a guarantee for its holding company or another company in the group. Similarly a transaction carried out for the benefit of one of the companies in the group, company A, may be seen to be for the benefit of another company in the group, company B.'" 39 Thus, the statement in a leading corporate law commentary (Austin and Ramsay, Ford's Principles of Corporations Law (online edition) at [8.080]): "Examples of failure to pay proper regard to the company's separate interests frequently arise in cases about the affairs of small proprietary companies. Controlling shareholders of such companies sometimes treat the company as if its assets are the same as assets they hold in their own names. They may improperly try to cause the company to incur obligations so that it is in a position to provide personal benefits to directors or shareholders. Directors have a duty to use company resources only for the benefit of the company." 40 The balancing exercise involved here is the same as that required under s 180, as set out in [29] above. 41 The test to be applied under s 181 is whether an intelligent and honest man in the position of the directors of the company could not have reasonably believed that the transaction was in the best interests of the company having in mind the interests of the company's creditors: Linton v Telnet Pty Ltd (1999) 30 ACSR 465 at 471 per Giles JA (with whom Beazley JA and Sheppard AJA agreed). 42 Thus, in Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544 at 585 Hansen J said: "Assuming for the moment that the level of security was inadequate and that the group's financial position was perilous, the risk of loss which FFC was assuming would seem to be great. In those circumstances, can it seriously be suggested that an intelligent and honest director of FFC would bona fide believe that the loan was in the best interests of FFC? I think not." 43 In order to establish a breach of s 181, it has been said that it is necessary to establish that the director acted with a consciousness that what was being done was not in the best interests of the company concerned: ASIC v Maxwell per Brereton J at [108], [109]. But consciousness in this sense means knowledge of the facts that make the conduct not in the best interests of the company; it is not necessary to establish knowledge that the conduct constituted a breach of the law or was improper: The Queen v Byrnes; The Queen v Hopwood; Byrnes v The Queen (1995) 183 CLR 501 at 514 - 515 per Brennan, Deane, Toohey and Gaudron JJ. Section 182 44 Section 182(1) of the CA provides: "A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation." 45 In ASIC v Adler at [458], Santow J set out propositions summarising the law in relation to s 182, including the following: "(1) causing a company to enter into an agreement which confers unreasonable personal benefits on a director is a breach of ss 180, 181 and 182; …… (4) moreover it is sufficient to establish that the conduct of a company was carried out in order to gain an advantage for that director or someone else without also having to establish that an advantage was actually achieved: Chew v The Queen (1992) 173 CLR 626 at 633 per Mason CJ, Brennan, Gaudron and McHugh JJ; (5) where a director acts in relation to a transaction in which he or a party to whom the director owes a fiduciary duty stands to gain a benefit without making adequate disclosure of his interest, that director acts 'improperly' within the meaning of s 182(1): R v Byrnes (1995) 183 CLR 501 at 516–17. That is likely to lead also to a conclusion of lack of good faith for s 181 purposes …; (6) finally, impropriety for the purposes of s 182(1) is to be determined objectively and does not depend upon the director's consciousness of impropriety. It consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case: R v Byrnes (at 514–15) per Brennan, Deane, Toohey and Gaudron JJ." 46 Santow J's observations in his Proposition (14) in [372] concerning the need in conflict of interest situations for "special vigilance" and "scrupulous concern" should also be borne in mind. 47 The analysis by Anderson J in Permanent Building Society (in liq) v McGee (1993) 11 ACSR 260 at 289 – 290 is applicable to the circumstances surrounding the making of the Capital Loans. That case concerned proceedings brought by the plaintiff against, relevantly, a director of the plaintiff, by the name of Wheeler, in connection with a loan which the plaintiff made to another company controlled by Wheeler. Anderson J said: "In my opinion, it is quite clear that Wheeler did place himself in a position of conflict. It is true that he did not actually participate in the meeting of the plaintiff's board that finally resolved to make the loan. However, this is not a case in which mere disclosure of interest and abstention from voting was sufficient. He must have known that, as things stood, Capital Hall was quite unable to service the loan or to repay it. He was in a better position than Nizzola and McGee to appreciate that fact. Under those circumstances, it was his duty to take positive steps to protect the interests of the plaintiff. At the very least, he was under an obligation to make full and frank disclosure of the extent of Capital Hall's financial incapacity at that time. There is nothing to show that he did that. However, I think his duty went further than that. He was in a position of power and influence in respect of both companies. There was no doubt he could have prevented the transaction proceeding. One word from him would have been enough. He should have done so. He could not escape from his continuing duty to act bona fide in the interests of the society as a whole 'by the simple expedient of leaving the room': Darvall v North Sydney Brick and Tile Co Ltd (1989) 16 ACLR 203, per Kirby P at 250. In my opinion he did, throughout, remain in a position of conflict and it was not overcome by his merely abstaining from participating in the formal resolutions. It was his duty to inform the plaintiff's board that Capital Hall was not in a position to repay an advance of $1.5m should it be made, nor was it in a position to fulfil its obligations as to payment of interest, and that should the advance be made, there was a high risk that none of it would be recovered. As the loan was to be made to a company which was, in effect, his company, he cannot claim honesty of purpose. He came within the rule which absolutely requires a fiduciary to deal with his principal at arm's length upon a consent obtained after full disclosure of all relevant facts: Murphy v O'Shea [1845] 2 Jones & Lat 422 per Sugden LC at 425; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 per Gibbs J at 396; Green & Clara v Bestobell Pty Ltd [1982] WAR 1." 48 An appeal to the Full Court of the Supreme Court of Western Australia was successful, but on grounds that did not impugn the correctness of the above propositions: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218 per Ipp J. 5.2 Indirect breaches of directors' duties 49 The duties imposed by ss 180 and 181 of the CA are owed to the company itself. They are not directly concerned with the obligation of directors to conduct the affairs of the company in accordance with the law. But it has been recognised that causing a company to engage in a course of conduct that breaches the law may involve on the part of directors a failure to exercise reasonable care and skill and a failure to act in the best interests of the company within the meaning of s 181 of the CA. 50 In ASIC v Maxwell supra, Brereton J said at [104]: "There are cases in which it will be a contravention of their duties, owed to the company, for directors to authorise or permit the company to commit contraventions of provisions of the Corporations Act. Relevant jeopardy to the interests of the company may be found in the actual or potential exposure of the company to civil penalties or other liability under the Act, and it may no doubt be a breach of a relevant duty for a director to embark on or authorise a course which attracts the risk of that exposure, at least if the risk is clear and the countervailing potential benefits insignificant." At [105] His Honour added that: "… if a contravention of s 180(1) is to be established, it must be founded on jeopardy to the interests of the corporation, and not to protection of the interests of potential investors (though the interests of investors may be relevant to the interests of the corporation, as potential creditors)." 51 His Honour also considered the reasoning of Barrett J in ASIC v Elm Financial Services Pty Ltd [2005] NSWSC 1033. If Barrett J in ASIC v Elm at [4] differed from Brereton J's last quoted statement, I prefer Brereton J's view, as did Gordon J in the Federal Court in Australian Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623 at [27]. 5.3 Solvency 52 The locus classicus concerning the test of insolvency is in the judgment of Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670 - 671, where his Honour said: "Insolvency is expressed in s 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirely and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due." 53 The definition of insolvency for the purposes of the CA now omits the reference to payment out of its own moneys and simply provides that a company is insolvent if it is unable to pay all its debts as and when they become due and payable: CA s 95A. 54 In Lewis v Doran (2004) 184 FLR 454 Palmer J reviewed at length whether s 95A had changed the law as laid down in Sandell v Porter. His Honour concluded at [116]: "For those reasons I conclude that s 95A CA has changed the pre-existing law as to the definition of insolvency as stated in cases such as Sandell v Porter , and that it is no longer necessary in order to assess solvency to ascertain whether the company is able to pay all of its debts 'from its own monies', in the sense discussed in those cases. In my opinion, s 95A requires the Court to decide whether the company is able, as at the alleged date of insolvency, to pay all its debts as they become payable by reference to the commercial realities. If the Court is satisfied that as a matter of commercial reality the company has a resource available to pay all its debts as they become payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party." 55 The Court of Appeal in Lewis v Doran supra upheld Palmer J's decision. In particular, it confirmed that, whether or not s 95A changed the law as stated in Sandell v Porter, the availability of unsecured borrowings could be taken into account in determining solvency: per Giles JA at [110]. 56 The present law as to insolvency was compendiously stated by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [54]. One of the principles stated by his Honour is that whether or not a company is insolvent is "a question of fact to be ascertained from a consideration of the company's financial position taken as a whole". That statement was adopted by Davies AJ in Iso Lilodw' Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (Cth) (2002) 42 ACSR 561 at [13]. A comprehensive discussion of the ambit of s 95A in the context of the solvency of a reinsurer is contained in the judgment of White J in New Cap Reinsurance Corporation Ltd (in liq) v A E Grant [2008] NSWSC 1015. 57 Referring to s 95A, Lander J in the Federal Court said in Wanted World Wide (Aust) Ltd v Commissioner of Taxation (Cth) (2004) 139 FCR 205 at [61]: " The definition suggests that the issue of solvency needs to be resolved by having regard to the cash flow of a company but, of course, the sum total of its assets and liabilities, as disclosed in the balance sheet, is not irrelevant." 5.4 Evidence: company records 58 ASIC tendered, first, financial records of each company in the SIH Group created by those companies. They included MYOB records, including profit and loss statements and balance sheets; financial reports; bank statements; the Equities Loan Agreements with investors; share certificates issued by Capital and deeds of release in furtherance of "roll over" transactions. 59 Secondly, ASIC tendered financial records of each company in the SIH Group created by Mr Olde, including provisional liquidator's reports; tracing spreadsheets; and liquidator's report under s 533(2) of the CA concerning the SIH Group. 60 Under ss 285 and 286 of the CA, a company must keep written financial records that not only correctly record and explain its transactions, financial position and performance, but also enable true and fair financial statements to be prepared and audited. A document purporting to be a book kept by a company is, unless the contrary is proved, taken to be a book kept in accordance with s 1305(1): s 1305(2) of the CA. 61 Section 1305 of the CA provides that a book kept by a body corporate under a requirement of the CA is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book: s 1305(1). In s 9 "books" is defined to include any register, record of information and financial reports and financial records, however compiled, recorded or stored and "financial records" is defined to include invoices, receipts, cheques, vouchers and documents of prime entry. 62 Each of the documents specified in [58] and [59] above is admissible under s 1305(1) of the CA and is, therefore, prima facie evidence of any matter that it states or records. 63 These propositions apply to documents created by the liquidator in the course of the liquidations as well as to documents created by the companies. In Australian Securities and Investments Commission v Rich (2005) 191 FLR 385 at [268] - [271], Austin J held that the liquidator's reports (ie "books") kept by the liquidator for the purpose of the liquidation were admissible under s 1305 of the CA. His Honour said: "[268] Section 531 obliges a liquidator to keep 'proper books' in which he or she must cause to be made entries or minutes of proceedings at meetings and such other matters as are prescribed, and creditors and contributories have the right to inspect those books unless the court otherwise orders. Regulation 5.6.01 prescribes, as the matters to be recorded, all matters that are required to give a complete and correct record of the liquidator's administration of the company's affairs. Under s 542(1), where a company has been wound up, all books of the company and of liquidator that are relevant to affairs of the company at or subsequent to the commencement of the winding up are, as between the contributories of the company, prima facie evidence of the truth of all matters purporting to be recorded in those books. By s 542(2), once the company has been wound up, the liquidator must retain the books referred to in subs (1) for a period of 5 years, except in the special circumstances set out in s 542(3). [269] Is it correct to say that, for the purposes of s 1305, documents kept by the liquidators in that capacity are kept by the body corporate to which they have been appointed; and if it is, are they kept by the body corporate 'under a requirement of [the Corporations] Act'? [270] When performing their functions and exercising their powers as such, liquidators occupy the position of agent of the company: A R Keay, McPherson's Law of Company Liquidation , 4th ed, LBC Information Services, Sydney, 1999, p 288, and cases there cited. If, therefore, the liquidators take some authorised step in carrying on the business of the company, that step is binding on the company as principal, just as if it had been taken by or on behalf of the company's board of directors prior to commencement of the voluntary administration. It would have been a step taken by the company as principal. [271] In my opinion the same consequences flow when the liquidators take a step in the administration of the affairs of the company, since in doing so they are acting as the company's agent. The liquidators' keeping of reports to creditors prepared by them in their capacity as liquidators or administrators, by retaining them, is conduct by them as agent for the company. It follows that the reports are kept by the body corporate, and therefore those documents are books kept by a body corporate for the purposes of s 1305. Clearly, they are books kept under requirements of the Act, namely the requirements set out above which oblige liquidators to keep and retain such documents." See also Re PFS Wholesale Mortgage Corporation Pty Ltd; Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553 at [72] per Hargrave J. 5.5 Evidence: standard of proof 64 I have constantly borne in mind, in determining these proceedings the requirements of s 140 of the Evidence Act 1995, and particularly of s 140(2). Section 140 provides as follows: "(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. (2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account: (a) the nature of the cause of action or defence, and (b) the nature of the subject-matter of the proceeding, and (c) the gravity of the matters alleged." 65 The Court of Appeal has said in Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 at [61] that the test to be applied under s 140(2)(a) is the test in Briginshaw v Briginshaw (1938) 60 CLR 336 as enunciated by Dixon J at 361 – 362. See also Rejfek v McElroy (1965) 112 CLR 517 at 521 – 522 per curiam; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 at 171 per Mason CJ, Brennan, Deane and Gaudron JJ; and Vines v ASIC supra at [808] – [813] per Ipp JA. 5.6 Orders which depart from the pleadings 66 It is necessary to state the background against which the discussion of this branch of the law took place. 67 It became apparent during final submissions that there were grave doubts as to whether certain of the contraventions alleged against Mr Goulding were in fact supported by allegations in the statement of claim. If this were so, orders made in respect of those contraventions would depart from the pleadings. As a result of this problem being raised, ASIC abandoned its claim in relation to loans made by companies in the SIH Group other than those made by Equities and Capital (Breach 1); there was simply no allegation at all in the statement of claim concerning such loans. ASIC has, however persisted with alleging a contravention by Mr Goulding relating to the issue of shares by Capital as a result of "roll over" transactions (Breach 2). 68 Behind the consideration of this problem lie the purposes of pleadings, as defined by the courts. One purpose is, of course, the definition for the court of the issues to be tried. But the primary purpose is to inform the opposing party of the claim or defence that it has to meet. 69 In general terms, relief should not be granted that is not founded on the pleadings. If the evidence departs from the pleadings, the pleadings or particulars may be amended, even at a late stage. But, if the parties choose to fight the case on issues other than those in the pleadings, a verdict may be entered or relief given on the issues fought without amendment. 70 In Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517 - 518 Isaacs and Rich JJ said: "Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest… There are qualifications, no doubt, and each case must depend for the proper application of the principle upon its own facts. It has been laid down by the Privy Council that 'As a rule relief not founded on the pleadings should not be granted.' 'But in this case' (said their Lordships) 'the substantial matters which constitute the title of all the parties are touched, though obscurely, in the issues; they have been fully put in evidence, and they have formed the main subject of discussion and decision in all three Courts. The High Court are right in treating the case as not within the rule': Sri Mahant Govind Rao v Sita Ram Kesho 25 Ind App 195 at 207." 71 In Dare v Pulham (1982) 148 CLR 658 at 664 the High Court (Murphy, Wilson, Brennan, Deane and Dawson JJ) said: "Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it ( Gould and Birbeck and Bacon v Mount Oxide Mines Ltd. (In liq) (1916) 22 CLR 490 at 517); they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial ( Miller v Cameron (1936) 54 CLR 572 at 576-7); and they give a defendant an understanding of a plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings ( Gould and Birbeck and Bacon (1916) 22 CLR 490 at 517-8; Sri Mahant Govind Rao v Sita Ram Kesho (1898) LR 25 Ind App 195 at 207). But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence. Particulars may be amended after the evidence in a trial has closed ( Mummery v Irvings Pty Ltd (1956) 96 CLR 99 at 111, 112, 127), though a failure to amend particulars to accord precisely with the facts which have emerged in the course of evidence does not necessarily preclude a plaintiff from seeking a verdict on the cause of action alleged in reliance upon the facts actually established by the evidence ( Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 at 446; 50 ALJR 666 at 668)." 72 In Banque Commerciale SA en liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 – 287 Mason CJ and Gaudron J said: "The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq) (1916) 22 CLR 490, at p 517, per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, eg, Browne v Dunn (1893) 6 R, at p 76; Mount Oxide Mines (1916) 22 CLR, at pp 517-518." 73 In Vines v ASIC supra Spigelman CJ adopted the three passages from the judgments of the High Court quoted above. His Honour said at [57], [58]: "[57] If necessary at all, each contravention will have to be addressed separately with a view to determining whether, in any respect in which there is found to be a departure between the pleadings and the finding of contravention, the test that the parties have chosen to fight the case on a different basis has been met. (The relevant test being that as set out in Mount Oxide Mines and Dare v Pulham , quoted above.) [58] It may also be necessary to assess the significance of any departure from the pleadings in view of the express statutory requirement in s 1317EA(2), set out above, that any declaration of contravention must identify 'a specified act or omission' which constitutes the contravention." 74 At [515] his Honour said that he was not prepared in that case, in the context of civil penalty proceedings, to conclude that the tests in Mount Oxide Mines and Dare v Pulham had been met. 6 CREDIT OF WITNESSES 75 The witness whose evidence was principally under attack was Mr Olde, on whose reports, affidavits and oral evidence ASIC largely relied to prove Mr Goulding's breaches of duty. 76 In support of his application under r 29.10 Mr Goulding made submissions concerning Mr Olde's credit. I summarised those submissions as follows in my r 29.10 judgment supra at [12]: "In the forefront of those submissions there was a submission that the affidavit and, indeed, the other evidence of Mr Olde, the liquidator, was 'tainted with bias, prejudice, and are not an accurate reflection of the complete record [held by the liquidator]'. In amplification of that submission, the third defendant submitted 'that Mr Olde's evidence is tainted by the adverse opinion that he formed about the honesty and integrity of the third defendant immediately [sic] or prior to his appointment as a liquidator of the eight corporate entities'. A further ground of bias alleged was that the final report prepared by Mr Olde 'was prepared pursuant to a request by the plaintiff and upon payment of a fee of $100,000'. Detailed submissions were then made of regards in which it is said that Mr Olde's knowledge of or reference to the records and investigations relating to the company were said to be defective. The third defendant continued in his written submissions to submit that 'in light of the above list of gaps, due to omission, ignorance or dismissal of facts the Court should treat the evidence of Mr Olde with extreme caution. It should do the same with Mr Olde's selective method as to the issue of solvency of the various corporate entities'. Equally the third defendant submitted 'that Mr Olde is not an impartial witness from whose evidence the Court is able to draw comfort in making any decision in favour of the plaintiff on any of its pleadings'. In his written submissions in reply the third defendant submitted 'that on any view Mr Olde is not an arm [sic] length independent witness and as such his evidence should be rejected in its entirety'". 77 Those submissions were essentially repeated by Mr Goulding in his closing submissions. Both on the r 29.10 application and in final submissions, Mr Goulding relied particularly on a telephone call made by Mr Olde. Mr Goulding elicited in cross examination that Mr Olde became aware that Mr Goulding was employed by BankWest. He had thereupon telephoned Peter Steele, the State Manager, and said, "If I were you, Peter, I would type the name [Edwin Goulding] into Google." Thereafter, Mr Goulding was dismissed by BankWest, which Mr Olde had contemplated as possible when he made the phone call. Mr Olde's reason given for making the call was that BankWest was an important client of his firm and he was dealing daily with Mr Steele at that time. 78 ASIC submitted that Mr Goulding's attack on Mr Olde's evidence on the ground of bias should be rejected on the grounds set out below. 79 There is no authority requiring the Court "to hold that an 'interested' expert's evidence be rejected because of a 'perception' that the witness might favour the party seeking to adduce that evidence": FGT Custodians Pty Ltd v Fagenblat [2003] VSCA 33 at [29] per Ormiston JA. 80 The main thrust of the attack made by Mr Goulding on Mr Olde's credibility was that Mr Olde was "biased" because Mr Olde had formed the view that Mr Goulding was a dishonest person. 81 I do not find that Mr Olde was "biased" because he made a judgment about Mr Goulding's behaviour as a director of the companies within the SIH Group. Indeed, he was required as a liquidator to form a judgment about Mr Goulding's behaviour: see per Street J in Re Allebart Pty Ltd (in liq); Re Home Holdings Pty Ltd (in liq) [1971] 1 NSWLR 24 at 26; and per McHugh JA in Brian Cassidy Electrical Industries Pty Ltd (in prov liq) v Attalex Pty Ltd [1984] 3 NSWLR 52 at [79]. This is precisely what Mr Olde did, as he was required to do, in submitting his provisional liquidator's reports to the Court and in submitting his s 533 reports to ASIC. 82 It is not an adverse reflection on Mr Olde that he formed the view that Mr Goulding was dishonest. It is not surprising that he did so. This was a consequence of evidence he discovered tending to show that Mr Goulding acted dishonestly as a director of the companies in the SIH Group. The evidence does not demonstrate that Mr Olde had a closed mind on the issues raised. On my assessment of his evidence, he continued to assess the material dispassionately despite the view of Mr Goulding he had formed on the evidence available to him. It was not the case that Mr Olde's views were incapable of alteration. 83 ASIC submits that, in respect of an officer of the Court such as Mr Olde, the Court would be very slow to conclude that his conduct constitutes "bias" in the relevant sense of pre judgment incapable of alteration. 84 In any event, it should be remembered that Mr Olde's evidence consists largely of factual material (rather than opinion evidence). The consequence is that, in order to impugn successfully Mr Olde's evidence, Mr Goulding would have had to demonstrate that the alleged "bias" caused Mr Olde to produce or record false or incorrect factual records or material. Mr Goulding did not make any such suggestion to Mr Olde in cross examination. 85 In respect of Mr Olde's opinion evidence (in particular, his conclusions as to solvency), to impugn those conclusions successfully Mr Goulding would have had to demonstrate in cross examination that Mr Olde did not truly hold those opinions or would not have held them but for the alleged "bias". Again, Mr Goulding did not put any such proposition to Mr Olde in cross examination. Further, a submission to that effect (that is, that Mr Olde did not truly hold the opinions he expressed or would not have held them but for "bias") would have to be rejected by the Court, given that the opinions of Mr Olde were entirely consistent with the factual material adduced into evidence. 86 I turn to my findings concerning Mr Olde's credit. His credit was impugned on the ground of bias, essentially on three bases, first, that he was paid for his services; second, that what he did was informed by an early view he formed that Mr Goulding was dishonest; and, third, his actions in relation to Mr Steele. 87 As to the first basis, the Court will not infer bias simply from the fact that a witness, eg, an expert, is paid to prepare evidence. It could hardly be otherwise where an expert witness is required to devote large amounts of time to the preparation of the evidence. The Court must, of course be vigilant to see that a paid expert has maintained independence and has not become an advocate. But the fact alone of payment cannot be a basis destructive of credit. In this case, much or most of the material on which Mr Olde relied in giving his evidence was not assembled or created in the course of preparing his evidence, but in the course of carrying out his duties as a liquidator. Although the Court must view carefully the evidence of a liquidator, as that of other witnesses, it will not lightly find that a liquidator, who has particular duties to the Court, has acted in breach of his duties. 88 As to the second basis, the view of Mr Goulding that Mr Olde formed in the course of carrying out his duties as liquidator on the material that became available to him, he could hardly have formed another view. The correctness of that material has not been substantially challenged in this case. 89 As to the third basis, minds may differ as to the appropriateness of Mr Olde's actions in relation to Mr Steele. It is clear, however, that Mr Olde regarded himself as under a duty to a client to draw attention to facts relating to Mr Goulding and the SIH Group. I do not find that fact of itself derogatory of his credit. 90 The real question is whether Mr Olde allowed the view that he had come to concerning Mr Goulding's honesty to taint his recording of the factual matters that he discovered or the opinions he expressed as to the affairs of members of the SIH Group. I cannot see any evidence that he did. In my view, his evidence was given carefully and in a measured fashion. He was prepared to concede matters that were put to him, for instance, gaps in his knowledge concerning the factual matrix. He gave careful consideration before giving answers on controversial matters. I was impressed by his demeanour as a witness. I could not conclude that any view that he had formed about Mr Goulding affected his judgment in relation to matters of fact he recorded or opinions he expressed. I do not find that his evidence was tainted by bias. 91 It was also contended that the validity of Mr Olde's evidence was compromised by gaps in his knowledge revealed in cross examination. It is hardly surprising that there were gaps as he sat in the witness box, bearing in mind the large and complex body of factual material that he had traversed in relation to the affairs of the SIH Group. He was ready to concede that there were gaps in relation to particular matters put to him; he did not pretend to know matters that he did not. The gaps demonstrated related to relatively minor matters, were mostly cured and were not such as to compromise either his factual findings or the opinions he expressed. 92 All in all, I find that Mr Olde was a witness whose credit was not seriously impugned and whose statements of fact and opinion are in general terms fit for acceptance by the Court, as appropriate. 93 Mr Goulding in cross examination attacked the ASIC officers and the lay witnesses called by ASIC with varying degrees of success. However, the results of these attacks were not such as to lead me to reject any of the evidence of those witnesses that was germane to the findings that I have in fact made in these proceedings. 7 MR GOULDING'S GENERAL SUBMISSIONS 94 Mr Goulding's written submissions contain a number of submissions that extend beyond the individual headings or breaches dealt with in these reasons. I propose to deal with them here rather than under the individual headings. In fact, they correspond with similar submissions that Mr Goulding made in support of his r 29.10 application and that I overruled in my r 29.10 judgment at [7] – [10]. What appears below substantially repeats what I said in that judgment. 95 The first matter is that Mr Goulding put forward in a number of places in support of his submissions the contents of affidavits filed on his behalf. In fact, he led no evidence on the trial. The filing of the affidavits did not introduce them into evidence. He announced that he did not intend to call evidence and the affidavits were not read. He was therefore not exposed to cross examination, which he otherwise would have been. I have not read the affidavits (despite the provisions of s 69 of the CPA). I shall not, of course, advert to their contents. 96 The second preliminary submission by Mr Goulding that is misguided is that the fact that Mr Olde neither entered an appearance nor filed a defence on behalf of any or all of the eight named corporate defendants is fatal to ASIC's case. It is patent that Mr Olde's decision not to defend on behalf of the corporate defendants flows from the fact that each of them is in liquidation and there is no leave to proceed against them. Equally, there is no obligation on ASIC as plaintiff to pursue them and there is no point, in view of their status, in pursuing them in this case. It is quite erroneous to suggest that a plaintiff in circumstances such as the present must proceed (or obtain relief) against the corporate defendants as a basis for making out a case against a director of those defendants. The failure of ASIC to pursue and Mr Olde to defend the proceedings against the corporate defendants cannot assist Mr Goulding in these proceedings. Equally, the failure to seek relief against the trustees of any of trusts does not enure in Mr Goulding's favour. 97 Thirdly, Mr Goulding asks that he should be given relief or that the Court should act in some way upon the provisions of r 14.28(1)(c) of the UCPR relating to the striking out of matter in pleadings as being an abuse of the process of the Court. It is claimed that the relevant portion of the statement of claim and the relief sought are equally applicable to Mr Geagea as the fourth defendant and, furthermore, that the declarations and orders sought apply to the eight corporate defendants and also to various trusts that are not named as parties to the proceedings. It is claimed that for ASIC to proceed in those circumstances amounts to an abuse of the process of the Court. That proposition is clearly quite incorrect and the submission is rejected. A plaintiff may proceed against whichever of the defendants it chooses to without proceeding against others. This does not mean that Mr Goulding cannot rely in an appropriate way on deficiencies in ASIC's pleading. 98 The fourth of the preliminary points to which I have referred is that the absence of Mr Geagea as a defendant is somehow fatal to ASIC's case against Mr Goulding. ASIC and Mr Geagea settled the proceedings as between them on the fourth day after the hearing commenced. Mr Geagea, against whom the proceedings had continued up to that point, was also sued as a director or a person who had acted as a director of the corporate defendants. As the settlement by the making of orders by consent against Mr Geagea involved Mr Geagea making admissions, I was asked not to deal with the effectuation of the settlement, and, indeed, I should not in any event have done so. I made an order for the separate determination of those questions, which order was subsequently modified in some regards by Hammerschlag J, who dealt with the effectuation of the settlement. The submission that this somehow affected ASIC's right to proceed against Mr Goulding is without foundation. ASIC and Mr Geagea were perfectly entitled to settle the litigation between them, if they were minded to do so. They did settle the proceedings as between them. That had no effect upon ASIC's entitlement to continue to conduct the proceedings against Mr Goulding, which, indeed, it has. 8 THE INDIVIDUAL BREACHES 99 I shall now proceed to deal in turn with the breaches alleged. Each breach will be dealt with under three headings, namely, ASIC's submissions, Mr Goulding's submissions and conclusions. I have taken the course of setting out ASIC's written submissions virtually verbatim under the first heading. I see no point in paraphrasing them and they usefully summarise the evidence on which ASIC relies in each instance. In the absence of countervailing evidence and in view of my findings on credit, that evidence I generally accept. Any commentary on or modification of ASIC's submissions is dealt with in the corresponding section on conclusions. Under the second heading I have summarised Mr Goulding's submissions. Under the third heading, in the section on conclusions, I have set out my conclusions in respect of the particular breach. 8.1 The making of loans 100 As noted in [15] above, the loans complained of, in the event, are those set out in Sections A and B of Annexure D to this judgment. Those loans were made by Equities and Capital. The case based on loans made by other entities in the SIH Group, which were originally set out in a Section C of the Annexure, has been abandoned by ASIC. The complaint now made is that Mr Goulding in causing or permitting the making of the loans set out in Sections A and B of Annexure D breached his duties under ss 180 – 182 of the CA. 8.1.1 ASIC's submissions 101 The submissions made by ASIC in support of its allegations against Mr Goulding regarding the making of loans are set out under the respective headings below. Evidence of insolvency 102 Mr Goulding's attack on the credibility of Mr Olde, premised on an assertion that Mr Olde's opinion of Mr Goulding was infected by bias, did not, even if successful, impugn the statutory presumption that there is prima facie evidence of the matters stated or recorded in the documents specified in [58] and [59] above provide prima facie evidence of the relevant facts. 103 A prima facie case is one that stands unless there is evidence to displace it. Mr Goulding adduced no evidence to displace the statutory presumption arising under s 1305(1) of the CA. At no point during the cross examination of Mr Olde did Mr Goulding challenge the accuracy of the matters recorded in those documents. Further, Mr Goulding has put no evidence before the Court to contradict those records. 104 In the result, ASIC has put before the Court unchallenged prima facie evidence that each company in the SIH Group was insolvent at all material times, being the matters recorded or stated in: (1) the MYOB records (Exhibit F); (2) the financial statements (Exhibit E); (3) the provisional liquidator's reports (Exhibit A 12/4602 - 4721); and (4) the s 533(2) report (Exhibit G at Tab 9). The Court is obliged to give weight to the matters stated or recorded within those "books" unless it is proven that the matters stated or recorded within them are incorrect. 105 In the present case, the provisional liquidator's reports, the tracing spreadsheets and the s 533(2) report were created by Mr Olde as the liquidator, and therefore the agent, of each of the companies in the SIH Group. The provisional liquidator's reports were ordered by the Court. The s 533(2) report and the tracing spreadsheets which underpin it were created pursuant to the statutory obligation with respect to the provision of s 533 reports to ASIC. In preparing those "books" Mr Olde was taking an authorised step in carrying on the business of the companies, as required by order of the Court or pursuant to statute. It follows, therefore, in ASIC's submission, that those documents are admissible under s 1305(1) of the CA. 106 The consequence of the analysis set out above is that the books of the entities in the SIH Group and the reports and spreadsheets of the liquidator upon which ASIC's case is premised are prima facie evidence of the matters stated or recorded within them. 107 Further, ASIC read the affidavit evidence of Mr Olde, the liquidator. This was largely evidence of factual observation. The only relevant evidence that he gave in the nature of opinion evidence was the opinions that he expressed in respect of the solvency of each company in the SIH Group. 108 The matter that is centrally and hotly in contest in relation to each of these breaches is whether it was established that the borrower was in each case insolvent. 109 The evidence relied upon by ASIC to establish the insolvency of all relevant entities starts with the unchallenged prima facie evidence of the matters stated and recorded in the entities' MYOB records. In addition, Mr Olde's affidavit evidence shows that he conducted an analysis of the balance sheet and cash flow position of each company and the relevant trusts in the SIH Group based on the financial documents and, in particular, the MYOB records of each entity. 110 In cross examination, Mr Olde expressed the view that it was appropriate to rely on the MYOB records because he and his staff had reviewed relevant source documents, such as bank statements, credit card statements, cheque butts, deposit slips, contracts, etc, and the MYOB records appeared substantially to reflect the position ascertained by Mr Olde from that review. In conducting his analysis, Mr Olde had regard to the statutory financial reports for the various SIH Group members, copies of which are in evidence. Mr Olde was of the opinion that the financial position disclosed in the MYOB records is consistent with those financial reports. 111 In general terms, the result of the analysis made by Mr Olde was that for the periods indicated in his affidavit evidence in respect of companies other than Capital: (a) in each month there was a significant deficiency of assets to liabilities for each member of the SIH Group; and (b) other than isolated, and comparatively rare, instances in which a company made a profit in a month, in each month under consideration each member of the SIH Group made a loss. Accordingly, in Mr Olde's opinion, each company was insolvent for the periods indicated in his affidavit evidence. 112 In the case of Capital, for the periods indicated by Mr Olde in his affidavit evidence: (a) There was recorded a surplus of assets over liabilities for the months November 2004 to June 2006. However, in Mr Olde's view, the vast bulk of the assets of Capital comprised loans made to other members of the SIH Group. Owing to the insolvency of those companies, Mr Olde was of the view that there was never any realistic prospect that the loans to Capital would be repaid, such that the balance sheet significantly overstated the value of Capital's assets at all material times. (b) Capital recorded a loss in each relevant month. Accordingly, in Mr Olde's opinion Capital was insolvent for the period indicated in his affidavit. 113 ASIC also relied on further evidence of insolvency found in Exhibit E, which identifies and summarises various financial statements for members of the SIH Group that are in evidence, and in Exhibit R, which contains financial statements for some members of the SIH Group and a schedule summarising the contents of those statements. That evidence is consistent with the MYOB records relied upon by Mr Olde and with the conclusions expressed by him. 114 Further, as Mr Olde emphasised in his evidence, the members of the SIH Group had significant secured liabilities, in respect of which there was a shortfall of assets available to meet those liabilities. Mr Olde's estimate of the shortfall in secured and unsecured liabilities is summarised in Exhibit Y. 115 In cross examination, Mr Olde used Newcastle as an example. He gave evidence that the amount of approximately $9 million for the secured debt/funding shortfall for Newcastle as set out in Exhibit Y was made up of: (a) $3 million debt to Hickory Developments; (b) $3 million debt to Capital; and (c) $3 million representing the shortfall of secured assets to secured liabilities owing to the secured creditor, Abacus. Mr Olde emphasised in evidence that the $11 million total figure for Newcastle as set out in Exhibit Y was not the total amount of liabilities of Newcastle; in particular, it did not include the bulk of the secured debt, for which there were offsetting assets. The total amount of secured debt was about $14 million and the total amount of secured and unsecured debt was about $22 million, against which there were assets of about $10 million. 116 ASIC submitted that, based on the evidence referred to above, the Court should conclude that each member of the SIH Group was insolvent for the periods stated in Mr Olde's affidavit evidence. A table of the periods of insolvency appears at [162] below. Inter Group Loans 117 The complaint now made is in respect of loan agreements entered into by Equities and Capital with various members of the SIH Group and advances of moneys made pursuant to those loan agreements. The amounts actually advanced were recorded in the MYOB records of the various entities. 118 The evidence that the loans referred to in the last preceding paragraph were made is uncontested. Bearing in mind Mr Goulding's position in Equities and Capital, there can be no real doubt that he caused or permitted the making of each loan. 119 ASIC submitted that in so doing, Mr Goulding breached ss 180 - 182 of the CA in respect of each of the loans complained of. The Equities Loans 120 ASIC's submission is that the conduct of Mr Goulding in causing or permitting Equities to enter into, and advance moneys pursuant to, the loans by Equities set out in Section A of Annexure D to this judgment ("the Equities Loans") breached ss 180 - 182 of the CA in the following ways. 121 First, at all material times, each of the borrowers under the Equities Loans, namely, House, Newcastle, Beaconsfield, Melbourne, Collingwood, Hawthorn and the NC49 Trust, was insolvent and there was no realistic prospect that any borrower would be able to repay the moneys advanced by Equities. 122 On any view, causing a company to advance moneys to an insolvent borrower constitutes a failure to exercise the degree of care and skill required of a reasonable director in Mr Goulding's position within the meaning of s 180 of the CA. 123 In particular, because there was no prospect that the loans would ever be repaid, the Equities Loans were transactions that produced no benefit, and caused detriment to, Equities: see, eg, Gamble v Hoffman supra. 124 Further, Mr Goulding was a director (indeed, in most cases the sole director) of the borrower companies at all material times. Accordingly, Mr Goulding must be taken to have known the financial position of those companies at the time the Equities Loan Agreements were entered into and on each occasion of an actual advance by Equities pursuant to those loan agreements: see, eg, ASIC v Adler supra at [372], Proposition (8). 125 Secondly, given Mr Goulding's position as the sole shareholder (either directly or indirectly) of the borrower companies, the principles summarised by Santow J in ASIC v Adler regarding potential conflicts of interest were engaged: see [45] above. Mr Goulding is required to demonstrate that he exercised "scrupulous concern" to ensure that all necessary approvals and adequate safeguards were put in place. At a minimum, adequate safeguards would require that there was a reasonable basis to conclude that the borrower companies had sufficient surplus assets or liquidity to repay the moneys advanced. Mr Olde's evidence demonstrates that none of the borrowers had such resources. 126 In this case, the necessary approvals and safeguards included satisfaction of the requirements of the Equities Information Memorandum. The Equities Information Memorandum required that the loans be made only to Approved Development Borrowers and only for the purposes permitted by each Loan Agreement Execution Deed. 127 There is no evidence that Equities approved the borrowers as Approved Development Borrowers before moneys were advanced to them. In particular, there is no evidence of any minutes of directors' meetings at which the issue was considered and approval given. Further, Mr Olde gave evidence that he had "seen nothing that indicates that any of the companies were, in fact, approved development borrowers". Moreover, the Equities' Loan agreements pursuant to which the moneys were advanced contained no provisions restricting the use to which the loan moneys could be put by the borrowers to the uses permitted under the Loan Agreement Execution Deeds signed by investors. 128 Thirdly, Mr Olde's evidence summarised above demonstrates that Equities was insolvent (or at the very least virtually insolvent), so as to bring into play the requirement that directors of Equities take into account the interests of creditors in the exercise of their powers and performance of their duties. Here, the creditors of Equities included the investors who had lent money to Equities as set out in Annexure B to this judgment. On any view, it was not reasonably in the interests of those creditors for Mr Goulding to cause or permit Equities to advance the moneys that it had been lent to related entities that were themselves insolvent or virtually insolvent. 129 Fourthly, it cannot be argued that Equities obtained an indirect benefit from the loans that was sufficient to offset the detriment it suffered, by reason of the benefit obtained by the borrower companies. In particular, although the borrower companies achieved a benefit in the form of obtaining finance in circumstances where equivalent third party finance would have been unavailable (due to the insolvency of the borrowers), Equities itself received no indirect benefit from the borrowers' benefit. 130 Accordingly, by causing or permitting Equities to make loans to other members of the SIH Group as set out in Section A of Annexure D to this judgment and to make advances under those loans, Mr Goulding breached ss 180 - 182 of the CA. The Capital Loans 131 ASIC submitted that the conduct of Mr Goulding in causing or permitting Capital to enter into, and advance moneys pursuant to, the loans by Capital set out in Section B of Annexure D to this judgment ("the Capital Loans") breached ss 180 - 182 of the CA in the following ways. 132 First, at all material times, each of the borrowers under those loans, namely, House, Newcastle, Beaconsfield, Melbourne, Collingwood, Hawthorn, the NC49 Trust, the NC41 Trust, the WSSUT and the DPT, was insolvent and there was no realistic prospect that any borrower would be able to repay the moneys advanced by Capital. That follows from Mr Olde's evidence as to solvency set out above. 133 For the reasons set out above in respect of the Equities Loans, the conduct of causing a company to advance moneys to an insolvent borrower constitutes a failure to exercise the degree of care and skill required of a reasonable director in Mr Goulding's position within the meaning of s 180 of the CA. 134 Further, entering into loan agreements with, and making advances to, insolvent borrowers clearly was not in the interests of the investors who had acquired redeemable preference shares in Capital either pursuant to the "roll over" of investments from Equities or otherwise. 135 Secondly, the Capital Loans failed to comply with the requirements of the Capital Prospectus in relation to the Investment Team. In particular, there is no evidence that: (a) an Investment Team was ever established by Capital; or (b) any Investment Team met to consider the investment by Capital, through the Capital Loans, in the various members of the SIH Group. In that respect, it is important to emphasise that all meetings of the Investment Team and any recommendations that it made or actions that it took were required to be formally minuted and recorded. There is no evidence of any record of any such meeting. 136 Mr Olde was generally of the view, based on the documents that he had reviewed, that the Capital Loans did not comply with the Capital Prospectus. 137 Thirdly, the Capital Loans failed in particular to comply with the requirements of the Capital Prospectus in relation to the conflict of interest of Mr Goulding. 138 A director who is placed in a situation of potential conflict is required to exercise "scrupulous concern" to avoid any conflict of interest: see at [46] above. That general requirement was supported by the terms of the Capital Prospectus. In particular, the Capital Prospectus required that any such investment be "made on an arms [sic] length basis, the directors comply with the Corporation Act 2001 [sic] in regard to disclosures, board meeting presence and voting; and similarly the relevant directors abstain from decisions of the Investment Team where there are material conflicts of interest". 139 Mr Goulding had an interest in each of the borrowers by virtue of being either the sole shareholder and director of the company or the sole director and sole shareholder of the company's parent company (House). 140 ASIC submitted that the Court should conclude that the Capital Loans were not made on an arm's length basis. In particular, in addition to the inability of the borrower companies to repay the loans: (a) None of the loan agreements provided for Capital to be secured by registered mortgage over any real property assets of the borrower. (b) A number of loan agreements referred to an "unregistered mortgage caveat". At best, this refers to an equitable mortgage or equitable charge which would rank behind any secured debt. (c) The remaining loan agreements refer to the relevant security as being a "debenture" over the assets of the borrower company. A debenture is nothing more than a promise to pay made by a company. Accordingly, those loans were effectively unsecured. 141 Further, there is no evidence that Mr Goulding gave to the other directors of Capital (namely Mr Geagea and Ms Carmel Goulding ("Ms Goulding")) notice of his interest in the borrower companies as required by s 191 of the CA. ASIC asserted that, in particular, the exception to disclosure in s 191(2)(a)(i) did not apply because Mr Goulding was not merely "a member", among many, of the borrowers; he was the sole member (either directly or indirectly) and a director of each of them. 142 Capital was a public company within the meaning of ss 9 and 45A of the CA. As such, s 195 of the CA applied to prevent Mr Goulding from being present at any meeting of directors of Capital while the Capital Loans were being considered and from voting on whether to make the loans. 143 A significant number of the minutes of the Capital directors' meetings at which the Capital Loans were approved or ratified are in evidence. The minutes from those meetings record that Ms Goulding, Mr Geagea and Mr Goulding were present at each meeting. They further record that the Chairperson, Ms Goulding, tabled each loan agreement; that the meeting considered each agreement; and that the meeting resolved to execute it. There is no statement that Mr Goulding absented himself during that process. Each set of minutes is signed, apparently by Ms Goulding, as a "true and complete record" of the relevant meeting. 144 Accordingly, Mr Goulding was both present at each meeting when the loan agreements were considered and voted for the resolutions to execute the loan agreements. This was both a breach of s 195 of the CA and, of greater significance for the present litigation, a breach of the terms of the Capital Prospectus under which moneys were invested with Capital by members of the public. 145 Fourthly, it cannot be argued that Capital obtained an indirect benefit from the loans that was sufficient to offset the detriment it suffered by reason of the benefit obtained by the borrower companies. In particular, although the borrower companies achieved a benefit in the form of obtaining finance in circumstances where equivalent third party finance would have been unavailable (due to the insolvency of the borrowers), Capital itself received no indirect benefit from the borrowers' benefit. 146 Accordingly, by causing or permitting Capital to make the Capital Loans and to make advances under those loans (as summarised in Section B of Annexure D to this judgment), Mr Goulding breached ss 180 – 182 of the CA. 8.1.2 Mr Goulding's submissions 147 Mr Goulding submitted that the case on the breaches of duty by the making of loans must fail by reason of the non appearance and lack of defence by any of the corporations named as defendants and the non inclusion of any of the trusts as a party to the proceedings. He submitted that the insolvency of any relevant entity is not proved, by reason of the fact that Mr Olde's evidence should be rejected entirely or does not suffice to prove the insolvency of any of the entities. In so far as it was alleged that the loans were not made for the purposes of property development (other than those to Newcastle), he submitted that the evidence shows that the loans to Hawthorn, Beaconsfield and Collingwood were also made for the purposes of property development. 8.1.3 Conclusions 148 This section states my conclusions in relation to Breach 1, namely, causing or permitting loans to entities which were insolvent or in breach of procedures laid down for making such loans. 149 As matters stood after final submissions, the questions to be determined in relation to Breach 1 are as follows: (A) Whether ASIC's pleading is adequate to support the orders sought in respect of this breach. (B) Whether ASIC's objections to the propriety of the loans as finally formulated are made out. 150 ASIC's objections to the propriety of the loans were further refined during oral submissions when it listed the points finally relied on in respect of Breach 1 as follows: (1) the borrowers were insolvent; (2) the lenders were insolvent, meaning that the "company" whose interests had to be taken into account included the creditors; (3) in relation to the Equities Loans, they were not made to Approved Development Borrowers; (4) in relation to the Capital Loans, no Investment Team was established; and (5) in both cases, conflicts of interests were not properly dealt with. A Adequacy of pleading 151 There were at least three regards in which it might be thought that ASIC's pleading in relation to Breach 1 was unsatisfactory, to the extent that it would not support the findings sought in respect of the breach. In the first place, it appeared that there was no allegation of breach in the statement of claim in relation to the loans by companies other than Equities and Capital, which were the loans originally listed in Section C of Annexure D to this judgment. After this matter was agitated during oral submissions, ASIC, as already noted at [15] above, abandoned this aspect of its case. 152 That left two regards in which it was in issue as to whether the allegations in the statement of claim were adequate to support the relief sought. The first was whether it was sufficiently alleged in the statement of claim that loans and advances were made to entities that were actually insolvent (as opposed to an allegation that there was no or insufficient consideration as to whether the entities were solvent or not) could be taken into consideration on the question of whether or not breaches were established. The second was as to whether, even if this question were, in general terms, adequately raised, there was a sufficient allegation that the making of advances, as opposed to entering into the loan agreements, constituted breaches of Mr Goulding's director's duties. 153 As to the first of these, par 91 of the statement of claim dealt with loans by Equities and par 95 dealt with loans by Capital. Those paragraphs alleged, by reference to par 89 and par 93 respectively, that Mr Goulding and Mr Geagea in causing or permitting Equities and Capital respectively to enter into specified loan agreements: "(a) contrary to section 180 of the Act, failed to exercise their powers and discharge their duties as directors and officers of the First Defendant with the degree of care and diligence that a reasonable person would exercise; (b) contrary to section 181 of the Act, failed to exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose; and (c) contrary to section 182 of the Act, improperly used their positions as directors and officers of the First Defendant to: (i) gain an advantage for the Third Defendant; or (ii) gain an advantage for the Fourth Defendant; or (iii) cause detriment to the First Defendant …" 154 The particulars appended to each of pars 91 and 95 included the following mutatis mutandis: "A The Third and Fourth Defendants failed to: (i) properly consider the merits of the loans on a commercial arms-length basis; (ii) properly consider the borrowers' ability to repay the loans; (iii) consider investments or loans with entities or development unrelated to the Third Defendant; (iv) take appropriate and effective security in respect of the loans; (v) give any, or any adequate, consideration to whether the proposed loan should be made having regard to the terms of the Equities' Information Memorandum; (vi) give any, or any adequate, consideration, to the solvency of the borrowers; (vii) take any, or any adequate, steps (or action) to protect the lender. B The Third and Fourth Defendants preferred their interests, or the interests of one or other of them, to those of the First Defendant; C The Third and Fourth Defendants preferred their interests, or the interests of one or other of them, to those of the Investors decribed [sic] in Annexure F to the Fourth Further Amended Originating Process; D The Third and Fourth Defendants caused, or permitted, the First Defendant to act in a manner inconsistent with, or not authorised by, the Equities' Information Memorandum; …… G The Third and Fourth defendants caused, or permitted, the First Defendant to engage in the conduct described at paragraphs 13 and 75(d) of this pleading in circumstances where the First Defendant was insolvent (or of doubtful solvency)." 155 Under the rules of pleading, many of the above matters alleged only as particulars ought have been pleaded as substantive allegations, calling for proper and detailed answer, as particulars do not. Furthermore, important matters that should have been alleged directly were alleged only indirectly or inferentially. Foremost among these was the primary allegation that breaches were constituted by causing or permitting loans to entities that were in fact insolvent, rather than alleging lack of appropriate consideration as to solvency as in particulars A(ii) and A(vi) set out above. 156 However, the actual insolvency of the borrowers seems to me inherent in the allegations in particulars A(ii) and A(vi) on a fair reading of them, in the circumstances of this case. It certainly appeared to me that it was understood by the parties that the allegation was that the borrowers were insolvent or virtually insolvent at the time of the loans. Both parties engaged with this issue. It took up a great deal of the affidavit and documentary evidence tendered by ASIC and was the subject of most of the cross examination conducted at the trial by Mr Goulding. No objection was taken at the trial that the fact of actual insolvency was not in issue. It was centre stage for a great deal of the trial and it was hotly contested as to whether the evidence of insolvency ought be accepted. It seems to me that the Court should therefore regard the actual solvency or insolvency of the borrowers as an issue joined between the parties on the statement of claim as it stood and contested at the trial. 157 If I am wrong and the issue cannot fairly be regarded as arising on the pleadings as they stand, then the principles on which it is to be determined whether the relief sought is available to the plaintiff are laid down in Vines v ASIC supra. If it were necessary, by reason of the matters set out in the last preceding paragraph, I should find that the parties chose to contest the issue as to whether or not the relevant entities were solvent or insolvent at the relevant times, although not in fact pleaded. However, it is not necessary for me to decide that. 158 As to the second outstanding problem, although ASIC conducted the case on the basis that the making of advances under the loan agreements, as well as the entering into of those agreements, constituted breaches of duty, there is no pleading allegation to that effect. Each of pars 91 and 95 of the statement of claim, by the incorporation of pars 89 and 93 respectively, makes an allegation only of the fact that Mr Goulding caused or permitted Equities or Capital to enter into specified loan agreements. There is no reference in those paragraphs, or relevantly elsewhere, to the making of advances under the agreements as constituting breaches of directorial duties. ASIC has submitted that in various places it used the word "lend", which, even if regrettably imprecise, encompasses the notions both of agreeing to lend and of making advances. The trouble is that, in each case where "lend" is used, there is a cross reference back to par 89 or par 93, each of which clearly and unequivocally complains and complains only of the entering into of the agreements. ASIC has also submitted that the relief for the making of the relevant advances could be given under pars 235 and 236 of the statement of claim, but I entirely fail to see how that could be so. 159 Thus, it is clear that in this case there is no allegation in the statement of claim that would support a finding that the making of advances, as opposed to the entering into of the loan agreements, constituted a breach of Mr Goulding's duties as a director. 160 I therefore turn to the question of whether, despite this fact, the relief sought concerning the advances is available to the plaintiff under the principle laid down in Vines v ASIC supra. That principle is that the relief may be available if the parties chose to contest the relevant issue at the trial, although not in fact pleaded. On the one hand, as I have already said, ASIC clearly conducted its case on this basis. However, it is necessary for the principle to apply that Mr Goulding should also have chosen to contest the issue. Unlike the issue of solvency or insolvency discussed above, Mr Goulding simply did not engage with this issue. I do not think it can be fairly said that he chose to contest it. In those circumstances, I do not think that relief can be given under the principle in Vines v ASIC in respect of the claims in relation to defaults of duty said to arise from the making of advances. B Grounds of objection to loans 161 I turn now to the five grounds on which ASIC ultimately relied in alleging that the entering into of the loan agreements and the making of the advances was in breach of Mr Goulding's duties. In view of my conclusions in [159] and [160] above, the case in relation to the making of the advances cannot be maintained. So far as the entering into of the loan agreements is concerned, there is no difficulty in concluding, from Mr Goulding's positions in the various entities and the evidence generally, that Mr Goulding caused or permitted the entering into of the Equities Loan Agreements and the Capital Loan Agreements. (1) & (2) Making of loans to insolvent borrowers and by insolvent lenders 162 I append a table that shows the relevant entities that Mr Olde says in his evidence were insolvent and the periods during which that insolvency prevailed. These were all the entities that were members of the SIH Group: Entity Period Entity was Insolvent Equities 1 July 2003 – 30 June 2006 House 1 July 2003 – February 2006 Newcastle 1 January 2003 – 30 June 2006 Beaconsfield 1 July 2002 – 30 June 2005 Melbourne 1 July 2003 – 30 June 2006 Collingwood 1 July 2003 – 30 June 2005 Hawthorn 1 July 2003 – 30 June 2005 NC49 Trust 1 July 2003 – 30 June 2006 NC41 Trust 1 July 2004 – 30 June 2005 House t/as Storage King Wickham ("House t/as SKW") 1 July 2003 – 31 October 2004 WSSUT 1 January 2004 – 31 March 2005 "and in all likelihood … the whole period from 1 January 2004 – 30 June 2006" Capital 1 October 2003 – 30 June 2006 163 I have already dealt with Mr Goulding's criticisms of Mr Olde's evidence, particularly as to solvency. My conclusion is expressed at [92] above. I have concluded that Mr Olde's evidence is not to be totally rejected by reason of bias or for such small deficiencies in his knowledge and recollection as were revealed by cross examination. This means that Mr Olde's evidence stands as evidence of the insolvency of the relevant entities at the stated times. Even if Mr Olde's opinion were not accepted, there is no sufficient ground to reject his presentation to the Court of the MYOB records and other documentation underlying that opinion. No evidence has been led by Mr Goulding of any other opinion as to the solvency of these entities, nor has any real or successful challenge been made to the accuracy of the MYOB and other records. Even if the Court did not take into account Mr Olde's opinions as to solvency, a conclusion of insolvency would be reached from an examination of those records in the absence of any countervailing evidence. I do accept Mr Olde's opinions as confirmatory of those conclusions. I find that all the relevant entities were insolvent at the times set out in the above table. 164 I accept ASIC's submissions that there is uncontested evidence that the loan agreements were entered into and that, bearing in mind Mr Goulding's position in each of the lenders, there can be no real doubt, nor was there any contest, that he caused or permitted the entering into of each loan agreement. The making of agreements to lend to borrowers that are insolvent or virtually insolvent, so that repayment of the moneys is unlikely, is prima facie in breach of a director's duty of care under s 180 and duties under ss 181 and 182 of the CA. There is nothing in the material before me to displace this prima facie conclusion in relation to any of the borrowers that was insolvent. In particular, it is not established that either Equities or Capital obtained an indirect benefit from any of the loans sufficient to offset the detriment that it suffered by lending money in circumstances where the recovery of the money was unlikely. 165 However, an examination of the table reveals a difficulty with ASIC's case in respect of the Equities Loan Agreements. ASIC submitted earnestly that all the Equities Loan Agreements were entered into when the borrowers were insolvent. It submitted that at the same time Equities, as the borrower, was insolvent or virtually insolvent. A perusal of the evidence indicates that it shows that neither the borrowers (with two exceptions) nor the lender were insolvent when the loan agreements were entered into. Reference to Annexure D to this judgment shows that the entities to which it is alleged that loans were made by Equities in breach of Mr Goulding's duties are House, Newcastle, Beaconsfield, Melbourne, Collingwood, Hawthorn and the NC49 Trust. The difficulty is that the Equities Loan Agreements in respect of which the claim is pressed were all entered into on 26 March 2003. But it is recorded in the table in [162] above (and also in Annexure D) that it was not until 1 July 2003 that any of the borrowers, except Newcastle and Beaconsfield, was found to be insolvent. Equally, it was not until the same date that the lender, Equities, was found to be insolvent. In the face of this evidence, I am not prepared to find in the requisite way that any of those loan agreements (except the loan agreement with Newcastle (" the Newcastle loan agreement") and the loan agreement with Beaconsfield ("the Beaconsfield loan agreement")) was entered into by either a borrower or a lender that was insolvent. 166 I am equally not prepared, despite the comparatively short time between 26 March and 1 July 2003, on the evidence available to find in the requisite way that Equities was on 26 March 2003 "virtually insolvent" as submitted. Evidence is not available to permit me to assess its financial position on that date with any precision. 167 The situation is different in relation to the Newcastle loan agreement and the Beaconsfield loan agreement. In the case of Newcastle, the evidence is that it was insolvent from 2 January 2003 and was therefore insolvent when the Newcastle loan agreement was entered into. In the case of Beaconsfield, the evidence is that it was insolvent from 1 July 2002 and was therefore insolvent when the Beaconsfield loan agreement was entered into. The conclusions of insolvency are based on Mr Olde's affidavit opinion to that effect, which was not challenged in the conduct of the defence. Similarly, in the case of the Capital Loan Agreements, the evidence shows that they were entered into when the borrowers and, indeed, the lender were insolvent. 168 As Capital was insolvent, as I have found in [163] above, at the time it entered into the Capital Loan Agreements, the requirement came into play that directors of a lender should in the performance of their duties take into account the interests of creditors, including in the case of Capital the holders of the preference shares issued under the Capital Prospectus. 169 I therefore conclude that in causing or permitting the entering into of the Newcastle loan agreement and the Beaconsfield loan agreement with insolvent borrowers Mr Goulding committed a breach of his duties under ss 180 – 182 of the CA. I conclude that he committed breaches of those duties in causing or permitting the entering into of the Capital Loan Agreements between an insolvent entity as lender and insolvent entities as borrowers. I refuse to make any such finding in relation to the others of the Equities Loan Agreements. (3) Equities Loans not made to Approved Development Borrowers 170 The Equities Information Memorandum provides as follows: "Where you agree to provide a loan to the Company, the purpose of your loan will be for the lending and advancement of monies to Approved Development Borrower(s) on a secured or unsecured basis and subject to conditions that the loan monies may only be used by the Approved Development Borrower(s) for the purposes of their approved property development projects. ……. Prior to the Company on–lending any monies, the Company will enter into a loan agreement with Approved Development Borrowers … " 171 There is no evidence that Equities approved any borrower from it as an Approved Development Borrower or that any of the borrowers was in fact an Approved Development Borrower. Furthermore, none of the loan agreements to any of the borrowers imposed a condition restricting the use of the loan moneys as required by clause 1.1 above. 172 I conclude that in causing or permitting Equities to enter into of the Equities Loan Agreements to persons not established to be Approved Development Borrowers and under loan agreements that did not impose a condition restricting the use of the loan moneys to approved property development projects Mr Goulding committed breaches of his duties under ss 180 – 182 of the CA. (4) In respect of Capital Loans no Investment Team established 173 There was a requirement of the Capital Prospectus that: "the Sydney Investment House Capital Fund shall only make investment after consideration has been given by the Sydney Investment House Investment Team and otherwise in accordance with the Sydney Investment House Investment Plan …" 174 I accept the submission of ASIC, and it was not in reality contested, that there is no evidence that an Investment Team was ever established by Capital or that an Investment Team ever met to consider the investment by Capital by making the Capital Loans (or, indeed, any loans). 175 I conclude that in causing or permitting the making of the Capital Loans without prior consideration by the Sydney Investment House Investment Team, Mr Goulding committed breaches of his duties under ss 180 – 182 of the CA. (5) Making of loans in breach of conflict of interest requirements 176 The relevant principles are set out in [45] - [48] above. Santow J's remarks in his Proposition (14) in ASIC v Adler concerning the need for "special vigilance" and "scrupulous concern" in conflict of interest situations should especially be borne in mind. 177 On the evidence I accept that Mr Goulding had a direct or indirect interest as the sole shareholder (either directly or indirectly) of the borrower companies in all the "investments" that were made by the making of the relevant loans by Equities and Capital. It was not really submitted to the contrary. 178 Given Mr Goulding's position, Mr Goulding was required to demonstrate that he had exercised "scrupulous concern" to ensure that all necessary approvals and adequate safeguards were put in place. At a minimum, adequate safeguards would require that there was a reasonable basis to conclude that the borrower companies had sufficient surplus assets or liquidity to repay the moneys advanced. Mr Olde's evidence demonstrates that most of the borrowers had no such resources. In respect of the others there is no evidence that Mr Goulding did anything to establish that they had such resources or any reasonable basis to conclude that they did. 179 In relation to Equities, the necessary approvals and safeguards included satisfaction of the requirements of the Equities Information Memorandum. The Equities Information Memorandum required that the loans be made only to Approved Development Borrowers and only for the purposes permitted by each Loan Agreement Execution Deed. As has been found at [172] above, these requirements were not met. 180 On the basis of the above, Mr Goulding in causing or permitting the making of the Equities Loans and the Capital Loans was in breach of his obligations under ss 180 – 182 of the CA. 181 In addition, in relation to the Capital Loans, Capital, as a public company, was obliged to meet the additional procedural requirements set out in ss 191 - 195 of the CA. Section 191 requires the giving of notice of the conflict to other directors. Section 195 relevantly provides as follows: "195 Restrictions on voting - directors of public companies only Restrictions on voting and being present (1) A director of a public company who has a material personal interest in a matter that is being considered at a directors' meeting must not: (a) be present while the matter is being considered at the meeting; or (b) vote on the matter. (1A) Subsection (1) does not apply if: (a) subsection (2) or (3) allows the director to be present; or (b) the interest does not need to be disclosed under section 191. Note: A defendant bears an evidential burden in relation to the matter in subsection (1A), see subsection 13.3(3) of the Criminal Code . (1B) An offence based on subsection (1) is an offence of strict liability. Note: For strict liability , see section 6.1 of the Criminal Code . Participation with approval of other directors (2) The director may be present and vote if directors who do not have a material personal interest in the matter have passed a resolution that: (a) identifies the director, the nature and extent of the director's interest in the matter and its relation to the affairs of the company; and (b) states that those directors are satisfied that the interest should not disqualify the director from voting or being present. Participation with ASIC approval (3) The director may be present and vote if they are so entitled under a declaration or order made by ASIC under section 196. Director may consider or vote on resolution to deal with matter at general meeting (4) If there are not enough directors to form a quorum for a directors' meeting because of subsection (1), 1 or more of the directors (including those who have a material personal interest in that matter) may call a general meeting and the general meeting may pass a resolution to deal with the matter. Effect of contravention by director (5) A contravention by a director of: (a) this section; or (b) a condition attached to a declaration or order made by ASIC under section 196; does not affect the validity of any resolution." 182 In addition, the Capital Prospectus provides as follows concerning related contracts and interests: "The Sydney Investment House Fund may invest in projects where directors have a direct or indirect interest provided that the investment is made on an arms [sic] length basis, the directors comply with the Corporations Act 2001 in regard to disclosures, board meeting presence and voting; and similarly the relevant directors abstain from decisions of the Investment Team where there are material conflicts of interest." 183 So far as Capital is concerned, on the evidence there is no sign that there was any compliance by Capital or Mr Goulding, with either the statutory requirements or the provision of the Capital Prospectus set out above. Nor do I understand that it was contended to the contrary. 184 These non compliances reinforce in respect of the Capital Loans the finding recorded at [180] above that Mr Goulding's actions in causing or permitting the making of each of the loans were in breach of his duty of care under s 180 and in breach of his duties under ss 181 and 182 of the CA. 8.2 "Roll overs" 185 The complaint made is that Equities and Capital entered into "roll over" transactions with investors, whereby the investors in effect exchanged their rights to repayment of their investments by Equities for shares in Capital. Mr Goulding acted in breach of ss 180 - 182 of the CA in causing or permitting Capital to issue shares in Capital in this fashion. 8.2.1 ASIC's submissions 186 The submissions made by ASIC in support of its allegations against Mr Goulding regarding "roll over" transactions are set out below. 187 At the time the Capital Prospectus was issued the directors and employees of Equities made a significant effort to entice the existing Equities "loan investors" to "roll over" their investments into the Capital Fund. Those investors that did "roll over" were issued cumulative redeemable preference shares in Capital to a face value of their initial investment in Equities together with any interest that was outstanding on their Equities Loans (or some greater amount). 188 Approximately 41 "roll over" transactions were agreed to by Equities investors. By 30 June 2005, loans in Equities to a value of approximately $5,698,708.48 had been "rolled over" to redeemable preference shares in Capital. The "roll over" transactions complained of by ASIC were ultimately reduced to 31. Evidence which establishes the "roll over" transactions ultimately complained of is summarised in the table at Annexure C to this judgment. 189 The procedure adopted for the "roll overs" involved: (a) In almost all cases, a deed of release between Equities and the investor was executed whereby the investor acknowledged that he or she released the funds that were lent to Equities and that these funds were to be reinvested into redeemable preference shares in Capital pursuant to the terms of the Capital Prospectus. The investor waived all rights he or she had against Equities when the "roll over" took place. (b) The investor was issued redeemable preference shares in Capital pursuant to the terms of the Capital Prospectus. (c) Entries were made in the MYOB records of Equities and Capital which purported to have the effect of: (1) cancelling the liabilities Equities owed to the "roll over" investors; (2) recording as equity in the Capital records the issue of shares to the "roll over" investors; (3) providing for consideration, as between Capital and Equities, by cancelling receivables owing to Equities from other members of the SIH Group and recording those as being owing to Capital; and (4) in addition, a new debt was recorded as owing by Equities to Capital for the difference between the face value of the shares issued by Capital and the face value of the debts the subject of paragraph (3), which, in effect, was a balancing loan. 190 The effect of that process was that Capital incurred the burden of issuing shares to the investors in Equities but received no benefit or adequate consideration in return. The consideration received by Capital was purportedly the "benefit" of inter company liabilities owed by various members of the SIH Group as set out in subparagraph (c)(4) of the immediately preceding paragraph. However, as already demonstrated, each of those members of the SIH Group was insolvent, or virtually insolvent, at all material times. It follows that there was no real prospect of Capital ever recovering any of the moneys due under those inter company receivables. Accordingly, the loans were worth significantly less than their face value. 191 The result is that Mr Goulding, as a director of Capital, caused or permitted Capital effectively to take on obligations under the Capital Prospectus to investors who had previously invested in Equities in circumstances where: (a) Capital received no cash from Equities or the relevant investors for undertaking those obligations; and (b) the only consideration or benefit received by Capital was the "benefit" of debts owed to it by members of the SIH Group that were virtually worthless because there was no real prospect of Capital ever receiving full payment. 192 A further consequence was that the rights of those shareholders in Capital who had paid for their shares in the ordinary way were diminished by reason of the dilution of their capital. It may be noted that nowhere in the Capital Prospectus is mention made of the "roll over" proposal or the precise manner in which that proposal would occur and would affect the rights of shareholders. 193 The conduct of Mr Goulding in causing or permitting Capital to enter into the "roll over" transactions set out in Annexure C to this judgment therefore constituted breaches of ss 180 - 182 of the CA. 8.2.2 Mr Goulding's submissions 194 Although he made submissions relating to "roll over" representations, Mr Goulding made no specific submissions in answer to ASIC's submissions in this regard. 8.2.3 Conclusions 195 As matters stood after final submissions, the questions to be determined in relation to Breach 2 are as follows: (A) Whether ASIC's pleading is adequate to support the orders sought in respect of this breach. (B) Whether ASIC's objections to the "roll over" transactions as finally formulated are made out. A Adequacy of pleading 196 The pleading put forward in support of the relief claimed in respect of this breach is contained in particulars E, F and G appended to par 95 of the statement of claim. The body of par 95 is essentially set out in [153] above, together with some of the earlier particulars. Particulars E, F and G are as follows: "E The Third and Fourth Defendants caused, or permitted, the Second Defendant to engage in the conduct described in paragraph 81(b) of this pleading and Annexure E to the Fourth Further Amended Originating Process in circumstances where: · The First Defendant was insolvent (or of doubtful solvency); and · The Second Defendant was insolvent (or of doubtful solvency). F To facilitate the process of roll over of monies from the First Defendant to the Second Defendant described in paragraph 81(b) of this pleading, the Third and Fourth Defendant caused, or permitted, the Second Defendant to issue redeemable preference shares to the investors described in Annexure E to the Fourth Further Amended Originating Process without ensuring that the Second Defendant received any, or adequate, consideration for each 'H' class share issued; G To facilitate the process of roll over of monies from the First Defendant to the Second Defendant described in paragraph 81(b) above, the Third and Fourth Defendants, by entries made in the accounts of the First Defendant and the Second Defendant: · Caused or permitted the First Defendant to cancel the liability that the First Defendant had to each of the Investors under their loan agreements with the First Defendant, described in Annexure E to the Fourth Further Amended Originating Process; · Caused or permitted the Second Defendant to loan to the First Defendant, and the First Defendant to borrow from the Second Defendant, approximately $1.3 million, in circumstances where the First Defendant was insolvent (or of doubtful insolvency); · Caused or permitted the First Defendant to transfer the assets recorded as loan accounts for the First Defendant's Intercompany Loans from the First Defendant to the Second Defendant in circumstances where the debtor companies were insolvent (or of doubtful solvency); · Caused or permitted the Second Defendant to issue redeemable preference shares to the Investors described in Annexure E to the Fourth Further Amended Originating Process for no or inadequate consideration." 197 Paragraph 81(b) of the statement of claim is as follows: "81 In the course of the business activities pleaded in paragraphs 55 and 57 above, the First Defendant and the Second Defendant represented ('Rollover Representations to Investors Contravention'): …… (b) to the Investors listed in Annexure E of the Fourth Further Amended Originating Process, that the Investor should release the First Defendant from its obligation under the loan agreement entered into between the individual Investor and the First Defendant described in Schedule A to this Pleading, and that the Investor should roll over to the Second Defendant the monies lent by the individual Investor to the First Defendant to enable the individual Investor to purchase shares in the Second Defendant." 198 ASIC submitted alternatively: (a) that on their proper construction these allegations support the claim for relief in respect of the "roll overs"; (b) that, even if they do not, the parties chose to contest these issues within the meaning of Vines v ASIC supra and relief should be granted although it departs from the pleading; and (c) that a further amendment of the statement of claim should be allowed to make the appropriate allegation. 199 The nub of the amendment sought is that particular E should be amended to read: "The Third and Fourth Defendants caused, or permitted, the Second Defendant to engage in rollover of monies from the First Defendant to the Second Defendant and the issue of shares to the persons described in Annexure E …" 200 I have been troubled by the question as to whether on a fair construction of the statement of claim a sufficiently clear allegation is made of breaches of duty in relation to the "roll over" transactions. In this regard the pleading is very unsatisfactory in making substantial allegations in particulars; making allegations by cross reference to distant parts of the pleading that deal with different subject matters; and the general lack of clarity of the language used. These are serious deficiencies in light of the purpose of pleadings to make a party's case clear to the opponent: see [68] above. They are particularly serious in a complex case such as the present, which should be clearly presented to both the opponent and the Court. However, after anxious consideration I have come to the conclusion that particular F, together with the substantive part of par 95, makes a sufficiently clear allegation that the third defendant committed breaches of duty in causing or permitting Capital for the purposes of the "roll overs" to issue redeemable preference shares without ensuring that Capital received any adequate consideration. 201 To this extent and to this extent alone, I shall allow the case concerning the "roll over" transactions to proceed. I do not need in the circumstances to consider the incidence of Vines v ASIC or the amendment application. B ASIC's objections to the "roll over" transactions 202 The 31 "roll over" transactions ultimately complained of are set out in Annexure C to this judgment. In each case, as consideration for the issue of redeemable preference shares, Capital received debts owing to Equities from other SIH Group members together with a balancing debt owed by Equities itself. I have found at [163] above that Equities was insolvent at the time of the "roll over" transactions, as were the other relevant members of the SIH Group. It is clear on the evidence that Mr Goulding as the sole director of Equities and a director of Capital participated in causing or permitting Capital to issue the redeemable preference shares issued in the course of the "roll over" transactions without receiving any or any adequate consideration. I conclude that in causing or permitting these transactions he was clearly in breach of his duties under ss 180(1) and 181 of the CA. He was also in breach of his duty under s 182, at the least by improperly using his position to cause detriment to the corporation. 8.3 Misappropriations 203 ASIC's claim in this regard is that some $4.5 million was misappropriated by Mr Goulding in the sense that moneys to that total were paid out of the SIH Group members' accounts either for Mr Goulding's personal use, or to trusts associated with him or otherwise in circumstances where it does not appear that they were paid for a business or other proper purpose and there is no explanation of the payments. 8.3.1 ASIC's submissions 204 The submissions made by ASIC in support of its allegations against Mr Goulding regarding the misappropriation of moneys are set out below. 205 ASIC submitted that it has put before the Court unchallenged prima facie evidence that: (a) each company in the SIH Group was insolvent at all material times, by the matters recorded or stated in: (1) the MYOB records (Exhibit F); (2) the financial statements (see Exhibit E); (3) the provisional liquidator's reports (Exhibit A 12/4602 - 4721); (4) the s 533(2) report (Exhibit G at Tab 9); and (b) Mr Goulding misappropriated $4.5 million from companies in the SIH Group, by the matters stated or recorded in: (1) the tracing spreadsheets (Exhibit J); and (2) the s 533(2) report (Exhibit G at Tab 9). 206 Mr Olde as liquidator has undertaken a "tracing exercise" which involved identifying the sources of funds received into the control of the SIH Group and the application or use of those funds in the SIH Group. That exercise in effect used a variety of source material to identify the flow of funds into and out of the SIH Group. A description of the steps undertaken by Mr Olde, copies of the spreadsheets prepared by him and his conclusions as to the flow of funds out of the SIH Group are set out in his affidavit evidence and in Exhibit J. 207 In short, the tracing exercise involved the following steps: (a) A team of Mr Olde's employees reviewed source documents of the entities in the SIH Group, including MYOB records, bank statements, schedules, cheque stubs, bank reconciliation reports etc. (b) Based on that review, moneys coming into the SIH Group were characterised based on their apparent source and moneys flowing out of the SIH Group were characterised based on their apparent destination or purpose. In each case, the entries in the MYOB records and other source documents were used to characterise the receipts and payments. (c) The results of that characterisation were entered into the master spreadsheet. The information in the master spreadsheet was then extracted and used in other spreadsheets to summarise the moneys which were paid to, or received from, Mr Goulding (or entities associated with him). 208 Mr Olde concluded that the various members of the SIH Group paid the amounts set out in the following table either to or for the personal purposes of Mr Goulding ("the misappropriated moneys"). There have been corrected some small errors in the table that do not affect the total: Company Name 2002 2003 2004 2005 2006 Total $39,169 $1,153,791 $870,583 $974,675 $3,038,218 House $42,732 $156,596 $410,143 $59,961 $669,433 Equities $1,058 $193,117 $1,030 $195,205 Capital $6,500 $18,250 $24,750 Newcastle $24,156 $97,520 $450 $2,330 $124,456 Beaconsfield $2,400 $13,622 $20,290 $36,312 Melbourne $4,299 $250 $4,549 Hawthorn $243 $22,943 $2,772 $25,958 Collingwood $310 $9,300 $9,610 NC13 Trust $399 $399 NC41 Trust $1,812 $44,014 $45,826 NC49 Trust $29,850 $189,258 $219,108 WSSUT $48,500 $97,017 $145,517 House t/as SKW $24,156 $181,821 $1,332,261 $1,622,826 $1,378,276 $4,539,341 Total 209 Mr Olde has also set out the results of the "tracing exercise" in respect of contributions made to the SIH Group by Mr Goulding as follows ("the contributed moneys"): Company Name 2002 2003 2004 2005 2006 Total House $25,000 $46,727 $106,338 $31,617 $209,682 Equities $56,819 $210,500 $5,800 $273,119 Capital $12,995 $500 $13,495 Newcastle Beaconsfield $41,495 $443,291 $29,110 $513,896 Melbourne $9,000 $9,000 Hawthorn $4,860 $4,860 Collingwood NC13 Trust $160 $160 NC41 Trust NC49 Trust $3,000 $3,000 WSSUT $4,100 $4,100 House t/as SKW Total $41,495 $468,291 $132,656 $341,993 $46,877 1,031,312 210 ASIC submitted that for the reasons set out below there is no basis to credit the contributed moneys against the misappropriated moneys. 211 In the first place, a perusal of the tables of misappropriated moneys and contributed moneys above shows that the misappropriated moneys were not taken from exactly the same entities to which the contributed moneys were paid and certainly not in the same proportions. The fact that Mr Goulding himself contributed moneys to certain members of the SIH Group did not entitle him to cause or permit different members of the SIH Group to make payments of different amounts to or for Mr Goulding's personal purposes. 212 Secondly, and in any event, whilst it appears that the contributed moneys were purportedly advanced by way of loan to the relevant SIH Group members, there is no evidence before the Court of the terms of those loans. In particular, there is no evidence from which the Court could conclude that the amounts advanced by Mr Goulding under those loans were repayable at the times and in a manner consistent with the taking of the misappropriated moneys. 213 Accordingly, ASIC submitted that the amount of the misappropriated moneys is approximately $4.5 million. 214 Even if (which ASIC denied), Mr Goulding was entitled to a "credit" for the amount of the contributed moneys, the evidence referred to above demonstrates that the amount of misappropriated moneys (taking into account the "credit") is approximately $3,508,000. 215 The evidence shows that the misappropriated moneys were paid to the following entities or for the following purposes: Name of Goulding Entity/Recipient Receiving Payment Total ($) Alcorn Trust 225,191 ATM Withdrawals 136,826 Directors Fees 4,466 Directors Loans (includes Family Maintenance Payments) 621,998 GFT 1,099,696 DPT 2,181,438 Suspense/ Unknown 269,724 Total 4,539,339 216 That table is taken from Annexure E to this judgment, which was itself taken from a spreadsheet referred to as the directors' drawings spreadsheet, which is contained in Exhibit J. Annexure E contains a summary of the misappropriated moneys by reference to each year, each entity and each of the above categories. The amounts in Annexure E were taken directly from the directors' drawings spreadsheet. 217 ASIC submitted that the evidence shows, in effect, that Mr Goulding misappropriated approximately $1.5 million to fund his own personal lifestyle and approximately $3 million in payments made to trusts in which he was personally interested. 218 The category of "ATM Withdrawals" refers to moneys withdrawn from bank accounts through ATM machines. As Mr Goulding was the only holder of an ATM card, Mr Olde included those amounts in the misappropriated moneys. By way of illustration, Annexure C to the plaintiff's Outline of Opening (now attached as Annexure F to this judgment) contained a non exhaustive summary of transactions largely falling within this category. It is apparent from a perusal of Annexure F that the moneys expended were for the personal purposes of Mr Goulding and were not for any legitimate business purpose of the company concerned. 219 The category "Directors Fees" refers to payments made to Mr Goulding by House and Equities that bear the notation "directors fees", or something similar, in the MYOB records or other source documents relied upon by Mr Olde. 220 This amount has been included in the misappropriated moneys because a director, as a fiduciary, is not entitled to receive remuneration for his or her services as a director unless there is some express agreement or authorisation to that effect. There is no evidence in these proceedings of any agreement or authorisation of House or Equities to pay Mr Goulding remuneration as a director of those companies. 221 The category "Directors Loans" refers to payments that Mr Olde and his team, by reference to relevant source material, determined were made by way of loan to Mr Goulding. This category includes amounts which are recorded in the MYOB records as being maintenance payments to persons who are apparently former partners of Mr Goulding. This category also includes payments made by credit card that were of a personal nature. An example is the amount of $23,835 at page 422 of Exhibit J. Mr Olde included that sum among the credit card expenditure in Exhibit P described as being day to day living expenses, restaurant bills, massages and other personal expenses. 222 The remaining categories, other than "suspense/unknown", refer to the trusts to which the moneys were paid, namely the GFT, the DPT and the Alcorn Trust. Mr Olde allocated amounts to those trusts when his review of the source material indicated that the relevant moneys were paid directly to, or on behalf of, those trusts. Mr Olde was appointed receiver and manager of the GFT, the DPT and the Alcorn Trust and is in possession of the books and records of those trusts. In each case, the evidence discloses that those trusts are to be identified with Mr Goulding personally. 223 The GFT is a discretionary trust, in the sense that the entitlement of beneficiaries to distributions of income and capital is dependent upon the exercise of a power of selection by the trustee. Mr Goulding was originally the trustee of the GFT. At some stage, House appears to have been appointed trustee of that trust in place of Mr Goulding. It follows that at all material times, Mr Goulding was: (a) the trustee of the GFT or the sole director and shareholder of the trustee, House; and (b) the "primary beneficiary" under the trust. 224 The DPT is a discretionary trust in the sense described above. The trustee of that trust was House. Mr Goulding is a beneficiary of that trust by reason of being a relative of Amber Goulding, who is named as the principal beneficiary in the DPT. Mr Goulding is also the appointor under the trust and as such had the power to remove and replace the trustee. 225 The Alcorn Trust is a so called "hybrid" unit trust/discretionary trust. House was the trustee. House, as trustee of the GFT, was the holder of 100 units in the Alcorn Trust. Mr Goulding himself was a "discretionary beneficiary" of the Alcorn Trust by reason of being a beneficiary of a beneficiary (namely the GFT). 226 In Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 at 552, Gummow J referred to the various categories of the power of selection in discretionary trusts (namely, general, special and hybrid) and said "a power exercisable in favour of any person including the donee of the power would be a general power and thus would be tantamount to ownership of the property concerned". 227 By similar reasoning, ASIC submitted that the fact that Mr Goulding was both a beneficiary and the trustee, or controller of the trustee, of the GFT, the DPT and the Alcorn Trust is sufficient to establish that the assets of those trusts should be treated as his personal assets and identified with him for the purposes of determining whether the payment of the misappropriated moneys involved a breach of his director's duties. Mr Olde has adopted that reasoning and treated the moneys paid to the GFT as if they had been paid to Mr Goulding himself. There is also evidence before the Court that Mr Goulding made admissions that the assets of the GFT, the DPT and the Alcorn Trust were his personal assets and were not assets of the SIH Group. 228 The category described as "suspense/unknown" refers to payments which the MYOB records of the relevant company (or other source documents) identify as being to or for the purposes of Mr Goulding, but for which there is insufficient source material to allocate that payment into any particular category. 229 The question is whether Mr Goulding's conduct in causing or permitting the various companies in the SIH Group to make payments of the moneys paid (as set out in Annexure E and summarised in the table in [215] above) constituted breaches of the director's duties owed by Mr Goulding to each company under ss 180 - 182 of the CA. 230 In the case of the "ATM Withdrawals", "Directors Fees" and "Directors Loans" categories, the answer is clearly, "Yes". Each of those payments amounted to the misappropriation of funds by Mr Goulding for his own purposes and not for the proper purposes of the relevant company: ASIC v Maxwell supra at [106]. 231 In the case of the payments to the GFT, the DPT and the Alcorn Trust, if the Court accepts that the assets of those trusts are to be treated as, in effect, the personal assets of Mr Goulding, then it follows that each of those payments also amounted to the misappropriation of funds by Mr Goulding for his own purposes. 232 ASIC submitted that, even if the Court is not prepared to accept that the GFT, the DPT and the Alcorn Trust are to be attributed to Mr Goulding, it nevertheless remains the case that Mr Goulding had a personal beneficial interest in those trusts. As such, by causing the various companies in the SIH Group to make payments to those trusts, he placed himself in a clear position of conflict between his personal interest in the trusts and the interest of the companies of which he was director in making the payments. 233 Mr Goulding bears the onus of establishing that the payments to the trusts were for legitimate business purposes of the companies concerned and occurred in a manner that is unimpeachable. In such circumstances, the director, as a fiduciary, labours "under a heavy duty to show the righteousness of the transactions": Maguire v Makaronis (1997) 188 CLR 449 at 465. See also the discussion by Santow J in ASIC v Adler supra at [372] Point (14) of the requirements of "special vigilance" and "scrupulous concern". Mr Goulding has not adduced any evidence in these proceedings. Accordingly, he has not discharged his burden of showing the "righteousness of the transactions". 234 In the case of the "suspense/unknown" category of payments, it was submitted that there is sufficient prima facie evidence from which the Court should conclude that those payments were made to or for the personal benefit of Mr Goulding. Mr Goulding has not sought to demonstrate, whether by way of cross examination or evidence, that any of those payments (or, indeed, any of the payments in any of the categories identified by Mr Olde) was for a legitimate business purpose or was not for the personal purposes of Mr Goulding. 235 ASIC submitted that the Court should conclude that Mr Goulding misappropriated either approximately $4.5 million, or alternatively approximately $3.5 million, for his own personal benefit and in breach of ss 180 - 182 of the CA by causing or permitting the SIH Group members to make payments to Mr Goulding, or to the trusts controlled and "owned" by him, as summarised in Annexure E. 236 The misappropriated moneys paid from the bank accounts of Equities and Capital were clearly moneys that had been invested by the various investors in Equities and Capital. ASIC also contends that the moneys paid from the bank accounts of the other SIH Group members also represented, either in whole or in large part, moneys received from the various investors in Equities and Capital. This is because, as explained above, Equities and Capital had on lent moneys received from investors to the other members of the SIH Group. 237 Mr Olde gave evidence in cross examination that: "... a significant amount of moneys was raised from investors and either left the SIH Group by way of the $4.5 million that I've attributed to Mr Goulding, or was otherwise spent on what clearly is not, for their purpose as described, being for the purpose of approved property development projects. So once those funds started to leave the SIH Group for those reasons, yes, it became apparent that it was not possible that the creditors or investors could be repaid ." (emphasis added) 238 Accordingly, the misappropriations of moneys from the SIH Group to Mr Goulding and the GFT, the DPT and the Alcorn Trust have a dual aspect. On the one hand, they are transactions by reason of which the directors of each company involved are clearly in breach of ss 180 - 182 of the CA. On the other hand, by reason of the various inter company loans, each of those transactions also had the effect of reducing, ultimately to zero, the possibility that the investors in Equities and Capital would ever be repaid. This is material in considering, ultimately on the penalty hearing, the seriousness of the breaches of duty by Mr Goulding. 8.3.2 Mr Goulding's submissions 239 In his written submissions (at par 67), Mr Goulding admitted: "that Mr Olde's evidence … shows that over a period in excess of 3 years the third defendant extracted wage in the sum of $128,000 by way of two credit cards." 240 Against this Mr Goulding submitted that he had given personal guarantees in a sum exceeding $50 million. He submitted that there is nothing in the evidence to indicate that he holds "any account in Australia or overseas that is tainted by any money obtained by an act that would support a finding of breaches of his duty". He submitted at pars 137 – 141 of his submissions that the rejection of parts of some affidavits of Cathy Lee and Mr Olde will "trigger the court to dismiss the allegations." He submitted that the defect in the pleading of pars 235 – 238 of the statement of claim is extreme and defies every pleading principle and that the paragraphs should be struck out under r 14.28(1). 241 Mr Goulding further submitted that he had contributed some $1.68 million towards the purchase by the entities of various investment properties. 8.3.3 Conclusions 242 Again, as matters stood after final submissions, the questions to be determined in relation to the third breach are as follows: (A) Whether ASIC's pleading is adequate to support the orders sought in respect of this breach or whether, as submitted by Mr Goulding, "the defect in the pleading of pars 235 – 238 of the statement of claim is extreme and defies every pleading principle". (B) Whether and to what extent ASIC's allegations of misappropriation are made out. A Adequacy of pleading 243 It is necessary to set out the essence of pars 235 – 238 of the statement of claim, both to judge their adequacy and also to understand the allegations of misappropriation as made in order to adjudicate upon them. In essence, each of the paragraphs alleges that in causing or permitting moneys of specified corporate defendants "to be used for non business, or improper purposes … or to gain an advantage for the Third Defendant or to cause detriment to the relevant company" Mr Goulding was guilty of breaches of ss 180 – 182 of the CA. Particulars were given. Unlike much of the pleading in the statement of claim, this comparatively simple formulation of breach appears to me to comply with the requirements of the rules of pleading. There is no deficiency in the pleading in this regard. B The allegations of misappropriation 244 The two principal heads of complaint alleged in relation to the payments the subject of this allegation of breach are the use of company moneys, first, for non business or improper purposes and, secondly, to gain an advantage for Mr Goulding. 245 The total of misappropriations claimed in ASIC's written submissions and based on Annexure E to this judgment was, as stated above, some $4.5 million. Unfortunately, the Court's task has been made more difficult by the fact that ASIC included in that schedule payments made out of trusts. These are not within the concept of the breach of directors' duties, although that is the rubric under which this claim is made. They are, equally and unsurprisingly, not within the pleading allegations summarised above, which are correctly made in relation to payments made by companies. I have excised from the table summarising the schedule payments made from trusts. Adjusted in this way, the table in [208] above is as follows: Company Name 2002 2003 2004 2005 2006 Total $39,169 $1,153,791 $870,583 $974,675 $3,038,218 House $42,732 $156,597 $410,143 $59,961 $669,433 Equities $1,058 $193,117 $1,030 $195,205 Capital $6,500 $18,250 $24,750 Newcastle $24,156 $97,520 $450 $2,330 $124,456 Beaconsfield $2,400 $13,622 $20,290 $36,312 Melbourne $4,299 $250 $4,549 Hawthorn Collingwood $243 $22,943 $2,772 $25,958 $48,500 $97,017 $145,517 SKW $24,156 $181,821 $1,332,261 $1,590,455 $1,135,705 $4,264,398 Total 246 Similarly adjusted, the table in [215] is as follows: Name of Goulding Entity/ Recipient Receiving Payment Total ($) Alcorn Trust 221,176 ATM Withdrawals 136,826 Directors Fees 4,466 Directors Loans (includes Family Maintenance Payments) 562,745 GFT 1,047,939 DPT 2,026,807 Suspense/Unknown 264,439 Total 4,264,398 247 The payments in the table in [246] above fall into three categories: a total of $704,037 under the heads ATM Withdrawals, Directors Fees and Directors Loans, where the moneys were paid directly to or for the benefit of Mr Goulding; $3,295,922 paid to trusts; and $264,439 the destination of which is unknown. 248 Before I turn to those categories individually, there are some general observations to be made. The first is to say again that Mr Goulding led no evidence. There is no denial that any of the payments was made as alleged. His only justifications of the payments are, first, the justification set out at [239] above in relation to the category of payments to or for Mr Goulding personally and, secondly, the allegation that, pro tanto, the payments should be contraed against moneys contributed by Mr Goulding to the members of the SIH Group. These were claimed by Mr Goulding to amount to $1.68 million and were found by Mr Olde to have been $1,031,312 as set out in the table contained in [209] above. It must be observed at once that the contributions were not necessarily made to the entities from which the payments were made. For instance, $3,036,071 was taken from House and only $209,602 contributed to it. These dealings involve the misapprehension on Mr Goulding's part that all the moneys of the Group were under his personal control and that if he made a contribution to one entity in the Group, he was justified in making a drawing against some other entity in the Group. Those contributions may, no doubt, be taken into account in Mr Goulding's favour in any accounting between him and the SIH Group members. But, whatever their quantum, they cannot alter the categorisation of payments out as misappropriations, if they otherwise have that categorisation. 249 Turning to the category of the payments made to or for himself, the only justification in Mr Goulding's submissions is, in effect, that they were remuneration to him for providing $50 million worth of personal guarantees and the work he did for the companies. The quotation from Mr Goulding set out in [239] above concerning the $128,000 "wage" in effect admits one of the particulars of misappropriation. A director's salary or remuneration is not usually paid by him charging personal items to company credit cards. Apart from anything else, this is apt to lead to infractions of the taxation system by ignoring obligations to deduct tax instalments from salary. Furthermore, there is not a scrap of evidence of any decision or authorisation by any relevant entity for the payment of remuneration to Mr Goulding in this (or any other) fashion. This is illustrative of Mr Goulding's attitude that the companies and their funds were his to dispose of as he thought fit without attention to the matters he should have considered as a director of the relevant company or the formalities that should be attended to. 250 In relation to the category of moneys paid to trusts, I do not need, in my view, to come to the conclusion propounded by ASIC that the assets of those trusts are to be treated as, in effect, the personal assets of Mr Goulding. It is sufficient that I find, as I do, that he had a beneficial interest, actual or potential, under each trust. This places those payments within the allegation in the statement of claim that the moneys were used to gain an advantage for Mr Goulding. That use constituted a breach of his duties under s 182 of the CA and also ss 180 and 181. 251 So far as concerns the category of moneys the destination of which could not be established, despite the careful search carried out by Mr Olde and his staff, I rely on the absence of knowledge of the use to which these moneys were put, together with the absence of denial or explanation of the payments on Mr Goulding's part, to conclude that they were not paid for any business or proper purpose. 252 The conclusion that I reach is that the payments of $4,264,398 included in the table in [245] above were used for non business or improper purposes or to gain an advantage for Mr Goulding, as alleged in the statement of claim; that Mr Goulding caused or permitted the making of those payments; and that he thereby contravened his duties under ss 180 - 182 of the CA. 8.4 Unregistered managed investment scheme 253 ASIC's claim under this head is that Mr Goulding committed breaches of his duties as a director by causing or permitting Equities to conduct an unregistered managed investment scheme. 8.4.1 ASIC's submissions 254 The submissions made by ASIC in support of its allegations against Mr Goulding regarding the unregistered managed investment scheme are set out below. 255 The expression "managed investment scheme" as defined in the CA is a concept of wide scope. It is defined in s 9 to mean a scheme that has the following features: "(i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not); (ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders); and (iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions)." 256 It is clear that the word "scheme" is of very broad import. For example, in Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex Relatione Corporate Affairs Commission (1981) 148 CLR 121 at 129, Mason J stated (quoting Kitto J in Clowes v Federal Commissionier of Taxation (1953) 91 CLR 209 at 225) that "all that the word 'scheme' requires is that there should be 'some programme, or plan of action'". Similarly, in Australian Securities and Investments Commission v Takaran Pty Ltd (2002) 43 ACSR 46 at [15], Barrett J said that "[t]he essence of a 'scheme' is a coherent and defined purpose, in the form of a 'programme' or 'plan of action', coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan". 257 ASIC submitted that the arrangements put in place by Equities to attract contributions by way of loans by investors to be used, ostensibly at least, for the purpose of "approved development projects" clearly constituted a "scheme" for the purposes of the statutory definition of "managed investment scheme". 258 Investors contributed money or money's worth (approximately $5.2 million) to the scheme in the form of loans to Equities as consideration for the right to receive benefits produced by the scheme in the form of promised interest and principal repayments. Accordingly, element (i) of the definition set out in [255] above is satisfied. 259 Element (ii) requires that "the intention must be to pool the contributions and, by use of the pool, produce benefits": ASIC v Enterprise Solutions 2000 Pty Ltd [2003] 1 Qd R 135 at [13]. There is no requirement that the members obtain any property rights or that the pooling produce benefits above and beyond those that could be achieved in the absence of pooling: Enterprise Solutions at [10] - [13]. Enterprise Solutions is authority for the proposition that sufficient "pooling" occurs for the purposes of the definition of managed investment scheme if moneys from members are collected in one or more common bank accounts for use for scheme purposes (this was the factual situation in Enterprise Solutions: see at [8]). The evidence of Mr Olde traces the receipt of moneys from investors in Equities into the bank account operated by Equities. This was sufficient "pooling" of moneys contributed. The financial benefits to be produced were the returns from the "approved development projects" into which Equities was to invest the moneys it had received. Element (ii) is therefore satisfied. 260 In relation to element (iii), the expression "day-to-day control" has been held to mean control in fact rather than the legal right to control: Burton v Arcus (2006) 32 WAR 366 at [79] - [82]. At [80], Buss JA said: "The members of a scheme will have 'day-to-day control over the operation of the scheme' if: (a) the members as a whole participate in making the routine, ordinary, everyday business decisions relating to its management; and (b) the members as a whole are bound by the decisions which are made. Conversely, if the members as a whole do not participate in making the routine, ordinary, everyday business decisions relating to the management of the scheme or if the members as a whole are not bound by the decisions which are made, they will not have day-to-day control over its operation." In the present case, it is clear that the day to day control of the scheme resided with Equities, not with the investors in Equities, whether considered individually or collectively. 261 In ASIC's submission, it follows that the three positive limbs of the definition of managed investment scheme are satisfied in respect of the scheme operated by Equities. 262 None of the negative characteristics (that is, characteristics which if present take the scheme outside the definition of "managed investment scheme" - see pars (c) to (n) of the definition) is present. 263 Accordingly, the scheme operated by Equities pursuant to which investors contributed moneys by way of loans to Equities was at all material times a managed investment scheme as defined. 264 Section 601ED(1) of the CA provides: "Subject to subsection (2), a managed investment scheme must be registered under section 601EB if: (a) it has more than 20 members; or (b) it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or (c) a determination under subsection (3) is in force in relation to the scheme and the total number of members of all the schemes to which the determination relates exceeds 20." 265 The evidence demonstrates that at least 69 Loan Agreements were entered into between Equities and the investors during the period 13 May 2003 to 1 November 2004, as set out in Annexure B to this judgment. For the reasons set out above, each investor was a member of the managed investment scheme operated by Equities. Accordingly, that scheme had more than 20 members and was required to be registered by reason of s 601ED(1)(a) of the CA. The scheme operated by Equities was never registered. It follows that on and from the point at which there were more than 20 investors in Equities (which occurred by about mid October 2003), Equities was in breach of s 601ED of the CA. 266 This failure is of significance. The purpose of Ch 5C of the CA is to protect investors by the requirement that investment schemes satisfying the relevant criteria are registered with ASIC, are operated by a responsible entity with sufficient assets and backing to provide a measure of comfort to investors and are subject to the statutory protection of investors' rights provided by that Chapter. 267 By failing to register the managed investment scheme operated by Equities, Mr Goulding brought about a state of affairs conducive to the investors losing their investments without satisfactory recourse to the operator of the scheme. This is what ultimately has occurred. Further, by failing to register the managed investment scheme, Mr Goulding caused Equities to breach s 601ED(5) of the CA. It follows that Mr Goulding caused Equities to be exposed to, amongst other things, the offence provisions under s 1311 of the CA. 268 In those circumstances, ASIC submitted that the conduct of Mr Goulding in causing or permitting Equities to fail to register the managed investment scheme was: (a) in breach of his duty to exercise reasonable care, skill and diligence required by s 180(1) of the CA; and (b) not in the best interests of Equities within the meaning of s 181 of the CA. 8.4.2 Mr Goulding's submissions 269 Mr Goulding both pleaded in his defence and submitted that in relation to the unregistered management investment scheme any breach by him was unintentional, as he acted in accordance with advice obtained from KB Legals and IPAA Pty Ltd ("IPAA"). 8.4.3 Conclusions 270 There is some evidence that Mr Goulding obtained some advice relating to this subject matter. That is in the form of a letter from KB Legals dated 7 April 2003 addressed to House and marked for Mr Goulding's attention, together with a document headed "Offers That Do Not Need Disclosure" and an extract from s 734 of the CA. There is no evidence that Mr Goulding acted in accordance with the advice. The evidence shows that inside 12 months Equities took loans from more than 20 investors, who contributed more than $2m. This demonstrates that Mr Goulding participated in doing precisely the things that KB Legals advised must not be done. 271 I find that the factual matters asserted in ASIC's submissions are established. I accept as correct the legal propositions there set forth. I accept ASIC's submission that there was in fact an unregistered managed investment scheme, for the reasons it has put forward. I find that, bearing in mind his position in Equities, Mr Goulding must be regarded as responsible for its non registration. There is not in evidence any explanation for the non registration. I conclude that Mr Goulding's conduct in causing or permitting Equities to fail to register the managed investment scheme was in breach of his duty of care under s 180(1) and not in the best interests of Equities as required by s 181 of the CA. 8.5 Capital's failures to report 272 The substance of this breach is that it is alleged that Mr Goulding in breach of his duties caused or permitted Capital to fail to make reports to members and to ASIC as required by statute. 8.5.1 ASIC's submissions 273 The submissions made by ASIC in support of its allegations against Mr Goulding regarding Capital's failure to report are set out below. 274 Section 314 of the CA requires a public company to report to its members on an annual basis by either sending to its members copies of a concise report or copies of the financial report for the year, the directors' report for the year and the auditor's report for the year. Capital was at all material times a public company. Section 315 imposes deadlines in respect of the provision of those reports. Relevantly, a public company must report to its members by not later than four months after the end of the financial year. The evidence demonstrates that Capital did not send the required reports to its members for the financial years ending 30 June 2004 and 30 June 2005. Accordingly, Capital breached s 314 of the CA. 275 Section 319 of the CA requires that for each financial year a public company has to lodge with ASIC the financial report, directors' report, auditor's report and any concise report for that year. Under sub s (3), the deadline for lodgement is four months after the end of the financial year. The evidence demonstrates that Capital lodged financial statements with ASIC for the 2004 and 2005 financial years on or about 6 January 2006, well outside the time limit permitted by s 319(3) of the CA. Accordingly, Capital breached s 319 of the CA. 276 The failures by Capital to provide to investors and lodge with ASIC the required reports exposed Capital to potential criminal prosecutions under s 1311 of the CA. 277 In those circumstances, ASIC submitted that the conduct of Mr Goulding in causing or permitting Capital to fail to provide to investors and lodge with ASIC the relevant reports was: (a) in breach of his duty to exercise reasonable care, skill and diligence required by s 180(1) of the CA; and (b) not in the best interests of Equities within the meaning of s 181 of the CA. 278 ASIC emphasised that the seriousness of these breaches by Mr Goulding lies in the fact that the failure to report to investors or to ASIC within the required time allowed the actions of Mr Goulding and the precarious financial position of Capital to remain undetected for a longer period than otherwise would have been the case. 8.5.2 Mr Goulding's submissions 279 Mr Goulding submitted that, in relation to these breaches, Mr Olde's evidence "taking that evidence at its highest … falls far short from showing, let alone proving to the balance of probabilities standard" that the third defendant was guilty of a breach of duty. He again relied on the alleged deficiencies in ASIC's pleading and submitted that the case must fail by reason of the non appearance and lack of defence by the first and fifth defendants. 8.5.3 Conclusions 280 ASIC's pleading of these matters is quite adequate to support the case it seeks to make out. The failures to report are clearly made out and, indeed, were not contested. 281 The evidence does not show and reliance is not placed on any excuse for the failures. I find that in the circumstances Mr Goulding had responsibility for the failures. I find that Mr Goulding was in breach of his duty of care towards Capital under s 180(1) of the CA, in that he was negligent in allowing the breaches to occur. 282 Bearing in mind the relevant standard of proof referred to in section 5.5 of this judgment, I am not prepared to, and do not, find any breach by Mr Goulding in respect of these failures of s 181 of the CA. That is, I am not prepared to find that he failed to discharge his duties in good faith or for a proper purpose. Furthermore, I do not find on the evidence that it is established that in these failures there was any motive of concealment on Mr Goulding's part, as submitted by ASIC. 8.6 Financial services contraventions by Equities and Capital 283 As indicated in the heading, what is alleged under this breach are contraventions by each of Equities and Capital in carrying on a financial services business without an Australian Financial Services Licence ("AFSL"). Mr Goulding is alleged to have committed breaches of his duties as a director by causing or permitting those contraventions. 8.6.1 ASIC's submissions 284 The submissions made by ASIC in support of its allegations against Mr Goulding regarding Equities and Capital's financial services contraventions are set out under the respective headings below. Structure of relevant statutory provisions 285 Section 911A(1) of the CA requires a person who carries on a financial services business either to hold an AFSL or be the representative of the holder of an AFSL covering provision of the financial services in question. 286 Section 911B(1) of the CA provides that a person ("the provider") can only provide a financial service on behalf of another ("the principal") if, in effect, the principal holds an AFSL, the provider is an authorised representative of the principal and the authorisation covers the provision of the financial services in question. 287 The expression, in s 911A, "financial services business" is defined as the business of providing financial services: s 761A. Thus, both ss 911A and 911B turn on the expression financial services. A person provides a financial service if it provides financial product advice. Financial product advice as defined in s 761A is a recommendation, statement of opinion or report that is intended to, or could reasonably be regarded as being intended to, influence persons in making decisions in relation to financial products. 288 Importantly, both the: (a) loans by investors to Equities; and (b) redeemable preference shares in Capital issued to investors, were financial products for the purposes of the relevant provisions of the CA: see s 764A(1)(ba) and (a) respectively. 289 The concept of financial product advice is divided into two categories, namely, personal advice and general advice. Personal advice is financial product advice given in circumstances where the person giving the advice has, or it is reasonable to conclude that the person giving the advice has, considered the investor's objectives, financial situation or needs: s 766B(3). General advice is financial product advice that is not personal advice: s 766B(4). 290 Both Equities and Capital were persons who carried on financial services businesses in Australia within the meaning of s 911A. For Equities, the relevant business was that of issuing loans to investors to raise funds ostensibly for investment and associated advice. For Capital, the relevant business was that of issuing shares to investors to raise funds ostensibly for investment and associated advice. 291 ASIC submitted that, for the purposes of s 911B, each of Equities, Capital and Mr Goulding was a provider of financial services, namely, the general and personal advice summarised below. Breaches in connection with the issue of loans by Equities to investors 292 As indicated in [9] above, during the period May 2003 to November 2004 Equities entered into some 69 loan agreements with investors as set out in Annexure B to this judgment. 293 The evidence demonstrates that Mr Goulding or Mr Geagea, each on behalf of Equities, made recommendations, statements of opinions or reports to potential investors that were intended to, or could reasonably be regarded as being intended to, influence potential investors to acquire the securities being issued (by making loans to Equities). 294 Mr Hopkins deposed that in about June 2003 Mr Goulding told him by telephone that "we will give you 18% interest rate". Mr Hopkins further deposed that in about 26 July 2003, Mr Goulding said words to the effect "we can arrange a mortgage for you that will allow you to invest with us. I can give you 18% interest rate this year but may not be able to give you the same next year". After that conversation, Mr Hopkins entered into a loan agreement with Equities for $100,000. 295 In her affidavit, Ms Yeoh gave evidence of meeting Mr Goulding and Mr Ed Matalani in Chifley Square in November 2003. Ms Yeoh stated that at this meeting she was told that "the investment was safe" and that it "was a low risk investment". Ms Yeoh also said that "Edwin Goulding told me that the guarantee company, IPAA Pty Ltd was worth millions of dollars". Mr Goulding provided Ms Yeoh with various documents including a list of assets and liabilities and a document showing the interest accruing and rate of interest. Ms Yeoh entered into a loan agreement with Equities for $100,000 on or about 25 November 2003. 296 Mr McMillan, on behalf of a company called Inova Holdings Pty Ltd ("Inova Holdings") entered into a loan agreement with Equities on or about 29 October 2003. Mr McMillan deposed that on or about 14 July 2004, Mr Goulding and Mr Geagea visited him at his residence and said words to the effect that: "we are seeking some funds to avoid default on a property settlement at 211 Bridge Creek Road, Maleny, Queensland ... We need to source alternative funds to bridge the gap between the settlement date and the date we organised finances to become available ... We will give you a caveatable interest over the property for the duration of the loan. We will pay back your monies within 2 weeks." 297 On the same day, Mr McMillan caused Inova Holdings to enter into a second loan agreement in the amount of $50,000. This was a second issue of securities in Equities to Inova Holdings. 298 Mr Marriott deposed that in about May 2004 he attended a meeting with Mr Goulding at which Mr Goulding said words to the effect of "Sydney Investment House is offering investment opportunities. You can invest for a term of 3 months at the interest rate of 24% per annum". Mr Goulding also said words to the effect "we have properties in Newcastle and Melbourne which we are developing". Mr Marriott entered into a loan agreement with Equities in the amount of $50,000 on the same day and a second loan agreement a few days later. 299 Mr Ho deposed that in about May 2003 Mr Geagea said words to the effect "if you invest with us, you will make half a million in 5 years". Mr Geagea also said words to the effect "the interest is to be paid on the 15th day of each month at the rate of 15% per annum for 12 months". On or about 22 July 2003 Mr Ho entered into a loan agreement with Equities in the amount of $50,000. On or about 11 May 2004, Mr Geagea said to Mr Ho words to the effect "I will give you 24% interest if you roll over your money for 3 months. You will get your money in 3 months". On the same day Mr Ho entered into a second loan agreement with Equities for $50,000. 300 Mr Stirton deposed that on or about 19 November 2003 Mr Geagea said to him words to the effect "You have an option to buy apartments in Stanley Street, Richmond and Newcastle. It is a great investment opportunity". On or about 25 November 2003 Mr Stirton entered into a loan agreement with Equities for $50,000. In about May 2004, Mr Geagea said to Mr Stirton words to the effect "I am looking for $50,000 for a month until a settlement going our way is finalised. I can pay interest rate of 2% per month". Mr Stirton entered into a second loan agreement with Equities for $50,000 on or about 1 June 2004. 301 The evidence of statements made to prospective investors summarised above was not challenged by Mr Goulding in cross examination or by evidence. 302 Those statements constituted recommendations, statements of opinion or reports that were intended to, or could reasonably be regarded as being intended to, influence each of the investors identified above to make loans to Equities (and thereby acquire the securities constituted by those loans). Those statements therefore constituted financial product advice. Further, it is clear that Equities provided such advice in the course of its business, such that Equities was at all material times carrying on a financial services business. 303 The evidence is that: (a) none of Equities, Mr Goulding or Mr Geagea was ever the holder of an AFSL; (b) Mr Goulding became an authorised representative of IPAA, the holder of an AFSL, only on 6 July 2004; and (c) Mr Geagea became an authorised representative of IPAA on 12 April 2005. 304 Although on occasions Mr Goulding and Mr Geagea referred to "Sydney Investment House" as the name of the investment that they were offering, ASIC submits that Mr Goulding and Mr Geagea were clearly acting on behalf of Equities in making the statements identified above for the following reasons. 305 First, the expression "Sydney Investment House" is a colloquial expression that was used by Mr Goulding and Mr Geagea to identify the SIH Group. Mr Goulding frequently appears to have elided the distinctions both between the various separate legal entities within the SIH Group and between those entities and himself personally. 306 Secondly, the only investment being offered by the SIH Group at the times identified by the investors above was the investment in Equities through the issue of loans in accordance with the Equities Information Memorandum. 307 Thirdly, to the extent that Mr Goulding and Mr Geagea were acting on behalf of House, House was in turn providing services on behalf of Equities. 308 As Equities was engaging in a financial services business at least for the period June 2003 to June 2004 and none of Equities, Mr Goulding or Mr Geagea held an AFSL or authorisation from the holder of an AFSL covering the financial services provided during that period, it follows that Equities breached s 911A and s 911B of the CA. These breaches by Equities exposed Equities at least to potential sanctions for criminal offences under s 1311. 309 ASIC submitted that in those circumstances, the conduct of Mr Goulding in causing or permitting Equities to provide the financial services identified above was: (a) in breach of his duty to exercise reasonable care, skill and diligence required by s 180(1) of the CA; and (b) not in the best interests of Equities within the meaning of s 181 of the CA. Breaches in connection with the "roll over" transactions 310 The evidence is that: (a) none of Equities, Capital, Mr Goulding or Mr Geagea was ever the holder of an AFSL; (b) Mr Goulding was an authorised representative of IPAA between 6 July 2004 and 28 June 2005; (c) Mr Geagea was an authorised representative of IPAA between 12 April 2005 and 28 June 2005; and (d) Capital was an authorised representative of IPAA between 25 October 2004 and 28 June 2005. The authorisations referred to in sub pars (b) to (d) were to provide general product advice and not personal product advice. 311 ASIC submits that the conduct summarised below breached ss 911A and 911B of the CA in the following respects: (a) the conduct was financial product advice given by Equities; (b) the conduct was general product advice given by Capital outside the period for which it was an authorised representative of IPAA; and/or (c) the conduct was personal product advice, which did not fall within the scope of any authorisation by IPAA. 312 In effect, the conduct involved Mr Goulding or Mr Geagea meeting with investors in Equities, making representations to them about the desirability of "rolling over" their investment into shares in Capital and then obtaining the necessary documents from those investors to effect that "roll over". 313 The available proof of that conduct emerges in large part from the affidavit evidence of lay witnesses given in the proceedings. In summary, the relevant evidence is as follows. 314 Mr Hopkins deposed that on 12 December 2004 Mr Goulding and Mr Geagea visited Mr Hopkins and his family at their residential address. Mr Goulding said words to the effect "We have a new investment. It is a safer investment and if you stay with us, we will give you [sic] $600 bonus". On the same day Mr Hopkins signed application forms and deed of release to effect a "roll over" of his investment in Equities into shares in Capital. 315 In her affidavit, Ms Yeoh gave evidence that in about November 2004, Mr Goulding arranged a meeting with her in Campbelltown, at which he gave her a copy of the Capital Prospectus and told her it "was a safer investment than the previous one". At that meeting Mr Goulding said words to the effect "Because you are an existing client, I will give you the same interest rate. I am also giving the other existing investors the same interest rate. The 9% interest rate is only for new investors". 316 On or about 26 October 2004 Ms Yeoh received a letter, ostensibly from Equities, stating, among other things: (a) In relation to Equities, "In response to recent discussions, please find enclosed in this package all statements for your investment within Sydney Investment House Equities Pty Ltd. They have been calculated using compounding interest as requested. You will find these statements now match your figures." (b) In relation to Capital, "As you are an existing client you are being offered a special deal for the Capital Prospectus and by applying for shares using the priority scrip vehicle a rate higher than that being offered to the general public will be applied to your or another interest parties [sic] new investment." 317 On or about 12 December 2004, "after being persuaded by Edwin Goulding that this was the best investment for me", Ms Yeoh agreed to "roll over" her investment in Equities into shares in Capital. 318 Mr McMillan deposed that on or about 19 November 2004 he received an email from Mr Goulding stating that due to the establishment of Capital and various other matters, Equities would not be able to meet the agreed maturity date on Mr McMillan's investment (through Inova Holdings and Cedar Grove Nominees Pty Ltd ("Cedar Grove")) in Equities. 319 That email included the statement that "the company would require you to complete the attached Deed of Variation as at this point in time, this would be the most equitable and secure position for Cedar Grove Nominees & Inova Holdings". 320 On or about 12 December 2004, Mr Goulding and Mr Geagea attended Mr McMillan's residence to discuss the "roll over" of investments into Capital. Mr Goulding said words to the effect "We require the cooperation of all the investors. Most other investors have agreed to roll over already" and "I am confident that Sydney Investment House would reach its critical mass of $5,000,000 by 20 December 2004. Once the capital has reached the $5,000,000 mark, we would then be able to release funds to the investors". 321 Between that meeting and 13 December 2004, Mr McMillan had further correspondence with Mr Goulding/Capital and then signed the documents necessary to effect the "roll over" of the investment of Cedar Grove and Inova Holdings in Equities into shares in Capital. 322 Mr Marriott deposed that on or about 11 December 2004 Mr Goulding and Mr Geagea attended his residential address. Mr Goulding said words to the effect "We want to renegotiate your loan agreements. We cannot pay you unless you convert your investments into shares in Sydney Investment House Capital. We also need you to sign these documents. If you convert your investments into shares, we can pay you as soon as funds become available". In response to Mr Marriott's comment that he was "flat broke", Mr Goulding said words to the effect "I can make an offer to pay you the interest earned on your investments in the following week". Mr Marriott agreed to "roll over" his investment in Equities into shares in Capital and signed the necessary documents to give effect to that "roll over". 323 Mr Stirton deposed that on or about 18 October 2004 he received an email from Mr Goulding stating, among other things, "It is with great excitement that I attach a copy of our priority application form and prospectus for your perusal", "This type of investment aims to deliver consistent returns in both rising and falling markets. We are now accepting interest for shares to priority clients on a first come, first served basis" and "Don't Miss The Boat!". 324 Mr Stirton further deposed that on or about 19 October 2004 Mr Stirton received a further email from Mr Goulding stating "Congratulations on receiving a direct offer from Sydney Investment House Capital Limited. Should you have any further question [sic] please contact us by email on info@sydneyinvestmenthouse.com. Regards, Edwin Goulding CEO". 325 It is apparent from the face of both of those emails that they were also sent to a number of investors other than Mr Stirton. 326 On or about 10 December 2004 Mr Stirton had a conversation with Mr Geagea, in which Mr Geagea said words to the effect "Your funds are not secure and you are at a [sic] risk of losing it all. You have no choice unless you transfer your investment into shares in Sydney Investment House Capital Ltd. It is secured by a big company". 327 On the same day, Mr Goulding said to Mr Stirton words to the effect "Gary, I understand your financial position. We will give you monthly interest payment [sic] until we can redeem your fund. You can get your money back by February 2005. And if you don't need your money then you can choose to leave some in the fund and take some out". 328 Mr Stirton signed the necessary documents to "roll over" his investment from Equities into shares in Capital. 329 Mr Goulding did not in cross examination challenge the accuracy of any of the above evidence. 330 ASIC submitted that the meetings, representations, communications and general conduct of Mr Goulding and Mr Geagea in persuading the various investors to enter into the "roll over" transactions, as summarised above, amounted to personal advice on the part of Capital. In particular, the Court should find that Mr Goulding and Mr Geagea either expressly or impliedly represented to investors that it was safer, and in their interests, for them to remove their investment from Equities and place it with Capital. 331 As Capital was not authorised to provide personal advice under the terms of its authorisation by IPAA, that conduct amounted to breaches of s 911A of the CA. 332 To the extent that the conduct occurred prior to 25 October 2004, the conduct would breach s 911A even if it were general advice and not personal advice, as Capital did not hold an AFSL until that date. 333 It was further submitted that the conduct summarised above was also engaged in on behalf of Equities as well as Capital. This is because what was involved was a "roll over" of investments in Equities into Capital. That is, investors in Equities were persuaded to remove their investment from Equities and place it in Capital, thereby relieving Equities of its liability to the investors. This leads to the conclusion that the conduct was also engaged in on behalf of Equities. As Equities was neither the holder of an AFSL nor authorised by any holder of an AFSL, that conduct constituted breaches by Equities of s 911A and s 911B of the CA. 334 In addition to the conduct summarised above, ASIC submitted that the Court should find that Capital and Equities (and Mr Goulding, as considered below) provided personal advice in breach of ss 911A and 911B of the CA in respect of each of the approximately 41 (subsequently reduced to 31) "roll over" transactions that occurred as summarised in Annexure C to this judgment. 335 The essence of each "roll over" transaction was that Equities and Capital, through Mr Goulding and/or Mr Geagea, approached persons who were already investors in Equities and obtained their agreement to cancel that investment in return for receiving shares in Capital. As part of that process, each investor signed a Deed of Release, the references to which are in Annexure C to this judgment. 336 ASIC submitted that it is open to the Court to draw one of three conclusions from the documents referred to in Annexure C: (a) The Deeds of Release themselves constituted a "recommendation" to the investors who signed them to withdraw their funds from Equities and to invest in Capital. Because each investor was already an investor in Equities and was, in effect, being asked to "improve" his investment by shifting it to Capital, it was "reasonable to conclude that [Mr Goulding had] considered the investor's objectives, financial situation or needs" in making each such "recommendation". Accordingly, each such "recommendation" was personal advice. (b) The Deeds of Release are evidence that a "recommendation" was made to each investor who participated in the "roll over" to withdraw their investment from Equities and shift it to Capital. As in (a) above, each such "recommendation" was personal advice. (c) Correspondence was sent to investors in Equities encouraging them to "roll over". One such letter stated that "it is the intention of Sydney Investment House to offer existing investors the opportunity to roll over your current investment into the upcoming facility" and "the company would like to make a request that you consider holding your current facility in place until 28 February 2005 with current interest rate and no capital reduction ...". Another letter stated " the recommendation from the company is to accept the current offer for the company to secure your funds until such time as you request a selective buy back of your shares" (emphasis added). The Court should conclude that correspondence of the above nature together with the Deeds of Release evidenced the giving of personal advice. 337 Accordingly ASIC submitted that, Capital and Equities (and Mr Goulding) provided personal advice to each investor who participated in the "roll over" in breach of ss 911A and 911B of the CA. 338 The breaches of ss 911A and 911B by Capital and Equities exposed those companies to potential sanction under the criminal offence provisions in s 1311 of the CA. 339 Accordingly, ASIC submitted that the conduct of Mr Goulding in causing or permitting Capital and Equities to engage in that conduct was: (a) in breach of his duty to exercise reasonable care, skill and diligence required by s 180(1) of the CA; and (b) not in the best interests of Capital and Equities within the meaning of s 181 of the CA. Breaches in connection with the issue of shares in Capital to new investors 340 For completeness, one of the lay witnesses, Mr Winning, was not previously an investor in Equities. 341 In his affidavit, Mr Winning gave evidence that in May 2005, after attending a seminar at which Mr Goulding made a presentation, he received a number of telephone calls from "Sydney Investment House" and was invited to Mr Goulding's residence. Mr Winning met Mr Goulding at a meeting at Mr Goulding's residence. They "spoke for a long time about investment opportunity with Sydney Investment House but I was not totally convinced that it would be the best investment option for me". At another meeting in May 2005, Mr Goulding said words to the effect "... I will buy back 35,000 shares and pay you $35,000. The balance of the shares will remain in Sydney Investment House. I can give you cash, or cheque or in whatever form you like. I can even give you cash in a brown paper bag". 342 ASIC submitted that the statements made by Mr Goulding amounted to personal advice on the part of Capital. Accordingly, that conduct placed Capital in breach of ss 911A and 911B of the CA. The breaches of ss 911A and 911B by Capital exposed it to potential sanctions under the criminal offence provisions in s 1311 of the CA. 343 The conduct of Mr Goulding in causing or permitting Capital to engage in that conduct was: (a) in breach of his duty to exercise reasonable care, skill and diligence required by s 180(1) of the CA; and (b) not in the best interests of Capital within the meaning of s 181 of the CA. 8.6.2 Mr Goulding's submissions 344 Mr Goulding submitted that the absence of appearance by or defence on behalf of any corporate defendant should lead to the defeat of this part of the plaintiff's claim in its entirety. He asked the Court to strike out pars 142 – 149 of the statement of claim. He equally complained about the form of pars 150 – 157 of the statement of claim. These complaints were repeated in answer to various aspects of this portion of ASIC's claim. 8.6.3 Conclusions 345 ASIC pleaded claims that the first and second defendants provided financial services in breach of s 911A of the CA and that Mr Goulding was guilty of aiding, abetting, counselling or procuring that conduct by the first and second defendants, or was knowingly involved in the contraventions. ASIC separately claimed that Mr Goulding had caused or permitted Equities and Capital to commit such breaches; that those contraventions exposed the companies to criminal penalties; and that, in doing so, Mr Goulding was in breach of his duties to the companies under ss 180(1) or 181 of the CA. Of these claims it is plain from the Findings Sought by ASIC that it is only with the last mentioned claim, namely, of causing or permitting the conduct and thereby exposing the companies to penalties that ASIC ultimately proceeded: see [509] below. Breaches in connection with the issue of loans by Equities to investors 346 ASIC's case as finally formulated was that Mr Goulding caused or permitted Equities to give financial product advice that was personal advice during the period from June 2003 to June 2004 to Mr Hopkins, Ms Yeoh, Mr McMillan, Mr Marriott, Mr Ho and Mr Stirton and that that constituted breaches of ss 911A and 911B of the CA. 347 Section 911A(1) provides that: "(1) Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services. Note 1 Also, a person must not provide a financial service contrary to a banning order or disqualification order under Division 8. Note 2 Failure to comply with this subsection is an offence (see subsection 1311(1))." 348 Section 911B(1) provides that: "(1) A person (the provider ) must only provide a financial service in this jurisdiction on behalf of another person (the principal ) who carries on a financial services business if one or more of the following paragraphs apply: (a) these conditions are satisfied: (i) the principal holds an Australian financial services licence covering the provision of the service; and (ii) the provider is an employee or director of the principal or of a related body corporate of the principal; and (iii) the provider is not an employee or director, or authorised representative, of any other person who carries on a financial services business and who is not a related body corporate of the principal; and (iv) the provider is not an employee or director, or authorised representative, of a related body corporate of a person of the kind mentioned in subparagraph (iii); …" 349 By s 761A(1) of the CA, financial services business means a business of providing financial services. By s 766A(1)(a), relevantly, a person who provides a financial service provides financial product advice. Section 766B relevantly provides: "(1) For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or (b) could reasonably be regarded as being intended to have such an influence. …… (2) There are 2 types of financial product advice: personal advice and general advice. (3) For the purposes of this Chapter, personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where: (a) the provider of the advice has considered one or more of the person's objectives, financial situation and needs (otherwise than for the purposes of compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 or with regulations, or AML/CTF Rules, under that Act); or (b) a reasonable person might expect the provider to have considered one or more of those matters. (4) For the purposes of this Chapter, general advice is financial product advice that is not personal advice." 350 The pleaded case as ultimately relevant was in the following paragraphs of the statement of claim: "55 In the course of conducting the Business and in promoting the Scheme as described in paragraphs 19, 36 and 43 above, the First Defendant, through the acts (inter alia) of the Third Defendant, Fourth Defendant and Fifth Defendant, engaged in the following business activities: (a) making recommendations or statements of opinion to members of the public that were intended to influence them in making a decision to acquire an interest in the Scheme, or could reasonably be regarded as intending to influence; and (b) issuing interests in the Scheme. 56 Accordingly, during the period from 20 March 2003 to August 2005, the First Defendant's business activities included providing a financial service by: (a) providing financial product advice within the meaning of section 766B of the Act and section 12BAB of the ASIC Act; and (b) dealing in a financial product within the meaning of section 766C of the Act and section 12BAB of the ASIC Act. …… 60 The Third Defendant was an authorised representative of IPAA, to provide general product advice only, from 6 July 2004 to 28 June 2005. …… 63 In the premises, the First Defendant carried on a financial services business in Australia without an Australian financial services licence covering the provision of the financial services, contrary to section 911A of the Act ('First Defendant's Financial Services Contravention'). …… 142 In causing or permitting the First Defendant to engage in the First Defendant's Financial Services Contravention, the Third Defendant acted in breach of the statutory duties, as an officer and director of the First Defendant, of ss 180(1), 181(1) and 182(1) of the Act." 351 The actual acts relied on are not particularised, so that the actual breaches relied on do not appear on the face of the pleading. However, the pleading clearly encompasses the breaches by Mr Goulding now relied on by ASIC. No specific objection was taken to the lack of particularisation and, in any event, the breaches relied on by ASIC are amply elucidated in ASIC's various written submissions and in the evidence. 352 ASIC's final written submissions are far from entirely clear as to whether and to what extent ASIC relies on the conduct of a financial services business by Equities by its making an offer of investments, which was taken up by the 69 persons who lent money to it. This did fall within the pleading as set out above. However, in the end, ASIC's case is limited, by the formulation of the Finding Sought, referred to in [345] above, to reliance only on the conduct of a financial services business by the giving of financial services advice to the persons named in that Finding. 353 Quite apart from the limitation imposed on itself by ASIC, I should say that, in my view, in order for a financial services business to be the basis of a contravention of s 911A of the CA by the carrying on of a financial services business without a licence, it must be a business which relevantly consists of acts or transactions of the type for which it is alleged the licence is lacking. Thus, here, where the contravention alleged is by provision of financial product advice, for there to be a contravention there must be a financial services business constituted by the giving of financial services advice, whatever other category of financial services business might be being carried on. 354 So far as a case was sought to be made out under s 911B(1), I cannot see how there is a case under that section against Equities. That section relates to a provider of financial services on behalf of another person, which on the evidence Equities was not. 355 In relation to the case under s 911A(1) against Mr Goulding arising out of the financial product advice given to the specified persons, the following matters are clearly made out and I make findings accordingly. The relevant conduct of Equities was caused or permitted by Mr Goulding, including the making of statements by Mr Geagea. Equities did not hold an AFSL. 356 The questions to which closer attention must be devoted is whether the communications with the named persons constituted financial product advice and whether or not in making those communications Equities was carrying on a financial services business. 357 As to whether the communications constituted financial product advice, the evidence of the communications is usefully and compendiously set out in ASIC's written submissions as quoted in pars [294] to [300] above. 358 The questions are, first, whether the statements made by Mr Goulding and Mr Geagea contained a recommendation or statement of opinion and, secondly, whether that recommendation and statement of opinion was intended to influence a person in making a decision in relation to a particular financial product or could reasonably be regarded as having been intended to have such an influence. As to the second of these propositions, I have little trouble in inferring that the statements were made with the intention to influence persons to make particular decisions and they could certainly be regarded as having been intended to have such an influence. It is perhaps a nicer question as to whether what was said could be characterised as a recommendation or a statement of opinion. There do not seem to be decisions that are directly on point in the context of this provision. However, it does seem to me that there are decisions that endorse the taking of a practical and substantive approach to legislative provisions of this type. They include the decisions of Carnwath J (as his Lordship then was) in the Chancery Division of the High Court of Justice in Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282; of Moynihan J in the Supreme Court of Queensland in Australian Securities and Investments Commission v Online Investors Advantage Incorporated (2005) 194 FLR 449; and of Heerey J in the Federal Court in Australian Securities and Investments Commission v Oxford Investments (Tasmania) Pty Ltd [2008] FCA 980. 359 Whilst bearing in mind the relevant standard of proof, I am of the view that it is established in the circumstances that the making of statements to the six persons named constituted recommendations or statements of opinion intended to influence those persons in making a decision concerning a financial product or could be reasonably regarded as having such an intention. Perhaps the statements that could be regarded as most neutral were those made to Mr Hopkins that "we will give you 18% interest rate … we can arrange a mortgage which will allow you to invest with us." On the evidence, the interest rate was a high one. Both the offer of high interest rate and the promise of a mortgage appear to me as a matter of substance to convey a recommendation to the addressee of the investment as advantageous. The statements made to the other five addressees, in my view a fortiori, proffer recommendations or statements of opinion intended to influence. 360 The remaining question is whether on the evidence Equities should be found to be engaged in a business of providing financial product advice. This raises the question as to whether the establishment of the proffering of financial product advice on six occasions over a period between June 2003 and June 2004 in relation to the same financial product could be said to constitute a business. 361 The question of the number or frequency of transactions necessary to constitute a business has been dealt with in various cases. In the Court of Appeal In re Griffin: ex parte the Board of Trade (1890) 60 LJQB 235 at 237 Lord Esher (with whom Lopes and Kay LJJ concurred) said: "In my opinion, to say that if only one or two transactions can be proved, the, as a matter of law, it cannot be said that they are transactions in a business, is too drastic a statement. I think that whether one or two transactions make a business depends upon the circumstances of each case. I take the test to be this: if an isolated transaction, which if repeated would be a transaction in a business, is proved to have been undertaken with the intent that it should be the first of several transactions, that is, with the intent of carrying on a business, then it is a first transaction in an existing business." 362 The question has been dealt with in the High Court in Hungier v Grace (1972) 127 CLR 210 and Hope v Bathurst City Council (1980) 144 CLR 1. It was the subject of the following discussion by Sackville J in Fasold v Roberts (1997) 70 FCR 489 at 524: "It is generally accepted that the word 'business', to use Mason J's phrase, has a 'chameleon-like hue' but must take its meaning from the particular statutory context: Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd (1982) 150 CLR 355 at 378-379; State Superannuation Board (NSW) v Commissioner of Taxation (Cth) (1988) 82 ALR 63 at 72; O'Brien v Smolongov (1983) 53 ALR 107 at 113-114. In Hope v Bathurst City Council (1980) 144 CLR 1 at 8-9, Mason J considered that the word 'business' ordinarily denotes activities undertaken as a commercial enterprise in the nature of a going concern - that is, 'activities engaged in for the purpose of profit on a continuous and repetitive basis'. His Honour observed, however, that the word took its flavour in that case from the statutory expression 'carrying on business'. In Hungier v Grace (1972) 127 CLR 210 at 216-217, Barwick CJ cited the observations of McCardie J in Edgelow v MacElwee [1918] 1 KB 205 at 206 that, in order for a person to be one 'whose business ... is that of money-lending', there must be more than occasional and disconnected loans: 'the word "business" imports the notion of system, repetition and continuity.' Barwick CJ accepted (at 217) that 'system and regularity are involved in the carrying on of a business', although he did not think it followed that one who conducts transactions systematically and regularly is necessarily carrying on a business in those transactions. …… I agree with Rolfe J that, generally speaking, the word 'business' as used in the Fair Trading Acts, bears the dictionary meaning of 'trade, commercial transactions or engagement'. However, that will not always carry matters very far. I think that in addition, ordinarily at least, the concept of 'business' imports, as Barwick CJ suggested in Hungier v Grace , a notion of system, repetition and continuity. I appreciate and accept that due regard should be paid to the 'wide and flexible meaning' attributed to the word 'business' in common usage: Grieve v Commissioner of Inland Revenue [1984] 1 NZLR 101 at 111 per Richardson J. I also recognise that each case must depend on its particular circumstances. Nonetheless, in general, for an undertaking to constitute a business it will have to be conducted with some degree of system and regularity." 363 In my view, the repetition of the activity proved on six occasions imports a significant system, repetition and continuity sufficient to be characterised as the conduct of a business. The object was in each case to encourage acquisition of the same product. The conduct was more than occasional and there was a connection in the purpose of the activity in each case. 364 Also necessary, as appears from the above cited passages, is an element of commerciality, that the activities be "engaged in for the purpose of profit". The advice proffered was not charged for, but was given by Equities to encourage investment in the scheme it was conducting and, indeed, did lead to each of the persons in respect of whom a finding is sought lending money to Equities for its commercial purposes. This leads me to the conclusion that the activities were carried on by Equities for the purpose of profit. 365 I therefore find that Equities was during the period between June 2003 and June 2004 carrying on a financial services business by providing financial services in the form of providing financial product advice. This finding leads me to the conclusion that Mr Goulding was guilty of causing or permitting Equities to engage in contraventions of s 911A(1) by engaging in that business without holding the requisite financial services licence and thereby breached his duties under ss 180 and 181 of the CA. Breaches in connection with the "roll over" transactions 366 As noted above, the contravention as pleaded was originally considerably wider than the case ultimately relied on, in the light of what is contained in ASIC's written submissions as finally formulated and the Findings Sought as finally put forward. 367 ASIC's case as finally formulated was that Mr Goulding caused or permitted Equities to give financial product advice and Capital to give financial product advice that was personal advice during the period from 18 October to 13 December 2004 to Mr Hopkins, Ms Yeoh, Mr McMillan, Mr Marriott and Mr Stirton and that that constituted breaches of ss 911A and 911B of the CA. 368 The pleaded case as ultimately relevant is in the following paragraphs of the statement of claim: "57 At all material times from 10 October 2003, the Second Defendant, through the acts (inter alia) of the Third Defendant, Fourth Defendant and Fifth Defendant, engaged in the following business activities: (a) making recommendations or statements of opinion to members of the public that were intended to influence them in making a decision to acquire shares in the Second Defendant, or could reasonably be regarded as intending to influence; and (b) issuing shares in the Second Defendant. 58 Accordingly, during the period from 10 October 2003 to August 2005, the Second Defendant's business activities included providing a financial service by: (a) providing financial product advice within the meaning of section 766B of the Act and section 12BAB of the ASIC Act; and (b) dealing in a financial product within the meaning of section 766C of the Act and section 12BAB of the ASIC Act. …… 150 In causing or permitting the Second Defendant to engage in the Second Defendant's Financial Services Contravention, the Third Defendant acted in breach of the statutory duties, as an officer and director of the Second Defendant, of ss 180(1), 181(1) and 182(1) of the Act. Particulars Paragraphs 55 to 62 inclusive, 64 and 66 of this Pleading." These paragraphs are to be read in conjunction with pars 60 and 63 of the statement of claim set out in [350] above. 369 As with the breaches in connection with the issue of loans by Equities, the actual acts relied on are not particularised, so that the actual breaches relied on do not appear on the face of the pleading. However, the pleading clearly encompasses the breaches by Mr Goulding now relied on. No specific objection was taken before or at the trial to the lack of particularisation and, in any event, the breaches relied on by ASIC are amply elucidated in ASIC's various written submissions and in the evidence. 370 Again, as with the breaches in connection with the issue of loans by Equities, ASIC's final written submissions are far from entirely clear as to whether and to what extent ASIC relies on the conduct of a financial services business by Capital by the issue of shares to the persons who participated in the "roll over" transactions concerned. This did fall within the pleading as set out above. However, in the end, ASIC's case is limited, by the formulation of its written submissions (see [352] above) and the Finding Sought, referred to in [345] above, to reliance only on the conduct of a financial services business by the giving of financial services advice that was personal advice to the persons named in that Finding. 371 Quite apart from the limitation imposed on itself by ASIC, I should say that, in my view, in order for a financial services business to be the basis of a contravention of s 911A of the CA by the carrying on of a financial services business without a licence, it must be a business which relevantly consists of acts or transactions of the type for which it is alleged the licence is lacking. Thus, here, where the contravention alleged is by provision of financial product advice, for there to be a contravention there must be a financial services business constituted by the giving of financial services advice, whatever other category of financial services business might be being carried on. 372 Again, so far as a case was sought to be made out under s 911B(1), I cannot see how there is a case under that section against Equities or Capital. That section relates to a provider of financial services on behalf of another person, which Equities and Capital were not. 373 In relation to the case under s 911A(1) against Mr Goulding arising out of the financial product advice given to the specified persons, the following matters are clearly made out and I make findings accordingly. The relevant conduct of Equities was caused or permitted by Mr Goulding. Equities did not hold a financial services licence at all. Capital held a financial services licence at the relevant time, but that licence did not extend to the giving of personal advice. 374 The questions to which closer attention must be devoted are whether the communications with the named persons constituted financial product advice in the case of Equities and financial product advice that was personal advice in the case of Capital and whether or not in making those communications each of Equities and Capital was carrying on a financial services business. 375 As to whether the communications constituted financial product advice or financial product advice that was personal advice, the evidence of the communications is usefully and compendiously set out in ASIC's written submissions as quoted in [314] to [328] above. 376 As to the question of whether the statements under consideration made by Mr Goulding constituted financial product advice, the analysis is much as set out in [359] above in relation to the statements in connection with the issue of loans by Equities. In considering the quality of the subject statements, the form of the "roll over" transactions must be borne in mind. In each case, the suggestion was that the investor should withdraw or forgive his or her loan to Equities and accept in lieu of Equities' obligation to the investor in respect of that loan, an issue of shares in Capital. The proposal therefore related both to the termination of an existing loan to Equities and to the acquisition of shares in Capital. 377 In relation to these transactions, it is even clearer, upon an examination of the statements as set out in ASIC's written submissions, than in relation to the statements in connection with the making of the loans to Equities, that the statements contained a recommendation or statement of opinion and that that recommendation and statement of opinion was intended to influence a person in making a decision in relation to a particular financial product, respectively, in relation to Equities, the loan that was to be paid out and, in relation to Capital, the shares that were to be acquired. The statements in this case are in my view explicitly recommendations and statements of opinion and are clearly intended to influence a person in making a decision in relation to the relevant financial products. They certainly could be regarded as being intended to have such an influence. 378 An additional question arises in the case of these breaches. Whilst the conduct of a business of providing any financial product advice would be proscribed in the case of Equities, because that company had no licence to conduct a financial services business, in the case of Capital, for there to be a breach, there must be an additional finding that the relevant business of providing financial product advice involved the giving of financial product advice that was personal advice, since, during the relevant period, Capital had a licence which would have justified the giving of general advice. 379 Again, there is no great difficulty in the case of the advice under consideration that is alleged to be personal advice. The requirement for advice to be characterised as personal advice is that the provider of the advice has considered one or more of the objectives, financial situation and needs of the person to whom the advice was provided or that a reasonable person might expect the provider to have considered one or more of those matters: see s 766B(3) of the CA. The evidence relating to these matters shows that Mr Goulding, acting on behalf of Capital, had in fact considered the person's objectives, financial situation and needs in each case. He was clearly aware of the details of the loan which each of the persons to whom the advice was addressed had made to Equities and had considered the impact upon that person's situation of the position in which Equities and Capital now found themselves. I find that the financial product advice given in each case on Capital's behalf was personal advice. It was therefore outside the terms of the licence that Capital held. 380 The remaining question is whether on the evidence Equities and Capital should be found to have been engaged in a business of providing financial product advice. This again raises the question as to whether the establishment of the proffering of financial product advice on five occasions, this time over a period from 18 October to 13 December 2004, in relation to the same financial products could be said to constitute a business. 381 In my view, the repetition of the activity proved on five occasions imports a significant system, repetition and continuity sufficient to be characterised as the conduct of a business on behalf of both Equities and Capital. The object was in each case to encourage similar dealings with the same products. The conduct was more than occasional and there was a connection in the purpose of the activity in each case. 382 Also necessary, as appears from the passages quoted in [362] above, is an element of commerciality, that the activities be "engaged in for the purpose of profit". The advice proffered was not charged for by either Equities or Capital. However, it was given by Equities to relieve it of obligations in relation to the scheme it was conducting and was given by Capital to encourage investment in its enterprise. Those objectives were achieved in each case. This leads me to the conclusion that the activities were carried on by Equities and Capital for the purpose of profit. 383 I therefore find that during the period from 18 October to 13 December 2004 Equities was carrying on a financial services business by providing financial services in the form of providing financial product advice and that Capital was carrying on a financial services business by providing financial services in the form of providing financial product advice that was personal advice. These findings lead me to the conclusion that Mr Goulding was guilty of causing or permitting Equities and Capital to engage in contraventions of s 911A(1) by engaging in those businesses without holding the requisite financial services licence and thereby breached his duties under ss 180 and 181 of the CA. 384 There was an additional submission on behalf of ASIC that the issue by Capital of the Capital Prospectus and the writing of letters to all the persons who engaged in "roll over" transactions should be taken into account by the Court in coming to the conclusion set out in the last preceding paragraph, additionally to the conduct relied on by the Court in coming to that conclusion. I should say that I do not rely on any of that conduct in coming to that conclusion. I do not regard the making of statements in the Capital Prospectus nor in the letters referred to as amounting to the conduct of a financial services business or conducing to the conclusion that such a business was conducted. Breaches in connection with the issue of shares in Capital to new investors 385 Under this heading ASIC complained of an alleged contravention by Mr Goulding arising out of one instance of the making of oral representations not relating to a "roll over" transaction to a Mr Winning that led to him to take out shares in Capital. I do not regard evidence of this isolated instance of such conduct as establishing or being part of a financial services business constituted by the giving of financial product advice. I refuse to make any finding against Mr Goulding under this heading. 8.7 Provision of unauthorised financial services 386 What is alleged under this head is statutory contraventions by Mr Goulding personally of s 911B of the CA. It is alleged that he provided on behalf of IPAA financial services, being financial product advice, when IPAA either did not have an AFSL or had an AFSL that did not extend to the provision of financial product advice being personal advice. 8.7.1 ASIC's submissions 387 The submissions made by ASIC in support of its allegations against Mr Goulding regarding contraventions of s 911B of the CA are set out below. 388 As stated above, Mr Goulding himself was an authorised representative of IPAA during the period from 6 July 2004 and 28 June 2005. The terms of that authorisation were to provide general advice not personal advice. Mr Goulding did not himself carry on a financial services business in Australia within the meaning of s 911A of the CA. However, s 911B does not turn on the carrying on of a financial services business. Rather, the section turns on "providing a financial service" on behalf of a person who carries on a financial services business. 389 The section provides that a person "must only provide a financial service in this jurisdiction on behalf of another person (the principal) who carries on a financial service business" if certain requirements, as set out in subs (1)(a), (b), (c) or (d), are satisfied. It should be noted that the relevant principal here is IPAA, which was the holder of an AFSL licence. Subsection (1)(d) did not apply because Mr Goulding did not hold his own AFSL. 390 The remaining paragraphs, sub s (1)(a), (b) and (c), did not apply because Mr Goulding's authorisation did not cover the provision of the financial advice provided by Mr Goulding. This is because: (a) in respect of the advice given on behalf of Equities before 6 July 2003 (see [293] - [300] above), Mr Goulding was not an authorised representative of any AFSL licensee at that time; (b) in respect of the advice given on behalf of Capital and Equities, in connection with the "roll overs" (see [314] - [328] above), Mr Goulding was authorised only to provide general advice and the advice in fact provided by him was personal advice; (c) in respect of advice given on behalf of Capital to Mr Winning (see [341] above), Mr Goulding was authorised only to provide general advice and the advice in fact provided by him was personal advice. 391 ASIC submitted that, in any event, none of those paragraphs of s 911B(1) referred to above was satisfied in respect of any financial advice provided by Mr Goulding for the following additional reasons. 392 The requirements of subs (1)(a) were not satisfied because the provider, Mr Goulding, was a director of another person who carried on a financial services business, who was not a related body corporate of the principal, namely, Equities and Capital. 393 The requirements of subs (1)(b) were not satisfied because the provider, Mr Goulding, was a director of another person who carried on a financial services business, namely Equities and Capital, but was not an authorised representative of either Equities or Capital. 394 The requirements of subs (1)(c) were not satisfied because the service provided was not the provision of a basic deposit product or of a facility for making non cash payments that is related to a basic deposit product. 395 Accordingly, ASIC submitted that by providing the financial advice referred to above, Mr Goulding breached s 911B of the CA. 8.7.2 Mr Goulding's submissions 396 Mr Goulding asserted that ASIC's submission is "convoluted and somewhat confusing". He relied on his earlier submissions. Whilst his complaint about ASIC's submission is in this case not without justice, his own repetition of earlier submissions was not of great assistance to the Court. 8.7.3 Conclusions 397 As pleaded, the contravention alleged against Mr Goulding was originally considerably wider than the case ultimately relied on, in the light of what is contained in ASIC's written submissions as finally formulated and the Findings Sought as finally put forward: see [510] below. 398 The pleaded case as ultimately relevant was in par 66(b) of the statement of claim as follows: "66 In the premises, the Third Defendant: …… (b) … whilst being an authorised representative of IPAA to provide general product advice only from 6 July 2004 to 28 June 2005, provided personal advice to retail clients, contrary to section 911B of the Act…" 399 This must be read in conjunction with par 60 of the statement of claim set out in [350] above. 400 The terms of this pleading mean that, despite the form of the submissions made and the Findings Sought, the only case that can now be made against Mr Goulding in respect of Breach 7 is of providing personal advice to clients between 6 July 2004 and 28 June 2005 whilst he was an authorised representative of IPAA to provide general advice only. 401 The pleading, however, is inadequate to support relief in respect of a breach of s 911B. It alleges that Mr Goulding provided personal advice whilst being authorised to provide only general advice on behalf of IPAA. It does not, however, allege that that personal advice was provided on behalf of IPAA. Furthermore, this is far from self evident and it is doubtful whether there is any evidence that any personal advice given by Mr Goulding was given on behalf of IPAA. ASIC's written submissions do not propound any evidence to this effect. And it does not flow from the fact that Mr Goulding held some authorisation to give financial product advice on behalf of IPAA that any product advice given by him was given on its behalf. But the lack of the appropriate pleading basis for a finding against Mr Goulding in respect of this breach is sufficient of itself to defeat this claim. There will be no finding against Mr Goulding in respect of Breach 7. 8.8 Equities' disclosure contraventions 402 The nub of this allegation is that Mr Goulding acted in breach of ss 180 and 181 of the CA by causing or permitting Equities to advertise financial products without complying with s 1018A of the CA. 8.8.1 ASIC's submissions 403 The submissions made by ASIC in support of its allegations against Mr Goulding regarding Equities' disclosure contraventions are set out below. 404 Part 6D.2 of the CA contains the disclosure regime for offers of securities. Section 706 of the CA provides that an offer of securities for issue needs disclosure to investors under Part 6D.2 unless s 708 or s 708A provides otherwise. 405 However, for the purposes of Part 6D.2, the expression "securities" is more narrowly defined than in other provisions of the CA. In particular, for the purposes of Part 6D.2, "securities" means a share or debenture (and certain interests or options in shares or debentures) and does not include an interest in a managed investment scheme: ss 700 and 761A of the CA. 406 Accordingly, the disclosure requirements for offers of interests in the managed investment scheme operated by Equities are governed by Part 7.9 of the CA (which, by s 1010A does not apply to "securities" as defined in s 700), not Part 6D.2. The disclosure requirements in Part 7.9 apply only in respect of financial products that were issued in the course of a business of issuing financial products. 407 Here, Equities was in the business of raising capital by loans from investors in order, ostensibly, to invest in approved development projects. As demonstrated earlier, the loans made by investors to Equities were financial products for the purposes of Ch 7 of the CA because they were interests in a managed investment scheme: 764A(1)(ba) (see [255] – [268] under heading 8.4.1 above). It follows that Equities was in the business of issuing financial products. 408 Section 1018A(1) of the CA provides that a person must only advertise a financial product available for acquisition by retail clients if the advertisement identifies the issuer of the product; indicates that a Product Disclosure Statement for the product is available and where it can be obtained; and indicates that a person should consider the Product Disclosure Statement in deciding whether to acquire, or to continue to hold, the product. 409 Each of the Equities Investors was a retail client for the purposes of the CA: s 761G. Advertisements in respect of the investment opportunity in Equities were placed in newspapers and on radio. 410 The newspaper advertisements advised there was a direct investment opportunity for sophisticated investors in residential development with a twelve month completion time, a national builder and developer, an attractive tax structure, secured capital, a competitive rate of return, in a development or developments which were pre sold and which might suit a do it yourself superannuation fund. Members of the public were invited to telephone "Sydney Investment House", the fifth defendant. 411 The radio advertisements encouraged listeners to telephone "Sydney Investment House" for details of the investment opportunity and provided a telephone number for House. Advertisements were placed with radio station 2GB during the period from 2 February to 13 February and 2 June to 15 June 2003. 412 The advertisements were produced in response to notices issued under s 33 of the ASIC Act to Equities and Mr Goulding, which required production of any advertisements "for the purpose of promoting investment produced by Sydney Investment House Equities Pty Ltd in the Relevant Period". 413 What was being advertised on 2GB and in the Sydney Morning Herald was the offer or intended offer described in the Equities Information Memorandum. 414 ASIC submitted that it follows from the evidence referred to above that the advertisements on 2GB and in the Sydney Morning Herald were advertisements of a financial product (being loans to Equities) that did not comply with the requirements of s 1018A(1) of the CA. In particular, those advertisements did not identify the issuer of the financial product, they did not indicate that a Product Disclosure Statement for the product was available and they did not indicate that any potential investor should consider the Product Disclosure Statement in deciding whether to acquire the product. 415 Subsection (4) of s 1018A contains exceptions to the advertising requirements in subs (1). The advertisements in evidence did not fall within any of the exceptions in that sub section. 416 Accordingly, ASIC submitted that Equities breached s 1018A(1) of the CA in respect of each advertisement identified above. 417 The conduct of Mr Goulding in causing or permitting Equities to breach s 1018A exposed Equities to potential civil and criminal sanctions and therefore contravened ss 180 and 181 of the CA. 8.8.2 Mr Goulding's submissions 418 Mr Goulding did not appear to controvert the propositions of law and fact put forward by ASIC. He did complain about the form of the pleading and submitted that the pleading be struck out as an abuse of process under r 28.1(c) of the UCPR. Mr Goulding asserted that he had obtained competent legal advice from KB Legals and consulted with IPAA. He submitted that the Court would accept that Mr Olde was aware that Mr Goulding had obtained this professional legal and accounting advice; that Mr Olde made a conscious decision not to enter an appearance or defence on behalf of the corporate defendants; and that Mr Olde did not interview Mr Burnett from KB Legals. 8.8.3 Conclusions 419 ASIC in relation to this breach pleaded a claim that Mr Goulding had caused or permitted Equities to commit breaches of s 1018A and that Mr Goulding incurred accessorial liability in relation to those contraventions. It also pleaded that he had caused or permitted those contraventions; that those contraventions had exposed Equities to criminal penalties; and that, in doing so, Mr Goulding breached his obligations under ss 180(1) and 181 of the CA. 420 It is clear from ASIC's submissions as set out in 8.8.1 that the claim in respect of accessorial liability is not pursued and that it is only the last mentioned claim, namely, of causing or permitting the conduct and thereby exposing Equities to penalties, that ASIC now presses. 421 Again, there is nothing of substance in the submissions that Mr Goulding has made in opposition to this claim. There is generalised advice in the letter from KB Legals dated 7 April 2003 mentioned in [418] above. However, there is not any evidence that Mr Goulding acted on any relevant advice. The pleading in relation to this claim is not defective. However, in my view, despite the references to newspapers in [409] – [414] above, the evidence is not sufficient to base a finding of the placement of an advertisement in any particular newspaper on any particular date. And, although the evidence establishes the placement of advertisements on radio 2GB on the dates mentioned, it does not appear to me on examination of the advertisements that they can be characterised as advertisements of financial products. 8.9 Misleading or deceptive conduct by Equities and Capital 422 Originally, ASIC alleged about 95 separate statements said to convey misrepresentations by Equities and Capital. This has now been reduced to allegations in relation to a total of 13 statements, 5 in the Equities Information Memorandum and 8 in the Capital Prospectus. The complaint of breach against Mr Goulding is that he caused or permitted the making of those misrepresentations and thereby breached his duty under s 180(1) or s 181 of the CA. The 13 statements now relied on are set out in Annexure G to this judgment. 8.9.1 ASIC's submissions 423 The submissions made by ASIC in support of its allegations against Mr Goulding regarding, misleading or deceptive conduct by Equities and Capital are set out in the respective headings below. The Law 424 Section 1041H of the CA provides that a person must not engage in conduct in relation to a financial product or financial service that is misleading or deceptive or is likely to mislead or deceive. That section provides for civil liability only: s 1041I. 425 As demonstrated in [287] and [288] above, the issue of loans to Equities and the issue of shares in Capital were each issues of financial products for the purposes of the CA. 426 Section 728(1) of the CA provides that a person must not offer securities under a disclosure document if, relevantly, there is a misleading or deceptive statement in the disclosure document. Section 728(2) provides that a person is taken to make a misleading statement about a future matter if the person does not have reasonable grounds for making the statement. By s 728(3) a person who contravenes s 728(1) is guilty of an offence if the misleading or deceptive statement is materially adverse from the point of view of an investor. 427 Sections 12DA, 12DB and 12DF of the ASIC Act create offences of engaging in misleading or deceptive conduct or conduct which is likely to mislead or deceive in relation to the provision of financial services. 428 For the purposes of the ASIC Act, a person provides a financial service if, relevantly, the person provides financial product advice or deals in a financial product: s 12BAB(1). Financial product advice means, relevantly, a recommendation or statement of opinion that is, or could reasonably be, intended to influence a person in making a decision in relation to a particular financial product: s 12BAB(5). Dealing in a financial product means, among other things, issuing a financial product: s 12BAB(7). The expression financial product is defined in the ASIC Act to include, relevantly, a facility through which a person makes a financial investment: s 12BAA(1). A financial investment is made if an investor gives money or money's worth (the contribution) to another person and the other person uses, or the investor intends that the other person will use, the contribution to generate a financial return for the investor and the investor does not have day to day control over the use of the contribution to generate the return: s 12BAA(4). 429 ASIC submitted that it is not necessary to determine whether the loans to Equities and the shares in Capital satisfied that definition. This is because interests in a managed investment scheme (the loans to Equities) and shares in a company (the Capital shares) are deemed to be financial products: ASIC Act, s 12BAA(7)(a) and (b). 430 The evidence summarised at [293] – [300] and [314] – [328] above demonstrates that each of Equities and Capital gave financial product advice within the meaning of the CA and the ASIC Act. Further, the issue of loans to investors by Equities and the issue of shares to investors in Capital constituted dealing in a financial product for the purposes of the ASIC Act. Accordingly, at all material times, Equities and Capital were engaged in the provision of financial services for the purposes of ss 12DA, 12DB and 12DF of the ASIC Act. 431 ASIC asserted that, to the extent that the conduct of either of the relevant companies constituted a representation as to a future matter, it is for Mr Goulding to adduce evidence to establish that the company had reasonable grounds for the making of the representation, failing which the representation is taken to be misleading by reason of s 12BB of the ASIC Act. 432 ASIC submitted that the same principles are applicable in relation to that section as apply to s 51A of the Trade Practices Act 1974 (Cth) ("the TPA"). The present state of authority is summarised by Einstein J in Gate Gourmet Australia Pty Ltd (In Liq) v Gate Gourmet Holding AG [2004] NSWSC 149 at [276] - [282]. 433 In particular, a "promise to do something in the future is to be regarded as a representation that it will be performed. It will be deemed misleading, therefore, unless the corporation proves that it had reasonable grounds for making the promise": Wright v TNT Management Pty Limited (1989) 15 NSWLR 679 at 690. Equities Information Memorandum 434 ASIC submitted that by issuing the Equities Information Memorandum, Equities: (a) made representations that: (1) the moneys invested with Equities would be applied only by lending, on appropriate terms, to Approved Development Borrowers as defined; (2) the investment offer under the Equities Information Memorandum was to be made to no more than 20 investors within any 12 month period who together would invest less than $2 million (in accordance with s 708 of the CA); and (b) did not disclose (ie made representations by silence) that the moneys invested with it would be on lent or transferred to companies and trusts in the SIH Group and, with respect to $4.5 million, paid either directly or indirectly from Equities to Mr Goulding and trusts associated with him. 435 ASIC submitted that to the extent that each representation was a representation made as to a future matter, Mr Goulding bears the onus of establishing that there was a reasonable basis for making the representation, failing which the representation will be taken to be misleading: s 12BB of the ASIC Act. Mr Goulding has called no evidence. He has not discharged this onus. It follows that each representation was misleading. 436 ASIC further submitted that the representations identified above were false, and without any reasonable basis, in that: (a) the Equities inter company loans were not made to Approved Development Borrowers as defined; (b) Equities entered into loans with significantly more than 20 investors in a 12 month period and raised significantly more than $2 million; (c) the Equities inter company loans were made to companies and trusts within the SIH Group; and (d) Equities itself directly paid Mr Goulding and trusts associated with him approximately $669,433. 437 Therefore, the issue of the Equities Information Memorandum was: (a) in relation to a financial product and/or financial service and was misleading or deceptive or likely to mislead or deceive, within the meaning of s1041H of the CA; (b) in relation to a financial service and was misleading or deceptive or likely to mislead or deceive, within the meaning of s 12DA of the ASIC Act; (c) in connection with the supply or possible supply of financial services and falsely represented that the services, being the loans issued by Equities, were of a particular standard, quality, value or grade within the meaning of s 12DB of the ASIC Act; and (d) liable to mislead the public as to the nature, characteristics and suitability for purpose of financial services within the meaning of s 12DF of the ASIC Act. 438 The conduct of Mr Goulding in causing or permitting Equities to issue the Equities Information Memorandum therefore exposed Equities to potential civil action under s 1041I of the CA and to potential civil remedies and criminal sanction under ss 12GB and 12GF respectively of the ASIC Act and therefore breached ss 180 and 181 of the CA. Capital Prospectus 439 Capital issued the Capital Prospectus. It contained statements to the effect set out in par 76 of the statement of claim. Representations to that effect were made to each of the persons who was issued shares in Capital. Capital thereby made misrepresentations to members of the public including the Capital investors: par 78. 440 ASIC submitted that each of the following representations was made by Capital and was false and misleading and deceptive: (a) investors' capital would be returned through a selective buy back by Capital 36 months after allotment; (b) interest at the rate of 9% per annum would be paid in respect of the shares; (c) Capital would use the moneys invested to finance or take an "equity position" in "property development projects"; (d) Capital would only make an investment after consideration had been given to that investment by, and a recommendation received from, the "Investment Team"; and (e) Capital would not invest in projects in which the directors had an interest unless the investment was made on an arms' length basis and the relevant directors abstained from the decision whether to invest. 441 In particular, there was no reasonable basis upon which the representations (a) and (b) above could be made, because at all material times Capital was insolvent. Accordingly, there was no reasonable prospect that the investments in Capital would be repaid at all or within the time frame specified. 442 Further, there was never any prospect that Capital would be in a position to carry out a buy back of its shares under Part 2J.1 of the CA. This is because it is a condition of such a buy back occurring that the buy back does not materially prejudice the company's ability to pay its creditors (s 257A of the CA). 443 In relation to representation (c), the evidence is that Capital lent or paid $195,000 to Mr Goulding and trusts associated with him. On any view, those moneys were not paid to finance or take an "equity position" in any property development projects. 444 In relation to representation (d) above, there is no evidence that an "Investment Team" was ever formed, or that any consideration was ever given by, or recommendation received from, any such "Team" in relation to any of the "investments" made by Capital. ASIC submitted that the inference that the Court should draw is that it was never the intention of Mr Goulding and Capital to establish and abide by the "Investment Team" mechanism provided for in the Capital Prospectus. 445 In relation to representation (e), as demonstrated in [139] and [140] above: (a) none of the inter company loans made by Capital was at arm's length; and (b) Mr Goulding was interested in each company to which the inter company loans were made and did not relevantly absent himself from voting on the decision whether to make those loans. Again, ASIC submitted that the inference that the Court should draw is that it was never the intention of Mr Goulding and Capital to comply with the procedures for resolving conflicts of interest provided for in the Capital Prospectus. 446 Each of the representations (a) to (e) above was made in a disclosure document. Each was a misleading or deceptive statement within the meaning of s 728(1) of the CA. Each was a statement about a future matter within the meaning of s 728(2) of the CA. For the reasons given above, there were no reasonable grounds for making those statements. Mr Goulding has not discharged his onus of showing reasonable grounds. 447 Accordingly, ASIC submitted that each of the representations (a) to (e) above was a misleading or deceptive statement in a disclosure document, being the Capital Prospectus, within the meaning of s 728 of the CA. Capital therefore breached s 728(1) of the CA by offering securities under the Capital Prospectus. 448 Capital also breached s 12DF of the ASIC Act because, for the reasons set out above, the conduct of Capital in issuing the Capital Prospectus was conduct that was liable to mislead the public as to the nature, characteristics and suitability of the shares in Capital. In particular, s 12BB applied to impose on Mr Goulding the onus of showing that there was a reasonable basis for the representations. He has led no evidence and has failed to discharge that onus. 449 The conduct of Mr Goulding in causing or permitting Capital to breach s 728 of the CA and s 12DF of the ASIC Act exposed Capital to potential civil liability under s 729 of the CA and potential criminal liability under s 12GB of the ASIC Act respectively. Accordingly, Mr Goulding breached ss 180 and 181 of the CA. 8.9.2 Mr Goulding's submissions 450 Mr Goulding again alleged that the pleading is defective. In his written submissions he referred to the bundle of correspondence with KB Legals that is in evidence. He also referred to his defence in which it is alleged in garbled paragraphs that the Equities Information Memorandum and Capital Prospectus were prepared on the advice from KB Legals and IPAA. He also referred to the deeds of release that were part of the "roll over" transactions. 8.9.3 Conclusions 451 Again, the pleading situation is quite unhappy. The pleading as to the restricted number of representations now relied on is convoluted, being contained in parts of the statement of claim that are remote from each other. Thus, in respect of the Equities misrepresentations one must go to pars 72 – 75A in conjunction with par 170 and in respect of the Capital misrepresentations to pars 78 – 82A in conjunction with par 186. Furthermore, the very way in which the representations are alleged is diffuse. However, once one makes the conjunctions mentioned above, it is clear that Mr Goulding is sufficiently alleged to have been guilty of a breach or breaches of duty by causing or permitting Equities and Capital to make those misrepresentations. This is the sole misrepresentation case now advanced. 452 In relation to Mr Goulding's assertions that the Equities Information Memorandum and the Capital Prospectus were prepared on the advice of KB Legals and IPAA, it is true that there is some advice concerning the preparation of the Capital Prospectus in the correspondence from KB Legals that is in evidence. But there is nothing in that advice that could in any way operate as a defence to the allegations of misrepresentations, even if there were any evidence that the advice was taken into account in the preparation of the document, which there is not. Equities misrepresentations 453 The Equities Information Memorandum issued on about 26 March 2003 contained statements to the effect of the representations formulated in [434](a)(1) and (2), namely, that: (1) the moneys invested with Equities would be applied only by lending, on appropriate terms, to Approved Development Borrowers as defined; and (2) the investment offer under the Equities Information Memorandum was to be made to no more than 20 investors within any 12 month period, who together would invest less than $2 million (in accordance with s 708 of the CA). 454 I find that it is clear that representations to that effect were made in the Equities Information Memorandum. It is clear that the representations were made in trade and commerce and in relation to financial services as submitted by ASIC and therefore fell within the provisions of s 12DA(1) of the ASIC Act. Bearing in mind Mr Goulding's position in Equities, I find that he caused or permitted the issue of the Equities Information Memorandum containing the statements (cf [164] above). The question is whether the statements conveyed misrepresentations that offended the statute. 455 In this regard, it is clear that they were statements concerning future matters. Without reference to statutory provisions such as s 12BB of the ASIC Act or s 51A of the TPA, the classic statement as to what is conveyed by statements as to the future is that of the Full Court of the Federal Court (Bowen CJ, Lockhart and Fitzgerald JJ) in Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 88: "Many statements, for example, promises, predictions and opinions, do involve the state of mind of the maker of the statement at the time when the statement is made. Precisely the same principles control the operation of s 52(1) with respect to the making of such statements. A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, the making of the statement will have contravened s 52(1) of the Act. Compare Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) 47 ALR 114." 456 Under this principle, it is my view that the relevant statements convey misrepresentations. They convey that the intentions were held in the terms set out and that there was a basis for holding the intentions. In view of the course that, on the evidence, was shortly thereafter followed by Equities of lending without establishing a mechanism to identify Approved Development Borrowers and of accepting investments from a number of lenders and in a total amount far beyond the limits (see Annexure B to this judgment), it is easy to draw the inference that Equities did not have the relevant intentions at the time the Equities Information Memorandum was issued or that there was no basis for them. There was no evidence to the contrary. This is not a case where there is any suggestion on the evidence of a change of policy: cf Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd (1997) 37 IPR 599. 457 For those reasons, there is no need to rely on s 12BB of the ASIC Act to find those misrepresentations established. It may be that s 12BB(1) is available to be relied on by ASIC, but I have already said that I should come to the conclusion that the representations were misleading or deceptive on an approach to the situation without adversion to that provision. However, ASIC sought to rely on s 12BB(2) and the lack of evidence led by Mr Goulding to reverse the onus of proof. But in my opinion s 12BB(2) is not available to be relied on by ASIC in this regard. 458 To reach this conclusion, I rely on authority relating to s 51A of the TPA. It has been held that s 51A does not operate in cases of accessorial liability or liability of an individual by reason of involvement in the conduct of a corporation. In Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276, Emmett J said of the effect of s 51A of the TPA: "[43] In the present case, Universal is no longer a party to the proceeding because, as I have said, the proceeding has now been dismissed as against Universal. Accordingly, it is no longer possible for Universal to adduce any evidence in the proceeding. On one view, if s 51A(2) applies as against Mr Kotowicz, it would give rise to an irrebuttable presumption so far as he is concerned. That is to say, since Universal cannot adduce evidence to the contrary, it is deemed, as against Mr Kotowicz not to have had reasonable grounds for making any relevant representation. No evidence led by Mr Kotowicz would lead to any different conclusion. [44] One view of s 51A is that it provides that a corporation is deemed, as against any party to a proceeding, not to have had reasonable grounds for making a representation unless that party adduces evidence to the contrary - see King v GIO Australia Holdings Ltd [2001] FCA 308 para [28] - para [30]. That, however, is not what the section says. There could well be good policy reasons for imposing on a person who makes a representation with respect to a future matter the evidentiary onus of demonstrating that the representation was not misleading. It is a different matter altogether, however, to impose such a burden on a person who did not make the representation, albeit a person who was knowingly involved in the making of the statement. [45] That is a good reason for construing s 51A as giving rise to a deeming only as against a principal contravener of the Act. That is to say, it does not have any relevance as regards a claim against a person who is only alleged to have been involved in or to have been a party to a contravention by another person. That is the present case." 459 That passage was approved by the Full Court of the Federal Court (Heerey, Sundberg and Dowsett JJ) in Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 at 11. 460 Unlike Universal Sports and Quinlivan, this is not a case of accessorial criminal liability, where particular knowledge in the defendant must be established. It is a case where it is alleged that Mr Goulding caused or permitted the companies to make representations. But the consideration equally applies that he does not control the companies and is not responsible for their not giving evidence. Equally, even if he gave evidence, that would not fulfil the terms of s 12BB(2), so as to prevent the reversal of the onus. This leads to the conclusion that s 12BB cannot operate to reverse the onus. 461 However, for the reasons stated above, the representations in [434](a) constituted misleading or deceptive conduct contrary to s 12DA(1) of the ASIC Act. 462 The representation formulated in [434](b) was that Equities: "did not disclose (ie made representations by silence) that the moneys invested with it would be on-lent or transferred to companies and trusts in the SIH Group and, with respect to $4.5 million, paid either directly or indirectly from Equities to Mr Goulding and trusts associated with him". 463 That representation is alleged in terms to have been made by silence. The classic statement on representations by silence is that of the Full Court of the Federal Court (Lockhart, Burchett and Foster JJ) in Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546 at 557. "At common law, silence can give rise to an actionable misrepresentation where there is a duty upon the representor to reveal a matter if it exists, and where the other party is therefore entitled to infer that matter does not exist from the silence of the representor: W Scott Fell & Co Ltd v Lloyd (1906) 4 CLR 572 per Griffith CJ at 577; Halsbury's Laws of England (4th ed, 1980), Vol 31, par 1052. The circumstances in which silence may constitute misleading conduct under the Act were referred to in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477. That case established that silence may be relied on in order to show a breach of s 52 when the circumstances give rise to an obligation to disclose relevant facts: see Bowen CJ at 490, Lockhart J at 504 and Jackson J at 508. The duty to disclose is not confined to cases where there are particular relationships, such as trustee and beneficiary or solicitor and client, principal and agent and guardian and ward. There is no useful purpose in seeking to analyse the circumstances in which the duty to disclose will arise as this must depend on the facts of each case." 464 There should also be borne in mind the warning of Black CJ in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 that the principle does not impose any general duty of disclosure: "The primary question was whether there had been conduct that was misleading or deceptive or likely to mislead or deceive. In this case, as in every case in which s 52 is relied upon, this was a question of fact that could only be determined -- as the judge did determine it -- having regard to all the relevant circumstances. Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive." 465 The convoluted form in which the allegation is made itself casts doubt on whether it can be found to constitute a representation or a misrepresentation. I have considered the allegation in all the circumstances of the case and borne in mind what has been said about the standard of proof in proceedings of this nature. I do not find it established that the alleged representation was made or that there was misleading or deceptive conduct by silence in this regard. 466 In view of my findings in relation to s 12DA(1) of the ASIC Act at [454] above I do not proceed to deal with the allegations of breaches of other provisions. Capital misrepresentations 467 The Capital Prospectus was issued in October 2004. The misrepresentations that it is now alleged were made in the Capital Prospectus are as follows: (a) investors' capital would be returned through a selective buy back by Capital 36 months after allotment; (b) interest at the rate of 9 per cent per annum would be paid in respect of the shares; (c) Capital would use the moneys invested to finance or take an "equity position" in "property development projects"; (d) Capital would only make an investment after consideration had been given to that investment by, and a recommendation received from, the "Investment Team"; and (e) Capital would not invest in projects in which the directors had an interest unless the investment was made on an arms' length basis and the relevant directors abstained from the decision whether to invest. 468 Bearing in mind Mr Goulding's position in Capital, I find that he caused or permitted the issue of the Capital Prospectus containing the relevant statements (cf [164] and [454] above). I find that under the principle stated in Global Sportsman supra the relevant statements in the Capital Prospectus conveyed representations in terms of sub pars (a) to (e) of the last preceding paragraph, without resort to any statutory provision. The representations were to the effect that Capital had the requisite intentions and that there was a basis for them. It is clear that the representations were made in a disclosure document and therefore fell within the provisions of s 728(1) of the CA. It is also clear that they were made in trade and commerce and related to the nature and characteristics of financial services, being the Capital shares, as submitted by ASIC and therefore fell within the provisions of s 12DF of the ASIC Act. The question is again whether the statements conveyed misrepresentations that offended the statutes. 469 As to representations (a) and (b), it must be borne in mind that Capital has been found to have been insolvent when it issued the Capital Prospectus and thereafter. Particularly bearing in mind the directors' duties to other creditors in view of its insolvency, Capital cannot have had a basis for that intention. I do not find it necessary to rely on s 728(2) of the CA or s 12BB(1) of the ASIC Act to come to this conclusion. If those sections were to be applied, I should find that Capital did not have reasonable grounds for the intention. 470 ASIC purports to rely on a reversed onus in relation to each statutory breach alleged. So far as s 728 of the CA is concerned, it contains no provision corresponding with s 51A(2) of the TPA or s 12BB(2) of the ASIC Act. So far as s 12DF of the ASIC Act is concerned, I have already expressed the view in [457] above that s 12BB(2) cannot apply to Mr Goulding in these proceedings. There is therefore no reversal of onus. However, the absence of evidence led by Mr Goulding is taken into account in the usual way in assessing the factual situation. 471 As to representation (c), the degree to which the loans that were made could be said to have been made for property development purposes was one of the areas where the case originally presented by ASIC underwent some modification during the trial. The situation in the end was not entirely clear. Nor in my view is it clear that Capital did not have an intention at the time of the issue of the Capital Prospectus to lend only for property development purposes or that it did not have a basis for that intention. If necessary, I should find that it had reasonable grounds for having the intention. I do not find that representation (c) constituted misleading conduct. 472 As to representations (d) and (e), I take into account the following. Shortly after the issue of the Capital Prospectus, Capital followed the course of making loans without consideration by an Investment Team (which on the evidence was never established). It also followed the course of investing in projects in which directors had an interest without any sign of the appropriate procedures being adopted. In light of these facts, it is easy to draw the inference that Capital did not have the relevant intentions at the time the Capital Prospectus was issued or that there was no basis for them. There was no evidence to the contrary. 473 I therefore conclude that Capital made representations that were misrepresentations in terms of representations (a), (b), (d) and (e), but not (c); that they constituted breaches of s 728 of the CA and of s 12DF of the ASIC Act; that Mr Goulding caused or permitted the making of those misrepresentations; and that he thereby breached his obligations under ss 180 and 181 of the CA. 8.10 Ad hoc dealings with investors 474 These fall into two categories, the entry by Newcastle into what have been called "side deeds" in relation to sales by it of apartments in the Soque development and the entry by Newcastle, Melbourne and Hawthorn into dealings with one Kevin Smith and companies associated with him. In each case the allegation is that Mr Goulding breached his duties as a director by causing or permitting the companies to enter into the transactions. 8.10.1 ASIC's submissions 475 The submissions made by ASIC in support of its allegations against Mr Goulding regarding ad hoc dealings with investors are set out below. Newcastle "side deeds" 476 Mr Goulding dealt with a number of investors and creditors of the SIH Group on an ad hoc basis to arrange payment of their claims against one or more of the relevant companies. 477 Mr Goulding caused Newcastle to enter into contracts for the sale of units in the Soque Apartments with a number of investors in respect of which a "side deed" had been negotiated to provide a "rebate" to reduce the true cost of the purchase of the relevant units. 478 The structure of each such transaction was that a contract for sale was entered into between Newcastle as vendor and the investor as purchaser at fair market value. Simultaneously, a "side deed" was entered into allowing the investor's investment in Equities or Capital to be offset against the purchase price to be paid to Newcastle. 479 The following "side deeds" were entered into by Newcastle with respect to the sale of units in the Soque Apartments: Unit no Purchaser Date Exchanged purchase price Rebate Reference 112 Keith and Heather Braithwaite 27/10/06 $435,000 $221,699 Ex A 11/4199-4202; Olde Affidavit, 16/11/06, [28]-[29] 118 Daniel Hammersley-Cave 06/09/06 $265,000 $65,000 Ex A 11/4199-4202; Ex A8/3174 to 8/3175 216 Louise Paula Packer - $362,250 $200,000 Ex A 11/4199-4202 217 John Neophyton 05/09/06 $362,250 $29,694 Ex A 11/4199-4202; Ex A 5/1802-5/1809 218 Challenge Investment Enterprises Pty Ltd 25/02/04 $60,000 Ex A 8/3209-8/3210 221 John Edward - $480,000 $480,000 Ex A 11/4199-4202 221 Zabadak Pty Ltd atf The Zabadak Superannuation Fund 01/03/05 $27,500 Ex A 6/2206 to 6/2207 305 Percival George Nayler $459,000 $459,000 Ex A 11/4199-4202 321 Joseph Scarcella 26/06/06 $85,000 Ex A 10/4038 322 John Neophyton 05/09/06 $481,950 $39,506 Ex A 11/4199-4202 323 Nimiety Pty Ltd atf Parvenu Trust - $699,000 $299,000 Ex A 11/4199-4202; Ex A 8/3209 480 ASIC submitted that these transactions were not for a proper purpose of, and were not in the best interests of, Newcastle. In particular, the substance of the transactions was that Newcastle discounted the sale price it was to receive on the sale of the units identified above in return for the investor in effect releasing Capital or Equities from its obligations to the investor to the extent of the rebate. 481 The transactions therefore benefited Equities or Capital but were detrimental to Newcastle. Carrying out the balancing exercise referred to by Carr J in Gamble v Hoffman supra at 373 - 374 and Giles JA in Lewis v Doran supra at [154], each transaction produced: (a) a benefit to Equities and Capital, but no discernible indirect benefit to Newcastle; and (b) a detriment to Newcastle, in the form of a disposal of an asset of Newcastle for less than market value. 482 Further, as discussed at [36] and [37] above, when a company is insolvent, near insolvent or of doubtful solvency, the duty of the directors extends to considering whether the acts of the company will prejudice the company's practical ability to discharge debts owed to current and likely continuing trade creditors. Newcastle was insolvent during the period 1 January 2003 to 30 June 2006. That is, Newcastle was insolvent at all times during which the ad hoc dealings described above took place. The side deeds and ad hoc dealings described above had the effect generally of diminishing the pool of assets available to Newcastle to satisfy claims by creditors. 483 For these reasons, ASIC submitted that by causing or permitting Newcastle to engage in the ad hoc dealings, Mr Goulding breached ss 180 - 182 of the CA. Kevin Smith 484 In addition to the side deeds described above, ASIC submitted that Mr Goulding caused or permitted Newcastle, Melbourne and Hawthorn to enter into an ad hoc dealing with Kevin Smith and companies controlled by him as summarised below. 485 The effect of this ad hoc dealing was that Newcastle and Melbourne acknowledged a liability that they did not in fact owe, Hawthorn acknowledged a larger liability than it owed and each company granted security over its assets in respect of that liability. That transaction was not in the interests of, or for a proper purpose of, Newcastle, Melbourne or Hawthorn. 486 On 21 April 2004 Melbourne and Hawthorn entered into a Joint Venture Agreement ("the JVA") with Chivas Holdings Pty Limited ("Chivas"), a company owned and controlled by Kevin Smith. The JVA provided for Chivas to lend Hawthorn the sum of $1,512,931.65 for the purposes of Hawthorn completing the purchase of the Hawthorn property, that is, 157 - 163A Burwood Road, Hawthorn. Under the JVA, Chivas was granted a second ranking security over the Hawthorn property and a second ranking fixed and floating charge over Hawthorn. Nothing in the JVA referred to Chivas being granted any interest (secured or otherwise) in any assets or entities other than Hawthorn and the Hawthorn property. In particular, neither Newcastle nor Melbourne undertook any liabilities under the JVA or agreed to grant any security over their assets. 487 On 5 November 2004, Tresair Pty Ltd ("Tresair"), as trustee for the Plasser Property Trust, and House, as trustee for the WSSUT, entered into a Unit Holders Deed of Agreement ("the Unit Holders Agreement"). Tresair was another company owned and controlled by Kevin Smith. The WSSUT operated a storage business in the Newcastle area, which business was sold in late 2005 or early 2006. 488 The Unit Holders Agreement provided that Tresair would purchase $500,000 worth of units in the WSSUT, in consideration of which Tresair received a security interest over the storage business and the property at 49 Annie Street, Wickham held by the WSSUT. 489 Nothing in the Unit Holders Agreement referred to Tresair being granted any interest (secured or otherwise) in any assets or entities other than the storage business and underlying property. In particular, no obligations were undertaken by Melbourne or Newcastle and no security was granted by them under the Unit Holders Agreement. 490 On 12 November 2004, House as trustee for the WSSUT issued 500,000 G Class Units in the WSSUT to Tresair as trustee for the Plasser Property Trust The position at that stage was that Chivas was a creditor of Hawthorn and Tresair was a beneficiary of the WSSUT and the holder of some form of security interest over the assets of that trust. 491 On 18 July 2006, Chivas, Tresair and Kevin Smith on the one hand and Mr Goulding, Newcastle, Melbourne and Hawthorn on the other, entered into a deed ("the Settlement Deed") in which Mr Goulding, Newcastle (both in its own capacity and as trustee of the NC13 Trust), Melbourne and Hawthorn acknowledged that they owed $2.7 million to Chivas and Tresair. 492 The Settlement Deed provided that Mr Goulding, Newcastle, Melbourne and Hawthorn charged all present and future real property as "surety" for the $2.7 million debt. The Settlement Deed also provided that Chivas and Tresair would be entitled to all proceeds of the sale of units in the development known as the Soque Apartments after satisfaction of the rights of the secured creditor, St George Bank, and Hickory Developments, other than as to $30,000 per apartment. The Soque Apartments were owned by Newcastle (whether in its own capacity or as trustee of the NC13 Trust). Although the Settlement Deed indicated that Tresair had lodged a caveat over the Soque Apartments, there is nothing in the evidence to suggest that it had a caveatable interest in that property. 493 Accordingly, the result of the Settlement Deed was that Melbourne and Newcastle acknowledged a $2.7 million liability to Tresair and Chivas that, on the evidence, they did not owe and granted security over their assets to secure repayment of that liability. Further, Newcastle agreed that to discharge the $2.7 million liability, Tresair and Chivas would receive part of the proceeds of sale from its primary asset, the Soque Apartments. 494 In the case of Hawthorn, it acknowledged a $2.7 million liability in circumstances where it owed a liability of only approximately $1.5 million under the JVA. 495 The Settlement Deed was therefore not in the best interests of, or for a proper purpose of, Newcastle, Melbourne or Hawthorn. 496 Further, as pointed out in [36] and [37] above, when a company is insolvent, near insolvent or of doubtful solvency, the duty of the directors extends to considering whether the acts of the company will prejudice the company's practical ability to discharge debts owed to current and likely continuing creditors. 497 The evidence is that Newcastle was insolvent during the period 1 January 2003 to 30 June 2006, Hawthorn was insolvent during the period 1 July 2003 to 30 June 2005 and Melbourne was insolvent during the period 1 July 2003 to 30 June 2006. Further, the evidence is that each of Newcastle, Melbourne and Hawthorn was insolvent as at December 2006, at which time each of those companies was in liquidation. Accordingly, ASIC submitted that the Court should conclude that each of Newcastle, Melbourne and Hawthorn was insolvent, or virtually insolvent, at the time the Settlement Deed was entered into in July 2006. 498 By providing that the proceeds of sale of Newcastle's only substantial asset, the Soque Apartments, were to go to Tresair and Chivas (after discharge of the liability of St George Bank and Hickory Developments), the Settlement Deed prejudiced Newcastle's practical ability to discharge debts owed to its then current creditors. 499 ASIC contended that, for the above reasons, the conduct of Mr Goulding in causing or permitting Newcastle, Melbourne and Hawthorn to enter into the Settlement Deed constituted a breach of ss 180 - 182 of the CA. 8.10.2 Mr Goulding's Submissions 500 Mr Goulding objected to the use of the expression "ad hoc" as lacking legal significance. This is, of course, not to the point, as it was used by ASIC's counsel in submissions as merely descriptive and was not suggested as having any legal significance. Objection was again taken to the adequacy of the pleading. Mr Goulding referred to pars 126 – 136 of his defence, which are virtually incomprehensible and do not provide valid grounds of defence. He further objected on the ground that the other parties to the side deeds had not been called as witnesses and that none of the corporate entities against which the allegations were made had entered an appearance or filed a defence. 8.10.3 Conclusions 501 Insofar as objection was taken to the form of pleading, that is quite without substance in the case of this allegation of breach. The statement of claim clearly alleges breaches of duty by Mr Goulding in causing or permitting the relevant companies to enter into the transactions alleged. 502 There is no substance in Mr Goulding's complaints about the absence of witnesses or the absence of appearance or defence by the corporate defendants. 503 Furthermore, ASIC's submissions set out facts and contain an analysis that lead to the conclusion that these allegations of breach are made out. There is no evidence that controverts the facts set out and no reason why I should not accept them, which I do. I also accept the analysis as demonstrating that the breaches alleged were committed and find that Mr Goulding breached his duties under ss 180 – 182 of the CA. 9 FINDINGS SOUGHT 504 ASIC asks the Court to make the following findings. Breach 1: Making of loans 505 That the conduct of Mr Goulding in causing or permitting Equities and Capital to enter into and make advances under the each of the following loan agreements constituted a breach of ss 180 - 182 of the CA: Equities (1) loan agreement dated 26 March 2003 between Equities and House, pursuant to which Equities agreed to lend House $500,000; (2) loan agreement dated 26 March 2003 between Equities and Newcastle, pursuant to which Equities agreed to lend Newcastle $3,000,000; (3) loan agreement dated 26 March 2003 between Equities and Beaconsfield, pursuant to which Equities agreed to lend Beaconsfield $1,000,000; (4) loan agreement dated 26 March 2003 between Equities and Melbourne, pursuant to which Equities agreed to lend Melbourne $500,000; (5) loan agreement dated 26 March 2003 between Equities and Collingwood, pursuant to which Equities agreed to lend Collingwood $1,000,000; (6) loan agreement dated 26 March 2003 between Equities and Hawthorn, pursuant to which Equities agreed to lend Hawthorn $1,000,000; and (7) loan agreement dated 26 March 2003 between Equities and House (atf NC49 Trust), pursuant to which Equities agreed to lend House $1,000,000. Capital (1) loan agreement dated 30 January 2005 between Capital and House, pursuant to which Capital agreed to lend House $1,000,000; (2) loan agreement dated 30 January 2005 between Capital and House, pursuant to which Capital agreed to lend House $500,000; (3) loan agreement dated 30 January 2005 between Capital and Newcastle, pursuant to which Capital agreed to lend Newcastle $3,000,000; (4) loan agreement dated 10 October 2003 between Capital and Beaconsfield, pursuant to which Capital agreed to lend Beaconsfield $100,000; (5) loan agreement dated 30 January 2005 between Capital and Melbourne, pursuant to which Capital agreed to lend Melbourne $500,000; (6) loan agreement dated 30 January 2005 between Capital and Collingwood, pursuant to which Capital agreed to lend Collingwood $1,000,000; (7) loan agreement dated 30 January 2005 between Capital and Hawthorn, pursuant to which Capital agreed to lend Hawthorn $1,000,000; and (8) loan agreement dated 30 January 2005 between Capital and House (atf NC49, NC41, WSSUT and DPT Trusts), pursuant to which Capital agreed to lend House $3,000,000. Breach 2: "Roll overs" 506 That the conduct of Mr Goulding in causing or permitting Capital to issue the following shares to the following investors (each of which occurred pursuant to a "roll over" as summarised in Annexure C to this judgment constituted a breach of ss 180 - 182 of the CA: (1) 117,000 shares to Neville & Beryl Hopkins; (2) 391,000 shares to Chew Tong Chong; (3) 120,000 shares to Sally Hall; (4) 314,000 shares to Martin Munro; (5) 55,000 shares to Coho Endeavour Pty Ltd; (6) 109,000 shares to Lyle & M Prangell; (7) 130,000 shares to Jim Liapis; (8) 505,000 shares to Robert Galimi; (9) 63,000 shares to Ah-Lim Pang; (10) 12,000 shares to Grant Hewald; (11) 103,000 shares to Daniel Cooney; (12) 50,000 shares to J & A Buttigieg; (13) 101,000 shares to Little Turtles; (14) 162,000 shares to R & K Buttigieg; (15) 283,000 shares to Graham Lester; (16) 240,000 shares to Richard and Pym Balzan; (17) 117,000 shares to Gary Stirton; (18) 100,000 shares to Lindsay Marriott; (19) 60,000 shares to Brian Chapman; (20) 111,000 shares to Ian Shaw; (21) 133,000 shares to Elzbieta Yeoh; (22) 84,000 shares to A & R Nash; (23) 32,000 shares to Vincent Blackburn; (24) 115,000 shares to Dale McMillan; (25) 86,000 shares to Dale McMillan; (26) 85,000 shares to Sealtiel Pty Ltd; (27) 65,000 shares to J Dovers and K Marshall; (28) 210,000 shares to John Neophyton; (29) 410,000 shares to Joseph Scarcella; (30) 155,000 shares to Kevin Gardiner; and (31) 183,000 shares to Bello Mondo Pty Ltd. Breach 3: Misappropriations 507 That in breach of ss 180 - 182 of the CA Mr Goulding misappropriated the following amounts from the following members of the SIH Group: (a) During the 2002 financial year, $24,156 from Beaconsfield; (b) During the 2003 financial year: (1) $39,169 from House; (2) $42,732 from Equities; (3) $97,520 from Beaconsfield; (4) $2,400 from Melbourne; (c) During the 2004 financial year: (1) $1,153,791 from House; (2) $156,597 from Equities; (3) $1,058 from Capital; (4) $6,500 from Newcastle; (5) $450 from Beaconsfield; (6) $13,622 from Melbourne; (7) $243 from Collingwood; (d) During the 2005 financial year: (1) $868,437 from House; (2) $410,143 from Equities; (3) $193,117 from Capital; (4) $18,250 from Newcastle; (5) $2,330 from Beaconsfield; (6) $20,290 from Melbourne; (7) $4,299 from Hawthorn; (8) $22,943 from Collingwood; (9) $310 from NC13 Hybrid Trust; (10) $399 from NC41 Hybrid Trust; (11) $1,812 from NC49 Hybrid Trust; (12) $31,996 from WSSUT; (13) $48,500 from House t/as SKW; (e) During the 2006 financial year: (1) $974,674 from House; (2) $59,961 from Equities; (3) $1,030 from Capital; (4) $250 from Hawthorn; (5) $2,772 from Collingwood; (6) $9,300 from NC13 Trust; (7) $44,014 from NC49 Trust; (8) $189,258 from WSSUT; and (9) $97,017 from House t/as SKW. Breach 4: Causing or permitting conduct by Equities of unregistered managed investment scheme 508 That the conduct of Mr Goulding in causing or permitting Equities to operate an unregistered managed investment scheme during the period March 2003 to October 2004 constituted a breach of ss 180 and 181 of the CA. Breach 5: Causing or permitting failures by Capital to report 509 That the conduct of Mr Goulding in causing or permitting Capital to fail to lodge the following reports constituted breaches of ss 180 and 181 of the CA: (1) Capital failed to provide reports to its members for the 2004 and 2005 financial years in breach of s 314 of the CA; (2) Capital failed to lodge reports with the plaintiff for the 2004 and 2005 financial years within the time permitted by s 319 of the CA. Breach 6: Causing or permitting Equities and Capital to carry on an unauthorised financial services business 510 That the conduct of Mr Goulding in causing or permitting Equities and Capital to breach ss 911A and 911B of the CA in the following manners constituted breaches of ss 180 and 181 of the CA: (1) During the period June 2003 to June 2004 Equities breached ss 911A and 911B of the CA in respect of financial product advice given by Equities to each of Mr Hopkins, Ms Yeoh, Mr McMillan, Mr Marriott, Mr Ho and Mr Stirton. (2) During the period October 2004 to January 2005 Capital and Equities breached ss 911A and 911B of the CA in respect of personal advice given by each of them to each investor who participated in "roll overs" as listed in Finding 2 above. (3) In about May 2005 Capital breached ss 911A and 911B of the CA in respect of personal advice given to Mr Winning in connection with his investment in Capital. Breach 7: Provision of unauthorised financial services 511 (1) That during the period June 2003 to June 2004 Mr Goulding breached s 911B of the CA by providing financial product advice to each of Mr Hopkins, Ms Yeoh, Mr McMillan, Mr Marriott, Mr Ho and Mr Stirton. (2) That during the period October 2004 to January 2005 Mr Goulding breached s 911B of the CA by providing financial product advice that was personal advice to each investor who participated in "roll overs" as listed in Finding 2 above. (3) That in about May 2005 Mr Goulding breached s 911B of the CA by providing financial product advice that was personal advice to Mr Winning in connection with his investment in Capital. Breach 8: Causing or permitting Equities to advertise financial products without complying with requirements 512 That in causing or permitting Equities to place advertisements in newspapers and on radio that breached s 1018A(1) of the CA Mr Goulding breached ss 180 and 181 of the CA. Breach 9: Causing or permitting Equities and Capital to engage in misleading or deceptive conduct 513 (a) That Mr Goulding breached ss 180 and 181 of the CA in causing or permitting Equities to engage in misleading or deceptive conduct in breach of ss 12DA, 12DB and 12DF of the ASIC Act by: (1) making representations in the Equities Information Memorandum that: (i) the moneys invested with Equities would be applied only by lending on appropriate terms to Approved Development Borrowers as defined; (ii) the investment offer under the Equities Information Memorandum would be made to no more than 20 investors within any 12 month period who together would invest less than $2 million (in accordance with s 708(1) of the CA). (2) by failing to disclose (ie representation by silence) in the Equities Information Memorandum that the moneys invested with Equities would be on lent or transferred to companies and trusts in the SIH Group and with respect to $4.5 million paid either directly or indirectly from Equities to Mr Goulding and trusts associated with him. (b) That Mr Goulding breached ss 180 and 181 of the CA in causing or permitting Capital to engage in misleading or deceptive conduct by making representations in the Capital Prospectus that: (1) investors' capital would be returned through a selective buy back by Capital 36 months after allotment; (2) interest at the rate of 9% per annum would be paid in respect of the shares; (3) Capital would use the moneys invested to finance or take an "equity position" in "property development projects"; (4) Capital would only make an investment after consideration had been given to that investment by, and a recommendation received from, the "Investment Team"; (5) Capital would not invest in projects in which the directors had an interest unless the investment was made on an arms' length basis and the relevant directors abstained from the decision whether to invest. Breach 10: Causing or permitting Capital, Newcastle, Melbourne and Hawthorn to enter into ad hoc dealings with investors 514 That Mr Goulding breached ss 180 - 182 of the CA: (1) In causing or permitting Newcastle to enter into the following "side deeds" with respect to the sale of units in the Soque Apartments by which the investor's investment in Equities or Capital was to be offset by means of a rebate against the purchase price to be paid to Newcastle: Unit No Purchaser Date Exchanged purchase price Rebate 112 Keith and Heather Braithwaite 27/10/06 $435,000 $221,699 118 Daniel Hammersley-Cave 06/09/06 $265,000 $65,000 216 Louise Paula Packer - $362,250 $200,000 217 John Neophyton 05/09/06 $362,250 $29,694 218 Challenge Investment Enterprises Pty Ltd 25/02/04 $60,000 221 John Edward - $480,000 $480,000 221 Zabadak Pty Ltd atf The Zabadak Superannuation Fund 01/03/05 $27,500 305 Percival George Nayler $459,000 $459,000 321 Joseph Scarcella 26/06/06 $85,000 322 John Neophyton 05/09/06 $481,950 $39,506 323 Nimiety Pty Ltd atf Parvenu Trust - $699,000 $299,000 (2) In causing or permitting Newcastle, Melbourne and Hawthorn to enter into a Settlement Deed with Chivas Holdings Pty Ltd, Tresair Pty Ltd and Kevin Smith. 10 CONCLUSION 515 It follows from the various conclusions that I have expressed during the course of this judgment that I make the following findings. 516 Breach 1: I make a finding in the following terms: 517 That the conduct of Mr Goulding in causing or permitting Equities and Capital to enter into each of the following loan agreements constituted a breach of ss 180 - 182 of the CA: Equities (1) loan agreement dated 26 March 2003 between Equities and House, pursuant to which Equities agreed to lend House $500,000; (2) loan agreement dated 26 March 2003 between Equities and Newcastle, pursuant to which Equities agreed to lend Newcastle $3,000,000; (3) loan agreement dated 26 March 2003 between Equities and Beaconsfield, pursuant to which Equities agreed to lend Beaconsfield $1,000,000; (4) loan agreement dated 26 March 2003 between Equities and Melbourne, pursuant to which Equities agreed to lend Melbourne $500,000; (5) loan agreement dated 26 March 2003 between Equities and Collingwood, pursuant to which Equities agreed to lend Collingwood $1,000,000; (6) loan agreement dated 26 March 2003 between Equities and Hawthorn, pursuant to which Equities agreed to lend Hawthorn $1,000,000; and (7) loan agreement dated 26 March 2003 between Equities and House (atf NC49 Trust), pursuant to which Equities agreed to lend House $1,000,000. Capital (1) loan agreement dated 30 January 2005 between Capital and House, pursuant to which Capital agreed to lend House $1,000,000; (2) loan agreement dated 30 January 2005 between Capital and House, pursuant to which Capital agreed to lend House $500,000; (3) loan agreement dated 30 January 2005 between Capital and Newcastle, pursuant to which Capital agreed to lend Newcastle $3,000,000; (4) loan agreement dated 10 October 2003 between Capital and Beaconsfield, pursuant to which Capital agreed to lend Beaconsfield $100,000; (5) loan agreement dated 30 January 2005 between Capital and Melbourne, pursuant to which Capital agreed to lend Melbourne $500,000; (6) loan agreement dated 30 January 2005 between Capital and Collingwood, pursuant to which Capital agreed to lend Collingwood $1,000,000; (7) loan agreement dated 30 January 2005 between Capital and Hawthorn, pursuant to which Capital agreed to lend Hawthorn $1,000,000; and (8) loan agreement dated 30 January 2005 between Capital and House (atf NC49, NC41, WSSUT and DPT Trusts), pursuant to which Capital agreed to lend House $3,000,000. 518 I refuse to make a finding relating to the making of advances under any loan agreements. 519 Breach 2: I make a finding in terms of the Finding Sought in [506] above. 520 Breach 3: I make a finding that Mr Goulding misappropriated the moneys set out in the table below from the companies and in the financial years respectively mentioned: Company Name 2002 2003 2004 2005 2006 Total House $39,169 $1,153,791 $868,437 $974,674 $3,036,071 Equities $42,732 $156,597 $410,143 $59,961 $669,433 Capital $1,058 $193,117 $1,030 $195,205 Newcastle $6,500 $18,250 $24,750 Beaconsfield $24,156 $97,520 $450 $2,330 $124,456 Melbourne $2,400 $13,622 $20,290 $36,312 Hawthorn $4,299 $250 $4,549 Collingwood $243 $22,943 $2,772 $25,958 House t/as SKW $48,500 $97,017 $145,517 Total $24,156 $181,821 $1,332,261 $1,588,309 $1,135,704 $4,262,251 521 Breach 4: I make a finding in terms of the Finding Sought in [508] above. 522 Breach 5: I make a finding in the following terms: 523 That the conduct of Mr Goulding in causing or permitting Capital to fail to lodge the following reports constituted breaches of s 180 of the CA: (1) Capital failed to provide reports to its members for the 2004 and 2005 financial years in breach of s 314 of the CA; (2) Capital failed to lodge reports with the plaintiff for the 2004 and 2005 financial years within the time permitted by s 319 of the CA. 524 I refuse to make a finding that causing or permitting Capital to fail to lodge those reports constituted a breach by Mr Goulding of ss 181 of the CA. 525 Breach 6: I make a finding in the following terms: 526 That the conduct of Mr Goulding in causing or permitting Equities and Capital to breach s 911A of the CA in the following manners constituted breaches of ss 180 and 181 of the CA: (1) During the period June 2003 to June 2004 Equities breached s 911A of the CA in respect of financial product advice given by Equities to each of Mr Hopkins, Ms Yeoh, Mr McMillan, Mr Marriott, Mr Ho and Mr Stirton. (2) During the period 18 October 2004 to 13 December 2004 Equities breached s 911A of the CA in respect of financial product advice given by Equities to each of Mr Hopkins, Ms Yeoh, Mr McMillan, Mr Marriott and Mr Stirton and Capital breached s 911A of the CA in respect of financial product advice that was personal advice given by Capital to Mr Hopkins, Ms Yeoh, Mr McMillan, Mr Marriott and Mr Stirton . 527 I refuse to make a finding in terms of Finding Sought (3) in [510] above. 528 Breach 7: I refuse to make the Finding Sought in [511] above. 529 Breach 8: I refuse to make a finding in terms of the Finding Sought in [512] above. 530 Breach 9: In relation to Finding (a)(1) sought in [513] above, I make a finding in the following terms: 531 That Mr Goulding breached ss 180 and 181 of the CA in causing or permitting Equities to engage in misleading or deceptive conduct in breach of s 12DA of the ASIC Act by making representations in the Equities Information Memorandum that: (i) the moneys invested with Equities would be applied only by lending on appropriate terms to Approved Development Borrowers as defined; (ii) the investment offer under the Equities Information Memorandum would be made to no more than 20 investors within any 12 month period who together would invest less than $2 million (in accordance with s 708(1) of the CA). 532 I make findings in terms of Findings (b)(1), (2), (4) and (5) in [513] above. 533 I refuse to make findings in terms of Findings (a)(2) and (b)(3) in [513] above. 534 Breach 10: I make a finding in terms of the Finding Sought in [514] above. 535 Short minutes should be brought in to encompass in appropriate form the findings made. Presumably these should be in the form of declarations that comply with the provisions of s 1317E of the CA. ********** ANNEXURE A Control and Ownership of SIH Group and Goulding Trusts – See [6] above PTB – Plaintiff's Tender Bundle – Exhibit A in the proceedings Companies in the SIH Group Company Name Directors (formally appointed as such) PTB Shareholders PTB House Goulding (also Secretary) 10/3970 Goulding 1 x $1 share 10/3970 Equities Goulding (also Secretary) 10/3967-3968 House 100 Ordinary shares 10/3968 Goulding Geagea House 100 "H" Class shares Capital Daniel Hammersley-Cave 10/3961 1000 Ordinary shares 10/3965 (01/06/05 - 31/10/05) Investors Redeemable preference Carmel Goulding (10/10/03 – 01/06/05) shares Edward Malalani (10/10/03 – 07/05/04) Newcastle Goulding (also Secretary) 10/3959 Goulding 1 x Ordinary share 10/3946 Beaconsfield Goulding 11/4304 Goulding 2 x Ordinary shares 11/4305 Melbourne Goulding (also Secretary) 10/3956 House 100 Ordinary shares 10/3957 Hawthorn Goulding 10/3953 House 100 Ordinary shares 10/3954 David Upfal (09/04/03 – 25/03/04) Goulding Collingwood David Upffal (09/04/03 – 25/03/04) 10/3949 Goulding 100 Ordinary Shares 10/3950 Michael Lloyd (09/04/03 – 25/03/04) Trusts in the SIH Group Trust Name Trustee PTB Unitholders PTB Special Features WSSUT House 3/1120 House 100 Ordinary units 3/1120 Tresair Pty Ltd 500,000 G class units NC41 Trust House 2/806 House 100 Ordinary units 2/806 Goliath Strategies Pty Ltd 200,000 G class units House atf NC49 100 A class units House atf GFT 50,000 G class units NC49 Trust House 2/492 House atf GFT 1,525,000 G class units 2/492 Goulding himself was also a beneficiary by reason of being a beneficiary of the GFT (A2/482) Antonio Sidoti 300,000 G class units John Neophyton 200,000 G class units House atf Goulding 100 Ordinary units NC13 Trust Newcastle 2/575 Family Trust 5,500,000 Ordinary units 2/575 Goulding himself was also a beneficiary by reason of being a beneficiary of the GFT (A2/565) 2,880,000 Ordinary units Granite Hill Holdings Pty Ltd 140,625 Ordinary units Goulding Trusts Trust Name Trustee PTB Beneficiaries PTB Special Features GFT House 1/28 Goulding 1/28 Discretionary trust. Goulding is the "primary beneficiary" DPT House 1/385 Amber Goulding 1/385 Discretionary trust. Goulding is the Appointor. Goulding is a beneficiary by reason of being a relative of Amber Goulding. Any relative of Amber Goulding (A1/365) Alcorn Trust House 4/1452 House atf GFT – 100 units 4/1452 "Hybrid" unit trust/ discretionary trust. Goulding is a discretionary beneficiary of the Alcorn Trust by reason of his being a beneficiary of the GFT (A4/1447) ANNEXURE B See [9] above Equities Loan Agreements entered into by Investors in Equities PTB – Plaintiff's Tender Bundle – Exhibit A in the proceedings No Investor Amount Interest Rate Loan Date PTB 1 Kim Buttigieg $100,000.00 20% 12/4906 to 12/4909 2 Bhattacharjee Family Superannuation Fund $50,000.00 25% 13/05/2003 1/334 to 1/339 3 Stewart Harris $50,000.00 25% 13/05/2003 1/339 to 1/342 4 J & D Scarcella Family Trust and/or Nominee $80,000.00 25% 16/05/2003 1/343 to 1/346 5 The Galimi Holdings Pty Ltd atf Galimi Holdings Hybrid Trust $200,000.00 25% 04/06/2003 1/350 to 1/353 6 P.G Nayler and/or Nominee $100,000.00 21% 14/06/2003 1/355 to 1/358 7 Bello Mondo $100,000.00 25% 23/06/2003 1/386 to 1/389 8 P.G Nayler and/or Nominee $20,000.00 21% 29/06/2003 1/398 to 1/401 9 Bello Mondo $40,000.00 25% 04/07/2003 2/498 to 2/501 10 Neville & Beryl Hopkins $100,000.00 18% 16/07/2003 2/550 to 2/553; 2/615 to 2/618 11 Pym Yvonne Balzan & Richard Anthony Balzan and/or Nominee $200,000.00 25% 18/07/2003 2/592 to 2/595 12 Graham Lester $100,000.00 18% 18/07/2003 2/583 to 2/586 13 Grant Hewald $50,000.00 20% 21/07/2003 2/602 to 2/605 14 Sze Pung Phillip Ho and/or Nominee $50,000.00 15% 22/07/2003 2/606 to 2/612 15 Martin Munro $270,000.00 20% 01/08/2003 2/620 to 2/623 16 Mercedita Rabasa $50,000.00 25% 04/08/2003 2/625 to 2/628 17 Chen Jong Chong $165,000.00 20% 20/08/2003 2/634 to 2/637 18 Percy Nayler $80,000.00 21% 20/08/2003 2/638 to 2/641 19 Kiky Hutchinson & Matthew Le Pavoux $100,000.00 20% 01/09/2003 2/643 to 2/646 20 Tony Vlatko $50,000.00 20% 13/09/2003 2/647 to 2/650 21 John Neophyton atf The Neophyton Hybrid Trust $100,000.00 25% 17/09/2003 2/651 to 2/656 22 Stewart Harris $50,000.00 25% 13/10/2003 2/678 to 2/681 23 Inova Holdings atf The Inova Trust $70,000.00 20% 29/10/2003 2/697 to 2/700 24 Alpang Consultancy Pty Ltd atf The Alpang Superannuation Fund $50,000.00 25% 20/11/2003 2/717 to 2/720 25 De Freitas & Cruz Superannuation Fund $50,000.00 20% 21/11/2003 2/721 to 2/724 26 Geoff Easson $50,000.00 20% 21/11/2003 2/727 to 2/735 27 John Neophyton and/or Nominee $100,000.00 25% 21/11/2003 2/735 to 2/738 28 Jim Liapis $50,000.00 20% 24/11/2003 2/739 to 2/742 29 Gary Stirton and/or Nominee $50,000.00 20% 25/11/2003 2/747 to 2/750 30 Elzbieta Helena Yeoh & Oon Tian Yeoh atf The ELA Superannuation Fund and/or Nominee $100,000.00 27.5% 25/11/2003 2/743 to 2/746 31 Brian Chapman $50,000.00 25% 28/11/2003 2/753 to 2/756 32 Coho Endeavour Trust $50,000.00 18% 10/12/2003 2/767 to 2/771 33 Jane Dovers & Katherine Marshall $100,000.00 20% 21/12/2003 3/812 to 3/815 34 Chu Chin Lie $50,000.00 18% 30/01/2004 3/832 to 3/836 35 Sally Hall $75,000.00 25% 22/02/2004 3/856 to 3/859 36 Challenge Investment Enterprises Pty Ltd $210,000.00 25% 25/02/2004 3/860 to 3/863 37 Perce Nayler $200,000.00 15% 25/02/2004 3/864 to 3/867 38 Ming Chiat Tan and/or Nominee $10,000.00 10.5% 27/02/2004 3/871 to 3/874 39 Perce Nayler $50,000.00 15% 04/03/2004 3/875 to 3/878 40 Adrian Richard Nash & Rebecca Nash $100,000.00 12.5% 09/03/2004 3/883 to 3/886 41 Challenge Investment Enterprises Pty Ltd $50,000.00 24% 10/03/2004 3/896 to 3/899 42 John Neophyton and/or Nominee $100,000.00 24% 10/03/2004 3/900 to 3/903 43 Dampmaster Pty Ltd $150,000.00 $150.00 11/03/2004 3/911 to 3/914 44 Ian Shaw atf The Ian Shaw Superannuation Fund $50,000.00 24% 11/03/2004 3/915 to 3/918 45 Sally Hall $25,000.00 25% 31/03/2004 3/926 to 3/929 46 Vincent Blackburn $18,000.00 9% 16/04/2004 3/935 to 3/938 47 J & D Scarcella Family Trust and/or Nominee $130,000.00 25% 30/04/2004 3/995 to 3/999 48 Lindsay Jon Marriott and/or Nominee $50,000.00 24% 05/05/2004 3/1004 to 3/1007 49 Cedar Grove Nominees Pty Ltd $100,000.00 24% 06/05/2004 3/1012 to 3/1014 50 Sze Pung Phillip Ho Hybrid Trust $50,000.00 24% 11/05/2004 3/1026 to 3/1028 51 John Buttigieg & Alice Buttigieg atf John Buttigieg & Alice Buttigieg Super Fund $50,000.00 24% 12/05/2004 3/1038 to 3/1040 52 Joe Barakat $40,000.00 12% 19/05/2004 3/1051 to 3/1054 53 Lindsay Jon Marriott and/or Nominee $50,000.00 24% 21/05/2004 3/1055 to 3/1058 54 Stewart Harris $50,000.00 25% 31/05/2004 3/1067 to 3/1070 55 Kevin Gardiner $100,000.00 24% 01/06/2004 3/1073 to 3/1075 56 Gary Stirton and/or Nominee $50,000.00 24% 01/06/2004 3/1076 to 3/1078 57 Galimi Holdings Pty Ltd atf Galimi Holdings Hybrid Trust $250,000.00 25% 05/06/2004 3/1085 to 3/1088 58 Ian Shaw atf The Ian Shaw Superannuation Fund $100,000.00 24% 29/06/2004 3/1144 to 3/1147 59 Sealtiel Pty Ltd atf Sebastian Family Trust $35,000.00 24% 30/06/2004 4/1251 to 4/1254 60 Lyle & Mariella Prangell atf The Lyle Prangell Superannuation Fund $100,000.00 24% 07/07/2004 4/1264 to 4/1267 61 Inova Holdings atf The Inova Trust $50,000.00 24% 14/07/2004 4/1277 to 4/1280 62 Lure Investment Pty Ltd atf The D & D Hybrid Trust $50,000.00 14.4% 21/07/2004 4/1330 to 4/1333 63 Ranjit & Dolly Property Fund $34,000.00 25% 20/08/2004 4/1362 to 4/1365 64 Daniel Peter Cooney and/or nominee $50,000.00 18% 27/08/2004 4/1367 to 4/1370 65 Kevin Gardiner $100,000.00 24% 30/08/2004 4/1371 to 4/1374 66 Graham Lester atf The Lester Hybrid Trust $50,000.00 24% 15/09/2004 4/1412 to 4/1415 67 John Buttigieg & Alice Buttigieg $50,000.00 24% 15/09/2004 4/1409 to 4/1411 68 Little Turtle Pty Ltd atf The Con Paize Family Trust $100,000.00 18% 09/10/2004 4/1542 to 4/1545 69 Kevin Gardiner $40,000.00 24% 01/11/2004 5/1677 to 5/1680 ANNEXURE F Examples of Payments from SIH Group Bank Accounts apparently for Mr Goulding's Private Purposes See [17](3) above PTB – Plaintiff's Tender Bundle – Exhibit A in the proceedings Equities Bank Account Date Transaction detail listed in Bank Statement Debit PTB 27/05/2003 Pierucci - Chifley Plaza Sydney NSW 005729 $510.00 1/138 24/06/2003 Handyway Zambelli R 0001 Sydney 002978 $600.00 1/140 15/07/2003 Macro Wholefoods Bondi Junction 005387 $92.65 1/142 07/08/2003 Pierucci International Sydney NS 147496 $674.70 1/144 07/08/2003 Toys 'R' Us Supacenta Moore Park 175584 $104.84 1/144 01/09/2003 Handyway Zambelli R 0001 Sydney 003696 $501.20 1/146 08/09/2003 Target East Garden NSW 099702 $132.10 1/147 08/09/2003 Handyway Mambo Bond 0005 $74.95 1/147 10/09/2003 Handyway Video Ezy 0001 Randwick 000453 $63.95 1/148 19/09/2003 Natural Foodstore Forest Glen 334912 $142.36 1/149 23/09/2003 KMart Caloundra QLD 020237 $198.27 1/149 27/10/2003 Coles Noosa QLD 763829 $53.36 2/663 17/10/2003 Grace Bros Sydney City NSW 314631 $47.96 2/662 27/11/2003 Macro Wholefoods Bondi Junction 005842 $107.29 2/708 28/11/2003 Fish Records Bondi Junction 970746 $228.00 2/708 23/12/2003 Giggles Children's wear Randwick 009448 $97.85 2/764 29/12/2003 IGA Maleny QLD 084666 $247.73 2/764 12/01/2004 Target Maroochydore QLD 241491 $163.91 3/816 20/01/2004 Deli on Dolphin Coogee NSW 004951 $52.60 3/817 23/01/2004 Dynamic Vegies Eltham VIC 013375 $55.45 3/817 09/02/2004 Cue ATM 006269 $500.00 3/837 29/03/2004 Rip Curl Torquay VIC 435729 $120.91 3/880 17/05/2004 Myer Maroochydore QLD 385281 $166.25 3/1016 28/05/2004 Melbourne Caravan and Tourist Park 074160 $285.00 3/1017 01/06/2004 Macro Life Bondi Junction 290009 $274.11 3/1018 21/06/2004 Macro Life Bondi Junction 168860 $348.89 3/1083 20/09/2004 Maleny Art Supplies Maleny 002850 $286.78 4/1384 04/10/2004 Macro Life Bondi Junction 750618 $322.49 4/1386 24/11/2004 Pierucci International Sydney NS 455083 $800.00 5/1687 02/12/2004 Coles Avondale Heights VIC 814091 $209.98 5/1688 04/03/2005 Bras N Things Maroochydore 299762 $49.95 6/2146 23/05/2005 Coles Bondi Junction NSW 253205 $223.83 6/2353 23/05/2005 So Music Newtown NSW 067371 $131.75 6/2354 20/06/2005 Randwick Dental Clinic 267927 $161.00 6/2441 12/09/2005 Macro Life Bondi Junction 483632 $184.04 8/2967 12/09/2005 Linen Factory Moore Park 474554 $89.00 8/2967 12/09/2005 Freedom Furniture Moore Park 477134 $124.85 8/2967 12/09/2005 Handyway to Shade Moore Park 000983 $325.00 8/2967 19/09/2005 Borders Books & Music 365516 $22.00 8/2968 21/09/2005 Priceline Pharmacy 499214 $87.30 8/2968 26/09/2005 Macro Life Bondi Junction 819694 $185.27 8/2969 03/10/2005 IGA Maleny 016578 $98.22 8/2969 03/10/2005 IGA Maleny 062430 $142.36 8/2969 03/10/2005 Natural Foodstore Forest Glen 667112 $51.66 8/2969 04/10/2005 Macro Life Bondi Junction $117.82 8/2969 06/10/2005 7-Eleven Randwick Barjker Street 084365 $50.01 8/2970 10/10/2005 NAB ATM Village Hoyts Cinema Centre 591575 $500.00 8/3068 18/10/2005 NAB ATM Village Hoyts Cinema Centre 826364 $150.00 8/3068 18/10/2005 Kinokuniya Book Stores of Australia 078325 $30.80 8/3069 20/10/2005 Campbells Cash & Carry 801395 $115.33 8/3069 20/10/2005 Quix 10263 Lindfield 237058 $60.00 8/3069 21/10/2005 Handyway Darby St 001735 $24.40 8/3069 24/10/2005 Handyway Darby St 001753 $59.60 8/3069 24/10/2005 Quix 10263 Lindfield 237238 $67.80 8/3069 25/10/2005 Ikea Moore Park 324092 $228.05 8/3069 25/10/2005 Macro Life Bondi Junction 8883162 $259.94 8/3069 31/10/2005 Maleny Supa IGA 000708 $81.74 8/3070 03/11/2005 Macro Life Bondi Junction 792909 $117.70 8/3070 16/11/2005 WW Metro 1755 Coogee 001508 $114.65 8/3213 22/11/2005 WW Metro 1755 Coogee 005615 $128.03 8/3214 28/11/2005 Handyway Win Xuan T 0001 Haymarket 000020 $155.00 8/3214 28/11/2005 WW Metro 1755 Coogee 006277 $142.23 8/3214 30/11/2005 Handyway Maleny Aut 0001 Maleny 001966 $97.15 8/3215 02/12/2005 Longbench on Darby Newcastle 656068 $227.00 8/3215 28/12/2005 Target Maroochydore Qld 505353 $159.37 8/3329 28/12/2005 Maleny Supa IGA 008233 $244.15 8/3330 03/01/2006 Handyway Maleny 000536 $42.85 8/3330 03/01/2006 Gone Bonkers Discount Maleny $43.32 8/3330 03/01/2006 Maleny Supa IGA 008233 $184.97 8/3330 06/01/2006 Kmart Caloundra 939791 $260.34 8/3330 06/01/2006 Handyway Sunland 031546 $10.50 8/3330 06/01/2006 Maleny Supa IGA 009474 $117.24 8/3330 09/01/2006 Thai Seabreeze Café 003337 $54.50 9/3416 09/01/2006 Maleny Supa IGA 010499 $104.99 9/3416 11/01/2006 Myer Brisbane City 121923 $144.90 9/3416 11/01/2006 Maleny Supa IGA 011185 $142.41 9/3417 12/01/2006 Burlington s/m Fortitude Val 775961 $173.66 9/3417 12/01/2006 Coles Express Nudgee 778829 $50.25 9/3417 16/01/2006 Natural Foodstore Forest Glen 907945 $142.77 9/3417 23/01/2006 WW Metro 1755 Coogee 009845 $241.48 9/3418 24/01/2006 Handway Maple Street 008666 $73.85 9/3418 24/01/2006 Maleny Supa IGA 011855 $129.95 9/3418 31/01/2006 Maleny Supa IGA 007524 $153.06 9/3418 01/02/2006 Maleny Supa IGA 003669 $75.62 9/3418 06/02/2006 Macro Life Bondi junction 578015 $143.73 9/3419 08/02/2006 Natural Foodstore Forest Glen 835722 $84.28 9/3461 17/02/2006 Moda Bar & Restaurant\Bondi Junctn 002964 $115.10 9/3462 20/02/2006 WW Metro 1755 Coogee 002898 $100.00 9/3462 22/02/2006 Coles Randwick 959986 $150.00 9/3462 27/02/2006 Maleny – Maple Street 000468 $200.00 9/3463 27/02/2006 Paddington Antique 661578 $154.00 9/3463 27/02/2006 Maleny Supa IGA 016078 $110.84 9/3463 03/03/2006 Caltex 7-Eleven 22399 Coogee 054183 $40.00 9/3463 06/03/2006 Howards Storage 023702 $164.75 9/3463 06/03/2006 Macro Life Bondi Junction 356864 $101.22 9/3463 06/03/2006 Rebel Sport Bondi Junction 048591 $44.97 9/3463 06/03/2006 The Music Shop 020517 $22.00 9/3463 09/03/2006 Priceline Pharmacy 000659 $50.08 10/3756 09/03/2006 Howards Storage 023815 $210.65 10/3756 14/03/2006 Handyway Maple 010122 $27.05 10/3757 22/03/2006 The Java Lounge 001163 $47.37 10/3758 27/03/2006 Redi Cua Eumundi Markets 005733 $200.00 10/3758 27/03/2006 Café by the Beach 003005 $54.40 10/3758 27/03/2006 Natural Foodstore Forest Glen 423327 $29.20 10/3758 27/03/2006 Handyway Maple Street 010497 $66.85 10/3758 15/05/2006 Moda Bar & Restaurant Bondi Junction 000402 $95.20 10/3858 15/05/2006 Greater Union Sydney 336651 $35.10 10/3858 16/05/2006 44 Park St Convenience 013065 $43.85 10/3859 22/05/2006 Woolworths 2619 Maleny 001731 $117.89 10/3859 24/05/2006 Coles Express Nudgee 1097 234631 $30.01 10/3860 24/05/2006 Woolworths 2619 Maleny 000887 $217.91 10/3860 26/05/2006 Target Maroochydore 330120 $141.92 10/3860 26/05/2006 Bodycentre for Hlth\Maleny 0007699 $65.00 10/3860 26/05/2006 Handway Shoe City 0666 Maroochydore 009983 $89.95 10/3860 29/05/2006 Maleny Supa IGA 025456 $50.57 10/3860 29/05/2006 Netowork Video Maleny 022569 $37.00 10/3860 01/06/2006 Maleny Newsagency 291726 $80.00 10/3861 13/06/2006 Woolworths 2619 Maleny 002070 $196.86 10/4009 19/06/2006 Maleny Supa IGA 016628 $167.81 10/4009 20/06/2006 Maleny Florist 355365 $50.00 10/4009 22/06/2006 The Maleny Medical C 595607 $72.00 10/4010 22/06/2006 Handyway Maleny 021149 $132.60 10/4010 22/06/2006 Maleny Supa IGA 023987 $123.05 10/4010 26/06/2006 Koala Maleny 001309 $98.00 10/4010 26/06/2006 Woolworths 2619 Maleny 005468 $403.98 10/4010 26/06/2006 Maleny Supa IGA 028589 $213.91 10/4010 03/07/2006 The Maleny Medical C 881064 $75.00 10/4011 03/07/2006 Maleny Supa IGA 028871 $151.85 10/4011 05/07/2006 Woolworths 2619 Maleny 006357 $632.63 10/4011 10/07/2006 Woolworths 2619 Maleny 004573 $225.46 11/4087 18/07/2006 Strandbags 067 022708 $55.00 11/4088 20/07/2006 Handyway Maleny Vet 0001 001012 $104.70 11/4088 20/07/2006 Woolworths 2619 Maleny 004986 $240.97 11/4088 21/07/2006 Natural Foodstore Forest Glen 826310 $84.29 11/4088 27/07/2006 Mooloolaba Gricer 002387 $200.00 11/4089 31/07/2006 Maleny Supa IGA 032610 $71.76 11/4089 01/08/2006 Handyway Maleny Pha 0004 Maleny 018099 $82.75 11/4089 06/09/2006 Maleny Supa IGA 037217 $35.87 11/4157 Capital Bank Account Date Transaction detail Debit PTB 17/05/2005 Foxtel Netbank Bpay $179.60 6/2293 08/06/2005 Collection House Netbank Bpay $1,464.10 6/2294 29/06/2005 Foxtel Netbank BPay Edwin Goulding $89.80 6/2294 01/07/2005 Austar Entertainment Netbank Bpay $130.30 6/2294 17/05/2006 3 Australia Netbank BPay Ed Mobile $208.40 10/3811 17/05/2006 Optus Home Phone Netbank Bpay $277.47 10/3811 House Bank Account Date Transaction detail listed in Bank Statement Debit PTB 30/09/2005 Netbank TFR Gift $900.00 8/2984 05/10/2005 Optus TV/Net Cable $84.57 8/2985 05/10/2005 School fee $1,550.00 8/2986 05/10/2005 Netbank GIFT INVS $1,949.95 8/2986 06/10/2005 Cici Mobile $78.00 8/2986 10/10/2005 Optus Home phone $140.36 8/2987 07/11/2005 Gift $500.00 8/3169 11/11/2005 Foxtel Edwin Goulding $81.85 8/3170 01/12/2005 Gift $5,000.00 8/3293 01/12/2005 NAB Credit Card* $5,000.00 8/3293 15/12/2005 NAB Credit Card* $1,000.00 8/3295 20/12/2005 NAB Credit Card* $2,000.00 8/3296 05/01/2006 Gift $1,000.00 8/3298 11/01/2006 NAB Credit Card* $2,500.00 8/3298 18/01/2006 Foxtel Edwin Goulding $168.80 9/3430 18/01/2006 NAB Credit Card* $3,000.00 9/3430 24/01/2006 NAB Credit Card* $2,000.00 9/3431 27/01/2006 Ed Mobile $225.62 9/3432 27/01/2006 NAB Credit Card* $5,000.00 9/3432 31/01/2006 NAB Credit Card* $2,000.00 9/3432 31/01/2006 Hoskin Diamond $2,172.50 9/3432 07/02/2006 NAB Credit Card* $2,000.00 9/3433 06/03/2006 NAB Credit Card* $3,000.00 9/3737 10/03/2006 Foxtel Edwin Goulding $191.61 9/3737 17/03/2006 NAB Credit Card* $1,000.00 9/3738 27/03/2006 School fee $300.00 9/3740 05/04/2006 Gift $1,500.00 9/3742 18/04/2006 NAB Credit Card* $1,000.00 10/3821 19/04/2006 Telstra E Goulding Maleny $846.11 10/3821 26/04/2006 NAB Credit Card* $1,000.00 10/3822 10/05/2006 NAB Credit Card* $1,000.00 10/3825 15/05/2006 Optus Internet $69.94 10/3826 Mr Goulding's MasterCard Statements show that the debit transactions appearing as "NAB Credit Card*" in the above table appear as credit transactions in Goulding's MasterCard Statements on the corresponding day as follows: Date Amount deposited PTB 01/12/2005 $5,000.00 8/3231 15/12/2005 $1,000.00 8/3337 20/12/2005 $2,000.00 8/3337 11/01/2006 $2,500.00 9/3426 18/01/2006 $3,000.00 9/3427 24/01/2006 $2,000.00 9/3427 27/01/2006 $5,000.00 9/3427 31/01/2006 $2,000.00 9/3427 07/02/2006 $2,000.00 9/3428 06/03/2006 $3,000.00 10/3556 17/03/2006 $1,000.00 10/3766 18/04/2006 $1,000.00 10/3817 26/04/2006 $1,000.00 10/3817 10/05/2006 $1,000.00 10/3818 ANNEXURE G Misrepresentations Ultimately Relied on by ASIC – See [422] above Equities Information Memorandum Misrepresentations (pars 70 - 72 of the Statement of Claim) PTB – Plaintiff's Tender Bundle – Exhibit A in the proceedings No Date Misrep (as pleaded) Rep made from Rep made to Method of Rep PTB Reference to Statement of Claim 1 26 March 2003 The investment offer is to be made to a limited number of parties in accordance with section 708 of the Act. Equities Public Written 1/152 pars 70(i), 72, 170, 171 2 26 March 2003 A personal offer may be utilised by the company in respect to no more than 20 investors in a 12 month period who together invest less than $2 million (in accordance with section 708 (1) of the Act. Equities Public Written 1/152 pars 70(ii), 72, 170, 171 1/155 3 26 March 2003 Where you agree to provide a loan to the company, the purpose of your loan will be for the lending and advancement of monies to Approved Development Borrower(s) on a secured or unsecured basis and subject to conditions that the loan monies may only be used by the Approved Property Borrower(s) for the purpose of their approved property development projects Equities Public Written pars 70(iv), 72, 170, 171 4 26 March 2003 The company will satisfy itself as to the level of additional security and assurances to be provided by the Approved Development Borrowers as a condition of the loan Equities Public Written 1/155 pars 70(viii), 72, 170, 171 5 26 March 2003 the First Defendant failed to disclose that the First Defendant intended to apply the monies raised in making loans to companies and trusts associated with the Third Defendant Equities Public Representation by silence 1/150-179 pars 72, 170, 171 Capital Prospectus Misrepresentations (pars 76 – 78 of the Statement of Claim) No Date Misrep Rep made from Repmade to Method of Rep Exhibit F Reference to Pleading 1 October 2004 the rights ascribed to the shares included a nine (9) percent per annum cumulative dividend Capital Public, including Capital Investors listed in Schedule B of FFASC Written 209 pars 76(e), 78, 186, 187 2 October 2004 it was the intention that all shares would be redeemed or alternatively acquired by the Second Defendant under a selective share buy-back scheme at the subscription amount of $1.00 per share or the paid up capital on the share, thus returning the full capital amount Capital Public, including Capital Investors listed in Schedule B of FFASC Written 210 pars 76(g), 78, 186, 187 3 October 2004 the Sydney Investment House Capital Fund would primarily invest all funds raised from the prospectus into the financing of, or in taking an equity position in property development projects Capital Public, including Capital Investors listed in Schedule B of FFASC Written 213 pars 76(o), 78, 186, 187 4 October 2004 the Sydney Investment House Capital Fund would only make investments after consideration had been given by the Sydney Investment House Investment Team and otherwise in accordance with the Sydney Investment House Plan Capital Public, including Capital Investors listed in Schedule B of FFASC Written 214 pars 76(r), 78, 186, 187 5 October 2004 the Second Defendant must have received a recommendation from the Investment Team prior to being able to place an investment of the Second Defendant's funds Capital Public, including Capital Investors listed in Schedule B of FFASC Written 214 pars 76(s), 78, 186, 187 6 October 2004 the Sydney Investment House Fund would not invest in projects where the directors had a direct or indirect interest where the investment was not made on an arm's length basis Capital Public, including Capital Investors listed in Schedule B of FFASC Written 214 pars 76(t), 78, 186, 187 7 October 2004 the directors of the Second Defendant would abstain from decisions of the Investment Team where there were material conflicts of interest Capital Public, including Capital Investors listed in Schedule B of FFASC Written Exhibit F, 214 pars 76(u), 78, 186, 187 8 October 2004 the Redemption Date would be thirty-six (36) months after the date of issue of the shares or otherwise agreed in writing between the shareholder and the company Capital Public, including Capital Investors listed in Schedule B of FFASC Written Exhibit F, 229 pars 76(w), 78, 186, 187 05/03/2009 - Amendment of finding - Paragraph(s) [517] and [518] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.