ASIC v Managed Investments Ltd & Ors (No. 9) [2016] QSC 109 (2016) 308 FLR 216
SUPREME COURT OF QUEENSLAND
CITATION: ASIC v Managed Investments Ltd and Ors (No 9) [2016] QSC 109
PARTIES: AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION
(plaintiff)
v
ACN 101 634 146 PTY LTD (IN LIQUIDATION)
ACN 101 634 146
(first defendant)
MICHAEL CHRISTODOULOU KING
(fourth defendant)
CRAIG ROBERT WHITE
(fifth defendant)
GUY HUTCHINGS
(sixth defendant)
DAVID MARK ANDERSON
(seventh defendant)
MARILYN ANNE WATTS
(eighth defendant)
FILE NO/S: SC No 12122 of 2009
DIVISION: Supreme Court
PROCEEDING: Trial
DELIVERED ON: Reasons delivered 23 May 2016
DELIVERED AT: Brisbane
HEARING DATE: 4 November 2013; 11-14 November 2013; 18-20 November 2013;
22 November 2013; 25-29 November 2013; 2-6 December 2013; 9-
13 December 2013; 11 April 2014; 22-24 April 2014; 28-29 April
2014; 1-2 May 2014; 5-9 May 2014; 4-8 August 2014; 11-12
August 2014; 14-15 August 2014; 18-22 August 2014; 25-26
August 2014; 3-5 September 2014; 8-12 September 2014
JUDGE: Douglas J
ORDER: 1. Against Mr King: declarations in the terms of the
contraventions alleged against him numbered 1 to 3, 7 to 13
and 15, 16 and 17 of ASIC’s amended schedule of alleged
contraventions.
2. Against Mr White: declarations in the terms of the
contraventions alleged against him numbered 1 to 3, 7 to 13
and 15 to 68 of that schedule.
3. Against Mr Hutchings: declarations of contraventions in
respect of the contraventions numbered 1 to 3 and 5 to 88 of
that schedule.
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2
4. Against Mr Anderson: declarations in the terms of the
contraventions alleged against him numbered 1, 2, 5 to 10
and 12 to 46 of that schedule.
5. Against Ms Watts: declarations in the terms of the
contraventions alleged against her numbered 1 to 9 of that
schedule.
6. None of the defendants’ conduct should be excused
pursuant to s 1317S or s 1318 of the Act.
7. I shall hear further from the parties about the consent
orders proposed to be made against MFSIM, the form of
the declarations, any claim for pecuniary penalties and
other ancillary orders including costs.
CATCHWORDS: CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– where MFSIM was the responsible entity for the managed
investment scheme, PIF – where PIF entered into a facility with the
Royal Bank of Scotland for borrowing of up to $200 million for
PIF’s purposes – where MFSIM as responsible entity for PIF made
a payment of $130 million from PIF’s drawn down facility to another
company in the MFS Group, MFS Administration – where MFS
Administration caused $103 million of the $130 million payment to
be paid to Fortress to repay a debt owed by a company in the MFS
corporate group – where the $130 million payment was made
without approval from the Investment Approval Committee of PIF
or the Conflicts and Related Party Committee of MFSIM either
before the transaction or at all – where MFSIM as responsible entity
for PIF made a payment of $17.5 million from PIF’s drawn down
facility to PacFin – where PacFin needed the money to meet its
financial commitments to its debenture holders – where the
payments were not authorised investments under PIF’s constitution
– where it was submitted that the payments were made for no
consideration to PIF – where it was submitted that the payments were
explicable by a proposal to restructure MYF, a managed investment
scheme operated by MFSIM, partly through investments to be made
by PIF – where, after the payments were made, documents were
prepared purporting to record transactions justifying those payments
as having been made for the benefit for PIF – where PIF was said to
have received the benefit of $62.5 million worth of interests in
participation agreements with PacFin and 67.5 million units in MYF
– where Mr King, Mr White, Mr Hutchings, Mr Anderson and
Ms Watts were involved in the relevant conduct – whether MFSIM
as responsible entity for PIF contravened the Corporations Act 2001
(Cth) – whether Mr King, Mr White, Mr Hutchings, Mr Anderson
and Ms Watts contravened the Corporations Act 2001 (Cth)
CORPORATIONS – MANAGED INVESTMENTS –
RESPONSIBLE ENTITY – where Mr White, Mr King and
Mr Anderson were submitted to have been involved in causing PIF
to transfer away $130 million for no purpose to PIF and no benefit
to PIF – where Mr White, Mr Anderson, Mr Hutchings and
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3
Ms Watts were submitted to have been involved in causing PIF to
transfer away $17.5 million for no purpose to PIF and no benefit to
PIF – where Mr White, Mr King, Mr Anderson, Mr Hutchings and
Ms Watts were closely and relevantly connected with MFSIM –
where Mr White, Mr King, Mr Anderson, Mr Hutchings and
Ms Watts were MFSIM’s high managerial agents – where MFSIM
was argued to be the victim of the fraud – whether the conduct of the
individual defendants is attributable to MFSIM to establish whether
it, as responsible entity, contravened the Corporations Act 2001
(Cth)
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– OFFICERS OF CORPORATION – where Mr King was no longer
director of MFSIM when the relevant transactions occurred – where
it was submitted that he had overall responsibility for MFSIM’s
operations – where it was submitted that Mr White, an executive
director of MFSIM and effectively the CEO of the MFS Group at the
relevant time, customarily acted in accordance with his wishes –
where it was submitted that Mr King had the capacity to affect
significantly the financial standing of MFSIM – whether Mr King
was an officer of MFSIM under the Corporations Act 2001 (Cth)
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– OFFICERS OF CORPORATION – where Mr Anderson was an
officer of MFSIM – where Mr King was found to be an officer of
MFSIM – where MFSIM was the responsible entity of a registered
scheme – whether Mr Anderson and Mr King were officers of the
responsible entity of a registered scheme – whether an officer of an
entity that is a responsible entity is an officer of the responsible entity
under the Corporations Act 2001 (Cth)
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– where it was submitted that no consideration passed to PIF at the
time of the $130 million payment to MFS Administration – where it
was submitted that consideration passed to PIF for the $130 million
payment consisting of $62.5 million worth of interests in
participation agreements with PacFin and 67.5 million units in MYF
– where it was submitted that no consideration passed to PIF at the
time of the $17.5 million payment to PacFin – where the alleged
transactions were not formulated or documented at the time of the
payment – where documents were later created purporting to reflect
the alleged transactions and investments – whether the alleged
transactions provided consideration or reimbursement for the
payments from PIF’s funds at the time that the payments were made
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– AUTHORITY, RIGHTS AND POWERS OF OFFICERS OF
CORPORATION – AUTHORITY – where it was submitted that
consideration flowed to PIF for the $130 million payment consisting
of $62.5 million worth of interests in participation agreements with
PacFin and 67.5 million units in MYF – where it was submitted that
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4
no consideration passed to PIF at the time of the payment to PacFin
– where the relevant transactions exceeded the defendants’ limit on
delegated authority to make investments – where there was no
MFSIM board approval for the transactions – where the parties to
the purported transactions were aware of the absence of actual
authority to enter into the transactions – whether the transactions
were ineffective as having been made without authority
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– AUTHORITY, RIGHTS AND POWERS OF OFFICERS OF
CORPORATION – RATIFICATION AND INDEMNIFICATION
– where non–executive directors of MFSIM expressly declined to
approve certain transactions – where the board of MFSIM was not
informed about the true purpose and nature of certain transactions –
whether the responsible entity MFSIM had full knowledge of all of
the material circumstances surrounding the transactions – whether
the transactions were ratified by the board of MFSIM
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– RELATED PARTY TRANSACTIONS – where MFS controlled
both MFSIM and MFS Administration – where MFSIM had an
independent board but where Mr King and Mr White, directors of
MFS Administration, wielded practical influence over MFSIM’s
operations – where MFS Administration controlled PacFin – where
PacFin was managed exclusively by MFS Administration – where
Mr White and Mr Anderson were directors of MFS Administration
and two of the three directors of PacFin – whether MFS
Administration and MFSIM were related parties – whether
MFSIM’s $130 million payment, to the extent of the $103 million
payment, was a financial benefit given by MFSIM, as responsible
entity for PIF, out of scheme property to MFS Administration, a
related party of MFSIM – whether PacFin and MFSIM were related
parties – whether MFSIM’s $17.5 million payment was a financial
benefit given by MFSIM, as responsible entity for PIF, out of scheme
property to PacFin, a related party of MFSIM
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– DUTIES AND LIABILITIES OF OFFICERS OF
CORPORATION – OFFENCES – FALSIFICATION OF
RECORDS – where Mr Hutchings, Ms Watts, Mr Anderson and
Mr White were submitted to have been involved in creating or
assisting in the creation of false documents – where it was submitted
that the documents were backdated to reflect transactions as
occurring in 2007 that did not in fact occur in that year – where it
was submitted that the documents reflected events that simply did
not occur – where the alleged transactions recorded in the documents
were inconsistent with contemporaneous records, accounts,
proposals and decisions of the relevant entities – where it was
submitted that documents containing false information were
provided to banks, auditors and were reflected in PIF’s half-yearly
report – whether there was a failure to record correctly and explain
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the transactions and financial position of MFSIM – whether MFSIM
contravened the Corporations Act 2001 (Cth) – whether Mr White,
Mr Anderson and Mr Hutchings contravened the Corporations Act
2001 (Cth) directly – whether Mr White, Mr Anderson,
Mr Hutchings and Ms Watts were knowingly involved in MFSIM’s
contraventions of the Corporations Act 2001 (Cth)
CORPORATIONS – MANAGEMENT AND ADMINISTRATION
– DUTIES AND LIABILITIES OF OFFICERS OF
CORPORATION – where Mr White, Mr King, Mr Anderson, Mr
Hutchings and Ms Watts were closely and relevantly connected with
MFSIM – where MFSIM was found to have contravened the
Corporations Act 2001 – whether the defendants were knowingly
involved in MFSIM’s contraventions of the Corporations Act 2001
(Cth) – whether actual knowledge of the essential facts constituting
the contravention must be the only rational inference available in the
circumstances surrounding the contravention – whether it would be
appropriate to grant relief from liability for Mr White, Mr King, Mr
Anderson, Mr Hutchings and Ms Watts’ conduct
Australian Securities and Investments Commission Act 2001 (Cth),
s 79(1)
Children’s Services Act 1996 (Vic), s 26
Company Law Review Act 1998 (Cth)
Corporate Law Economic Reform Program Act 1999 (Cth)
Corporations Act 2001 (Cth), s 9, s 9(b), s 9b(i), s 9(b)(ii),
s 9(b)(iii), s 50AA, s 50AA(1), s 50AA(2)(a), s 79, s 79(c), s 208,
s 208(1), s 209(2), s 228, s 251A, s 286, s 286(1), s 286(1)(a),
s 305, s 344, s 344(1), s 601EA(4), s 601FA, s 601FC,
s 601FC(1)(a), s 601FC(1)(b), s 601FC(1)(c), s 601FC(1)(k),
s 601FC(1)(l), s 601FC(2), s 601FC(5), s 601FD, s 601FD(1),
s 601FD(1)(a), s 601FD(1)(b), s 601FD(1)(c), s 601FD(1)(e),
s 601FD(1)(f), s 601FD(3), s 601FD(3)(a), s 601FD(3)(b),
s 601FD(3)(c), s 601FD(3)(e), s 601FD(3)(f), s 601HC, s 601JA(2),
s 601LA, s 601LC, s 601MA, s 1017E, s 1308A, s 1311(3),
s 1317A, s 1317DA, s 1317E, s 1317E(1), s 1317E(1)(b),
s 1317E(1)(f), s 1317E(1)(g), s 1317G(1), s 1317G(1)(aa),
s 1317G(b)(i), s 1317G(b)(iii), s 1317S, s 1317S(2), s 1318,
s 1318(1)
Criminal Code (Cth), s 12.3(2)(b)
Criminal Code (Qld), s 408C
Evidence Act 1997 (Qld), s 59(2)
Managed Investments Act 1998 (Cth), s 82A
Trusts Act 1973 (Qld), s 21
Uniform Civil Procedure Rules 1999 (Qld), r 154, r 149(i)(c)
ABC Developmental Learning Centre v Wallace (2007) 16 VR 409;
[2006] VSC 171, considered
Agricultural Land Management Ltd v Jackson (No 2) (2014) 48
WAR 1; 98 ACSR 615; [2014] WASC 102, considered
Armagas Ltd v Mundogas SA [1986] 1 AC 717, cited
ASIC v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015]
-- 5 of 348 --
6
FCA 342, applied
ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) (2007)
160 FCR 35; [2007] FCA 963, cited
ASIC v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201;
[2009] FCA 1586, considered
ASIC v Fortescue Metals Group Ltd (2011) 190 FCR 364; [2011]
FCAFC 19, cited
ASIC v Healy (No 2) (2011) 196 FCR 430; [2011] FCA 1003, cited
ASIC v Hellicar (2012) 247 CLR 345; [2012] HCA 17, applied
ASIC v Macdonald (No 11) (2009) 256 ALR 199; [2009] NSWSC
287, cited
ASIC v Macdonald (No 12) (2009) 259 ALR 116; [2009] NSWSC
714, cited
ASIC v Rich (2005) 53 ACSR 752; [2005] NSWSC 417, cited
ASIC v Vines (2005) 55 ACSR 617; [2005] NSWSC 738, cited
Australian Communications and Media Authority v Mobilegate Ltd
(No 8) (2010) 275 ALR 293; [2010] FCA 1197, applied
Australian Securities and Investments Commission v Managed
Investments Limited & Ors (No 5) [2013] QSC 313, cited
Beach Petroleum NL v Johnson (1993) 43 FCR 1; [1993] FCA 283,
considered
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999]
NSWCA 408, cited
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1; [1951] HCA
480, cited
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34,
considered
Browne v Dunn [1894] 6 R 67, cited
Buzzle Operations Pty Ltd v Apple Computer Australia Pty Ltd
(2010) 238 FLR 384; [2010] NSWSC 233, considered
Buzzle Operations Pty Ltd v Apple Computer Australia Pty Ltd
(2011) 81 NSWLR 47; [2011] NSWCA 109, cited
Commissioner for Corporate Affairs v Bracht [1989] VR 821,
considered
Deputy Commissioner of Taxation v Mutton (1988) 12 NSWLR
104, cited
Director-General of Fair Trading v Pioneer Concrete (UK) Ltd
[1995] 1 AC 456, cited
DPP v Gomez [1993] AC 442, considered
Duke Group Ltd (in liq) v Pilmer (1994) 63 SASR 364, cited
Edwards v The Queen (1993) 178 CLR 193; [1993] HCA 63, cited
Elkington v Farsands Solutions Pty Ltd [2012] NSWCA 334, cited
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218
CLR 471; [2004] HCA 55, cited
Erlich v Leifer [2015] VSC 499, cited
Fitzmaurice v Bayley (1856) 119 ER 1087; (1856) 6 El & Bl 868,
cited
Ford v Andrews (1916) 21 CLR 317; [1916] HCA 29, cited
Forrest v ASIC (2012) 247 CLR 486; [2012] HCA 39, cited
Giorgianni v The Queen (1985) 156 CLR 473; [1985] HCA 29,
cited
-- 6 of 348 --
7
Goodman v J Eban [1954] 1 QB 550, cited
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296;
[2012] FCAFC 6, considered
Hamilton v Whitehead (1988) 166 CLR 121; [1988] HCA 65, cited
Hancock v Rinehart [2015] NSWSC 646, applied
Hawley Partners v Commissioner of Stamp Duties (Qld) (1996) 96
ATC 4847; [1996] QCA 270, cited
Holland v Revenue and Customs Commissioners [2011] 1 All ER
430; [2010] UKSC 51, cited
JC Houghton & Co v Nothard, Lowe and Wills [1928] AC 1, cited
JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) (No 3) [2010]
VSC 623
Kern Consulting Group Pty Ltd & Anor v Opus Capital Ltd [2014]
2 Qd R 379; [2014] QCA 111, cited
Leybourne v Permanent Custodians Ltd [2010] NSWCA 78, cited
Linter Group Ltd v Goldberg (1992) 7 ACSR 580; 10 ACLC 739,
cited
Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421; [1905] HCA 7,
cited
Macleod v The Queen (2003) 214 CLR 230; [2003] HCA 24,
considered
Meridian Global Funds Management Asia Ltd v Securities
Commission [1995] 2 AC 500, considered
McHugh v Eastern Star Gas (2012) 88 ACSR 707; [2012] NSWCA
169, cited
Midas Management v Equator Communications [2008] NSWSC
255, cited
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110
ALR 449; [1992] HCA 66, cited
Norman v FEA Plantations (2010) 191 FCR 39; [2010] FCA 1274,
considered
Northside Developments Pty Ltd v Registrar-General (1990) 170
CLR 146; [1990] HCA 32, cited
Owen v Madden (No 3) (2012) 201 FCR 360; [2012] FCA 313,
considered
Pereira v Director of Public Prosecutions (1988) 82 ALR 217;
[1988] HCA 57, cited
Presidential Security Services of Australia Pty Ltd v Brilley (2008)
73 NSWLR 241; [2008] NSWCA 204, cited
Quince v Varga [2009] 1 Qd R 359; [2008] QCA 376, cited
R v Byrnes (1995) 183 CLR 501; [1995] HCA 1, cited
Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner
of Taxation (2008) 238 CLR 516; [2008] HCA 21, considered
Re Hampshire Land Co [1896] 2 Ch 743, cited
Re HIH Insurance Ltd (in prov liq); ASIC v Adler (2002) 41 ACSR
72; [2002] NSWSC 171, cited
Rural Press Ltd v ACCC (2003) 216 CLR 53; [2003] HCA 75,
cited
Russo-Chinese Bank v Li Yau Sam [1910] AC 174, cited
SAJ v The Queen (2012) 36 VR 435; [2012] VSCA 243, cited
Shafron v ASIC (2012) 247 CLR 465; [2012] HCA 18, considered
-- 7 of 348 --
8
Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR
449; [1988] FCA 179, cited
Snook v London and West Riding Investments Ltd [1967] 2 QB 786,
considered
Sonenco (No 87) Pty Ltd v Commissioner of Taxation (1992) 38
FCR 555; [1992] FCA 560, cited
Spedley Securities Ltd (in liq) v Greater Pacific Investments Pty
Ltd (in liq) (1992) 30 NSWLR 185, cited
Taylor v Smith (1926) 38 CLR 48; [1926] HCA 16, cited
Tesco Supermarkets Ltd v Nattrass [1972] AC 153, considered
The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9)
(2008) 39 WAR 1; [2008] WASC 239, cited
The Zamora (No 2) [1921] 1 AC 801, cited
Twinsectra Ltd v Yardley [2002] 2 AC 164, cited
Ultraframe (UK) Ltd v Fielding (2005) EWHC 1638 (Ch); [2005]
All ER (D) 1397, considered
Vines v ASIC (2007) 73 NSWLR 451; [2007] NSWCA 75, cited
Walker v Wimborne (1976) 137 CLR 1; [1976] HCA 7, cited
Wellington Capital Ltd v ASIC (2014) 254 CLR 288; [2014] HCA
43, cited
White v Australian Securities and Investments Commission & Ors
[2013] QCA 357, cited
White v Tomasel [2004] 2 Qd R 438; [2004] QCA 89, cited
White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR
169; [1998] FCA 806, cited
Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65, cited
Young Investments Group Pty Ltd v Stripe Capital Pty Ltd [2011]
FCA 1147, cited
COUNSEL: P J Riordan SC with J P Moore SC and M T Brady for the plaintiff
P J Davis QC with D S Piggott for the fourth defendant
R P S Jackson QC with N Andreatidis for the fifth defendant
D L Williams SC (until 9 May 2014) with C Withers for the sixth
defendant
B D O’Donnell QC with C K George for the seventh defendant
P A Freeburn QC for the eighth defendant
SOLICITORS: Corrs Chambers Westgarth for the plaintiff
Tucker & Cowen for the fourth defendant
Bartley Cohen Litigation Lawyers for the fifth defendant
Kennedys for the sixth defendant
DibbsBarker for the seventh defendant
James Conomos Lawyers for the eighth defendant
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Table of Contents
Introduction .............................................................................................................................. 1
The proceedings .............................................................................................................. 2
The individual defendants ............................................................................................... 3
Mr King ................................................................................................................. 3
Mr White ............................................................................................................... 3
Mr Anderson.......................................................................................................... 4
Mr Hutchings ......................................................................................................... 4
Ms Watts................................................................................................................ 4
MFSIM personnel structure ............................................................................................ 5
The relevant companies in the group .............................................................................. 5
The MFS Group..................................................................................................... 5
MFS Limited ......................................................................................................... 5
MFS Financial Services Ltd .................................................................................. 5
The Stella Group ................................................................................................... 6
MFS Administration .............................................................................................. 6
Funds Management Division of MFS Group ........................................................ 6
MFSIM .................................................................................................................. 7
PIF ......................................................................................................................... 8
MYF .................................................................................................................... 10
MFS Castle .......................................................................................................... 10
PacFin .................................................................................................................. 10
CVC Asia Pacific Limited ................................................................................... 11
Sunleisure Group Ltd .......................................................................................... 11
Royal Bank of Scotland ....................................................................................... 11
Other relevant individuals ............................................................................................. 11
Cheryl James ....................................................................................................... 12
Janina Howard ..................................................................................................... 12
Karen Platts ......................................................................................................... 12
Kim Kercher ........................................................................................................ 12
Mike Skepper ...................................................................................................... 12
Nigel Fitzgerald ................................................................................................... 12
Rolf Krecklenberg ............................................................................................... 12
History leading up to and including the impugned transactions ................................... 13
The RBS Loan Agreement .................................................................................. 13
The Fortress Loan Agreement ............................................................................. 13
Further background facts ..................................................................................... 14
Countervailing considerations - the proposed restructuring of
MYF during 2007 ................................................................................................ 15
MFS Ltd’s capacity to raise funds by November 2007 ....................................... 20
The $130 million payment ..................................................................................................... 21
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ii
MFSIM’s alleged contraventions concerning the $130 million
payment ......................................................................................................................... 21
MFSIM’s alleged misconduct concerning the $130 million payment .......................... 21
Chronology from November 2007 onwards ........................................................ 21
PIF did not intend to make acquisitions in November 2007? ............................. 22
The $130 million payment was effected without approvals ................................ 22
The timing for the drawing down of the funds by PIF from RBS
coincided with the requirement of the funds by MFS Limited ........................... 23
Payment effected without consideration flowing to PIF ..................................... 27
MFSIM and MFS Administration were related parties in respect
of the $130 million payment for the purposes of s 208 of the Act ...................... 28
The alleged transactions were not the subject of
contemporaneous consideration or approval ....................................................... 30
No understanding of the consideration for the $130 million
payment by MFSIM officers and employees ...................................................... 30
The alleged transactions were not formulated until about mid-
January and not documented until late January/early February
2008 ..................................................................................................................... 35
The final formulation of the alleged transactions ................................................ 43
The creation of the alleged transactions .............................................................. 46
The alleged transactions were inconsistent with
contemporaneous accounts of PIF, PacFin, Sunleisure and MYF ...................... 53
The alleged transactions were inconsistent with
contemporaneous MYF proposals ....................................................................... 55
The alleged transactions were inconsistent with
contemporaneous Sunleisure decisions ............................................................... 59
The $17.5 million payment .................................................................................................... 60
MFSIM’s alleged contraventions concerning the $17.5 million
payment ......................................................................................................................... 61
MFSIM’s alleged misconduct concerning the $17.5 million payment ......................... 61
Chronology of events relevant to the $17.5 million payment ............................. 61
The improper purpose ......................................................................................... 62
MFSIM had no intention to make any significant acquisitions........................... 63
The timing for the $17.5 million payment coincided with
PacFin’s need for money ..................................................................................... 64
The $17.5 million payment was made without any consideration
flowing to PIF - there was no consideration or approval by the
IAC or the CRPC ................................................................................................. 67
There was no contemporaneous consideration or approval given
to the alleged transactions ................................................................................... 68
There was no understanding by officers of MFSIM of what
consideration existed for the $17.5 million payment .......................................... 68
The alleged transactions were not finally formulated until the
second half of January 2008 ................................................................................ 69
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iii
The alleged transactions were inconsistent with
contemporaneous accounts of PIF and MYF ...................................................... 70
MFSIM’s alleged contraventions in relation to the $17.5 million
payment: summary ........................................................................................................ 70
False documents case against MFSIM ................................................................................... 72
False documents relating to PIF acquiring class A MYF units .................................... 72
False documents relating to PIF participation agreement with PacFin ........................ 73
False documents relating to MYF participation agreement with PacFin ...................... 75
False documents relating to MYF refinance of Sunleisure loan ................................... 75
Use of false documents - the false documents were kept as though
genuine records ............................................................................................................. 76
Use of false documents - false asset reports were sent to RBS .................................... 76
Use of false documents - the false documents were provided to the
auditors and were reflected in PIF’s half-yearly report ................................................ 77
Summary of contraventions relating to the false documents ........................................ 77
MFSIM ................................................................................................................ 77
Mr White, Mr Anderson, Mr Hutchings and Ms Watts ...................................... 78
Chronology of relevant events concerning the false documents .................................. 78
December 2007.................................................................................................... 78
2 to 7 January 2008 ............................................................................................. 79
8 to 22 January 2008 ........................................................................................... 80
23 January to 6 February 2008 ............................................................................ 81
7 February to end February 2008 ........................................................................ 82
Pleaded issues - the MFSIM contraventions relating to the creation of
false documents............................................................................................................. 82
Creating false documents: s 601FC(1)(a) ............................................................ 82
The particular false documents............................................................................ 83
MYF IAC submission regarding class A units dated 20
November 2007 (the statement of claim para 110) ............................................. 85
PIF IAC submission dated 20 November 2007 regarding PacFin
participation agreement (the statement of claim para 111) ................................. 88
MYF IAC minutes regarding class A units dated 21 November
2007 (the statement of claim para 112) ............................................................... 88
The creation and backdating of the MYF IAC minutes dated 21
November 2007 (the statement of claim para 112) ............................................. 89
MYF class A units information memorandum dated 23
November 2007 (the statement of claim para 113) ............................................. 90
PIF IAC minutes dated 23 November 2007 regarding PacFin
participation agreement and $85 million MYF class A units (the
statement of claim para 114) ............................................................................... 90
MYF IAC submission dated 27 November 2007 regarding
PacFin participation agreement (the statement of claim para
115) ...................................................................................................................... 91
MYF IAC memorandum dated 28 November 2007 regarding
Sunleisure loan (the statement of claim para 116) .............................................. 91
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iv
MYF IAC minutes dated 28 November 2007 regarding $55
million PacFin participation agreement and Sunleisure loan (the
statement of claim para 117) ............................................................................... 92
Participation agreement between MYF and PacFin (the
statement of claim para 119) and participation agreement
between PIF and PacFin (the statement of claim para 120) ................................ 92
Application by PIF for 67.5 million class A units in MYF dated
30 November 2007 (the statement of claim para 121) and
application by PIF for 17.5 million class A units in MYF dated
27 December 2007 (the statement of claim para 123)......................................... 94
PIF Certificate of unitholding in MYF for 67.5 million units
dated 30 November 2007 (the statement of claim para 122) and
PIF Certificate of unitholding in MYF for 17.5 million units
dated 27 December 2007 (the statement of claim para 124) ............................... 95
New loan notice dated 31 December 2007 (the statement of
claim para 125) .................................................................................................... 95
Keeping false documents: s 601FC(1)(a) and s 286............................................ 97
Providing false documents to auditors: s 601FC(1)(a) ........................................ 97
Lodging false accounts: s 601FC(1)(a) and s 286 ............................................... 97
Sending false information to RBS: s 601FC(1)(a) .............................................. 98
Misinforming and failing to inform Compliance: s 601FC(1)(a)........................ 99
Providing false information to Compliance and Mallesons:
s 601FC(1)(a) .................................................................................................... 100
Overall view of the evidence ................................................................................................ 101
Is ASIC’s case within the pleadings? ................................................................................... 102
Relevant statutory provisions ............................................................................................... 104
Legal issues .......................................................................................................................... 109
Attribution of conduct ................................................................................................. 109
Onus of proof .............................................................................................................. 116
Officer of the responsible entity - s 601FD ................................................................ 117
Mr Anderson: an officer of MFSIM .................................................................. 117
No contrary intention......................................................................................... 120
Mr Anderson’s duties when acting in the “capacity” of an
officer of a responsible entity ............................................................................ 123
Inconsistent with the law of fiduciary duties ..................................................... 124
Inconsistent with Shafron .................................................................................. 125
Conclusions in respect of whether Mr Anderson was an officer
of MFSIM .......................................................................................................... 126
Mr King: an officer of MFSIM ........................................................................ 126
Contention that section 601FD will not work appropriately ............................. 128
The contention that it places duties on others ................................................... 128
The contention that it will cause fearful confusion ........................................... 128
Does the definition of “officer” apply to Mr King on the
evidence here? ................................................................................................... 129
-- 12 of 348 --
v
Conclusions in respect of whether Mr King was an officer of
MFSIM .............................................................................................................. 133
Validity and ratification of agreements ...................................................................... 133
Validity .............................................................................................................. 133
Ratification ........................................................................................................ 137
Related parties............................................................................................................. 145
False documents .......................................................................................................... 148
Knowingly involved ................................................................................................... 151
Have the MFSIM contraventions been established? ............................................................ 156
ASIC’s case against the fourth defendant, Mr King ............................................................ 158
Submissions for ASIC ................................................................................................ 158
Submissions for Mr King ............................................................................................ 164
Conclusions from submissions for Mr King ............................................................... 174
ASIC’s case against the fifth defendant, Mr White ............................................................. 177
Submissions for ASIC ................................................................................................ 177
The $130 million payment ................................................................................ 177
The $17.5 million payment ............................................................................... 181
Events from January 2008 - the false documents case ...................................... 183
Submissions for Mr White .......................................................................................... 186
Conclusions from submissions for Mr White ............................................................. 196
ASIC’s case against the sixth defendant, Mr Hutchings ...................................................... 199
Submissions for ASIC ................................................................................................ 199
The $17.5 million payment ............................................................................... 202
Creation of the false documents ........................................................................ 207
Submissions for Mr Hutchings ................................................................................... 219
False documents ................................................................................................ 219
The $17.5 million payment ............................................................................... 230
Summary for Mr Hutchings .............................................................................. 244
ASIC’s oral submissions in response to the submissions for
Mr Hutchings ..................................................................................................... 244
Conclusions from submissions for Mr Hutchings ...................................................... 250
ASIC’s case against the seventh defendant, Mr Anderson .................................................. 252
Submissions for ASIC ................................................................................................ 252
The $130 million payment ................................................................................ 252
Summary of Mr Anderson’s contravention with respect to the
$130 million payment and the $103 million payment ....................................... 260
The $17.5 million payment ............................................................................... 261
False documents and provision of false information......................................... 263
“Creative brain” and other requests for Mr Anderson to help .......................... 263
Mr Anderson’s response to the requests for his help: the listing
of loans .............................................................................................................. 264
Mr Anderson’s primary contraventions - false documents ............................... 265
-- 13 of 348 --
vi
Mr Anderson’s primary contraventions - providing false
information to RBS ........................................................................................... 267
Mr Anderson’s primary contraventions - misinforming and
failing to inform Compliance ............................................................................ 267
Mr Anderson’s involvement in MFSIM’s contraventions -
creating and keeping of false documents .......................................................... 268
Providing false documents to auditors .............................................................. 268
Failure to report contraventions to ASIC .......................................................... 269
Mr Anderson as an officer of MFSIM............................................................... 269
Submissions for Mr Anderson .................................................................................... 270
The $130 million payment ................................................................................ 270
The $103 million payment ................................................................................ 275
The $17.5 million payment ............................................................................... 276
Mr Anderson’s role ........................................................................................... 278
Related parties and control ................................................................................ 281
January 2008 events .......................................................................................... 282
Listing of loans .................................................................................................. 287
Meeting with Mr White and Mr Stride and creation of
documents .......................................................................................................... 288
Meeting with Mr Korda and Mr White on 25 January 2008 ............................. 290
Recording of transactions and accounts ............................................................ 290
Meeting with Ms Dunn and Mr Hutson on 7 February 2008 ............................ 290
333 Capital information requests ...................................................................... 291
Auditors and half year accounts ........................................................................ 291
Anderson’s involvement with PIF audit and accounts
preparation ......................................................................................................... 294
Keeping of documents ....................................................................................... 296
The discretion to excuse .................................................................................... 298
Conclusions from submissions for Mr Anderson ....................................................... 298
ASIC’s case against the eighth defendant, Ms Watts........................................................... 304
Submissions for ASIC ................................................................................................ 304
False documents ................................................................................................ 304
Providing false documents to auditors .............................................................. 308
Providing false information to RBS .................................................................. 309
Mr Moore’s oral submissions regarding Ms Watts ........................................... 309
Submissions for Ms Watts .......................................................................................... 314
Conclusions from submissions for Ms Watts ............................................................. 329
Loss ...................................................................................................................................... 331
Conclusion and orders .......................................................................................................... 333
-- 14 of 348 --
Introduction
[1] This case deals with the payment of two sums totalling $147.5 million from a Premium
Income Fund (PIF) for which the first defendant, Management Investments Pty Ltd, then
known as MFS Investment Management Pty Ltd (MFSIM), was the responsible entity
required by the Corporations Act 2001 (Cth). MFSIM was part of a group of companies
I shall call the MFS Group.
[2] The first payment of $130 million was made on 30 November 2007 from PIF by MFSIM
(via PIF’s custodian, Perpetual Nominees Limited (Perpetual)) to another company in the
MFS Group, MFS Administration Pty Ltd (MFS Administration). MFS Administration
was the treasury company of the MFS Group.
[3] The second payment of $17.5 million was made by MFSIM from PIF to another company
in the MFS Group, MFS Pacific Finance Ltd (PacFin) on 27 December 2007.
[4] The plaintiff, Australian Securities and Investments Commission (ASIC), argues that the
two sums were taken illegitimately from funds drawn down from a loan facility provided
to PIF by the Royal Bank of Scotland (RBS) and the benefit of which was held by PIF
for its members. ASIC alleges the funds were then paid to related parties of MFSIM, not
for the benefit of PIF’s members.
[5] Associated with those aspects of the case are allegations by the plaintiff that, in the last
week in January and the first week of February 2008, false documents were prepared
purporting to record transactions that sought to justify those payments as having been for
the benefit of PIF. The documents were said to be backdated or otherwise made to appear
as if the transactions had occurred before the payments, and the approvals had occurred
before the transactions. The plaintiff’s case is that the individual defendants were all
involved in aspects of the contraventions of MFSIM, or themselves directly contravened
the Act in and about the transactions and the subsequent creation and use of the false
documents.
[6] ASIC argues that the transactions, approvals, and consideration for the payments did not
occur and that the documents were designed simply to mask that fact. Its case is that the
false documents were used in a variety of ways to hide the fact of the payments having
been made for the benefit of other companies in the corporate group rather than for the
benefit of PIF or its members.
[7] Alternatively, it argues that the transactions provided no consideration or reimbursement
for the payments at the time the payments were made and were ineffective as having been
made without authority and in circumstances where they had not validly been ratified by
MFSIM.
[8] The defendants’ case is that these impugned transactions were real and explicable by a
proposal to restructure another fund called the Maximum Yield Fund (No 1) (MYF) by
seeding it with assets from within the MFS Group which would then be bought with funds
from PIF. Those were the proposed transactions which ASIC seeks to impugn and which,
-- 15 of 348 --
2
on the defendants’ cases, provided an appropriate return to MFSIM for the payments
made from PIF.
[9] I shall set out brief details of the nature of the proceedings against the individual
defendants and identify the relevant corporate entities and the other relevant individuals
before going into the background facts in more detail. Much of this information is based
on a written opening by counsel for ASIC.
[10] Much of the significant evidence in the case was documentary, based on
contemporaneous emails and other corporate records. Many of the essential facts are,
therefore, not particularly contentious. The contentious issues arose, generally speaking,
from debate about the conclusions or inferences I should draw from the events that
occurred. There were also questions of credit associated with the evidence of several
witnesses, including the defendants who gave evidence. Many of those questions were
able to be resolved principally by reference to contemporaneous emails and other
documents but also by reference to my notes taken during the hearing.
[11] I shall then deal with the issues raised by the pleadings and a number of legal arguments
important to the final resolution of the claims against all the defendants. I shall then
discuss in more detail the cases against each of the five defendants. Inevitably some of
the factual issues will be canvassed more than once because of the need to examine the
cases against the individual defendants.
The proceedings
[12] These proceedings were commenced in October 2009. ASIC and the first defendant
(MFSIM) have reached a settlement of the proceedings between themselves, which
involves the filing of a statement of agreed facts and MFSIM consenting to certain
declarations of contravention being made against it. The relief to be ordered against
MFSIM will be sought at the end of the substantive proceedings. ASIC has discontinued
the proceedings against the second and third defendants. It is still necessary, however, to
consider the allegations against MFSIM in the context of the allegations made against the
other defendants. Accordingly, for the purposes of the trial, the cases to be considered
involved the following defendants:
The fourth defendant (Mr King) - MFS Group Chief Executive Officer (CEO) until
21 January 2008.
The fifth defendant (Mr White) - MFS Group Deputy CEO and later MFS Group
CEO from 21 January 2008.
The sixth defendant (Mr Hutchings) - MFSIM CEO.
The seventh defendant (Mr Anderson) - MFS Group Chief Financial Officer (CFO).
The eighth defendant (Ms Watts) - MFSIM Fund Manager.
-- 16 of 348 --
3
The individual defendants
Mr King
[13] Mr King was a solicitor who co-founded McLaughlins Financial Services in 1999. Until
his resignation on 21 January 2008, he was the CEO of MFS Limited and the most senior
officer within the MFS Group. Mr King was also an executive director of MFS Limited.
Mr King’s role as CEO of MFS Limited also meant that he was CEO of the entire MFS
Group.
[14] Mr King ceased being a director of MFSIM on 27 February 2007.1 However, he
continued being CEO of the MFS Group after that time. When questioned about his role
in MFSIM after he ceased being a director, Mr King acknowledged his continuing overall
responsibility for MFSIM after he ceased being a director when he answered as follows
in his examination pursuant to s 19 of the Australian Securities and Investments
Commission Act 2001 (Cth):2
“Q. … Octaviar Investment Management Limited [MFSIM] was one of the
companies and you had a role, direct role for a period of time up until early
2007. What was your role in relation to that company post you, post ceasing
as a director?
A. In what it did and how it operated nothing; in worrying about the general
activities of the MFS Group, yes, I was always peripherally involved. I
mean, I couldn’t be the CEO of the group and not be concerned about what
was going on in any company … from when I resigned the idea was that that
was Craig’s [Mr White ’s] baby and that, you know, that was one of his areas
of responsibility, but of course I had the responsibility.
Q. You had an overall responsibility?
A. Yes.”
[15] This is consistent with the evidence of many witnesses about the role that Mr King played
in the overall management of the MFS Group until he left the Group on 21 January 2008.
Mr White
[16] Craig White was deputy CEO of MFS Limited and had primary day to day conduct of the
funds management side of the MFS Group business. He was effectively second in
command to Mr King until Mr King’s resignation on 21 January 2008. Thereafter,
Mr White became the CEO of MFS Limited and by virtue of that position, in effect, CEO
of the MFS Group.
[17] Mr White was a member of the Investment Approval Committee (IAC) for both PIF and
the other fund known as MYF at all relevant times. He was also an executive director of
1 ASIC.0046.0001.0034. This is an exhibit number in the form adopted for the purposes of these proceedings
which were conducted as an etrial. It is hyperlinked to the etrial database.
2 S19.0013.0001.0001 at p 12/10 to p 13/10.
-- 17 of 348 --
4
MFSIM at all relevant times as well as being a director of other companies in the MFS
Group, MFS Castle Pty Ltd (MFS Castle), MFS Administration and PacFin.
[18] He was the only defendant not to give evidence in these proceedings, a decision obviously
influenced by the fact that he has also been charged with criminal offences in New
Zealand. It has been accepted that there were “substantial areas of factual overlap
between the present proceedings and the New Zealand proceedings”.3 Having been
refused a stay of these proceedings he conducted his defence on the basis that his counsel
was instructed not to cross-examine or call witnesses. Mr RPS Jackson QC and Mr
Andreatides for him did, however, make substantial written and oral submissions.
Mr Anderson
[19] Mr Anderson joined the MFS Group in March 2002. He had previously been a partner at
the accountancy firm, KPMG, specialising in insolvency related matters. He was also a
registered liquidator. Mr Anderson was the CFO of MFS Limited and by virtue of that
position acted as the CFO for the entire MFS Group. In that role his responsibilities
included overseeing the treasury and financial reporting and taxation functions for the
MFS Group. He was familiar with almost all aspects of the MFS Group’s financial affairs
and provided assistance to Mr King in managing the MFS Group.
[20] Mr Anderson was a director and/or secretary of many of the MFS Group companies in
Australia. In particular, he was a company secretary of MFSIM, MFS Administration
and MFS Limited and was a director of MFS Castle and PacFin.
Mr Hutchings
[21] Guy Hutchings was the CEO of MFSIM from 23 May 2007. He was also the chief
investment officer of MFSIM from earlier in 2007 and was an executive director of
MFSIM. As the CEO of MFSIM, he reported on a daily basis to Mr White (as Deputy
MFS Group CEO) and also to Mr King from time to time. Mr Hutchings was a member
of the IAC for both PIF and MYF at all relevant times.
Ms Watts
[22] Marilyn Watts was the fund manager of PIF and, on ASIC’s case but not hers, of MYF
from June 2007. In that role, she was required to be aware of the assets held by PIF and
MYF and to recommend changes to the investments held by those managed funds.
3 Australian Securities and Investments Commission v Managed Investments Limited & Ors (No 5) [2013] QSC
313 at [20] per Fryberg J. His Honour refused Mr White’s application for a stay of these proceedings pending
the determination of the proceedings in New Zealand. An appeal from that decision was dismissed by the
Court of Appeal in White v Australian Securities and Investments Commission & Ors [2013] QCA 357.
-- 18 of 348 --
5
MFSIM personnel structure
[23] The roles of key MFSIM personnel are described in a document titled “MFSIM Personnel
Structure”.4 That document was emailed by Mr Hutchings to a large number of recipients
in October 2007,5 and accurately summarises the personnel structure for MFSIM at the
times relevant to these proceedings.6 The functional structure of MFSIM is shown in the
document titled MFSIM Functional Structure.7
The relevant companies in the group
The MFS Group
[24] The MFS Group of companies (MFS Group) was a collection of corporate entities which
started as a mortgage lending business associated with a legal firm on the Gold Coast
known as McLaughlins Solicitors.
[25] The companies in the group containing “MFS” in their name changed their descriptions
in March 2008 to substitute for “MFS” the word “Octaviar”, apparently in response to a
request from an American company, Massachusetts Financial Services Company, which
also used the abbreviation “MFS”. In this judgment (as in the pleadings) the MFS names
are used rather than the later Octaviar names, as those were the corporate names in place
at the time of most of the relevant events.
MFS Limited
[26] The overall holding company of the MFS Group was MFS Limited, a public company
listed on the Australian Stock Exchange. MFS Limited was incorporated in 2004. At the
times relevant to these proceedings, it was the ultimate holding company for the MFS
Group.
[27] The directors of MFS Limited at the relevant times included Mr King (the fourth
defendant) until 21 January 2008 and Mr White (the fifth defendant).
MFS Financial Services Ltd
[28] MFS Financial Services was incorporated in August 2002. Its principal activity was the
holding of investments in its immediate subsidiaries. At relevant times, it was a wholly
owned subsidiary of MFS Limited.
4 DEL.0024.0001.0060.
5 DEL.0024.0001.0057.
6 Affidavit of Ms Howard [ASIC.3000.0027.0001] at para 19.
7 DEL.0024.0001.0059.
-- 19 of 348 --
6
The Stella Group
[29] In about mid-2005, MFS Limited combined its then existing investments in tourism-
related businesses and established the Stella Group as a division of the overall MFS
Group. The Stella Group consisted of two main components:
A hospitality group of companies which owned and operated a portfolio of
accommodation facilities in Australia and New Zealand. This aspect of the business
included brands such Peppers, Breakfree, Mantra, Saville and other properties.
The second part of the Stella Group comprised travel services. The brands in this
aspect of the business included Harvey World Travel.
[30] The Stella Group was wholly owned by MFS Limited until it sold 65 per cent of the Stella
Group to CVC Asia Pacific (CVC), a private equity investor, on 3 February 2008 for
$409.2 million.
[31] During the course of 2007, efforts were made by MFS Limited to sell the Stella Group.
It was envisaged that this would free up considerable capital for the use of the wider MFS
Group, including to repay debt. Mr King played the lead role in efforts to sell the Stella
Group. In May 2007, CVC made a non-binding proposal to acquire 50 per cent of Stella.
The sale did not proceed immediately, although negotiations continued with CVC from
June 2007 until November 2007.
MFS Administration
[32] MFS Administration Pty Ltd (MFS Administration) was the treasury company for the
entire group. It employed all staff of the MFS Group. It was the entity through which
intercompany loans within the group were maintained.
[33] Its role as a central treasury company within the MFS Group meant that MFS
Administration was a party to most of the intercompany transactions within the MFS
Group. However, the managed investment schemes managed their own funds, and each
fund had its own accountant.
[34] MFS Administration was a wholly owned subsidiary of MFS Limited which controlled
its affairs.
Funds Management Division of MFS Group
[35] The Funds Management division of MFS was established in 1999. Its primary business
included the origination, development and management of a range of specialist
investment funds at wholesale, retail and institutional levels. By late 2007, the Funds
Management division of MFS Ltd comprised a number of corporations which were
licensed responsible entities under the Corporations Act.
-- 20 of 348 --
7
MFSIM
[36] MFSIM was the responsible entity for a number of managed investment schemes, two of
which are of particular relevance to these proceedings:
the PIF; and
the MYF.
[37] MFSIM had its own board. During the second half of 2007, the board’s members were:
John Whateley - chair and non-executive director;
Jack Diamond - non-executive director;
Deborah Beale - non-executive director;
Mr White - executive director (the fifth defendant); and
Mr Hutchings - executive director (the sixth defendant).
[38] The board of MFSIM had various committees. One of the committees was known as the
Conflicts and Related Party Committee (CRPC). The CRPC consisted of the non-
executive directors of MFSIM and was charged with the review and approval of
transactions involving the various MFSIM funds which may have involved a party that
was related to MFS. At the times relevant to these proceedings, the members of the CRPC
were Mr Whateley, Mr Diamond and Ms Beale.
[39] In addition to the board committees, there were other important committees of MFSIM
known as the Investment Approval Committees (IACs). These were committees
consisting of executives of MFSIM (including some executive directors) which had the
task of reviewing submissions regarding investments and transactions for the MFSIM
funds and deciding whether the relevant fund ought to proceed with the transaction or not
and whether additional information was required before transactions could be progressed.
[40] A description of the IACs’ operations is contained in the MFSIM Investment and Asset
Management Department Procedures Manual dated October 20078 as well as in the
MFSIM Business Analysis and Governance Department Procedures Manual dated
November 2007.9
[41] Each separate investment fund had its own IAC, although there was considerable overlap
in membership. For the period of matters relevant to these proceedings, the IACs for PIF
and MYF had an identical composition.
[42] During November and December 2007, the IAC for PIF and MYF consisted of:
Mr White;
Mr Hutchings;
Mr Kennedy;
8 OCA.0006.0002.0100 at 0107.
9 WIM.0010.0004.0130 at 0137.
-- 21 of 348 --
8
Mr Kyling, until 12 December 2007, when he resigned; and
Mr Snowden.
[43] The MFSIM IAC had written processes10 and a separate charter.11
[44] MFSIM had a procedures manual dated 31 January 2006,12 which was updated on 13
November 2007.13 It dealt with the procedures required to be followed by MFSIM staff.
PIF
[45] PIF was by far the largest managed investment scheme conducted by MFSIM, with
reported assets under management on 31 October 2007 of approximately $787 million.
It was described on occasion as the “flagship fund” of MFSIM. These assets were
primarily commercial loans, asset backed investments and interests in managed
investment schemes. PIF was a retail fund, in the sense that it was open to retail investors
for a minimum of a $5,000 investment.
[46] The operations of PIF were governed by a number of documents including its
constitution,14 its compliance plan15 and its product disclosure statements as in force from
time to time.16
[47] Clause 15 of the PIF constitution provided that it was the role of the responsible entity to
seek and invest the funds of PIF in “authorised investments”. They were defined to
include the following:
mortgage investments, being a loan secured by a registered mortgage of land;
bank deposits or call deposits;
bills of exchange (including commercial bills) issued, drawn, accepted or endorsed
by any bank or negotiable certificates of deposit issued by any bank;
any registered investment schemes, including those of which MFSIM was the
responsible entity; and
any investment authorised under s 21 of the Trusts Act 1973 (Qld), which the
responsible entity considered a prudent investment for PIF.
[48] Section 21 of the Trusts Act provides that a trustee may, unless expressly forbidden by
the instrument creating the trust, invest trust funds in any form of investment and at any
time vary any investment or realise an investment of trust funds and reinvest an amount
resulting from the realisation in any form of investment.
10 WIM.0010.0004.0035 at 0035–0038.
11 WIM.0010.0004.0035 at 0039–0040.
12 OCA.0001.0001.0002; affidavit of Ms Cole [ASIC.3000.0011.0001] at para 28.
13 OCA.0001.0002.0431; affidavit of Ms Cole [ASIC.3000.0011.0001] at para 29.
14 ASIC.0003.0001.0345.
15 OCA.0006.0002.0442.
16 WIM.0004.0003.0283.
-- 22 of 348 --
9
[49] PIF also had a product disclosure statement (PDS).17 Part A of the PIF PDS was dated
2 July 2007 and replaced a PDS dated 13 December 2006 and a supplementary PDS dated
26 March 2007. Part A dealt with PIF’s authorised investments and how PIF was to
assess its investment opportunities. Part B of the PDS specified the target rates of income
return (interest rates) for each of the different investment periods and was regularly
updated.
[50] The PIF PDS states that the constitution authorised PIF to invest in the following
authorised investments:
commercial loans;
fixed interest securities, including structured transactions, floating rate and income
securities, convertible, reset and hybrid securities and other high yield securities;
property backed managed investment schemes;
asset backed investments; and
cash and equivalents.
[51] In one respect, the PIF PDS varied from the constitution in relation to authorised
investments. The PIF PDS stated that MFSIM would not lend to, or invest in, MFS Ltd
majority owned entities.18 However, there was no such restriction or requirement in PIF’s
constitution.
[52] The PIF PDS also described the establishment of a CRPC to monitor related party
transactions and investments.19
[53] In addition to the constitution and PDS, PIF also had a compliance plan.20 The
compliance plan was established on 1 December 2005 and it described the processes
necessary to ensure that the operations of PIF were conducted in accordance with the
responsible entity’s (MFSIM’s) Australian Financial Services Licence,21 the PIF
constitution, the Corporations Act and other legislation.
[54] Clause 19 of PIF’s compliance plan focused on related party transactions. The clause
was aimed at ensuring that a financial benefit was not given to a related party of MFSIM
out of PIF’s property, or that could diminish or endanger PIF’s property, unless the
Corporations Act was complied with. The clause required that each related party
transaction must be in the best interests of the unitholders of PIF, must be on commercial
terms and must be properly documented.
[55] Clause 35 of the compliance plan focused on investment restrictions and required that
assets of PIF were invested in authorised investments in accordance with the PIF
constitution and the PIF PDS. “Authorised investments” were not defined in PIF’s
compliance plan. Clause 35 provided that the management of PIF was to assess all
17 WIM.0004.0003.0283.
18 WIM.0004.0003.0283 at 0301.
19 WIM.0004.0003.0283 at 0301.
20 OCA.0008.0004.0391.
21 ASIC.0025.0001.0083.
-- 23 of 348 --
10
relevant opportunities on their individual merits and to ensure that assets were only
invested in authorised investments.
[56] The compliance plan provided that PIF’s assets would be held by an external custodian
in accordance with general ASIC guidance. Perpetual was appointed by MFSIM to act
as PIF’s external custodian. Perpetual as custodian acted in accordance with instructions
given to it by MFSIM.
[57] Under PIF’s compliance plan, PIF also had an IAC and a CRPC.
MYF
[58] Until at least the end of November 2007, MYF was a managed investment scheme which
had a little over $2 million in cash. It had 13 members who were for the most part senior
employees or officers or, entities associated with them, within the MFS Group. Its funds
were invested in a savings account in the period to the end of November and it was not
active in terms of investing. It was closed to new investors and was, for practical
purposes, dormant.
[59] The proposed restructuring of MYF from the end of November 2007 is part of the subject
of these proceedings.
MFS Castle
[60] MFS Castle was a wholly owned subsidiary of MFS Limited. It was formerly known as
MFS Investment Holdings No. 17 Pty Ltd. It did not itself conduct any business, but it
was the corporate vehicle through which the MFS Group held a loan facility with Fortress
Credit Corporation (Australia) II Pty Ltd (Fortress) for $250 million. The debt had been
guaranteed by MFS Limited and MFS Financial Services.
PacFin
[61] The MFS Group also carried on business in New Zealand. There were several entities
conducting business in New Zealand, the most significant of which was, for present
purposes, PacFin. PacFin raised funds in New Zealand from retail investors by issuing
notes or debentures and invested those funds predominantly in loans and securities.
[62] Unlike the Australian companies noted above, PacFin was not wholly owned by MFS
Limited, but was about 40 per cent owned by MFS Limited.22 MFS Administration
however had a management agreement with PacFin whereby it managed the business of
PacFin from MFS’s corporate headquarters in Southport, Queensland.23 MFS
Administration managed all cash flow of PacFin and, if there was a shortfall, arranged
any required funds.
22 OCA.0002.0003.0014.
23 OCA.0013.0001.0002.
-- 24 of 348 --
11
[63] Mr Anderson (the seventh defendant) and Mr White were directors of PacFin. They gave
instructions and directions to the New Zealand management of PacFin on ASIC’s case
although Mr Anderson challenged the extent of his role in that context.
[64] MFS Limited had entered into a put option deed with PacFin, the effect of which was that
MFS Limited would pay PacFin the value of any loss on a loan or investment up to a
value of $50 million.24 In respect of long to medium term policy and strategic direction,
the local New Zealand management of PacFin received instructions and directions from
Mr King. Mr King oversaw the New Zealand operations of the MFS Group.25
CVC Asia Pacific Limited
[65] CVC was the Asia Pacific division of CVC Capital Partners, a private equity investment
advisor and manager. CVC considered the acquisition of all or a part of the Stella Group
from about May 2007. Ultimately, CVC purchased a 65 per cent interest in the Stella
Group for $409 million on 3 February 2008. CVC later purchased the remaining 35 per
cent of the Stella Group in July 2009.
Sunleisure Group Ltd
[66] In May 2007, MFS Limited acquired the Sunleisure Group. The Sunleisure Group held
Sunleisure hotels and other Sunleisure businesses. It focused on managing and letting
hotels, residential developments and retail commercial centres in Queensland. In
particular, it managed a number of hotels including the Q1 Resort on the Gold Coast. It
owned and managed the Q1 Observation Deck as part of the Q1 Resort.
Royal Bank of Scotland
[67] On 29 June 2007, RBS provided MFSIM with a loan facility of $200 million. Clause 3.2
of the Loan Agreement provided that “The Borrower must use the net proceeds of a
Funding Portion only for the purposes of the Trust”.26 The purpose of this facility, as
described in PIF’s PDS, was to help manage the liquidity of the fund, ie, managing the
payment of distributions and redemptions, and to provide short term funding for
opportunistic investments where the fund did not have surplus cash to provide for the
investments that may arise on an opportunistic basis.27
[68] In November and December 2007, PIF drew down the total amount of the $200 million
facility.
Other relevant individuals
[69] The following persons are of particular relevance.
24 BCR.0001.0002.2305.
25 Affidavit of Mr Maywald [ASIC.3000.0005.0001] at para 20.
26 OCA.0008.0003.0134 at 0154.
27 WIM.0004.0003.0283 at 0301.
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12
Cheryl James
[70] Ms James was at relevant times a finance manager in the MFSIM team. Her role was to
manage the accounts for some of the managed investment schemes operated by MFSIM,
including PIF and MYF. She was responsible for preparing monthly management
accounts and the half-yearly financial statements, and also assisted senior managers with
audit processes.
Janina Howard
[71] During the relevant period, Ms Howard was the head of business analysis and governance
of MFSIM. She was responsible for dealing with the daily running of MFSIM’s custodial
obligations, including ensuring all of MFSIM’s obligations as the responsible entity
concerning documentation and record keeping were being complied with. She also
assisted with getting documents ready for audits, assisted the compliance team with any
inquiries they might have, and ensured that units in, and distributions from, the relevant
managed investment schemes were correct.
Karen Platts
[72] Ms Platts was a corporate advisor to the MFS Group, and particularly to Mr White . She
reported directly to Mr White and worked closely with him.
Kim Kercher
[73] Ms Kercher joined the MFS Group in 2001 as financial controller and before that she had
been an auditor at KPMG. Ms Kercher became a company secretary of many corporate
entities within the MFS Group including MFSIM and MFS Limited.
Mike Skepper
[74] Mr Skepper was the MFS Group Compliance manager. In February 2008 he identified a
number of breaches in relation to the payments totalling $147.5 million by PIF to MFS
Administration and to PacFin in November and December 2007.
Nigel Fitzgerald
[75] Mr Fitzgerald was the MFS Group internal auditor. In March 2008 he prepared a draft
internal audit report in relation to the transactions arising from the $147.5 million
payment.
Rolf Krecklenberg
[76] Mr Krecklenberg was appointed as an executive director of MFS Limited on 14 April
2005 after MFS Limited acquired Peppers. He resigned from that position in February
2008. Before joining MFS in 2005, Mr Krecklenberg was a managing director of
Peppers. He was chief executive officer of the Stella Group until 29 February 2008 and
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13
also a director of MFS Limited. He had a primary role in conducting the Stella Group’s
business. He was also closely involved in efforts to sell the Stella Group during the course
of 2007 and early 2008.
History leading up to and including the impugned transactions
The RBS Loan Agreement
[77] In 2006, PIF had a facility with the National Australia Bank to enable PIF to have the
liquidity to move quickly on deals that were presented to it. However, the relationship
between MFS and NAB broke down at some point before mid-2007, necessitating that a
facility from another finance provider be obtained.
[78] On 29 June 2007, MFSIM as responsible entity of PIF entered into a facility with RBS
(RBS Loan Agreement) for borrowings of up to $200 million, which could be drawn
down from time to time. The amount of the facility was undrawn before the end of
November 2007. The loan facility was to be used for the purposes of PIF.
The Fortress Loan Agreement
[79] On 1 June 2007, MFS Castle entered into a loan facility with Fortress for $250 million,28
which was used for the purposes of the MFS Group (Fortress Loan Agreement). The
whole $250 million was drawn down on 1 June 2007. The money drawn down was paid
to MFS Administration.
[80] It was originally envisaged that this facility would be a short term one as it was expected
that significant funds would come into the MFS Group from the proposed sale of the
Stella side of the MFS Group or from the finalisation of a $450 million corporate banking
facility. The original date for repayment of the loan was 31 August 2007. However, the
sale of Stella did not proceed with the speed that was originally envisaged and MFS
agreed with Fortress to extend the date for repayment to 30 November 2007.
[81] During November 2007, it became apparent that the Stella sale would not occur at least
in time for its proceeds to be used to repay the Fortress Loan Agreement. On 17
November 2007, Mr King was still expecting that there would be an offer for 50 per cent
of Stella by the end of that week,29 but that did not eventuate. Negotiations with CVC for
the sale of Stella had stalled by about 21 November 2007 and CVC had not made a
binding offer to purchase an interest in Stella. Further, the assets of Stella could not be
used to make the payment because those assets had been ring-fenced from the wider
corporate group by Stella’s own finance facility with UBS.
[82] By late November 2007, it was apparent that none of MFS Castle, MFS Limited and MFS
Financial Services had sufficient funds on hand to enable the repayment in full of the
$250 million debt to Fortress by the end of November 2007. On 22 November 2007,
28 FRE.0002.0002.0230.
29 DEL.1000.0004.5125.
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14
Mr Anderson sent an email to Mr White setting out the serious cash flow difficulties that
the Group faced at that time.30
Further background facts
[83] In 2007 and early 2008, the MFS Group consisted of a large number of corporate entities
engaged in a multitude of businesses. Relevantly for ASIC’s case, the MFS Group
included two quite distinct categories of enterprise. The first comprised funds
management and financial services businesses, which included the management of a
number of managed investment schemes. The second class of enterprise was the
collection of tourism and travel-related businesses, I have referred to as Stella, or the
Stella Group.
[84] PIF’s principal activity was the investment of retail investors’ funds in equities, debt
instruments, cash and registered mortgages in return for which investors would receive
monthly distributions of income over fixed investment periods with repayment of their
principal at maturity. By 31 October 2007, it had total funds under management of
approximately $787 million.
[85] By the middle of 2007, the MFS Group had a $250 million loan with Fortress. This loan
was held by a company which came to be called MFS Castle, a wholly owned subsidiary
of MFS Limited, whose sole purpose was to hold this loan. The loan was guaranteed by
MFS Limited and another company in the MFS Group, MFS Financial Services.
[86] The $250 million Fortress loan was originally due for repayment on 31 August 2007 but
this was extended to 30 November 2007. Despite efforts by the MFS Group to raise funds
to enable this loan to be repaid or refinanced by the due date, it was unable to do so from
the funds then readily available to it. It was likely to have been able to raise the funds,
however, by going to the market either by issuing shares or issuing debentures. An
inability to repay the loan to Fortress on time could have had potentially devastating
effects for the MFS Group, especially given that the loan was secured by the parent
company.
[87] During late November 2007, Mr King negotiated with Fortress to defer repayment of the
loan either in whole or in part. Those negotiations resulted in an agreement between the
MFS Group and Fortress for the payment by 30 November 2007 of $100 million plus an
extension fee of $3 million, with the balance of $150 million payable by 1 March 2008.
[88] This necessitated the MFS Group finding $103 million in order to pay Fortress by 30
November 2007. On 27 November 2007 MFSIM as the responsible entity for PIF drew
down $150 million of the $200 million loan facility that it had with the RBS. To that
time, no money had been drawn down under the RBS facility. The RBS facility should
have been used solely for the purposes of PIF and not for the purpose of providing funds
to repay the debts of other MFS Group companies.
[89] Of the sum drawn down of $150 million, $130 million was paid by MFSIM via Perpetual
to MFS Administration. MFS Administration in turn caused $103 million of this payment
30 BCR.0001.0002.2100.
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15
to be paid to Fortress on 30 November 2007, thus ensuring that MFS Castle did not default
on its facility and that the guarantees given by MFS Limited and MFS Financial Services
were not called upon.
[90] The sum of $130 million was paid by MFSIM, on ASIC’s case, as responsible entity for
PIF to MFS Administration for the purpose of repaying the Fortress debt. In other words,
ASIC alleges that PIF borrowed money from RBS, on the security of the assets held by it
as responsible entity for the managed fund, in order to repay the debt of another company
in the investment arm of the MFS corporate group.
[91] In December 2007, PIF drew down the balance of the RBS facility as follows:
$15,000,000 on 13 December 2007;
$25,000,000 on 18 December 2007; and
$10,000,000 on 24 December 2007.
[92] On 27 December 2007, MFSIM as responsible entity for PIF made the payment of $17.5
million to PacFin. On ASIC’s case this payment was made for the benefit of PacFin,
which needed $16 million to meet its financial commitments to its debenture holders and
not for the benefit of PIF or its unitholders or “members” (the term used in the Act).
Again ASIC argues that PIF received no benefit for this payment. Of the $17.5 million,
PacFin paid $1.5 million to MFS Administration on 28 December 2007.
Countervailing considerations - the proposed restructuring of MYF during 2007
[93] The facts I have recited so far reflect the view of the evidence supporting ASIC’s case. It
is also necessary to keep in mind the evidence that supported the submissions for the
defendants that the payments were explicable by a proposal to restructure MYF partly, at
least, through investments to be made by PIF. The evidence relating to that was usefully
summarised in Mr Jackson’s written submissions for Mr White.31
[94] Ms Howard agreed that in early to mid-2007, Mr Hutchings expressed the view to her
that MYF should be restructured.32 By 24 July 2007, the desire to consider alternative
investment opportunities for MYF as a fund was flagged to the board of MFSIM.33 By
October 2007, a business planning document entitled “End to End Business Planning
October 2007” had been prepared (the End to End Document).34 It set out a plan
involving the re-structure of MYF35 that involved PIF investing in the asset backed sector
through a restructured MYF36 and Causeway Private Debt Opportunity Fund.
31 COURT.5000.0001.0003 at paras 191-192, the effect of which is reflected in the following paragraphs of this
judgment.
32 Ms Howard T11-16/31-33.
33 WHAJ.0003.0001.1632 at .1664 referred to in Mr Whateley’s affidavit at para 65.
34 DEL.2002.0001.2160 at .2163 to .2173.
35 Identifies that MFSIM, in effect, had five products, one of which was MYF “reorganized” (at .2166 - see the
table under item numbered 3).
36 A question is posed in the End to End Document Plan “3. How should we put products together?” (at .2172).
That question is followed by a statement that PIF “requires first class management for each of its five asset
classes...”. The statement is followed by a table that lists the five asset classes. One of those is Asset Backed
Securities with the fund name “MFSIM Maximum Yield Fund (Re-organised)”. When asked about this
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16
[95] PIF had been investing in the asset backed sector through Causeway Private Debt
Opportunity Fund (referred to in some of the documents as “Causeway PDOF” or just
“PDOF”) from at least April 2007.37 There was a view that a fund was a success if it had
$100 million of funds under management.38 Ms Cole agreed with the proposition that the
saleability to the public of a restructured MYF was enhanced by it having built
momentum in this way.39 Mr Hutchings’ evidence was consistent with this.
[96] On 840 and 941 November 2007 there were email exchanges about restructuring MYF in
the immediate future. Mr King was told of aims and objectives in relation to relaunching
MYF.42 By 13 November 2007, the possibility of a new class of units being set up within
Ms Howard’s evidence, which was not the subject of any re-examination, was “When we received the
Maximum Yield Fund within our area of responsibility, it was for all intents and purposes a shell with nothing
in it so there was always an intention to do something with it”: (Howard T11-16/17-24). Ms Howard also gave
evidence that “there was lots of discussions about what should happen Maximum Yield Fund”: (Ms Howard
T11-16/26-29).
37 The IAC register records that on 20 April 2007 there was approval given for a loan from PIF to Causeway
Private Debt Opportunities Fund (PDOF). The details in the IAC register state, relevantly, that the Committee
noted a proposal for the provision of a $50 million five year loan from PIF to PDOF, as part of the transition
of $100 million of PIF loans to PDOF. In effect, as can be seen, PIF would “seed” the PDOF (see
DEL.2004.0001.2983 referred to in Mr Molesworth’s affidavit at 82). Mr Petherick commenced with MFS
group in October 2005 and by October/November 2007 he was promoted into a business operations/business
analysis role (Mr Petherick’s affidavit at 18). He gave evidence that PIF did invest in other parts of the MFS
empire (Mr Petherick T16-65/25-26) and that PIF had invested in Causeway in the sum of around $50 million
(Mr Petherick T16-65/27-31).
38 States that “success with a product is $100m FUM”. This appears on its face to suggest that funds were
regarded as a financial success if they had $100 million in funds under management: (.2165). Note also
Mr King’s evidence as to this during cross-examination by Mr Williams SC – T35-34/15-20.
39 Referred to in the document titled “MYF Product Proposal Jan 2008.doc” – DEL.2004.0001.4802 referred to
in Ms Cole’s affidavit at 124; further version of the document titled “MYF Product Proposal Jan 2008.doc” -
DEL.2020.0001.0408 referred to in Ms Cole’s affidavit at para 126; document titled “MYF Product Proposal
17 Jan 2008.doc - DEL.2004.0001.4749 referred to in Ms Cole’s affidavit at para 130.
40 Mr Hutchings emails Ms Watts and Ms Howard, copied to Ms Cole and Ms Molesworth at 7:05 am “Lets
restructure Max Yield Fund and look at the Causeway fund as possibilities” (DEL.2008.0005.3130). On same
day, by email sent at 7:45 am Ms Watts wrote “We will have to think about how to properly restructure the
MYF to make it flexible enough for PIF, the public and potentially NZ investors to get access.”
(DEL.2020.0001.0429). After being taken to the email from Ms Watts of 8 November 2007, Ms Howard was
asked and she confirmed that it was fair to say that around this time there was a great deal of consideration
being given to the best way to restructure MYF (Ms Howard T11-17/4-5).
41 On 9 November 2007 at 11:17 am, Ms Watts sends an email to Ms Hollidge, copied to Ms Cole, Ms Howard
and Ms Ross that states “Looks like we will be restructuring the Maximum Yield Fund a closed end fund very
soon so in case that is not on your list could you please add it to your regular list to review although it may end
up being an information memorandum and not a PDS anything is possible Many thanks”. At 12:26 pm,
Ms Hollidge asked how soon and the response from Ms Watts was “We will be talking about it on Monday.
Nothing definite yet but soon (ie Weeks, not months)” (DEL.2009.0003.1550). See also email exchange
between Ms Howard and Ms Watts on 9 November 2007 (DEL.2020.0001.0427 referred to in Ms Howard’s
affidavit at para 59).
42 See T35-35/40-T35-36/36.
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17
MYF was being discussed.43 Board papers circulated about a week before44 the 21
November 2007 MFSIM board meeting included a presentation entitled “Update on
Business Strategy & Structure”45 that dealt with, amongst other things, a product strategy
that included the restructured MYF. Also on 21 November 2007, a presentation was
given to the MFSIM board that included a reference to the restructure of MYF. 46
[97] Mr Hutchings also gave evidence as to the restructure of MYF to the effect that he was
told by both Mr Kyling and Mr White that MFSIM wanted to build a Macquarie
Bank/Morgan Stanley/JP Morgan/Goldman Sachs/Babcock & Brown type of investment
management model.47
[98] He also said he was involved in presentations made to the board and senior management
of MFSIM concerning the “five saleable products”,48 namely the proposed investment
funds that MFSIM would offer to investors during the next year. He was working on that
strategy and various plans for PIF with his team and in consultation with Mr White,
Mr Kyling and others in the first three quarters of 2007.49
[99] On 11 September 2007 Mr Anderson sent an email to Mr Hutchings and Mr White
attaching a listing of assets for potential investments in PIF which relevantly included
some of the investments recorded in the allegedly false documents.50
[100] As at October 2007, PIF had approximately $142 million worth of assets due to mature
within the coming months and Mr Hutchings was fairly certain that loans with a large
combined value would mature within the coming months. With that in mind he discussed
the pending maturity of those investments with Mr White, Wendy Bennett, Mr Kennedy
and Ms Watts. Those people discussed the need to find suitable replacement
investments.51
43 On 9 November 2007, an agenda was circulated for the 12 November MFSIM Management Team Meeting
that included item 6 “Restructure of Max High Yield Fund” (DEL.2008.0005.2731 referred to in Ms Cole’s
affidavit at para 40). Ms Watts circulated the email exchange she had with Ms Howard with Ms Cole and
Mr Hutchings on the morning of 13 November 2007 regarding the restructure of MYF because she thought it
would be useful as background ahead of the MT meeting to be held that morning (DEL.2020.0001.0427
referred to in Ms Howard’s affidavit at para 59). The minutes for the MFSIM Management Team meeting for
12/13 November 2007 “In Maximum Yield Fund – to change from closed and to an opened fund. Either need
to distribute income to existing investors and go ahead and restructure or could set up a new asset class. GH,
JH and MW to meet and discuss before putting together a proposal.” (DEL.2009.0003.0518 referred to in
Ms Cole’s affidavit at para 88).
44 Mr Whateley at [48] – board packs prepared in advance of board meetings and couriered about a week before
the board meeting.
45 WIM.0004.0001.0273 at .0367 referred to in Mr Whateley’s affidavit at para 74.
46 The minutes for the MFSIM board meeting held on 21 November 2007 record that “The Board noted the
presentation included as an Appendix to the board papers focusing on strategy and structure. The board
discussed matters outlined in the presentation.” (WIM.0004.0001.0265 at .0269 referred to in Mr Whateley’s
affidavit at para 75).
47 See para 15 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001.
48 Referred to in DEL.2002.0001.2160, the “End to End” Business Planning document at DEL.2002.0001.2164.
49 See para 109 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001.
50 See para 114 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001 and DEL.1100.0009.2406 and
DEL.1100.0009.2407.
51 See paras 119-121 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001.
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18
[101] By mid 2007 it was recognised within MFSIM that MYF needed to be reorganised and
restructured and there was significant discussion of that between June and November
2007.52 The restructure of MYF was to take place in two parts, the first of which was
intended to take place quite quickly and would attract investment from sophisticated
investors including seeding from PIF.53
[102] As at 26 September 2007, Mr Hutchings was considering that two of the loans that had
been purchased with PIF’s money at that time referred to as the Domain/Guardian loans
might be bought instead by MYF with PIF investing in it to facilitate that. Mr Hutchings
gave evidence that the Domain/Guardian loans were being considered for investment by
MYF at around the time of the email dated 26 September 2007. He agreed that that would
be part of a restructuring of MYF and was a proposal which involved seeding.54
[103] At some stage in mid to late 2007, Mr Hutchings had conversations with Mr White to the
effect set out in para 143 of Mr Hutchings’ affidavit, including that Mr White told him
that he had been working on the “pipeline”55 and that there were a number of appropriate
deals being generated within the MFS Group that made this suitable for PIF.
[104] Mr Hutchings had in mind that such investments might be purchased through PIF seed
funding MYF.56 On the morning of 26 November 2007, he had a telephone discussion
with Mr White during which Mr White told him that PIF needed some new investments
and that he had identified a number he wanted to “run with”. He told Mr Hutchings that
they were like the ones that he and Mr Hutchings had talked about a lot in recent months.57
[105] A note in Mr Hutchings’ diary on the date 28 November 2007, apparently dealing with
possible loan investments,58 was a note of things for Mr Hutchings to discuss with
Mr White or a note of discussions he had with Mr White.59 I shall discuss this note in
more detail later but Mr Jackson submitted it was likely that it was made around the time
he had a discussion with Mr White or was preparing for one.60 Mr Jackson also argued it
was more likely to be a note of a conversation with Mr White given Mr Hutchings’
evidence he was not familiar with the details of the loans. The note refers to the strategy
of having five saleable products. It makes reference to a restructured MYF being seeded
by PIF, by use of the term “pipeline”, and refers to PIF seeding a reorganised MYF and
investments broadly consistent with those which are ultimately recorded in the allegedly
false documents.
52 See paras 125 and 126 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001 and the exhibits referred to in para
126 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001.
53 See para 137 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001.
54 See T39-17/7-45 and DEL.1100.0008.6377.
55 Mr King gave evidence that he assumed the reference to “pipeline” in documents was to MFS being the source
of investments for the funds consistent with a Babcock & Brown fund model as is referred to in many of the
documents: see T35-37.
56 See paras 143-146 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001.
57 See paras 163 and 164 of Mr Hutchings’ affidavit: HUTG.1100.0001.0001. This evidence was never the
subject of any direct challenge and was submitted to be obviously consistent with it having occurred before the
email, DEL.2006.0007.2992, in any case.
58 GHUT.0001.0001.0020.
59 T41-8/18-46.
60 T48-9/1-16.
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19
[106] Mr Jackson also observed that the diary note contained the notation “SK OK”. He
interpreted that notation to mean “Steve Kyling is OK” and submitted it may reasonably
be inferred to be a reference to a conversation Mr Kyling refers to having had with
Mr Hutchings.61 ASIC did not put to Mr Hutchings that the note was a fabrication or that
it must have been made on or after any particular date. It was not suggested that it was
prepared at the time or after the preparation of the false documents. In any case, that was,
he submitted, unlikely to be so.
[107] It was, he also submitted, broadly consistent with the investments that appear in the
allegedly false documents, rather than an exact copy of the false documents. Had it been
prepared later, one would expect that it would be more accurate and more extensive. The
note was consistent with the notion of PIF seeding MYF but the exact extent to which it
would do so was not identified.62
[108] In submitting that the ASIC theory behind the drawdown of funds was flawed Mr Jackson
also drew attention to the fact that the decision to drawdown was made before the
agreement with Fortress was reached, which was contended to supply the motive for the
drawdown. ASIC’s case did not confront the fact that the direction to commence the
drawdown of the $150 million was given before the decision not to sell Stella was made
and before the negotiations with Fortress began (both events being 24 November 2007).
The submission was that, rather than directing the drawdown in circumstances where an
agreement had been reached which identified the amount, it was at least equally likely
that the money was to be used for investment purposes when regard is had to the following
evidence:
On 19 November 2007, an update was given at the management team meeting held
that day that there would be a drawdown on the RBS facility for the purposes of an
investment and thereafter steps were taken to action that direction.63
On 21 November 2007, a direction was given to commence necessary processes to
draw down on the RBS Facility.64 This was confirmed to be the $150 million
drawdown.65
On 23 November 2007, a direction was given to start the process for a drawdown
by PIF “next week” from the RBS facility in respect of some anticipated
investments.66
61 S19.0014.0001.0001 at p 45/12 to p 46/16 of his s 19 examination.
62 The note was also said to be consistent with and to follow logically DEL.2006.0002.4302, an email chain
ending in an email from Mr White to Mr Hutchings sent at 4.21 pm on 27 November 2007 stating, in part, that
Mr White was happy to discuss the restructure of MYF.
63 DEL.2002.0002.8500 referred to in Ms Howard’s affidavit at para 66(a).
64 On 21 November 2007 there was a task request by Ms Howard that identified that the due date was 21
November 2007 and stated “we are looking at drawing down on this facility shortly” and requesting preparation
of documents to prepare for the drawdown and to identify how much can be borrowed bearing in mind the
gearing ratio covenant (DEL.2002.0002.9915, bottom of the page). On 21 November 2007 the task was
completed and Ms Ring forwarded an email with some attachments responding to the request
(DEL.2002.0002.9915; Ms Howard T11-10/15-35). Ms Howard emailed Ms Hulme on 21 November 2007
asking for some amendments to be made to the draft documents (DEL.2002.0002.7726; DEL.2002.0002.7727;
Ms Howard T11-11/29-45).
65 Ms Howard T11-12/1-11.
66 Ms Watts gave a direction to Ms Howard by email sent at 1:53 pm on the 23 November 2007 to start the process
for a drawdown by PIF next week from the RBS facility in respect of some anticipated investments:
(DEL.2002.0002.8883 at .8885; Ms Howard T11-12/25-45). Ms Howard’s response was to thank Ms Watts
-- 33 of 348 --
20
On 23 November 2007 there was a discussion between Mr King and Mr Kelleher
from Fortress.67 However, Mr Kelleher confirmed that as at 23 November 2007
there was no mention of Fortress requiring payment of $100 million on the maturity
date.68
[109] He also submitted that it was commonplace at MFS for investments to be made with
related entities with money moving through the treasury company MFS Administration.
[110] Let me go on now to summarise the later developments leading to the drawing down of
the funds.
MFS Ltd’s capacity to raise funds by November 2007
[111] It is clear that the MFS Group was one where deal making was a constant and transactions
involving many millions of dollars were not uncommon. There was also evidence that it
was possible for MFS Ltd to raise money at the time through the market on short notice
but, by the same token, that path was not preferred by Mr King. On 24 November 2007
he described the possibility of raising $250 million as “debt or hybrid or equity capital”
as the “worst case”.69 He also said to Mr Kelleher of Fortress in an email of that date:70
“If you were to insist we would seek to repay you off the back of an equity
and hybrid raising to be launched off our announcements on Wednesday this
week. We do NOT want to do such a raising on such short notice and before
we have had a chance for the market to understand the Stella numbers (ie we
will have to do it at a higher cost of capital and a higher transactional cost)
BUT if you insist then that is what we will do all be it costly inconvenient
and undesirable You will achieve repayment in full but at great cost to us.
We are saying plainly that is your right and if that is, despite our position as
explained below, your position we will act upon it and complete.”
Several other possibilities for raising cash are referred to in contemporaneous documents
during November 2007 where the focus, at least of Mr White’s efforts, was on the funds
available to be drawn down from the RBS facility by PIF. ASIC’s written submissions
included a useful chronology relating to the payments of the two sums of $130 million
and $17.5 million in the context of its allegations about the impropriety of the payments
made by MFSIM.71 Much of it I shall now set out but one needs to bear in mind the
alternative interpretation sought to be put on the facts by the defendants. It is also
important to know what ASIC alleges are the contraventions committed by MFSIM itself.
for the update by indicating that she could do nothing more until she was instructed about the amount to be
drawn down (DEL.2002.0002.8883 at .8884).
67 Mr Kelleher T5-34/35 to T5-35/11.
68 See especially Mr Kelleher T5-35/11 where Mr Kelleher’s answer was “that’s probably right. I wouldn’t have
been talking about that at that stage”.
69 DEL.1000.0003.9949.
70 DEL.2002.0002.9972 at .9973
71 COURT.0029.0003.0001 at paras 108-341.
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21
The $130 million payment
[112] Although MFSIM has agreed to the finding of certain contraventions against it in the
compromise it has reached with ASIC it is still necessary to consider whether those
contraventions have been established for the purposes of the cases against the other
defendants. They are said to have been knowingly concerned in the contraventions so
whether there were contraventions must be decided. In approaching that task it is useful
to consider first what ASIC’s allegations are concerning the $130 million payment. I
shall set out the other allegations of contraventions relating to the $17.5 million payment
and the impugned transactions later.
MFSIM’s alleged contraventions concerning the $130 million payment
[113] The pleaded contraventions against MFSIM relating to the impropriety of the $130
million payment were that:72
A reasonable person in MFSIM’s position would have prevented the making of the
$130 million payment and the $103 million payment until they were satisfied that
it was for investments which were authorised under PIF’s constitution and for the
benefit of PIF and its members. MFSIM did not do that.
In permitting $103 million of PIF’s money to be paid to Fortress MFSIM as
responsible entity for PIF contravened:
(a) s 601FC(1)(a) of the Act, by not acting honestly;
(b) s 601FC(1)(b) of the Act, by failing to exercise the degree of care and
diligence that a reasonable person would exercise if they were in MFSIM’s
position;
(c) s 601FC(1)(c) of the Act, by not acting in the best interests of the members
of PIF;
(d) s 601FC(1)(k) of the Act, by failing to ensure that the $130 million payment
to the extent of the $103 million payment was made in accordance with PIF's
constitution;
(e) and, therefore, s 601FC(5) of the Act; and
(f) in making the $130 million payment to the extent of the $103 million payment
and in permitting $103 million of PIF’s money to be paid to Fortress, MFSIM,
contravened s 208(1) of the Act, as modified by s 601LC of the Act because
there was a financial benefit given by MFSIM, as responsible entity for PIF,
out of scheme property to MFS Administration, a related party of MFSIM.
MFSIM’s alleged misconduct concerning the $130 million payment
Chronology from November 2007 onwards
[114] MFS Limited did not have the capacity to repay the amount due at the end of November
2007 under the Fortress Loan Agreement and would have been unable to obtain the
72 See paras 53A-55 of the statement of claim.
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22
necessary funds unless such finance could be raised “off the back of an equity and hybrid
raising to be launched off” MFS’s announcements on Wednesday, 27 November 2007.73
[115] The cash flow position of MFS as at November 2007 was extremely tight and by emails
on 12 November 2007 Mr Anderson estimated that MFS needed at least $30 million cash
flow without a number of allowances including any net payment to Fortress.74 Mr Ball
increased the projected negative cash flow at the end of that month to $104,133,046.75
ASIC’s submission was that these facts provided a cogent motivation for the conduct that
led to the alleged contraventions.
PIF did not intend to make acquisitions in November 2007?
[116] ASIC argued that as at November 2007, PIF was not intending to make any significant
acquisitions (and did not intend to take on too much debt) as demonstrated by the
following evidence:
Mr Hutchings sent a report to Mr King by email at 7:04 pm on Sunday,
18 November 2007 in which he stated, with respect to PIF’s best significant
acquisition opportunity “no obvious candidates yet but early days”. The report also
advised MFS Limited: “don’t take on too much debt (use company paper) - due to
rising interest rates, possibility of more credit market problems and prolonged US
slowdown; don’t rush - good opportunities will present in 2008 as some financial
services organisations lose sales momentum and/or a part mark to market valuations
of sub-par assets”.76
The minutes of MFSIM investment management meetings at the time did not
disclose any proposed acquisitions; see, eg, minutes of meetings on 12 November
200777 and Monday, 3 December 2007.78
The absence of any reference to, or approval of, acquisitions in IAC meetings in the
period leading up to and including November 2007 except for a purported meeting
on 23 November 2007, which in fact did not occur and the documentation in
relation to which was not created before the last week of January 2008.
PIF did not, in fact, make any other acquisitions from November 2007.
The $130 million payment was effected without approvals
[117] The $130 million payment was made without approval from the IAC of PIF or the CRPC
of MFSIM, either before the transaction or at all. Nor was there approval given by the
members of PIF for the $130 million payment to the extent of the $103 million payment,
which, ASIC submitted, was to be inferred from the fact that there was no transaction
effected, and thus nothing that could have been approved.
73 DEL.2002.0002.9972; see paras 35–37 of affidavit of Mr Kelleher [ASIC.3000.0006.0001].
74 DEL.2006.0007.8259.
75 DEL.2007.0004.1129, DEL.2007.0004.1130.
76 DEL.2002.0008.1318 attaching DEL.2002.0008.1321 (both attachments of DEL.2002.0008.1291).
77 DEL.2008.0005.1245, DEL.2008.0005.1246.
78 DEL.2004.0001.3123.
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23
The timing for the drawing down of the funds by PIF from RBS coincided with the
requirement of the funds by MFS Limited
[118] The timing for the drawing down of the funds by PIF from RBS coincided with the
requirement of the funds by MFS, which is demonstrated by the evidence that by early
November 2007 Mr King recognised that the funds to repay the Fortress loan would not
be available from the sale of Stella by the end of November 2007. In particular ASIC
relied on the following:
Mr King’s report to the MFS board at the Park Hyatt on 7 November 2007 that the
issue of the partial sell-down of Stella to private equity “should have resolved by
end of November”,79 which he acknowledged meant it was when MFS would know
if the partial sell-down was proceeding but was not a reference to its settlement.80
At the 12 November 2007 MFS Limited finance and investment committee (FIC)
meeting Mr King reported on the Stella project and “potential hybrid notes/bank
debt”.81 It should also be noted that there was no reference to any sale of assets to
PIF.
As noted above, by email at 12:02 pm on Monday, 12 November 2007,
Mr Anderson projected the $30 million cash flow shortfall without allowing for any
payment to Fortress.82
[119] On Thursday, 15 November, 2007 Mr King, Mr White and Mr Anderson had a lengthy
meeting (about six hours). Reporting to MFS Limited directors Barry Cronin and Paul
Manka, Mr King said it was a “good session (most of the day)”.83
[120] ASIC’s argument was that it was inherently unlikely that such a discussion would not
have included sources of funds and other financial options to meet the upcoming
liabilities, in particular that owed to Fortress. This conclusion was likely particularly
because Mr Anderson had reported the upcoming liability on the previous Monday,84 and
Mr King, Mr White, and Mr Anderson frequently discussed cash flow issues,85 and
because Mr King said he was a person who, generally, would discuss the need for Plan B
and Plan C options for financing.86
[121] Mr King originally said that this meeting was about the new template87 but, when it was
put to him that he had reported to the MFS board on 7 November 2007 that he was
meeting with Mr White on that day,88 he said he did not recall the “all day” meeting.89
Mr Anderson said that he recalled that the template was discussed this day and did not
79 OCT.0003.0003.0300, p 0317.
80 Mr King’s evidence: eg T34-3/10–11, T34-49/20–32.
81 DEL.1000.0004.3062 (para 103 of affidavit of Mr Cronin [ASIC.3000.0032.0001]).
82 DEL.2006.0007.8259.
83 DEL.1000.0004.5125.
84 See paras 119–120 of Mr Anderson’s summary of evidence [COURT.7000.0001.0003].
85 See paras 109–110 of Mr Anderson’s summary of evidence [COURT.7000.0001.0003].
86 T34-4/20; see also T38-14/44–46. Mr Anderson gave similar evidence: T49-51/21–23.
87 T34-56/4–18.
88 OCA.0007.0002.0187, p 0188.
89 T37-95/23-T37-96/45; T38-4/27–29.
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24
believe that the Fortress liability would have been discussed because it was not of concern
to him whether there had been discussions with Fortress or not.90
[122] Whether there was a discussion at this meeting or not, it was submitted that it was
inherently unlikely that, in the circumstances, there would not have been conversations at
this time between the CEO, the CFO and Mr White, as Deputy CEO, about the
management of the upcoming Fortress liability.
[123] On Monday, 19 November 2007 at 4:29 pm,91 Ms Watts sent an email to Ms Howard,
copied to Mr Hutchings, wanting to “discuss the possibility of drawing down on the PIF
loan facility from RBS to fund some planned investments later this week”. ASIC
submitted that on the evidence this could not have been referable to anything but the
repayment of the Fortress debt. This is reinforced by Ms Watts’ evidence that she did not
recall what the planned investments were92 and that it was Mr White who told her there
was going to be a drawdown.93
[124] I have already pointed to the alternative possibility developed in the defendants’
submissions that there were plans on foot to seed MYF with new investments possibly
from PIF.
[125] Up to about the same time Mr Kelleher of Fortress was dealing with Mr White but
“[Mr Kelleher] was obviously becoming very nervous about what was happening with
the Stella sale process, not getting what he’d call straight answers as to when he was going
to get his money back, and like any good credit guy he’d gone to the top”,94 and he
“wanted to hear firsthand from the CEO”.95 Consequently, Mr White arranged a tele-
conference with himself, Mr King and Mr Kelleher at 5:00 pm on Tuesday, 20 November
2007.96
[126] On Wednesday, 21 November 2007, Ms Howard responded by email to Ms Watts and
Mr Hutchings regarding “RBS facility” saying “I am ready to go when you are” advising
that the maximum drawdown was approximately $155 million and the funds would go
into the PIF operating account two business days after lodgement of forms.97 ASIC
submitted that the advice regarding the maximum draw down showed that the “planned
investments” were more than just a temporary cash flow shortfall.
[127] On Friday, 23 November 2007 at 1:53 pm,98 Ms Watts replied to this email from
Ms Howard (copied to Mr Hutchings) requesting Ms Howard to start the process of
drawdown by PIF from the RBS facility “to fund some anticipated investments late next
90 T50-35/6-14.
91 DEL.2008.0005.0550.
92 T51-80/33.
93 Affidavit of Ms Watts [AFF.MAW.0002] at para 79.
94 Mr King’s s 19 examination, p 42/1-6 [S19.0013.0001.0001]. This statement has been tendered under s 79(1)
of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”).
[COURT.0020.0001.0001].
95 Mr King’s evidence: T34-58/13.
96 OCA.0021.0004.0268.
97 DEL.2002.0002.8922.
98 DEL.2002.0002.8883.
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25
week … the amount of the drawdown and the period for which it would be required has
not yet been finalised, but I will have a better idea on Monday”.
[128] Apart from there being no other prospective acquisition involving PIF at this time, ASIC
argued that its submission that this drawdown related to the repayment of the Fortress
loan was supported by the fact that Mr King said that, before drafting the email to
Mr Kelleher in the early hours of Saturday morning, he had had conversations with
Mr White (or Mr Anderson)99 and had been told that the $25 million, which he offered to
Mr Kelleher, was available.100
[129] Accordingly, ASIC submitted that the reason that Mr King offered $25 million in his
email the next morning and accepted without further negotiation Mr Kelleher’s counter-
offer of $100 million on the same day was because he had been informed by Mr White of
the sum of money which was available from the RBS facility through PIF. Mr King
described Mr White’s funds as a “life line” in his s 19 examination,101 a term he tried,
ASIC submitted, unsuccessfully, to walk away from in his evidence at the trial.102
[130] ASIC’s submission was that it was inherently implausible that Mr King would
immediately agree, without further negotiation or caveat, to a requirement to pay Fortress
$100 million within a week - an obligation he accepted he was “paranoid” about
complying with103 - without the security of knowing the money was definitely available
and having to undergo “all the trouble and inconvenience of doing a capital raising [in
one day]”.104
[131] Counsel for Mr Anderson submitted that I should not infer that when Mr King accepted
the amount of $100 million as the figure that should be repaid to Fortress, that he did so
because he had been informed by Mr White that the money was available from the RBS
facility through PIF. A more plausible explanation, they submitted, was that Mr King
had no doubt that he could achieve the $100 million outcome from a capital raising or
from the realisation of liquid assets in the form of cash and shares.
[132] On Saturday, 24 November 2007 at 7:06 am, Mr King sent an email to Mr Kelleher,
copied to Mr White and Mr Anderson, requesting an extension of the loan until 1 March
2008 on the basis that there would be a part-payment of $25 million. He stated that if
Fortress demanded payment by the end of the month “we would seek to repay you off the
back of an equity and hybrid raising to be launched off our announcements on Wednesday
this week”.105
99 His oral evidence was that it was not with Mr Anderson.
100 King’s s 19 examination, pp 42-43 [S19.0013.0001.0001], which has been tendered under s 79(1) of the ASIC
Act [COURT.0020.0001.0001] (no 11). This evidence, it was submitted, should be preferred to his evidence
at trial (eg T34-69/4-7) because it was given closer to the relevant events, when his recollection would be
better.
101 Mr King’s s 19 examination, p 58/9-10 [S19.0013.0001.0001]. This statement has been tendered under s 79(1)
of the ASIC Act [COURT.0020.0001.0001] (no 17).
102 Eg T38-13/16-45.
103 Eg T38-12/16-33, T38-13/9-10.
104 T38-13/26-27.
105 DEL.2002.0002.9972.
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26
[133] After the receipt of this email, there was a telephone conversation between Mr Kelleher
and Mr King in which Mr Kelleher made a counter-offer for a $100 million part-payment
and says that Mr King “quickly agreed in principle to the counter-offer of $100 million
part-payment of the loan facility without any hesitation”.106 ASIC submitted that
Mr King was able to respond immediately in the affirmative to the counter-offer because
he was aware that the $100 million was within the $155 million limit of funds that could
be drawn down from RBS by PIF. It was submitted that Mr King, having been told by
Mr White that $25 million was available for the “start of a negotiation”,107 would have
been told that in fact the inquiries had revealed that $155 million was available from PIF.
[134] At 12:31 am on Sunday, 25 November 2007, Mr Kelleher replied to Mr King, copied to
Mr White and Mr Anderson, saying that he has the “go ahead as per our conversation of
today”.108 At 7:07 am Mr King sent an email to Mr Krecklenberg saying “I am getting
somewhere on Fortress which is workable” and made no reference to equity raising or
how else the $100 million could be raised. ASIC submitted this was because at this point
he knew that the money was available from RBS through PIF.109
[135] By 8:00 am on Monday, 26 November 2007, Ms Watts was aware that the drawdown was
going ahead and reported to the MFSIM management team meeting that she was
“facilitating several large settlements which will drain the liquidity position in PIF. To
draw down on RBS facility to fund and will be running a fairly tight ship in the coming
weeks”.110
[136] By email at 11:09 am Monday, 26 November 2007 to Mr Hutchings, Scott Parker
attached the PIF cash flow requirements for 29 November 2007 to 30 November 2007. It
showed that there was a projected net outflow of funds of nearly $16 million but did not
show any acquisitions in that period.111
[137] In the morning of Monday, 26 November 2007 Mr Hutchings and Mr White had
conversations, which are referred to by Mr White in an email to Mr Hutchings at
10:44 am in which he instructed Mr Hutchings to put in motion the drawdown of $150
million and requests “aim for Thursday with Friday fallback”.112 Mr Hutchings
responded by forwarding the email to Ms Howard and Ms Watts with the instruction to
implement Mr White’s request113 and replied to Mr White saying “currently being
arranged”.114
[138] By an email exchange on Tuesday morning, 27 November 2007 between Ms Howard,
Ms Watts and Dana Malipaard, Ms Howard advised that there will not be any IAC
106 Affidavit of Mr Kelleher [ASIC.3000.0006.0001] at para 37.
107 T38-30/26.
108 DEL.0021.0001.0034.
109 DEL.0015.0001.0051.
110 DEL.2002.0002.8494 at .8495.
111 DEL.2002.0002.1213 attaching DEL.2002.0002.1214.
112 DEL.2002.0001.2596.
113 DEL.2002.0001.2596.
114 DEL.2006.0002.4300.
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27
minutes or other backup for the funding notice for the drawdown from RBS. However
she suggested to give it to Mr White “to sign first as he is aware of it”.115
[139] The correlation between the moneys coming in from Mr White and the moneys going out
to Fortress was confirmed by an exchange of emails between Mr White and Mr Anderson
on Tuesday afternoon when Mr Anderson noted that “we are getting c$130m on Friday”
and Mr White forwarded him the Fortress bank details (for the payment out) and said that
he was waiting for Mr Anderson to provide the bank account details of MFS
Administration (for the payment in).116
[140] At 5:16 pm on Wednesday, 28 November 2007, Mr White informed Mr King by email
that he had the $150 million “in our account ready to transfer to MFS Administration
tomorrow if need be”.117 In context, the reference to “our account” ASIC submitted could
only be a reference to PIF’s account.
[141] On Thursday, 29 November 2007, Mr King telephoned Mr Kelleher to confirm that he
had the $100 million for Friday.118
[142] On Friday, 30 November 2007, there was extensive email correspondence with respect to
the transfer of the $130 million received into the PIF account with Perpetual to the MFS
Administration account.119 However, at 1:55 pm, Mr Anderson sent an email confirming
that the funds had been received in MFS Administration’s account “so where are we
please with the payment of the $100m?” (ie the payment to Fortress).120
[143] By email at 2:50 pm on 30 November 2007, Mr Anderson confirmed to Ms Guest and
Mr White that the $103 million had been sent to Fortress “in the last 20 minutes”.121
[144] By email at 4:50 pm to Mr King copying Mr White, regarding the Fortress Deal (after a
further email exchange with Mr Slack of Fortress), Mr Anderson advised “All done all
signed all sent all received” and Mr King replied: “Great work guys”.122
Payment effected without consideration flowing to PIF
[145] The defendants’ allegation that consideration flowed to PIF for the $130 million payment
was as follows:123
$62.5 million worth of interests in participation agreements with PacFin.
115 DEL.2002.0002.8883.
116 DEL.2006.0002.4326.
117 DEL.2006.0007.0780.
118 FCC.0001.0001.0206; see para 57 of affidavit of Mr Kelleher [ASIC.3000.0006.0001] (not admissible against
Mr King).
119 Eg DEL.1000.0003.5313, DEL.2002.0001.9690, DEL.2002.0001.9687, DEL.2002.0001.2526,
DEL.2002.0002.0953.
120 DEL.2002.0001.9672.
121 DEL.2002.0001.2356.
122 DEL.0037.0001.0340 and DEL.2006.0006.9433.
123 Mr King’s amended defence, para 52 [KING.0001], Mr Anderson’s amended defence, para 45
[COURT.7000.0001.0006], Mr Hutchings’ amended defence, para 45 [HUTG.1100.0005.0001].
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28
67.5 million class A units valued at $67.5 million (out of a total of $85 million class
A units) purchased in MYF associated with:
(a) MYF’s purported acquisition of $55 million worth of interests under the
participation agreements from PacFin; and
(b) a $30 million loan to Sunleisure Group Limited so it could repay a debt due
to MFS Administration.
[146] It is convenient at this stage to call these the alleged transactions.
[147] ASIC submitted that I should find that the payment was not made in consideration of the
alleged transactions for the following reasons:
The payment was transferred directly from the Perpetual account to MFS
Administration and no part of it was paid to MYF or PacFin.124
The alleged transactions were not formulated or documented until January 2008.
[148] ASIC also submitted that I should find that the alleged transactions were not formulated
or documented until January 2008 for the following reasons:
There was no contemporaneous consideration or approval of the alleged
transactions before the $130 million payment.
Before about 23 January 2008, the officers and employees of MFSIM and MFS
Limited had no understanding of the consideration for the $130 million payment
and despite requests were not informed about the alleged transactions.
The alleged transactions were not formulated until about mid-January and not
documented until late January/early February 2008.
The alleged transactions were inconsistent with contemporaneous accounts of PIF,
PacFin, Sunleisure and MYF.
The alleged transactions were inconsistent with contemporaneous MYF proposals.
The alleged transactions were inconsistent with contemporaneous Sunleisure
decisions.
MFSIM and MFS Administration were related parties in respect of the $130 million
payment for the purposes of s 208 of the Act
[149] ASIC alleges that MFSIM, in making the $130 million payment to the extent of the $103
million payment, contravened s 208(1) of the Act (as modified by s 601LC) because it
constituted a financial benefit out of scheme property to MFS Administration, a related
party of MFSIM. The case against MFSIM was said to be established by admissions
made by MFSIM.
[150] Further, ASIC alleges that Mr King, Mr White and Mr Anderson were each “involved”
in the contravention within the meaning of s 79(c). Section 79(c) requires proof they
were directly or indirectly knowingly concerned in the contravention.
124 PER.0002.0002.0094 (see paras 21–24 of the affidavit of Vanessa Milosev [ASIC.3000.0045.0001]).
-- 42 of 348 --
29
[151] ASIC submitted that Mr King, Mr White and Mr Anderson were knowingly concerned in
each of the elements of the contravention, which are as follows:
MFSIM gave a financial benefit to MFS Administration out of scheme property
being the $130 million payment to the extent of the $103 million payment made by
PIF to MFS Administration. The $130 million payment is admitted in the defences
of Mr King, Mr White and Mr Anderson.
MFS Administration and MFSIM were related parties because MFS controlled both
MFSIM and MFS Administration. The control arises from the fact that MFSIM
was a subsidiary of MFS Limited and MFS Administration was a subsidiary of MFS
Limited.
The fact of the $130 million payment and the fact that MFSIM and MFS
Administration were subsidiaries of MFS Limited were:
(a) admitted in the defence of Mr King. The knowledge of Mr King is to be
inferred from his positions as the CEO of MFS, a director of MFS Limited, a
director of MFS Administration from 21 June 2002 to 25 June 2007, a director
of MFSIM from 8 August 2002 to 27 February 2007 together with his
evidence125 including the production of an organogram, showing, among
other things, MFS Limited subsidiaries;126
(b) admitted in the defence of Mr White. The knowledge of Mr White is to be
inferred from his positions as the executive director of MFSIM, a director of
MFS Administration and the deputy CEO of MFS Limited between 23 May
2007 and 21 January 2008; and
(c) admitted in the defence of Mr Anderson. The knowledge of Mr Anderson is
to be inferred from his positions as the company secretary and CFO of
MFSIM, a director and company secretary of MFS Administration and CFO
of MFS Limited, together with his evidence.127
There was no approval given by the members of PIF for the $130 million payment
or the $103 million payment. That is inferred from the fact that there was no
transaction effected, and thus nothing that could have been approved.
[152] The involvement of Mr King arises out of his knowledge pleaded in para 56 of the
statement of claim128 and in particular is to be inferred from the fact that there was no
transaction effected, and thus nothing that could have been approved.
[153] The involvement of Mr White arises out of his knowledge pleaded in para 58 of the
statement of claim and in particular is to be inferred from the fact that there was no
transaction effected, and thus nothing that could have been approved.
[154] The involvement of Mr Anderson arises out of his knowledge pleaded in para 60 of the
statement of claim and in particular is to be inferred from his knowledge that there was
no transaction effected, and thus nothing that could have been approved.
125 At T33-54.
126 ASIC.0029.0041.0003.
127 At T51-36/38 to T51-39/14.
128 When I refer to the “statement of claim” it is the fifth further amended statement of claim and combined
particulars: COURT.0008.0001.0205.
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30
The alleged transactions were not the subject of contemporaneous consideration or
approval
[155] ASIC submitted that the evidence shows that, with respect to the alleged transactions,
there was:
no contemporaneous consideration undertaken;
no reference in the minutes of MFSIM investment management meetings; and
no approval by the board of Directors of MFSIM, the IAC or the CRPC.129
[156] In those circumstances, ASIC submitted that it cannot be the case that the $130 million
payment was in the best interests of PIF’s members. It cannot be in the best interests of
PIF’s members for over $100 million of their funds (held on trust for them by MFSIM130)
to be transferred without certainty about what PIF was receiving in return for it.
[157] It submitted that it was implausible that investments representing about one-sixth of the
total value of the PIF fund, which would be financed with borrowings, would be properly
undertaken without implementation of these procedures and that I should reject the
purported minutes of the PIF IAC dated 23 November 2007131 on the basis that:
the evidence recited below shows that the minute was not documented before late
January 2008; and
Mr Kyling who purportedly attended the meeting, has given evidence that he was
not informed of the meeting and did not attend the meeting.132
No understanding of the consideration for the $130 million payment by MFSIM officers
and employees
[158] ASIC submitted that the officers and employees of MFSIM and MFS Limited
demonstrated no understanding of the consideration for the payment before January 2008
and, despite requests, were not informed about the alleged transactions. This was said to
be demonstrated by the following evidence.
[159] The Monthly Operational Board Report for MFSIM for November 2007, provided by
Mr Hutchings to the board on 28 December 2007, notes nothing about the alleged
transactions but says (emphasis added):
“The Fund drew down $150m from its Royal Bank of Scotland (RBS)
leverage facility on 28th November. This was to facilitate a short term
cash flow mismatch between new commercial loans and investments
due to settle at the end of November and other loans in the Fund which
129 By email at 11:58 am on Friday, 14 December 2007 to Ms Malipaard, Ms Howard attached the related party
register for PIF as at 30 November 2007. The register does not show any investment by PIF in MYF, nor any
participation by PIF in PacFin loans [DEL.2004.0006.0440 attaching DEL.2004.0006.0441].
130 Corporations Act 2001 (Cth) s 601FC(2) discussed in Wellington Capital Ltd v ASIC (2014) 5 CLR 288, 299-
302, 312-313; [2014] HCA 43 at [13]-[16], [46]-[47] and Kern Consulting Group Pty Ltd & Anor v Opus
Capital Ltd [2014] 2 Qd R 379, 386-387; [2014] QCA 111 at [28]-[32].
131 WIM.0002.0004.0137.
132 Statement of Mr Kyling [ASIC.3000.0050.0001], paras 91-92.
-- 44 of 348 --
31
are due to be repaid in December. The facility will be repaid during
January 2008.”133
[160] Immediately after the $130 million payment, on Monday, 3 December 2007, at the
9:00 am MFSIM management team meeting it was noted that “$130m was drawn down
from RBS facility on 29 November, so fund size will spike, for repayment in 3 weeks
time (in DEC 07)”134 (emphasis added).
[161] By email at 10:21 am on Monday, 3 December 2007 to Ms Howard, Ms Watts says “Will
need details on the $130m asap, but as [Mr Hutchings] not in yet, I thought you may have
heard something”.135
[162] At 10:32 am Ms Howard replies attaching the email exchange with respect to MFS
Administration’s bank account details and saying, “This is all our guys got, not much I’m
afraid”.136
[163] By email at 4:53 pm on Wednesday, 5 December 2007 to Ms Watts, Mr Hutchings and
others, Mr Parker attached the November 2007 asset report for PIF and says “you’ll see
the $150 million drawdown is included in the assets but not in the units issued. There
will be more information to come on this…”.137
[164] By email at 10:48 am on Thursday, 6 December 2007 to Ms Watts, Ms Cole,
Mr Hutchings and Ms Howard copying others, Mr Parker attached the completed Asset
and Holdings Report for PIF as at 30 November 2007. It separates the $130 million asset
(row 65, line item 13 under “Asset Backed Investments”) as “Other Loan”. He says
“There will be a little more detail to come on the ‘other loan’ …”.138
[165] By email at 11:49 am on Thursday, 6 December 2007 to Ms Watts, Mr Hutchings and
Ms Malipaard - Mr Parker notes a few changes and says “Yet to be updated on the
$130m”.139
[166] By email at 6:07 pm on Friday, 7 December 2007 to Ms Watts and others, David
Petherick attaches the November accounts for PIF. He notes that, “The weighted average
of return for the Asset backed investments is negatively impacted upon by the result of
no interest being accrued on the 170M of loans that have yet to be classified”.140 The
$130 million paid to MFS Administration appears to have been included in “Alternate
investments” (row 21) of $359,443,537 by comparison with the Alternative investments
of $232,209,219 in the Balance Sheet as of 31 October 2007.141
133 DEL.2021.0001.1141, DEL.2021.0001.1142.
134 DEL.2004.0001.3123.
135 DEL.2009.0002.8536.
136 DEL.2002.0001.2691.
137 DEL.2002.0002.8477 attaching DEL.2002.0002.8478.
138 DEL.2004.0001.5053 attaching DEL.2004.0001.5054.
139 DEL.2008.0004.6696.
140 DEL.2002.0002.3964.
141 DEL.2002.0002.3965, DEL.2009.0003.1687.
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32
[167] By Monday, 10 December 2007 the MFSIM management team do not appear to have
received any information regarding the use of the RBS drawdown. At 8:00 am there was
a meeting of the MFSIM management team.142 After the meeting, by email at 9:32 am,
Ms Watts reported to Mr Chan, Mr Parker and Mr Rundle copying Ms Howard (emphasis
added):
“At our management team meeting this morning we decided that the Nov PIF
accounts prepared by David Petherick last Friday should be considered
‘draft’ as we are still awaiting finalisation of the classification of the
$130m loans and the accrued interest thereon. [Ms Howard] will follow up
with [Mr Anderson] so final accounts can be provided asap.”143
[168] On Tuesday, 11 December 2007, Mr Parker’s belief that the $130 million was a short
term loan to MFS Administration was confirmed by Mr Parker who noted, by email at
11:12 am, that the MFS Administration loan of $130 million was listed under “Possible
assets to mature by 31/12/2007”. At 11:22 am Ms Watts forwarded that email to
Mr Hutchings saying, “We will definitely require some and preferably all of the loans
maturing on by [sic] 31st December to be repaid by that date”.144
[169] The fact that MFS personnel were not aware of the alleged transactions or, indeed, any
sales or assignments of loans to PIF (in whole or in part) is demonstrated by the fact that
on Tuesday, 18 December 2007, at 10:00 am there was a meeting of the MFS Limited
FIC consisting of Mr Cronin, Mr King and Mr Manka. Ms Kercher and Mr Anderson
were also in attendance. In relation to “Financial Matters” the company noted that MFS
had acquired HFA shares in the recent HFA capital raising. Half-year reporting process
was in train. There were no further matters referred to.145
[170] By 18 December 2007, Ms Howard was not aware of the alleged transactions because she
said to Mr White “Give me back my money” and Mr White replied “It’s all right, its all
been sorted. I’ll talk to Mr Hutchings. Don’t worry”.146 She then sent an email at
5:34 pm to Mr Hutchings copying Ms Watts - Ms Howard says “Just had a quick chat to
[Mr White ]. He will talk to you about the $130 on Thursday in your meeting”.147
[171] At 4:00 pm on 19 December 2007 there was scheduled to be a meeting between Mr White
and Mr Hutchings regarding “Updated: $130 structuring”, which had been confirmed by
email at 8:43 am.148
[172] On 28 December 2007, Ms Watts blamed the lack of information about the $130 million
for the delay in producing the December Monthly Investor Report.149 Mr Hutchings
reported to the MFSIM board that the $150 million drawdown was for a short term cash
flow mismatch rather than for the alleged transactions.150
142 DEL.2021.0001.1484.
143 DEL.2002.0002.3934.
144 DEL.2008.0004.5985.
145 BCR.0001.0002.0865.
146 Affidavit of Ms Howard [ASIC.3000.0027.0001] at para 170.
147 DEL.2008.0004.4814; see affidavit of Ms Howard [ASIC.3000.0027.0001] at para 171.
148 DEL.2008.0004.4603.
149 DEL.2009.0002.5842.
150 DEL.2021.0001.1141 attaching DEL.2021.0001.1142.
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33
[173] On 2 January 2008, Ms Watts is still providing to Ms Howard a holdings report showing
the $130 million paid to MFS Administration as “other loans”. By email at 10:45 am to
Ms Watts and Mr Parker, Ms Howard says “Help please, just wondering where can I find
an up to date [holdings report]”; and says she is having a meeting with Mr White and
Mr Hutchings. By email at 11:06 am to Ms Howard and Mr Hutchings, Ms Watts
provides a holdings report for PIF, which shows (at row 66, line item 14 under “Asset
Backed Investments”) the $150 million drawn down from RBS as $130 million in “Other
loans” and $20 million going to cash (see the cell annotation). She says “I have just
added the balance of the loans made through drawing down the RBS facility”.151
[174] From about mid 2007, Luke Gannon and Stephen Cecil were negotiating with banks to
obtain substantial lines of credit. After 30 November 2007, they made the following
attempts to get information for the purposes of making full disclosure to the banks:
[175] By email at 1:35 pm on 19 December 2007 to Mr Anderson copying Mr Cecil,
Mr Gannon says (emphasis added): “As I understand it, PIF has lent MFS $100m
recently. Can you give me the brief terms of this loan viz term, interest rate, security?”
(emphasis added).152
[176] At 1:37 pm Mr Anderson replies to all saying:
“… this is not the case
PIF has not loaned MFS any funds
MFS has transferred to PIF the benefit of certain loans.”153
[177] At 1:49 pm on 19 December 2007 Mr Gannon forwards the emails to Mr Cecil saying,
“From this it would appear that PIF is not a lender to MFS, which is the way you described
it to be the case a couple of weeks ago”.154
[178] By email at 7:41 am on Thursday, 20 December 2007 to Mr Anderson and Mr Gannon,
Mr Cecil responds to Mr Anderson’s email from 1:37 pm the previous day. Mr Cecil
requests a copy of the documentation underlying the transfer of these loans to PIF because
he needs them in his discussion with the Commonwealth Bank of Australia (CBA) and
St George.155
[179] On Monday, 24 December 2007, by email at 11:54 am to Mr Gannon, Mr Cecil advises
that following the withdrawal by St George (the previous day), CBA has asked a series
of questions relating to the sale of the MFS loans that reduced the Fortress loan by $100
million.156
151 DEL.2009.0002.5672 attaching DEL.2009.0002.5674.
152 DEL.0040.0001.0374 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 62) (emphasis added).
153 DEL.2004.0007.7914 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 64) (emphasis added).
Mr Anderson was cross-examined by ASIC about this email, starting at T49-87/5 and I refer to that later.
154 DEL.2004.0007.7914 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 65).
155 DEL.0040.0001.0374 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 66).
156 DEL.0040.0001.0365 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 73).
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34
[180] At 1:28 pm on 27 December Mr Cecil acknowledges receipt of the documentation
extending the Fortress facility but says he is still awaiting details of the $100 million
worth of loans sold to PIF:
“Could you please advise the status of this information request? If you do not
have access to this information could you please direct me to the person who
does have this documentation.”157
[181] At 1:41 pm on 27 December Mr Anderson replies to Mr Cecil saying that:
“Sorry I don’t understand
As I mentioned to you shortly after you joined MFS assets at the lower level
within MFS companies often move - the transactions you speak of are just
some of many.”
Mr Anderson adds that he does not understand why these transactions need to be the
subject of discussion with CBA and others.158
[182] At 1:57 pm on 27 December Mr Cecil replies to Mr Anderson explaining why he needs
the information.159
[183] By email at 12:07 pm on Thursday, 3 January 2007 to Mr Gannon, Mr Cecil says
(emphasis added):
“Further to our discussion regarding the sale of a $100mill loan to reduce
the Fortress debt, I have been seeking information regarding the details of
the sale. … I have asked David Anderson for information and have been
unsuccessful in my endeavours.”
Mr Cecil asks to be directed to the appropriate source to answer specific questions for the
purposes of providing information to the banks.160
[184] By email at 2:09 pm on Thursday, 3 January 2007 to the banks, Mr Cecil provides certain
information but he says he is “awaiting the return of staff from leave to provide the
outstanding information” requested by the banks about the sale of loans with the RBS
funds referred to in the email at 4:58 pm on 21 December 2007.161
[185] By email at 6:54 pm on Friday, 4 January 2007 to Mr Gannon, Mr Cecil sends his list of
current issues which includes: “I am having difficulty obtaining information from David
Anderson (see my emails that were copied to you on 20/12/07 and 27/12/07) regarding
the sale by MFS of loans which facilitated a repayment of $100 mill to Fortress”.162
157 DEL.2004.0007.7867 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 67).
158 DEL.2004.0007.7867 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 68).
159 DEL.2004.0007.7867 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 69).
160 DEL.0040.0001.0381 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 75).
161 DEL.2004.0007.9669 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 74).
162 DEL.0040.0001.0382 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 76).
-- 48 of 348 --
35
[186] By email at 2:34 pm on Monday, 14 January 2007 to Mr Anderson, Mr Baker on behalf
of Mr Gannon asks Mr Anderson whether he has the details of what assets were
sold/income earned to fund the $100 million paydown of Fortress. Also “RBS questions
outstanding - [Mr Cecil] to send me details so I can work on them”. He also notes the
“OK” of an action plan from a recent meeting with Mr King. The subject of the email is
“Conference call re bank refinancing...”, which is the same subject as the previous email
arranging a meeting between Mr Gannon, Mr King, Mr Anderson, Mr Cecil and
Mr Baker at 2:00 pm EST.163
[187] At 6:06 pm Mr Anderson replies to Mr Gannon, Mr Baker, and Mr Cecil copying Lyndie
Easton regarding “Funding of $100m for Fortress”. He states in summary that MYF
acquired about $100 million in loans from MFS Limited subsidiaries and PacFin; and as
PacFin owed substantial funds to MFS Administration, MYF paid the purchase money
for the loans to MFS Limited in repayment of PacFin’s debt. He said the loan assets
included three specified investments.164
[188] By email at 8:57 am on Wednesday, 16 January 2007 to Mr Anderson, Mr Cecil thanks
Mr Anderson for that email and asks for “30 minutes this morning to discuss”. At
10:11 am Mr Anderson replies saying:
“Yes if needed
Best to come around and I will see what I can do at that time!”165
The alleged transactions were not formulated until about mid-January and not
documented until late January/early February 2008
[189] ASIC’s submission was that by Thursday, 3 January 2008, there is evidence of the first
attempt to formulate retrospectively a transaction that could justify the $130 million
payment. This first formulation is that $130 million was drawn down to provide a loan
to MYF which would then undertake certain transactions. This is inconsistent with both
the alleged transactions, as ultimately formulated, and the fact that contemporaneous
MYF-related documents show that no such proposal was being considered.
[190] This first formulation is by an email at 1:57 pm from Ms Howard to Ms Watts copying
Mr Hutchings.166 It attaches a draft request to the PIF IAC and the MYF IAC, each dated
30 November 2007. The draft purported proposal was that PIF would enter “into a
commercial leverage facility with MFS Max Yield Fund and … may elect to call on its
Royal Bank of Scotland facility in order to undertake this transaction”.167 The proposal
to the MYF IAC was that, “The fund has available funds of $130 million via its leverage
facility with MFS Premium Income Fund. Max Yield is now able to undertake a number
of commercial transactions”.168
163 DEL.2004.0007.7377.
164 DEL.2004.0007.7377 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 80)
165 DEL.2004.0007.9662 (see affidavit of Mr Cecil [ASIC.3000.0004.0001] at para 81).
166 DEL.2004.0001.4928 (see affidavit of Ms Howard [ASIC.3000.0027.0001] at para 195).
167 DEL.2004.0001.4935 (see affidavit of Ms Howard [ASIC.3000.0027.0001] at para 195).
168 DEL.2004.0001.4929 (see affidavit of Ms Howard [ASIC.3000.0027.0001] at para 195).
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36
[191] At 2:06 pm Ms Watts replies saying that she was giving the papers “a good butchering”
and would get back by close of business.169 By email at 2:57 pm EST to Ms Watts and
Ms Howard, Mr Hutchings attaches an amended draft request for approval to the MYF
IAC dated 30 November 2007.170 At 3:50 pm Ms Watts replies to Mr Hutchings and
Ms Howard thanking Mr Hutchings for his comments on Ms Howard’s paper. She
attaches her own unfinished version and suggests a “slightly different tack”.171
[192] On Friday, 4 January 2008 at 9:00 am there was a meeting between Ms Howard,
Ms Watts, and Mr Hutchings by telephone.172 Presumably this meeting provided
information regarding the financials because at 10:54 am Ms Howard sends an email to
Ms James saying “I have an answer on the $17.5, so pop in when you are ready”.173 This
is a follow up to the following email exchange between Ms Howard and Ms James:
Email 28 December 2007 at 10:48 am from Ms Howard to Ms James, “Yesterday
$17.5 was paid to MFS Pacific. Details of the transaction will be coming from
[Mr Hutchings] and [Mr White] shortly”.
Email 3 January 2008 from Ms James to Ms Howard at 12:02 pm, “Do we have the
details on this yet?”.
Email 3 January 2008 from Ms Howard to Ms James at 12:02 pm, Ms Howard
replies “nope - afraid not. will chase [Mr Hutchings/Mr White]:)”.174
[193] On 4 January 2008 at 11:06 am Mr Hutchings sends an email to Ms Watts and
Ms Howard attaching a draft asset list of PIF which shows:
a $75 million loan to MYF (tab “All Assets Current”, row 72, line item 14 under
“Asset Backed Investments”); and
“Other Loans” $125 million (row 73) with details “TBA C Mr White”.175
[194] However, Ms Watts replies by email identifying the problem that, “If we put all $200m
in ASB, we go over 40 per cent limit; Would prefer ASB’s MYF exposure be $147.5m,
and balance of $52.5m to go to cash sector (liquid callable deposit with MFSA?)”.176
[195] On 4 January 2008 at 11:52 am Ms Howard sends an email to Ms Watts and
Mr Hutchings attaching the further draft MYF IAC paper dated 30 November 2007 which
purports to record that “The Fund has entered into a leverage facility with MFS Premium
Income Fund which gives it the funding to enter into a number of commercial
transactions”, a suggestion not ultimately proceeded with.177
169 DEL.2004.0001.4918.
170 DEL.2008.0004.2623 attaching DEL.2008.0004.2624.
171 DEL.0025.0001.0042 attaching DEL.0025.0001.0043. Also in evidence as DEL.2004.0001.4909 attaching
DEL.2004.0001.4910.
172 DEL.2005.0001.9017, DEL.2005.0001.9020.
173 DEL.2005.0004.1247. Ms Watts has no recollection of any discussions from around this time: see affidavit of
Ms Watts [AFF.MAW.0002] at para 134; see also T52-55/8-9.
174 DEL.2005.0004.1259.
175 DEL.2008.0004.2499 attaching DEL.2008.0004.2500.
176 DEL.2008.0004.2496.
177 DEL.0025.0001.0082 attaching DEL.0025.0001.0083.
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37
[196] On 4 January 2008 at 11:55 am the idea that PIF might acquire MYF units is first raised
in an email from Ms Watts, which attaches Mr Parker’s version of PIF’s holding report
as at 31 December. The holding report notes “Maximum Yield Fund units???
$130,000,000” and “Other Loans $17,500,000” still to be confirmed by Mr White (tab
“All Assets Current”, rows 66-67, line items 14-15 under “Asset Backed
Investments”).178
[197] This suggestion of acquisition of units does not appear to have been shared with
Ms Howard because two minutes later she sends an email to Ms James and Mr Parker
saying that PIF has a revolving credit facility in place with MYF. She says (emphasis
added):
“Just to let you all know, what info has come to hand so you can finalise
asset reports/holding reports and accounts. PIF now has a revolving credit
facility to MFS max yield fund. Value of $150m. 3 month term. 12% low
rate plus exit fee. held in asset backed sector of PIF. … If you could amend
any reports and reissue for November would be appreciated. Have a chat
with [Ms Watts] or myself if you need any further details.”179
[198] However, the inconsistency appears to have been recognised by her because at 2:14 pm
she sends another email to Ms James and Mr Parker asking them to disregard her previous
email advising: “More advices coming shortly”.180
[199] On 4 January 2008 at 12:23 pm Ms Watts sends to Mr Hutchings and Ms Howard a
second draft of a PIF IAC paper on PIF providing a leverage facility to MYF “for your
review”. She notes, “We need to check the extent of the breach of the 20% related parties
rule”. Mr Hutchings replies asking when the completed paper can be run past Mr Corolis
in Compliance.181
[200] At 12:30 pm on 4 January 2008 Ms Howard emails Ms Watts, “Draft related party
register for PIF for December. some values may change as holding report finalises. looks
like we should say push up to 30% to give us room”.182
[201] At 12:49 pm on 4 January 2008 Ms Howard sends to Ms Watts a further draft amended
PIF IAC paper dated 30 November 2007 in relation to an investment into MYF.183
Ms Howard’s further draft paper states that PIF will call upon the RBS facility for the
purpose of entering into a commercial leverage facility with MYF, which will provide
PIF with the flexibility to hold either a debt or equity position in MYF. It states “This
proposal assumes that in early December 2007 the IAC will approve a proposal to
commence the reorganisation of the Maximum Yield Fund with existing assets to be
invested on a short term basis.”
178 DEL.2008.0004.2490 attaching DEL.2008.0004.2491.
179 DEL.2004.0006.0024.
180 DEL.2004.0006.0022.
181 DEL.2004.0001.4888.
182 DEL.2005.0001.9008.
183 DEL.2004.0001.4880 attaching DEL.2004.0001.4881.
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38
[202] At 12:58 pm on 4 January 2008 Ms Howard sends an amended PIF related party
document to Ms Watts noting that the related party transactions will be 24 per cent. She
asks Ms Watts to amend the IAC paper accordingly.184
[203] On 4 January 2008 by email at 2:33 pm to Mr Hutchings and Ms Howard, Ms Watts
attaches “Latest simpler version of IAC paper” and says “Now working on board
paper”.185 The attached paper proposes PIF would “invest in a loan to XXXXXXXX
XXXX to the value of $147.5 million”. It notes that:
PIF would call on its RBS facility to undertake the transactions and proposes a yield
of 12 per cent per annum; and
as the size of this proposed loan is greater than $50 million, MFSIM board approval
is required.
[204] At 3:07 pm on 4 January 2008 Ms Watts sends a further email to Mr Hutchings and
Ms Howard attaching a draft PIF IAC paper dated 28 November 2007 plus the board
proposal dated 28 November 2007. She says she has changed the date from 30 November
to 28 November so it is consistent with the drawdown date of the RBS facility.186 These
draft papers do not refer to a loan/unit with MYF, which appears to be the result of a
concern about the related party provisions because at 3:57 pm Ms Watts sends an email
to Ms Howard stating, “Looks like we are now comfortably under the 20% now that the
MYF units/loan is gone!”.187
[205] On 4 January 2008 by email at 4:22 pm to Mr Hutchings and Ms Howard, Ms Watts
attaches the PIF IAC paper and the board proposal with a few corrections to typos and
says, “I have advised [Mr White] he will not be getting anything to read in hard copy
from us today for his flight home tonight”.188
[206] By email at 6:11 pm to Mr Parker, Ms James attaches “very draft” PIF trial balance which
shows the RBS-sourced investments as “ALTN - Investments - Other
$147,865,349.71”.189
[207] On Monday, 7 January 2008 there was a meeting of MFSIM investment management
committee consisting of Mr Parker, Ms Watts, Mr Chan and Mr Rundle. Mr Hutchings
was an apology. The minutes record that the documentation for the MYF revolving line
of credit “is almost bedded down”. It notes “$200m facility has been fully invested.
$150m lent at 12%”. Mr King has directed that no new investments transactions will be
settled before the end of January.190
[208] By email at 7:52 am on Monday, 7 January 2008 to Mr White copying Ms Watts and
Ms Howard, Mr Hutchings attaches a draft PIF IAC paper:
184 DEL.2005.0001.9006 attaching DEL.2005.0001.9007.
185 DEL.2004.0001.4876 attaching DEL.2004.0001.4877.
186 DEL.2004.0001.4870 attaching DEL.2004.0001.4871, DEL.2004.0001.4873.
187 DEL.2004.0001.4869.
188 DEL.0025.0001.0140 attaching DEL.0025.0001.0141, DEL.0025.0001.0144.
189 DEL.2005.0004.1209 attaching DEL.2005.0004.1210. The relevant amount is on p 1211 of
DEL.2005.0004.1210.
190 DEL.2002.0008.2055.
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39
“in relation to the first step for PIF to replace $130m currently maturing asset
backed investments with $147.5m asset backed investments utilising the
RBS facility.
We are also assessing the opportunity for the assets to be transitioned to the
Max Yield fund as part of its relaunch as step 2.”191
[209] The attached draft IAC memo purportedly dated 28 November 2007 states, “The purpose
of this paper is to seek approval for a proposal to invest in the following loan assets with
a combined value of $147.5 million” with the identity of the loan assets not completed -
left blank.192
[210] At 8:00 am on Monday, 7 January 2008 there was a MFSIM management team meeting
consisting of Ms Cole, Mr Hart, Ms Howard, Mr Hutchings, Ms Molesworth and
Ms Watts. There is still no reference to the alleged transactions or any proposed PIF
acquisition.193 The minutes still refer to the MYF restructure to be relaunched on 30
March 2008, which was genuinely circulated for approval of the IAC on 6 December
2007.194
[211] By email at 10:26 am on Monday, 7 January 2008 to Ms James copying Ms Bennett and
Ms Howard, Mr Parker asks whether the MYF revolving line of credit will be
administered by Homer (the software used to administer loans) and Loan
Administration.195
[212] By email at 9:52 am on Tuesday, 8 January 2008 to Ms Howard, Ms Malipaard says that
she noticed, in the related party register for November, the $130 million is listed as units
in MYF and asks whether that is correct. At 10:06 am Ms Howard replies saying it is
wrong and it will have to come out; and that the same change will have to be made to the
MYF register. At 10:21 am Ms Malipaard replies asking “Does the $130 million need to
go on the related party register at all?? If so - do I just call it MFS A loan?” At 10:48 am
Ms Howard replies saying “We still don’t have a definitive on what it is so we just need
to remove. :)”.196
[213] By email at 10:49 am on Tuesday, 8 January 2008 to Ms Howard copying Ms Bennett,
Ms Watts says she has heard nothing about the draft IAC paper and board paper relating
to the PIF investment since Mr Hutchings sent it to Mr White on 7 January at 7:52 am.197
[214] By email at 3:48 pm on Friday, 11 January 2008 to Ms Watts copying Ms Bennett,
Ms Howard replies to Ms Watts’ email of 9 January at 10:49 am saying Mr Hutchings
said yesterday that “we should know by today” about the draft PIF IAC paper; and asking
whether they had heard anything. She says she has to get the audit packs out on
191 DEL.2004.0001.4836.
192 DEL.2004.0001.4837.
193 DEL.2005.0001.8807.
194 DEL.2004.0001.3137 (see statement of Mr Kyling [ASIC.3000.0050.0001] at paras 76-79, affidavit of
Mr Kennedy [ASIC.3000.0018.0001] at paras 98-105).
195 DEL.2005.0004.1196.
196 DEL.2004.0006.0013.
197 DEL.2004.0001.4841.
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40
Monday.198 At 3:52 pm, Ms Watts says she hasn’t heard anything and suggests ringing
Mr White.199
[215] By email at 4:38 pm on Friday, 11 January 2008 to Ms Cole and Ms Howard copying
Ms Molesworth, Ms Watts attached her handwritten comments to the draft MFSIM
scheme report for PIF. The handwritten note includes that PIF drew down the $200
million from RBS to fund new loans ahead of impending maturity of other loans and that
RBS would be repaid by the end of January.200
[216] On Sunday, 13 January 2008 at 7:00 am there was a meeting of the MFS Limited board
of directors including Mr King with Mr Anderson and Mr White as invitees. There was
no reference to PIF drawing down the RBS loan, substantial repayments by Sunleisure
and PacFin or the alleged transactions.201
[217] By email at 8:00 am on Monday, 14 January 2008 there was a meeting of the MFSIM
management team consisting of Ms Cole, Mr Hart, Ms Howard, Ms Molesworth and
Ms Watts. Mr Hutchings was an apology. Ms Watts reported (emphasis added): “No
new investments of any significance. Still drawn down by $200m (expecting repayment
by end of month, however still to be confirmed)”.202
[218] By email at 3:59 pm on Monday, 14 January 2008 to Mr Hutchings copying Ms Watts,
Ms Howard attached the email from Mr Hutchings of 7 January, which attached the draft
PIF IAC paper dated 28 November 2007 and asks “any word on below from [Mr White].
Just wanting to finalise accounts as auditors are wanting files before they arrive next
week”.203
[219] By email at 8:30 am on Tuesday, 15 January 2008 to Mr Hutchings, Mr White responds
to Mr Hutchings email of 8:18 pm on the previous day regarding “draft PIF IAC paper”.
He says:
“Looks pretty good
Doesn’t really sell to IAC the return and portfilio [sic] return up side as much
as could though.”204
[220] At 9:41 am EST Mr Hutchings replies to Mr White saying, “Need your assistance with
paragraph 1 in red attached”. The attachment highlights the blank details of loans.205
[221] At 6:07 pm Mr White forwards Mr Hutchings’ email on to Mr Anderson saying
(emphasis added):
“Need your creative brain…
198 DEL.2004.0001.4831.
199 DEL.2004.0001.4825.
200 DEL.2004.0001.2843 attaching DEL.2004.0001.2844.
201 OCA.0030.0003.0023.
202 DEL.2008.0004.1231.
203 DEL.2004.0001.4819 attaching DEL.2004.0001.4821.
204 DEL.2006.0003.5974.
205 DEL.2006.0003.5496 attaching DEL.2006.0003.5498.
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41
Basivally [sic] I am sure you can work out what the $147.5m went to
I want to allocate as $30m against Q Deck + $100m against the PAC loan +
??? $12.5m to get this allocated.
also need names that deal with these assets/loans …”206
[222] The email is inconsistent with there being any settled transactions involving the $130
million payment, and is inconsistent with the alleged transactions.
[223] By email at 12:27 pm on Wednesday, 16 January 2008 EST to Ms Watts, Ms James says,
“I never heard anything back from [Ms Howard] last night regarding the $147,500,000
issue. Have you heard anything further?”207
[224] At 1:00 pm Ms Watts replies to Ms James, copying Mr Chan and Mr Hutchings, saying:
“I spoke to [Mr White] yesterday regarding the further detail requested by
[Ms Howard]. He did not have it with him but is well aware of it being
needed for the audit process. I will try again this afternoon. It might be
worth having a chat with [Mr Hutchings]…”208
[225] By email at 8:45 am on Thursday, 17 January 2008 to Ms Watts and Ms Howard, Ms Cole
says “Here is what I propose to send to [Mr Hutchings]” and attached the draft product
proposal for the relaunch of MYF with a March 2008 launch date, which records the
Current Assets of the MYF Fund as being Golden Circle Note Trust.209
[226] By email at 9:57 am on Friday, 18 January 2008 to Mr Hutchings regarding “Any news
on the $17.5m?”, Ms James says “Have you heard anything yet?”210
[227] At 1:03 pm on 18 January 2008, Ms James sends a further email to Mr Hutchings
regarding “Loan balances” saying “I understand that everyone is busy today. But I really
need an answer by COB today as I have auditors coming in first thing Monday and they
will need to see accounts...”.211 By email at 2:00 pm to Mr Anderson copying Mr White,
Mr Hutchings attaches Ms James’ email at 1:03 pm and says “Genuinely appreciate we
are all under the pump but this is important on a number of fronts - please see below
[Ms James email]”.212
[228] At 3:26 pm on Friday, 18 January 2008 Ms James sends a further email to Mr Anderson
and adds a copying to Mr White and Mr Hutchings regarding loan balances. She says:
“I have just been on the phone to [Mr Hutchings] regarding the $147.5 million
I still have sitting in PIF’s accounts with no allocation against it. As I am
206 DEL.2006.0002.4355 attaching DEL.2006.0002.4358. I shall refer to this email later as the “creative brain”
email.
207 DEL.2002.0002.3507.
208 DEL.2002.0002.3507.
209 DEL.2004.0001.4801 attaching DEL.2004.0001.4802.
210 DEL.2005.0004.1013 (see affidavit of Ms James [ASIC.3000.0026.0001] at paras 72, 74).
211 DEL.2005.0004.1013 (see affidavit of Ms James [ASIC.3000.0026.0001] at paras 73, 74).
212 DEL.2006.0003.4552.
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42
sure you are aware, I have auditors arriving at 9am on Monday morning and
this will need to be addressed before then.213
[229] The responses to this email are made on Sunday, 20 January as follows:214
[230] At 10:55 am EST (11:55 am) Ms James sends a further email to Mr Hutchings and
Ms Watts regarding loan balances - URGENT. “I still have not had any response from
[Mr Anderson] or [Mr White] regarding the $147.5m”. She says she understands it is to
be split between three investments and, in the absence of any other information, proposes
a split without allocating a name to the lines as yet.215
[231] At 11:29 am Ms Watts replies to Ms James copying Mr Hutchings and agrees with the
treatment Ms James recommended. “I still have no details from [Mr White] that I can
give you, I’m sorry”.216
[232] At 11:31 am Ms James replies to Ms Watts saying she will send the balance sheet, profit
and loss and trial balance shortly for her to look at.217
[233] By email at 11:46 am on Sunday, 20 January 2008 to Mr White copying Mr Anderson,
regarding “Loan balances - URGENT”, Mr Hutchings forwards the email from Ms James
at 10:55 am on 20 January.218
[234] At 11:57 am Mr Anderson replies to Mr Hutchings saying he was going to ring the
auditors and tell them that they needed to delay their arrival by a day.219
[235] By email at 12:06 pm on Sunday, 20 January 2008 to Ms Watts copying Mr Hutchings,
Ms James advises that Mr Anderson had phoned and said he would phone the auditors.
She attaches the accounts completed as suggested in her email at 11:55 am on 20 January
(see para [230] above) and says she has charged 12 per cent on the three loan facilities.
She adds, “we do need to have the details ASAP from [Mr Anderson/Mr White] as we
don’t want to end up with a qualified audit report or Compliance breaches”.220
[236] At 12:10 pm Ms Watts replies copying Mr Hutchings thanking Ms James for her work.221
[237] By email at 12:17 pm on Sunday, 20 January 2008 to Mr Hutchings copying Ms James
and Mr White, Mr Anderson says he had spoken to Brett Delaney of PwC and he agrees
213 DEL.2005.0004.1013 (see affidavit of Ms James [ASIC.3000.0026.0001] at para 75).
214 DEL.2005.0004.1013.
215 See affidavit of Ms James [ASIC.3000.0026.0001] at paras 76-77.
216 See affidavit of Ms James [ASIC.3000.0026.0001] at para 78.
217 See affidavit of Ms James [ASIC.3000.0026.0001] at para 79.
218 DEL.2007.0003.1724.
219 DEL.2007.0003.1724.
220 DEL.2005.0004.1005 attaching DEL.2005.0004.1009, DEL.2005.0004.1012.
221 DEL.2005.0004.1001.
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43
to wait until Tuesday to start the half-year review.222 Mr Anderson admits making this
call.223
[238] By email at 11:26 pm on Monday, 21 January 2008 to Mr Hutchings copying Ms Platts,
Mr Bailey of RBS requests a list of all assets by current value, maturity date and asset
class, which he required because of “recent press coverage and announcements within the
MFS Group”.224
[239] At 11:55 am Mr Hutchings forwards the email to Mr White and Mr Anderson, saying
“This will also need urgent attention and I will need your assistance”.225 At 1:55 pm
Ms Platts forwards Mr Bailey’s email to Mr Parker and requests a list of assets in PIF.226
[240] By an email at 5:13 pm on Monday, 21 January 2008 to Mr White copying Mr Anderson
and Ms Kercher, Mr Hutchings says “I have just received some information which I
regard with very serious concern and which I believe requires our urgent attention”. He
proceeds to say that contrary to indications he now has been told that the $200 million
drawn down was not used to purchase assets to replace a similar amount of facilities that
are maturing in the next month or so.227
[241] By email at 10:12 pm on Monday, 21 January 2008 Mr Anderson emails Mr White
regarding “Keep it up superstar” and tells him that he needs to talk to Mr Hutchings “but
it could be the bomb that needs diffusing [sic]. Need (I think) to focus on what is best for
the PIF investors in getting all the loans back in that deal etc”.228
[242] At 10:19 pm Mr White replies to Mr Anderson saying “Tomorrow you and I need to have
a pretty frank conversation”; and he (Mr White) has a plan.229
[243] By email at 7:53 pm on Monday, 21 January 2008 to Mr White, Mr Hutchings thanks
Mr White for the call earlier in relation to “today’s issues”.230
The final formulation of the alleged transactions
[244] ASIC submitted that, following the conversation with Mr White, Mr Hutchings requested
Mr Parker to provide him with the current holdings report - which Mr Parker did by email
at 12:45 pm on Tuesday, 22 January 2008 to Mr Hutchings regarding RBS report stating
“As requested”. The attached holdings report for PIF still has an entry with the
description (row 63, line item 14 under “Asset Backed Investment”) “Loans
$147,946,438.36” for maturity on 31 January 2008.231
222 DEL.2007.0003.1612.
223 T47-37/1-11, T48-16/40, T50-90/39-41, T50-91/9-15, T51-5/4-5.
224 DEL.0049.0001.0001.
225 DEL.0025.0001.0606.
226 DEL.0049.0001.0001.
227 DEL.0025.0001.0624. I shall refer to this email later as the “escalation” email.
228 DEL.2006.0003.3330. This email is referred to frequently later also by reference to the “bomb that needs
diffusing”.
229 DEL.2006.0003.3330.
230 DEL.2006.0003.3347.
231 DEL.2008.0004.0122 attaching DEL.2008.0004.0123.
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44
[245] However, by email at 1:17 pm on Tuesday, 22 January 2008 to Ms Watts and Mr Parker,
Mr Hutchings attached a PIF Holdings report as at 22 January 2008. The report replaces
the loan of $147,946,438.36 with four new assets described simply as “New Loans”
totalling the same figure being (rows 65-67, line items 13-15 under “Asset Backed
Investment” and row 38, line item 33 under “Complying Loans”).232
[246] On the same day by email at 2:58 pm to Ms Platts copying Ms Watts and Mr Hutchings,
Mr Parker attaches Maturity Breakdown, PIF Holdings Report January 2008 and Profile
of Investors “to answer the RBS queries stated in the email you forwarded me from RBS”.
The PIF Holdings Report had shown the same asset entries as the attachment to the
previous email including the “New Loans”.233
[247] By email at 7:06 am EST to Mr Hutchings regarding “Heads Up”, Ms Platts says that she
did not get to speak to Mr White about the information “we are after for the RBS … So
can you please chase up from your end again”. By email at 7:10 am to Ms Platts copying
Mr White and Mr Anderson, Mr Hutchings replies stating “Will do. Just spoke to David
Anderson and he is confident of way forward”.234
[248] By email at 8:06 am on Wednesday, 23 January 2008 to Mr White, Mr Anderson attaches
a simple list of six loans totalling $105 million “as requested”.235 However by 8:27 am
he emails to Mr White a list of 10 loans totalling $147,511,950, which for the first time
includes nine of the investments, which are ultimately included as the alleged
transactions:236
Investment List amount Final Alleged Transaction
MFS Bluesky $30 million $45.1 million
GIPL $10 million $9.9 million
MFS Rap $5 million $4.883 million237
Young Village Estates $15 million $23.683 million
MFS Sagacious $5.5 million $5.174 million238
Copperfield $17.63 million $10 million
Investment Enterprises $12.5 million $10.1 million
Southport Holdings $20 million $11.057 million
Qdeck $30 million N/A
232 DEL.2008.0004.0112 attaching DEL.2008.0004.0113.
233 DEL.2005.0006.4516 attaching DEL.2005.0006.4518.
234 DEL.1100.0004.1372, which is also in evidence as DEL.1300.0004.4242.
235 DEL.0006.0001.0161 attaching DEL.0006.0001.0162.
236 DEL.0006.0001.0169 attaching DEL.0006.0001.0170.
237 Not in the 30/11/07 version but included 31/12/07 version
238 Only in the 30/11/07 version but removed from 31/12/07 version
-- 58 of 348 --
45
Kiwi International $1.88 million N/A
[249] By email at 8:32 am on Wednesday, 23 January 2008 EST to Mr Hutchings and Ms Platts
regarding “Listing of Loans (2).xls”, Mr White attaches a listing of loans and says:
“sorry for the delay
this is the Max Yeild [sic] portfolio of high return MFS sub loans.”239
[250] The loans totalled a slightly different sum - $147,946,438 - but the significant difference
is the removal of Kiwi International.
[251] By email at 10:19 am to Ms Platts, Mr Anderson attaches the list of 10 loans totalling
$147,511,950 noting, “as discussed”.240
[252] By email at 10:30 am on Wednesday, 23 January 2008 to Ms Kercher copying Ms Watts,
Mr Hutchings forwarded on Mr White’s email at 8:32 am EST with the attached “Listing
of Loans (2).xls” document. He asked Ms Kercher to provide Ms Watts with information
as a matter of urgency about the ownership structure and whether they are related party
transactions.241
[253] At 12:00 pm on Wednesday, 23 January 2008 there was a meeting of the board of
Directors of MFSIM which consisted of Mr Whateley, Mr White, Mr Hutchings,
Mr Diamond and Mr Beale. Ms Kercher, Ms Watts, Mr Corolis and Mr Skepper were
invitees. The board papers make no mention of the alleged transactions and state that “It
is expected that most, if not all, of the $200m drawn down from RBS will be repaid by
the end of January 2008”.242
[254] By email at 2:28 pm on Wednesday, 23 January 2008 to Mr White and Mr Anderson,
Ms Platts attached a new PIF asset report as at 22 January 2008. This spreadsheet
incorporates the loans totalling $147,946,438 precisely as they were in Mr White’s list
sent through at 8:32 am (except Qdeck $30 million becomes MYF Fund No 1 $30 million)
as Asset Backed Investments or Property Managed Investment Schemes. The email states
“Need to provide to RBS this afternoon” and she says she “discussed with [Ms Watts]
from MFSIM - so I have them on board”. The assets totalling $147,946,438 are
highlighted.243
[255] By email at 3:17 pm on Wednesday, 23 January 2008 to Ms Platts copying Mr Hutchings
regarding PIF asset reports, Mr White forwards Ms Platts the same PIF asset report as at
22 January 2008 as in the email at 2:28 pm and asks her to get it to Mr Hutchings.244
239 DEL.2004.0006.8010 attaching DEL.2004.0006.8011. This will be referred to later as the “listing of loans”
email.
240 DEL.2005.0006.4514 attaching DEL.2005.0006.4515.
241 DEL.0006.0001.0001 attaching DEL.0006.0001.0002.
242 WIM.0004.0001.0031, p 0047.
243 DEL.2004.0006.8004 attaching DEL.2004.0006.8005.
244 DEL.2004.0006.8002 attaching DEL.2004.0006.8003.
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46
[256] By email at 3:49 pm on Wednesday, 23 January 2008 to Ms Watts, Ms Platts attaches the
same PIF asset report as at 22 January 2008 and asks Ms Watts to call. The subject of the
email is “Final Version”.245
The creation of the alleged transactions
[257] By email at 5:11 pm on Wednesday, 23 January 2008 to Ms Platts regarding “Sample
IAC paper”, Ms Watts attached an example of a format for an IAC paper as discussed
“Many, many, many, many thanks”.246
[258] In the morning on Thursday, 24 January 2008 there is a meeting in Mr White’s office on
the Gold Coast between Mr White and Mr Anderson and Mr Stride. Mr Stride is directed
to prepare documentation in relation to the transactions, which were explained.247
Mr Anderson gives evidence of such a meeting.248
[259] By email at 12:35 pm on Thursday, 24 January 2008 to Ms Platts, Ms Watts replies to
Ms Platts’ email at 3:59 pm the previous day attaching the same PIF asset report as at 22
January 2008 and asking her to add two columns to the list with details as to security
behind each loan and the industry of the borrower.249
[260] By email at 7:32 am on 25 January 2008 to Mr Hutchings, copying Ms Watts, Ms Kercher
responds to Mr Hutchings’ email of 23 January at 10:30 am stating: “A number of the
entities noted are MFS associate entities, therefore prima facie will need to be considered
by the RPC”.250
[261] By email at 7:40 am on Saturday, 26 January 2008 Mr Hutchings replies to Ms Kercher’s
email of 7:32 pm the night before copying Ms Watts, Mr White and Ms Platts regarding
“Urgent:- Listing of Loans (2).xls”. He says Mr White has asked for ratification of the
investments by the IAC and CRPC and that Ms Platts is assisting with the drafting of IAC
and CRPC papers. He requests that Ms Platts be provided with details of the ownership
structure of the assets. At 10:12 am Ms Kercher replies to all stating that Ms Platts has
that information.251
[262] By email at 7:44 am on Saturday, 26 January 2008 regarding “IAC” to Mr White copying
Mr Kennedy, Ms Kercher and Ms Platts, Mr Hutchings says he proposes that the papers
for consideration/ratification be considered by circular as soon as possible.252
245 DEL.2004.0006.7985 attaching DEL.2004.0006.7986.
246 DEL.2005.0001.9925 attaching DEL.2005.0001.9926.
247 See Mr Stride’s s 19 examination [S19.0019.0001.0001] at pp 18-26. The relevant statements have been
tendered under s 79 of the ASIC Act [COURT.0020.0001.0004].
248 T47-59/13 to T47-63/8, T50-60/36 to T50-61/13, T50-63/1-38.
249 DEL.2009.0002.3845 attaching DEL.2009.0002.3846.
250 DEL.2004.0007.0912.
251 DEL.2005.0001.9913.
252 DEL.2005.0001.9915.
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47
[263] By email at 2:12 pm on Saturday, 26 January 2008 to Ms Platts, Ms Watts attaches the
6 December 2007 IAC paper in relation to the MYF Proposed Restructure and interim
investment of $2.1 million for 3 months.253
[264] By email at 5:28 pm on Saturday, 26 January 2008 to Mr Bailey copying Ms Platts and
Ms Watts, Mr Hutchings says he will provide material including “List of assets acquired
using the RBS facility ie sources and uses of funds - Monday”.254 (On Monday, 28
January Mr Hutchings sends a further email to Mr Bailey copying Ms Platts and
Ms Watts providing the information foreshadowed in the previous email except for the
list of assets acquired using the RBS facility.255)
[265] By email at 11:09 am on Sunday, 27 January 2008 to Ms Platts, Mr Hutchings attaches
the proposed paper regarding restructuring and relaunching MYF that Ms Cole had sent
on 19 January at 6:27 pm.256
[266] By email at 2:15 pm on Sunday, 27 January 2008 to Ms Watts and Mr Hutchings,
Ms Platts attaches “the final version of the split of investments in relation to funds out of
PIF on 30 November and 27 December” together with “the relevant IAC papers for your
review, documentation matches to outflows”.257
[267] The papers involve a further related party submission which has to be drafted “by splitting
the investments as per the attached IAC papers we are within all Asset Allocation
Thresholds and Related Party 20% Threshold”. She suggests that the MFS Sagacious
listing be replaced with the MFS RAP investment. She says that she is happy to review
the final asset listings which Ms Watts would like to provide to RBS. Attached are
purported drafts of IAC submission dated 28 November 2007 seeking approval of a loan
participation agreement with PacFin for $62.5 million; listing of loans as at 30 November
and IAC submission dated 10 December 2007 for PIF to buy 85 million units in MYF.
[268] By email at 12:18 pm on Monday, 28 January 2008 to Ms Platts copying Ms Watts,
Mr Hutchings thanks Ms Platts for her email the previous day and attaches an example of
a CRPC paper.258
[269] By email at 12:19 pm on Monday, 28 January 2008 to Ms Platts, Ms Watts asks if PIF
was “issued its 85m units in MYF at $1.00?” At 3:07 pm Ms Platts responds saying “Yes
it will” (emphasis added). At 3:05 pm Ms Watts forwards these emails to Ms James,
“FYI”.259
[270] At 4:05 pm on 29 January, Ms James replied to Ms Watts and Ms Platts saying that
MYF’s constitution requires the units to be issued at NAV (net asset value), which was
$1.10 on 30 November, adding:
253 DEL.2004.0001.7615, DEL.2004.0001.7616.
254 RBS.0005.0001.0114.
255 RBS.0001.0004.0299.
256 DEL.2004.0001.7601 attaching DEL.2004.0001.7602.
257 DEL.2004.0001.7587 attaching DEL.2004.0001.7588, DEL.2004.0001.7593, DEL.2004.0001.7594.
258 DEL.2005.0001.9904 attaching DEL.2005.0001.9906.
259 DEL.2005.0001.1327 (see affidavit of Ms James [ASIC.3000.0026.0001] at para 91).
-- 61 of 348 --
48
“From the below I take it that Max are issuing units and not receiving a loan
from PIF? (If PIF receives units we will have to consolidate and if they issue
a loan we will not have to consolidate into PIF.)”260
[271] Less than a minute later, Ms Platts replies to Ms Watts and Ms James saying:
“I have this under control. We are issuing different class of units. Please
leave with me (yes there may be a consolidation issue).”261
[272] By email at 12:23 pm on Monday, 28 January 2008 (during the course of the above email
exchange) to Ms James, Ms Watts attaches “Listing of loans as at Nov 30.xls” and says
she is “confirming with [Ms Platts] that the MYF units were purchased by PIF at $1.00,
but for the time being that should be the assumption”. The attached list identifies loans
totalling $147,500,000 at various interest rates.262
[273] By email at 1:35 pm on Monday, 28 January 2008 to Mr Parker, Ms Watts attaches a “PIF
Asset Report as at 25 Jan 08.xls” which highlights the RBS related loans.263
[274] By email at 2:46 pm on Monday, 28 January 2008 to Ms Watts and Mr Hutchings,
Ms James attaches the draft PIF January 2008 balance sheet, profit and loss and trial
balance. Relevantly, she writes: “The $147.5 - I have allocated these amounts out.
Assumptions for now - the final $17.5m that was sent on 27/12/07 was relating to Q1 and
interest has been adjusted accordingly”.264
[275] By email at 10:52 am on Tuesday, 29 January 2008 to Ms Watts and Mr Parker, Ms Platts
attaches a listing of loans as at 30 November and 31 December 2007. She requests that
the differences be noted which included Sagacious Opportunity Trust being replaced by
MFS RAP Limited in December.265
[276] By email at 6:32 pm on Thursday, 31 January 2008 to Mr Hutchings regarding “IAC
Papers”, Ms Platts says “Let me know what you think about all of this?”. She attaches a
CRPC proposal regarding the purchase of 85 million class A units by PIF in MYF; draft
IAC submission for a participation agreement with PacFin for $62.5 million and draft
IAC minutes for PIF in relation to the purchase of 85 million units in MYF dated 30
November.266
[277] By email at 8:12 pm on Thursday, 31 January 2008 to Ms Platts, Mr Gavras-Moffat
attaches MYF class A unit application form and MYF information memorandum
regarding 85 million units.267
260 DEL.2004.0001.7579 (see affidavit of Ms James [ASIC.3000.0026.0001] at paras 96-97).
261 DEL.2004.0001.7579 (see affidavit of Ms James [ASIC.3000.0026.0001] at paras 98-99).
262 DEL.2005.0001.1329 attaching DEL.2005.0001.1330.
263 DEL.2009.0002.3545 attaching DEL.2009.0002.3546.
264 DEL.2005.0004.0944 attaching DEL.2005.0004.0945, DEL.2005.0004.0946, DEL.2005.0004.0947,
DEL.2005.0004.0950.
265 DEL.2004.0006.7843 attaching DEL.2004.0006.7844, DEL.2004.0006.7845.
266 DEL.2004.0001.7544 attaching DEL.2004.0001.7545, DEL.2004.0001.7547, DEL.2004.0001.7549.
267 DEL.2004.0006.7663 attaching DEL.2004.0006.7664, DEL.2004.0006.7666.
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49
[278] By email at 8:56 pm on Thursday, 31 January 2008 to Mr Hutchings, Ms Platts forwards
the MYF information memorandum regarding the issue of class A units and says the
corresponding IAC paper is to follow.268
[279] By email at 11:24 pm on Thursday, 31 January 2008 to Mr Hutchings, Ms Platts attaches
the draft IAC Submission in relation to the issue of class A units in MYF and says “OK
… last one for tonight … speak to in the morning”.269
[280] By email at 8:35 am on Friday, 1 February 2008 EST to Ms Watts, Mr Hutchings
forwards Ms Platts’ email of the previous day at 7:33 pm with IAC minutes dated
30 November 2007; information paper for loan participation agreement with PacFin and
CRC paper regarding MYF. At 3:26 pm Ms Watts forwards the email to Ms Platts
attaching PIF IAC minutes dated 23 November 2007 saying, “Corrected version attached.
Date should have read 23 Nov not 30 Nov. Other minor changes for you to check”.270
[281] By email at 10:48 am on Friday, 1 February 2008 to Ms Watts and Ms Platts,
Mr Hutchings attaches the board proposal dated 31 October 2007. The proposal is for
100 million class A units ranking behind existing investors.271
[282] By email at 9:57 am on Monday, 4 February 2008 to Ms Platts and Ms Bennett, Ms Watts
says that she is not having luck sending the mortgage loan documentation to RBS as they
are too big. She asks Ms Platts, “How is the Loan Participation Agreement and MYF
docs going?” At 10:59 am Ms Platts replies, “In short it’s not ... I need to have a few
more discussions with [Mr White ] re: same ... will let you know soon”.272
[283] By letter dated 4 February 2008 to Mr Bailey, Mr Hutchings certifies the gearing ratio as
at 31 December 2007 was 21.06 per cent and liquid assets comprise not less than 5.2 per
cent of total assets.273
[284] By email at 5:57 pm on Monday, 4 February 2008 to Ms Howard, Mr Gavras-Moffat
attaches a unit certificate certifying that PIF is the registered holder of 85 million class A
units in MYF.274
[285] By email at 6:12 pm on Monday, 4 February 2008 to Mr Bailey copying Mr Hutchings,
Ms Platts and others, Ms Watts attached the loan participation agreement between PIF
and PacFin which covers loans totalling $62.5 million and a new loan notice effective
31 December 2007 which purports to amend the loan participation agreement by
changing the identity of one of the borrowers or the amounts of the loans (ie MFS RAP
Ltd is substituted for MFS Sagacious Opportunity Trust, Young Villages Estate Pty Ltd
268 DEL.2005.0001.9786 attaching DEL.2005.0001.9787.
269 DEL.2004.0001.7541 attaching DEL.2004.0001.7542.
270 DEL.2004.0001.7523 attaching DEL.2004.0001.7525.
271 DEL.2009.0002.0655 attaching DEL.2009.0002.0656.
272 DEL.2004.0001.7508.
273 RBS.0003.0001.0329.
274 DEL.2005.0006.3941 attaching DEL.2005.0006.3942, DEL.2005.0006.3943.
-- 63 of 348 --
50
loan is reduced from $24,358,806.95 to $23,683,612.88 and Southport Holdings Ltd loan
is increased from $10,091,499.08 to $11,057,278.66).275
[286] By email at 5:13 pm on Tuesday, 5 February 2008 EST to Ms Cole and Ms Watts,
Ms Platts requests the final version of the MYF information memorandum. At 5:54 pm
Ms Watts replies saying she has not got a soft copy but she can forward it to Ms Platts.
At 6:55 pm Ms Cole replies to Ms Watts saying “I haven’t changed the date, can you
please just update that?”. At 6:46 pm Ms Watts replies to Ms Platts copying Ms Cole
attaching the latest version of the MYF information memorandum. She says, “The date
needs chaning [sic] at the top and in the body of the doc from Nov 1 to Nov 20 I think”.276
[287] By email at 7:59 pm on Tuesday, 5 February 2008 to Ms Watts, Ms Platts attaches the
MYF IAC and board papers. She suggests these need to be finalised before PIF can
finalise theirs. “I will send thru PIF’s next”.277 The attachments are:
Minutes of MYF IAC meeting consisting of Mr White and Mr Hutchings dated 28
November 2007 approving MYF’s investment of $55 million in PacFin loans and
a short-term unsecured loan of $30 million to Sunleisure [DEL.2004.0001.7474];
MFSIM board proposal dated 1 February 2008 ratifying the issue of 100 million
additional A Class units in MYF [DEL.2004.0001.7463];
MYF IAC Submission dated 27 November 2007 for MYF to enter into a loan
participation agreement with PacFin for a total value of $55 million
[DEL.2004.0001.7468];
MYF IAC Submission dated 20 November 2007 for the issue of new class A units
[DEL.2004.0001.7470];
MYF IAC minutes of meeting consisting of Mr White and Mr Hutchings dated
21 November 2007 approving the issue of the MYF class A units
[DEL.2004.0001.7472];
MYF IAC Submission dated 28 November 2007 from Ms Watts regarding approval
of the $30 million Sunleisure loan [DEL.2004.0001.7465].
[288] By email at 8:03 pm on Tuesday, 5 February 2008 to Ms Watts regarding “PIF IAC &
Board Papers”, Ms Platts attaches the following documents:278
MFSIM board proposal dated 1 February 2008 for the ratification of a participation
agreement with PacFin and the purchase of A Class units in MYF signed by
Mr Hutchings [DEL.2004.0001.7455];
PIF IAC minutes dated 23 November 2007 approving participation agreement with
PacFin and the purchase of 85 million class A units in MYF signed by
Mr Hutchings [DEL.2004.0001.7460];
PIF IAC Submission dated 20 November 2007 recommending the participation
agreement with PacFin - unsigned [DEL.2004.0001.7458];
275 DEL.2004.0006.7511 attaching DEL.2004.0006.7513, DEL.2004.0006.7521.
276 DEL.2004.0001.7476.
277 DEL.2004.0001.7462.
278 DEL.2004.0001.7454.
-- 64 of 348 --
51
MFSIM CRPC proposal for approval of the CRPC in connection with PIF’s
purchase of 85 million units in MYF - unsigned but with provision for signature by
Ms Watts and Mr Hutchings [DEL.2004.0001.7456].
[289] By email at 7:40 am on Wednesday, 6 February 2008 to Ms Platts, Ms Watts says “Here
are my comments on the MYF papers you have prepared. PIF ones to follow within half
an hour” and attaches the documents forwarded by Ms Platts with handwritten
amendments and comments.279
[290] By email at 8:03 am on Wednesday, 6 February 2008 to Ms Platts, Ms Watts says “Here
are my comments on the PIF part of the transactions” and attaches the PIF documentation
forwarded by Ms Platts and her handwritten amendments and comments.280
[291] By email at 8:45 am on Wednesday, 6 February 2008 to Ms Howard and Mr Gavras-
Moffat, Ms Platts responds to the Mr Gavras-Moffat email at 5:57 pm on the previous
day saying:
“Just FYI - I have changed the November register to $67,500,000 and done a
further one for December which reflects $85,000,000.
[Ms Howard] - remind me later today to follow up applications forms.”281
[292] By email at 9:44 am on Wednesday, 6 February 2008 to Ms Watts, Ms Platts replies
saying she has gone through the documents, “give me a call when you are free”.282
[293] By email at 3:21 pm on Wednesday, 6 February 2008 to Mr Hutchings copying Ms Watts,
Ms Platts says “Final Papers for your review in relation to Max Yield. PIF to follow.
Please let me know if you have any changes”.283 It attached:
MYF IAC minutes dated 21 November 2007 for the issue of A Class units in MYF
signed by Mr Hutchings [DEL.2004.0001.7375];
MYF IAC submission dated 20 November 2007 for the issue of A Class units in
MYF signed by Ms Watts [DEL.2004.0001.7373];
MYF IAC submission dated 27 November 2007 regarding participation agreement
with PacFin - unsigned, but with provision for signature by Ms Watts
[DEL.2004.0001.7371];
MFSIM board proposal dated 1 February 2008 for ratification of issue of MYF A
Class units signed by Mr Hutchings [DEL.2004.0001.7366];
MYF IAC minutes dated 28 November 2007 regarding participation agreement
with PacFin and Loan Agreement with Sunleisure - unsigned, but with provision
for signature by Ms Watts [DEL.2004.0001.7377];
279 DEL.2004.0001.7439 attaching DEL.2004.0001.7440.
280 DEL.2004.0001.7430 attaching DEL.2004.0001.7431.
281 DEL.2005.0006.3740.
282 DEL.2005.0001.9743.
283 DEL.2004.0001.7365.
-- 65 of 348 --
52
MYF IAC submission dated 28 November 2007 regarding loan agreement with
Sunleisure - unsigned, but with provision for signature by Ms Watts
[DEL.2004.0001.7368].
[294] By email at 3:25 pm on Wednesday, 6 February 2008 to Mr Hutchings copying Ms Watts
- Ms Platts asks for a review of the PIF papers “asap”.284 Attached to the email are the
following documents:
MYF information memorandum dated 23 November 2007 - unsigned
[DEL.2004.0001.7335];
MFSIM Related Party and Conflict Committee proposal undated, for approval of
PIF’s purchase of the units in MYF - unsigned, but with provision for signature by
Ms Watts [DEL.2004.0001.7331];
MFSIM board proposal dated 27 January 2008 regarding suspension of
redemptions and distributions from PIF signed by Mr Hutchings
[DEL.2004.0001.7329];
MFSIM board proposal dated 1 February 2008 for ratification of the participation
agreement and purchase of A Class units in MYF signed by Mr Hutchings
[DEL.2004.0001.7328];
PIF IAC minutes dated 23 November 2007 approving participation agreement with
PacFin and the purchase of 85 million class A units in MYF signed by
Mr Hutchings [DEL.2004.0001.7363];
PIF IAC submission dated 20 November 2007 regarding participation agreement
with PacFin - unsigned, but with provision for signature by Ms Watts
[DEL.2004.0001.7333].
[295] By email at 4:03 pm EST on Wednesday, 6 February 2008 to Mr Bailey copying
Mr Hutchings and Ms Watts, Ms Platts attaches an information memorandum for MYF
regarding PIF’s investment in class A units in MYF and MYF’s constitution. She
explains why further information cannot be provided.285
[296] By email at 5:38 pm on Wednesday, 6 February 2008 to Ms Platts, Mr Gavras-Moffat
attaches “Updated Unit Certificates” for PIF’s purchase of 67,500,000 class A units in
MYF dated 2007 and 17,500,000 class A units in MYF dated 2007.286 The only date was
the year although space was left for a more precise date.
[297] By email at 6:34 pm on Wednesday, 6 February 2008 to Ms Platts copying Ms Watts,
Mr Hutchings replies to Ms Platts’ email at 3:26 pm saying “No changes from me”.287
[298] By email at 6:43 pm on Wednesday, 6 February 2008 to Ms Platts copying Mr Hutchings,
Ms Watts replies to Ms Platts’ email at 3:25 pm EST saying “All okay. Many thanks”.288
284 DEL.2004.0001.7327.
285 RBS.0001.0006.0004 attaching RBS.0001.0006.0007, RBS.0001.0006.0035.
286 DEL.2005.0006.3659 attaching DEL.2005.0006.3660, DEL.2005.0006.3661.
287 DEL.2005.0001.9739.
288 DEL.2005.0001.9737.
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53
[299] By email at 6:59 pm on Wednesday, 6 February 2008 to Ms Platts, Ms Molesworth says
that she has updated the IAC Register with the relevant meeting minutes for 21, 23 and
28 November: “I cut and paste the major crux from the papers, but you may want to
review”.289
[300] By email at 9:04 am on Thursday, 7 February 2008 to Mr Bailey, Ms Platts attaches the
executed loan participation agreement between MYF and PacFin.290
[301] By email at 10:24 am on Friday, 8 February 2008 to Mr Anderson copying Mr Hutchings,
Ms Platts attaches the following documents:291
IAC minutes for MYF dated 21 November 2007 [DEL.2004.0001.7205];
IAC minutes for PIF dated 23 November 2007 [DEL.2004.0001.7207];
IAC minutes for MYF dated 28 November 2007 [DEL.2004.0001.7209];
IAC submission for MYF dated 28 November 2007 regarding the Sunleisure loan
[DEL.2004.0001.7211];
IAC submission for MYF dated 27 November 2007 [DEL.2004.0001.7213];
IAC submission for PIF dated 20 November 2007 [DEL.2004.0001.7215]; and
IAC submission for MYF dated 20 November 2007 [DEL.2004.0001.7217].
[302] The IAC minutes show the attendees as Mr White, Mr Hutchings and Mr Kyling as
follows:
21 November 2007 [DEL.2004.0001.7205];
23 November 2007 [DEL.2004.0001.7207]; and
28 November 2007 [DEL.2004.0001.7209].
[303] By email at 12:36 pm on Monday, 11 February 2008 to the MFSIM directors,
Mr Hutchings attaches a board proposal to ratify a decision to issue 100 million class A
units through an updated information memorandum dated 23 November 2007. It says
board approval was not sought in November because of an “oversight”.292
The alleged transactions were inconsistent with contemporaneous accounts of PIF,
PacFin, Sunleisure and MYF
[304] ASIC submitted that the alleged transactions were not recorded in or consistent with the
following contemporaneous accounts of the relevant entities:
Friday, 30 November 2007
(a) Monthly Operational Board Report for MFSIM for November 2007. The
Update notes that the fund size of PIF as at 30 November 2007 was $781.1
289 DEL.0046.0001.0456.
290 DEL.2004.0001.7225 attaching DEL.2004.0001.7227.
291 DEL.2004.0001.7204.
292 DEL.2004.0001.1540 attaching DEL.2004.0001.1541, DEL.2004.0001.1543.
-- 67 of 348 --
54
million and says “The Fund drew down $150m from its Royal Bank of
Scotland (RBS) leverage facility on 28th November. This was to facilitate a
short term cash flow mismatch between new commercial loans and
investments due to settlement at the end of November and other loans in the
Fund which are due to be repaid in December. The facility will be repaid
during January 2008”.293 In particular it is to be noted that this report is not
consistent with the acquisition of assets exceeding $100 million because,
despite the drawdown of the RBS facility, the fund is about the same as it was
at the end of November 2007 ($787.2 million).294 This report is in fact sent
to the board by Mr Hutchings by email at 12:37 pm on Friday, 28 December
2007.295
Wednesday, 5 December 2007
(a) By email at 11:05 am to Mr Parker, Mr Petherick attaches the PIF trial
balance as of 30 November 2007 for the Asset report. It shows (at row 90)
the amount for “ALTN (alternative) Investments - Other” as
$171,821,738.12.296
(b) By email at 3:30 pm to Ms Bennett, Mr Parker attaches the November “07
Asset Report.xls” and asks her to check the loans section of the report, which
shows (at row 91) that “Other Loans” have increased from $41,821,738 on
31 October 2007 to $171,821,738.12. He says he is “pretty happy with the
accuracy of Dave’s numbers”.297
(c) By email at 5:27 pm to Mr White copying Ms Watts and Mr Hutchings,
Mr Parker attaches the “most up to date holdings report for PIF as at 30
November 2007. This report includes the $150m drawdown”. In the report
the $150 million obtained from the RBS facility has been included in row 64,
line item 12 under “Asset Backed Investments” which reads
“Domain/Guardian Loans - $171,821,738.12”.298
Thursday, 6 December 2007
(a) By email at 10:48 am to Ms Watts, Ms Cole, Mr Hutchings and Ms Howard
copying others, Mr Parker attached the completed Asset and Holdings Report
for PIF as at 30 November 2007. It separates the $130 million asset (row 65,
line item 13 under “Asset Backed Investments”) as “Other Loan”. He says
“There will be a little more detail to come on the ‘other loan’”.299
Monday, 10 December 2007
(a) By email at 7:41 am to Ms Howard copying Ms Watts and others, Kristen
Cruise (fund accountant with MFSIM) attaches the MYF balance sheet and
income statement. The balance sheet shows (at row 39) that as at 30
November 2007 the net assets of the fund were $2,136,271.300
293 DEL.2021.0001.1142.
294 See MFSIM Monthly Operational Board Update [DEL.2021.0001.2197].
295 DEL.2021.0001.1141.
296 DEL.2002.0002.0922 attaching DEL.2002.0002.0924.
297 DEL.2002.0003.0154 attaching DEL.2002.0003.0155.
298 DEL.2002.0003.0148 attaching DEL.2002.0003.0149.
299 DEL.2004.0001.5053 attaching DEL.2004.0001.5054.
300 DEL.2002.0002.3942 attaching DEL.2002.0002.3944, DEL.2002.0002.3945.
-- 68 of 348 --
55
Monday, 17 December 2007
(a) By email at 10:47 am to Ms Watts and others, Petherick attaches the updated
PIF November accounts, which still appears to show (at row 21) the $130
million as “Alternate [sic] investments”.301
(b) By email at 4:55 pm to Ms Watts and Mr Hutchings copying Mr White,
Mr Parker attaches updated holdings report which shows (row 65, line item
13 under “Asset Backed Investments”) “Other Loan $130,000,000.00”.302
Wednesday, 19 December 2007
(a) By email at 11:31 am to Mr White copying Ms Watts, Mr Hutchings and
Ms Guest, Mr Parker attaches the PIF Holdings Report as at 17 December
2007. The report records (at row 65, line item 13 under “Asset Backed
Investments”) the $130 million as “Other Loans” with the comment “TBA -
C Mr White”.303
31 December 2007
(a) The PacFin monthly management information pack for December 2007
records that PacFin’s investor net funds increased $12 million, which includes
a PIF investment of $17.5 million and a MYF investment of $2.1 million, to
which it primarily attributes the loan portfolio increase of $19 million.304
8 January 2008
(a) By email at 12:03 pm to Ms Watts, Mr Parker attaches the PIF holdings report
for 31 December 2007. In the report (tab “All Assets Current”, row 65, line
item14 under “Asset Backed Investments”) is an entry “Loans” for
$149,261,788.07. It shows a 12 per cent interest rate and maturity on 31
January 2008.305
10 January 2008
(a) By email at 5:13 pm to Ms Howard and Mr Kendall, Ms James attaches the
monthly accounts for MYF for December 2007, which shows (tab “Max BS”,
row 22) its assets at $2.1 million.306
22 January 2008
(a) By email at 12:45 pm to Mr Hutchings regarding RBS report, Mr Parker
attaches the holdings report for PIF, which still has an entry with the
description (row 63, line item 14 under “Asset Backed Investment”) “Loans
$147,946,438.36” for maturity on 31 January 2008.307
The alleged transactions were inconsistent with contemporaneous MYF proposals
[305] By November 2007, MYF was a managed investment scheme which had a little over $2.1
million in cash. MYF had one key investment of 1,300,000 units in the Golden Circle
301 DEL.2002.0002.3673 attaching DEL.2002.0002.3675.
302 DEL.2006.0006.6761 attaching DEL.2006.0006.6762.
303 DEL.2006.0004.2120 attaching DEL.2006.0004.2121.
304 BROY.0001.0001.0001, p 0003.
305 DEL.2009.0002.5243 attaching DEL.2009.0002.5244.
306 DEL.2004.0005.9996 attaching DEL.2004.0005.9997.
307 DEL.2008.0004.0122 attaching DEL.2008.0004.0123.
-- 69 of 348 --
56
Note Trust. The notes had been repaid on 5 November 2007. MYF had 13 members who
were for the most part senior employees or officers or entities associated with them,
within the MFS Group. MYF’s cash funds had been re-invested in a savings account in
the period to the end of November and it was not active in terms of investing. It was
closed to new investors and was, for practical purposes, dormant.
[306] In the MFSIM Monthly Operational Board Update for October 2007, Mr Hutchings
reported that “We are seeking to employ a new fund Manager with a view to relaunch the
fund”.308
[307] Before the MFSIM management team meeting on Monday, 12 November 2007, by email
at 11:30 am on 9 November 2007, Ms Watts asks a few questions about a restructure of
the MYF fund. Ms Howard answers by an email of the same day at 2:00 pm. The email
notes that:
An Extraordinary General Meeting will be required to effect the restructure.
A new fund setup would take about a month or a unitholder meeting would take 5-
6 weeks from “pushing go to end. Best chance is that we don’ t [sic] impact
unitholders rights and reopen existing fund up and relaunch for v3.”309
[308] At 9:43 am on 13 November the email is forwarded by Ms Watts to Mr Hutchings and
Ms Cole.310
[309] With respect to the MFSIM management team meeting on Monday, 12 November 2007,
the minutes record:311
“Maximum Yield Fund - to change from a closed end to an open end fund.
Either need to distribute income to existing investors and go ahead and
restructure, or could set up a new asset class.
GH, JH and MW to meet and discuss before putting together a proposal.”
[310] There is no reference to a MYF restructure in the agenda312 or the Action Items arising
from the meeting.313
[311] By 21 November 2007, at 1:05 pm Mr Anderson, who is an investor in MYF, suggests
the $2.1 million in MYF be taken out of AAA Saver and invested in PacFin. At 2:55 pm
Mr Hutchings replies to Ms Howard copying Mr White and Mr Anderson saying
(emphasis added), “please implement … There will now be no assets going into the
fund in the short term”. At 5:43 pm Ms Howard replies to Mr Hutchings copying
Ms Watts saying, “Is it appropriate for iac to consider and approve? Assume mw
[Ms Watts] to do paper?”.314
308 DEL.2021.0001.2197.
309 OCA.0002.0004.0011.
310 DEL.2020.0001.0427.
311 DEL.2009.0003.0518.
312 DEL.2008.0005.2326.
313 DEL.2008.0005.1246.
314 DEL.2002.0008.1365.
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57
[312] By email at 8.45 am on 26 November 2007 to Ms Howard, Ms Brown asks whether MYF
was investing $2.1 million into PacFin today. Ms Howard forwards the email to
Ms Watts and asks for the status of IAC and says “Once approved, then we can move
funds”. By email at 9:35 am Ms Watts replies including a copying to Mr Hutchings
stating that MYF will not be investing $2.1 million into PacFin. She says “we are
currently evaluating another investment option for the MYF”. Ms Howard replies by
email at 9:36 am saying “cool. Does David Anderson know?”.315
[313] By email at 5:40 pm on 26 November 2007 to Mr White and other directors,
Mr Hutchings attaches the October 2007 MFSIM monthly operational board update,
which shows the PIF fund size as at 31 October 2007 at $787.2 million. It also shows the
MYF fund size at 31 October 2007 at $2.8 million and notes it as “Closed Fund”.316
[314] By email at 3:41 pm on 3 December 2007 to Ms Howard, Ms Watts asks to “tee up a time
to talk about possible restructuring MYF and/or reinvestment of recently matured GC
notes into appropriate assets that meet the IM’s guidelines?”. At 3:46 pm Ms Howard
replies stating that Mr Anderson had told her that MYF was going to have some exposure
to a land fund: “Has Jenny done up a term sheet for restructure at all? Can’t remember
if we even asked her too [sic]”. At 3:48 pm Ms Watts replies saying “No, nothing done
at all on MYF as we weren’t sure whether it would be simple reinvestment of matured
funds or a full-blown restructure. We still need to make a decision one way or the
other”.317
[315] On 4 December 2007, a draft PIF IAC paper for a proposed restructure of the Maximum
Yield Fund is prepared for IAC approval.318 In summary the document recorded that:
MYF was a fund that “has” 13 high net worth investors who “are” MFS employees
or well known to MFS employees.
It “has” $2.1 million in funds under management which are the proceeds of the
recent repayment of the schedule’s only investment in Golden Circle notes.
The proposed restructure of MYF which in truth was being considered at this time.
Four alternative strategies are identified:
(a) MYF be wound up and proceeds distributed to unitholders.
(b) MYF unitholders be advised that new investments unlikely to meet 15 per
cent and further instructions sought.
(c) MYF unitholders be advised that authorised investment will be widened to
include related party transactions to achieve 15 per cent return.
(d) MFSIM seek permission to completely restructure into an open-ended MIS
to be relaunched in 2008.
[316] By email at 12:11 pm on 5 December 2007 to Mr Hart, Ms Cole, Mr Hutchings and
Ms Howard, Ms Watts attached this draft paper.319
315 DEL.2002.0001.2942.
316 DEL.2021.0001.2196 attaching DEL.2021.0001.2197.
317 DEL.2002.0008.1365.
318 DEL.2020.0001.0422.
319 DEL.2020.0001.0421.
-- 71 of 348 --
58
[317] By email at 10:41 am on Thursday, 6 December 2007 to Ms Molesworth copying
Mr Hutchings, Ms Watts replies to Mr Hutchings’ request to proof-read the proposed
submission to the PIF IAC and requests it be circulated to the PIF IAC as a circular
resolution. It differs from the draft PIF IAC paper circulated the day before320 in that it
recommended that MYF funds be invested in PacFin for a period of three months during
which time a proposal to re-organise and re-launch MYF would be approved and
implemented.321
[318] As requested at 12:01 pm, Ms Molesworth circulates the PIF IAC submission to the
members of the IAC for consideration via circular.322 Email responses supporting the
resolution were received.323
[319] The minutes of a meeting of the PIF IAC on 6 December 2007 via circular, which
included Mr Hutchings and Mr White, recorded unanimous approval in support of:
seeking permission from MYF unitholders to restructure the fund to transform it
into an open-ended MIS which would be re-launched in 2008; and
the proposed interim investment of the $2.1 million in PacFin.324
[320] This is consistent with the recollection of IAC members.325
[321] By email at 11:58 am on 14 December 2007 to Ms Malipaard, Ms Howard attached the
related party register for PIF as at 30 November 2007. The register does not show any
investment by PIF in MYF, nor any participation by PIF in PacFin loans.326
[322] The implementation of the restructure of MYF with a March 2008 launch date proceeds
through the period of the creation of the alleged transactions including the drafting of a
term sheet and product proposal:
[323] By email at 8:35 am EST on 3 January 2008 to Ms Cole and Ms Howard regarding MYF
restructure, Ms Watts says that she has been working on MYF’s new term sheet and
product proposal. At 8:42 am Ms Cole replies saying she has not done a lot of work on
it either.327
[324] By email at 4:08 pm on 4 January 2008 to Ms Cole and Ms Howard, Ms Watts attaches
a proposed product proposal and term sheet both dated January 2008 both proposing a re-
launched MYF on 3 March 2008.328
320 DEL.2020.0001.0422.
321 DEL.2004.0001.3136 attaching DEL.2004.0001.3137.
322 DEL.2006.0006.8378, DEL.2006.0006.8379.
323 DEL.2004.0001.3126, DEL.2021.0001.1682.
324 DEL.2004.0001.8274.
325 See affidavit of Mr Kennedy [ASIC.3000.0018.0001] at paras 98-105, statement of Mr Kyling
[ASIC.3000.0050.0001] at paras 76-79.
326 DEL.2004.0006.0440 attaching DEL.2004.0006.0441.
327 DEL.2004.0001.4944.
328 DEL.2004.0001.4897 attaching DEL.2004.0001.4898, DEL.2004.0001.4907.
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59
[325] At 8:00 am on 11 January 2008 there was a MFSIM management team meeting consisting
of Ms Cole, Mr Hart, Ms Howard, Mr Hutchings, Ms Molesworth and Ms Watts. It notes
that the proposed re-launch date for the MYF schedule was 30 March 2008. There is no
reference to the alleged transactions.329
[326] By email at 8:45 am on Thursday, 17 January 2008 to Ms Watts and Ms Howard -
Ms Cole says “Here is what I propose to send to [Mr Hutchings]” and attaches the draft
product proposal for the relaunch of MYF with a March 2008 launch date.330
[327] ASIC submitted that neither that approved restructure of MYF nor any of the alternatives
considered by the IAC involved the creation of a new class of units in MYF, or the issue
of a further 100 million new units. The contemporaneous documents and events are
irreconcilable with the alleged transactions and in particular the following documents
which form part of them:
IAC (MYF) submission dated 20 November 2007. Submission to IAC of MFSIM
as responsible entity for MYF recommending that MYF issue up to 100 million
class A units at $1.00 per unit. (Statement of claim, para 110.)
[WIM.0002.0004.0201]
IAC (MYF) minute of meeting dated 21 November 2007. Minutes of IAC for
MFSIM as responsible entity for MYF, purporting to record that IAC approves the
issue of 100 million class A units in MYF. (Statement of claim, para 112.)
[WIM.0002.0004.0199]
Information memorandum dated 23 November 2007. Memorandum offers
information to potential investors in respect of class A units in MYF (100 million
at $1.00 each). (Statement of claim, para 113.) [OCA.0002.0004.0108]
IAC (MYF) submission dated 27 November 2007. Submission to the IAC of
MFSIM as responsible entity for MYF recommending that MYF enter into a loan
participation agreement with PacFin, involving MFSIM advancing $55 million to
PacFin. (Statement of claim, para 115.) [WIM.0002.0004.0077]
IAC (MYF) memorandum dated 28 November 2007. Memorandum to the IAC of
MFSIM as responsible entity for MYF recommending that MYF lend Sunleisure
$30 million to allow it to repay MFS. (Statement of claim, para 116.)
[OCA.0002.0004.0284]
IAC (MYF) minute of meeting dated 28 November 2007. Minutes of a meeting of
the IAC for MFSIM as responsible entity for MYF approving MFSIM as
responsible entity for MYF advancing $55 million to PacFin by way of loan
participation agreements and lending Sunleisure $30 million (subject to the sale of
$85 million in class A units). (Statement of claim, para 117.)
[WIM.0002.0004.0075]
The alleged transactions were inconsistent with contemporaneous Sunleisure decisions
[328] On 16 November 2007 a proposal was made to the PIF IAC that PIF would lend
Sunleisure $30 million for the purpose of repaying $30 million to MFS Limited.331
329 DEL.2005.0001.8807.
330 DEL.2004.0001.4801 attaching DEL.2004.0001.4802.
331 DEL.2006.0007.7120.
-- 73 of 348 --
60
[329] But on 19 November 2007 the Minutes of the PIF IAC show that the proposal was
declined because “Sunleisure Group Ltd is a wholly owned subsidiary of MFS, therefore
PIF is unable to invest in (as per the current PDS)”.332 This is supported by IAC
members.333
[330] As part of the alleged transactions it is alleged that:
by memorandum to the IAC of MFSIM as responsible entity for MYF on
28 November 2007 Ms Watts recommended that MYF lend Sunleisure $30 million
to allow it to repay MFS Limited;334 and
on 28 November 2007 the PIF IAC approved MYF lending $30 million to
Sunleisure.335
[331] ASIC submitted that it is inherently unlikely that the IAC would decline a loan by PIF to
Sunleisure of $30 million for the purpose of repaying MFS because PIF and Sunleisure
were related parties; and then nine days later approve a loan by MYF to Sunleisure of the
same amount for the same purpose.336 Moreover, it submitted it was inconsistent with
the recollection of IAC members.337
The $17.5 million payment
[332] ASIC’s case was that in late 2007, funding flowing from investors and other income into
PacFin had diminished because of the generally poor state of the New Zealand debenture
finance market brought about by global financial instability at that time.338 For at least
the last three months of 2007, monthly redemptions exceeded money flowing into PacFin.
However, Mr King assured Mr Maywald that the money would always be there for
PacFin to meet its obligations.339
[333] By the end of December 2007, PacFin had an urgent need for funds to enable it to pay
requests for redemptions from its debenture holders by the end of the month.340 On
27 December 2007, PIF made the $17.5 million payment.341 The $17.5 million payment
was made at the direction of Mr White342 and with the knowledge and approval of
Mr Hutchings343 and Mr Anderson.344 The $17.5 million was spent by PacFin in ways
that did not benefit PIF.345
332 MIM.0001.0002.0594.
333 See affidavit of Mr Kennedy [ASIC.3000.0018.0001] at paras 92-95, statement of Mr Kyling
[ASIC.3000.0050.0001] at paras 70-74.
334 OCA.0002.0004.0284.
335 WIM.0002.0004.0075.
336 DEL.2004.0001.7209.
337 See affidavit of Mr Kennedy [ASIC.3000.0018.0001] at paras 123-125, 127-129, statement of Mr Kyling
[ASIC.3000.0050.0001] at paras 75, 95-98.
338 Affidavit of Mr Maywald [ASIC.3000.0005.0001] at para 41.
339 Affidavit of Mr Maywald [ASIC.3000.0005.0001] at para 41.
340 DEL.2003.0001.1187.
341 CBA.0001.0001.0051, CBA.0001.0001.0089.
342 See emails in chronology below.
343 See emails in chronology below.
344 See emails in chronology below.
345 See schedule 1 of statement of claim [COURT.0008.0001.0205, pp 0395-0403]; see also
CBA.0001.0001.0051.
-- 74 of 348 --
61
[334] In fact, the payment of $17.5 million was not an authorised investment within the meaning
of cl 15.1 of PIF’s constitution. PacFin was at the relevant time a related party to PIF.
There was no approval given by the members of PIF to the $17.5 million payment. The
payment of $17.5 million was of money belonging to PIF and was thus a payment out of
scheme property to a related party within the meaning of s 208(1) as modified by s 601LC
of the Act.
MFSIM’s alleged contraventions concerning the $17.5 million payment
[335] In para 71 of the statement of claim, ASIC alleges that MFSIM as responsible entity for
PIF contravened s 601FC(5) of the Act because, with respect to the $17.5 million
payment, MFSIM as responsible entity for PIF:
did not act honestly in contravention of s 601FC(1)(a);
did not act in the best interests of the members of PIF, in contravention of
s 601FC(1)(c);
did not ensure that the transactions were in accordance with PIF’s constitution, in
contravention of s 601FC(1)(k).
[336] ASIC submitted that I should find that the $17.5 million payment was not in the best
interests of the members of PIF for the following reasons:
it was effected for the purpose of allowing PacFin to access funds to enable it to,
inter alia, pay redemptions;
it was effected without any consideration being provided to PIF.
MFSIM’s alleged misconduct concerning the $17.5 million payment
Chronology of events relevant to the $17.5 million payment
[337] Set out below is a chronology of events relevant to the $17.5 million payment.
Date/Time Event Reference
24.12.07
1:26 pm Email Mr Anderson to Mr White to this effect:
To enable funds in time for payments we [ie
PacFin] need clear funds by 11.00 am Friday
28.12 in MFS PacFin acc CBA Southport. Best
if funds go directly there.
DEL.2003.0001.1187
27.12.07
Bank statement PacFin shows $17.5 million paid
in by Perpetual Nominees Ltd
CBA.0001.0001.0051
Bank statement Perpetual Nominees shows
$17.5 million paid to PacFin
CBA.0001.0001.0089
Payment direction signed by Mr Hutchings and
Mr Kennedy to pay the $17.5 million
OCA.0002.0007.0003
-- 75 of 348 --
62
12:31 pm Email Mr White to Mr Anderson saying
“$17.5m”
DEL.0009.0001.0171
2:33 pm Email Mr Hutchings to Ms Ring. Mr Hutchings
agrees that his electronic signature can be put on
the proper instruction for payment of $17.5
OCA.0002.0007.0004
DEL.2003.0001.0860
2:33 pm Fax to Perpetual with payment direction for
$17.5 million signed by Mr Hutchings and
Mr Kennedy
OCA.0002.0007.0002
4:21 pm Email Mr Anderson to Ms Ring, Ms Watts and
Ms Howard. It is necessary to push Perpetual to
get action on the $17.5 transfer. “Need money
urgently to enable urgent NZ transactions”
DEL.2003.0001.0805
4:43 pm Email Ms Ring to Mr Anderson and Ms Watts:
“Funds have left our account”
DEL.2003.0001.0805
DEL.2003.0001.0146
4:44 pm Email Mr Anderson to Ms Ring “Excellent
news”
DEL.2003.0001.0805
28.12.07
10:47 am Email Ms Howard to Ms Watts and
Mr Hutchings. MFS has confirmed receipt of
$17.5 million
DEL.2003.0001.1330
The improper purpose
[338] The allegation was that the $17.5 million payment was made for the purpose of allowing
PacFin to access funds to enable it to, inter alia, pay redemptions, rather than for some
benefit to PIF. ASIC argued that this purpose was apparent from the following evidence:
MFSIM had no intention to make significant acquisitions in late December 2007,
and certainly had no intention to make acquisitions from PacFin;
the transaction was effected without approvals from the IAC or the CRPC of
MFSIM; and
the timing of the payment coincided with PacFin’s need for funds to pay
redemptions.
[339] The payment was effected without consideration flowing to PIF as evidenced by the
following matters:
the payment was not the subject of any approvals by the IAC or the CRPC;
the payment was not the subject of any contemporaneous consideration;
there was no understanding by officers of MFSIM as to the reason for the $17.5
million payment;
the final formulation of the alleged transactions did not occur until late in January
or early February 2008; and
the alleged transactions were inconsistent with contemporaneous accounts of PIF
and MYF.
-- 76 of 348 --
63
MFSIM had no intention to make any significant acquisitions
[340] As at late December 2007, ASIC argued that PIF was not intending to make any
acquisitions or acquire any interests in participation loans, before the end of 2007. No
consideration was given to PIF acquiring any interests from PacFin at that time.
[341] MYF did, however, consider, and ultimately proceed, with paying the $2.1 million it had
available to invest (the proceeds of the Adelaide Bank investment) and it was paid to
PacFin.
[342] The following evidence is of particular relevance:
The minutes of MFSIM management team meetings in December 2007 do not
disclose any proposed acquisitions by PIF of any interests in participation loans or
other investments that would explain the $17.5 million payment. For example, the
minutes of the meeting on 17 December 2007 record no consideration being given
to such matters.346 The only reference to investment management is to Ms Watts
and Ms Howard “working on” MYF - an apparent reference to the consideration
being given at that time to a possible relaunch of MYF at some time in the first
quarter of 2008.
The cash flow forecasts that existed during December 2007 did not make any
provision for payment out by PIF to PacFin of $17.5 million in late December 2007.
Other anticipated transactions were set out in the cash flow forecasts. Examples of
relevant cash flow forecasts during this period are:
(a) DEL.2002.0002.3670, which was circulated by Mr Chan to Mr White on 17
December 2007 by email DEL.2002.0002.3669;
(b) DEL.2006.0006.6058, which was circulated by Mr Hutchings to Mr White
on 18 December 2007 by email DEL.2006.0006.6057;
(c) DEL.2006.0004.1788, which was circulated by Mr Hutchings to Mr White
on 19 December 2007 by email DEL.2006.0004.1787.
The cash flow forecasts for PacFin before 19 December 2007 did not contain any
anticipated funds being received from PIF, eg the cash flow forecast for PacFin
provided by Yvette Brown to Mr Anderson by email on 18 December 2007.347
There is no evidence in that document of any anticipated payment from PIF
approaching $17.5 million. Rather, as at 18 December 2007, there is an anticipated
shortfall in funds for PacFin as at 31 December 2007 exceeding $15.3 million.
From 19 December 2008, there was provision for receipt of $20 million by PacFin
from MFS Administration - as to which, see below.
There is no mention of any consideration given to any transactions in respect of the
$17.5 million payment by the IAC of PIF.348
There is no mention of any consideration given to any transaction in respect of the
$17.5 million payment by the CRPC of MFSIM.349
346 DEL.3000.0001.9800.
347 DEL.2007.0003.4925 attaching DEL.2007.0003.4926.
348 Affidavit of Ms Kercher [ASIC.3000.0037.0001] at para 46, particularly [ASIC.1000.0003.0012].
349 Affidavit of Ms Kercher [ASIC.3000.0037.0001] at para 46, particularly [ASIC.1000.0003.0010].
-- 77 of 348 --
64
The timing for the $17.5 million payment coincided with PacFin’s need for money
[343] The timing of the $17.5 million payment coincided with the requirement of funds by
PacFin, primarily for the purpose of allowing PacFin to meet redemption requests. This
also coincided with a time when cash was very tight for MFS generally. This was said to
have been demonstrated by the following evidence:
On 13 December 2007, PIF draws down a further $15 million from the RBS
Facility.350
By email at 12:10 pm on 14 December 2007, Mr Anderson tells Mr White about
his concerns about the cash flow position, which showed a shortfall of $100 million
by the end of December 2007 not dealing with the $130 million “payable” of last
month.351
By email at 11:13 am on 17 December 2007, Mr Anderson again emailed Mr White
about his concerns about the cash flow position, saying “No changes for the better”,
noting the cash flow deficit at $100 million and that “there is no fat/contingency
built in here and we all know that unexpected outflows are likely to exceed
unexpected inflows”.352
By email at 12:03 pm on 17 December 2007 to Ms Howard copied to
Mr Hutchings, Ms Watts states that PIF needs to make a further drawdown of
$25 million to meet next week’s settlements; bringing total drawdowns to
$190 million.353
By email at 4:12 pm on 17 December 2007, Mr Anderson says to Mr White, “never
did get the extra $20m you spoke of - only $130m received”; to which Mr White
promptly responds at 4:14 pm “hang on, great point”.354
By email at 4:15 pm EST on 17 December 2007 Mr White makes inquiries of
Mr Hutchings as to what became of the balance of the $150 million drawn down
“from gearing” recently (which is a clear reference to the RBS draw down of $150
million at the end of November) after the $130 million was paid. At 4:50 pm
Mr Hutchings responds advising that $15 million went to fund a deal and $5 million
“went to general funding”.355 At 5:01 pm Mr White then asked for a copy of the
PIF cash flow.356
By email at 4:20 pm on 18 December 2007 to Mr Martin and Mr Davis357 copying
Mr Hutchings, Mr White says that they did not receive the email about Mr King’s
“decision not to fund deals/and/or lending at this time”.358 ASIC submitted that this
is a reference to the direction of Mr King not to settle any property lending/invest
transactions, referred to in his earlier email.359 One minute later Mr White forwards
this email to Mr Anderson saying “this will give me the $20m”.
350 DEL.2005.0001.8443.
351 DEL.2004.0007.9585.
352 DEL.2004.0007.9585.
353 OCA.0002.0007.0017.
354 DEL.2006.0006.6758.
355 DEL.2006.0006.6788.
356 DEL.2006.0002.4307.
357 Joint managing directors of Causeway.
358 DEL.2006.0006.6038.
359 DEL.2006.0006.5865.
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65
By email at 4:31 pm on 18 December 2008 to Mr Chan and Ms Howard, Mr Parker
advises that PIF has the cash to allow a drawdown by Causeway but “We are going
to have none at the end of this week if we don’t see some of the $130m back
though”.360
On 18 December 2007 a further drawdown of $25 million is received from the RBS
into Perpetual’s PIF account.361
By email at 2:22 pm on 19 December 2007 to Ms Howard copied to Mr White,
Mr Parker and Mr Hutchings, Ms Watts states that PIF needs to make the final
drawdown of $10 million. She anticipates funds will be required for less than a
month.362
By email at 4:25 pm on 19 December 2007, Mr Anderson inquires about
redemptions from Mr Maywald who replies that redemptions for the month (for
PacFin) stood at $14.2 million. Mr Anderson replied with “Thanks for the info”.363
By email at 5:34 pm on 19 December 2007 to Mr White, Mr Anderson confirms
that Mr White is organising “$20m going into NZ”. He also notes “the figures do
not include the $2.1m investment Max Yield are making in Pac Fin Notes”.364
[344] PacFin’s cash flow forecast as at 18 December 2007 was provided by Ms Brown to
Mr Anderson by email on that date.365 It shows:
on 31 December 2007, the following outflows from PacFin:
(a) a sum exceeding NZ$8.8 million for “Investor Redemptions - Actual”;
(b) a sum exceeding NZ$3.4 million for “Investor Interest - Debentures/Notes”;
(c) a sum exceeding NZ$4.8 million for “AUD Investor Redemptions -
Estimated”; and
(d) a sum exceeding $1.2 million for “AUD Investor Interest -
Debentures/Notes”;
on 31 December 2007, a closing balance exceeding - $15.3 million, that is a cash
deficiency of that sum on that date; and
nothing was contained in the cash flow forecast which showed anticipated funds to
be received from PIF during late December 2007.
[345] PacFin’s cash flow forecast as at 20 December 2007 was sent by Ms Brown to Mr White
(and others) on that date.366 That forecast revealed the same need for cash, but provided
for a $20 million inflow on 28 December 2007 being for “Loans Maturing - MFSA”.
Ms Brown explained:
“The fact that $20m appeared as ‘Loan Maturing’ did not mean that MFS
Administration had a loan outstanding from PacFin that was about to mature.
360 DEL.2009.0002.6970.
361 CBA.0001.0001.0081.
362 DEL.2006.0004.1681.
363 DEL.2007.0003.4445.
364 DEL.2006.0004.1515.
365 DEL.2007.0003.4925 attaching DEL.2007.0003.4926.
366 DEL.2004.0002.4802 attaching DEL.2004.0002.4803.
-- 79 of 348 --
66
In this context it meant that PacFin was looking at MFS Administration to
provide $20 million in funds on 28 December for whatever reason.”367
[346] The covering email referred to $20 million coming from “MFS” on 28 December 2007.
The same situation flows through to the 24 December PacFin cash flow forecast which
was forwarded by email by Ms Brown to Mr Anderson on 24 December 2007.368 On
24 December 2007, Mr Anderson told Ms Brown that $20 million would be paid to
PacFin by MFS and it would come direct from PIF.369
[347] At 12:15 pm on the same day Mr Anderson emails Mr White regarding “Cash Flow”
saying:370
“Craig - the payment you outlined this morning is fine and is currently being
processed - I will wait your call to discuss logistics re inflows for
Thursday/Friday.”
[348] At 12:53 pm on the same day Mr Anderson emails Mr White regarding “Keen to talk”
saying, “Craig keen to discuss logistics re the remaining A$17.5m to be provided”.371
[349] At 1:26 pm on the same day Mr Anderson advised Mr White by email that clear funds
would be required in the PacFin account by 11:00 am on Friday, 28 December.
Mr Anderson advised “best if funds go directly there”, which demonstrates the urgency
with which the funds were required.372
[350] At 1:53 pm on 27 December 2007, Ms Howard emails Mr Anderson copying Ms Watts
stating, “Have had discussions with Guy and we are making payment to you… Our latest
delivery time is approx 10am tomorrow”. At 2:42 pm Mr Anderson replies saying
“Thanks. Keen to get funds so we can move them around. 10am is our latest limit to
acheive [sic] desired outcome”.373
[351] At 2:47 pm on the same day, Ms Ring emails Ms Watts, Ms Howard, and Mr Anderson
saying “I have sent through the authorised proper instruction for Real Time payment”.
Mr Anderson replies at 3:24 pm thanking her for the update. Ms Easton replies to
Mr Anderson at 3:48 pm saying, “Someone needs to hassle Perpetual or it may not be
actioned urgently. We needed to push hard with the last PIF payment as it was stalled.”374
[352] At 4:21 pm on the same day Mr Anderson emails Ms Ring, Ms Watts, and Ms Howard:
“I understand that in recent transactions it has been necessary to push
Perpetual hard to actually get them to action your requesting a reasonable
time.
367 Affidavit of Ms Brown [ASIC.3000.0034.0001] at para 45.
368 DEL.2003.0001.1189 attaching DEL.2003.0001.1190.
369 Affidavit of Ms Brown [ASIC.3000.0034.0001] at paras 46, 50.
370 DEL.1300.0005.2960.
371 DEL.1300.0005.2958.
372 DEL.0009.0001.0171.
373 DEL.2003.0001.1180.
374 DEL.2003.0001.1019.
-- 80 of 348 --
67
We have checked the bank account this afternoon and nothing has arrived
so anything you can do to push hard and early would be appreciated to get
the funds to us in a timely manner to enable urgent transactions in NZ which
of course are many hours ahead of us.”
[353] Ms Ring replies saying the funds have left the account and Mr Anderson replies saying
“Excellent news - thanks”.375
[354] On 28 December 2007 Mr Anderson emailed Ms Brown and Ms Easton seeking
confirmation that the $17.5 million had been received and Ms Easton replied confirming
that it had been received.376
[355] On 2 January 2008 at 4:36 pm, Leia Wilson (an MFS assistant accountant) emailed
Ms Brown regarding “PIF Investment” saying “[Ms James] wants to know what the terms
etc are for the investment of $17.5m which was paid into PF on 27/12, I notice I didn’t
get the applications account, do I need to notify CS about this?”. Ms Brown forwards the
email to Ms James suggesting to check with Ms Malipaard. Ms James replies saying that
Ms Brown is confusing the MYF investment with the PIF “new investment”. Ms Brown
replies saying: “Yes your [sic] right I was. I don’t know anything further. I was just told
I would be getting money from MFS A … I will speak with [Mr Anderson] in our meeting
some time today because I think [Mr White] must have organised it.”377
[356] The urgency for PacFin to receive the funds is again underscored by the events of 27
December 2007, including: the exchange of emails between Mr Anderson, Ms Easton
and PIF employees Ms Watts and Ms Ring about the need to push Perpetual to get action.
The $17.5 million payment was made without any consideration flowing to PIF - there
was no consideration or approval by the IAC or the CRPC
[357] ASIC’s case was that the evidence shows that, in relation to the $17.5 million payment,
there was no consideration of any relevant transactions by the IAC or the CRPC. The
following evidence demonstrates this:
The IAC minutes do not include any consideration being given to the investment of
funds from the $17.5 million payment [ASIC.1000.0003.0012].
The CRPC minutes do not include any consideration being given by the CRPC to
what related party transactions might be approved by the CRPC
[ASIC.1000.0003.0010].
The MFSIM Board minutes and papers do not record any consideration of any
related party matters arising from the $17.5 million payment
[ASIC.1000.0003.0007].
[358] There were later documented transactions involving the $17.5 million paid on
27 December and which purported to give consideration for this payment to PIF, but as
375 DEL.2003.0001.0805.
376 DEL.2007.0003.2890.
377 DEL.2005.0004.1268.
-- 81 of 348 --
68
with the $130 million payment, the alleged consideration was not formulated or
documented until later in January 2008.
[359] ASIC submitted that I should find that the alleged consideration was not formulated or
documented until the second half of January 2008 for the same reasons as set out with
respect to the $130 million payment above and that I should reject the purported minutes
of the PIF IAC dated 23 November 2007 as representing some sort of approval for this
transaction.
[360] The evidence demonstrates that:
the IAC proposal and minute were not documented before late January 2008;
Mr Kyling, who purportedly attended the meeting, gave evidence that he was not
informed of the meeting, did not consider the transactions and did not attend any
meeting;378 and
Mr Kyling’s invoiced IAC meeting list did not show any IAC meeting at the
relevant date.379
There was no contemporaneous consideration or approval given to the alleged
transactions
[361] As with the $130 million payment, ASIC submitted there was:
no contemporaneous consideration undertaken in relation to the transactions which
would ultimately be recorded as accruing for the benefit of PIF;
no reference in the minutes of MFSIM management team meetings to any
transaction arising from the payment; and
no approval of any transaction involving the $17.5 million payment by the IAC or
the CRPC of MFSIM.
There was no understanding by officers of MFSIM of what consideration existed for the
$17.5 million payment
[362] ASIC submitted that the officers and employees of MFSIM and MFS Limited
demonstrated no understanding of the consideration for the $17.5 million payment at any
time before the second half of January 2008 and, despite requests, were not informed
about the purported transactions.
[363] The payment of the $17.5 million is linked to the $130 million Payment and ASIC
submitted that, clearly, the staff of MFSIM came to consider those two payments together
when attempting to explain the payments. The relevant evidence is considered in the
submissions relating to the $130 million payment. Specifically in relation to the 28
December payment, the following is relevant:
378 Statement of Mr Kyling [ASIC.3000.0050.0001] at paras 91-92.
379 Statement of Mr Kyling [ASIC.3000.0050.0001] at paras 65, 67(a).
-- 82 of 348 --
69
On 28 December 2007, Ms Howard advised Ms James that $17.5 million was paid
to PacFin the previous day and that “details of the transactions will be coming from
[Mr Hutchings] and [Mr White] shortly”.380 Ms James followed up on that request
on 3 January 2008 and Ms Howard responded that she did not have any details and
would chase up Mr Hutchings and Mr White.381
On 4 January 2008, the PIF holding report noted “other loans” of $17.5 million still
to be confirmed by Mr White (tab “All Assets Current”, rows 66-67, items 14-15
under “Asset Backed Investments”).382
On 4 January 2008, the attempts to document transactions involve transactions to a
value of $147.5 million, which includes both the $130 Million payment and the
$17.5 million payment.383 However, those transactions involved some unidentified
“loan” in which PIF was investing. That figure of $147.5 million was then reflected
in the later documented transactions.
[364] Ms Watts asked Mr Hutchings and Mr White on numerous occasions from the end of
December 2007 until 23 January 2008 to tell her what investments had been acquired
with the $17.5 million payment. That information was not forthcoming, despite it being
Ms Watts’ job, as PIF’s fund manager, to be kept abreast of PIF’s investments.384
[365] Until the listing of loans documents were circulated on 23 January 2008 (and indeed, for
some time after whilst the purported transactions were refined and documented) the
evidence demonstrates that the staff of MFSIM did not know what PIF had purportedly
received for its total payments of $147.5 million. The relevant evidence is dealt with at
those paragraphs dealing with the development of the false documents.
The alleged transactions were not finally formulated until the second half of January
2008
[366] ASIC repeated and relied on its submissions set out above in relation to the $130 million
payment.
[367] The evidence demonstrates that:
before 23 January 2008, the staff of MFSIM did not know what transactions might
be used to explain the $130 million payment and $17.5 million payment;
before 23 January 2008, a number of possible scenarios were considered, but
ultimately none of them could be progressed until Mr White had provided some sort
of explanation for those payments;
from 23 January 2008 when the listing of loans was first provided by Mr White and
Mr Anderson, various efforts were made to refine and explain and ultimately
document the transactions on or about 6 February 2008; and
380 DEL.2005.0004.1259.
381 DEL.2005.0004.1259.
382 DEL.2008.0004.2490 attaching DEL.2008.0004.2491.
383 DEL.2004.0001.4870 attaching DEL.2004.0001.4871, DEL.2004.0001.4873.
384 See Ms Watts’ s 19 transcript [S19.0020.0001.0001] at pp 59-64 and 115-116. The relevant statements have
been tendered against Ms Watts [COURT.0020.0004.0001].
-- 83 of 348 --
70
those efforts to explain and document the transactions were given particular impetus
because of the pending audit of PIF and requests by RBS for explanations about
precisely what PIF had acquired for the money drawn down under the RBS Loan
Agreement.
The alleged transactions were inconsistent with contemporaneous accounts of PIF and
MYF
[368] As to this issue, see the comments in relation to the accounts of PIF and MYF in relation
to the $130 million payment. The $17.5 million payment ultimately came also to be
reflected in the PIF accounts in very broad terms until after 23 January 2008 when
guidance was given as to what purported transactions had been entered into.
MFSIM’s alleged contraventions in relation to the $17.5 million payment: summary
[369] In summary, ASIC submitted the above evidence led to the following conclusions in
respect of the $17.5 million payment:
The payment was made because PacFin had an urgent need for funds.
The payment was made without any consideration being given by the IAC of
MFSIM to what PIF would receive in return for the payment.
There was no consideration given on the PIF side of the payment as to what PIF
would receive for the payment of $17.5 million.
There was no consideration given on the PIF side of the payment as to whether it
was genuinely in PIF’s interests to make the payment to PacFin.
None of the staff of MFSIM had any appreciation of what, if anything, PIF received
for the payment.
To the extent that the payment later came to be explained by the creation of
documents in late January and early February 2008, those transactions were not
devised or agreed before about 23 January 2008.
[370] Accordingly, the evidence leads to a conclusion that in making the $17.5 million payment:
MFSIM failed to act honestly in breach of s 601FC(1)(a). Instead, it acted without
proper regard for the interests of PIF’s members and paid the money away in order
to support another part of the corporate group financially.
MFSIM failed to act in the best interests of the members of PIF in breach of
s 601FC(1)(c).
MFSIM failed to ensure that all payments out of scheme property were made in
accordance with PIF’s constitution in breach of s 601FC(1)(k).
MFSIM and PacFin were related parties in respect of the $17.5 million payment for
the purposes of s 208 of the Act.
[371] ASIC submitted that MFSIM, in making the $17.5 million payment, contravened s 208(1)
as modified by s 601LC on the basis that the evidence demonstrates that:
PacFin was a related party of MFSIM; and
-- 84 of 348 --
71
PacFin received a financial benefit given by MFSIM as responsible entity for PIF.
It received the $17.5 million. Although it later purported to provide some
consideration for that payment, in fact, it received the payment without any
consideration at the time and the later purported transactions were never ratified in
any event.
[372] The case against MFSIM was said to be established by admissions made by MFSIM.
Further, ASIC alleges that Mr White and Mr Anderson were each “involved” in the
contravention within the meaning of s 79(c), which requires proof of their being directly
or indirectly knowingly concerned in the contravention.
[373] ASIC submits that Mr White and Mr Anderson were each knowingly concerned in each
of the elements of the contravention for the following reasons.
[374] MFSIM gave a financial benefit to PacFin out of scheme property being the $17.5 million
payment made from PIF to PacFin. The $17.5 million payment is admitted in the defences
of Mr White and Mr Anderson.
[375] PacFin and MFSIM were said to be related parties because MFS Limited controlled both
MFSIM and MFS Administration and MFS Administration controlled PacFin. The
control arises from the fact that:
MFSIM was a subsidiary of MFS Limited;
MFS Administration was a subsidiary of MFS Limited;
MFS Administration controlled PacFin through:
(a) the Management Agreement dated 24 July 2006 under which, by its terms,
PacFin was managed exclusively by MFS Administration; and
(b) Mr White and Mr Anderson were directors of MFS Administration and two
of the three directors of PacFin.
[376] The fact of the $17.5 million payment, that MFSIM and MFS Administration were
subsidiaries of MFS Limited, and that Mr White and Mr Anderson were directors of MFS
Administration and PacFin are all admitted in the defence of Mr White and his knowledge
was said to be inferred from his positions as executive director of MFSIM, director of
MFS Administration, Deputy CEO of MFS Limited from 23 May 2007 to 21 January
2008 and director of PacFin.
[377] The fact of the $17.5 million payment, that MFSIM and MFS Administration were
subsidiaries of MFS, and that Mr White and Mr Anderson were directors of MFS
Administration and PacFin are all admitted in the defence of Mr Anderson and his
knowledge of Mr Anderson was said to be inferred from his positions as company
secretary and CFO of MFSIM, director and company secretary of MFS Administration,
CFO of MFS Limited, director and local agent of PacFin.
[378] The involvement of Mr White arises out of his knowledge pleaded in para 73 of the
statement of claim and, in particular, is to be inferred from his knowledge that there was
no transaction effected, and thus nothing that could have been approved.
-- 85 of 348 --
72
[379] The involvement of Mr Anderson arises out of his knowledge pleaded in para 77 of the
statement of claim and in particular is to be inferred from his knowledge that there was
no transaction effected, and thus nothing that could have been approved.
False documents case against MFSIM
False documents relating to PIF acquiring class A MYF units
[380] ASIC’s case was that documents were created in January and February 2008 purporting
to show that the following events took place in November 2007 before the $130 million
payment and the $103 million payment:385
On 20 November 2007 a paper was written by Ms Watts recommending to the MYF
IAC that MYF issue a new class of units (class A) in MYF, so that MYF could use
the proceeds of the issue to participate “in a number of quality investment
opportunities [that] have been presented to [MYF]”: IAC submission dated 20
November 2007 signed by Ms Watts [WIM.0002.0004.0201].
On 20 or 21 November, that paper was submitted to the MYF IAC for its
consideration.
On 21 November 2007, a meeting of the IAC for MYF was held via circular. The
meeting considered and approved a “circular submission”, being Ms Watts’ paper
dated 20 November 2007. That it was the Watts paper that was, according to the
minutes, physically before and considered by the members of the MYF IAC on 21
November 2007, is clear from the fact that the minutes use much of the same
language as the Watts paper. The meeting of the MYF IAC was recorded in minutes
dated 21 November 2007 signed by Mr Hutchings [WIM.0002.0004.0199].
On 23 November 2007, the decision of the IAC for MYF to approve the offer of
class A units to new investors was implemented, by preparing an information
memorandum dated 23 November 2007, which made an offer of class A units in
MYF opening on 23 November 2007 and closing on 31 January 2008: information
memorandum dated 23 November 2007 [OCA.0002.0004.0108].
On 23 November 2007, a meeting of the IAC for PIF was held via circular. The
IAC decided on that day that PIF should acquire $85 million of class A units in
MYF: minutes of the PIF IAC dated 23 November 2007 [WIM.0002.0004.0137].
On 30 November 2007, Mr Hutchings and Mr White made an application on behalf
of PIF for $67.5 million worth of class A units in MYF: application form dated 30
November signed by Mr Hutchings and Mr White [WIM.0006.0001.0138].
On 30 November 2007, MYF issued a unit certificate recording that Perpetual
Nominees on behalf of PIF was the registered holder of 67.5 million fully paid class
A units in MYF: unit certificate dated 30 November 2007 signed by Mr White and
Mr Hutchings [WIM.0006.0001.0140].
[381] The documents were plainly calculated to suggest that each of the above events had taken
place on the above dates. In fact, those events did not take place.
385 For a fuller chronology of ASIC’s contentions regarding the false documents see paras 380-536 of ASIC’s final
submissions.
-- 86 of 348 --
73
[382] Similarly, the documents were plainly calculated to show that they were written before
the drawdown and payment away of the RBS money at the end of November. In fact, as
explained below, the evidence makes clear that the documents were written well after the
event.
[383] Each of the documents, taken both individually and collectively, was false in a number
of respects. The evidence referred to below, ASIC argued, establishes the following
matters unequivocally:
The Watts paper dated 20 November 2007 [WIM.0002.0004.0201] was in fact not
created on that day. It was created in February 2008.
The Watts paper dated 20 November 2007 was not considered by the MYF IAC on
21 November 2007, the paper not then being in existence. The suggestion to the
contrary in the minutes of the meeting of the MYF IAC dated 21 November 2007
is false [WIM.0002.0004.0199].
There was no meeting of the MYF IAC on 21 November 2007 that considered the
matters recorded in the minutes bearing that date. Mr Hutchings, a member of the
IAC who is recorded as having participated in that meeting, admitted that it did not
occur. No notice of the meeting was given to the members of the IAC, and there is
no contemporaneous record suggesting that such a meeting took place.
No information memorandum was prepared on or before 23 November 2007,
contrary to the date stated in the document [OCA.0002.0004.0108]. Nor was there
an offer of class A MYF units that was open on 23 November 2007 stated in that
document. No such offer could be made without an information memorandum, and
that document did not exist until a draft was first created in late January 2008.
There was no meeting of the PIF IAC on 23 November 2007 that considered
whether PIF should accept the offer of MYF class A units made in the information
memorandum, and there was no decision of the PIF IAC on that day approving that
investment, contrary to the PIF IAC minutes dated 27 November 2007
[WIM.0002.0004.0137]. Mr Hutchings, a member of the IAC who is recorded as
having participated in that meeting, admitted that it did not occur.
Mr Hutchings and Mr White did not make an application on 30 November 2007 on
behalf of PIF for class A MYF units, contrary to the date inserted - by hand - on the
application form they each signed [WIM.0006.0001.0138]. The document was not
signed on that date, because it did not exist even in draft until about 31 January
2008.
PIF was not issued with class A MYF units on 30 November 2007, contrary to the
date inserted - again, by hand - on the unit certificate signed by Mr White and
Mr Hutchings [WIM.0006.0001.0140]. The document could not possibly have
been signed on that date, because the document did not exist even in draft until
about 5 February 2008.
False documents relating to PIF participation agreement with PacFin
[384] In relation to the purported participation agreement between PIF and PacFin, ASIC’s case
was that documents were created in January and February 2008 that purported to show,
and were plainly calculated to represent, that the following events took place in November
2007, before the $130 million payment and $103 million payment:
-- 87 of 348 --
74
On 20 November 2007 a paper was written and signed by Ms Watts
[WIM.0002.0004.0139] recommending to the PIF IAC that PIF enter into a
participation agreement with PacFin, in relation to the following loans:
(a) Sagacious Opportunity Trust: $ 5,174,356.55
(b) Copperfield No 1 Ltd (and others) $10,000,000.00
(c) Investment Enterprises Ltd $10,102,271.36
(d) Southport Holdings Ltd $10,091,499.08
(e) Young Village Estates Ltd $25,358,806.95
(f) SPV 1 Pty Ltd $ 2,773,066.06.
On 20, 21, 22 or 23 November, that paper was submitted to the PIF IAC for its
consideration.
On 23 November 2007, a meeting of the IAC for PIF was held via circular, which
considered a “circular submission”, being the Watts paper dated 20 November 2007
referred to above. That it was the Watts paper that was, according to the minutes,
physically before and considered by the members of the PIF IAC on 23 November
2007 is suggested by the fact that the minutes use much of the same language as the
Watts paper. The meeting of the PIF IAC was recorded in minutes dated 23
November 2007 signed by Mr Hutchings [WIM.0002.0004.0137]. The PIF IAC
approved the submission, and considered and approved a “proposed use” of the
RBS facility “in order to fund” the investment.
Between 23 and 30 November 2007, the decision of the IAC for PIF to enter into
the participation agreement and draw down the RBS facility to fund that agreement
was implemented by Mr White and Mr Hutchings executing the participation
agreement [OPI.0002.0001.0126], after which the RBS facility was drawn down.
That suggestion is made when the terms of the participation agreement are read in
the context of the Watts paper and the PIF IAC minutes referred to above.
[385] Again, the documents were plainly calculated to show that each of the above events had
taken place on the above dates, before the RBS draw down. In fact, as explained below,
the evidence makes clear that those events did not take place on those dates.
[386] The participation agreement itself was couched in language that referred to a future flow
of funds. So, for example, cl 1 said that PIF “must advance to” PacFin the relevant
amounts, and that those payments “must be made on the Commencement Date”. The
“Commencement Date” was defined to mean “the date of execution of the agreement”
(unless some other date was agreed).
[387] The evidence establishes the following matters:
Ms Watts did not write a paper on 20 November 2007 recommending that PIF enter
into a participation agreement with PacFin, and she made no such recommendation
at that time or at any time thereabouts. The document [WIM.0002.0004.0077] did
not exist, even in draft form, until more than two months later, in late January 2008.
The loans and amounts specified in that paper were not determined until 23 January
2008. Given those facts, the Watts paper could not possibly have been submitted
to the IAC in November 2007.
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75
There was no meeting of the PIF IAC on 23 November 2007 to consider the matter
referred to in Ms Watts’ paper.
The PIF IAC did not approve PIF entering into a loan participation agreement with
PacFin on 23 November 2007.
The loan participation agreement [OPI.0002.0001.0126] was not signed between
23 and 30 November 2007, but in fact was signed on about 5 February 2008; and
At the time the RBS moneys were drawn down and paid away on 30 November
2007, none of the things listed above had taken place.
False documents relating to MYF participation agreement with PacFin
[388] In relation to the purported participation agreement between MYF and PacFin, documents
were created in January and February 2008 which purported to show, and were plainly
intended to represent, that before the payments made by PIF in November 2007 the
following events took place:
On 27 November 2007, a paper was written and signed by Ms Watts
[WIM.0002.0004.0077] recommending that MYF enter into a participation
agreement with PacFin, in relation to the following loans:
(a) GIPL Holdings No 2 Pty Ltd: $ 9,902,470.91
(b) Blue Sky Development Trust: $45,097,529.09.
On 27 or 28 November 2007, the second Watts paper above was submitted to the
MYF IAC.
On 28 November 2007, a meeting of the MYF IAC was held which considered the
second Watts paper. Again, that it was that Watts paper that was, according to the
minutes [WIM.0002.0004.0075], physically before and considered by the members
of the MYF IAC on 28 November 2007 is suggested by the fact that the minutes
use much of the same language as that Watts paper. The MYF IAC approved the
recommendation made by Ms Watts, and noted that it “would be reliant on MYF
raising at least $55m from the issue of Class A units”.
[389] In fact, the second Watts paper was not written on 27 November 2007, and Ms Watts
made no such recommendation at that time or at any time thereabouts. The paper
[WIM.0002.0004.0077] was not written, even in draft, until 5 February 2008. Given that
fact, the paper could not possibly have been presented to the MYF IAC in November
2007.
[390] There was no meeting of the MYF IAC on 28 November 2007 that considered and
approved a participation agreement between MYF and PacFin.
False documents relating to MYF refinance of Sunleisure loan
[391] In relation to the purported refinance by MYF of a loan to Sunleisure, documents were
created in January and February 2008 which purported to show, and were plainly intended
to represent, that the following events took place in November 2007, before all of the
impugned payments:
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On 28 November 2007, a paper was written and signed by Ms Watts recommending
that MYF provide a loan to Sunleisure of $30 million [OCA.0002.0004.0284].
On 28 November 2007, the third Watts paper was submitted to the MYF IAC.
On 28 November 2007, a meeting of the MYF IAC was held which considered the
third Watts paper. The MYF IAC approved the recommendation made by
Ms Watts, and noted that it “would be reliant on MYF raising at least a further $30
million from the issue of Class A units”, and that “as a result of these two
transactions, MYF will need to raise at least $85m from the issue of Class A units”.
[392] In fact, the third Watts paper was not written on 28 November 2007, and Ms Watts made
no such recommendation at that time or at any time thereabouts. The paper
[OCA.0002.0004.0284] was not written, even in draft, until 5 February 2008. Given that
fact, the paper could not possibly have been presented to the MYF IAC in November
2007.
[393] There was no meeting of the MYF IAC on 28 November 2007 that considered and
approved a loan to Sunleisure.
Use of false documents - the false documents were kept as though genuine records
[394] Each of the false documents was intended to be, and was, kept by MFSIM as a genuine
and accurate record of information. That was a contravention by MFSIM of both its
obligation to act honestly (s 601FC(1)(a)), and the obligation imposed on all companies
to keep written financial records that correctly record and explain their transactions and
financial position, and enable true financial statements to be prepared (s 286).
Use of false documents - false asset reports were sent to RBS
[395] On 21 January 2008, RBS sought a list of all assets and their values held by PIF. The
listing of loans produced by Mr White and Mr Anderson on 23 January 2008 was then
used as the basis for changes to the accounts of PIF which showed that PIF had made
loans in accordance with those lists. Asset reports were provided to RBS on the afternoon
of 23 January 2008 and again on 24 January 2008 that showed the purported transactions
as loan assets held by PIF.
[396] On 30 January 2008, RBS sought information as to how the moneys drawn down under
the RBS facility had been used. In response, information was given to RBS on 31 January
2008 suggesting that particular loans had been acquired by PIF in 2007 with the $200
million from the RBS facility. That information was false. No loans had been acquired
by PIF in 2007, or (even on the defendants’ case) at any time before 31 January 2008.
[397] On 31 January 2008 RBS sought copies of the loan documents underlying the purported
transactions. The participation agreements (being part of the false documents) were
subsequently provided to RBS to evidence the purported loan transactions.
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Use of false documents - the false documents were provided to the auditors and were
reflected in PIF’s half-yearly report
[398] PwC’s review of PIF’s accounts for the half-year ended 31 December 2007 took place in
February 2008. For the purposes of that review, PwC was given access to PIF’s
accounting records. Those records included the false documents, and other documents
that reflected the transactions purportedly recorded therein. Given the falsity of those
documents and the information they contained, PwC did not discover that, in fact, PIF
did not acquire $85 million worth of units in MYF in November 2007, and did not enter
into a $62.5 million loan participation agreement with PacFin in that half-year.
[399] The net result of this was that PIF published reports for the half-year ended 31 December
2007 that showed that, as at 31 December 2007:
PIF held $85 million worth of units in MYF;
PIF held rights in relation to the loans referred to in the PIF-PacFin participation
agreement,
when in fact PIF did not hold those things.
[400] Providing documents and information to auditors known to be false was a contravention
by MFSIM of its obligation to act honestly (s 601FC(1)(a)).
[401] Lodging accounts that were false in material respects, and known to be so, was also a
breach of that obligation, as well as of the obligations to keep accurate financial records
(s 286) and to ensure that MFSIM’s financial statements for a half-year were true and fair
(s 305).
[402] Like the other contraventions alleged in the case, ASIC submitted that it makes no
difference to these contraventions if (contrary to ASIC’s submission) the documents
executed in February 2008 gave rise to enforceable rights. If effective, the documents
meant that PIF acquired $85 million worth of units in MYF and $62.5 million worth of
rights under the loan participation agreement with PacFin in February 2008. The fact that
the documents were backdated does not, of course, mean that the transactions actually
occurred during the half-year ended 31 December 2007. They did not. The PIF accounts,
in purporting to suggest that the transactions had occurred during that half-year, were
false, and known by MFSIM to be so.
Summary of contraventions relating to the false documents
MFSIM
[403] ASIC’s case was that the creation and keeping of documents that are false in material
respects, and known to be false by the individuals who caused the documents to be created
and kept, is axiomatically dishonest conduct in contravention of the obligation imposed
on responsible entities by s 601FC to act honestly. MFSIM contravened that obligation
in relation to each of 15 of the 17 false documents.
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[404] For the purposes of those contraventions by MFSIM, ASIC’s case was that the knowledge
of one or more of Mr White, Mr Hutchings, Mr Anderson, and Ms Watts was to be
attributed to MFSIM.
[405] The use that MFSIM made of the false documents and the information in them, through
the provision of the documents and information to RBS, MFSIM’s auditors and
Mallesons, and incorporating the information in MFSIM’s published accounts for the
half-year ended 31 December 2007, was equally in contravention of s 601FC.
Mr White, Mr Anderson, Mr Hutchings and Ms Watts
[406] ASIC’s case against Mr White, Mr Anderson, Mr Hutchings and Ms Watts was that their
conduct in relation to the creation of the false documents, and the use that was made of
the information contained in the documents, constituted both:
primary contraventions by Mr White, Mr Anderson, and Mr Hutchings of their
duties and obligations:
(a) as officers of MFSIM to act honestly (s 601FD(1)(a)); and
(b) as officers of MFSIM to take all reasonable steps that a person in their
position would take to secure compliance by MFSIM with the Act
(s 601FD(1)(f));
primary contraventions by Mr White and Mr Hutchings as directors of MFSIM to
take all reasonable steps to ensure compliance by MFSIM with its obligations in
parts 2M.2 and 2M.3 of the Act to keep accurate financial records and produce
accurate financial reports (s 344); and
involvement by Mr White, Mr Anderson, Mr Hutchings and Ms Watts in MFSIM’s
contraventions.
[407] The contraventions said to have been committed by each individual were dealt with in
separate parts of ASIC’s submissions and I shall come to them later.
Chronology of relevant events concerning the false documents
[408] The following is a summary of relevant events relating to the development and
documentation of the purported transactions the subject of the false documents derived
principally from ASIC’s final written submissions. Some of the comments reflect those
submissions but they were supported by the evidence.
December 2007
[409] In early December 2007, there was uncertainty amongst the senior staff of the MFS Group
as to the nature of the $130 million payment at the end of November 2007 and what, if
any, assets were acquired with the payments. It was unclear whether the payment
represented a short term loan that would be repaid within a matter of weeks, or some other
investment.
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[410] There was growing concern amongst the senior staff over December about the lack of any
information about what the $130 million payment was for, and pressure from staff for
Mr Hutchings and Mr White to tell them what the funds were for so that the accounts of
PIF (including its list of assets) could be amended to reflect what it was that PIF had.
This concern (indeed, building frustration) was demonstrated by Ms Howard’s curt
request to Mr White in the week before Christmas 2007 to “Give me back my money”.
[411] During December, the holdings reports of PIF varied slightly but were in general terms
only. They often reflected the payment as relating to “other loans”.
[412] Separately, on 6 December 2007 the IAC for MYF accepted a proposal to restructure
MYF in the first three months of 2008 and, in the meantime, to invest the $2.1 million of
assets in MYF in PacFin. This agreement was radically inconsistent with what later came
to be recorded: the creation of a new class of units in MYF, and the issue of 85 million
class A units to PIF in November 2007.386
2 to 7 January 2008
[413] During the first week of January 2008, various attempts were made, primarily by
Mr Hutchings, Ms Watts and Ms Howard, to develop documents that would record
transactions purportedly entered into with the $130 million payment and the $17.5 million
payment. Various drafts of IAC papers were circulated, but those drafting them were
hamstrung because they simply did not know what assets (if any) were to be recorded as
having been acquired by PIF, nor did they know the structure of any such transactions.
[414] In effect, during this period Mr Hutchings, Ms Watts and Ms Howard were tossing
around ideas that might form the basis for transactions to explain the $130 million
payment and the $17.5 million payment.
[415] After this process had been undertaken for a few days, a draft IAC paper approving
possible transactions was sent by Mr Hutchings to Mr White on 7 January 2008.
Mr White was asked to review the paper and insert relevant details about what
investments were acquired by PIF.
[416] It is clear that by this point, none of Mr Hutchings, Ms Watts, or Ms Howard had any idea
what assets had been, or were to be, acquired by PIF. Mr White and Mr Anderson were
not forthcoming with information about the payment, despite increasingly urgent
requests.
[417] Ultimately, information about the assets purportedly acquired by PIF was not forthcoming
from Mr White and Mr Anderson until 23 January 2008.
[418] During this time, the PIF holdings reports still recorded only general information under
the heading “other loans”.387
386 See the detailed chronology at para [384] of ASIC’s final written submissions.
387 See the detailed chronology at para [390] of ASIC’s final written submissions.
-- 93 of 348 --
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8 to 22 January 2008
[419] During this period, the pressure was building for information about what was done with
the $130 million payment and the $17.5 million payment. Staff who ought to have been
involved in that transaction were not and had not been informed about what the payments
were for. They were becoming increasingly frustrated that they were unable to find out
what the payments were for and how they ought to be accounted for in PIF’s accounts.
By mid-January, the fact that PIF’s accounts and holdings reports did not record what the
payments were for (other than in broad terms such as “other loan”) was becoming
increasingly problematic for a number of MFS staff.
[420] The pressure to obtain this information was multiplied because:
PwC were due to commence a mid-year review of the accounts of MFSIM on 21
January 2008, and the presence of a $147.5 million hole in the accounts, without
any detail as to what it was for, was sure to cause immediate and serious problems
with the auditors; and
by 21 January 2008, RBS was pressing for details of what assets had been acquired
with the money drawn down under PIF’s RBS facility.
[421] Despite promises, no information was given by Mr White or Mr Anderson as to what
assets they said had been acquired by PIF during this period. However, Mr White and
Mr Anderson did discuss the matter by email during this period with a view to trying to
develop some explanation for the payments made.
[422] On 15 January 2008, Mr White asked Mr Anderson to apply his “creative brain” to “work
out what the $147.5 million went to”. That email is consistent with a conclusion that, at
least by 15 January 2008, neither Mr White nor Mr Anderson in fact knew what
transactions would be used to explain the combined $147.5 million in payments. A
degree of “creativity” was therefore required to develop some explanation for the
payments, ex post facto.
[423] The holdings reports continued to record the payments as simply “other loans” or “new
loans”, without any detail whatsoever.
[424] Mr Hutchings was deep in the midst of this ever building pressure. As CEO of MFSIM,
he was the person who, the staff expected, ought to have known what the $147.5 million
was used for and how it benefited PIF. In fact, he was waiting for this information from
Mr White and/or Mr Anderson, and was getting nowhere with them. His growing
frustration levels are evident in his emails.
[425] On 21 January 2008, Mr Hutchings’ building frustrations and anxiety erupted in an email
that he sent to Mr White and Mr Anderson stating that he understood that the majority of
the moneys drawn down on the RBS facility were not used to purchase assets to replace
a similar amount of facilities maturing in the next month or so (which is what the board
of MFSIM had been informed) or for seeding MYF. Instead, he said that he understood
that the money had been used in breach of PIF’s PDS and related party requirements.
-- 94 of 348 --
81
[426] Mr Hutchings was then referred to by Mr Anderson in the “escalation” email to Mr White
in these terms: “I know the last thing you want to do is talk to Guy H but it could be the
bomb that needs diffusing [sic]”.388 It is legitimate to infer from it that Mr Anderson and
Mr White saw Mr Hutchings and the views that he expressed about the way in which the
money was used as very serious indeed and potentially devastating for the future of the
corporate group. By then, it was apparent that Mr White and Mr Anderson would have
to act quickly to ensure that they developed some sort of explanation for the payments
made in November and December 2007.389
23 January to 6 February 2008
[427] On the morning of 23 January 2008, both Mr White and Mr Anderson, for the first time,
provided lists of loans which they said were acquired by PIF with the $147.5 million.
However, the lists were not identical.
[428] Over the course of the next two weeks, the loans said to have been acquired by PIF, and
the manner in which PIF was said to have acquired an interest, were developed, changed,
refined and ultimately documented. For example, both emails from Mr White and
Mr Anderson on the morning of 23 January 2008 apparently envisaged that PIF would
take a direct interest in the loans set out in the listings they prepared. There was no
mention of MYF taking any interest in the loans, or in PIF acquiring any interest in MYF,
which is how the transactions ultimately came to be documented a fortnight later.
[429] The manner in which the purported transactions were developed and ultimately came to
be documented is detailed in the many emails passing between the various actors over
this period. Likewise, the manner in which the transactions were recorded in the asset
reports of PIF during this period reveal that, initially, PIF’s investment in MYF was $30
million (that is, the value of the Sunleisure loan), but that later increased substantially.
[430] RBS was given information about the assets purportedly acquired by PIF during this
period, based on the listings of loans provided by Mr White and Mr Anderson.
[431] The board of MFSIM was informed at a board meeting on 23 January 2008 that the full
$200 million RBS facility had been drawn down to fund loans in the asset backed sector
ahead of the impending maturity of other loans in that sector in January 2008. It was
stated that most if not all of the $200 million would be repaid by the end of January 2008.
Mr Hutchings did not inform the board of the concerns that he had expressed to Mr White
and Mr Anderson on 21 January 2008 about the apparent misuse of the moneys drawn
down under the RBS facility.
[432] On 24 January 2008, Mr White and Mr Anderson instructed Mr Stride (an MFS in-house
counsel) to prepare documents that recorded the transactions that Mr White and
Mr Anderson had developed in late January 2008. In turn, Mr Stride and Ms Platts
instructed Mr Gavras-Moffat on 27 January 2008 to draw documents which showed that
the $130 million payment and the $17.5 million payment had been invested by MFSIM
on behalf of PIF.
388 DEL.2006.0003.3330.
389 See the detailed chronology at para [398] of ASIC’s final written submissions.
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[433] During this period, the false documents described in the statement of claim were
developed and finalised. The creation of the particular false documents is considered
separately below. This period culminates with exchanges of emails on 6 February 2008
between Mr Hutchings, Ms Watts, and Ms Platts, where the final form of the false
documents is agreed between all parties.
[434] In late January, RBS advised that its facility had been breached because the borrowing
had breached the 20 per cent limit of gearing. PIF repaid $16 million to RBS to ensure
that the gearing on the RBS facility was brought back within the 20 per cent limit.390
7 February to end February 2008
[435] During this period, the documentation recording the purported transactions had been
largely finalised. The finishing touches were put to the documents. The completed and
executed documents were kept and distributed both internally to the MFS Group and
externally as if they were genuine documents that accurately recorded transactions that
had occurred in 2007.
[436] On 11 February 2008, the board was asked by Mr Hutchings to ratify the prior issue of
units in MYF, saying it should have been presented to the board in November 2007 for
approval but was not, due to an “oversight”. In fact, it could not have been an “oversight”
at all, as the possibility of the transactions that ultimately came to be documented was not
contemplated in November 2007 and was, in fact, contrary to what the IAC agreed on 6
December 2007 were the plans for the restructure of MYF in early 2008.
[437] During this period, the internal Compliance section of MFS became increasingly active
in seeking information about the purported transactions. However, much of the
information sought by that section was either not forthcoming, or only able to be obtained
after lengthy delays. An internal audit of the transactions was commenced by Mr
Fitzgerald, culminating in a draft report prepared by him in mid-March 2008.391
Pleaded issues - the MFSIM contraventions relating to the creation of false documents
[438] The contraventions alleged arising out of the false documents case relate particularly to
the creation, keeping and use of the false documents and false accounting. I shall set out
ASIC’s approach to these aspects of the case based on its written submissions without
addressing, at this stage in any detail, the responses from the defendants.
Creating false documents: s 601FC(1)(a)
[439] Under this heading fall the contraventions pleaded against MFSIM in paras 187A-187Q
of the statement of claim.
[440] Section 601FC(1)(a) of the Act provides:
390 See the detailed chronology at para [406] of ASIC’s final written submissions.
391 See the detailed chronology at para [409] of ASIC’s final written submissions.
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“(1) In exercising its powers and carrying out its duties, the responsible
entity of a registered scheme must:
(a) act honestly[.]”
[441] A responsible entity, like any other company, has the power and a duty to create records
that explain the transactions it has entered into.
[442] There are many provisions in the Act that require bodies corporate to keep or retain
documents of one kind or another. For example, s 251A obliges a company to keep
minute books in which it records (inter alia) proceedings and resolutions of directors’
meetings (including meetings of a committee of directors). Section 286 provides as
follows:
“286 Obligation to keep financial records
(1) A company, registered scheme or disclosing entity must keep
written financial records that:
(a) correctly record and explain its transactions and financial
position and performance; and
(b) would enable true and fair financial statements to be
prepared and audited.
The obligation to keep financial records of transactions extends to
transactions undertaken as trustee.”
[443] A responsible entity holds scheme property on trust for the members of the scheme:
s 601FC(2). Thus, s 286(1) obliges a responsible entity to keep written financial records
that correctly record and explain its transactions and financial position and performance,
and would enable true and fair financial statements to be prepared and audited, both of
itself and of the managed investment schemes of which it is responsible entity.
[444] A responsible entity plainly acts dishonestly if it backdates documents so that they state
or suggest that important events took place when, to the knowledge of the person creating
the document on the responsible entity’s behalf, that event did not take place either at all
or at anywhere near the day on which the document suggests the event took place. A key
aspect of the dishonesty is the fact that the backdating is such that it is intended or likely
to trick or mislead others reviewing the documents.
The particular false documents
[445] ASIC did not press the allegations it made in respect of two of the 17 documents pleaded
in the statement of claim, being:
the proposal to the MFSIM board dated 31 October 2007 recommending MYF offer
to a select group of investors the opportunity to purchase 100 million class A units,
referred to in the statement of claim para 109 [OCT.0001.0001.0038]; and
the undated request to the CRPC for approval for PIF to purchase 85 million class
A units in MYF referred to in the statement of claim para 118
[OCA.0002.0009.0002].
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[446] ASIC contended that MFSIM acted dishonestly in creating the following documents:
The submission to the IAC for MYF dated 20 November 2007 recommending that
MYF issue up to 100 million class A units at $1.00 per unit (statement of claim para
110) [WIM.0002.0004.0201].
The submission to the IAC for PIF dated 20 November 2007 recommending PIF
enter into a $62.5 million loan participation agreement with PacFin (statement of
claim para 111) [WIM.0002.0004.0139].
The IAC (MYF) minute of meeting dated 21 November 2007 purporting to record
that IAC approves the issue of 100 million class A units in MYF (statement of claim
para 112) [WIM.0002.0004.0199].
The MYF class A units information memorandum dated 23 November 2007
(statement of claim para 113) [OCA.0002.0004.0108].
The IAC (PIF) minute of meeting dated 23 November 2007 purporting to record
PIF (1) entering into a $62.5 million loan participation agreement with PacFin; and
(2) acquiring 85 million class A units in MYF (statement of claim para 114)
[WIM.0002.0004.0137].
The submission to the IAC for MYF dated 27 November 2007 recommending MYF
enter into a $55 million loan participation agreement with PacFin (statement of
claim para 115) [WIM.0002.0004.0077].
The submission to the IAC for MYF dated 28 November 2007 recommending MYF
lend Sunleisure $30 million (statement of claim para 116) [OCA.0002.0004.0284].
The IAC (MYF) minute of meeting dated 28 November 2007 approving MYF (1)
entering into a $55 million loan participation agreement with PacFin and (2) lending
Sunleisure $30 million (statement of claim para 117) [WIM.0002.0004.0075].
The loan participation agreement between MYF and PacFin (statement of claim
para 119) [OPI.0002.0001.0079].
The loan participation agreement between PIF and PacFin (statement of claim para
120) [OPI.0002.0001.0126].
The application by PIF for 67.5 million class A units in MYF (statement of claim
para 121) [WIM.0006.0001.0138].
The PIF certificate of unitholding in MYF for 67.5 million units (statement of claim
para 122) [WIM.0006.0001.0140].
The application by PIF for 17.5 million class A units in MYF (statement of claim
para 123) [WIM.0006.0001.0135].
The PIF certificate of unitholding in MYF for 17.5 million units (statement of claim
para 124) [WIM.0006.0001.0137].
The new loan notice dated 31 December 2007 (statement of claim para 125)
[OIM.0001.0001.0324].
[447] Each document is dealt with in turn below. The claimed dishonesty of MFSIM, on
account of the conduct and knowledge of the defendants directly involved with the
documents, is summarised in relation to each document. Attribution of the conduct and
knowledge of the individual defendants, in ASIC’s submissions, is said to explain why
MFSIM acted dishonestly in contravention of s 601FC(1)(a) in creating each of the
-- 98 of 348 --
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documents. It will be necessary to return to the position of those defendants when the
contraventions alleged against each of them are dealt with and their arguments are
considered. I also examine the legal issue whether their conduct can be attributed to
MFSIM later.
MYF IAC submission regarding class A units dated 20 November 2007 (the statement of
claim para 110)
[448] This document [WIM.0002.0004.0201] was dated 20 November 2007. It contains a
submission from Ms Watts recommending that MYF create a new class of units, class A,
and offer them “to a select group of sophisticated investors”. According to the document,
the aim was to “raise enough equity”, up to $100 million, “for MYF to participate in the
investment opportunities that are currently on offer”.
[449] This document was, on ASIC’s case, obviously and intentionally backdated. It was not
prepared on the day it was dated, 20 November 2007, but more than two months later.
The evidence shows that the document was created on about 31 January 2008 and
finalised on about 6 February 2008.392
[450] ASIC’s case was that those emails also make clear that there was no submission made by
Ms Watts or anyone on or about 20 November 2007 recommending that MYF issue class
A units.
[451] The language of Ms Watts’ document was obviously intended to suggest that it was
written in advance of a flow of funds that had not yet occurred. As noted above, the
submission referred to a proposal to make an offer of MYF units “to a select group of
sophisticated investors”. The aim was to “raise enough equity”, up to $100 million, “for
MYF to participate in the investment opportunities that are currently on offer”. The
submission also said that MYF’s only existing investment was money “currently invested
in the Adelaide Bank’s AAA Saver account”. That would be true if the submission really
had been written back on 20 November 2007. But the statement was quite false, and
known by Ms Watts to be so, at the time the document was written, in late January and
early February 2008. By then, MYF’s cash had actually been invested in PacFin’s notes.
That fact, and Ms Watts’ knowledge of it, was said to be clear from, for example, the
following documents:393
“6.12.07
Minutes IAC for ‘PIF’ [scil, MYF]
Hutchings, Kennedy, Snowden, Kyling, White, Kercher, Hogarth & Wendy
Bennett. Approves interim 3 month investment. Signed Hutchings
It is recommended MYF existing funds be invested in MFS Pacific funds for
a period of 3 months during which time a proposal to reorganise and
relaunch the Maximum Yield Fund will be approved and implemented …
The submission was unanimously approved in support of Option 3 as well
as the proposed interim investment in MFS Pacific [DEL.2004.0001.8274]
392 See the detailed chronology at para [421] of ASIC’s final written submissions.
393 See the chronology at para [423] of ASIC’s final written submissions.
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19.12.07
5:39 pm Email from Ms Howard to Brown cc Watts, Hutchings - MYF
will be investing $2.1m in PacFin as approved by IAC
[DEL.2004.0006.0334]
20.12.07
9 25 am Email from Ms Howard to Watts ‘Max Yield is today investing
into MFS Pacific finance’ [DEL.2004.0006.0320]
9:27 am Email from Ms Watts to Ms Howard ‘Many thanks’
[DEL.2004.0006.0320]”
[452] Ms Watts played a significant role in finalising the submission, and she approved her
signature appearing on the document when she sent it to Ms Platts on 6 February 2008
with hand-written ticks all over it [DEL.2004.0001.7439, attaching
DEL.2004.0001.7440], including a tick next to the date “20 November 2007”. A little
later that day, Ms Watts provided approval, by saying that the documents including the
submission were “all okay” [DEL.2004.0001.7256]. That was at least an implicit, if not
express, approval of the documents, and the use of Ms Watts’ signature on them. When
she did these things, Ms Watts knew that the document was backdated, that she had not
made a submission to the MYF IAC on or anywhere near 20 November 2007.
[453] ASIC submitted that there was no honest justification for the backdating of the document.
If no submission had in fact been made to the MYF IAC on or around 20 November 2007
recommending that MYF issue 100 million class A units, then there was no legitimate
reason for a document containing such a recommendation to be dated 20 November 2007.
[454] Why, then, was the document dated 20 November 2007? ASIC submitted that the answer
was obvious. The document was dated 20 November 2007 to make it appear that it
existed on that date and had been submitted to the IAC on that day or thereabouts. It was
part of a suite of documents prepared concurrently, all of which were backdated, to make
it appear that the relevant events took place in November 2007 before the $130 million
payment and as if $67.5 million of that money was used by PIF in November 2007 to
purchase MYF units as discussed earlier.
[455] Ms Watts made the following statement in relation to another document she backdated:
“I cannot remember why I re-dated the paper 28 November 2007. However,
as the paperwork was recording investments that had already occurred, the
paperwork needed to be dated a few days prior to the investments.”394
[456] Contrary to the suggestion in that statement, ASIC submitted I should find that at the time
she participated in the drafting and finalising of the submission, Ms Watts:
did not hold a belief that there was some legitimate reason why it should be dated
20 November 2007;
knew that the dating of the submission as 20 November 2007 would suggest to a
reader that the document had existed on 20 November 2007 and that the
394 Affidavit of Ms Watts [AFF.MAW.0002] at para 208.
-- 100 of 348 --
87
recommendation recorded in it had been made to the MYF IAC on about that day;
and
knew that the document did not exist on 20 November 2007 and that there had been
no recommendation made by her to the MYF IAC as recorded in the submission at
all, let alone on about that day.
[457] ASIC also submitted that I should find that, at the time, Ms Watts knew that the
backdating of the document was wrong. Ms Watts stated in her s 19 examination that,
when she asked why the document had to be backdated to 20 November 2007, she was
told:395
“Obviously, it wouldn’t be good form to have a transaction on one date and
the paperwork following a couple of days later[.]”
[458] Importantly, Ms Watts there admitted:396
“I wasn’t comfortable with it.”
[459] Similarly, Ms Watts was asked this question and gave the following answer:397
“Q. So you didn’t think drafting a document in January, dating it 20
November, because I think your words were something along the lines of,
‘It wouldn’t be a good look to have documents dated after the transaction,’
you didn’t think that there was anything -
A. I definitely was not happy about that at all, and in hindsight I certainly
should have said, ‘No, I don’t want my name on this paper at all.’ But I
did.”
[460] ASIC submitted that the reason why Ms Watts was not comfortable, and was “definitely
not happy” with her name and signature being on a backdated document was that she
knew it was wrong to do so, the effect being to make the document deceptive. Her
conduct in approving the documents was dishonest.
[461] ASIC also submitted that, in relation to this particular document, Ms Watts’ acts and
knowledge were to be attributed to MFSIM. She was, for this purpose, MFSIM’s
directing mind and will. The document was, on its face, her document. It contained her
signature. She participated in its drafting. And she approved its contents.
[462] Accordingly, ASIC submitted that, on its proper construction, s 601FC(1)(a) must be read
so that, in this context, the dishonest conduct of Ms Watts was to be treated as the
dishonest conduct of MFSIM.
395 Section 19 examination of Ms Watts [S19.0020.0001.0001] at p 70/15-17.
396 Section 19 examination of Ms Watts [S19.0020.0001.0001] at p 70/18.
397 Section 19 examination of Ms Watts [S19.0020.0001.0001] at p 80/ 26-p 81/7.
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88
PIF IAC submission dated 20 November 2007 regarding PacFin participation agreement
(the statement of claim para 111)
[463] This document [WIM.0002.0004.0139] contains another submission made by Ms Watts,
this time to PIF’s IAC. It is dated 20 November 2007 and contains a recommendation
that PIF enter into a $62.5 million loan participation agreement with PacFin.
[464] ASIC made similar submissions that the PIF IAC submission dated 20 November 2007
was deliberately backdated to make it appear that it existed, and was provided to the
members of the PIF IAC, on about 20 November 2007, and thus before PIF drew down
funds from RBS.
[465] Again, the PIF IAC submission was couched in language referable to a future investment
proposed to be made by PIF. In fact, the document was first drafted on 31 January 2008
and revised over the course of 5 and 6 February 2008 by Ms Watts and Ms Platts.398
[466] As those documents show, Ms Watts played a significant role in finalising the
submission. She approved her signature appearing on the document when she sent it to
Ms Platts on 6 February 2008 with both hand-written ticks all over it and additional text
to add to the document [DEL.2004.0001.7430 attaching DEL.2004.0001.7431].
Approval was also given when Ms Watts said a little later that day that the documents
including the submission were “all okay” [DEL.2005.0001.9737].
[467] When Ms Watts did these things, she knew that the document was backdated and that she
had not made a submission to the PIF IAC on or anywhere near 20 November 2007 as
was recorded in the document.
[468] Mr Hutchings’ role in relation to this document is described below. ASIC submitted that
the conduct of Ms Watts and Mr Hutchings (or, if it matters, either of them) is to be
attributed to MFSIM, such that MFSIM itself acted dishonestly in relation to the
preparation of the document.
MYF IAC minutes regarding class A units dated 21 November 2007 (the statement of
claim para 112)
[469] This document [WIM.0002.0004.0199] purports to record a meeting “held on 21
November 2007” that did not happen. Mr Hutchings, one of the persons who is recorded
as having participated in the meeting, admitted that it did not occur.
[470] The document suggests that, on 21 November 2007, MYF’s IAC approved MYF issuing
100 million units in a new class, class A. The language of the minutes, like all the other
back-dated documents, speaks of future events that had not yet occurred, but which will
result in a flow of money. The minutes refer to MYF having been “presented” with
investment opportunities which it could take up if MYF were to create 100 million class
A units and offer them “to a select group of sophisticated investors”.
398 See the emails from 31 January 2008 to 8 February 2008 summarised at para 437 of ASIC’s final written
submissions.
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89
[471] This fiction that MYF considered, approved and implemented on 21 November 2007 the
raising of funds from the issue of a new class of MYF units to PIF, and that MYF made
investments with the money PIF paid it to acquire class A units from MYF, was part of
the retrospective justification for the use of PIF’s money in November and December
2007. In truth, nothing of the sort occurred in that time period. The true restructure of
MYF did not take place in 2007.
[472] The use of PIF’s money obtained from RBS took place more than two months before the
creation of class A units and their issue to PIF was first thought of. If there truly had been
an issue of class A MYF units at the end of November 2007, that issue would have been
referred to in the contemporaneous documents. There was no such reference in any of
the documents.399
The creation and backdating of the MYF IAC minutes dated 21 November 2007 (the
statement of claim para 112)
[473] The MYF IAC minutes dated 21 November 2007 were created in January and February
2008. They were backdated to make it appear that there had been such an issue of units,
contrary to reality and to the knowledge of Ms Watts and Mr Hutchings.
[474] The minutes of the MYF IAC dated 21 November 2007 regarding the class A units were
first drafted on 5 February 2008 [DEL.2004.0001.7462 attaching
DEL.2004.0001.7472].400
[475] Ms Watts reviewed the minutes twice on 6 February 2008, as shown in:
an email from her to Ms Platts at 7:40 am [DEL.2004.0001.7439] attaching a
document with handwritten ticks throughout the document [DEL.2004.0001.7440];
and
then at 6:43 pm in an email that said that the document and others were “all okay”
[DEL.2004.0001.7256].
[476] Mr Hutchings also approved the document, in an email sent at 6:35 pm on 6 February
2008, which confirmed that his position in relation to the PIF suite of false documents
finalised on the same day (“no changes from me” [DEL.2005.0001.9739]) applied also
in relation to the MYF suite of documents [DEL.2005.0001.9738]. That approval
encompassed the display of Mr Hutchings’ signature after the statement “confirmed as a
true record”.
[477] The minutes falsely record that, on 21 November 2007, a “circular submission” relating
to the issue of 100 million class A units in MYF was considered at the meeting. There
was no such document in existence on 21 November 2007. Ms Watts and Mr Hutchings
knew that, because they knew that the “circular submission” referred to in the minutes
was Ms Watts’ paper referred to above, and they knew that that paper did not exist until
6 February 2008. Ms Watts and Mr Hutchings thus both knew that the document
recorded an event that did not take place.
399 See the detailed chronology at para [444] of ASIC’s final written submissions.
400 See the detailed chronology at para [447] of ASIC’s final written submissions.
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90
[478] The allegations about Mr Hutchings’ and Ms Watts’ dishonesty in relation to this
document is described further later in these reasons. ASIC’s case was that the conduct
and dishonesty of Ms Watts and Mr Hutchings (or, if it matters, either of them) is to be
attributed to MFSIM, such that MFSIM itself acted dishonestly in relation to the
preparation of the document.
MYF class A units information memorandum dated 23 November 2007 (the statement of
claim para 113)
[479] This document [OCA.0002.0004.0108] was also intentionally backdated to make it
appear as if it existed in November 2007, when in fact it did not exist until late January
2008 and was finalised on 6 February 2008. In between, drafts were circulated, reviewed
and changed by Mr Hutchings and Ms Watts (as well as Ms Platts).401
[480] The information memorandum was dated 23 November 2007 on page ii. And on page 1
it noted under the heading “Summary of Important Dates” that the Class A Units offer
opened on 23 November 2007 and closed on 31 January 2008. That period was entirely
in the past.
[481] That document had been backdated to appear as if it had in fact been issued on 23
November 2007. Ms Watts and Mr Hutchings both knew that in truth, the document had
not been issued on that date, but was made to appear as if it had.
PIF IAC minutes dated 23 November 2007 regarding PacFin participation agreement
and $85 million MYF class A units (the statement of claim para 114)
[482] Again, this document [WIM.0002.0004.0137] purports to record a meeting, this time, of
the PIF IAC “held on 23 November 2007”, that did not happen. Mr Hutchings, one of
the persons who is recorded as having participated in the meeting, admitted that it did not
occur.
[483] The minutes of the PIF IAC meeting said to have been held on 23 November 2007 were
created on 31 January 2008, more than two months after the date they bear. The minutes
were circulated between Ms Watts, Mr Hutchings, and Ms Platts on 31 January 2008, 1
February 2008 and 6 February 2008, during which time they were changed by Ms Watts
and Ms Platts.402
[484] Mr Hutchings approved the final form of the minutes, including the display of his
signature after the statement “confirmed as a true record”. Mr Hutchings’ approval of
this document was dishonest, because he knew that it falsely recorded a meeting that did
not occur.
[485] Ms Watts also approved the minutes when she sent an email to Ms Platts and
Mr Hutchings at 6:43 pm on 6 February 2008 [DEL.2005.0001.9737] saying: “All okay”.
401 See the detailed chronology at para [452] of ASIC’s final written submissions.
402 See the detailed chronology at para [456] of ASIC’s final written submissions.
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91
[486] Ms Watts’ conduct was also dishonest, for she too knew that the minutes were backdated
to reflect a meeting that did not occur and to suggest that two specific decisions had been
made on behalf of PIF on 23 November 2007 to invest $147.5 million of PIF’s money
when, in fact, there had been no such decisions.
[487] ASIC’s case was that, as Mr Hutchings and Ms Watts had acted dishonestly in these
respects, so too had MFSIM, in contravention of s 601FC(1)(a).
MYF IAC submission dated 27 November 2007 regarding PacFin participation
agreement (the statement of claim para 115)
[488] This document [WIM.0002.0004.0077] purported to contain a submission from Ms Watts
to the MYF IAC recommending that MYF enter into a $55 million loan participation
agreement with PacFin. The submission was dated 27 November 2007, thereby
suggesting that the document existed as at that date. It did not. The document was created
on about 5 February 2008, backdated from the outset and finalised the next day.403
[489] The document was drafted in language plainly intended to suggest that it sought approval
for MYF to invest $55 million in the future, conditional on MYF raising “at least $55m
from the issue of class A units in order to fund the above transactions”. In reality, the
cash that was to “fund” the transaction had already been paid in November and December
2007, with no submission made to MYF’s IAC at that time, and no consideration or
approval by that committee, in relation to any such investment as that contained in the
document. The submission document dated 27 November 2007 was obviously intended
to seek to hide that fact.
[490] At the time they approved the submission, Ms Watts and Mr Hutchings knew that the
document was backdated, and that the purpose of so doing was to disguise the fact that
PIF’s money had been paid in November and December 2007 without there being
transactions at that time pursuant to which PIF would receive a benefit in return. To
backdate documents in this way and for this purpose was dishonest. The acts of Ms Watts
and Mr Hutchings in this respect, acting as they were on behalf of MFSIM, are to be
attributed to MFSIM. MFSIM thereby contravened s 601FC(1)(a) of the Act.
MYF IAC memorandum dated 28 November 2007 regarding Sunleisure loan (the
statement of claim para 116)
[491] This document [OCA.0002.0004.0284] was another backdated submission from
Ms Watts recommending a $30 million investment by MYF. The document was dated
28 November 2007, thereby suggesting that it had existed on that date, when in fact it had
not. The memorandum was created on or shortly before 5 February 2008.404
[492] Again, the language of the memorandum was calculated to suggest that approval was
sought from the MYF IAC on 28 November 2007 for MYF to lend $30 million to
Sunleisure to enable that company to repay, in the future, $30 million to MFS Limited.
That $30 million was thus proffered as part of the transactions funded by PIF’s $130
403 See the detailed chronology at para [462] of ASIC’s final written submissions.
404 See the detailed chronology at para [466] of ASIC’s final written submissions.
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million drawdown on 30 November 2007. In fact, the transfer of money from PIF to MFS
Administration (and then to Fortress) took place on 30 November 2007, but like the other
alleged transactions, there was no $30 million Sunleisure loan from MYF at all on that
day. Instead, the documentation relating to a $30 million MYF-Sunleisure loan (of which
the MYF IAC memorandum dated 28 November 2007 was the first step) was backdated
to suggest that the transaction came first, and the money flowed thereafter, when in fact
there was no transaction at all at the time the money was paid.
[493] To participate in the creation of such a subterfuge, knowing that it does not reflect reality,
is to act dishonestly. Both Ms Watts and Mr Hutchings knew the document was false,
and that it was part of a suite of backdated documents. ASIC’s case was that the inference
is irresistible that they knew the backdating would lead a reader to infer, wrongly, that
MYF had made a $30 million loan to Sunleisure in November 2007 when in fact it had
not.
MYF IAC minutes dated 28 November 2007 regarding $55 million PacFin participation
agreement and Sunleisure loan (the statement of claim para 117)
[494] According to this document [WIM.0002.0004.0075], a meeting of the MYF IAC was
“held on 28 November 2007” via circular sent to Mr White and Mr Hutchings, who
approved MYF entering into two transactions in the future:
entering into a $55 million loan participation agreements with PacFin, “reliant on
MYF raising at least $55M from the issue of Class A units as per its information
memorandum dated 23 November”; and
lending Sunleisure $30 million.
[495] Again, this document purports to record a meeting that did not happen. Mr Hutchings,
one of the people who is recorded as having participated in the meeting, admitted that it
did not occur. The document was, like the others, created in February 2008 and backdated
to 28 November 2007.405
[496] The document containing the minutes dated 28 November 2007 was part of the string of
documents calculated to suggest that, in November 2007, before PIF drew down and paid
away $130 million of trust money, transactions were recommended, considered, approved
and then documented, when in fact none of those things occurred.
[497] Mr Hutchings’ approval of minutes of a committee meeting that he knew did not occur,
and his self-evident intention that the document would be read as suggesting (contrary to
the truth) that specific transactions funded by PIF’s money were approved in November
2007, was dishonest. That dishonesty is attributable to MFSIM.
Participation agreement between MYF and PacFin (the statement of claim para 119) and
participation agreement between PIF and PacFin (the statement of claim para 120)
[498] The two loan participation agreements [OPI.0002.0001.0079, OPI.0002.0001.0126] may
be dealt with together. Two of the transactions referred to in the suite of PIF and MYF
405 See the detailed chronology at para [471] of ASIC’s final written submissions.
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93
backdated documents discussed above were loan participation agreements: one between
MYF and PacFin and the other between PIF and PacFin. Those agreements formed part
of the purported explanation of what happened to the $147.5 million paid by PIF on 30
November 2007 and 27 December 2007.
[499] The explanation suggested by the documents was as follows:
of $147.5 million paid by PIF to MFS Administration and PacFin:
(a) $85 million of it was invested by PIF in MYF, by way of two subscriptions
for MYF’s class A units; and
(b) $62.5 million of it was invested by PIF in a loan participation agreement with
PacFin; and
of the $85 million purportedly payable by PIF to MYF, MYF invested $55 million
of it in a loan participation agreement with PacFin.
[500] Although the loan participation agreement between MYF and PacFin is not dated, it was
plainly calculated to suggest that the document was signed before the funds were drawn
down by PIF from RBS in November and December 2007. So much is clear from the
following facts:
The agreement is referred to in:
(a) the submission to the MYF IAC dated 27 November 2007; and
(b) the MYF IAC minutes dated 28 November 2007.
The agreement is couched in language that refers to a future flow of funds. For
example:
(a) cl 1.1 provides that “the Participant” (being MYF or PIF) “must advance to
the Financier an amount”;
(b) cl 1.2 provides that “Payments under this clause must be made on the
Commencement Date”; and
(c) cl 15.1 defines “Commencement Date” as “The date of execution of this
Agreement” (unless some other date was agreed between the parties).
[501] At least taken together with the suite of backdated documents, the loan participation
agreements were intended to disguise the fact that no transactions were entered into in
November and December 2007, making up the $147.5 million paid by PIF.
[502] The loan participation agreement between PIF and PacFin was, in fact, held out by
MFSIM as having been “dated November 2007”. Ms Watts told PwC in her email of 15
February 2008 [DEL.2009.0001.6625] that she was attaching (emphasis added):
“documentation relating to submission and approval of the $62.5m of loans
which are contained within the Loan Participation Agreement between PIF
and Pacific Finance dated November 2007.”
[503] Attached to that email were:
the board proposal dated 1 February 2008 to ratify the loan participation agreement
and PIF’s purchase of class A units [DEL.2009.0001.6626]. That board paper
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94
falsely stated in relation to both transactions, “The IAC approved the transaction in
November 2007”;
the IAC submission dated 20 November 2007 from Ms Watts to the PIF IAC
relating to the PIF/PacFin participation agreement [DEL.2009.0001.6627]; and
the PIF IAC minutes dated 23 November 2007 [DEL.2009.0001.6629].
[504] Whether taken individually, or collectively as part of the suite of backdated documents,
the loan participation agreements were false in suggesting that they had been executed in
2007 and reflected transactions that had been undertaken in November and December
2007. The loan participation agreements did not exist in 2007, but were created and
executed in 2008.406
[505] Mr Maywald, the CEO of PacFin who, ASIC submitted, would have learnt of the loan
participation agreements had they truly existed in 2007, knew nothing of them until
February 2008.
[506] At the time of the above events, Mr White, Mr Anderson, Mr Hutchings, and Ms Watts
knew that the participation agreements would be considered as having been executed
before the flow of funds from RBS, as recording transactions entered into at that time. In
fact, as all of those persons well knew, the participation agreements were not executed
before the drawdown of funds from RBS, but instead were executed months later. And
as all of those persons well knew, the participation agreements did not record transactions
entered into at the time of the drawdown.
[507] For the purpose of affixing liability on the part of MFSIM in the present respect, it is not
necessary to find each of Mr White, Mr Anderson, Mr Hutchings and Ms Watts knew that
the documents were false in these respects. Instead, the submission went, the knowledge
of any of those persons is attributable to MFSIM so that on this basis, the creation by
MFSIM of the loan participation agreements was dishonest.
Application by PIF for 67.5 million class A units in MYF dated 30 November 2007 (the
statement of claim para 121) and application by PIF for 17.5 million class A units in MYF
dated 27 December 2007 (the statement of claim para 123)
[508] These two documents [WIM.0006.0001.0138, WIM.0006.0001.0135] can be dealt with
together.
[509] The application forms for MYF class A units both have a typed date of 23 November
2007 on the front page. They were each signed by Mr White and Mr Hutchings. The first
application was dated by hand “30/11/07” immediately below each of those signatures.
The second application form was dated by hand “27/12/07” immediately below each
signature.
[510] On their face, therefore, the documents suggest that they existed in November 2007. The
first suggests that it was signed on 30 November 2007. The second suggests that it was
406 See the detailed chronology at para [481] of ASIC’s final written submissions.
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signed on 27 December 2007. In fact, none of those things was true. The application
form did not exist until 31 January 2008 and the documents were not signed until some
time between that day and 6 February 2008.407
[511] The dating, by hand, of the application forms “30 November 2007” and “27 December
2007”, when the documents were in fact signed in February 2008, was in the
circumstances quite dishonest. Ms Platts said that, though she filled out the earlier parts
of the application form, she did not handwrite the dates in. ASIC submitted I should find
that the dates were written in by either or both of Mr White and Mr Hutchings on the day
they signed the forms in or around the first week of February 2008.
[512] Again, it is plain that these documents formed part of a dishonest scheme intended to
suggest that specific investments had been made in 2007 with funds drawn down by PIF
from the RBS facility when in fact no such specific investments had been made. The
creation of these documents was a dishonest act by MFSIM.
PIF Certificate of unitholding in MYF for 67.5 million units dated 30 November 2007
(the statement of claim para 122) and PIF Certificate of unitholding in MYF for 17.5
million units dated 27 December 2007 (the statement of claim para 124)
[513] These two documents [WIM.0006.0001.0140, WIM.0006.0001.0137] can also be dealt
with together. Like the application forms, the two certificates were dated by hand. The
first unit certificate was dated 30 November 2007. The second unit certificate was dated
27 December 2007.
[514] Again, no class A unit certificate existed in 2007. Such a document was created in
February 2008.408
[515] It is plain from those documents, as well as the documents described above concerning
the discussion in 2007 of a possible restructure of MYF to take place in 2008, that the
two unit certificates were created and signed in 2008 and backdated to November and
December 2007 to coincide with PIF’s drawdowns from the RBS facility.
[516] There can be no doubt that when Mr White and Mr Hutchings signed the unit certificates,
they knew that the documents were being backdated to reflect a transaction in 2007 that
did not occur then.
[517] The dating of the unit certificates was done dishonestly to disguise the fact that there was
no transaction in 2007 pursuant to which PIF acquired class A units in MYF.
New loan notice dated 31 December 2007 (the statement of claim para 125)
[518] The new loan notice dated 31 December 2007 [OIM.0001.0001.0324] had the purported
effect of amending the loan participation agreement between PIF and PacFin “as and from
the Effective Date”. The “Effective Date” was written as 31 December 2007,
immediately above the signatures of Mr White and Mr Hutchings.
407 See the detailed chronology at para [490] of ASIC’s final written submissions.
408 See the detailed chronology at para [495] of ASIC’s final written submissions.
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[519] The new loan notice thereby represented that, as at 31 December 2007, the PIF-PacFin
loan participation agreement had already been entered into. Logically, it is impossible to
amend an agreement as at a particular date if the agreement was not in existence on that
date.
[520] In this respect, the new loan notice was false. As discussed above, the loan participation
agreement between PIF and PacFin did not exist at any time in 2007.
[521] This purported change in the underlying loans was the result of the suggestion made by
Ms Platts on 27 January 2008, at a time when it was still being worked out what
investments were going to be said to have been acquired by PIF with the RBS funds. At
2:15 pm on that day, Ms Platts sent an email to Ms Watts and Mr Hutchings
[DEL.2004.0001.7587] attaching (inter alia) an “updated list of investments”
[DEL.2004.0001.7593] and a draft IAC submission dated 28 November 2007 from
Mr Hutchings to the IAC for PIF titled “Investment in Loan Participation Agreement for
Asset Backed Securities Asset Class (‘ABS’)” [DEL.2004.0001.7588].
[522] Ms Platts’ email of 27 January 2008 stated:
“Attached is the final version of the split of investments in relation to funds
out of PIF on 30 November and 27 December.
I have attached the relevant IAC papers for your review documentation
matches to outflows. You will note that one of the papers involves a further
Related Party submission which has to be drafted.
I can confirm that by splitting the investments as per the attached IAC papers
we are within all Asset Allocation Thresholds and Related Party 20%
Threshold
Please note I would suggest to replace Sagacious Opp Trust listing with MFS
RAP Limited amount in December,
(This will make more sense once you have reviewed the IAC papers as to
how to do this)
Marilyn I am happy to review final asset listings etc that you would like to
provide to RBS to ensure we are providing a consistent message”
[523] The evidence does not reveal precisely why Ms Platts or anyone else thought that it was
necessary to change the list of loans “in December”. But the reason is not important.
What is important is the fact that the loan notice was drafted in such a way as to suggest
that there was a loan participation agreement in existence on 31 December 2007, when in
fact there was not.
[524] The new loan notice was attached to certain emails.409 When Mr Hutchings and Mr White
signed the new loan notice at some time in 2008, they knew that there was no loan
participation agreement in existence on 31 December 2007. They knew that because, as
shown above, they also signed the loan participation agreement itself in or about the first
409 Listed in para 505 of ASIC’s final written submissions.
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week of February 2008. Mr Hutchings and Mr White therefore acted dishonestly in
signing the new loan notice, and their dishonesty is attributable to MFSIM.
Keeping false documents: s 601FC(1)(a) and s 286
[525] This section deals with the contraventions pleaded against MFSIM in paras 188A-188Q
of the statement of claim.
[526] The false documents, once created:
were kept by MFSIM as though they were a genuine part of the financial books and
records of MFSIM; and
formed part of the financial books and records provided to MFSIM’s auditors for
the purpose of the July-December 2007 half year review.
[527] MFSIM accepts that in relation to the creation and keeping of the false documents, a
declaration ought to be made against it that it contravened s 601FC(1)(a). The
contravention is, in any event, made out.
[528] Schedule A to ASIC’s final written submissions contains details of the various ways in
which the false documents were retained by MFSIM and treated as genuine records of the
business.
[529] A responsible entity that keeps a business record of an important event or transaction that
is false in a material respect and known to be false engages in conduct in contravention
of the:
duty to act honestly imposed by s 601FC(1)(a); and
the duty imposed by s 286 on all companies, including those acting as a trustee, to
keep written financial records that correctly record and explain its transactions and
would enable true and fair financial statements to be prepared and audited.
Providing false documents to auditors: s 601FC(1)(a)
[530] This section deals with the contravention pleaded against MFSIM in para 189 of the
statement of claim. MFSIM provided its auditors with access to the false documents
discussed above. That fact is proven by a number of emails listed at para 514 of ASIC’s
final written submissions.
[531] The evidence establishing the provision of the false documents to auditors was principally
in the affidavits of Ms James, Tim Allman of PwC, and Ben Woodbridge of PwC.
Lodging false accounts: s 601FC(1)(a) and s 286
[532] This contravention by MFSIM is alleged in para 190 of the statement of claim.
[533] On 18 March 2008, PIF lodged the half-yearly reports with ASIC for July-December
2007. The report was signed by Mr Hutchings. It falsely purported to show that:
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PIF owned $85 million worth of Class A shares in MYF, when it did not; and
PIF owned $62.5 million worth of participation loans pursuant to an agreement with
PacFin, when this was not the case.
[534] There was no evidence suggesting that this was the case. Even if one assumes, as the
defendants (or at least some of them) asserted, that the false documents reflect effective
transactions, they were completed and executed in February 2008 and the transactions
occurred at that time.
[535] Mr Moore SC for ASIC submitted orally that, although Mr O’Donnell QC’s submission
for Mr Anderson that the parties could treat themselves as being bound to an agreement
from an earlier date than that on which it was executed was valid, it was fallacious to leap
from that proposition to say that the accounts lodged by PIF for the half year ending 31
December 2007 were accurate. At that stage, PIF did not own MYF units and did not
have rights in relation to the PacFin loans. Even if the transactions in 2008 were effective
as between the parties at that later date, that did not have the consequence that the
accounts for the earlier period could be presented as if the transactions had already
occurred. Mr O’Donnell’s counter to that was to argue that post balance date transactions
could be reflected in the company’s accounts. He conceded that it would have been
preferable to do so by adding a note to the accounts.410
[536] Mr Moore submitted that the argument was legally and factually impossible and, if it were
possible, would permit the restating of accounts, for example, after auditors had audited
them where the company wished to enter into a transaction after the balance date to
increase the assets of the company to a level greater than they actually were at the balance
date.
[537] In my view ASIC’s submissions on this point were correct. The accounts were false in
representing that a transaction had occurred before 31 December 2007 that simply did not
occur then.
Sending false information to RBS: s 601FC(1)(a)
[538] These related contraventions by MFSIM are alleged in paras 192-194 of the statement of
claim.
[539] MFSIM provided RBS with asset reports, listings of loans and the participation
agreements, all of which falsely represented that transactions had been effected by PIF
with the money it drew down under the RBS Loan Agreement and at the time of those
drawdowns.
[540] MFSIM’s relevant dealings with RBS in which this false information was provided were
detailed in ASIC’s final written submissions.411
410 Generally see Hawley Partners Pty Ltd v Commissioner of Stamp Duties (Qld) (1996) 96 ATC 4847, 4851,
4853.
411 See para 521 of ASIC’s final written submissions.
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[541] Those documents and false information plainly suggested that specific assets had been
acquired by PIF in November and December 2007, when in fact they had not. The
provision of documents to RBS that were known to be false was dishonest conduct by
MFSIM in contravention of s 601FC(1)(a).
Misinforming and failing to inform Compliance: s 601FC(1)(a)
[542] This contravention is alleged in para 195 of the statement of claim.
[543] In February 2008, MFSIM’s internal compliance unit raised a concern that s 1017E of the
Act may have been breached because MYF did not receive any funds into its application
account, despite there having been a purported investment in MYF by PIF of $85 million.
[544] Mr Hutchings raised the matter with Mr Anderson. In response, Mr Anderson prepared
a memorandum dated 17 February 2008, which expressed a view that there had been no
statutory breach. Mr Anderson emailed the memorandum to Mr Hutchings on 18
February 2008 at 12:32 pm [DEL.2006.0002.4098, attaching DEL.2006.0002.4099]. The
memorandum was provided to MFS’s compliance section by Mr Hutchings by email on
18 February 2008 copied to Mr Anderson and Mr White [DEL.2005.0001.7233, attaching
DEL.2005.0001.7234]. Mr Hutchings’ email said that the memorandum from
Mr Anderson contained “further background”. The email forwarding Mr Anderson’s
memorandum thus implied that it could be relied on as factually accurate.
[545] Though PIF was not named in the memorandum, it plainly related to PIF’s acquisition of
MYF class A units. That class of units was referred to on page 3 of the memorandum.
Only PIF was said to have acquired class A units in MYF at any relevant time. And the
memorandum says that the applicant and MYF:
“sought to achieve the following outcome:
the applicant would be issued units in the fund, and
the fund would procure certain investments/assets and the applicant would
procure those investments/assets for the fund”
[546] Again, that was clearly a reference to the suite of transactions that was purportedly
undertaken at the time PIF drew down the RBS money in November and December 2007.
[547] The first paragraph of Mr Anderson’s memorandum falsely suggested that the issue of
units took place in 2007. That paragraph read (emphasis added):
“Guy as requested by you on the afternoon of Friday 15 February 2008 I have
considered the issues I understand may have been raised by Compliance late
last week regarding an issue of units in the MFS Max Yield Fund a few
months ago.”
[548] In fact, there was no issue of class A units in MYF “a few months” before 18 February
2008. Assuming that the application forms and unit certificates signed by Mr Hutchings
and Mr White in February 2008 were legally effective, the units were issued no earlier
than 6 February 2008.
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[549] At the time that Mr Anderson’s memorandum was sent to MFS’s compliance section,
Mr Hutchings, Mr White and Mr Anderson knew that there had been no investment by
PIF in MYF at all “a few months ago”.
[550] In making false statements to MFS’s compliance team on an important matter relating to
a fund held on trust by MFSIM, and in failing to inform Compliance of the true
circumstances surrounding that matter, MFSIM acted dishonestly, in contravention of
s 601FC(1)(a). In this respect, the dishonesty of Mr Hutchings, Mr White and/or
Mr Anderson is attributable to MFSIM.
Providing false information to Compliance and Mallesons: s 601FC(1)(a)
[551] This contravention is alleged in para 196 of the statement of claim.
[552] MFSIM’s solicitors, Mallesons Stephen Jaques (MSJ or Mallesons), were asked to
provide advice about the matter discussed in Mr Anderson’s memorandum of 17 February
2008. Mr Colley, another member of MFS’s compliance team, sent an email to MSJ on
20 February 2008 [DEL.2004.0001.4179]. The email, which was copied to
Mr Hutchings, asked for advice as to whether MFSIM had breached any provision of the
Act or other applicable law. The request for advice was based on certain factual matters.
The email requesting the advice falsely represented that:
on 23 November 2007, MYF released an information memorandum, when it did
not;
on 30 November 2007, PIF applied for 67.5 million units for $1.00 per unit pursuant
to the 23 November 2007 information memorandum, when it did not;
on 30 November 2007, PIF drew $150 million from RBS to fund the purchase of
the 67.5 million units in MYF, when that was not the purpose of PIF’s drawdown
of 30 November 2007; and
on 30 November 2007, PIF was issued with 67.5 million class A units in MYF,
when that did not occur.
[553] Those factual statements were all false, not to Mr Colley’s knowledge, but they were
known to Mr Hutchings.
[554] Because of the false factual information, MSJ gave advice on 20 and 26 February 2008
that there had been no breach of the Act: [DEL.2004.0001.4146, DEL.2004.0001.4149,
DEL.2004.0001.4151 and DEL.2008.0002.3184].
[555] In making false statements to MSJ on an important matter relating to a fund held on trust
by MFSIM, MFSIM acted dishonestly in contravention of s 601FC(1)(a). In this respect,
Mr Hutchings knew that the above statements were false and failed to correct them, and
his dishonesty is attributable to MFSIM.
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Overall view of the evidence
[556] These allegations raise a number of matters related to ASIC’s pleaded case and several
legal issues that I need to resolve. It is convenient at this stage, therefore, to set out my
overall view of the evidence.
[557] One thing that is crystal clear from this recitation of the facts is that PIF’s investors
received nothing immediately in return for their payment out of $147.5 million in
November and December 2007. To that extent they were left exposed to the risk that
MFS would go into liquidation in circumstances where their funds had been paid out
without even an explicit written promise of repayment let alone one secured on tangible
property or where the money had been used to purchase valuable assets. That was hardly
consistent with the duties owed to them by MFSIM and its relevant officers.
[558] Especially in the absence of evidence from Mr White, it is difficult to know what was
actually planned during the period from late November 2007 to early February 2008 to
be the nature of any “investment”, if indeed there was a plan. One view is that there was
some inchoate idea similar to the scheme proposed from 23 January by Mr White and
Mr Anderson in the “listing of loans” document, stemming perhaps from the “recyclable
capital” proposals that were in existence at the time. The decision to take steps towards
the drawdown from about 19 November, before it became quite clear that a significant
part of the Fortress loan at least needed to be repaid, may have reflected such an approach.
That reflects Mr Jackson’s submission that the drawdown was set in train before the
decision not to sell Stella was made and before the negotiations with Fortress began. By
the same token, the difficulties with the sale of Stella had been evident for some time
before 19 November as had the need to repay the Fortress loan.412
[559] The email from Mr Anderson on 19 December may have prefigured some such approach
also, although he later said that he was confusing the transaction referred to there with
another transaction.413 That may or may not have been consistent with the evidence about
the proposed restructure of MYF advanced by the defendants but that proposal did not
resemble closely what was proposed eventually by the end of January 2008. Some of the
emails from Ms Watts in early January suggest that she was thinking along the lines that
the money should have been allocated to the purchase of loans. She had real difficulties,
however, in obtaining information about that possibility from Mr White and others.
[560] Separately, on 6 December 2007, the IAC for MYF accepted a proposal to restructure
MYF in the first three months of 2008 and, in the meantime, to invest the $2.1 million of
MYF assets in PacFin. This agreement was radically inconsistent with what later came
to be recorded: the creation of a new class of units in MYF and the issue of 85 million
class A units to PIF in November 2007.
[561] It is also clear that the ideas developed at the end of January were still a work in progress
at that time until some time in early February.
412 See OCT.0003.0003.0300, p 0317 and Mr King’s evidence: eg T34-3/10-11, T34-49/20-32 discussed earlier.
413 “MFS has transferred to PIF the benefit of certain loans.” DEL.2004.0007.7914 (see affidavit of Mr Cecil
[ASIC.3000.0004.0001] at para 64). Mr Anderson was cross-examined by ASIC this email, starting at T49-
87/5 where the issue was whether he had confused it with money received from a Domain/Guardian and Living
and Leisure transaction.
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[562] Another analysis, that may have been a likely explanation for the events, is that the
payment out from PIF’s funds was conceived originally as a loan, perhaps to be repaid
on the sale of Stella. Many of the contemporaneous emails are consistent with such an
idea as well as some of the earlier accounting entries. That plan, if it were one, was likely
to have become impossible, at least in the short term, by “Black Friday”, 18 January 2008,
when MFS Limited’s share price fell significantly.414 The imminent arrival of the
auditors and the queries from RBS would have necessitated some other approach. The
need to have some other explanation in place was precipitated by those pressures and then
by Mr Hutchings’ “escalation” email of 21 January 2008.
[563] Some of the best evidence for this understanding of the events is the email of 22 January
2008 from Mr White to Mr Hutchings advising him that the $200 million drawn down
from RBS would be paid back in the next 12 to 30 days.415
[564] The false documents then produced into early February 2008 were, in my view, a product
of that pressure rather than any genuine reflection of transactions that had either been
made or were proposed to be made and then ratified. As will become clearer when I
consider some of the legal issues, I also regard them as false in failing to record and
explain the transactions correctly, contrary to s 286(1)(a) of the Act. The main focus of
ASIC’s case was, however, on whether the payments were proper uses of PIF’s funds by
MFSIM and whether they were paid instead for the purposes of MFS and PacFin.
[565] Before I discuss the legal issues, however, I shall consider an argument of the defendants
that ASIC’s pleading does not cover the case it seeks to make.
Is ASIC’s case within the pleadings?
[566] On 19 August 2014, well into the hearing of evidence in the case called by some of the
defendants, ASIC proposed a sixth further amended statement of claim and combined
particulars document seeking leave to make amendments set out in paras 52, 56(h)(ii),
56(n), 58(i)(ii) and (iii) and 60(r). The effect of each of those proposed amendments was
to add the words “at the time of the $130 million payment” to allegations, for example,
in para 52 that:
“MFSIM as Responsible Entity for PIF received no benefit or consideration
in return for the $130 Million Payment to the extent of the $103 Million
Payment.”
[567] Similarly, amendments were sought to paras 67, 73(c), 75(e) and 77(h) so that, for
example, para 67 would read:
“MFSIM as Responsible Entity for PIF received no benefit, consideration or
reward in return for the $17.5 Million Payment at the time of the $17.5
Million Payment.”
414 There was a significant body of evidence that the events on that day caused chaos in the company. It became
known as “Black Friday” within the company.
415 DEL.0006.0001.0005.
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[568] ASIC’s position was that the existing pleading covered its case on this issue, but that the
amendments were sought because of argument that ASIC’s case, as articulated by
Mr Reardon QC on 15 August 2014, was inconsistent with its pleading. The defendants’
argument was, essentially, that the focus on ASIC’s case was that the later transactions
associated with the false documents were shams rather than on the failure to provide
consideration at the time of the payments.
[569] It seems to me that the pleading as it stood covered the period immediately after the
payment as well as the later period when the false documents were prepared up to the end
of the “material times” defined in para 1A of the pleading concluding on 31 March 2008.
Paragraph 52 alleged that MFSIM received no benefit or consideration in return for the
$130 million payment in reliance partly on allegations in para 50D that no documents
were prepared in November or December 2007 which recorded any transaction for the
benefit of MFSIM or which provided for the payment of any consideration or reward for
the making of the $130 Million Payment; see also paras 54(c) and 54(h). Those latter
paragraphs of the statement of claim allege that, in making the $130 million payment,
MFSIM failed to act in the best interests of the members of PIF. Reliance was also placed
on paras 56(h), 58(r) and 60(r).
[570] Paragraphs 56A, 56B, 58A and 58B also made it clear that ASIC’s case included
allegations that reasonable persons in the positions of Mr King and Mr White would have
prevented the making of the $130 million payment and the $103 million payment until
they were satisfied that they were for investments authorised under PIF’s constitution and
for PIF’s benefit and that of its members. See also, for example, in the context of the
allegations about the $17.5 million payment, the allegations in paras 73A, 73B, 75A, 75B,
77A and 77B against the other defendants.
[571] A similar issue about the failure to provide consideration at the time of the payments was
raised in a reply to the amended defence of the fourth defendant, Mr King, to the
statement of claim. That reply, which had been filed out of time, also pleaded that
subsequent to the $130 million payment, MFSIM as the responsible entity for PIF, did
not acquire anything for that payment because the alleged transactions subsequently
documented were not authorised or subsequently ratified by MFSIM.
[572] During oral argument in the hearing, I refused leave to file and serve the proposed sixth
further amended statement of claim but gave leave to the plaintiff to file and serve a reply
to the amended defence to the fourth defendant to the existing statement of claim for the
reasons set out there.416 I refused leave to amend the statement of claim for a number of
reasons. One was the fear that the allegations may have required the recalling of
witnesses for further cross-examination. Another reason was that the defendants’
insurance for their costs of the defence was close to exhaustion. A further reason was that
ASIC’s submission was that the amendments were, in any event, strictly unnecessary.
[573] Also, replies had been filed in time to the defences of most other defendants raising the
issue of non-receipt of any benefit, consideration or reward at the time of the payments.
In the case of Mr King, I gave leave to file the reply out of time. The issue of the lack of
consideration flowing at the time of the payments was put to Mr King.417 There was no
416 T52-39-T52-43.
417 T38-55/5-9.
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re-examination on that point. In my view it could not be said that there was any surprise
as to ASIC’s position.
[574] The replies, in my view, covered the issue which worried ASIC and did not detract from
arguments that, for example, Mr King or Mr White may have been able to make against
the allegations in paras 56(n) and 58(i)(iii) of the statement of claim that those defendants
“knew of no benefit, consideration or reward which MFSIM … could, or would in fact,
gain from the … Payment” (emphasis added).
[575] Mr Jackson and Mr Andreatidis for Mr White, for example, made detailed submissions
on those issues which they summarised at para 109 of their written submissions. They
submitted that ASIC’s case was quite clearly that PIF never received any benefit in return
for the $103 million payment and the $17.5 million payment and that the allegedly false
documents were shams, with the consequence that, if ASIC failed to discharge its onus
of proving those documents to be shams and that PIF never received any consideration,
benefit or reward, its claim must be dismissed.
[576] For the reasons I have just expressed, however, it is my view that the issue whether any
consideration was received for the payments at the time was also alive and covered by
the pleadings, including the replies. The further question whether any inchoate hope or
expectation the defendants had that some consideration would eventually be paid for the
funds taken from PIF met their fiduciary obligations was available on the pleadings.
[577] As I have said, my understanding of the primary focus of ASIC’s case was that the
payments, when made, were not made for a legitimate purpose of MFSIM as responsible
entity for PIF but for the purposes of MFS and PacFin. The false documents case was
also based on that premise and allegations that they had been created to obscure the
illegitimacy of the two payments totalling $147.5 million.
[578] Although the pleading was complex, I did not perceive it as having the problems
described in Forrest v ASIC.418
Relevant statutory provisions
[579] Before I proceed to discuss the significant legal issues raised in the case it is convenient
to set out some of the major sections of the Act relevant to those issues.
[580] The submissions for some defendants raised issues whether they were officers of
particular companies within the MFS Group. Section 9 contains a definition of “officer
of a corporation” in these terms:
“officer of a corporation means:
(a) a director or secretary of the corporation; or
(b) a person:
418 (2012) 247 CLR 486, 500-504 at [18]-[30].
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(i) who makes, or participates in making, decisions that affect the
whole, or a substantial part, of the business of the corporation;
or
(ii) who has the capacity to affect significantly the corporation's
financial standing; or
(iii) in accordance with whose instructions or wishes the directors of
the corporation are accustomed to act (excluding advice given
by the person in the proper performance of functions attaching
to the person's professional capacity or their business
relationship with the directors or the corporation); or
(c) a receiver, or receiver and manager, of the property of the corporation;
or
(d) an administrator of the corporation; or
(e) an administrator of a deed of company arrangement executed by the
corporation; or
(f) a liquidator of the corporation; or
(g) a trustee or other person administering a compromise or arrangement
made between the corporation and someone else.
Note: Section 201B contains rules about who is a director of a corporation.”
[581] Whether some of the relevant companies were related parties was also a relevant issue.
In that context s 50AA provided:
“50AA Control
(1) For the purposes of this Act, an entity controls a second entity if the
first entity has the capacity to determine the outcome of decisions
about the second entity’s financial and operating policies.
(2) In determining whether the first entity has this capacity:
(a) the practical influence the first entity can exert (rather than the
rights it can enforce) is the issue to be considered; and
(b) any practice or pattern of behaviour affecting the second entity’s
financial or operating policies is to be taken into account (even
if it involves a breach of an agreement or a breach of trust).
(3) The first entity does not control the second entity merely because the
first entity and a third entity jointly have the capacity to determine the
outcome of decisions about the second entity’s financial and operating
policies.
(4) If the first entity:
(a) has the capacity to influence decisions about the second entity’s
financial and operating policies; and
(b) is under a legal obligation to exercise that capacity for the
benefit of someone other than the first entity’s members;
the first entity is taken not to control the second entity.”
[582] Section 208 deals with related parties. With managed investment schemes it applied in
the following form by virtue of s 601LC:
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“208 Need for member approval for financial benefit
(1) If all the following conditions are satisfied in relation to a
financial benefit:
(a) the benefit is given by:
(i) the responsible entity of a registered scheme; or
(ii) an entity that the responsible entity controls; or
(iii) an agent of, or person engaged by, the responsible
entity
(b) the benefit either:
(i) is given out of the scheme property; or
(ii) could endanger the scheme property
(c) the benefit is given to:
(i) the person or a related party; or
(ii) another person referred to in paragraph (a) or a
related party of that person; then, for the person
referred to in paragraph (a) to give the benefit,
either:
(d) the person referred to in paragraph (a) must:
(i) obtain the approval of the scheme’s members in the
way set out in sections 217 to 227; and
(ii) give the benefit within 15 months after the approval;
or
(e) the giving of the benefit must fall within an exception set
out in sections 210 to 216.
Note: Section 228 defines related party, section 191 defines entity,
section 191 defines control and section 229 affects the meaning of
giving a financial benefit.
(2) If:
(a) the giving of the benefit is required by a contract; and
(b) the making of the contract was approved in accordance
with subparagraph (1)(d)(i) as a financial benefit given to
the entity or related party; and
(c) the contract was made:
(i) within 15 months after that approval; or
(ii) before that approval, if the contract was conditional
on the approval being obtained; member approval for
the giving of the benefit is taken to have been given
and the benefit need not be given within the 15
months.
(3) Subsection (1) does not prevent the responsible entity from
paying itself fees, and exercising rights to an indemnity, as
provided for in the scheme’s constitution under subsection
601GA(2).”
[583] Part 5C.2 of the Act regulates responsible entities of registered managed investment
schemes and sets out their duties and those of their officers in s 601FC and s 601FD.
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[584] Section 601FC provides, relevantly for current purposes:
“601FC Duties of responsible entity
(1) In exercising its powers and carrying out its duties, the
responsible entity of a registered scheme must:
(a) act honestly; and
(b) exercise the degree of care and diligence that a
reasonable person would exercise if they were in the
responsible entity’s position; and
(c) act in the best interests of the members and, if there is
a conflict between the members’ interests and its own
interests, give priority to the members’ interests; and
…
(i) ensure that scheme property is:
(i) clearly identified as scheme property; and
(ii) held separately from property of the responsible
entity and property of any other scheme; and
…
(k) ensure that all payments out of the scheme property are
made in accordance with the scheme’s constitution and
this Act; and
(l) report to ASIC any breach of this Act that:
(i) relates to the scheme; and
(ii) has had, or is likely to have, a materially adverse
effect on the interests of members;
as soon as practicable after it becomes aware of the
breach; and
…
(2) The responsible entity holds scheme property on trust for
scheme members.
Note: Under subsection 601FB(2), the responsible entity may
appoint an agent to hold scheme property separately from other
property.
…
(5) A responsible entity who contravenes subsection (1), and any
person who is involved in a responsible entity’s
contravention of that subsection, contravenes this subsection.
…”
[585] Section 601FD provides:
“601FD Duties of officers of responsible entity
(1) An officer of the responsible entity of a registered scheme
must:
(a) act honestly; and
(b) exercise the degree of care and diligence that a
reasonable person would exercise if they were in the
officer’s position; and
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(c) act in the best interests of the members and, if there is
a conflict between the members’ interests and the
interests of the responsible entity, give priority to the
members’ interests; and
(d) not make use of information acquired through being an
officer of the responsible entity in order to:
(i) gain an improper advantage for the officer or
another person; or
(ii) cause detriment to the members of the scheme;
and
(e) not make improper use of their position as an officer to
gain, directly or indirectly, an advantage for
themselves or for any other person or to cause
detriment to the members of the scheme; and
(f) take all steps that a reasonable person would take, if
they were in the officer’s position, to ensure that the
responsible entity complies with:
(i) this Act; and
(ii) any conditions imposed on the responsible
entity’s Australian financial services licence; and
(iii) the scheme’s constitution; and
(iv) the scheme’s compliance plan.
(2) A duty of an officer of the responsible entity under subsection
(1) overrides any conflicting duty the officer has under Part
2D.1.
(3) A person who contravenes, or is involved in a contravention
of, subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: Subsection (3) is a civil penalty provision (see section
1317E).”
[586] The contraventions created by s 601FC(5) and s 601FD(3) are, by virtue of s 1317E(1)(f)
and s 1317E(1)(g) civil penalty provisions.
[587] Section 79 deals with the issue whether a person is involved in a contravention. It
provides:
“79 Involvement in contraventions
A person is involved in a contravention if, and only if, the person:
(a) has aided, abetted, counselled or procured the contravention; or
(b) has induced, whether by threats or promises or otherwise, the
contravention; or
(c) has been in any way, by act or omission, directly or indirectly,
knowingly concerned in, or party to, the contravention; or
(d) has conspired with others to effect the contravention.”
[588] Section 79(c) is the subsection relevant to the allegations of knowing involvement here.
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Legal issues
Attribution of conduct
[589] One of the major legal issues in the case is the extent to which the conduct of individual
defendants is attributable to MFSIM to establish whether it, as a responsible entity, has
infringed the relevant provisions of the Act. A corporation acts through living persons
who are commonly described as the “directing mind and will of a company” and whose
identity may vary from transaction to transaction.419
[590] It is their conduct and position in the company that has to be analysed to determine
whether the company is directly or only vicariously liable for their behaviour. If their
behaviour is not able to be treated as part of the directing mind and will of the company,
it may yet be attributed to the company by primary rules of attribution found in the
company’s constitution or the principles of company law as well as by general rules, the
rules of agency and vicarious liability, or, if appropriate, by special rules of attribution in
particular cases used to determine whose acts, knowledge or state of mind were, for a
particular purpose, intended to be attributed to the company.420 Thus, in Meridian Global
Funds Management Asia Ltd v Securities Commission was the knowledge of corrupt
employees attributable to their employer company to avoid frustrating the policy of the
relevant statute examined in that decision.421
[591] ASIC’s submission here was that the conduct and intentions of Mr White, Mr King and
Mr Anderson should be attributed to MFSIM in respect of the $130 million payment.
Similarly the conduct and intentions of Mr White, Mr Anderson, Mr Hutchings and
Ms Watts should be attributed to MFSIM in respect of the $17.5 million payment. They
were the people closely and relevantly connected with the company. The company would
not be protected from being bound by their actions even if, for example, certain of their
conduct was contrary to instructions from superiors.422 Similarly:
“If the director is guilty of fraudulent conduct which is not totally in fraud of
the corporation, and by design or result the fraud party benefits the company,
the knowledge of a director in the transaction will be attributed to the
company.”423
[592] ASIC described the conduct of Mr White, Mr King and Mr Anderson, when discussing
whether or not the transfers of money from PIF were within the class of acts which were
normally carried out for MFSIM, by noting the following:
Mr White, the deputy CEO of MFS Limited in charge of the managed funds arm
and director of MFSIM, arranged for a drawdown of $150 million from RBS.
Mr King, as CEO of the MFS Group, approved the use of those funds for the
purpose of paying Fortress. Ms Howard and Mr Corolis (two of the persons
authorised to execute payment of authorities to Perpetual) executed the direction to
419 See Tesco Supermarkets Ltd v Nattrass [1972] AC 153, 170-171; Hamilton v Whitehead (1988) 166 CLR 121,
127, 129-130; The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1, 679 at
[6144]; [2008] WASC 239 at [6144].
420 See Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, 506-507.
421 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, 511.
422 See Director-General of Fair Trading v Pioneer Concrete (UK) Ltd [1995] 1 AC 456, 464-465.
423 See Beach Petroleum NL v Johnson (1993) 43 FCR 1, 31-32 at [22.34].
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Perpetual, the custodian of PIF. Mr Anderson, as CFO of the Group, gave
instructions for the payment from Perpetual to MFS Administration and then
directed the payment to Fortress by signing the Diamond form.
It is the case of Mr Anderson and Mr King that these events were so unremarkable
that they did not think that it was untoward.
It was submitted on behalf of Mr Anderson that the acts were unauthorised because
Mr White did not have the authority to approve investments above $50 million. In
respect of this contention ASIC submitted:
(a) Mr White did not (nor did Mr Anderson or Mr King) approve any investment.
There was no investment. What Mr White did was approve a transfer of
funds. In any event, it is the defendants’ case that it was not unusual for
transactions to be effected and then subsequently ratified by the relevant
committees.
(b) Further, on the basis of the above authorities, if Mr White was acting in
breach of the $50 million limit, this did not make this transfer out of the class
of acts that he undertook within the scope of his authority.
[593] Mr O’Donnell’s contention was that the correct test is: did Mr White’s action in causing
PIF to transfer away $130 million for no purpose of PIF and for no benefit to PIF fall
within a class of acts that the responsible entity for PIF had authorised Mr White to
perform on behalf of the responsible entity? His submissions were, generally speaking,
adopted by the other defendants.
[594] Addressing ASIC’s contention that the minds of Mr King, Mr White and Mr Anderson
should be imputed to MFSIM as responsible entity for PIF, it was likewise necessary to
show that each was acting within the scope of his authority on behalf of the responsible
entity for PIF, in order for his state of mind to be taken to be the state of mind of the
responsible entity. For Mr White, the correct test was as stated in the preceding
paragraph. For Mr King, the correct test was: did Mr King’s involvement in causing PIF
to transfer away $130 million for no purpose of PIF and for no benefit to PIF fall within
a class of acts that the responsible entity for PIF had authorised Mr King to perform on
its behalf?
[595] As regards attributing the state of mind of Mr Anderson, the correct test was: did
Mr Anderson’s involvement in causing PIF to transfer away $130 million for no purpose
of PIF and for no benefit to PIF fall within a class of acts that the responsible entity for
PIF had authorised Mr Anderson to perform on its behalf?
[596] In arguing that ASIC had misstated his submission for Mr Anderson on this point
Mr O’Donnell summarised it as follows:
The evidence did not establish that Mr White, as an individual director, had been
given any authority to transfer scheme money.
The evidence established that the board had delegated a limited form of authority
to the CEO to apply scheme money in making investments. The limitations on the
authority included that the transaction be for less than $50 million, that the
transaction complied with the approved investment mandate, and that the
transaction had been considered by the IAC.
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Transferring $130 million was outside even that limited form of authority (in that it
involved transferring more than $50 million without board approval and not for the
purpose of making an authorised investment).
The evidence did not establish that either Mr King or Mr Anderson had been given
any authority by the responsible entity for PIF to be involved in transferring $130
million of scheme money for no purpose of PIF and for no benefit to PIF.
As regards the $17.5 million, while that amount was within the monetary limit of
the authority conferred by the board on the CEO, it was outside the limitations that
the application of the money must comply with the approved investment mandate,
and must receive prior consideration by the IAC. Mr Hutchings’ actions in causing
PIF to transfer the $17.5 million for no purpose of PIF and for no benefit to PIF,
was therefore not an act within a class of acts that he had been authorised by the
board to perform on behalf of the responsible entity.
The evidence did not establish that Mr White or Mr Anderson had been given any
authority by the responsible entity for PIF to be involved in causing PIF to transfer
$17.5 million for no purpose of PIF and for no benefit to PIF.
[597] Mr O’Donnell’s submission was also that the conduct of those defendants should not be
attributed to MFSIM because their alleged conduct was against its interests and it was the
victim. The “fraud exception” contended for by Mr O’Donnell was said not to be
applicable by ASIC for the following reasons:
The rule is not applicable to statutes where the rules of attribution are determined
in accordance with the principles set out in Meridian.
The rule is applied by the courts as required in the interests of justice and common
sense. In particular it is frequently applied to ensure that a guilty party does not
avoid liability.
It should not be applied to exculpate a company holding money on trust.
The misappropriation in this case was not “totally in fraud of the company” because
by “design or result” the fraud was intended to benefit MFSIM (at least partly).
[598] Mr O’Donnell’s argument dealing with the case where the directing mind of the company
was acting against its interests was that ASIC’s submissions confused two lines of
authority, which it is important to keep separate. The two lines were, he submitted:
cases concerned with civil proceedings against a company in which it is necessary
to prove knowledge in the company. Principles drawn from the law of principal
and agent determine what knowledge is to be treated as knowledge of the company.
Normally any knowledge acquired by an officer, acting within the scope of his
authority, is taken to be knowledge of the company. But, there is an exception
where the officer is acting fraudulently towards the company. In that situation, the
presumption against information being passed on by the officer to the company is
nullified by the consideration that the agent could not be expected to pass on
knowledge of his own fraud.424 Where the agent is acting partially in fraud of the
principal, and partially in a way that benefits the principal, however, a hybrid result
424 Bowstead & Reynolds on Agency 16th ed at p 533, quoted in Beach Petroleum NL v Kennedy (1999) 48
NSWLR 1, 99 at [475].
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has been arrived at: knowledge will be treated as knowledge of the principal unless
the agent is acting totally in fraud of the principal (ie the principal receives no
material benefit);425 and
cases concerned with determining whether a corporation has contravened a
statutory provision in criminal or quasi-criminal proceedings. In that context it
becomes necessary to identify an individual whose state of mind is to be taken as
the mind of the company (for the purpose of determining mens rea426). The
principle has developed that even if the mind of a person would otherwise be taken
to be the mind of the company, that will not be so if the person was acting in the
matter against the interests of the company, rather than for the purposes of the
company.427
[599] The first line of authority was drawn from the law of principal and agent and applies in
civil proceedings. The second was drawn from corporations law and applies to determine
whether the corporation has contravened a statute, usually in criminal or quasi-criminal
proceedings. It was the second line that was relevant here, not the first. He submitted
that the distinction between them was recognised by von Doussa J in Beach Petroleum v
Johnson:428
“The Tesco rule was developed as a limitation on the application of principles
of agency to impose criminal liability. This was recognised in Tesco.
…
22.28 It is understandable that where the subject matter of a civil claim is
conduct that also amounts to a criminal offence as in Entwells Pty Ltd v
National and General Insurance Co Ltd (Supra) and in claims based on a
conspiracy, that there may be reference to the Tesco principle, but it should
be recognised that principles of agency are the principles which ultimately
determine civil liability. It is not without significance that in the chapter on
vicarious liability, Professor Fleming in The Law of Torts, 8th ed, pp 366
and following, makes no reference to the decisions in Lennard, Bolton and
Tesco.
22.29 The Tesco principle is one appropriate to be applied to determine
criminal responsibility of a company, but the wider notions of the principles
of agency should be applied where the issue is civil responsibility arising
under the general law. Cases on the Tesco principle may nevertheless give
helpful guidance, as where corporate responsibility attaches under Tesco, it
will also attach under ordinary agency principles.”
[600] ASIC also relied on s 12.3 of the Criminal Code (Cth) as applied by s 1308A of the
Corporations Act to offences against that Act. It includes the following subsections:
425 Re Hampshire Land Co [1896] 2 Ch 743; JC Houghton & Co v Nothard, Lowe and Wills [1928] AC 1; Beach
Petroleum v Johnson (1993) 43 FCR 1, 24-32 at [22.20]-[22.34]; Beach Petroleum NL v Kennedy (1999) 48
NSWLR 1, especially at 99 and Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 366-367
especially at [282]-[286]; Dal Pont, Law of Agency 2nd ed at paras 22-57.
426 Whether the person has a guilty mind.
427 Macleod v The Queen (2003) 214 CLR 230; DPP v Gomez [1993] AC 442 and Presidential Security Services
of Australia Pty Ltd v Brilley (2008) 73 NSWLR 241, 244-245, 268-269 especially at [6], [7] and [157].
428 (1993) 43 FCR 1, 27-28 at [22.26]-[22.29]. See the useful critical discussion of von Doussa J’s approach in
Erlich v Leifer [2015] VSC 499 at [78]-[94].
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“(1) If intention, knowledge or recklessness is a fault element in relation to
a physical element of an offence, that fault element must be attributed
to a body corporate that expressly, tacitly or impliedly authorised or
permitted the commission of the offence.
(2) The means by which such an authorisation or permission may be
established include:
(a) proving that the body corporate’s board of directors intentionally,
knowingly or recklessly carried out the relevant conduct, or
expressly, tacitly or impliedly authorised or permitted the
commission of the offence; or
(b) proving that a high managerial agent of the body corporate
intentionally, knowingly or recklessly engaged in the relevant
conduct, or expressly, tacitly or impliedly authorised or permitted
the commission of the offence...”
[601] In addressing the relevance of s 601FC of the Corporations Act to this issue, ASIC argued
that the conduct of those officers should be attributable to MFSIM because of its
provisions that, in exercising its powers and carrying out its duties, the responsible entity
of a registered scheme must act honestly, exercise the degree of care and diligence that a
reasonable person would exercise if they were in the responsible entity’s position, and act
in the best interests of the members. If there is a conflict between the members’ interests
and its own interests, the responsible entity must give priority to the members’ interests.
ASIC also relied on the Explanatory Memorandum to the Managed Investments Bill
1997,429 which noted that the responsible entity would be subject to “extensive” statutory
duties, which were said to “… reflect the special nature of the relationship between the
responsible entity and the members of the scheme.”430
[602] ASIC, therefore, urged me to find that the acts and intention of those defendants should
be attributed to MFSIM for the purposes of determining whether it has contravened the
section for the following reasons:
The legislation was introduced for the purposes of protecting members of the public
who invested in schemes administered by responsible entities. It recognises the
“special nature” of the relationship, which is effectively that of trustee and
beneficiary.431
The Act contemplates that a contravention of the section will give rise to liability
to pay compensation and it also gives standing to members of the fund to recover
loss suffered as a result of a contravention.432
The Bill identifies the concern of misappropriation and provides that the “… duties
are designed to ensure that scheme assets are not applied, either unintentionally or
fraudulently, to the responsible entity’s own purposes rather than those of the
scheme.”433 If the fact that officers and employees acted dishonestly and not in the
interests of the scheme members was a basis for not attributing such conduct to the
429 Page 15 at paras 8.8-8.26.
430 Clause 8.9.
431 Clause 8.9.
432 Section 601MA.
433 Clause 8.10.
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responsible entities, it would have the effect of rendering the provision effectively
useless against the responsible entity in the most serious of cases when the members
need the most protection.
Mr O’Donnell’s submission for Mr Anderson that the imposition of liability on the
responsible entity for the failure of employees to take reasonable care would be
harsh is not a basis for reading down the legislation. ASIC submitted that, for the
same reasons as in ABC Developmental Learning Centre v Wallace,434 the policy
of the Act was to protect the members who are vulnerable to the failures of the
responsible entity, which must act through its officers and employees. It submitted
that the Explanatory Memorandum to the Bill, by identifying the special
relationship, and the Act, by requiring that priority be given to the interests of the
members and other provisions to protect members, demonstrated the consumer
protection nature of the Chapter.
Further, ASIC noted that, unlike in the ABC case, the Act included provisions under
which a defendant can seek to be excused from liability for the contravention.435
[603] Mr O’Donnell’s submissions sought to distinguish ABC Developmental Learning Centres
Pty Ltd v Wallace436 by reference to what he described as significant differences between
the two statutory provisions. Section 26 of the Children’s Services Act 1996 (Vic)
provided that (emphasis added) “the proprietor of a children’s service must ensure that
every reasonable precaution is taken to protect children being cared for or educated by
the service from any hazard likely to cause injury”, while s 601FC(1)(b) provided that
(emphasis added), in “exercising its powers and carrying out its duties, the responsible
entity of a registered scheme must … exercise the degree of care and diligence that a
reasonable person would exercise if they were in the responsible entity’s position.”437
[604] He submitted that the duty imposed by s 26 was to “ensure”, which means to make
certain, so that, if the standard of behaviour is not met, then the company has contravened
the section, whether the failure to achieve the standard is due to accident, inadvertence or
otherwise. Consequently, there was no guilty mind.
[605] By contrast, s 601FC imposes a duty to “exercise” care and diligence, rather than to
“ensure” that care and diligence is exercised. Further, the extent of the duty is confined
to that which a reasonable person would do in the responsible entity’s position. It is
therefore a duty that does not extend beyond performance of the role of responsible entity.
It does not extend to negligence by employees, of whatever level, of the responsible
entity.
[606] If parliament had intended that the actions and state of mind of all employees of the
responsible entity should count as the actions and mind of the responsible entity in
determining contravention of s 601FC, parliament could have used language suited to that
object, such as “The responsible entity shall ensure that the care and diligence of a
reasonable person is exercised in performing all functions of the responsible entity”.
Likewise, he submitted, in respect of the obligation to act honestly in s 601FC(1)(a), if it
was intended that any dishonesty by any employee, at whatever level, should count as a
434 (2007) 16 VR 409.
435 Sections 1317A and 1318.
436 (2007) 16 VR 409.
437 Emphasis in the original.
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contravention by the responsible entity, then it might have been expected that language
would have been used such as: “The responsible entity shall ensure that honesty is
observed in the performance of all functions of the responsible entity”.
[607] The decision of the High Court in MacLeod v The Queen438 was submitted by
Mr O’Donnell to be contrary to such an approach. That was a case where the sole director
and shareholder of a company was charged with fraudulently taking or applying property
of a body corporate for his own use or benefit. It was held that his own conduct did not
amount to the consent of the company so as to negate the allegation of fraud.
[608] Mr MacLeod had taken about $2 million from the trust account of the company which
held the funds on trust for investors in a film production scheme. The High Court did not
attribute the conduct of the misappropriating director to the corporation, relying on the
following statement by Lord Browne-Wilkinson in DPP v Gomez:439
“Where a company is accused of a crime the acts and intentions of those who
are the directing minds and will of the company are to be attributed to the
company. That is not the law where the charge is that those who are the
directing minds and will have themselves committed a crime against the
company.”440
[609] ASIC submitted that that decision provided no support for the proposition that a company
whose trust fund is misappropriated can avoid liability on the basis that it is the victim of
the fraud. Mr Reardon submitted that the true victims were the beneficiaries and it was
contrary to justice and common sense for the company to be able to avoid the
consequences of its breach of trust. Nor did the decision directly address the issue
whether the company itself would have committed an offence. Rather, the issue was
whether the shareholder’s personal fraud could be negated by his own consent, said to be
on behalf of the company. It does not seem to me that this decision is one that dictates
any conclusion that MFSIM would not itself have committed an offence. This seems to
follow particularly from the range of duties of a responsible entity under s 601FC and the
duties of its officers pursuant to s 601FD.
[610] ASIC’s submissions on the proper application of the legislation in a case like this are
persuasive. It would be problematic if a company, which holds a trust fund for others
that is misappropriated by the action of its officers, can avoid liability on the basis that it
is the victim of the fraud. As ASIC submitted, the true victims are the beneficiaries, and
it is contrary to justice and common sense for the company to be able to avoid the
consequences of its breach of trust on the basis that the acts were fraudulent acts of its
employees.
[611] Further, as ASIC submitted, the misappropriation in this case was not “totally in fraud of
the company” because, on the evidence, it was intended to reimburse MFSIM to some
extent for the misappropriation; and on the defendants’ case MFSIM was, to some extent,
reimbursed for the misappropriation. Also, in my view, where a related company stands
to gain from the actions of the MFSIM directors and officers, as here by having its debts
438 (2003) 214 CLR 230; [2003] HCA 24.
439 [1993] AC 442, 496.
440 See Macleod v The Queen (2003) 214 CLR 230, 240 at [29], 254 at [90] and 263 at [127]-[128].
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paid or obligations met, there are further reasons why those directors' and officers’ actions
should be attributed to the company.
[612] When one asks Lord Hoffmann’s question in Meridian Global Funds Management Asia
Ltd v Securities Commission:441 “Whose act (or knowledge, or state of mind) was for this
purpose intended to count as the act etc. of the company?”, the conduct and intentions of
Mr White, Mr King and Mr Anderson should be attributed to MFSIM in respect of the
$130 million payment. Similarly the conduct and intentions of Mr White, Mr Anderson,
Mr Hutchings and Ms Watts should be attributed to MFSIM in respect of the $17.5
million payment.
[613] They were the people closely and relevantly connected with the company and its actions.
Their significant roles in the company also seem to me to qualify them as its “high
managerial agents”. The terms of s 12.3(2)(b) in particular of the Criminal Code (Cth)
reinforce my conclusion that their conduct and intentions should be attributed to MFSIM
in respect of the two payments.
Onus of proof
[614] The defendants’ submission was that, while ASIC’s case must be proved on the civil
standard of proof, this is a case where the principles expressed in Briginshaw v
Briginshaw442 are significant in applying that standard. I did not understand that
proposition to be in doubt. The argument seems clear when one bears in mind that the
facts alleged by ASIC could also constitute criminal offences pursuant to s 1311(3) of the
Corporations Act or s 408C of the Criminal Code (Qld).
[615] There was some discussion about the extent to which I could rely on inferences where
ASIC’s case could be described as a circumstantial one. In that context I was referred to
ASIC v Fortescue Metals Group Ltd (No 5)443 where Gilmour J said:
“In conclusion, the standard of proof that I must apply is the balance of
probabilities as prescribed by s 1332, and I accept that in deciding whether
ASIC’s allegations are made out on the balance of probabilities I am
required to take into account the causes of action and the gravity of the
matters alleged and their consequences: s 140(2) Evidence Act; Briginshaw
60 CLR 336. If inferences are to be drawn, ASIC has to establish that the
circumstances appearing from the evidence give rise to a reasonable and
definite inference and not merely to conflicting inferences of equal
degrees of probability: Australian Securities and Investments Commission
v Macdonald (No 11) (2009) 256 ALR 199 ; [2009] NSWSC 287 at [186];
Communications, Electrical, Electronic, Energy, Information, Postal,
Plumbing and Allied Services Union of Australia v Australian Competition
441 [1995] 2 AC 500, 507F (emphasis in the original).
442 (1938) 60 CLR 336; see also Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, 449-
450.
443 (2009) 264 ALR 201, 220 at [82] (emphasis added) in comments not disapproved on appeal to the Full Court
of the Federal Court; see ASIC v Fortescue Metals Group Ltd (2011) 190 FCR 364, 396-397 at [78] per Keane
CJ (with whom Emmett and Finkelstein J agreed). The comments were not considered by the High Court, see
Forrest v ASIC (2012) 247 CLR 486. See also Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1, 5 and the
remarks of Gzell J in ASIC v Macdonald (No 11) (2009) 256 ALR 199, 239 at [186].
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and Consumer Commission (2007) 162 FCR 466; 242 ALR 643 ; [2007]
FCAFC 132 at [38].”
[616] That approach seems to be appropriate in these circumstances also.
Officer of the responsible entity - s 601FD
[617] The submissions for Mr Anderson and Mr King raised this issue: whether they were
officers of MFSIM.
Mr Anderson: an officer of MFSIM
[618] As will be recalled, s 601FD requires an officer of the responsible entity of a registered
scheme to adhere to certain standards in acting in that role. Mr O’Donnell’s submissions
for Mr Anderson commenced with the observation that there is no definition of “an officer
of the responsible entity of a registered scheme” in the Act. There is a definition of
“officer of a corporation” in s 9. That definition, subject to the contrary intention
appearing, covers, among other persons, a director or secretary of the corporation; or a
person who makes, or participates in making, decisions that affect the whole, or a
substantial part, of the business of the corporation; or who has the capacity to affect
significantly the corporation’s financial standing; or in accordance with whose
instructions or wishes the directors of the corporation are accustomed to act or a receiver,
or receiver and manager, of the property of the corporation; or an administrator.
[619] By s 601FA, only a corporation can be a responsible entity. But, Mr O’Donnell
submitted, it does not follow that anyone who is an officer of the corporation, that also
happens to be the responsible entity of the scheme, is an officer of the responsible entity
of the scheme. The reason is that the corporation may have a life separate from its role
as responsible entity, and a person may be an officer of the corporation, but have nothing
to do with the corporation’s role as responsible entity of the scheme. He illustrated that
submission by the further observation that, where a corporation is the responsible entity
of multiple schemes, it does not follow that a person who is an officer of the responsible
entity for Scheme A is necessarily also an officer of the responsible entity for Scheme B.
A person may be an officer of a responsible entity for Scheme A, but have nothing to do
with Scheme B.
[620] He relied on the decision of Finkelstein J in Norman v FEA Plantations,444 dealing with
a receiver, accepted as correct by Logan J in Owen v Madden (No 3),445 in respect of an
administrator, both cases which ASIC’s counsel sought to distinguish. Norman was a
case where Finkelstein J held that a receiver of a corporation that was also the responsible
entity of a scheme, was not covered by the duties in s 601FD. His Honour summarised
his approach to the question by stating that the object of s 601FD was to complement the
duties owed by the responsible entity. He went on:446
“That is achieved by imposing duties on persons who control the responsible
entity’s activities in the administration of a managed investment scheme and
444 (2010) 191 FCR 39.
445 (2012) 201 FCR 360.
446 (2010) 191 FCR 39, 47-48 at [41]-[43].
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its dealings with scheme assets. A receiver, particularly a receiver who is
not also a manager, plays no part in the administration of a scheme nor in
the decisions regarding the investment of scheme assets.
A party appointed receiver has different functions. They are, as I have said,
to take possession of the charged assets (which in this case do not include
scheme assets) and realise them to pay out the debt due to the chargee. There
is no reason to bring such a person under the operation of s 601FD(1). A
fortiori in the case of court appointed receivers and liquidators who, being
court officers, owe their duties to the court that appointed them. Indeed those
duties may be in conflict with the duties set out in s 601FD(1).
… Another problem is … the proposition that the duties imposed on officers
of a responsible entity are transported to actions they may take in some other
capacity (eg as officers of another corporation). That is not the effect of
s 601FD(1). Its operation is simple enough. The section establishes a norm
of conduct for officers of a responsible entity. That standard applies to that
officer only when he/she is acting in that capacity: ie when the officer’s
action or non-action can be attributed to the responsible entity by operation
of law or can bind the responsible entity under principles of agency. There
is no basis for reading into s 601FD(1) an intention to regulate the conduct
of an officer when acting in some other capacity.”
[621] Mr O’Donnell’s submission was that it followed that a person who comes within the
definition of an officer of a corporation, where a corporation is also the responsible entity
of a scheme, but who takes no part in the affairs of the scheme or in dealings with scheme
assets, ought not to be regarded as “an officer of the responsible entity of a registered
scheme” for the purpose of attracting s 601FD duties.
[622] ASIC’s submissions pointed out, however, that in Norman and Owen, it was held that the
legislative history of s 601FD gave rise to a “contrary intention” (from the opening words
of s 9), such that the s 9 definition of “officer” did not apply so as to make a receiver (in
the case of Norman) and an administrator (in the case of Owen) an officer of a responsible
entity for the purposes of s 601FD. ASIC submitted that neither case suggested that there
was anything in the history of s 601FD tending to support a legislative intent to exclude
directors, secretaries, or executive officers from the effect of s 601FD. Its submission
was that the legislative history explained in those cases positively supported the
conclusion that a secretary and what used to be called an “executive officer” were
intended to be officers of a responsible entity for the purposes of s 601FD.
[623] The submission was developed by the argument that, since the enactment of Ch 5C,
dealing with managed investment schemes, in the 1998 Commonwealth legislation, a
director, secretary or executive officer of a responsible entity has been, by virtue of that
fact alone, an officer of the responsible entity for the purpose of s 601FD. Chapter 5C
was first introduced by the Managed Investments Act 1998 (Cth) into the Corporations
Law. Relevantly the new Chapter imposed the current s 601FD duties upon officers of
the responsible entity. The Managed Investments Act 1998 amended the definition of
“officer”. Before then, the definition of “officer” was contained entirely in s 82A and
relevantly provided:
“82A Officers of bodies corporate and other entities
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(1) Subject to subsection (2), officer, in relation to:
(a) a body corporate; or
(b) an entity within the meaning of Parts 3.6 and 3.7;
includes:
(c) a director, secretary, executive officer or employee of the
body or entity; and
(d) a receiver and manager, appointed under a power
contained in an instrument, of property of the body or
entity; and
(e) an administrator of the body or entity …”
[624] The Managed Investments Act inserted the following definition of “officer” into s 9 of the
Corporations Law in place of the above definition:
“officer -
(a) in relation to the responsible entity of a registered scheme - means a
person who is a director, secretary or executive officer of the
responsible entity; or
(b) in any other case - has the meaning given by section 82A.”
[625] At the same time, the definition of “executive officer” of a body corporate was amended
by the Company Law Review Act 1998 (Cth) to mean:
“a person who is concerned in, or takes part in, the management of the body
(regardless of the person’s designation and whether or not the person is a
director of the body).”
[626] The s 9 definition of “officer” above was repealed by the Corporate Law Economic
Reform Program Act 1999 (Cth) (CLERP) and replaced with the current definition set out
earlier.
[627] ASIC’s submission continued by reference to the fact that, in Norman,447 Finkelstein J
identified the question for decision as being whether each of the additional persons
referred to in (c) to (f) of the current definition of “officer of a corporation”, namely, a
receiver, or receiver and manager, or an administrator of the corporation; or an
administrator of a deed of company arrangement executed by the corporation; or a
liquidator of the corporation, was an officer for the purpose of s 601FD(1). In particular,
the issue was whether a receiver (not a receiver who is also a manager) of the property of
a responsible entity was an officer and hence bound by the duties imposed by s 601FD(1).
His Honour held that the answer was found in the legislative history of the provision of
which the new definition formed a part.
[628] In particular his Honour said:448
447 (2010) 191 FCR 39, 47 at [36].
448 (2010) 191 FCR 39, 47 at [40].
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“Against this background, it is, in my view, clear that the new legislation did
not intend to bring about a change in the regulation of managed investment
schemes. Moreover, neither the CLERP reviews nor the recommendations
which were adopted by the amendments introduced in the Corporate Law
Economic Reform Program Act, concerned the effectiveness of the operation
of managed investment schemes. Indeed, neither these schemes nor Ch 5C
were mentioned in any review. For that reason I do not accept that such an
important change as is here suggested would be made to Ch 5C effectively
by a sidewind.”
[629] Therefore, ASIC submitted, Finkelstein J concluded, having regard to the historical
background of the legislation, that the new legislation did not intend to bring about a
change in the regulation of managed investment schemes. Immediately before the
amendment, as observed by Finkelstein J,449 an officer of a responsible entity included a
director, secretary or executive officer of the responsible entity. The approach for which
Mr Anderson contended, that the officer had to be involved in the responsible entity’s
administration of the scheme and dealings with the scheme assets, was not the position
before the CLERP amendments, and his Honour’s reasons supported the argument that it
was not the position since the CLERP amendments.
[630] ASIC argued further that it cannot be said that a director, company secretary or executive
officer plays no part in the administration of a scheme. It may be true of a receiver with
a limited appointment, but it could not apply to directors, company secretaries and
officers. By virtue of the very office they hold, directors, company secretaries and
officers have a role to play in the administration of a scheme of which the company is a
responsible entity. That legislatively intended result cannot be altered by an office holder
choosing (or complying with a direction) to have nothing to do with the scheme. It
submitted that any interpretation that required consideration in each case as to whether an
officer had a role to play in the administration of the scheme would result in difficulty in
such persons knowing, and courts determining, whether they played a part, or a sufficient
part, to justify the imposition of the duties. This was similar to the submission made in
Shafron v ASIC450 where the Court said:
“… Mr Shafron’s submissions ignored the evident difficulty in defining, for
the purposes of limiting the conduct considered, the content of ‘the office
held’ where a person is an officer by virtue of para (b)(i), (ii) or (iii) of the
definition of ‘officer’ in s 9. A construction which avoids that difficulty, and
avoids a more limited operation of s 180(1) in relation to some officers than
in relation to others, is to be preferred.”
No contrary intention
[631] ASIC’s next submission was that there was no contrary intention displayed by the statute.
Its argument was that the application of the plain meaning of the definition of “officer”
in s 9 to s 601FD worked in context and achieved a result consistent with the legislative
intention.451 The reasons it advanced were that:
449 (2010) 191 FCR 39, 46 at [33].
450 (2012) 247 CLR 465, 476 at [19].
451 See Deputy Commissioner of Taxation v Mutton (1988) 12 NSWLR 104, 108 per Mahoney JA.
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A director, secretary or executive officer of the responsible entity was always
intended to be an officer for the purpose of s 601FD.
The term defined in s 9 is “officer”. The defined term is not “officer of a
corporation”. This is confirmed by two things. First, the Act bolds and italicises
the words that are being defined. In this instance, only the word “officer” is bolded
and italicised. Secondly, s 179(2) expressly confirms that the defined term is
“officer”.
There was no relevant distinction drawn by the Act between the use of the term
“officer” in relation to a corporation and the use of the term “officer” in relation to
a responsible entity. A responsible entity is always a corporation: s 601FA of the
Act.
There are two definitions of “officer” contained in s 9. The first is intended to apply
to corporations. The second reads “officer of an entity that is neither an individual
nor a corporation means...”. The second definition is clearly intended to apply to
entities other than corporations or individuals. The second definition does not apply
to a responsible entity which is a corporation.
To fail to apply the s 9 definition of “officer” to a responsible entity would leave a
significant gap. There would be no definition at all of the persons who are
“officers” of a responsible entity. Parliament cannot have intended to leave such a
gap. The legislature should not be taken to have deleted an express definition of
“officer” “in relation to the responsible entity of a registered scheme” (s 9 of the
Corporations Act), and insert nothing in its place.
Chapter 5C refers to “directors of the responsible entity” in a number of provisions:
see eg ss 601EA(4), 601HC, 601JA(2). There is no mechanism in the Act for a
director to be appointed to a responsible entity other than by being appointed as an
officer of the corporation that acts as the responsible entity. A person cannot be a
director of one, but not the other. In other words, a person cannot be a director only
in the responsible entity’s “personal” capacity and not in its responsible entity
capacity.
[632] Accordingly, it submitted that it was clear that there was no distinction to be drawn
between a director of a corporation that acts as a responsible entity and a director of the
responsible entity. Equally, there is no distinction to be drawn between a company
secretary or executive officer, both of whom are officers of a corporation and such officers
of a responsible entity.
[633] ASIC also submitted that the objectives of Ch 5C are far better met if all individuals who
are officers of a corporation are subject to the duties in s 601FD for the following reasons:
Section 601FD provides that all officers are required to act honestly and not
improperly make use of their position as an officer of the responsible entity or
improperly use information acquired through being an officer of the responsible
entity. There is no reason why those obligations should not be imposed on all
directors, secretaries and executive officers of a corporation that acts as a
responsible entity. Why, it asked rhetorically, should all directors, secretaries and
executive officers of a company that acts as a responsible entity not be subject to
the duty to act honestly?
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Section 601FD(1)(c) provides that officers of responsible entities must act in the
best interests of scheme members and, if there is a conflict between the members’
interests and the interests of the responsible entity, give priority to the members’
interests. There is no good reason not to impose this obligation on officers, even if
they are not involved in the responsible entity functions of the corporation.
The remaining obligations under s 601FD(1), namely exercising care and diligence
and taking reasonable steps to ensure the responsible entity complies with, for
example, the Act, are qualified in that the obligation is to take the steps that a
reasonable person in the officer’s position would take. Thus, the duty is referable
to the officer’s position and cannot therefore be said to be onerous.
Further, to distinguish between officers of a corporation in its “personal” capacity
as distinct from its responsible entity capacity creates unnecessary uncertainty.
[634] In any event, it submitted, Mr Anderson was company secretary and his evidence that he
did not have an involvement in the administration of the scheme and in dealings with
scheme assets, should be rejected for the following reasons:
He was authorised with Perpetual to sign on behalf of MFSIM in dealing with the
moneys held on behalf of MFSIM’s registered managed investment schemes,
including PIF.452
He signed documents as company secretary with respect to MFSIM including
amendments to the custody agreement with Perpetual to include MYF.453
He was a responsible officer for MFSIM for the purposes of its Australian Financial
Services Licence.454
In his email of 16 March 2008, he maintained that he had influence over both the
assets and the funds as he held positions with MFSIM of “... Company Secretary,
Public Officer, CFO, and ... Responsible Officer. It is not as if some third party has
influence over the assets/funds”.455
His influence over scheme assets was demonstrated by his positive role in
arranging:
(a) The $17.5 million transfer from PIF to PacFin.
(b) The $2.1 million investment by MYF in PacFin. Although his initial push to
invest the funds was resisted by Ms Watts on the basis that it did not meet the
requirements of PIF as set out in the information memorandum but:
(i) the response of Ms Howard was “Does Anderson know?”456
(ii) the investment went ahead in December 2007.
(c) In September 2007 he arranged the payment of $108 million as a deposit.
Mr Anderson was the person who monitored the fund accountant and was the
person to whom the fund accountant reported.
452 OCA.0008.0001.0258 at pp 16-17, 38.
453 PER.0004.0001.0051.
454 ASIC.0052.0001.0029, T48-81/1-16.
455 DEL.2007.0001.1293.
456 DEL.2002.0001.2942.
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Ms Easton, who reported directly to Mr Anderson, provided the reports to the
MFSIM board about the regulatory requirements with respect to assets and cash
flow.
Mr Anderson provided at least a supervisory role with respect to the audit process.
Mr Anderson provided advice with respect to regulatory requirements of the funds
as demonstrated by:
(a) The letter from him to Standard & Poor of 12 October 2007 describing
accounting methodology used for PIF.457 The fact that he saw this work as
squarely within the area of his responsibility was demonstrated by his reply
to Ms Watts thanking her:
“Marilyn I appreciate your comments but the truth is (1) GH and
the team has been unnecessarily put under additional pressure as
a result of me being slow to deal with this my apologies. And (2)
Senior MFS staff are for better or worse never on holidays in
that sense.”
(b) Mr Anderson’s advice concerning a possible breach of s 1017E on 18
February 2008.458
[635] It submitted that these actions not only related directly to the administration of the funds
but also, in most instances, a company secretary with accounting experience would be
expected to undertake such tasks.459 ASIC’s reliance on Mr Anderson’s self-description
as a “responsible officer” was criticised for Mr Anderson as an allegation that was not
pleaded and that arose partly from a document that was not disclosed and not placed into
evidence. In the overall scheme of things, however, that evidence was of little
significance in assisting me to form a conclusion about Mr Anderson’s role with MFSIM.
Mr Anderson’s duties when acting in the “capacity” of an officer of a responsible entity
[636] Mr Anderson contended that even if he was an officer of the responsible entity, and did
come under the obligations of s 601FD, those obligations did not extend to actions
undertaken by him in some other capacity. He relied on one of the passages from
Finkelstein J’s decision in Norman v FEA Plantations,460 referred to earlier, asserting that
there was no basis for reading into s 601FD(1) an intention to regulate the conduct of an
officer when acting in some other capacity.
[637] ASIC submitted, as I have noted already, that those remarks were made in the context of
a case involving a receiver appointed to a responsible entity. They ought not be read as
applying generally to all directors, secretaries and executive officers of a responsible
entity so as to relieve officers of the responsible entity from the obligation not to allow
their personal interests (conflict of interest and duty) or their duties to other persons or
entities (conflict of duty and duty) to conflict with their duties under s601FD. To so read
this paragraph would be to suggest that Finkelstein J was, by an obiter dictum,
457 DEL.1300.0003.8808.
458 DEL.2006.0002.4098 attaching DEL.2006.0002.4099.
459 Similarly to Mr Shafron in Shafron v ASIC (2012) 247 CLR 465, 476-477 at [19]-[20].
460 (2010) 191 FCR 39, 48 at [43].
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disregarding the established law with respect to the separate duties of officers of
companies, even within a group, without reference to authority.461 So to conclude, ASIC
submitted, would be inconsistent with the objects of s 601FD.
[638] ASIC also submitted that the proposition contended for by Mr Anderson and Mr King
provides a ready excuse for officers of a responsible entity whose conduct or inaction
causes the responsible entity to misconduct itself. Officers could, in many such
circumstances, say that they were not acting in their “capacity” as officers in the
responsible entity, and thus that the duties did not apply. The law has long recognised that
multiple directorships can lead to conflicting fiduciary duties.462 If a duty could be
avoided simply by saying that the defendant was acting in another capacity, this would
render meaningless the concept of conflict of duty and duty. The real challenge and
responsibility faced by persons holding multiple directorships or having multiple interests
is to deal properly with conflicts between duty and duty or between duty and interest as
and when they arise.463 However, ASIC submitted, the proposition for which
Mr Anderson contended seemed to sanction that an officer of a responsible entity can act
without regard to the duties set out in s 601FD if it can be said they are acting in some
other capacity.
[639] Mr Anderson’s proposition that Finkelstein J was suggesting such a sweeping change is,
according to ASIC’s submission, contra-indicated by reference to Finkelstein J’s
reasoning, which demonstrated that he was dealing with the special position of receivers
acting under an appointment, which would conflict with the interests of the growers. This
submission seems to me to be compelling. I see no reason to apply such an approach to
persons who were officers of the company in its normal meaning.464
Inconsistent with the law of fiduciary duties
[640] ASIC next argued that the suggested distinction between being an officer of a corporation,
but not an officer of a corporation in its capacity as a responsible entity is not consistent
with the law of trusts, including the law of fiduciary duties. Directors owe fiduciary duties
to their companies. They do not owe those duties only in relation to the company acting
in its “personal” capacity, rather than in its capacity as a trustee.
[641] It illustrated the argument by referring to Agricultural Land Management v Jackson (No
2)465 where the defendants contended that they were not under a fiduciary duty to the
plaintiff company (a responsible entity) in respect of property held by the company as
trustee. Edelman J rejected that argument, saying:466
“... it is nonsense to speak of fiduciary duties owed to a company in a
particular capacity as a trustee or as a beneficial owner. Fiduciary duties are
461 Walker v Wimborne (1976) 137 CLR 1, 7; Spedley Securities Ltd (in liq) v Greater Pacific Investments Pty Ltd
(in liq) (1992) 30 NSWLR 185; Linter Group Ltd v Goldberg (1992) 7 ACSR 580; 10 ACLC 739. Also see
Ford, Principles of Corporations Law at [8.140] dealing with “The interests of the company” in a group of
companies.
462 See, for example, Ford v Andrews (1916) 21 CLR 317, 322; R v Byrnes (1995) 183 CLR 501.
463 Elkington v Farsands Solutions Pty Ltd [2012] NSWCA 334 at [35].
464 Norman v FEA Plantations (2010) 191 FCR 39, 43-47 at [21]-[41].
465 (2014) 48 WAR 1.
466 (2014) 48 WAR 1, 53 at [277] and developed in more detail later in his Honour’s reasons, 58-64 at [300]-[332];
98 ACSR 615, 660 at [277], 665-670 at [300]-[332].
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owed to the company. The company may, in turn, owe duties to
beneficiaries in relation to trust assets. But if fiduciary duties are owed to
the company it does not alter the character of those duties if the company
also holds assets on trust.”
[642] The submission, which I accept, was that a director of a company that is a responsible
entity owes the duties imposed by s 601FD. If the company is the responsible entity of
multiple schemes, that director owes duties to act in the best interests of the members of
all the schemes. Neither the responsible entity nor the officer can escape their statutory
duties by asserting they “have nothing to do with scheme B”.
Inconsistent with Shafron
[643] ASIC went on to submit that the submissions for Mr Anderson were inconsistent with the
decision in Shafron v ASIC467 where the High Court considered a similar submission for
Mr Shafron that his obligations as an officer were “... limited to performance of those
responsibilities that attached to the office held or the circumstances that made him an
“officer’” (ie company secretary).468
[644] The Court rejected the contention stating:469
“... what responsibilities any officer of a company has in the company
concerned will be a question of fact. It by no means follows, therefore, that
the tasks Mr Cameron performed at JHIL are properly to be understood as a
complete identification of the work that could be or was undertaken by
Mr Shafron because he too held the office of company secretary. That is, it
cannot be assumed that Mr Cameron’s responsibilities were identical (in
whole or in part) to Mr Shafron’s responsibilities. It follows that, contrary
to Mr Shafron’s submissions, the “scope” of his role as company secretary
could not be identified as limited to the responsibilities Mr Cameron had.”
[645] However the Court went on to hold that, even if there could be some division of the roles
performed within the corporation, it would be of no relevance because:470
“... the responsibilities referred to in s 180(1) are not confined to statutory
responsibilities; they include whatever responsibilities the officer concerned
had within the corporation, regardless of how or why those responsibilities
came to be imposed on that officer.”
[646] Similarly, ASIC submitted, s 601FD is not limited to officers carrying out the duties that
they have as officers. Rather it provides that “An officer of the responsible entity of a
registered scheme must” act, for example, honestly and in the best interests of members.
[647] Accordingly ASIC submitted that Mr Anderson, as an officer, owed the statutory duties
to MFSIM whatever specific responsibilities he had within the corporation. He could not
pick and choose the capacities in which he was carrying out acts by saying that he was
467 (2012) 247 CLR 465.
468 (2012) 247 CLR 465, 473-474 at [8].
469 (2012) 247 CLR 465, 475 at [13].
470 (2012) 247 CLR 465, 476 at [18] (emphasis in the original).
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acting for MFS and not MFSIM, or that he was acting for MFSIM, but not in the capacity
of company secretary. It was important to note in this respect that the conduct in question
can, and here did, include a failure to act. An officer of a responsible entity who knows
that trust funds are being misapplied, and who fails to prevent that misapplication, cannot
be relieved of the consequences of his inaction by asserting that he was only acting in his
capacity as an officer of the beneficiary of the misapplication. In reality, such conduct
overlaps with the work that was done, or ought to have been done, as an officer of the
responsible entity.
[648] ASIC submitted that Mr Anderson was not simply acting in his capacity as an officer of
the “receiving” corporation (MFS Administration), but also in his capacity as an officer
of MFSIM. The evidence does not demonstrate that the conduct of Mr Anderson (and
Mr King, for that matter), including their failure to prevent the misapplication of trust
funds, was only done in a non-MFSIM capacity.
Conclusions in respect of whether Mr Anderson was an officer of MFSIM
[649] In my view, for the reasons advanced by ASIC, Mr Anderson was an officer of MFSIM
at the relevant times. The statutory history and the cases support the conclusion that, as
an officer of MFSIM, the company, he was also an officer of it as the responsible entity
for a management investment scheme. It would be quite impractical and artificial to
invent some notional separation between those two roles.
[650] He was also its company secretary and CFO in formal terms and the evidence reveals that
he performed significant duties in those roles for MFSIM. I shall refer to that evidence
later when examining the individual case against Mr Anderson.
Mr King: an officer of MFSIM
[651] Mr King was a director of MFSIM, the responsible entity, from 8 August 2002 until 27
February 2007.
[652] ASIC also alleges that, from 28 February 2007 until 21 January 2008, he was an officer
of MFSIM within the meaning of s 9(b) of the Act. The allegation is that he had overall
responsibility for MFSIM’s operations, participating in making decisions that affected
the whole or a substantial part of MFSIM’s business, that Mr White customarily acted in
accordance with his wishes, therefore giving him the capacity to affect significantly the
financial standing of MFSIM.471
[653] Mr King also pleaded in para 5(e)(i) of his amended defence dated 5 May 2014 that: “the
definition of officer in section 9(b)(ii) of the Corporations Act 2001 (Cth) does not apply
to companies in so far as they are acting as responsible entities of managed investment
schemes”. His counsel adopted Mr O’Donnell’s submissions on that issue.
[654] In this context ASIC’s submission was that the same legislative history it relied on to
show that company secretaries were always intended to be officers of responsible entities,
471 See para 5(e) of the statement of claim.
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also showed that “executive officers” were always intended to be officers of responsible
entities.
[655] An “executive officer” was defined relevantly as a person, whether or not a director, who
was concerned or took part in the management of the company. In Commissioner for
Corporate Affairs v Bracht,472 Ormiston J discussed what was encompassed within the
notion of “management” of the activities of a corporation which would make a person an
“executive officer” and subject to the statutory duties. His Honour said:
“It may be difficult to draw the line in particular cases, but in my opinion the
concept of ‘management’ for present purposes comprehends activities which
involve policy and decision-making, related to the business affairs of a
corporation, affecting the corporation as a whole or a substantial part of that
corporation, to the extent that the consequences of the formation of those
policies or the making of those decisions may have some significant bearing
on the financial standing of the corporation or the conduct of its affairs...”
[656] The submission continued that the definition of “officer” in s 9(b)(i) and s 9(b)(ii) inserted
by the CLERP was intended to do no more than codify Ormiston J’s decision in
Commissioner for Corporate Affairs v Bracht.473 Thus, the legislative history evidenced
no intention that s 9(b)(ii) not apply to s 601FD. Again, ASIC submitted, the contrary
was the true position. From the commencement of Ch 5C it was intended that executive
officers be officers for the purpose of s 601FD. As Finkelstein J observed in Norman v
FEA, the new legislation introduced in the CLERP legislation in 1999 did not intend to
bring about a change in the regulation of managed investment schemes. If s 9(b)(ii) was
held not to apply to s 601FD, it could be seen that there was, in fact, a very significant
change in the regulation of managed investment schemes brought about by that
legislation. In truth, such a change was never intended, and was not brought about.
[657] ASIC also submitted that it would be contrary to the purposes of s 601FD if persons who
had the capacity to affect significantly the financial standing of the responsible entity
were not subject to the duties prescribed by the section. It was the plain intention of the
legislature that persons who were executives of the responsible entity would fall into the
definition of “officer”. In the Explanatory Memorandum to the Managed Investments
Bill 1997 under “Duties of officer responsible entity” it was noted (in [8.17]):
“The term ‘officer’ in relation to the responsible entity of a registered scheme
will be defined in section 9 to mean a person who is a director, secretary or
executive officer of the company that is the responsible entity.”
[658] ASIC’s contention was that the purpose of this chapter of the Act was the protection of
members of managed investment schemes. To remove from the officers, who are obliged
to act honestly and in the interests of the members, those persons who have the capacity
to affect significantly the financial standing of the responsible entity, would be to remove
472 [1989] VR 821, 830.
473 See The Treasury, CLERP (Audit Reform and Corporate Disclosure) Bill Commentary on the Draft Provisions
- Corporate Law Economic Reform Program No 9 (October 2003), Ch 9 at [569] and [570]; Corporations and
Markets Advisory Committee, Personal Liability for Corporate Fault Discussion Paper (May 2005) at 74) and
White J in Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384, 411-
413; [2010] NSWSC 233 at [125]-[126]. ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) (2007)
160 FCR 35, 100 at [490] per Jacobson J.
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a substantial protection provided by the Act. It submitted that the persons, who have the
relevant capacity, would include those who could affect the proprietary side of the
responsible entity as well as the managed funds side. In the case of a responsible entity
an effect on the managed funds must also affect its financial standing.
Contention that section 601FD will not work appropriately
[659] Further, ASIC submitted, to provide proper protection for members, it was essential that
the persons exercising significant executive power be subject to the duties imposed under
s 601FD. Mr King’s submissions, which referred to the “financial capacity of the
corporation” as opposed to “financial capacity of the scheme”,474 misconstrued the
definition of “officer” in s 9, which refers only to the corporation’s financial standing. It
was in the interests of members that, if the responsible entity was making decisions about
its own interests, the person making that decision be required, if there was a conflict
between the members’ interests and its interests, to give priority to the members’ interests
in accordance with s 601FD(1)(c).
[660] On the submissions made on behalf of Mr King, ASIC submitted that a responsible entity
could completely avoid its duty to give priority to the members by employing executives
only responsible for the responsible entity’s interests. Similarly, a responsible entity for
two or more funds could allow conduct by one fund to the prejudice of another fund on
the basis that the decision makers were kept in separate silos and if one fund undermined
the other so be it.
The contention that it places duties on others
[661] ASIC also submitted that the fact that the definition of “officer” relates to capacity was
to ensure that, to the extent that a responsible entity allows an executive to have
“capacity” to affect significantly its financial standing, then the executive has the
prescribed duties. If executives want to avoid the duties, they should ensure they are not
placed in a position where they have the capacity. Likewise, if the responsible entity does
not want such persons to have such duties, it should similarly ensure they are not placed
in a position where they have that capacity.
The contention that it will cause fearful confusion
[662] In ASIC’s submission, the further proposition advanced for Mr King, that third parties
dealing with companies such as custodians, auditors and financiers would be subjected to
the duties under s 601FD, has been specifically rejected by the Courts. This proposition
referred to the interpretation of the definition’s reference to “the capacity to affect
significantly a corporation’s financial standing”.
[663] In Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd,475 White J
found that, although Apple had the capacity to affect significantly Buzzle’s financial
standing, it was not an officer of Buzzle because:
474 COURT.4000.0001.0016; see paras 179, 550.
475 (2010) 238 FLR 384, 412; [2010] NSWSC 233 at [125]-[126], citing ASIC v Citigroup Global Markets
Australia Pty Ltd (No 4) (2007) 160 FCR 35, 100 at [490] per Jacobson J; (emphasis added).
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“When read in the context of the provisions imposing duties on an ‘officer’
of a corporation, and read in the light of the legislative history and the
apparent intention of the Parliamentary draftsman to codify what was
formerly a definition of an ‘executive officer’, it can be seen that para (b)(ii)
should be taken as referring to a person who, in his or her management of
the affairs of the corporation, has the capacity to affect significantly the
corporation’s financial standing. It does not refer to a person who has
that capacity as a third party but is not involved in the management of
the corporation’s affairs.
…
Therefore, the fact that Apple had the capacity to affect significantly
Buzzle’s financial standing is not sufficient to make it an ‘officer’ of Buzzle,
notwithstanding the apparently plain words of the definition if the definition
were read without context and without an understanding of how the current
definition came to be adopted. If a context is supplied, it is obvious that the
definition cannot be applied literally.”
[664] Finally, ASIC submitted, if the literal meaning were to be applied, it would affect all
corporations not just responsible entities.
Does the definition of “officer” apply to Mr King on the evidence here?
[665] ASIC submitted that Mr King, as the CEO of MFS Limited and the MFS Group, had the
capacity to significantly affect the financial standing of MFSIM. Mr King was the co-
founder of the MFS business and in 2007 received the highest remuneration paid by the
MFS Group. He said in his s 19 examination that, as the CEO of the MFS Group, he had
overall responsibility for MFSIM.476 Mr King said Mr White was in charge of PIF and
that Mr White, together with the group around him, were responsible for the “day to day
operational decisions”.477 Mr White reported to Mr King and would take instructions
from him. Mr King would talk to Mr White at least daily “in some way, shape or form”.478
[666] Mr King conceded that Mr White took instructions from him with respect to the
proprietary matters of the business.479 However, Mr King was unable to recall any
instance where Mr White refused to take a direction from him with respect to the funds
management side of the business. On 8 May 2014, Mr King gave evidence that Mr White
had refused to get Mr Kennedy off the IAC. However, when taken to the relevant emails
in cross-examination on 4 August 2014 he withdrew that contention and was unable to
recall any example of a refusal.480
476 Mr King’s s 19 examination [S19.0013.0001.0001], p 13/9, tendered under s 79 of the ASIC Act against Mr King
[COURT.0020.0001.0001] (No 1).
477 Mr King’s s 19 examination [S19.0013.0001.0001] at p 13/11-16.
478 T37-31/5-6.
479 T35-92/22-39.
480 T37-52 l 26 to T37-53 l 12.
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130
[667] ASIC submitted that the evidence confirmed, within the MFS Group, Mr King was the
single most powerful person such that Mr White would describe him as the “charismatic
leader” and “the puppet master”.481
[668] Counsel for Mr King also made submissions about whether there was any significant
evidence that Mr White acted in accordance with Mr King’s instructions and wishes in
his role at MFSIM. They criticised the particulars pleaded against Mr King as insufficient
to comply with statements in Buzzle Operations Pty Ltd (in liq) v Apple Computer
Australia Pty Ltd482 and Ultraframe (UK) Ltd v Fielding483 that to be a “shadow director”,
the directors of the relevant company must have been “accustomed to act” in accordance
with the shadow director’s instructions or wishes requiring habitual compliance over a
period of time.
[669] ASIC relied on an assertion that Mr King took overall responsibility for the major
decisions of MFSIM and as between the two men, “was the boss”, relying on Mr King’s
evidence in his s 19 examination. Mr King’s counsel submitted that such a pleaded
particular did not meet the requirements of decisions such as Buzzle and Ultraframe.
They also argued that specific unpleaded examples relied on by ASIC did not justify the
conclusion that Mr White customarily acted in accordance with Mr King’s instruction.484
[670] Nor, they submitted, did he have the capacity to affect MFSIM’s financial standing within
the meaning of that phrase in s 9(b)(ii) of the Act. They submitted that he did not act in
an office or position of MFSIM for the purposes of the Act.485
[671] They argued that those submissions were not inconsistent with the approach expressed
particularly at [25] in this part of the decision of the High Court in Shafron v ASIC:486
“[23] Several points should be made about the proper construction and
application of para (b)(i) of the definition of “officer”. First, the
inquiry required by this paragraph of the definition must be directed
to what role the person in question plays in the corporation. It is not
an inquiry that is confined to the role that the person played in relation
to the particular issue in respect of which it is alleged that there was a
breach of duty. Thus in this case the inquiry to be made about
Mr Shafron’s role was not confined to what he did in connection with
the separation proposal. Of course, the role he played in connection
with the separation proposal may itself demonstrate that he made or
participated in making decisions of the requisite character, but that
need not be the only material to which attention may be directed.
[24] Secondly, in a case like the present, where the breaches of duty alleged
were omissions to provide advice, it is evident that determining how
a reasonable person occupying the same office and having the same
481 DEL.2006.0006.8488.
482 (2011) 81 NSWLR 47, 70-73 at [190]-[198].
483 (2005) EWHC 1638 (Ch); [2005] All ER (D) 1397 at [1273]-[1278].
484 See COURT.4000.0001.0016 at para 200 which was developed in more detail later in their written submissions.
485 See Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 314-326 at [28]-[76] and at [72]-[73] in
particular. See also the submissions about Holland v Revenue and Customs Commissioners [2010] UKSC 51;
[2011] 1 All ER 430 and ASIC v Vines (2005) 55 ACSR 617, 855-856, 874 at [1053]-[1056] and [1129]-[1131].
486 (2012) 247 CLR 465, 478-479 at [23]-[25] (footnotes omitted).
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131
responsibilities would exercise the powers and discharge the duties of
that office may be assisted by consideration of how the officer in
question acted on occasions other than the one which is alleged to give
rise to a breach of the duties imposed by s 180(1). It was, therefore,
relevant for the Court of Appeal to notice what Mr Shafron had done
at JHIL in connection with matters other than the separation proposal
and, contrary to Mr Shafron’s submission, there was no denial of
natural justice in its doing so.
[25] Thirdly, each of the three classes of persons described in para (b) of
the definition of “officer” is evidently different from (and a wider
class than) the persons identified in the other paragraphs of the
definition. Persons identified in the other paragraphs of the definition
all hold a named office in or in relation to the company; those
identified in para (b) do not. Persons identified in the other paragraphs
all hold offices for which the legislation prescribes certain duties and
functions; those identified in para (b) do not. Persons identified in the
other paragraphs of the definition are bound by the legislation to make
certain decisions and do certain acts for or on behalf of the
corporation; those identified in para (b) are identified by what they do
(subpara (i)), what capacity they have (subpara (ii)) or what influence
on the directors they have had and continue to have (subpara (iii)).
There being these differences between para (b) of the definition and
the other paragraphs (especially para (a)), it is not to be supposed that
persons falling within para (b)(i) must be in substantially the same
position as directors: those to whom the management and direction of
the business of the company is usually, and in relation to JHIL was,
given.”
[672] Mr Piggott’s oral submissions for Mr King were directed to the “officer” case. He
summarised some of his submissions by pointing out that to find someone to be an officer
of a corporation required the court to characterise their actions, or their capacity, as one
arising from the performance of some kind of office of the corporation. It was not enough
if the person acted or had a capacity arising from their status outside the corporation,
referring to ASIC v Vines.487 In that context, he pointed to the terms of the pleading as
recognising that ASIC needed to prove that Mr King was an officer of MFSIM at the
relevant time, essentially performing Mr White’s role. That role included his position as
CEO of the funds management group and MFSIM but that was only one of the tasks he
was required to perform. He argued that the examples relied upon by ASIC did not permit
the conclusion that Mr White reported to Mr King daily or near daily in the performance
of his role in MFSIM.
[673] Counsel for Mr King also submitted that it had not been established that Mr White, in
reporting “daily or near daily” to Mr King, did so in the performance of his role in MFSIM
rather than as the Deputy CEO of the MFS Group as a whole. They pointed out that it
was a large group of companies with varied operations divided into “silos” where there
was a push, at least since late in 2006, partly because of Mr King’s health, to reduce the
central importance of his role, a process implemented from the beginning of 2007 by
increasing the independence of those officers below him in the hierarchy. They gave as
487 (2005) 55 ACSR 617.
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examples, the reconstitution of the MFSIM board to include three independent, non-
executive directors, Mr Diamond, Mr Whateley and Ms Beale. They were appointed on
27 February 2007. There were also two executive directors, Mr White and Mr Hutchings.
[674] It seems to me, however, that the High Court’s decision in Shafron justifies a broader
application of the section than was contended for by counsel for Mr King. The cases
about shadow directors focus on the meaning to be given to the definition of “officer” in
para 9(b)(iii) and whether the directors are accustomed to act in accordance with the
instructions or wishes of the shadow director. But the decision in Shafron discusses the
other definitions in para 9(b)(i) and para 9(b)(ii) as relating to what the persons do
(subpara (i)), and what capacity they have (subpara (ii)), in determining whether they are
officers.
[675] In that context, counsel for Mr King emphasised the detailed governance, organisational
and management structure established within MFSIM to argue that responsibility for
decisions about the management of its schemes and the use of scheme property was
entirely a matter for its board. In conclusion on this matter, they submitted:488
“543. The evidence supports the conclusions that Mr King’s responsibility
as CEO of the MFS Group:
(a) was a responsibility owed to the Board of MFS Limited and not
to the Board of MFSIM. Mr King had delegated authority from
the Board of MFS Limited, but no delegated authority from the
Board of MFSIM;
(b) was subject to limits and scrutiny by the Board of MFS Limited
and its committees;
(c) did not extend to scheme transactions involving scheme funds.
Such transactions were treated by the Board of MFS Limited as
being beyond its authority, and within the authority of the
independent Board of MFSIM. The Board of MFSIM took the
same view, and had at its disposal its own committees, its own
executive team, and its own procedural regimes;
(d) was, in respect of MFSIM, reflective of the responsibility of the
Board of MFS Limited. That is confined to receiving
information about MFSIM’s proprietary (or non-scheme) affairs
and to ensuring that MFSIM had in place proper governance and
risk management frameworks;
(e) did not result in Mr King playing any role in management
decisions of MFSIM.
544. Consequently, ASIC has not established an evidentiary basis for
characterising Mr King’s management responsibility as CEO of the
MFS Group as being one of ‘overall management responsibility for
the operations of MFSIM’.”
488 See COURT.4000.0001.0016 at paras 543-544.
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133
[676] The submissions for Mr King then went on to deal with whether he had the capacity to
affect significantly the financial standing of MFSIM, the issue raised by para (b)(ii) of
the definition of “officer”. His counsel argued that there was no evidence that he had a
capacity to affect the proprietary side of MFSIM’s financial affairs substantially, namely
the decisions about its investments. Mr King himself drew attention to the fact that, even
with the financial affairs of MFS Ltd, his delegated authority was limited to $25 million
when the company was worth about $2 billion. Nor had ASIC established that he had
any capacity to affect MFSIM’s financial status by setting the service fee payable by it to
the group.
Conclusions in respect of whether Mr King was an officer of MFSIM
[677] I have formed the view, for similar reasons to those discussed by me in respect of
Mr Anderson, that the statutory definition of “officer of a corporation” also applies to a
person who can properly be described as an executive officer of the responsible entity of
a managed investment scheme. The statutory history and the cases support such a
conclusion and the converse would be impractical and artificial.
[678] Was Mr King covered by that meaning in respect of his activities with MFSIM?
Mr King’s counsel submitted that ASIC had not pleaded or proven facts that could
establish that Mr White customarily acted in accordance with Mr King’s instructions and
wishes nor had it established a proper evidentiary basis for characterising Mr White’s
conduct in reporting to Mr King, or in acting in accordance with Mr King’s instructions
and wishes, as being “in the performance of his role in MFSIM”. Nor had they established
that he had the capacity to affect MFSIM’s financial standing significantly.
[679] On my analysis of the evidence of the frequent interactions between Mr King and
Mr White, including Mr King’s admissions about the nature of his role as the overall boss
of the MFS group, I have concluded that the evidence is sufficient to establish at least that
he participated in the making of decisions that affected the whole or a substantial part of
MFSIM’s business and had the capacity to affect significantly its financial standing.
ASIC also assembled a significant number of examples in its written submissions
showing his capacity to affect decisions within MFSIM in particular or as part of the MFS
Group.489 Therefore he was an officer of MFSIM.
Validity and ratification of agreements
[680] A number of the defendants contended that the PIF/PacFin loan participation agreement
and the acquisition of 67,500,000 units in MYF were valid agreements or, alternatively,
that MFSIM as responsible entity for PIF ratified entry into them.
Validity
[681] The argument that the agreements were valid was based partly on the submission that it
was open to the parties to an agreement to agree that an instrument should take effect as
489 COURT.0029.0003.0001 at para 759. Some of these were criticised in Mr King’s written submissions,
COURT.4000.0001.0016 at para 200, but not sufficiently strongly in my view to offset their overall effect.
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between themselves from an earlier date.490 ASIC did not disagree with that submission
as a general proposition but countered it by the assertion that the transactions that were
documented required board approval; there was a $50 million limit on the delegated
authority but no board approval for them. The relevant transactions exceeded $50 million.
Thus, those entering into them on behalf of MFSIM did so without authority.
[682] The submissions for Mr Anderson, in particular, addressed these issues. The first
argument was that the allegation of “no authority” in para 3(b)(i) of the reply was
inconsistent with the assertion in para 185 of the statement of claim that the actions of
Mr White and Mr Hutchings in entering the responsible entity into the loan participation
agreement and in applying for units in MYF (paras 120, 121 and 123 of the statement of
claim) were the actions of MFSIM as responsible entity for PIF. Consequently, pursuant
to the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) r 154, it was not open to ASIC
to take an inconsistent position in its reply, namely that it was beyond the authority of
Mr White and Mr Hutchings to enter the responsible entity for PIF into the loan
participation agreement and to make the applications for units on behalf of the responsible
entity.
[683] The second argument was that a contract entered into by an agent in exercise of the agent’s
authority is voidable at the option of the principal.491 There was no pleaded allegation,
and no evidence, that the responsible entity for PIF has ever elected to avoid the loan
participation agreement or the acquisition of units in MYF.
[684] The third argument was:
In respect of the MYF units:
(a) The pleading of no authority in para 3(b)(i) of the reply was only made with
respect to investments acquired with the $130 million, ie the 67.5 million
units in MYF and the $62.5 million loan participation agreement. It was not
pleaded in respect of the acquisition of the 17.5 million units in MYF, which
was below the $50 million threshold in any event.
(b) The $50 million limit was a limitation on the delegated authority to the CEO
to make investments. There was no evidence of any monetary limitation in
respect of MYF issuing units to unitholders. Consequently, the action of the
responsible entity for MYF in issuing the 67.5 million units to PIF was not
constrained by any limitation of authority. The most ASIC could argue was
that the making of the application by PIF for the units was unauthorised
(because there was no prior board approval to the making of the application).
(c) Even if the application was unauthorised, MYF nevertheless issued the units.
MFSIM issued the 67.5 million units to PIF, and they thereby became an asset
owned by PIF and the only legal consequence of the application being
unauthorised was that MFSIM could have informed MYF that the application
was unauthorised, could have asked MYF to cancel the units and to return the
application money. But there is no evidence that it did that so the legal
consequence was that the responsible entity for PIF has owned the 67.5
million units from the time the unit certificate issued.
490 Hawley Partners v Commissioner of Stamp Duties (Qld) [1996] QCA 270; (1996) 96 ATC 4847, 4851.
491 White v Tomasel [2004] 2 Qd R 438, 440 at [8].
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In respect of the PIF/PacFin loan participation agreement:
(a) The absence of board approval did not mean that the agreement was not
legally binding as between the two contracting parties: MFSIM as the
responsible entity for PIF and PacFin. The real question was whether the
written agreement did or did not become an enforceable contract as between
PIF and PacFin. That turned on broader considerations than just whether,
internally to PIF, the actions of its directors in signing the contract were
properly authorised. It also turns on whether PacFin could, notwithstanding
any lack of authority within PIF, have enforced the agreement against PIF.
(b) PacFin could rely on the application of the indoor management rule, that “…
persons dealing with a company in good faith may assume that acts within its
constitution and powers have been properly and duly performed and are not
bound to inquire whether acts of internal management have been regular”,492
to contend that the agreement was legally binding, despite the absence of
board approval.
(c) Mr White’s knowledge (of the absence of board approval) in his role as an
officer of MFSIM as the responsible entity for PIF should not be imputed to
PacFin.
[685] ASIC’s arguments to the contrary were that I should find that Mr Anderson and the other
defendants had failed to prove the acquisition of the 67.5 million fully paid A Class units
in MYF and $62.5 million in rights in the loans pursuant to the participation agreement
with PacFin. It relied on its submissions that the evidence establishes that the $130
million was applied on 30 November 2007 for the purpose of the part repayment of the
Fortress loan; and that the purported acquisitions were not identified and documented
until in or about February 2008. It also argued that there was no pleading that the
purported acquisitions were effective without ratification, the only basis pleaded by
Mr Anderson being that in para 50C of his amended defence which raised the issue
whether the acquisitions were ratified by the board of MFSIM.
[686] In any event, ASIC submitted, Mr Anderson had failed to prove that any such agreement
was executed within the actual authority of Mr White and Mr Hutchings, who were the
persons who executed the participation agreements and the application for 85 million
class A units in MYF1. Those units did not exist at the time that the application was
signed and the purported acceptance of the transfer of the units by MYF to PIF was by
the issue of unit certificates before the MFSIM board ever purported to ratify the issue of
the 100 million units. In fact, when MFSIM ratified the issue by MYF of 100 million
units it did not purport to authorise any subsequent acquisition of assets.493 Accordingly,
the purchase by MYF of the $55 million interest in loans under the participation
agreement (and the $30 million loan to Sunleisure) was specifically not ratified. Further,
there was no ratification by MYF of the acceptance of PIF’s application for 85 million
class A units in MYF.
[687] The submission continued that I could not be satisfied that Mr White and Mr Hutchings
were acting within any actual authority because the onus lay on Mr Anderson to prove
that the contract was made, and, if the contract was made by an agent, the authority of the
492 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146, 154-5, 171, 192, 207, 210.
493 DEL.2004.0001.0953; email 27 February 2008 at 11:48 am from Mr Whateley to Mr Hutchings.
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agent to make it. He had failed to prove that they had such actual authority to enter into
participation agreements for $62.5 million and/or $85 million as even the CEO’s
authority was limited to $50 million. Nor could there be any authority by MYF (without
ratification) to accept an application for 85 million units before the units were issued.
[688] Nor, ASIC submitted, could apparent or ostensible authority operate when the other party
knows of the lack of authority. That submission was based on the fact that Mr White and
Mr Hutchings had no actual authority to enter the alleged contracts. However, they
conceded that Mr White and Mr Anderson did have apparent/ostensible authority to enter
into such contracts on behalf of PIF. They submitted that was consistent with their
submissions concerning the attribution of Mr White’s, Mr King’s and Mr Anderson’s
conduct to MFSIM in November 2007.
[689] It seems to me that that approach also provides the answer to the pleading argument raised
on behalf of Mr Anderson to which I referred earlier. In other words, para 3(b)(i) of the
reply is explicable as referring to actual authority where para 185 of the statement of claim
deals explicitly with actual or apparent authority.
[690] In this context, however, ASIC’s principal submission was that a contract is not
enforceable, without ratification, on the basis of conduct within the apparent or ostensible
authority of an agent, outside actual authority, if the other party is aware of the absence
of actual authority.494 It summarised its argument against the submissions on behalf of
Mr Anderson with respect to authority to enter into the agreements by pointing out that
Mr White, as the agent for PacFin, knew that he, as the agent for MFSIM, did not have
authority to enter into the purported acquisitions. Accordingly, Mr White as agent for
PacFin cannot assert that there is an enforceable contract against MFSIM because:
“No act done by an agent in excess of his actual authority is binding on the
principal with respect to persons having notice that in doing the act the agent
is exceeding his authority.”495
[691] The absence of actual authority to make the investments purportedly acquired with the
$130 million, ie the 67.5 million units in MYF and the $62.5 million loan participation
agreement, to the knowledge of both parties to the purported transaction, establishes to
my satisfaction that they were ineffective, including the issue of the units in MYF. I do
not see how that issuing of units can stand when both parties to the transaction must be
taken to have known that the payment purportedly made for them was unauthorised.
[692] The submissions for Mr Anderson that Mr White was under no duty to MFSIM to
communicate the limits on his authority to PacFin nor under a duty to receive such
information on behalf of PacFin is implausible. It was in PacFin’s interests to know
whether the agreement it was entering into was enforceable. That has the effect that it
494 See Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421, 431; Russo-Chinese Bank v Li Yau Sam [1910] AC 174,
184 and Armagas Ltd v Mundogas SA [1986] 1 AC 717, 777, cited in Midas Management v Equator
Communications [2008] NSWSC 255 at [55]. See also Dal Pont, Law of Agency (LexisNexis Butterworths,
3rd ed, 2014) at para [20.39].
495 Bowstead & Reynolds on Agency (Sweet & Maxwell: Thomson Reuters, 2014, 20th ed) Article 73 at [8-047]
p 411.
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was incumbent on Mr White to receive the relevant information on its behalf. The indoor
management rule does not apply in a case like this.
[693] ASIC did not address submissions concerning actual authority to enter into the $17.5
million transaction with PacFin, apparently contenting itself to rely on its primary case
that no consideration was provided at the time of the payment and whether there were
later genuine transactions entered into was irrelevant.496
Ratification
[694] The written submissions for Mr Anderson summarised the conduct relied on as
amounting to ratification as follows:497
“(a) the RE’s adoption of the 31 December 2007 half-year accounts for PIF
(which the board of directors in a meeting on 19 March 2008 resolved
to adopt, which were then signed by the RE and made public by lodging
with ASIC). Those accounts recorded:
(i) the fund holding 85m $1 units in the MYF (internal p.11);
(ii) the fund having an asset of $62.5m, being rights acquired under a
participation agreement the fund had entered into with PacFin on
30 November 2007 whereby the fund participates in loans
originated by PacFin, and that the participation agreement covers
6 corporate loans with varying maturities (internal p.12);
(b) the RE’s adoption of the 30 June 2008 and 30 June 2009 PIF accounts,
which likewise record the units in MYF and the rights under the loan
participation agreement as assets of the fund;
(c) the RE’s assertion of its legal rights arising under the loan participation
agreement in correspondence between MFSIM and PacFin (and
between their solicitors) as follows:
(i) a letter dated 10 March 2008. By this letter, MFSIM amongst
other things called upon PacFin to confirm whether it would
honour its obligations under the loan participation agreement and
reserved its rights in respect of the agreement in respect of any
repudiation of it;
(ii) a letter dated 28 March 2008. By this letter, PacFin amongst other
things confirmed that it did not repudiate the loan participation
agreement;
(iii) a letter dated 31 March 2008. By this letter, MFSIM (through its
lawyers) called upon PacFin to provide an explanation for its
reasons for failing to comply with its obligations under the loan
participation agreements together with details of all monies
received from the borrowers under the various agreements; and
again reserving all its rights;
496 See T59-48/30-44.
497 COURT.7000.0003.0001 at para 129 (references omitted). “RE” means responsible entity.
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(iv) a letter dated 14 April 2008. By this letter, PacFin confirmed (at
pp.3, 4) its entry in the participation agreements; and that it had
received legal advice about the rights that were created by the
agreements; and that it was not in a position to repay PIF and
MYF; and proposing a moratorium arrangement that amongst
other things included a proposal to pay amounts owing to PIF and
MYF under the participation agreements;
(v) an e-mail dated 10 April 2008. By that e-mail, PacFin (through
its lawyers) sent a letter to MFSIM (through its lawyers) referring
to PIF’s claim against PacFin under the loan participation
agreement;
(vi) a letter dated 10 April 2008. By this letter, PacFin (through its
lawyers) confirmed its view that MFSIM’s rights against PacFin
would amount to an unsecured claim in damages for breach of the
loan participation agreement amongst other things.
(d) on or about 24 June 2008, the RE commenced proceedings against MFS
Limited, MFSA and PacFin in which it asserts rights arising from entry
into the loan participation agreement and the acquisition of the units in
MYF;
(e) Wellington Capital Limited (the replacement RE for PIF) adopted the
financial accounts for PIF as at 31 December 2008, 30 June 2009 and
31 December 2009, each of which recorded PIF’s ownership of units in
MYF and rights under its loan participation agreement with PacFin;
(f) the RE for PIF received and kept a return on capital of $425,000 as a
unitholder in MYF (see 30 June 2010 annual accounts of MYF:
WIT.ALLM.0007 at internal page 16 and WIT.ALLM.0004 at internal
page 13).”
[695] Mr O’Donnell submitted that these actions of the responsible entity amounted to an
unequivocal adoption of the loan participation agreement and the acquisition of the units
in MYF.
[696] In discussing whether MFSIM was aware of material circumstances attending any
unauthorised acts, Mr O’Donnell identified the critical question as what information was
known to the independent directors, Mr Whateley and Mr Diamond, and what was known
to MFSIM through papers provided to the directors. He pointed to:
the papers provided to the directors’ meeting to be held on 20 February 2008 and
for the conflicts committee meeting to be held on the same date;
emails from Mr Hutchings on 11 and 25 February seeking board ratification to the
issue of 100,000,000 units in MYF;
a loan book presented to the board meeting on 20 February 2008 recording each of
the loans making up the loan participation agreement with PacFin;
a document circulated by Mr Korda on 20 February 2008 containing a summary of
each of the loans making up the loan participation agreement;
PIF’s unit holding in MYF;
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139
MYF’s loan to Sunleisure;
the loans making up the MYF participation agreement together with the minutes of
the 20 February 2008 board meeting; and
interim status reports by Price Waterhouse Coopers (PwC) on their audit as at 27
February 2008 and 5 March 2008.
[697] From that, he submitted, that the key pieces of information that had become known to the
directors before the 19 March 2008 board meeting at which the directors approved the
accounts for PIF were:498
“(a) Diamond and Whateley knew that the RBS facility had been drawn
down by at least $150m by 28 December 2007;
(b) Whateley and Diamond had each received and read the board papers for
the 20 February 2008 board of directors and conflicts committee
meetings (and Whateley had made handwritten markings on them).
They had further received and read the 333 loan book and loan analysis
document;
(c) if not before, then at least by the 20 February 2008 board and conflicts
committee meetings, both knew:
(i) MYF had issued 100m class A units;
(ii) PIF had paid $85m for 85m of those units;
(iii) PIF had entered into a loan participation agreement with PacFin,
pursuant to which PIF had paid $62.5m;
(d) the transactions (entry into the loan participation agreement and the
acquisition of 85m units in MYF) exceeded the $50m limit on the
CEO’s delegated authority;
(e) the transactions had not been brought to the board for approval. In
Diamond’s words, the transactions were “unauthorised and
unapproved”;
(f) Whateley and Diamond on 27 February 2008 ratified MYF’s issue of
the 100m units;
(g) MYF had used the $85m from PIF as follows:
(i) MYF entered into its own loan participation agreement with
PacFin, pursuant to which MYF outlaid $55m to acquire
participation rights in respect of loans of PacFin;
(ii) MYF entered into a loan agreement with Sunleisure Group,
pursuant to which it had lent Sunleisure $30m;
(h) the directors had received and read the 333 loan book, which they
appreciated contained an analysis of (amongst other things) each loan
the subject of the PIF and MYF loan participation agreements with
PacFin. At the directors’ meeting on 20 February 2008 the
498 COURT.7000.0003.0001 at para 133 (references omitted).
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circumstances of each loan was addressed in detail in discussion with
Korda, including prospect of repayment;
(i) Whateley was closely involved in the audit (which was occurring at the
same time), including meetings and discussions with the auditors,
reading the auditor’s interim reports and reading the draft six monthly
accounts for PIF, and appreciated that areas of the auditor’s concern
included the acquisition of units in MYF and the loan participation
agreement with PIF.”
[698] His submission went on that, by 19 March 2008, the board had to choose either to
recognise the acquisition of the units and the participation agreement as transactions of
the fund or disavow them. That had to be done then because, if the board was to adopt
the transactions, they had to be recorded in the half-yearly accounts for PIF whose
lodgement was then due. Mr O’Donnell submitted that the approval of the accounts was
unequivocal and only logically explicable as an adoption of what Mr Whateley and
Mr Diamond both knew to be “unauthorised and unapproved” transactions. He argued
that that conclusion was reinforced by the subsequent conduct of the responsible entity,
MFSIM, asserting legal rights of PIF arising from the loan participation agreement. He
also referred again to the receipt of the benefit by Wellington Capital Ltd of $425,000 in
the financial year ending 30 June 2010. Wellington Capital Ltd had replaced MFSIM as
the responsible entity for PIF after these events.
[699] ASIC’s submissions were that the issue of ratification was not relevant on its primary
case and that, in any event, no consideration was given at the time of, or in exchange for,
these payments and that PIF did not acquire anything for its payments because the
subsequently documented transactions were not entered into by persons having authority
to enter into them and MFSIM did not subsequently ratify them. The argument about the
lack of authority arose because of the $50 million limit on delegated authority to enter
into the transaction so that those entering into them on behalf of MFSIM did so without
authority.
[700] ASIC also denies that the transactions were ratified, pointing out that the independent
directors, Mr Whateley and Mr Diamond, expressly declined to ratify any subsequent
acquisition of assets by PIF. Mr Whateley said in an email of 27 February 2008 at
12:48 pm that although he agreed with the issue of the units, “… that agreement to the
issue of these units does not indicate my endorsement or otherwise of any subsequent
acquisition of assets”.499 A similar approach was taken by Mr Diamond in an email of 27
February 2008 at 7:17 pm. So the non-executive directors expressly declined to adopt
the transactions beyond MYF issuing a new class of 100,000,000 units.
[701] ASIC characterised the question that arose, therefore, as whether, despite this express
lack of endorsement of the underlying transactions, MFSIM could be said to have ratified
those transactions. The focus of its submissions was that, at the time of the alleged
ratification or adoption, the principal, MFSIM, did not have full knowledge of the
material facts and circumstances pertaining to its agents’ unauthorised act,500 arguing that
499 DEL.2004.0001.0951.
500 Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 at [134] and Dal Pont, Law of Agency, 2nd ed,
para [5.19]. Taylor v Smith (1926) 38 CLR 48, 54-55, 59, 62.
-- 154 of 348 --
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it will be a rare case in which a principal will be found to have adopted an agent’s act
where the principal lacked full knowledge.501 It is only where the evidence very clearly
shows that the principal intended to ratify whatever the circumstances that such a result
could be justified. That occurred in McHugh v Eastern Star Gas Ltd502 where the New
South Wales Court of Appeal expressed the view that the principal in that case, in
sanctioning the agent’s retainer, was prepared to “take the risk”, even if the principal did
not have full knowledge of all material circumstances. The court there concluded that
there was certainly enough knowledge in the principal to decide whether or not to adopt
the unauthorised act.
[702] In addressing the facts relied upon by the defendants to argue that ratification had
occurred, ASIC argued that the conduct, if proved, must be considered in the context that
the non-executive directors had expressly declined to approve the transactions on 27
February 2008. The directors of MFSIM and, later, Wellington Capital Ltd, had not been
shown by the defendants to have had full knowledge of the essential facts concerning the
transactions and the conduct was not consistent only with an intention to ratify the
transactions because the conduct, if proven, was at least as consistent with there being a
lack of full information about the essential aspects of the transactions on the part of the
responsible entity.
[703] In this context, ASIC submitted that the board of MFSIM was given clearly false
information about the transactions when it was asked to ratify them. It submitted that the
papers that were provided to the board503 revealed that it was informed of the following
matters on or about 20 February 2008:504
“(a) at pages 1165-6, in relation to PIF’s purchase of 85 million units in
MYF:
(i) that there had been consultation with the IAC about the
investment, when there had not;
(ii) that the IAC had reviewed the proposed transactions, when they
had not;
(iii) that the IAC had confirmed that the transactions were on an arms
length basis, when the IAC had not done that;
(iv) that the IAC had confirmed that the transactions were consistent
with the Scheme’s investment parameters, when the IAC had not
done that;
(v) that the IAC had reviewed and approved these facilities on 23
November 2007, which it had not;
(vi) that the facility was at arms length and on commercial terms and
in the best interest of the unitholders and therefore did not require
unitholder approval, when it did not answer those descriptions;
501 See Fitzmaurice v Bayley (1856) 6 El & Bl 868; 119 ER 1087 and Dal Pont, Law of Agency, 2nd ed, para
[5.22].
502 (2012) 88 ACSR 707, 720 at [64].
503 WHAJ.0003.0001.1126.
504 COURT.0029.0003.0001 at para 89.
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142
(vii) that key documents were available on request including IAC
submission and IAC minutes (approvals) when such documents
as had been prepared were backdated and purported to record
events that did not occur;
(b) at pages 1169-1170, the Board was given a copy of the false minutes of
a meeting of the IAC of MYF on 28 November 2007 purportedly
approving the PacFin participation agreement and the Sunleisure loan
and that document stated:
(i) the proposal meets all of the MYF authorised investments;
(ii) the underlying assets meet the investment guidelines of the MYF;
(iii) the intention was for MYF to ‘claw back’ the participation
amount provided by MYF within the next six months;
(c) at pages 1171-2, the Board was given a copy of the false paper for the
IAC of MYF dated 20 November 2007;
(d) at pages 1173-4, the Board was given a copy of the false minutes of the
IAC of MYF dated 21 November 2007;
(e) at pages 1224-1225, the Board was falsely informed about the
transaction involving MYF entering into a loan participation agreement
with PacFin and MYF making a loan to Sunleisure that:
(i) there was consultation with the IAC about the transactions, when
there was not;
(ii) the IAC had reviewed the proposed transactions, when they had
not;
(iii) the IAC had confirmed the transactions were on an arms’ length
basis, when it were not;
(iv) the IAC had confirmed that the transactions were consistent with
the scheme’s investment parameter, when it had not;
(v) the IAC reviewed and approved these facilities on 28 November
2008, when they had not;
(vi) that the facility was at arms’ length and on commercial terms and
that unitholder approval was not required, when it did not answer
those descriptions;
(vii) that key documents were available upon request including IAC
submission and IAC minutes, which were documents that had
been prepared long after the dates they bore and which purported
to record events that did not occur;
(f) at pages 1227-8, the Board was given a copy of the false minutes of a
meeting of the IAC of MYF on 28 November 2007;
(g) at pages 1229-1230, the Board was given a copy of the false submission
to the IAC dated 28 November 2007 concerning the Sunleisure loan;
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143
(h) at pages 1232-3, the Board was given a copy of the false submission to
the IAC dated 27 November 2007 concerning the PacFin loan
participation agreement.”
[704] In particular, it submitted that the board was informed that IAC consideration had
occurred, that the transactions were at arm’s length and that they met the investment
parameters of the scheme. The board was also informed that the transactions had occurred
in November and December 2007, rather than at some later date, when all of these things
were untrue.
[705] Accordingly, it submitted that the board was misinformed about fundamental matters so
that it cannot have been that it ratified the transactions with full knowledge of all material
circumstances. It submitted that the board was then being actively misled about the nature
of the transactions and whether anyone within the organisation had given consideration
to whether they were arm’s length and legitimate transactions for PIF to undertake.
[706] Mr O’Donnell objected to these arguments for ASIC in his oral submissions505 as being
outside the terms of the reply, particularly in para 4(c) which provided that there was no
ratification because the MFSIM board was not made aware of the circumstances of the
alleged transactions, rather than that they were actively misled.506 There is some
substance in that submission. As Mr O’Donnell pointed out, if the reply asserted that the
directors had been misled he may have needed to recall the directors to cross-examine
them as to whether they had been misled and as to whether these matters really affected
their decision.
[707] When one considers the pleading, however, the matters that are alleged as not having
been revealed to the board are highly significant. They are:
that the purpose of the $150 million drawdown, the $130 million payment and the
$103 million payment were, as pleaded in para 44 of the statement of claim, namely
as a benefit to a related party for the repayment of the Fortress loan;
that the payments were not made for the benefit of PIF;
that the IAC never approved the transactions; and
that the payments were made without consideration passing to PIF at the time of
the payments.
[708] I do not understand that the independent board members were given that information.
[709] ASIC also submitted that the later institution of proceedings by MFSIM, rather than
evidencing an intention to ratify the transactions, demonstrated the lack of knowledge in
the then responsible entity. ASIC pointed out that the pleader of the statement of claim
in those proceedings relied upon various of the false documents as accurately recording
events at the time of the payments including minutes of meetings that did not occur such
as the one on 21 November 2007 alleged in para 35 of the relevant statement of claim.
505 T54-11/30 to T54-12/47.
506 COURT.0024.0001.0001.
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144
[710] It made similar submissions about the entries in PIF’s accounts as being more consistent
with MFSIM’s board not having full knowledge of all material circumstances in
proceeding in the false belief, encouraged by Mr Hutchings, that there had been proper
consideration given to the transactions at the time of the payments and that the
transactions had in fact been entered into in 2007.
[711] ASIC submitted that the defendants had failed to discharge their onus of demonstrating
that the inclusion of those entries in PIF’s accounts, overcame the false information that
had been provided to the board about material matters and the board’s express refusal to
ratify the transactions on 27 February 2008. It submitted that there was no evidence
presented, for example that Mr Whateley, Mr Diamond or the directors of MFSIM, after
its acquisition by Wellington Capital Ltd, knew that the IAC had not approved the
transactions and had not considered whether the transactions were at arm’s length and in
accordance with PIF’s investments parameters. Further, ASIC submitted that there was
no evidence that anyone had considered those questions. It submitted that the board had
been actively misled into the belief that the transactions had been considered and
approved by the IAC at the time of the payments. Nor had it been told that no
consideration had then passed to PIF or that the payments were not made for PIF’s benefit
but rather for the purposes of the wider MFS Group.
[712] It also submitted that the correspondence relied upon by Mr Anderson was entered into
during March and April 2008 and undertaken at a time when the board was not informed
of the facts material to whether it should ratify the transactions where some of the
defendants were actively misleading it about events.
[713] As to the evidence of PIF keeping the $425,000 repaid to it from MYF, it submitted that,
again, the defendants had failed to demonstrate that Wellington Capital Ltd, at the time it
received that sum, had full knowledge of all of the material facts where the evidence also
demonstrated that MYF had invested $2.1 million in PacFin in late December 2007 so
that the defendants had failed to discharge their onus of demonstrating that the $425,000
did not relate to a return of some part of that money from PacFin and the distribution of
that return to PIF. Therefore they had not proved that Wellington Capital Ltd knew that
the benefits flowed from an unauthorised act.
[714] The submissions for Mr Anderson argued that the lack of IAC approval was not material
because only the board could approve transactions for more than $50 million. Counsel
for Mr Anderson also argued that the purpose and intended benefit of the payments was,
at best, a collateral matter as, once the board knew of the two transactions, knew that they
were unauthorised and knew that a decision had to be made by it whether to acknowledge
them as transactions of the fund or not, that was sufficient for the board to make a
decision. They submitted that it was not necessary for the board to go into further detail
regarding the circumstances leading up to the transactions.
[715] They also pointed to the lack of any later disavowal of the transactions by, for example,
Mr Whateley and Mr Diamond, to argue that the board had “taken the risk” in respect of
any unknown circumstances associated with the transactions.
[716] My view is, however, that the failure to inform the board about the true purpose and nature
of the transaction, including the use of the funds to pay the Fortress loan without
-- 158 of 348 --
145
consideration then passing to PIF and failure to inform it of the lack of consultation with
the IAC were highly material to the board’s consideration of the matters, even if IAC
approval was not required. Any assumption that the IAC had considered the matter was
capable of going a long way to allay any concerns of the board and the failure to inform
the board that that consideration had not occurred made that a material misrepresentation.
The failure to provide the true information about the purpose and use of the funds at the
time also has the effect, in my view, that the transactions cannot be regarded as ones that
have been ratified by the board because it has been shown by ASIC that the responsible
entity did not have full knowledge of all of the material circumstances surrounding the
transactions.
Related parties
[717] I have set out earlier ASIC’s submissions about MFSIM and MFS Administration being
related parties and MFSIM and PacFin being related parties. Section 208 of the Act
requires the approval of a public company’s members for it, or an entity controlled by it,
to give a financial benefit to a related party of the public company. ASIC’s case was that
each of MFS Administration, MFS Castle, MFS Limited and MFS Financial Services
were related parties of MFSIM. That followed because of their membership within the
overall MFS Group of companies.
[718] The issue of control raised under s 50AA was satisfied because MFS controlled both
MFSIM and MFS Administration. The control arose from the fact that MFSIM was a
subsidiary of MFS and MFS Administration was also a subsidiary of MFS. Mr King was
also said to control Mr White based on the evidence traversed earlier about the influence
that he had over Mr White causing him to be an officer of MFSIM.
[719] The question of control between MFSIM and PacFin was resolved by the evidence that
MFS controlled MFSIM and MFS Administration and MFS Administration controlled
PacFin. That control arose from the fact that MFSIM was a subsidiary of MFS. MFS
Administration was also a subsidiary of MFS and controlled PacFin through a
Management Agreement dated 24 July 2006 under which, by its terms, PacFin was
managed exclusively by MFS Administration.507 Mr White and Mr Anderson were
directors of MFS Administration and two of the three directors of PacFin.
[720] Mr Riordan, in his oral submissions, illustrated the capacity of Mr King, Mr White and
Mr Anderson to exercise influence by referring to the speed with which they were able to
overcome the safeguards meant to control the investment of MFSIM’s funds in November
and December 2007 “without anybody raising more than a whimper”.508
[721] ASIC’s submission went on to argue that the payment of the $130 million was a payment
to MFS Administration while the payment of the $103 million to Fortress constituted a
benefit to MFS Castle (the holder of the Fortress debt) and to MFS Limited and MFS
Financial Services as guarantors of the Fortress debt. In making those payments out of
scheme property to benefit related parties, without obtaining the approval required by
s 208, ASIC’s counsel argued that MFSIM as responsible entity for PIF contravened
s 208(1) as modified by s 601LC dealing with managed investment schemes.
507 OCA.0013.0001.0002.
508 T57-49/12-13.
-- 159 of 348 --
146
[722] Mr George for Mr Anderson submitted also that, applying the test for related parties under
s 228 of the Act as modified by s 601LA and read with s 50AA of the Act, it had not been
established that MFS Limited had the capacity to determine the outcome of decisions by
MFSIM as responsible entity for PIF about PIF’s financial and operating policies.
[723] The submission was that MFSIM’s board was independent and, even if it could have been
removed, while it was in place, the practical influence that the first entity, MFS Limited,
could exert over MFSIM was limited and not such as to determine the outcome of
decisions by MFSIM. It functioned independently at the relevant time.
[724] Although MFS could determine who became the directors of MFSIM, it chose to appoint
to its board a majority of directors who were independent of the MFSIM Group. It also
chose to adopt a policy that MFSIM as responsible entity would operate independently.
In this he relied upon the evidence of Mr Cronin, Mr Diamond, Mr Whateley, Ms Beale
and Ms Kercher. There were no common directors in the latter half of 2007 between
MFS and MFSIM and a lack of evidence of actual influence on the operating or financial
policies of PIF by MFS.
[725] He rejected ASIC’s arguments that Mr King had the capacity to control MFSIM by
reference to several emails involving Mr King. He argued that, at best, the emails showed
Mr King was able to exert some influence in some of Mr White’s activities relating to
PIF. He submitted that the capacity to influence Mr White’s activities did not rise to the
capacity in Mr King to determine the outcome of decisions about PIF’s financial and
operating policies as he was only one of five directors of MFSIM.
[726] That approach to the issue ignores the effect of the reference to the “capacity to determine
the outcome of decisions about the second entity’s financial or operating policies” in
s 50AA(1) (emphasis added). Mr George’s submissions really focussed on the meaning
of the “practical influence the first entity can exert (rather than the rights it can enforce)”
in s 50AA(2)(a).
[727] One must not ignore the question of capacity, however. As Brereton J said recently in
Hancock v Rinehart:509
“152. The concept of ‘control’ of an entity is concerned with the ability to
determine the outcome of decisions of the entity [cf Corporations Act,
s 50AA; Glencore International AG v Takeovers Panel [2006] FCA
274; (2006) 151 FCR 77, [83] (Emmett J)]. In the context of a
company, this ordinarily means the ability to carry a resolution by
majority at the general meeting - and thus to determine the
composition of the board of directors [Mendes v Commissioner of
Probate Duties (Vic) [1967] HCA 23; (1967) 122 CLR 152, 161 (Kitto
J, with whom Taylor J agreed), 169 (Windeyer J); Fraser v NRMA
Holdings Limited [1994] FCA 1397; (1994) 52 FCR 1, 24 (Gummow
J); Canwest Global Communications Corp v Australian Broadcasting
Authority (1997) 71 FCR 485, 506; (1997) 147 ALR 539, 559; (1997)
24 ACSR 405 (Hill J); see also W P Keighery Pty Ltd v Commissioner
of Taxation [1957] HCA 2; (1957) 100 CLR 66; Commissioner of
509 [2015] NSWSC 646 at [152]-[153].
-- 160 of 348 --
147
Taxation v Sidney Williams (Holdings) Ltd [1957] HCA 1; (1957) 100
CLR 95; Kolotex Hosiery (Australia) Pty Ltd v Commissioner of
Taxation (Cth) [1973] HCA 28; (1973) 130 CLR 64, 77-78 (Mason
J); Kolotex Hosiery (Australia) Pty Ltd v Commissioner of Taxation
(Cth) [1975] HCA 5; (1975) 132 CLR 535, 572-573 (Gibbs J)]. At an
earlier stage of the present litigation, in Welker v Rinehart (No 2)
[2011] NSWSC 1238 (at [47]-[48]), I had to consider a reference - in
clause 8 of the Hope Downs Deed - to Mrs Rinehart’s ‘full ongoing
control and management of HPPL’. In a conclusion that was not
disturbed in Rinehart v Welker [2012] NSWCA 95 (at [146(d)]), I said
that ‘control’ normally means the ability to control the board of
directors through a majority of the general meeting (at [48]).
153. Control is concerned with decision making, rather than proprietorship,
and control, like ownership, can be indirect: there are circumstances
in which those who have the ability to carry a resolution may become
bound to act on the direction of another (for example, a mortgagee).
The ‘control’ requirement is directed to the ultimate power to decide
how an entity acts, as distinct from beneficial ownership, and also as
distinct from the delegated power of directors or officers. Although
typically those who wholly own a company will control it, that is not
necessarily so: it is not unknown for those entitled to exercise voting
power to become bound or accustomed to exercise their voting rights
in accordance with the direction of another … In such a case, that other
person will ‘control’ the company if he or she has a sufficient
accumulation, directly or indirectly, of voting power to carry the
general meeting.”
[728] The application of that test leaves no room for doubt that MFS Administration and
MFSIM were related parties. They were both controlled by MFS as its wholly owned
subsidiaries. In any event the evidence was quite persuasive that, in spite of the existence
of the independent MFSIM board, Mr White and Mr King wielded a lot of practical
influence over the company’s operations.
[729] Mr George also submitted that MFS did not control PacFin. MFS had divested about
61.6 per cent of its interest in PacFin in about 2006, so that by about late 2006, MFS
owned about 38.4 per cent of PacFin. PacFin made its own decisions about its operating
and financial policies through Mr Maywald, Mr Gaylard and Mr Oliver and through the
board of directors of its parent company, MFS New Zealand Limited.
[730] On Mr Anderson’s evidence, he was not aware of any influence by Mr King on PacFin’s
financial or operating policies after he resigned as one of its directors in about July 2007.
His view, as an accountant for the group, was that, after MFS divested itself of its interests
in PacFin in 2006, PacFin had ceased to be a related party and did not need to be included
in MFS Limited’s consolidated accounts.
[731] Mr Maywald’s affidavit evidence, on which he was not cross-examined because of his
claim for privilege, was that he would consult Mr King on strategic and policy matters
and on major decisions. It was criticised as not directed to the specific relationship
between MFS and PacFin and the submission made was that his evidence did not rise
-- 161 of 348 --
148
much above him keeping Mr King informed, rather than Mr King making decisions as to
the financial and operating policies of PacFin. Mr King’s evidence was that in the latter
period of 2007, he had no capacity to give directions to Mr Maywald regarding the affairs
of PacFin. He rejected the proposition that Mr Maywald always consulted him on
strategic or policy matters after he ceased to be a director of PacFin.
[732] In supplementary written submissions, counsel for Mr Anderson rejected ASIC’s
submission that MFS Administration controlled PacFin through the management
agreement dated 24 July 2006 under which PacFin was said to be managed exclusively
by MFS Administration. The only evidence ASIC pointed to in support of this
submission was the management agreement itself.510 No particular term of the agreement
was referred to by ASIC. The services to be provided by MFS Administration were set
out in schedule 4 of the agreement. It was bound to comply with instructions from PacFin
under cl 3.3 of the agreement. Counsel submitted that nothing in the agreement gave MFS
Administration any capacity to determine the outcome of decisions about PacFin’s
financial and operating policies. ASIC had not shown that, by the agreement, the control
test in s 50AA of the Corporations Act had been satisfied.
[733] Clause 2.1 provided, however, that PacFin appointed MFS Administration as its exclusive
agent to manage PacFin on the terms contained in the agreement. Clause 3.3 then
provided that MFS Administration agreed to comply with any reasonable and lawful
instruction that PacFin may, at any time, give to it, in which circumstances PacFin had
the sole responsibility for the consequences of that instruction. However, MFS
Administration was entitled to complete any transaction already commenced prior to
receiving such an instruction from PacFin.
[734] When one brings the focus back to the question of capacity to control, however, the roles
of Mr White and Mr Anderson as directors of MFS Administration and two of the three
directors of PacFin are highly important. The management agreement also satisfies me
that MFS Administration had significant practical influence over PacFin. I am persuaded
that they were related parties.
False documents
[735] The false documents case as pleaded by ASIC alleged, typically, that the defendants said
to have been involved in creating those documents, such as Mr Hutchings, Ms Watts,
Mr Anderson and Mr White, created or assisted in the creation of a relevant document.
They did so, knowing, for example, that no such recommendation as was recorded in it
had ever been made, intending that it would form an apparently genuine part of the
financial books and records of MFSIM with the consequences flowing from that. They
also knew that the $130 million payment and the $17.5 million payment had not been
invested in accordance with PIF’s constitution but intended that the document would
disguise that fact. They also knew that PIF did not invest in MYF on or about 30
November 2007 and intended that the document would disguise that fact.511
[736] The use of the false documents was pleaded as relevant to the MFSIM contraventions
pleaded in paras 185-198A of the statement of claim. The balance of the pleading then
510 OCA.0013.0001.0002.
511 See, eg, para 109 of the statement of claim.
-- 162 of 348 --
149
made allegations tying the individual defendants into contraventions alleged against them
of involvement in MFSIM’s contraventions, and of allegations of themselves
contravening s 601FD of the Act and other provisions of the Act. Allegations relating to
the false documents were made of contravening s 344(1) of the Act by, typically, failing
to take all reasonable steps to comply with, or to secure compliance with, the obligation
to keep written and financial records that correctly recorded and explained the
transactions of MFSIM as required by s 286(1) of the Act.512
[737] Some of the defendants argued that those allegations raised for consideration whether the
documents were “shams”.513
[738] Lord Diplock, in Snook v London and West Riding Investments Ltd,514 addressed the
meaning of that “popular and pejorative word” in these terms:
“I apprehend that, if it has any meaning in law, it means acts done or
documents executed by the parties to the ‘sham’ which are intended by them
to give to third parties or to the court the appearance of creating between the
parties legal rights and obligations different from the actual legal rights and
obligations (if any) which the parties intend to create. But one thing, I think,
is clear in legal principle, morality and the authorities (see Yorkshire
Railway Wagon Co v Maclure and Stoneleigh Finance Ltd v Phillips), that
for acts or documents to be a ‘sham’, with whatever legal consequences
follow from this, all the parties thereto must have a common intention that
the acts or documents are not to create the legal rights and obligations which
they give the appearance of creating.”
[739] Similarly in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd,515 the High Court said:
“‘Sham’ is an expression which has a well-understood legal meaning. It refers
to steps which take the form of a legally effective transaction but which the
parties intend should not have the apparent, or any, legal consequences.”
[740] Mr Withers for Mr Hutchings submitted that Snook was authority for the proposition that
a sham would exist where the parties intended that the transaction documents would not
create the legal rights or obligations they appear to create and that it was intended that the
documents would mislead a third party into believing the parties had created those rights
and obligations. Mr O’Donnell for Mr Anderson made similar submissions. He
submitted that it had not been shown that PIF, MYF and PacFin intended that the loan
participation agreements, or the acquisition of units in MYF, would not have the legal
effect that they provided for.
512 See, eg, para 199A of the statement of claim.
513 Partly relying on a statement by Mr Riordan at the start of the case, T4-35/12-14: “Your Honour, our friend is
perfectly right, we say that the whole thing is a sham. We don’t run a case which requires your Honour to
assess the underlying value.” He was clearly referring in context, however, to the case not being one about the
underlying value of the “investments” but rather the falsity of the transactions. I did not take him to be making
a submission about the legal meaning attributable to the word “sham”.
514 [1967] 2 QB 786, 802 (footnotes omitted).
515 (2004) 218 CLR 471, 486 at [46]. Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of Taxation
[2008] HCA 21; 238 CLR 516, 531-532 at [35]-[36] per Gleeson CJ, Gummow and Crennan JJ and at 553,
[112], 559, [134], 562-563, [144]-[149] per Kirby J.
-- 163 of 348 --
150
[741] He sought to distinguish on the one hand, between minutes of meetings and submissions
to committees which did not occur, and on the other hand, the loan participation
agreements and the acquisition of units. His argument was that the minutes of meetings
and submissions only went to internal procedures in PIF but that the loan participation
agreements and acquisition of units went to contractual relationships between two
different entities and it was those contractual arrangements that ASIC must show to be a
sham. It did not follow that those agreements were not legally binding. He also submitted
that while backdating of documents was a relevant consideration, it did not of itself
establish a sham.516
[742] One should bear in mind, however, what was said by the majority of the Court in Raftland
Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation:517
“The term ‘sham’ may be employed here, but as Lockhart J emphasised in
Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy the term is ambiguous
and uncertainty surrounds its meaning and application. With reference to
remarks of Diplock LJ in Snook v London and West Riding Investments Ltd,
Mustill LJ later identified as one of several situations where an agreement
may be taken otherwise than at its face value, that where there was a ‘sham’;
the term, when ‘[c]orrectly employed’, denoted an objective of deliberate
deception of third parties.”
[743] What is more relevant here is whether there has been a correct record and explanation of
MFSIM’s transactions, to use the language of s 286(1)(a). Mr Moore for ASIC dealt
orally with some aspects of the false documents case. He pointed out that the documents
the subject of the case were false in two main respects. One was that they reflected
transactions in 2007 that did not occur in that year. Secondly, the documents reflected
other events, again in 2007, that simply did not occur, such as the making of submissions
to the IAC and meetings of that body.
[744] He agreed with the submissions for Mr Hutchings that it was not necessary to establish a
subjective dishonest intent in order for a finding to be made that a person or a company
did not act honestly.518 The authorities to which he referred support the proposition that
the test for dishonesty is wholly objective and does not require proof that the accused was
aware that “ordinary, decent people” would view his or her conduct as dishonest.
[745] He submitted that Ms Watts, Mr Hutchings, Mr Anderson and Mr White all acted
dishonestly in relation to the false documents, applying that objective test. If it mattered,
he also submitted that they subjectively knew that the documents were false and that the
purpose of their being backdated was to deceive a reader into the view that a transaction
had occurred at an earlier date when it was known that no such transaction occurred.
516 Referring to JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) (No 3) [2010] VSC 623 and Sonenco (No 87)
Pty Ltd v Commissioner of Taxation (1992) 38 FCR 555.
517 (2008) 238 CLR 516, 531-532 at [35]; [2008] HCA 21 per Gleeson CJ, Gummow and Crennan JJ (footnotes
omitted).
518 See ASIC v Macdonald (No 11) (2009) 256 ALR 199 and ASIC v Macdonald (No 12) (2009) 259 ALR 116,
122 at [22] and SAJ v The Queen (2012) 36 VR 435, 436 at [6], 454 at [127], 452-454 at [112]-[127]; [2012]
VSCA 243.
-- 164 of 348 --
151
[746] He also submitted that it was important to treat the documents collectively as they were
intended to be read. The intention was that they be part of a picture to paint a version of
events that simply did not happen. The pretence was to create the impression that a
number of steps occurred in sequence, such as the writing of a paper recommending the
acquisition of class A MYF units and its submission to the IAC in November on a
pretended date such as 20 November 2007. There was then the pretence of a meeting
held by a circular by which the paper was considered by Mr Hutchings and Mr White, for
example, and then the making of a decision to approve PIF acquiring MYF units. The
next step in the pretence was the decision to approve the offer of units apparently
implemented by the issue of an information memorandum. Then there was the purported
meeting of the PIF IAC and its decision to acquire $85 million of units followed, finally,
by the issuing of units apparently, in the example, on 30 November 2007.
[747] Because of my conclusions about the lack of authority and the ineffectiveness of the
purported ratification of these documents, the conclusion I draw is that they provided no
consideration for the payments that were made from PIF.
[748] Further, the proper view of the evidence, in my view, is that they were documents created
to try to explain the payments but were ones that did not reflect real transactions. That
was certainly the case in respect of the time they were said to have occurred. Nor is there
any convincing case that they were real transactions when created. They were not
authorised by the companies party to them, not ratified effectively and put together
hurriedly and deceptively probably to portray to RBS and the auditors a scenario that had
not occurred actually but was truly false or deceptive.519
[749] In my view, even if the individuals involved in their creation may have wanted to create
documents that apparently had legal consequences, the likely intentions were that the
apparent transactions should be put in place to hide what had actually occurred, namely
the payment of moneys without the provision of proper consideration at the time.520 In
that sense there was an objective failure to record correctly and explain the transactions
and financial position of MFSIM contrary to s 286(1). I do not believe that decision
requires a conclusion that the documents were “shams” in the sense referred to in Snook.
That issue is a red herring.
Knowingly involved
[750] ASIC relies on s 79(c) alone in the allegations of contraventions it makes against each
defendant as being knowingly involved in the MFSIM contraventions.521
[751] To establish that a defendant was involved in MFSIM’s contraventions, ASIC must
establish that the defendant had knowledge of the essential facts constituting the
contravention.522 In elaborating that principle, White J in ASIC v ActiveSuper Pty Ltd (in
liq) has usefully collected many of the principles relating to accessorial liability:523
519 Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, 454.
520 cf Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, 486.
521 See ASIC’s written submissions at paras 65-72 for the general submissions.
522 Yorke v Lucas (1985) 158 CLR 661, 670.
523 (2015) 235 FCR 181, 255-259 at [398]-[411]; [2015] FCA 342 summarised in Ford, Austin and Ramsay’s
Principles of Corporations Law at [9.284].
-- 165 of 348 --
152
“398. In order for a person to be knowingly concerned in a statutory
contravention, that person must have been an intentional participant,
with knowledge of the essential elements constituting the
contravention: Yorke v Lucas (1985) 158 CLR 661 at 670. It is not,
however, necessary that a person with knowledge of the essential
elements making up the contravention also know that those elements
do amount to a contravention: Yorke v Lucas at 667; Australian
Competition and Consumer Commission v Giraffe World Australia
Pty Ltd (No 2) [1999] FCA 1161; (1999) 95 FCR 302 at [186];
Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289;
(2003) 135 FCR 1 at [8]‑[13]. An accessory does not have to have
appreciated that the conduct was unlawful: Giraffe World at [186].
399. Actual knowledge of the essential elements constituting the
contravention is required. Imputed or constructive knowledge is
insufficient: Young Investments Group Pty Ltd v Mann [2012]
FCAFC 107; (2012) 293 ALR 537 at [11].
400. Proof that a person had actual knowledge of each of the essential
elements making up the contravention may be derived from direct
evidence but more commonly will be a matter of inference from all
the circumstances found to be proved. In some cases, actual
knowledge can be inferred from the combination of a defendant’s
knowledge of suspicious circumstances and the decision by the
defendant not to make inquiries to remove those suspicions. The High
Court referred to knowledge in these circumstances in Pereira v
Director of Public Prosecutions (1988) 82 ALR 217 at 220:
‘[A] combination of suspicious circumstances and failure to
make inquiry may sustain an inference of knowledge of the
actual or likely existence of the relevant matter. In a case
where a jury is invited to draw such an inference, a failure
to make inquiry may sometimes, as a matter of lawyer’s
shorthand, be referred to as ‘wilful blindness’. Where that
expression is used, care should be taken to ensure that a jury
is not distracted by it from a consideration of the matter in
issue as a matter of fact to be proved beyond reasonable
doubt.’
401. The caution enjoined by the last sentence in this passage is emphasised
by the observations of Wilson, Deane and Dawson JJ in Giorgianni v
The Queen (1985) 156 CLR 473 at 505:
‘[A]lthough it may be a proper inference from the fact that
a person has deliberately abstained from making an inquiry
about some matter that he knew of it and, perhaps, that he
refrained from inquiry so that he could deny knowledge, it
is nevertheless actual knowledge which must be proved and
not knowledge which is imputed or presumed.’
And later (at 507-8):
‘The fact of exposure to the obvious may warrant the
inference of knowledge. The shutting of one’s eyes to the
-- 166 of 348 --
153
obvious is not, however, an alternative to the actual
knowledge which is required as the basis of intent to aid,
abet, counsel or procure.’
Their Honours appear in this passage to have been giving a different
emphasis to that given by Gibbs CJ in Giorgianni when he said (at
482) that one qualification to the proposition that actual knowledge of
the essential matters is necessary is that ‘wilful blindness, the
deliberate shutting of one’s eyes to what is going on, is equivalent to
knowledge’, and to that given by Mason J (at 495) that ‘it is enough if
the defendant has deliberately shut his eyes to a relevant fact or has
deliberately abstained from obtaining knowledge by making an
inquiry for fear that he may learn the truth’.
402. Any difference in approach in Giorgianni in these passages appears to
have been resolved by the unanimous judgment in Pereira in the
passage quoted above. It means that only actual knowledge of the
essential matters will be sufficient but that that knowledge may be able
to be inferred from a defendant’s knowledge of matters raising
suspicion, together with a deliberate failure to make the enquiries
which may have confirmed those suspicions.
403. The determination that a person has actual knowledge in this manner
is not always easy. Amongst other things, it requires consideration of
the defendant’s knowledge of matters giving rise to suspicion, the
circumstances in which the defendant did not make the obvious
enquiry, and the defendant’s reasons, to the extent that they are
known, for not making the enquiry. It is necessary to keep in mind
that it may not be every deliberate failure to make enquiry which will
support the inference of actual knowledge. In several cases, including
Official Trustee in Bankruptcy v Mitchell (1992) 38 FCR 364 at 371;
Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd
(1994) 123 ALR 681 at 693-4; Australian Securities and Investments
Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at
[209], this Court has referred with approval to a passage from the
advice of Lord Sumner in The Zamora (No 2) [1921] 1 AC 801 at 812-
3, in which his Lordship noted two senses in which persons may be
said not to know something because they do not wish to know it:
‘A thing may be troublesome to learn, and the knowledge
of it, when acquired, may be uninteresting or distasteful. To
refuse to know any more about the subject or anything at all
is then a wilful but a real ignorance. On the other hand, a
man is said not to know because he does not want to know,
where the substance of a thing is borne in upon his mind
with a conviction that full details or precise proofs may be
dangerous, because they may embarrass his denials or
compromise his protests. In such a case he flatters himself
that where ignorance is safe, ‘tis folly to be wise, but there
he is wrong, for he has been put upon notice and his further
ignorance, even though actual and complete, is a mere
affectation and disguise.’
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154
In the former circumstance described by Lord Sumner, the person will
not have actual knowledge of the matter. In the latter circumstance,
the person does have that knowledge but deliberately refrains from
asking questions or seeking further information in order to maintain a
state of apparent ignorance. That is not a circumstance of constructive
or imputed knowledge, but of actual knowledge reduced to a
minimum by the person’s wilful conduct: Richardson & Wrench at
694 (Burchett J). It stands in contrast to the circumstance of ‘honest
ignorance’ to which Brennan J referred in Yorke v Lucas at 677.
404. Although courts have held on several occasions that actual knowledge
by a person of the essential elements of a contravention may be able
to be inferred from proof that the person had knowledge of suspicious
circumstances but deliberately refrained from making enquiry
(Richardson & Wrench at 693-4; Cassidy at [71]; Compaq Computer
Australia Pty Ltd v Merry (1998) 157 ALR 1 at 5; Australian
Securities and Investments Commission v PFS Business Development
Group Pty Ltd [2006] VSC 192, (2006) 57 ACSR 553 at [390]; Forge
v Australian Securities and Investments Commission [2004] NSWCA
448, (2004) 213 ALR 574 at [202], there are few instances of actual
knowledge being found to exist in those circumstances. This has the
consequence that there is relatively little practical analysis in the
authorities of the way in which actual knowledge can be inferred on
the basis of knowledge of suspicious circumstances and a failure to
make enquiry.
405. The requisite actual knowledge must be present at the time of the
contravention. A later acquisition of knowledge of the essential
matters is not sufficient: Australian Investors Forum at [113]‑[118].”
[752] Mr Withers for Mr Hutchings submitted that knowledge in this context means the actual
knowledge of the defendant or a situation where knowledge is the only rational inference
available in the circumstances surrounding the contravention.524
[753] I am not convinced that in a civil penalty case such as this, as opposed to a criminal
charge, that actual knowledge must be the only rational inference available; if the
circumstances appearing from the evidence give rise to a reasonable and definite
inference, and not merely to conflicting inferences of equal degrees of probability that
actual knowledge exists, it seems to me that should be enough. The approach to a finding
of guilt where the criminal standard of proof applies, as in Pereira v Director of Public
Prosecutions,525 would require that actual knowledge be the only rational inference
available, but the onus in a case such as this is, as discussed earlier, on the Briginshaw
standard.
[754] Mr Moore submitted that for ASIC to establish knowing involvement in the contravention
it needed to show two things: first, some form of conduct and second, knowledge of the
essential factual elements of the contravention. In response to some of the submissions
for the defendants to the effect that there could be no knowing involvement in a
524 Pereira v Director of Public Prosecutions (1988) 82 ALR 217, 219-220 and Young Investments Group Pty Ltd
v Stripe Capital Pty Ltd [2011] FCA 1147 at [30].
525 (1988) 82 ALR 217.
-- 168 of 348 --
155
contravention unless the conduct in issue, such as the keeping of a document, was
participated in by the actual defendant, he submitted that what was required was a
practical connection with at least one of the essential elements of a contravention, not all
of them.
[755] To establish that proposition, he referred to Agricultural Land Management Ltd v Jackson
(No 2),526 where Edelman J said:
“I accept that … an event will only demonstrate that a person has a single
‘concern in’ the contravention if there is a single ‘practical connection’
between that person’s act or omission and the contravention. This must
require a practical connection with at least one of the essential elements of
the contravention.”
[756] That proposition was developed by Logan J in Australian Communications and Media
Authority v Mobilegate Ltd (No 8).527 It was a case where the method of operation of
relevant corporate entities centred around the practice of deception in relation to dating
profiles on various websites and the procuration of affirmative responses from deceived
third parties in communications which facilitated the relevant company’s derivation of
income. In practising that deception, it engaged in misleading and deceptive conduct. It
was held to be sufficient to prove accessorial liability in respect of corporate
contraventions if the prosecuting authority proved that the accessory charged was aware
that the company was employing a system of deception. His Honour said:
“[172] There was debate before me in submissions as to the level of detail of
knowledge of contravening conduct which the Authority must prove.
As I understood it, the submission made on behalf of Mr Phillips was
that the Authority needed to go so far as to prove that he was aware
that particular profiles were fictitious and that particular deceptive
messages were being sent using that particular fictitious profile. That
would involve proof of detailed knowledge of the deceptive quality
attending each and every of many thousands of messages. I reject this
submission. It is not, in my opinion, supported by Yorke. It will be
sufficient to prove accessorial liability in respect of the corporate
contraventions if the Authority proves that Mr Phillips was aware that
IMP and on its behalf Jobspy were employing a system of operations
whereby fictitious profiles were being created to the end that each
third party consent to the use of the premium shortcode would be
procured by a message which was deceptive because of the
employment of a fictitious profile. Proof of knowledge at a more
detailed level of abstraction is not, in my opinion, essential.”
[757] These decisions provide useful guidance to the answer to the question whether an
individual defendant has been knowingly involved in a contravention by MFSIM but need
to be considered in the particular circumstances applicable to that defendant.
526 (2014) 48 WAR 1; [2014] WASC 102 at [56] and [294] (footnotes omitted).
527 Australian Communications and Media Authority v Mobilegate Ltd (No 8) (2010) 275 ALR 293, 329 at [172].
-- 169 of 348 --
156
Have the MFSIM contraventions been established?
[758] My overall view of the evidence and the conclusions I have reached about these legal
issues have led me to conclude that the MFSIM contraventions alleged have been
established as accurate in the cases against the other defendants. In other words I am
satisfied that MFSIM as the responsible entity for PIF has contravened its pleaded
obligations in respect of the $130 million payment, the $17.5 million payment and the
false documents.
[759] The main MFSIM contraventions established were:
A reasonable person in MFSIM’s position would have prevented the making of the
$130 million payment and the $103 million payment until satisfied that they were
for investments which were authorised under PIF's constitution and for the benefit
of PIF and its members. MFSIM did not do that.
In permitting $103 million of PIF’s money to be paid to Fortress, MFSIM as
responsible entity for PIF, contravened s 601FC(5) of the Act:
(a) by not acting honestly in breach of s 601FC(1)(a) of the Act;
(b) by failing to exercise the degree of care and diligence that a reasonable person
would exercise if they were in MFSIM’s position in breach of s 601FC(1)(b)
of the Act;
(c) by not acting in the best interests of the members of PIF in breach of
s 601FC(1)(c) of the Act; and
(d) by failing to ensure that the $130 million payment, to the extent of the $103
million payment, was made in accordance with PIF’s constitution in breach
of s 601FC(1)(k) of the Act.
In making the $130 million payment to the extent of the $103 million payment and
in permitting $103 million of PIF's money to be paid to Fortress, MFSIM
contravened s 208(1) of the Act, as modified by s 601LC of the Act, because there
was a financial benefit given by MFSIM, as responsible entity for PIF, out of
scheme property to MFS Administration, a related party of MFSIM.
In making the $17.5 million payment to PacFin, MFSIM as responsible entity for
PIF contravened s 601FC(5) of the Act:
(a) by failing to act honestly in breach of s 601FC(1)(a). Instead, it acted without
proper regard for the interests of PIF’s members and paid the money away in
order to support another part of the corporate group financially;
(b) by failing to act in the best interests of the members of PIF in breach of
s 601FC(1)(c); and
(c) by failing to ensure that all payments out of scheme property were made in
accordance with PIF’s constitution in breach of s 601FC(1)(k).
MFSIM and PacFin were related parties in respect of the $17.5 million payment for
the purposes of s 208 of the Act.
The creation and keeping of documents that were false in material respects, and
known to be false by the individuals who caused the documents to be created and
kept, was dishonest conduct in contravention of the obligation imposed on
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157
responsible entities by s 601FC to act honestly. MFSIM contravened that
obligation in relation to each of 15 of the 17 false documents.
[760] I shall now proceed to consider the cases against the individual defendants. To some
extent, of course, the evidence against each overlaps. One of the principal issues in
respect of each defendant is whether he or she was knowingly concerned in MFSIM’s
contraventions.
-- 171 of 348 --
158
ASIC’s case against the fourth defendant, Mr King
Submissions for ASIC
[761] Mr King resigned from his position in the MFS Group in early 2008 and he had no
connection with the creation of the allegedly false documents. ASIC’s case against him,
therefore, is limited to the conduct it alleges against him with respect to the $150 million
drawdown, the $130 million payment and the $103 million payment. It argues that he
was involved in contraventions by MFSIM of ss 601FC(1)(a), 601FC(1)(c) and
601FC(1)(k) and therefore s 601FC(5) of the Act and s 208(1) of the Act thus
contravening s 601FC(5) and s 209(2) of the Act. It alleges that, apart from those
breaches of s 601FC(5) and s 209(2), he also therefore breached ss 601FD(3)(a), (b), (c),
(e) and (f) of the Act.
[762] The basic evidence on which ASIC relied is summarised in its written submissions. It is
clear that Mr King was aware of the need for money to pay off Fortress, at least by 20
November 2007.528
[763] At para [720] of its written submissions, ASIC’s counsel pointed out that by:
“email at 7.06am on Saturday 24 November 2007 to David Kelleher of
Fortress copied to White and Anderson, King requested an extension of the
Fortress loan agreement to 1 March 2008 with a principal reduction payment
of $25 million. He said that if Fortress required payment by the end of the
month ‘we would seek to repay you off the back of an equity and hybrid
raising to be launched off our announcements on Wednesday this week. We
do NOT want to do such raising on such short notice and before we have
had a chance for the market to understand the Stella numbers ... BUT if you
insist then that it was we will do all be it costly, inconvenient and
undesirable’.”
[764] Shortly afterwards, at 8:26 am, Mr King sent an email to the directors copied to
Mr Anderson informing them of the action he had taken.
[765] Later on Saturday, 24 November 2007, there was a telephone conversation between
Mr Kelleher and Mr White in which Mr Kelleher said that he could not accept $25 million
“but he would run with $100 if we could agree 100”. Mr Kelleher’s evidence was that
Mr King “quickly agreed in principle to the counter-offer of $100 million part repayment
of the loan facility without any hesitation”. Mr King conceded that he had “quickly
agreed”.529
[766] From that, ASIC submitted that I should infer that Mr King was able to accept
Mr Kelleher’s proposal in principle immediately because Mr White had informed him
that there was $155 million available in the RBS facility through PIF. The reasons that
ASIC submitted I should make that conclusion were:530
528 DEL.2002.0002.8736; T34-58/32.
529 T38-30/6-10.
530 ASIC’s written submissions at para [723] (footnotes omitted).
-- 172 of 348 --
159
“(a) As referred to in para 719 above, on the day after the conference call
with Kelleher, White had initiated enquiries to be made of the amount
that was available from the RBS facilities and those enquiries had
disclosed that $155 million was available on two days’ notice.
(b) King said that the $25 million offer that he made was ‘the start of
negotiation’, which suggests he had, or would have to get, more money.
(c) King says he had been told by somebody, prior to his email on Saturday
24 November 2007 to Kelleher, that there was money available, which
allowed him to offer the $25 million. King said he could not recall
whether it was White, Anderson, or Krecklenberg who told him that
money was available or how much money was available and could not
deny that he could have been told that $155 million was available.
(d) It is submitted that the Court should conclude it was White who offered
the money, for the following reasons:
(i) White had been involved in the discussions with Kelleher
including the conference call.
(ii) On 19 November 2007, the same day as White had a conversation
with Kelleher, White had, through Watts, initiated enquiries about
the possibility of drawing down under PIF’s RBS Loan
Agreement.
(iii) After receipt of the information about the $155m being available,
the request was made to ‘start the process for drawdown’ and the
amount and period ‘has not yet finalised’.
(iv) As it is known that White arranged the $130m from PIF, there is
no suggestion that it was a different person who offered the
amount which allowed King to make the $25m offer on Saturday
24 November 2007.”
[767] Mr Kelleher confirmed that he had “the go ahead” by email at 12:31 am on Sunday, 25
November 2007 to Mr King which was copied to Mr White and Mr Anderson. Mr King
then reported to Mr Krecklenberg at 7:06 am on the same day that he was getting
“somewhere workable” with Fortress by an email which he forwarded at 7:07 am to
Mr Anderson saying that he needed to discuss it with him also.
[768] On Monday, 26 November 2007, there was a meeting of the MFSIM investment
management committee at which Ms Watts reported that she was facilitating several large
settlements which were to drain the liquidity position in PIF. She also mentioned a
“drawdown on RBS facility to fund”.531
[769] By email at 11:44 am on Monday, 26 November 2007 to Mr Hutchings, Mr White gave
the instruction to draw down the $150 million from RBS and ASIC submitted that, no
later than this time, Mr White and Mr King had agreed that PIF’s RBS facility should be
drawn down to provide the funds to the MFS Group to pay the Fortress loan. Mr King’s
recollection on that point was unclear but he conceded that it was likely Mr White had by
531 DEL.2002.0002.8494.
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160
this time on Monday morning told him that he had the $100 million payment covered and
that Mr White may have told him that he was going to draw the money down from RBS
and get it to MFS through PIF.532
[770] There were further emails related to the proposed transaction emanating from or copied
to Mr King. They led ASIC to the submission that Mr King conceded that by the morning
of Wednesday, 28 November 2007 he probably would have known that PIF was drawing
down $150 million from RBS for the purpose of transferring the money to the MFS Group
for the purpose of repaying Fortress.533
[771] When Mr White reported to Mr King that he had the $150 million “in our account ready
to transfer to MFSA tomorrow if need be”, Mr King replied, two minutes later, at 4:18 pm
on Wednesday, 28 November 2007:
“You the man. Definately [sic] the man. Thank you very much. Let’s talk
tomorrow.”534
[772] He later congratulated Mr White and Mr Anderson for their work.535
[773] ASIC’s submission as to the elements of the contraventions it alleges was that Mr King’s
involvement in the contraventions of MFSIM and his contraventions as an officer were
constituted by the following:536
“(a) In late November 2007, Mr King approved and authorized the use of
the money drawn down under the RBS Loan Agreement to make the
$130 Million Payment and the $103 Million Payment.
(b) At the time of the approval and authorization of the draw down and
$103 Million Payment, King knew that:
(i) the $130 Million Payment was made from funds managed by
MFSIM as responsible entity of PIF;
(ii) the $130 Million Payment was made for purpose of MFS Group
repaying $103 Million to Fortress;
(iii) there was no transaction which made the $130 Million Payment
to the extent of the $103 Million Payment a proper payment from
PIF’s funds.”
[774] ASIC submitted that Mr King’s approval and authorisation was to be inferred from his
conversation with Mr White on or about Monday, 26 November 2007 and his failure to
prevent the drawdown and transfer from PIF after receiving emails on 27 and 28
November 2007. It also argued that he admitted that he impliedly gave his approval to
the use of the PIF money for the purpose of a payment to Fortress.537
532 T38-49/40, T38-50/3-7.
533 T38-52/4-21.
534 DEL.2006.0007.0780.
535 DEL.0037.0001.0340.
536 ASIC’s written submissions para [739].
537 T38-54/1-4.
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161
[775] Mr King agreed that he was aware the $150 million that was coming across was money
that PIF held in trust, effectively, for its investors.538 He also conceded that he may have
been informed of this by Mr White in the conversation on Monday, 26 November 2007
and that he probably knew it on receipt of the email at 9:00 am on 28 November 2007.539
[776] Mr King argued, however, that he genuinely believed that it was proper for PIF’s money
to be applied to provide MFS with a “lifeline” by partly repaying MFS Castle’s debt
because there would have been a deal in place providing consideration to PIF before the
transfer of the money.540
[777] ASIC submitted that I should reject Mr King’s evidence because he was responsible for
the negotiations with Mr Kelleher of Fortress and was also responsible for the MFS side
of the transaction with PIF. He was unaware of any deal that would provide consideration
to PIF as became apparent when I asked him whether he had taken into account which of
MFS’s assets might go to the fund.541 I found it difficult to square that with his obligations
as a director of MFS as well as an officer of MFSIM.
[778] In response to those concerns, Mr King said that he expected Mr White to negotiate a
premium for PIF for coming to the aid of MFS and believed that Mr Anderson or the CFO
group were responsible for the negotiation of the consideration to PIF.542
[779] ASIC submitted that Mr King’s evidence should be rejected as untruthful because he
conceded that he did not request that Mr Anderson undertake such a responsibility and
Mr Anderson denied it. Nor did he identify any basis for an implied delegation to
Mr Anderson or the CFO group. ASIC submitted that, if PIF were to get a premium,
whether Mr Anderson would have had authority to enter into a hypothetical contract to
sell assets totalling $130 million or more, was problematic at best.
[780] ASIC also drew attention to the fact that Mr King attended MFS Limited FIC meetings
on 29 November and 18 December 2007. The Fortress loan extensions were approved at
those meetings and there was no report about the deal between MFS Limited and PIF that
funded the extension. He also attended MFS Limited board meetings in December 2007
and January 2008 where there was no report of the transaction. ASIC submitted this was
consistent with the proposition that he knew no consideration had been provided for the
money.
[781] Mr King agreed that such a failure to report would be an oversight.543
[782] Consequently, ASIC submitted that the proposition that Mr King, during the period from
late November 2007 to mid-January 2008, believed that there was a transaction in place
for which PIF had received proper consideration but never inquired of Mr White or
Mr Anderson about it is implausible.
538 T38-53/4-8.
539 DEL.2006.0007.1459.
540 T38-53, T38-57/41-46.
541 See T38-56/37-40.
542 T38-58/32-35. I took the CFO group to be the employees working under Mr Anderson; see T38-57/34-36.
543 T38-64/39-41.
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162
[783] Mr Riordan developed this submission orally by arguing that it was clear that the
participation loans were not agreed to in November 2007. Before then there had been
talk about a revolving credit facility with PIF to justify the November advance. That
became the “creative brain” email after which the detailed participation agreements were
developed and substantially established by about 22 January 2008. Mr Hutchings’ diary
notes on the pages referable to late November 2007 did not reflect conversations he had
with Mr White at the time because in January 2008 he was still waiting to try to find out
from Mr White what the loans were. He had no recollection one way or the other of when
the diary notes or scratch pad were prepared.
[784] It was not so much a matter of theft of property, but that the senior officers of MFSIM
took the money for the improper purpose of assisting MFS and left MFSIM, in particular
PIF, exposed. This gave rise then to the problems of using trust money for collateral
purposes. The use of the funds was not in the interests of the members of PIF. It seems
that they did not think about the propriety of using trust funds wrongfully which may
explain why Mr King and Mr Anderson would involve themselves in such serious
misappropriation when, on the evidence, they had some possibility of going to the market
to raise the money. That alternative was regarded as inconvenient, undesirable and costly,
the most expensive form of raising the funds.
[785] The critical issue, Mr Riordan submitted, was to demonstrate that Mr King, Mr Anderson
and Mr White were knowingly involved in the $103 million transaction, while
Mr Anderson, Mr White and Mr Hutchings were knowingly involved in the $17.5 million
transaction. Mr Riordan also submitted that there was no significance in the changes that
took place in the accounting functions in the second half of 2007 in reducing the control
or capacity to control by Mr King and Mr Anderson during that time. He submitted that
the $130 million payment was effected for the purpose of allowing MFS to pay $103
million to Fortress. It was not made in PIF’s interests. Nor was there anything in the
material showing any consideration of why it would be in PIF’s interests. Nor did PIF
have any intention to make acquisitions at that time. Nor was any proposal pending
before the IAC.
[786] The argument that no investments were being proposed by PIF was buttressed, he
submitted, by the email chain starting 21 November 2007 in which Ms Watts said to
Ms Howard and Mr Hutchings on 23 November 2007:544
“Could you please start the process for a draw-down by PIF next week from
the RBS facility. PIF will have to fund some anticipated investments late
next week and the current (and anticipated) cash balance will be insufficient.
The amount of the draw-down and the period for which it will be required
has not yet finalised, but I will have a better idea on Monday…”
[787] Mr Riordan submitted she would have a better idea on the Monday because Mr King was
talking to Mr Kelleher over the weekend.545 This submission was based on the theory
that Mr King must have been informed by Mr White that $155 million was available from
the RBS funds.
544 DEL.2002.0002.8883.
545 T57-66-T57-67.
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163
[788] Mr Riordan submitted that what happened unequivocally during this time was that the
decision was made to use PIF funds by MFSIM, drawn down from the RBS facility, to
repay an MFS debt. That was an entirely improper purpose which does not get resolved
by any general intention to make good the payment out.
[789] ASIC also submitted that Mr King’s conduct constituted the contraventions to which I
have already referred. In advancing that argument, it submitted that Mr King had either
not acted honestly, or, alternatively, had failed to exercise the required degree of care and
diligence and had not acted in the best interests of the members of PIF. He had failed to
ensure the $130 million payment to the extent of the $103 million payment was made in
accordance with the constitution. It also argued that, as well as participating in the
MFSIM contraventions, he had breached s 601FD(3) by not acting honestly, or
alternatively failing to exercise the required degree of care and diligence and not acting
in the best interests of the members of PIF and by making improper use of his position as
an officer of MFSIM and by failing to take steps that a reasonable person would take in
his position to ensure MFSIM as responsible entity for PIF complied with its constitution.
[790] It also submitted that each of the alleged contraventions was of a corporation/scheme civil
penalty provision as defined in s 1317DA of the Act, materially prejudiced the interests
of PIF and its members within the meaning of s 1317G(b)(i) of the Act for the reasons
pleaded and was serious within the meaning of s 1317G(b)(iii) of the Act for the reasons
pleaded.
[791] ASIC then developed its argument that Mr King, as CEO of MFS Limited and the MFS
Group, had the capacity to affect significantly the financial standing of MFSIM. It drew
attention to his role as co-founder of the MFS business, his evidence that he had overall
responsibility for MFSIM in his s 19 examination and Mr King’s evidence that Mr White
was in charge of PIF and responsible for “day to day operational decisions”. It also
pointed to the evidence that Mr White reported to Mr King and would take instructions
from him in circumstances where they would talk to each other at least daily. At para
759 of its written submissions, ASIC also drew attention to a number of factual matters
demonstrating Mr King’s capacity to affect decisions within MFSIM in particular or as
part of the MFS Group. Although some of the examples post-dated the making of the
payment in late November, Mr Riordan submitted that his capacity to control events
remained the same around that period.546
[792] MFSIM was inextricably part of the structure of the MFS Group. ASIC drew attention,
in particular, to the employment of its staff by MFS Administration, the payment of all
management fees to MFS Administration under the control of Mr Anderson’s corporate
accounts team and to a number of other matters detailed at para 761 of ASIC’s written
submissions. ASIC conceded that, since February 2007, MFSIM was operating with a
board that had three independent directors and its own IAC and CRPC committees, but
argued that the countervailing factors to which it referred made it clear that it was still
part of the MFS Group.
[793] There was a proposed change of structure by an email from Mr White on 10 October 2007
by which the funds were required to take responsibility for their own accounts.547 The
546 T57-57/15-23.
547 DEL.1300.0007.6763.
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164
essence of that appears to have been that whereas, before, MFS Administration employed
a team of accountants responsible for all the schedule’s accounts, after Ms James was
appointed as the PIF accountant in early December 2007, she was solely responsible for
the PIF accounts and if she needed assistance she would ask for it. Therefore, ASIC
submitted that that change in structure did not remove PIF from the orbit of the MFS
Group.
Submissions for Mr King
[794] Mr King’s counsel submitted that, even if I found that Mr King was an officer of MFSIM
during the relevant period, ASIC had not proven to the requisite standard that Mr King
acted in breach of duties owed by an officer of a responsible entity of a managed
investment scheme. Any responsibilities MFS Limited and Mr King had in respect of
MFSIM were discharged by delegation to Mr White (the Deputy CEO of MFS Limited,
the CEO of Funds Management, and the Chairman of the MFSIM board) and
Mr Hutchings (the CEO of MFSIM and a director) and the establishment of governance
structures and processes, populated with appropriate personnel.
[795] ASIC’s pleaded case, they argued, should be limited to whether Mr King knew that PIF
had received any consideration at any time. The argument was that ASIC’s case as
opened and originally pleaded was that there were never any transactions in return for the
payments from PIF and that the amendments proposed to the statement of claim sought
to widen the allegations away from the initial focus on the alleged transactions as being
shams to a new focus on whether there was any consideration provided for the PIF
payments at the time they were made. This was said to have been provoked by the
arguments that the alleged transactions were not shams548 but ones that had later been
adopted by PIF’s responsible entity.
[796] I have previously decided in these reasons that the ASIC pleaded case was not limited in
that fashion. Paragraphs 56 to 57A of the statement of claim provide ample scope to
examine his conduct at the time of the payments. So do the replies.
[797] Mr King gave evidence that he knew of the availability of assets that could have been
transferred to MSFIM. Mr Hutchings and Mr Anderson were cross-examined
consistently with those instructions. There was no evidence, however, that Mr King was
aware of what assets were available to be transferred in return for the PIF payments at the
time they were made. Nor had he turned his mind to the question of the property that
would be transferred by MFS in return for the receipt of the PIF funds.549
[798] The submissions went on to argue that Mr King’s degree of knowledge of the $130
million payment had not been proved. It had not been shown that he knew there were no
transactions for the payment or any benefit that MFSIM would receive. They also
submitted that it had not been proven that Mr King’s behaviour was unreasonable in
failing to stop the $130 million payment. He was justified, they argued, in trusting
Mr White and MFSIM’s governance structures and ASIC had not succeeded in proving
that his trust was held unreasonably.
548 See Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, 486 at [46].
549 See T38-56/37-40.
-- 178 of 348 --
165
[799] The cross-examination by ASIC of the relevant office bearers dealing with that decision
did not establish any contrary conclusion, including the signing by Mr Corolis of the
payment direction when it seems clear it had not been supported by documents showing
it had been properly authorised within MFSIM.
[800] Mr Corolis’s evidence did vary concerning the reasons for his resignation on 30 January
2007 but it seems likely to be that his “personal” reasons for resigning included the
concern he later expressed to Mr Kennedy at being asked to sign backdated documents.
There is no evidence, however, that Mr King was aware of his concerns then.
[801] In addressing the legal arguments as to the degree of knowledge that ASIC needed to
prove against Mr King, his counsel drew my attention to discussions in decisions such as
Yorke v Lucas550 and Rural Press Ltd v ACCC551 dealing with the necessity to establish
that persons in Mr King’s position participated in the company’s contraventions with
“actual knowledge of the essential elements constituting the contraventions”.
[802] That “actual knowledge” may be “established as a matter of inference from the
circumstances surrounding the commission of the alleged offence” but the question
remains one of actual knowledge of the defendant, and where knowledge is inferred from
the circumstances surrounding the commission of the alleged offence, it must be the only
rational inference available, at least in a criminal case.552
[803] ASIC was also criticised for failing to plead that Mr King had actual knowledge of the
matters pleaded in paras 45, 47, 48, 49, 50, 50A, 50B, 50C, 50D, 52 and 53 of the
statement of claim and thus failing to construct a proper case against him under s 79(c)
of the Act. Mr King’s counsel argued that the allegations that he deliberately failed to
make inquiries made in paras 56(i) and 56(p) did not overcome that problem because of
the need to establish actual knowledge of the matters in the earlier paragraphs of the
pleading.
[804] Mr Riordan addressed orally the submissions by Mr Davis for Mr King that the statement
of claim failed to plead that Mr King knew that the purpose of the $130 million payment
was to repay a debt from the MFS Group to Fortress. He argued that para 56(r) of the
statement of claim, which alleged that Mr King approved and authorised the use of money
drawn under the RBS Loan Agreement to make the $103 million payment in the context
of the facts alleged in paras 56(a) to 56(q), would satisfy me that he was put on notice
that he knew the $130 million payment was made for the purpose of MFS Group repaying
$103 million to Fortress.
[805] In particular, para 56(k) alleged that Mr King knew, because he was told in an email sent
to him by Mr White, that the $150 million drawdown was expected to be paid by RBS
into PIF’s operating account on 28 or 29 November 2007. Paragraph 56(n) alleged that
he knew of no benefit, consideration or reward which MFSIM could or would in fact gain
from the $103 million payment. That put Mr King on notice that the $103 million
payment was to be made from the funds drawn down for the purpose of paying Fortress,
he having been told orally by Mr White, no later than 26 November 2007, that Mr White
550 (1985) 158 CLR 661.
551 (2003) 216 CLR 53, 74 at [48].
552 See Pereira v Director of Public Prosecutions (1988) 82 ALR 217, 220 .
-- 179 of 348 --
166
would be able to effect a transaction which would result in $100 million becoming
available to pay Fortress as alleged in para 56(f). Similarly, para 56(l) referred to him
being told by Mr White by email that the $150 million drawdown was expected in PIF’s
operating account “imminently” on 28 November 2007. Para 56(h) was also said to be
relevant.
[806] In attempting to make good the allegations of Mr King’s knowledge made in para 739 of
ASIC’s written submissions, Mr Riordan referred in particular to a number of emails on
27 and 28 November and Mr King’s evidence that he implicitly gave his approval to the
use of the PIF money for the purpose of the payment to Fortress.553
[807] In oral submissions, Mr Davis for Mr King also criticised the reliance by ASIC on certain
issues unpleaded by it and advanced as relevant to Mr King’s credit but which, he
submitted, had not been able to be litigated properly because they were not pleaded. One
example he gave was of the meeting of 15 November 2007 from which I was asked to
infer that Mr King may have been informed then of the ability to draw down money from
RBS for PIF to repay Fortress.
[808] What ASIC said about that meeting in its written submissions did not strike me as
particularly significant in the overall scheme:554
“115. On Thursday 15 November, 2007 King, White and Anderson had a
lengthy meeting (about six hours). Reporting to MFS Limited
directors Barry Cronin and Paul Manka, King said it was ‘good
session (most of the day)”.
116. It is inherently unlikely that such discussion would not have included
sources of funds and other financial options to meet the upcoming
liabilities in particular Fortress particularly as Anderson had reported
the upcoming liability on the previous Monday, and King, White, and
Anderson frequently discussed cash flow issues, and as King said he
was a person who generally would discuss the need for Plan B and
Plan C options for financing.
117. King originally said that this meeting was about the new template but,
when it was put to him that he had reported to the MFS Board on 7
November 2007 that he was meeting with White on that day, he said
he did not recall the all day meeting. Anderson said that he recalled
that the template was discussed this day and did not believe that the
Fortress liability would have been discussed because it was not of
concern to him whether there had been discussions with Fortress or
not.
118. Whether there was a discussion at this meeting or not, it is submitted
that it is inherently unlikely that, in the circumstances, there would not
have been conversations at this time between the CEO, the CFO and
White, as Deputy CEO, about the management of the upcoming
Fortress liability.”
553 DEL.0009.0001.0026, DEL.2006.0007.1459 and DEL.2006.0007.0882 and T38-54/1-4.
554 COURT.0029.0003.0001 at paras 115-118 (footnotes omitted).
-- 180 of 348 --
167
[809] Mr Davis submitted that this was an attempt by ASIC to seek to overcome the significant
problem for it that the pleaded conversation between Mr King and Mr White regarding
repayment of Fortress occurred on Monday, 26 November 2007 whereas MFSIM’s
documents record that it had begun preparing for a drawdown on the RBS facility on 19
November 2007. Mr King could not remember the meeting on 15 November 2007 so, he
submitted, the attack on his credit in this respect fails. He was critical of ASIC, however,
for not pleading this allegation which led to the failure to cross-examine witnesses about
this issue in respect of that meeting. Nor, he argued, should any conclusions as to credit
that I might draw against Mr King in this context be properly used against him as
constituting admissions by conduct pursuant to the principles in Edwards v The Queen.555
[810] One issue in particular, he submitted, related to the cross-examination of Ms Easton
whose evidence could have dealt with the meeting of 15 November 2007 but did not
because the significance of it in ASIC’s case, as an occasion on which Mr King could
have learnt of the availability of the money from RBS through PIF, did not become clear
until he was cross-examined.
[811] It was also inconsistent with ASIC’s pleaded case which suggested that the decision to
draw down the money was made between 24 November 2007 and 26 November 2007
while employees of the company were clearly discussing the drawdown at an earlier stage
from 21 November 2007. Consequently he argued that I should not infer on this evidence
that Mr King was then aware of the ability to get money from PIF. He described this
theory about the ability of Mr King to have been told this information as a late invention
by ASIC which had not been properly tried on the evidence because of these shortcomings
in the pleadings.
[812] Mr Riordan explained the relevance of the meeting of 15 November orally in these
terms:556
“It’s not necessary as part of ASICs case to establish that King knew by the
15th of November or the 19th of November that he was going to be using
PIF funds. We suggest to you, in view of our friends leading evidence to say
that there were discussions about the drawdown at an earlier time, and
Ms Watts saying, ‘Oh, yes, Mr White told me to do that’, that, in fact the
gross likelihood is that White - and that he’s having discussions with King,
and they were talking about possibilities. Mr King has a plan A, plan B, plan
C and plan D man, of his own admission.
However, our friends say, ‘Well, that's not fair. We might put that case, but
you're not allowed to explain it consistent with the fact that it wasn’t related
to RBS, and we say it’s nonsense.’ Of course we are. It’s not essential to our
case. It actually is pleaded because it was said before the 26th, but it doesn’t
need to be. Because the critical part of our case is that he knew in the week
commencing the 26th. The critical part is he knew all the things he needed
to know before the payment was made. We'll come to that as part of our
case.”
555 (1993) 178 CLR 193, 208-209.
556 T57-64/5-19; see the general passage from T57-64/36-T57-6/32.
-- 181 of 348 --
168
[813] Mr King’s recollection of that meeting of 15 November 2007, when reminded of
documents associated with it, was that it dealt with financial reporting templates,
something supported by Mr Anderson’s evidence. Mr Anderson also gave evidence to
that effect.
[814] Mr King’s counsel also drew attention to Mr King’s focus on the possible sale of Stella
at the time, the busyness of his involvement with other activities within the MFS Group
and his evidence that the Fortress transaction was not his primary concern in the week
commencing Monday, 26 November 2007. He was also aware of the “recycling” of assets
from companies within the group by their sale, either to one of the managed funds or to a
third party. I do not infer anything to his credit or otherwise from his inability to
remember whether there was any discussion then about the availability of funds through
PIF.
[815] An email from Ms Kercher on 28 November 2007, not originally disclosed by ASIC, with
its attached paper, established that Mr King was told of a list of assets available to be
immediately recycled by sale to a fund which Mr White was responsible for and which
had been discussed by the FIC. ASIC was criticised for its late disclosure of that
document.
[816] Mr King’s counsel also relied on other evidence of the speed with which such transactions
could be completed as evidence against any argument that Mr King could not have
believed that a transaction could be effected in return for the payment of the money by
the necessary date.
[817] Mr King’s evidence was that he was responsible for the MFS side of the transaction, but
the evidence indicates he was not overly concerned as to which of its assets were to be
used to reimburse PIF.557 Nor had he delegated any other person to negotiate with
Mr White on his behalf, except implicitly to the CFO group, an assertion not supported
by Mr Anderson’s evidence. Mr Anderson had, however, dealt with what was called the
Domain/Guardian transaction only a few weeks earlier. Mr Davis submitted orally that,
therefore, from that point of view, it was reasonable for Mr King to assume that he would
be looking after this transaction too.
[818] Nor did the FIC minutes of 29 November 2007 record any consideration provided by
MFS Ltd for the payment from MFSIM. But it was submitted for Mr King that his
evidence was truthful having regard to the earlier history of transactions within the MFS
Group.558
[819] His counsel submitted that there was nothing unusual about MFSIM receiving $130
million nor about transactions between a fund and a group. Nor did he have any reason
to make inquiries about what was happening within MFSIM or about the propriety of
what Mr White was doing. He had been made aware of the proposal by MFSIM to
relaunch MYF, the proposal being that it be seeded by an investment of initial capital of
about $100 million to $200 million. Nor had ASIC proven that transactions of this type
would not have been able to have been prepared or settled between 26 November 2007
and 30 November 2007.
557 See T38-56/37-40.
558 See COURT.4000.0001.0016 at para 798.
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169
[820] ASIC’s argument that the purpose of the $150 million drawdown was to obtain the $103
million payment to Fortress was also attacked. The process was started no later than 19
November 2007 when, they submitted, there was no evidence that Mr King was involved
and before the decision to withdraw from the sale process had been made. They submitted
that the information provided by Ms Watts to the MFSIM management team on 26
November 2007 that there was to be a drawdown under the RBS Loan Agreement to
facilitate several large settlements was likely to have taken place before the conversation
between Mr King and Mr White.
[821] They argued also that there was likely to have been a conversation between Mr Hutchings
and Mr White on 28 November 2007 whose effect was likely to have been recorded in
Mr Hutchings’ diary note on the page for 28 November 2007 in his loose leaf diary. They
submitted that that was either his record of the effect of the conversation or perhaps his
preparatory notes for it. Those notes refer to the Causeway Private Debt Opportunity
Fund, they submitted, in the context of the relaunch of MYF. It also refers to “five
saleable products”. They referred to Mr Hutchings’ evidence that, in his opinion, the use
of funds from PIF to seed the relaunch of MYF was in the interests of PIF’s members and
that, at the time, he had thought the use of the RBS funds was for this purpose. They
noted the similarity in the list of property related assets to investments identified earlier
of loans in a 23 January 2000 list by Mr White. With that evidence in mind, they invited
me to find that Mr White and Mr Hutchings identified assets that MYF could acquire
using the seeded funds and identified the need for there to be related party processes and
documentation.
[822] One of the problems with that submission is that Mr Hutchings was not aware himself
when he prepared the diary note.
[823] Mr King’s counsel also submitted that no inference of knowledge of dishonesty could be
drawn from Mr King’s response to Mr White’s email of 28 November 2007 that he had
the $150 million in their account ready to transfer to MFS Administration the next day.
Mr King’s response was the “you the man” email referred to earlier. His counsel
submitted that that flamboyant tone was typical of Mr King when congratulating a staff
member on completing a task. They pointed out that it was also sent about four hours
after Mr King had received the email from Ms Kercher attaching the recyclable capital
project list paper for the FIC meeting the following day.
[824] They submitted that ASIC did not plead any allegation of involvement by Mr King in the
false documents case or any involvement generally after 30 November 2007 and submit
that this is an extraordinary feature of its case. The argument was that it was unusual to
concede that Mr King was knowingly involved in the dishonest misappropriation of $130
million from a managed investment scheme but was completely uninvolved in subsequent
attempts by others to legitimise or cover up the alleged misappropriation.
[825] Mr King did later agree that it was appropriate for MFS Ltd to guarantee any loans to
MFS related parties without expressly referring to MFSIM or PIF.
[826] Mr King’s counsel concluded this aspect of their submissions by arguing that the more
probable inference from the evidence was that Mr King did not agree to authorise or
approve a transaction by which $100 million would become available to repay Fortress
-- 183 of 348 --
170
knowing that PIF would and could receive no benefit, consideration or reward for it. They
argued that the more probable, or at least equally probable, inference was that he was told
something about the benefit, consideration or reward that MFSIM was to receive,
probably by reference to assets the subject of the recyclable capital project or that he did
not turn his mind to the issue of benefit, consideration or reward that MFSIM would
receive, it being one for Mr White and others in the MFS Group to address. They argued
that ASIC had not proven that the circumstances known to Mr King were suspicious or
that he failed to make inquiries. In that context, they pointed to the lack of knowledge of
the terms of the conversation between Mr King and Mr White on 28 November 2007.
[827] In addressing whether ASIC had established that Mr King acted dishonestly, his counsel
submitted that, quoting the pleadings:
“883. The critical questions on the dishonesty case are:
(a) whether “at all times” after 26 November 2007 Mr King:
‘knew there was no transaction or transactions which
were in fact undertaken which would make use of
monies drawn under the RBS Loan Agreement to
repay Fortress in accordance with the Agreement of
26 November 2007, a proper investment on behalf
of PIF.’
(a) [sic] whether (with no temporal limitation) Mr King:
‘knew of no benefit, consideration or reward which
MFSIM as Responsible Entity for PIF could, or
would in fact, gain from the $103 Million Payment.’
884. Other related issues are:
(a) Did Mr King know of any source of $100 million available to
White other than the monies drawn pursuant to the RBS Loan
Agreement?
(b) Did Mr King deliberately omit to make enquiries?
(b) [sic] Did Mr King have a motive to act dishonestly?”
[828] They pointed to the lack of direct evidence that Mr King had actual knowledge that no
transaction or transactions were undertaken or that there was no benefit, consideration or
reward that MFSIM as responsible entity could or would gain in return for the payment
of $130 million. They also relied on Mr King’s denial in his evidence that he “never
genuinely believed at the time of the transfer that any consideration had been provided to
PIF”. They also argued that there was no motive for Mr King to act dishonestly.
[829] ASIC had pleaded, as motive, that Mr King knew that MFS Castle, MFS Ltd and MFS
Financial Services had insufficient funds from their own financial resources to repay
Fortress without recourse to debt or capital raisings. Mr King’s counsel submitted that
this was not sufficient to establish a plausible motive for dishonesty because Mr King was
prepared to do a capital raising to pay some or all of the Fortress debt and was confident
such a raising would be successful. That option had been available since September 2007
and was accepted as feasible by other directors such as Mr Cronin and Mr Krecklenberg.
-- 184 of 348 --
171
The MFS Group had been to the market for a capital raising on a number of occasions in
the 12 months before November 2007. Some of those capital raisings had been done
speedily. Mr King’s statement in an email on 24 November 2007 that a capital raising
was “costly, inconvenient and undesirable” needed to be looked at relatively, and a
fraudulent misappropriation of what were essentially trust moneys should not be seen as
a viable alternative to the inconvenience of a capital raising.
[830] There were also other options available to the MFS Group, including the sale of assets or
shares, the calling in of debts and the renegotiation of existing liabilities with Fortress or
others or the use of some or all of its cash or cash equivalents held as at the end of
November 2007. I was also urged to accept Mr King’s evidence that he had a sanguine
view about the likelihood of Fortress putting MFS Castle into formal default under the
Fortress Loan Agreement at the time.
[831] Placing those considerations against the regulatory and commercial risks of breach and
Mr King’s background as a practising solicitor specialising in commercial and criminal
litigation, it was submitted to me that it was unlikely that Mr King would have adopted
the dishonest approach alleged against him.
[832] In support of that submission his counsel argued that I should accept Mr King’s evidence,
given orally and not contradicted, they submitted, by the documentary evidence. They
pointed out that his evidence in the s 19 examination was given without access to the
many thousands of documents available in this proceeding but argued that, nonetheless,
his cross-examination did not detract from the credibility of his evidence.
[833] Mr Davis also argued that ASIC had not pleaded, let alone proved, that Mr King knew
the $130 million payment was a financial benefit made to a related party within the
meaning of s 208(1) of the Act. He went on to argue that the fact that they were related
parties is an essential element of a breach of s 209(2) that had not been pleaded. Nor had
it been pleaded or proven that Mr King knew that no approval was given by members of
PIF for the $130 million payment and the $103 million payment which he submitted was
essential to the allegation of breach of s 209(2). Nor had ASIC pleaded or proven that
Mr King knew that there had been no approval from the IAC, CRPC or the board of
MFSIM for the $103 million payment. Again, it had not been pleaded or proven that he
knew that that payment was made solely for the benefit of MFS Castle, MFS Ltd and
MFS Financial Services and not for the benefit of PIF. Accordingly, there was a
disconnect from what ASIC alleged against MFSIM and what is alleged against Mr King
as covering his knowing involvement in MFSIM’s contravention.
[834] Mr Davis submitted that nothing in the particulars of the knowledge case advanced by
ASIC suggested that Mr King had been told by Mr White that Mr White was going to
fraudulently misappropriate $130 million. Rather, Mr King and Mr White were talking
about a transaction which would produce the money.
[835] He also criticised the argument in ASIC’s written submissions supporting Mr King’s
involvement in the elements of MFSIM’s contraventions. That argument was that
Mr King’s involvement in the contraventions of MFSIM and his contraventions as an
officer were constituted by the following:559
559 COURT.0029.0003.0001 at para 739.
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“(a) In late November 2007, Mr King approved and authorized the use of
the money drawn down under the RBS Loan Agreement to make the
$130 Million Payment and the $103 Million Payment.
(b) At the time of the approval and authorization of the draw down and
$103 Million Payment, King knew that:
(i) the $130 Million Payment was made from funds managed by
MFSIM as responsible entity of PIF;
(ii) the $130 Million Payment was made for purpose [sic] of MFS
Group repaying $103 Million to Fortress;
(iii) there was no transaction which made the $130 Million Payment
to the extent of the $103 Million Payment a proper payment
from PIF’s funds.
[836] Mr Davis argued that para 56(n) of the statement of claim which pleaded that Mr King
“knew of no benefit, consideration or reward which MFSIM as Responsible Entity for
PIF could, or would in fact, gain from the $103 Million Payment” (emphasis added)
broadened the focus of the case away from the time of the payment to include future
possibilities for reimbursement.560
[837] Mr Davis also submitted that the allegation set out above in para 739(b)(ii) of ASIC’s
written submissions, that Mr King knew the $130 million payment was made for the
purpose of the MFS Group repaying $103 million to Fortress, had not been pleaded.
[838] Mr Riordan had submitted orally that the argument that Mr King knew of MFSIM’s
contraventions was supported by these allegations in para 56 of the statement of claim as
well as the allegation in para 56(n):
“(f) He knew because he was orally told by White by no later than 26
November 2007 that White would be able to effect a transaction which
would result in $100 million becoming available to pay Fortress.
…
(h) At all times after receiving the information from White pleaded at sub-
paragraph (f), he:
…
(ii) knew there was no transaction or transactions which were in fact
undertaken which would make the use of monies drawn under the
RBS Loan Agreement to repay Fortress in accordance with the
Agreement of 26 November 2007, a proper investment on behalf
of PIF;
(j) He knew, because by an email sent to him from White on 27 November
2007 at 3:02 pm he was told, that $100 million [sic] was to be paid to
Fortress on 30 November 2007 [DEL.0009.0001.0026].
560 See T60-38/21 to T60-42/12.
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173
(k) He knew, because he was told in an email sent to him by White at
9.11 am on 28 November 2007, that the $150 Million Drawdown was
expected to be paid by RBS into PIF’s Operating Account on 28 or 29
November 2007 [DEL.2006.0007.1459].
(l) He knew, because he was told in an email sent to him by White:
(i) on 28 November 2007 at 3:58 pm, that the $150 Million
Drawdown was expected in PIF's Operating Account
‘imminently’ [DEL.2006.0007.0882].
(ii) on 28 November 2007 at 6:16 pm, that White had $150 million in
PIF’s account ready to be transferred to MFS Administration on
29 November 2007 [DEL.2006.0007.0784], which King
acknowledged by email to White at 6:18 pm on the same date
[DEL 2006 0007.0780].
(m) By inference from the facts pleaded at sub-paragraphs (a)-(l) above he
knew, at least by 28 November 2007, that money drawn under the RBS
Loan Agreement was to be used to make the $103 Million Payment.
Particulars of paragraph 56(m)
King knew from the time of receipt of the email pleaded at paragraph
56(j) of the statement of claim.
…
(r) By inference from the facts pleaded at sub-paragraphs (a)-(q) above, he
approved and authorised the use of money drawn under the RBS Loan
Agreement to make the $103 Million Payment.”
[839] He submitted that those allegations supported the argument in para 739 that the payment
was made to repay the Fortress debt. That seems to me to be correct. While Mr Riordan
said in passing that the ASIC case did not need the allegation in para 56(n) he also
submitted that it was relevant particularly if one read it purposively to mean that Mr King
then (at the time of that payment) knew of no benefit as a subset of the more general
allegation.561 I have dealt with that issue previously when considering the scope of the
pleadings and para 56A in particular and concluded that the pleaded case also covered
what the parties did and did not do at the time of the payments.
[840] Mr King’s counsel submitted that I should dismiss the case against him on the basis that
ASIC had not proven that MFSIM contravened the Act as alleged, nor that Mr King was
an officer of MFSIM, nor that he acted in breach of the duties of officers of responsible
entities, nor that he was a person knowingly involved in contraventions of the Act by
MFSIM. Alternatively, they asked me to exercise my powers under the Act to excuse
Mr King from any liability he might otherwise have.
561 See the oral submissions at T58-3/7 to T58-8/15.
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Conclusions from submissions for Mr King
[841] My previous conclusions include the views that MFSIM did contravene the Act and that
Mr King was an officer of MFSIM. It remains to consider whether he breached the duties
of an officer and was knowingly involved in MFSIM’s contraventions.
[842] ASIC relied on the decision of Logan J in Australian Communications and Media
Authority v Mobilegate Ltd (No 8),562 which is authority for the proposition that it is not
necessary in order to establish that a defendant had knowledge of the essential matters
constituting a contravention to show that he or she knew of every factual detail that made
up the contravention. Mr King did not for a moment, ASIC’s counsel submitted,
contemplate that PIF would have the prospect of being able to ensure that it received a
proper consideration for the moneys paid out by it.
[843] Mr Riordan submitted that neither Mr Anderson, nor Mr Richmond563 were told anything
to the effect that the capital recycling proposal could produce the consideration for the
payment from PIF. Nor did the “list price” of the loans later claimed to have been
assigned to PIF warrant those loans being transferred in return for the PIF investors’
money. It illustrated that the money was taken not for the investors’ purposes, but for the
purposes of MFS.
[844] Mr Riordan also drew attention to the MFS (FIC) meeting minute of 29 November 2007
which refers to the repayment of $100 million of the Fortress facility, but does not
mention what MFS may be giving up to PIF for the funds.564 That document was admitted
as going to Mr King’s credit rather than to his knowledge of these events. ASIC relied
upon it, however, to argue that Mr King’s story in the witness box should be rejected as
a reconstruction. The document says nothing about any consideration to be given to PIF
from MFS’s assets. If Mr King’s evidence about the asset recycling was valid, the
submission went, one would expect to see some reference to it in this document.
[845] I am satisfied that it has been established that, in late November 2007, Mr King approved
and authorised the use of the money drawn down under the RBS Loan Agreement to make
the $130 million payment and the $103 million payment. I am also satisfied that at the
time of the approval and authorization of the draw down and $103 million payment,
Mr King knew that the $130 million payment was made from funds managed by MFSIM
as responsible entity of PIF and that the $130 million payment was made for the purpose
of the MFS Group repaying $103 million to Fortress, not for PIF’s purposes.
[846] I am also satisfied that there was no transaction then on foot which made the $130 million
payment to the extent of the $103 million payment a proper payment from PIF’s funds. I
conclude from the evidence that Mr King knew that no such transaction had been
implemented at the time of the payment. The MFS FIC meeting minute of 29 November
2007 is significant in helping me to reach the conclusion that his evidence about the
possibility of assets being recycled is not sufficient to explain his behaviour here. It does
go to his credit on that point.
562 (2010) 275 ALR 293.
563 An MFS employee associated with the recyclable project.
564 BCR.0001.0002.1886 and BCR.0001.0002.0865 and T38-64/1-23.
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175
[847] In any event, it does not seem to me to be relevant that he may have had in contemplation
some transaction by which PIF’s funds could have been used to purchase MFS assets to
seed the MYF fund with further capital. He either knew that no such transaction had then
been entered into or was indifferent to whether it had been effected by the time the funds
were transferred.
[848] Because of his overall position in the MFS Group and his ability to influence and control
MFSIM’s activities he was an officer of that company, a conclusion I have discussed
earlier. It cannot be said that he was acting honestly or diligently in that position by
sanctioning the payment out of investors’ funds without then securing the purchase of an
asset or assets intended to reimburse them for that payment. Hopeful good intentions
about some eventual reimbursement for the payment are no substitute for acting carefully
and diligently. Inchoate intentions do not measure up to the necessary standard of care
to be exercised by a responsible entity or those in the position to control its affairs. The
issue is made clear, if needed, by consideration of the situation of the PIF investors in the
event that MFSIM or the MFS Group became insolvent before any securities for the
payment from their funds were effected. That threat of insolvency was not unreal at the
time.
[849] Nor does the argument that the pleading was too broad to permit such a conclusion before
the proposed amendment impress me. It was clear that one focus of the case was that no
quid pro quo was provided at the time for the moneys paid from PIF’s funds. Even if the
later transactions were not shams, the hope that they would be entered into in the future
does not absolve Mr King from his breach of duty at the time.
[850] The money was raised on very short notice from a fund held for the investors in PIF when
other more traditional methods of a public company raising money had been eschewed.
Even if Mr King was genuinely ignorant of what, if anything, was proposed as a quid pro
quo for the investors, he was on notice, from his training and experience, that some return
for them was required. In other words he had been exposed to the obvious, to use the
language of Wilson, Deane and Dawson JJ in Giorgianni v The Queen.565
[851] The strong inference I draw is that he was either told by Mr White that there was no
transaction currently on foot to reimburse PIF or that he studiously avoided asking such
a question, knowing that it was not likely that something could be put in place at such
short notice to justify the payment. From this I infer that he knew that the money was
then being paid for no legitimate purpose of PIF but rather to alleviate MFS Limited’s
difficulties with its financier. If he abstained from making an inquiry about what purpose
of PIF existed for the payment I also infer that he did so because he knew there was none,
the true purpose being the repayment of part of the Fortress loan. If he were to have acted
honestly he should have made inquiries about what was proposed and have ensured that
something was in place for PIF’s investors before the money was taken from MFSIM as
PIF’s responsible entity.566
[852] His failure to do that in the circumstances was, in my view, dishonest. It was not
appropriate to purport to expect that others would put in place transactions intended to
565 Giorgianni v The Queen (1985) 156 CLR 473, 507-508.
566 The Zamora (No 2) [1921] 1 AC 801, 812-813; Giorgianni v The Queen (1985) 156 CLR 473, 505, 507-508.
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176
“justify” the expenditure of such a large sum of money held on trust when, to his
knowledge, it was really being used to pay the MFS Group’s debts.
[853] I would conclude, therefore, that ASIC has established that Mr King had both not acted
honestly and also failed to exercise the required degree of care and diligence as an officer
of MFSIM and had not acted in the best interests of the members of PIF. In that event
ASIC’s submission was that I should find Mr King had contravened the sections of the
Act dealing with the failure to act honestly rather than the sections mandating the required
degree of care and diligence as an officer of MFSIM.
[854] He also failed to ensure that the $130 million payment to the extent of the $103 million
payment was made in accordance with PIF’s constitution. As well as participating in the
MFSIM contraventions, he also breached s 601FD(3) by not acting honestly, or
alternatively failing to exercise the required degree of care and diligence and not acting
in the best interests of the members of PIF. He also made improper use of his position as
an officer of MFSIM by failing to take steps that a reasonable person would take in his
position to ensure MFSIM as responsible entity for PIF complied with its constitution.
[855] He also must have known that the payments provided financial benefits to related parties
in the MFS Group in breach of s 208(1) of the act as modified by s 601LC and I infer, for
similar reasons, that he knew that no steps had been taken to observe the requirements of
that section. Paragraphs 55 and 56 of the statement of claim were sufficient to alert him
to the fact that these allegations were made against him.
[856] The payment of the $130 million to Fortress constituted a benefit to MFS Castle as the
holder of the Fortress debt and MFS Limited and MFS Financial Services as guarantors
of that debt. In making those payments out of scheme property to benefit related parties,
MFSIM, as responsible entity for PIF, contravened s 208(1) as modified by s 601LC.
Mr King was aware of the $130 million payment and the $103 million payment for the
reasons already set out and knew that those payments benefited the other members of the
MFS Group, thus knowing of the essential elements of MFSIM’s contraventions and
being involved in them.
[857] The consequence is that each of the alleged contraventions was of a corporation/scheme
civil penalty provision as defined in s 1317DA of the Act, which materially prejudiced
the interests of PIF and its members within the meaning of s 1317G(b)(i) of the Act for
the reasons pleaded and was serious within the meaning of s 1317G(b)(iii) of the Act for
the reasons pleaded. I would make declarations then in the terms of numbers 1 to 3, 7 to
13 and 15, 16 and 17 of ASIC’s amended schedule of alleged contraventions.567
[858] This is not a case where it would be appropriate to grant relief from liability for Mr King’s
conduct pursuant to s 1317S or s 1318 of the Act.
567 COURT.0030.0001.0030.
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177
ASIC’s case against the fifth defendant, Mr White
Submissions for ASIC
[859] Although Mr Hutchings was the nominated CEO of MFSIM, he reported directly to
Mr White who was described by Mr King and Mr Anderson as the CEO of the Wealth or
Funds Management Group established within MFS. Mr Hutchings’ evidence and that of
other employees support that conclusion. Mr White then reported to Mr King as CEO of
the whole MFS Group. Mr White was also a member of the IAC for PIF until February
2008.
The $130 million payment
[860] Mr White was aware that the loan from Fortress had to be repaid from at least 24
November 2007 and, from 25 November 2007 that Mr King and Mr Kelleher had agreed
that $100 million had to be repaid by the end of that month. By 11:44 am on 26 November
2007, he had decided to put in motion the drawdown of $150 million from the RBS
Facility. It is apparent that the details were not then finalised.568
[861] Other documents on which ASIC relied show that Mr White was aware that final
agreement had been reached with Fortress for a $100 million partial repayment of the
debt by the end of November 2007.
[862] ASIC rejected the anticipated argument for Mr White that he told Mr Hutchings on 28
November 2007 the identity of certain investments that PIF was acquiring with the funds
drawn down for the following reasons that I regard as persuasive:569
(a) Mr Hutchings could not say that the file note dated 28 November 2007dealing with
the five saleable products570 was a contemporaneous note or otherwise. He said
that it was a “scratch pad” and dates were not important.
(b) It is apparent that Mr Hutchings had prepared another file note dated 20 December
2007 long after the event recorded in that document.
(c) Given Mr Hutchings’ various attempts to find out what PIF had purportedly
acquired with the payments, it would be inconsistent for him to be making those
inquiries if, in fact, he had been told what the investments were on 28 November
2007 and he recorded them at that time.
(d) It is inconsistent with Mr White’s “creative brain” email to Anderson on 15 January
2008 which demonstrates that as at 15 January 2008, Mr White did not know how
the total $147.5 million of payments would be explained and he was seeking
Mr Anderson’s help to develop an explanation.
[863] Mr White congratulated another employee by email when the $130 million payment was
made on 30 November 2007 and was also informed by Mr Anderson of the payment of
568 DEL.2006.0007.2992. See also the chronology of events at paras 779-803 of ASIC’s final submissions;
COURT.0029.0003.0001.
569 ASIC’s final submissions at [797]; COURT.0029.0003.0001.
570 GHUT.0001.0001.0020.
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$103 million to Fortress at 2:50 pm on that date. He was also copied into a confirmation
from Mr Slack of Fortress that payment had been received.
[864] In arguing that Mr White knew that there was no transaction that made the $130 million
payment to the extent of the $103 million payment a proper payment from PIF’s funds,
ASIC submitted that that conclusion should be inferred from the following matters:571
“(a) White’s purpose in making the $150 Million Drawdown and the $130
Million Payment as noted above, being to pay the Fortress facility;
(b) White’s knowledge that there had been no IAC, CRPC or Board
consideration of any investment of the funds obtained from the $150
million drawdown;
(c) the fact that no documents were prepared in November or December
2007 which recorded any transactions for the benefit of PIF (as to
which, see submissions above);
(d) the fact that White was asked orally on many occasions between the
start of December 2007 and on or about 23 January 2008 what
investments had been obtained with the $130 Million Payment, and he
failed to provide any information about investments acquired by PIF
until 23 January 2008 (see below);
(e) the fact that White was asked to complete a draft IAC submission with
the investments said to have been acquired by PIF on 7 January 2008,
and again on 14 January 2008, but did not provide a substantive
response (see below);
(f) the fact that on 15 January 2008 White asked Anderson to apply his
‘creative brain’ to ‘work out what the $147.5 [million] went to’,
demonstrating that as at 15 January 2008, White knew that no proper
investment had been made on behalf of PIF (see below);
(g) White’s knowledge by 20 January 2008 that details of the investments
acquired with the $130 Million Payment had been requested by James
on a number of occasions for the purposes of the upcoming PIF audit
(see below);
(h) White’s sending of the listing of loans document to Mr Hutchings on
23 January 2008, although the investments and amounts recorded in that
document changed at various points before the finalisation of the loan
participation agreements and new loan notice (see below).”
[865] ASIC summarised the contraventions alleged against Mr White as:
“810 The contraventions alleged against White in relation to the $130 Million
Payment can be summarised as follows:
(a) He was involved in the following contraventions of MFSIM;
(i) not acting honestly in breach of section 601FC(1)(a);
571 ASIC’s final submissions at [808]; COURT.0029.0003.0001.
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(ii) failing to exercise the degree of care and diligence that a
reasonable person would exercise if they were in MFSIM’s
position, in breach of section 601FC(1)(b);
(iii) not acting in the best interests of the members of PIF in
breach of section 601FC(1)(c);
(iv) failing to ensure that the $130 Million Payment, to the
extent of the $103 Million Payment, was made in
accordance with PIF’s Constitution in breach of section
601FC(1)(k);
(v) providing a financial benefit out of scheme property to MFS
Administration, MFS Castle, MFS Limited and MFS
Financial Services, all of which were related parties of
MFSIM, in breach of section 208(1) as modified by section
601LC.”
[866] ASIC also argued that he breached the following provisions as an officer of MFSIM:
“810 (b) He breached the following provisions as an officer of MFSIM:
(i) section 601FD(1)(a), by not acting honestly;
(ii) alternatively, section 601FD(1)(b), by failing to exercise a
reasonable degree of care and diligence;
(iii) section 601FD(1)(c), by not acting in the best interests of
PIF;
(iv) section 601FD(1)(e), by making improper use of his
position as an officer of MFSIM to gain an advantage for
MFS Castle, MFS Limited and MFS Financial Services;
(v) section 601FD(1)(f) by failing to take all steps that a
reasonable person would take to ensure that PIF complied
with its constitution.”
[867] Its case that Mr White failed to act honestly was based on the argument that there was no
transaction that made the payment a proper investment on behalf of PIF and his purpose
was not to benefit PIF but rather to ensure that Fortress was repaid for the benefit of MFS,
MFS Castle and MFS Financial Services.
[868] ASIC also argued that the evidence demonstrated that Mr White knew the essential
elements of MFSIM’s contravention because:
“812 In respect of his knowing involvement in MFSIM’s contravention, the
evidence demonstrates that White knew the essential elements of
MFSIM’s contravention in that he knew of:
(a) the making of the $150 Million Drawdown, the $130 Million
Payment and the $103 Million Payment;
(b) the fact that the $130 Million Payment came from PIF’s funds;
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180
(c) the fact that the $130 Million Payment was made for the purpose
of the wider MFS Group paying $103 million to Fortress;
(d) the fact that there was no transaction which made the $130
Million Payment to the extent of the $103 Million Payment a
proper payment from PIF.
(e) Even if the Court were not satisfied of White’s involvement in
MFSIM’s contraventions, those facts, having been
demonstrated, establish that White breached his independent
obligation to act honestly as an officer of MFSIM in breach of
section 601FD(1)(a).”
[869] In arguing that MFSIM failed to act reasonably, ASIC relied on its position that the $130
million was paid away in circumstances where there was no transaction that made the
payment a proper payment from PIF, whether or not later transactions were developed
purporting to benefit PIF being beside the point. The payment of such a large sum when
there was no transaction to benefit PIF in place involved a serious want of care on the
part of MFSIM. For similar reasons as those I have already canvassed, it argued that
Mr White was aware of the essential elements of that contravention by MFSIM and
breached his obligation as an officer of MFSIM to act with reasonable care and diligence.
[870] Similarly, ASIC argued that MFSIM failed to act in the best interests of PIF by making
the $130 million payment in those circumstances where Mr White knew of the essential
elements of the contravention and failed to act in the best interests of the members of PIF
where he knew that there was no transaction that made the payment a proper payment
from PIF.
[871] ASIC also argued that the payment was not made in accordance with PIF’s constitution.
Clause 15.1 of the constitution required its funds to be invested in authorised investments.
In that context, ASIC submitted that he failed to exercise reasonable care to ensure that
MFSIM, as responsible entity for PIF, complied with its constitution. The argument was
that a reasonable person in his position would have prevented the making of the $130
million payment until he was satisfied that it was for authorised investments under PIF’s
constitution. When the details of the investments purportedly acquired by PIF were not
settled until early February 2008, ASIC submitted that Mr White could not have exercised
reasonable care to ensure the payments were for constitutional purposes at the time that
the payment was made.
[872] Similarly, ASIC argued that Mr White made improper use of his position as an officer of
MFSIM and argued that a financial benefit to related parties had been made; each of MFS
Administration, MFS Castle, MFS and MFS Financial Services being related parties of
MFSIM. The submission was that the payment of the $130 million to Fortress constituted
a benefit to MFS Castle as the holder of the Fortress debt and MFS Limited and MFS
Financial Services as guarantors of that debt. In making those payments out of scheme
property to benefit related parties, they submitted that MFSIM, as responsible entity for
PIF, contravened s 208(1) as modified by s 601LC. Mr White, ASIC submitted, was
aware of the $130 million payment and the $103 million payment for the reasons already
set out and knew that those payments benefited the other members of the MFS Group,
thus knowing of the essential elements of MFSIM’s contraventions and being involved
in them.
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181
[873] ASIC then submitted that, in those circumstances, the preconditions for pecuniary penalty
orders were met in circumstances where Mr White’s contraventions were serious
justifying a declaration of contravention pursuant to s 1317E(1) and the making of an
order that Mr White pay a pecuniary penalty under s 1317G(1).
[874] In emphasising its submission that Mr White knew that no transaction had been put in
place, ASIC relied on passages from the evidence of Ms Watts and Mr Hutchings as
follows:
“837 At paragraph 103 of her affidavit [AFF.MAW.0002], Watts says the
following under the heading ‘December 2007 - Requests for
investment details of $130 million payment’:
‘Whenever Mr White was in the Sydney office, which was
only a day or two a month, I also asked Mr White what
investments had been acquired with the $130 million
payment. On each occasion Mr White told me that the
details would be available soon.’
838 Hutchings was also pressing White for this information at that time.
At paragraph 190 of his affidavit [HUTG.1100.0002.0002], Hutchings
says:
‘The next time I saw White [after he found out about the
$130 Million Payment] I began asking him in words to the
effect of how the funds had been invested and whether there
was any progress completing the transactions (such as
guarantees, loan documentation and internal approval
papers). White told me that the funds had been transferred
out of PIF into new investments and that his team would
take care of preparing all the necessary documentation.’
839 At paragraph 200, Hutchings says:
‘Over the course of the next three weeks, to the end of
December, I had not received any information from White
or his team about the use of the RBS funds and the
investments made with those funds. I asked White around
two to three times a week when the information would be
forthcoming. Each time he said to me words to the effect
that it “will be coming soon” and that “they are working on
it” and that he and his team were “extremely busy” with
different projects. At that point, I was concerned by the
delay. I believed that something may have complicated the
execution process, but I did not have any concern that the
funds had not been invested for the benefit of PIF.’”
The $17.5 million payment
[875] ASIC’s case against Mr White in respect of the $17.5 million payment derived from an
email from Mr Anderson to him on 24 December 2007 at 1:26 pm asking for clear funds
by 11.00 am Queensland time, on Friday, 28 December 2007, for transfer to New Zealand
which Mr White forwarded to Mr Hutchings on 27 December 2007 at 12:31 pm with a
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notation: “17.5m”. It argued that this amounted to an instruction to Mr Hutchings to
transfer $17.5 million in accordance with Mr Anderson’s email forwarded to him. That
was something with which Mr Hutchings agreed - that it was quite possible he was having
discussions with Mr White about that topic throughout that period.572
[876] The email forwarded from Mr Anderson was in respect of payments to PacFin so it could
pay debenture and note holders. ASIC’s argument was that by his email to Mr Hutchings
on 27 December 2007 he had approved and authorised the payment of the $17.5 million
from PIF to PacFin. Its submission was that Mr White knew that the $17.5 million
payment was being made by funds from PIF: he instructed Mr Hutchings who was the
CEO of MFSIM to make the payment, was asked by Ms Watts and Mr Hutchings for
information as to what PIF had acquired for the payment, but did not provide that
information.
[877] He was also asked on 7 January 2008 to insert details about investments of $147.5 million
into a draft IAC paper provided by Mr Hutchings and provided a listing of loans on 23
January 2008 that set out investments approximating $147.5 million. That was the total
of the $130 million payment and the $17.5 million payment, although his listing of the
loans changed significantly before the completion of documents purporting to record
transactions for the benefit of PIF.
[878] ASIC also argued that he knew that PacFin needed the $17.5 million to pay its debenture
and note holders, having been told this by Mr Anderson on 24 December 2007. Its
submission was that there were no transactions that made the $17.5 million payment a
proper payment from PIF’s operating account. That followed from Mr White’s position
and role in MFSIM, his role as a director of PacFin and his knowledge that there was no
meeting of the IAC or CRPC of MFSIM which approved any investment with the $17.5
million payment. They relied upon the evidence of Ms Kercher to demonstrate that this
had not occurred because she exhibited the complete set of IAC minutes which do not
include any minutes approving the $17.5 million payment, nor was it referred to in the
CRPC papers and minutes.
[879] When asked by Ms Watts and Mr Hutchings to tell them what it was that PIF acquired
for the $17.5 million payment, he did not provide that information and on 15 January
2008 asked Mr Anderson to apply his “creative brain” to working out what it was that
PIF was said to have acquired with that payment.
[880] Mr Riordan made similar oral submissions about the $17.5 million payment as he had
about the $130 million payment. It only coincided with PacFin’s needs for money and
for no other purpose associated with PIF’s interests. The purpose was improper because
MFSIM had no intention then of making any significant acquisitions; one could infer that
from the contemporaneous documentation. Nor did any consideration flow to PIF in
return for the payment. The result was that MFSIM contravened its duty in particular
under s 601FC(1)(c) by acting other than in the interests of its members.
[881] ASIC therefore argued that the contraventions alleged against Mr White in respect of this
payment could be summarised by his being involved in the following contraventions of
MFSIM:
572 See T42-92, DEL.0009.0001.0171 and para 256 of HUTG.1100.0001.0001.
-- 196 of 348 --
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(i) not acting honestly in breach of s 601FC(1)(a);
(ii) not acting in the best interests of the members of PIF in breach of s 601FC(1)(c);
(iii) failing to ensure that the $17.5 million payment was made in accordance with PIF’s
constitution in breach of s 601FC(1)(k); and
(iv) providing a financial benefit under scheme property to PacFin, which was a related
party of MFSIM, in breach of s 208(1) as modified by s 601LC.
[882] ASIC also submitted that he breached ss 601FD(1)(a), (c), (e) and (f) by not acting
honestly or in the best interests of PIF, by making improper use of his position as an
officer of MFSIM to gain an advantage for PacFin and by failing to take all steps that a
reasonable person would take to ensure that PIF complied with its constitution.
[883] The essential facts on which ASIC relied were that Mr White knew of the payment for
PacFin’s debenture and note holders and that there was no transaction that made the
payment a proper payment from PIF’s funds. He should have made sure that the payment
was not made until he was satisfied that it was for authorised investments under PIF’s
constitution. The details of those investments purportedly acquired by PIF were not
settled until early February 2008. For those reasons, ASIC argued that pecuniary penalty
orders should be made for contraventions by Mr White which it described as serious, he
being a very senior executive office of MFSIM where the contraventions involved
dishonesty on his part involving a substantial sum of money in disregard of PIF’s interests
in order to benefit PacFin, another company of which he was a director.
Events from January 2008 - the false documents case
[884] From 7 January 2008, Mr White had been asked by Mr Hutchings for details to be inserted
into a draft IAC paper for PIF dated 28 November 2007 concerning the identity of
investments made for it. Mr Hutchings followed that up on 14 January 2008. Mr White
purported to respond on 15 January, still without detailing what investments were said to
have been acquired by PIF. It was then that Mr White forwarded the email at 6:07 pm to
Mr Anderson asking for the use of his “creative brain” to work out “what the $147.5m
went to …”.
[885] Mr Hutchings then forwarded Ms James’ email of 18 January 2008 to Mr Anderson and
copied it to Mr White asking for an answer about the outstanding details of the $147.5
million loan, referring to the fact that the auditors were arriving the following Monday.
[886] Then on Monday, 21 January 2008, Mr White was sent the email from Mr Hutchings, at
5:15 pm, to the effect that he had been told that the $200 million drawn down was not
used to purchase assets, after which Mr Anderson emailed Mr White describing
Mr Hutchings as the “bomb that needs diffusing [sic]”. Later that evening, at 10:19 pm,
Mr White replied to Mr Anderson saying that they needed to have a pretty frank
conversation and that he, Mr White, had a plan.
-- 197 of 348 --
184
[887] On 22 January 2008, Mr White emailed Mr Hutchings advising him that the $200 million
drawn down from RBS would be paid back in the next 12 to 30 days.573 That still did not
say what may have been acquired for PIF’s benefit with the money paid out.
[888] On 23 January 2008, Mr White emailed Mr Hutchings a version of a listing of loans.
ASIC argues that Mr Stride’s evidence, together with Mr Anderson’s, makes it clear that
there was a meeting between Mr White, Mr Anderson and Mr Stride on 24 January in
which Mr Stride was instructed to prepare documents in relation to a transaction
described in that meeting where Mr White explained the transactions in Mr Anderson’s
presence.
[889] Mr Stride’s evidence was that Mr White told him that the transactions had not been
documented because in the lead up to Christmas they were busy on other things. He was
also told that the funds had moved but that they needed him to prepare draft
documentation to show what the true intention was of the earlier transactions.574
Mr Stride prepared documents in accordance with those instructions. They included loan
participation agreements and a new loan notice, applications for units and unit certificates.
Mr White admitted that he signed the loan participation agreements but not the date on
which he signed them. He made a similar admission in respect of the new loan notice.
ASIC’s case is that they were signed on or about 5 February 2008.
[890] The loan participation agreements themselves were undated and were drawn as if the
payments under them were to be made prospectively. The new loan notice was signed
by Mr Hutchings and Mr White and said to have an effective date of 31 December 2007,
reciting that the financier and the participant had entered into a loan participation
agreement which, in the operative part, provided that it was amended “as and from the
effective date” to give effect to the parties’ desire and agreement that the participant
would cease participating in old loans and would commence participating in new loans.
[891] ASIC’s argument was that the creation of the new loan notice lent support for the
conclusion that, although undated, the loan participation agreements were actually
entered into before the effective date of the new loan notice and supported a conclusion
that the loan participation agreements were in fact executed before the effective date
because, otherwise, any changes in the underlying loans from 31 December 2007 could
have been dealt with in the loan participation agreements themselves. Therefore, it
submitted that, although undated, the loan participation agreements purported to record a
transaction entered into at some time before 31 December 2007, most likely on or before
30 November 2007. It argued that the loan participation agreements needed to be read
with the unit applications and the unit certificates which were dated respectively 30
November and 27 December 2007 which purported to record events, the application for
and issue of units in 2007, which simply did not occur. The new loan notices were
significant in showing that they were actually attempts to disguise rather than ratify
documents because of their being said to be effective from 31 December 2007.
[892] For similar reasons as articulated earlier, ASIC then submitted that Mr White knew that
the $130 million payment and the $17.5 million payment had not been invested in
accordance with PIF’s constitution and that no such agreement as was recorded in the
573 DEL.0006.0001.0005.
574 See Mr Stride’s s 19 examination in COURT.0020.0001.0004 and ASIC.0029.0032.5333 at p 32/3-12.
-- 198 of 348 --
185
loan participation agreements and new loan notice had been made. It argued that no such
agreements were made on or about 30 November 2007 or at any point before 31
December 2007, the effective date of the new loan notice. It submitted that Mr White
knew that for reasons similar to those already canvassed and, in signing the documents,
intended that the loan participation agreements and new loan notice would form an
apparently genuine part of the financial books and records of MFSIM able to be provided
to that company’s auditors.
[893] Mr White also signed the applications for units and the unit certificates dated 30
November 2007 and 27 December 2007 respectively. He did not admit the dates on which
the documents were signed, but ASIC relies on the evidence of Mr Gavras-Moffat to
argue that they were signed at some time between 31 January 2008 and 6 February 2008.
It also argues that Mr White knew that there was no application for units or issue of units
in November or December 2007 for the reasons I have already expressed and that he
intended that the document should form an apparently genuine part of the financial books
and records of MFSIM.
[894] In that context, ASIC argued that he was involved in contraventions related to the keeping
of false documents and the provision of such false documents to the auditors, together
with the provision of false information to the board of MFSIM. The information to the
board related to a proposed ratification of a decision to issue 100 million additional
class A units in MYF. Its submission was that Mr White knew that the information and
the proposal to the board was false for the reasons explored already, including that there
had not been a number of appropriate investment opportunities presented to the
management of MYF in November 2007 and it had not been decided to offer and issue a
new class of MYF units at the time that such investment opportunities were presented,
MFSIM’s management had not issued an information memorandum on 23 November
2007 nor had the management of MFSIM issued 100 million units impliedly in
accordance with the information memorandum provided by him to the board.
[895] Similarly, ASIC argued that information to be provided to RBS was false in respect of an
asset report of MFSIM showing loans made by PIF in the amounts set out in Mr White’s
listing of loans document to the entities described there.
[896] Again, in his dealings with the Compliance officers within MFSIM, ASIC argued that
Mr White permitted false information to be given by Mr Colley to Mr O’Connor of the
firm of solicitors, Mallesons, when that firm provided preliminary advice that there had
been no breach of s 1017E of the Corporations Act.
[897] It argued that, despite his knowing that Mr Colley’s email contained factually incorrect
information relating to the information memorandum’s release and the applications for
units in MYF, Mr White did not take steps to correct the situation by advising the people
in Compliance that they were proceeding on incorrect information.
[898] Accordingly, ASIC argued that Mr White was involved in a variety of MFSIM’s
contraventions of s 601FC(1)(a) in relation to the creation and keeping of the false
documents by failing to act honestly, failing to take all steps that a reasonable person
would take in his position to ensure that PIF complied with the Act and by failing to take
all reasonable steps to comply with, or secure compliance with, the obligations to keep
-- 199 of 348 --
186
written and financial records that correctly recorded and explained the transactions of
MFSIM as required by s 286(1); see s 601FD(1)(a), s 601FD(1)(f) and s 344(1).
[899] It made similar submissions in respect of the making of the false documents available to
the auditors, RBS, the Compliance officers within MFSIM, the board of MFSIM and
being involved in MFSIM’s breach of s 601FC(1)(a) and failing to report a breach of the
Act to ASIC. It contended that each of the contraventions were serious, involving
dishonesty on Mr White’s part where the documents purported to record transactions
involving very large sums of money and Mr White was the CEO of MFS Limited Ltd at
the time of the contraventions.
[900] Again it made similar arguments in respect of his involvement in MFSIM’s
contraventions in respect of the creating and keeping of false documents, in signing them,
providing them to auditors, to RBS, to Compliance, the board and by failing to report
breaches to ASIC.
Submissions for Mr White
[901] The submissions by Mr Jackson and Mr Andreatidis for Mr White argued that ASIC had
failed to make out critical allegations of his knowledge and intention in respect of the
matters claimed against him. They argued that his failure to call or give evidence should
not be used to bolster ASIC’s case because of the explanation for that stance by him
because he was faced with criminal proceedings in New Zealand arising out of allegations
relating to these proceedings which I have discussed earlier.
[902] They argued that it was not open to the court to find that the transactions recorded in the
impugned documents did not occur, nor that PIF received no consideration, benefit or
reward from them. Their summary for those arguments was as follows:575
“8. (a) all parties to the transactions - PacFin, PIF and MYF - treated them
as having occurred in the terms in which they are recorded including
in audited accounts and auditor reviewed accounts for MYF and PIF
lodged with ASIC by the current responsible entity;
(b) ASIC does not allege, and adduced no evidence, that the $30m loan
made by MYF to Sunleisure Group Pty Ltd (Sunleisure Loan) did
not occur in circumstances where the only way MYF could possibly
have made the Sunleisure Loan is from the $85m PIF paid for the
85m units in MYF, which ASIC alleges did not occur;
(c) ASIC’s ‘motive’ case, both that which is pleaded and that which
ASIC sought to run beyond the pleadings, has failed entirely;
(d) having rightly assumed the burden of proving a usual practice within
MFSIM in relation to the obtaining of approvals and the recording
of transactions, the evidence led by ASIC failed to establish such a
practice or proved the contrary, so that no adverse inference can be
drawn from the absence of certain approvals or the lack of
contemporaneous documents recording the precise terms of the
transactions; and
575 COURT.5000.0001.0003.
-- 200 of 348 --
187
(e) in relation to the $17.5 Million Payment, ASIC did not even prove
that the money was used to meet PacFin’s redemptions, which it
alleges was the dishonest, ‘true’ purpose of the payment;
(f) the weight of the evidence after this very long trial does not support
the pleaded case that the transactions recorded in the documents
were invented in early 2008 to cover up the misappropriation in
November and December 2007 and that the documents were
therefore legally ineffective or shams. Rather, the evidence supports
a contrary inference; namely, that the investments were genuine and
legitimate and that those of the False Documents for which
Mr White is sued accurately record, or attempted to accurately
record, the consideration, benefit or reward obtained by PIF in return
for the impugned payments.”
[903] The submissions for Mr White then traversed the pleaded case against him and argued
that it must fail unless ASIC proved:
“10. (a) Mr White knew and intended (indeed, planned) that the $103m
would be taken from PIF and paid to Fortress and that PIF would
never, and did not in fact obtain any consideration, benefit or
reward for it;
(b) Mr White knew and intended that the $17.5m would be taken from
PIF and paid to PacFin so PacFin could meet its redemptions and
that PIF would never, and did not in fact obtain any consideration,
benefit or reward for it;
(c) with that knowledge and intention, Mr White:
(i) signed and/or caused someone else to create documents to
disguise those matters;
(ii) failed to inform the Board, Compliance, the auditors and RBS
of those matters (or gave or facilitated the giving to them of
false information to disguise those matters).”
[904] A number of the claims for relief were also criticised.
[905] The submissions emphasised that the case pleaded against Mr White about his knowledge
of the alleged inability of MFS Limited to meet its obligation to pay $103 million to
Fortress by 30 November 2007 “from its own financial resources, without recourse to
debt or capital raisings” was alleged to be inferred from and only from his being copied
with Mr King’s email to Mr Kelleher of 24 November 2007 and his receipt of an email
from Mr Anderson on 27 November 2007 at 2:17 pm. The submissions continued by
asserting that ASIC’s case seemed to have become one that Mr White and others caused
or permitted $103 million to be misappropriated from PIF to pay Fortress because it
would have been costly and inconvenient to raise the money by going to the market.
[906] The argument then focussed on the allegation in para 58(e) of Mr White’s knowledge of
the alleged inability to pay Fortress that amount from MFS’s own financial resources,
without recourse to debt or capital raisings. Emphasis was also placed on para 58(i)(iii)’s
allegation that, from 26 November 2007 to 31 March 2008, Mr White knew there was no
-- 201 of 348 --
188
consideration, benefit or reward which PIF could, or would in fact, gain from the $103
million payment. The argument was that the conclusion sought to be drawn by ASIC was
to be inferred from Mr White’s knowledge that there were no IAC, CRPC or board
approvals and no documents otherwise recording any transaction or providing for a
consideration, benefit or reward to PIF for that payment. It was submitted that such a
conclusion required proof of a practice within MFSIM that proper transactions of PIF
always involved the existence of the necessary approvals and the creation of documents
at the time of the transactions recording them and the consideration to PIF arising from
the transactions. The submission concluded then that there was no such practice at
MFSIM, in fact, quite to the contrary.
[907] The argument included the observation that ASIC’s case as pleaded was that Mr White
formed a plan to misappropriate the money from PIF before he was alleged to have known
that the MFS companies did not have sufficient funds from their own financial resources
without recourse to debt or capital raisings to meet the obligation to pay that amount to
Fortress by 30 November 2007.
[908] In respect of the $17.5 million payment, the submissions included a summary of what it
described as ASIC’s case against Mr White in relation to that payment in these terms:
“56. (a) he knew, because Mr Anderson told him so by email, that PacFin
needed $17.5m to pay its debenture and noteholders by 11am on
28 December 2007. The subject line of Mr Anderson’s email is
‘Logistics for this week’. It is directed to the mechanics of the
transfer of funds to PacFin’s bank account in time to permit
Computershare to make payment to debenture and noteholders. It
does not refer to $17.5m or to any other amount of money. It does
not provide a proper foundation for the allegation that from the
receipt of it, Mr White had knowledge which led him to cause
$17.5m to be misappropriated from PIF;
(b) three days later, he sent an email to Mr Hutchings instructing him
to make the $17.5 Million Payment;
(c) he knew that there was no transaction which made the payment a
proper payment from or which provided any consideration,
benefit or reward to PIF in return for it;
(d) that knowledge is to be inferred from the first two facts
mentioned, from the absence, to Mr White’s knowledge, of IAC
or CRPC approval for any investment of the $17.5 Million
Payment and from the facts, known to Mr White, that in January
2008, there were unanswered requests for details of investments
made with the $150 Million Drawdown and the $17.5 Million
Payment and in relation to the creation of Mr White’s Listing of
Loans Document.”
[909] The pleading was then criticised for failing to allege the facts said to comprise the
contravention relied on, that PIF’s money was paid to a related party, PacFin, an
allegation it is argued was not made against Mr White. Nor is it alleged that he knew that
or that there was no members’ approval for the payment. The submission then is that he
was not alleged therefore to have known the essential facts constituting the contravention
-- 202 of 348 --
189
so that the declarations sought in para 19(d) of the application must fail. A similar
argument is also made in respect of the claim for a declaration in sub-para 20(e) of the
application.
[910] Similar arguments are made against the allegation in para 74(d) of the statement of claim
that Mr White did not take all steps that a reasonable person would take in his position to
ensure compliance with PIF’s constitution in respect of the $17.5 million payment.
[911] Mr Brady for ASIC relied on the evidence referred to in para 73(b) and para 73(c) of the
statement of claim to support the argument that Mr White approved and authorised the
$17.5 million payment by his instructions to Mr Hutchings and that he knew there was
no transaction which made the payment a benefit for PIF from the facts particularised
under para 73(c) of the statement of claim. Mr Brady also emphasised the non-answers
to the query from Mr Hutchings about what had been purchased with the funds as well as
the “creative brain” email. He pointed out that, as late as 15 January 2008, Mr White was
still asking Mr Anderson to work out where the $147.5 million went. He also relied on
the email from Mr Hutchings on 21 January 2008 described by Mr Anderson as the bomb
that needed “diffusing” later that night, to which Mr White responded by saying that he
had a plan. He submitted that this was consistent with ASIC’s case that, at that point,
Mr White did not know what it was that PIF was to acquire.
[912] A separate written submission was made by ASIC in relation to the allegation that
MFSIM and MFS Administration were related parties in respect of the $130 million
payment and that MFSIM and PacFin were related parties in respect of the $17.5 million
payment. I have dealt with that issue earlier, accepting that they were related parties. My
view is that paras 72 and 73 of the statement of claim made the relevant allegations that
Mr White was involved in MFSIM’s related party contravention in respect of the payment
of $17.5 million to PacFin, contrary to the submission made for Mr White.
[913] In addressing the false documents case alleged by ASIC, Mr White’s counsel argued that
those contraventions alleged against him relied upon ASIC making good its allegations
about Mr White’s knowledge and intention alleged in relation to the transactions, the
argument again being that ASIC has not established that Mr White knew no transactions
had in fact occurred or would ever occur. They point out that numerous allegations in the
statement of claim are not directed particularly to Mr White so that much of the evidence
led in the proceedings by ASIC did not relate to contraventions alleged against him.
[914] The submissions also address the alleged contraventions in respect of the documents
actually signed by Mr White canvassed in paras 113 and 119-125 of the statement of
claim. His alleged approval of the information memorandum referred to in para 113 is
attacked on the basis that the only pleaded connection between Mr White and that
document is an allegation that a draft of it was created pursuant to “directions” pleaded
in para 107. One was a direction by Mr White to Mr Stride and another by Mr Stride and
Ms Platz to Mr Gavras-Moffat. The argument is that no connection between Mr White’s
alleged direction and the direction by Mr Stride and Ms Platz to Mr Gavras-Moffat is
identified. It proceeds by asserting that ASIC should have pleaded that Mr White knew
that Mr Stride would in turn give directions to others as to the documents to be created in
order to make out a case that he was knowingly concerned. This argument is not
particularly attractive when one bears in mind that Mr White would be taken to expect
Mr Stride may enrol others to complete the directions he had been given.
-- 203 of 348 --
190
[915] The argument goes on that Mr White is not alleged to have seen, been sent or even to
have known about either the draft or the final version of the document so that it is not
possible to infer from these allegations that he acted dishonestly in respect of the creation
of the information memorandum alleged in para 113. Again this argument is not
persuasive if one accepts the premise that Mr White knew the transactions proposed to be
recorded had not actually occurred at the time of the payments made. Clearly I accept
that premise.
[916] The argument included reference to Mr Stride’s evidence that the meeting on 24 January
2008 between him, Mr White and Mr Anderson related to the participation agreements
while the meeting with Ms Platz and Mr Gavras-Moffat on 27 January 2008 was separate
and focussed upon the reopening of MYF and the information memorandum. They
argued that Mr Gavras-Moffat’s evidence did not permit any connection to be drawn
between those two meetings at which the information memorandum was discussed. Nor
did Mr Anderson’s.
[917] They also criticised the evidence for failing to establish any connection between
Mr White’s direction alleged in para 107(a) and the subsequent direction, allegedly given
three days later, by Ms Platts and Mr Stride to Mr Gavras-Moffat. They criticised that
evidence as incapable of supporting the alleged connection between Mr White’s direction
to Mr Stride on 24 January 2008 and the creation and approval for use by Mr Hutchings
of the document pleaded in para 113, the information memorandum dated 23 November
2007. I am not persuaded that the conclusion advocated is correct. In context the link is
obvious and related to the original direction.
[918] The submissions then addressed the false documents which Mr White admitted signing
alleged in paras 119-125 where the corresponding contraventions are pleaded in paras
199B-199H. They point out that Mr White was not alleged to have created any of the
documents and argued that the knowledge and intention alleged against him was said to
be inferred from the signing of the documents, their nature and the other matters against
him. The point is made that ASIC’s case is that there were never any transactions and
that Mr White acted deliberately in signing the documents so as to disguise his own
misappropriation of the $103 million payment and the $17.5 million payment.
[919] Criticisms were then made in respect of each document signed and the submission was
made that, if the participation agreements were legally effective, then none of the
contraventions will have been made out. In that context, it was pointed out that the MYF
Participation Agreement and the PIF Participation Agreement were undated and are not
“back dated”. The dates on the applications for units, it was emphasised, were
handwritten and there was no evidence as to when and by whom they were dated or that
they were dated when Mr White signed them. Similarly, there is no evidence as to when
and by whom the unit certificates were dated or that they were dated when Mr White
signed them.
[920] They point out that there is no allegation that Mr White was involved himself in the
provision of the documents to the auditors. The allegation that he was knowingly
concerned in MFSIM’s contravention is made on the basis of his signing the documents
intending that they would be made available to MFSIM’s auditors, an intention that it
seems to me could readily be inferred.
-- 204 of 348 --
191
[921] Particular criticism is made of the allegation in para 153 of the statement of claim, that
Ms Platts sent an email to Mr White and Mr Anderson informing them that the details set
out in Mr White’s listing of loans document were then recorded in the accounts of MFSIM
as loans that MFSIM as responsible entity for PIF had actually made and attaching an
asset report showing those loans and informing Mr White and Mr Anderson that it was to
be provided to RBS that afternoon. Paragraph 156 then pleads that neither Mr White nor
Mr Anderson objected to the course foreshadowed by Ms Platts and para 192 pleads,
amongst other things, that, in sending the asset reports to RBS, MFSIM contravened
s 601FC(1)(a) of the Act.
[922] The submissions for Mr White point out that it was not alleged that Mr White knew those
matters, although para 154 pleads that he knew the information pleaded in paras 153(a)
and (b) was false. The criticism is made that the pleading does not allege sufficient facts
from which it could be concluded that Mr White intentionally participated in MFSIM’s
alleged dishonest contravention, so that this aspect of ASIC’s case should fail. The
further criticism is made that the direct contraventions alleged against Mr White rely upon
paras 153, 154 and 156 and paras 170 and 171 alleging the provision to RBS of the MYF
Participation Agreement by Ms Platts and the PIF Participation Agreement by Ms Watts
but do not allege that either of them acted on Mr White’s direction or instruction. Nor is
it alleged that he knew that they were going to send the participation agreements or that
they had sent them. Accordingly, it was submitted that no proper basis for that allegation
of Mr White’s dishonest contravention of the Act had been pleaded and should not be
made out.
[923] The allegations in paras 142-146 of the statement of claim concerning board ratification
by MFSIM of the information memorandum and the issue of 100 million class A units in
MYF were also criticised on the basis that, although Mr White had admitted that the
proposal contained false information, he denied the alleged contravention. The argument
is that it could not be inferred from the facts pleaded that Mr White knew the admitted
fact. That submission depended on my accepting the previous submissions about the
content of para 107 of the statement of claim dealing with the direction by Mr White to
Mr Stride and whether it should be regarded as covering this information memorandum
to show that the $130 million payment and the $17.5 million payment had been invested
by MFSIM on behalf of PIF. If that allegation is made out, then this criticism of the
pleading and the allegations seems less important.
[924] Finally, the contravention pleaded in para 198, which para 203 alleged Mr White was
knowingly concerned in, also depended on ASIC making out its case in relation to the
$103 million payment and the $17.5 million payment, on Mr White’s counsels’
submissions.
[925] The submissions then addressed the proper construction of the statement of claim and
argued that it was not open for ASIC now to contend that PIF received no consideration,
benefit or reward at the times of the impugned payments, the case being confined to there
never being any consideration, benefit or reward for PIF in return for the impugned
payment. For the reasons discussed in my consideration of the case against Mr King and
earlier when I discussed the scope of the pleading, it is not my view that ASIC’s case is
so confined.
-- 205 of 348 --
192
[926] The submission to the contrary was developed in paras 109-111 of Mr White’s written
submissions.576 The argument included assertions that the pleading should be construed
such that the $103 million payment was made solely for the benefit of MFS Limited and
others and not for the benefit of PIF. A number of passages in the pleading were referred
to in order to support that argument. The consequence asserted is that if ASIC fails to
prove that the impugned transactions did not occur, in other words if I accept the
participation agreements and unit certificates are all legally effective, then ASIC’s case
must be dismissed.
[927] In developing its argument that ASIC had not established that the false documents were
in fact false, the submissions for Mr White drew attention to the fact that these were
pecuniary penalty proceedings and that the appropriate onus of proof was on the
principles identified in Briginshaw v Briginshaw.577 I have already accepted that that is
the appropriate standard of proof.
[928] The submissions then went on to deal with the argument by ASIC that the documents
were legally ineffective or shams. Again, I have dealt with these arguments earlier.
[929] The submissions for Mr White then went on to argue that the transactions recorded in the
impugned documents were legally effective, having been recognised as such by the
parties. I have previously dealt with the issue of ratification raised by these arguments
and rejected it.
[930] The fact that ASIC did not attack the making of the Sunleisure loan in these proceedings
was said to undermine any possible conclusion that the other transactions were false. I
do not see the logic in that submission. It does not, to my mind, undermine the main
allegation of ASIC that the $147.5 million drawdown from the RBS loan occurred for
improper purposes. The argument was that the Sunleisure loan of $30 million could not
have been made without MYF having the benefit of PIF’s $85 million investment in it,
but it must be remembered that the particular sums said to have been misappropriated
were the $103 million and the $17.5 million and the fact that ASIC did not attack the
Sunleisure loan as not having occurred does not lead to the conclusion that the overall
advance was not taken or made for improper purposes.
[931] My previous consideration of the attempts by PIF and MYF to enforce the PIF
Participation Agreement and the MYF Participation Agreement and the admission by
Mr Maywald in a letter of 14 April 2008 that those agreements were binding on PacFin
does not necessarily require a conclusion that those agreements were valid. The
submissions point out that Mr Maywald was not available for cross-examination, he
having claimed privilege. The mere making of a statement such as that in a letter by him
does not require me, however, to reach the conclusion that the agreements were valid in
the face of the other underlying evidence. Nor does the fact that the accounts for
Wellington Capital Ltd recognise the investments the subject of the impugned documents
in the Sunleisure loan require me to reach the conclusion that the agreements were valid.
[932] Mr White’s case also relied upon the return of capital to PIF as a unitholder in MYF
shown in the audited financial reports for the period 30 June 2009 to 31 December 2009
576 See COURT.5000.0001.0002.
577 (1938) 60 CLR 336, 361-362.
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and for the audited report for MYF for the year ending 30 June 2010 as leading to the
necessary conclusion that the transactions were valid. The documents have to be
examined in the context of the evidence as a whole, however, and that evidence argues
against the validity of the transactions.
[933] Similarly, the payment by PacFin to MFS Limited of $1.5 million on 28 December 2007
from which $950,000 was apparently paid by PacFin to PIF on 16 January 2008 was
argued to make a nonsense of ASIC’s case that PacFin needed the $17.5 million payment
when it was made. At most, the submission went, it needed $16 million. This too was
said to lead to the conclusion that the impugned transactions were not inventions to
disguise the misappropriation of $120.5 million from PIF in November and December
2007. Again, this later conduct does not seem to me to detract from the force of the earlier
evidence related to the making of the $17.5 million payment.
[934] The submissions then went on to address whether ASIC had failed to establish a motive
for the conduct it criticised. The motive identified was the lack of funds to meet the
obligations of MFS Castle, MFS Limited and MFS Financial Services to Fortress because
those companies had insufficient funds from their own financial resources, without
recourse to debt or capital raisings, to make the payments required. Counsel argued that
MFS Limited was a substantial company with a market capitalisation in excess of $2
billion, being within the top 200 companies on the ASX. They pointed to the lack of
expert evidence to support the allegations and reminded me that that the admissions made
by Mr King in his s 19 examination were not relied on by ASIC in respect of allegations
against Mr White. They pointed out, however that ASIC relied on an email from
Mr Anderson to Mr King on 26 November 2007 at 6:12 pm. They argued that the
inference from that email was that MFS Limited had $40 million in cash available to it as
at 26 November 2007 and that shares noted in the email were worth just over $99 million
at the close of trade on that date. The net proceeds from those sales after deducting margin
loans against them would have been $47 million. There was no evidence led to suggest
that the shares or units could not have been sold immediately. The submission was,
therefore, that $87 million could have been raised on short notice and that, therefore, the
allegations made in para 38 of the statement of claim had not been made out. That is not
clear to me as the total is still less than the obligation then to pay Fortress $103 million.
[935] The argument then addressed what it described as the “motive case beyond the
pleadings”, namely that MFS Limited did not have and could not raise by any means the
$103 million required to meet its contractual obligation to pay Fortress that sum on 30
November 2007. They pointed to the evidence of Mr Cronin and Mr Krecklenberg that
MFS Limited could have raised $250 million within a week by going to the market.
Mr King and Mr Anderson gave similar evidence. They characterised ASIC’s case as
one which seemed to have changed again to one that accepted that Fortress could have
been paid by a capital raising but that was not Mr King’s preference.
[936] Mr Brady for ASIC in their oral submissions argued that they were not running a motive
case beyond the pleadings, but that there was a purpose in making the payments. In
relation to the $17.5 million payment, the purpose was to get the money to PacFin to
enable it to pay its obligations to its debenture and note holders. Mr Anderson gave
evidence about the purpose of the $17.5 million payment as one made to allow PacFin to
pay redemptions due to debenture and note holders which was the case pleaded against
Mr White.
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[937] He made the same point in respect of the $103 million payment, that there was a purpose
for it, to pay off the Fortress loan and that, even if the money could have been raised by
MFS Limited selling assets, that did not mean that ASIC’s case should fail. That issue
was beside the point as the payments were made for the purposes pleaded, which was
ASIC’s fundamental case. There was no need to call expert evidence to demonstrate that
there was no other way of getting the money. The main point was that Mr White was told
by Mr King that they did not want to do such a raising on such short notice because it
would be at great cost to MFS, even though they could seek to repay the debt off the back
of an equity and hybrid raising.
[938] Counsel for Mr White also argued that the two emails pleaded at para 58(a) of the
statement of claim of 24 November 2007 sent at 7:06 am from Mr King to Mr Kelleher
and copied to Mr White and then emailed by Mr Anderson to Mr White at 2:17 pm on 27
November 2007, should not allow me to infer that, from that date, MFS Limited could
not from its own financial resources, without recourse to debt or capital raisings, meet its
obligation to pay Fortress $103 million by 30 November 2007. They pointed out that
Mr King did not address in his email what cash and other immediately saleable assets
MFS Limited had and argued that I could not infer what its ability was to pay $103 million
by the due date. They argued that I could also infer that Mr King believed that at least
$25 million was readily available and that Fortress could be repaid in full and on time on
the back of an equity and hybrid raising.
[939] The second email from Mr Anderson of 27 November 2007, they argued, did not
obviously address the subject of the payment of the $103 million. It addressed the subject
of “cash flow” and was sent at 2:17 pm and, in the context set by the preceding emails
and the other evidence surrounding that period, made it clear to my mind that Mr White
was then told by Mr Anderson that the funds required for the Friday were still $10 million
short and that there were no funds coming from MYF or from Observation Deck
Financing, associated with the Sunleisure Group.578 In the reply,579 however, Mr White
replies to Mr Anderson by telling him that he, Mr White, had the cash, obviously referring
to the money needed for the repayment of the Fortress loan. The legitimate inference
from that evidence seems to me that, by then, Mr White was aware of the ability to draw
down the funds from RBS.
[940] The evidence of motive does seem to me to establish, therefore, that Mr White was aware
that there were cash flow problems within MFS Limited at the time. Motive does not
establish that an event happened, but it does go a significant way, in the right
circumstances, to explain why it may have happened.
[941] Mr White’s counsel also submitted that no adverse inference could be drawn from the
absence of approvals or the lack of contemporaneous documents recording the precise
terms of the transactions. They conceded that a picture of Mr White which emerges from
the evidence is that he was sloppy in terms of paperwork and a man who was interested
in the “big picture”. That does seem to be the case. They argued, however, that the
systems within the company that should have been adhered to were not always adhered
to. They refer to examples from the Domain/Guardian transaction and other transaction
578 See DEL.0021.0001.0069.
579 See DEL.0021.0001.0073.
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involving Living & Leisure where it was clear that documents were prepared later than
the relevant transactions.
[942] In respect of Mr White being described as someone who was interested in the big picture,
Mr Brady submitted for ASIC that the big picture should involve actual transactions being
entered into before large sums of money were paid across. The procedures and policies
in place that would have allowed such transactions to be undertaken in a proper manner
existed but they were not followed. The fact that there may have been other transactions
also dealt with loosely was not to the point. Because ASIC had made forensic decisions
to pursue particular contraventions rather than other possible contraventions, it did not
follow that one should conclude that what happened in this instance was honest.
[943] Where ASIC relied upon evidence of other employees, such as Mr Hutchings, asking for
details of the investments that PIF’s money had gone to, and not receiving a response
from Mr White, from which a relevant inference could be drawn, Mr White’s counsel
referred again to the Domain/Guardian and Living & Leisure transactions as providing
similar contemporaneous examples where additional detail was provided later.
[944] Those submissions do not persuade me, however, away from the view that Mr White did
not have a settled view of what, if anything, was intended to be transferred to PIF in return
for the money taken from it at the time of the payments, let alone any expectation that
assets were in a position to be transferred in return for the payments.
[945] His counsel then addressed the alleged motive for Mr White to misappropriate the $17.5
million, namely that he knew that PacFin needed that money to pay its debenture and note
holders by 11:00 am on 28 December 2007. They point out that there is no evidence that
that sum was used to pay PacFin’s debenture and note holders and argue that the email
relied upon of 24 December 2007 from Mr Anderson to Mr White says nothing about
$17.5 million being needed but simply that the money was needed for Computershare,
the share registry company, to make the payments to debenture and note holders. Again,
however, that document has to be seen in the context set by the balance of the evidence
which persuades me that it would have been clear to Mr White that it related to the
payment required of $17.5 million in that context.580
[946] Against that background, it seemed to me that ASIC succeeded in establishing the purpose
of the payments and, as Mr Brady submitted, ASIC’s case was not dependent on the
proposition that the $103 million payment was made “solely” for the benefit of MFS
Castle, MFS Limited and MFS Financial Services and not for the benefit of PIF. The
purpose for the payment was to repay the Fortress loan and it was made without proper
consideration at the time.
[947] Counsel for Mr White then drew my attention to the evidence I have already canvassed
earlier about an alternative explanation related to a proposed investment by PIF in a
restructured MYF. They argued that the investments proposed in those discussions were
broadly consistent with the investments that appear in the false documents. The problem
is, however, that the proposals were inchoate at best at the time the payments were made,
580 See COURT.0029.0003.0001, ASIC’s closing submissions, at paras 316-323 and, in particular,
DEL.1300.0005.2958 where Mr Anderson writes an email to Mr White saying “keen to discuss logistics re the
remaining A$17.5m to be provided”.
-- 209 of 348 --
196
leaving the investors in PIF in limbo in respect of any proper identification of assets which
might have been bought with their funds.
[948] Counsel for Mr White argued that the decision to draw down the funds was made before
the agreement with Fortress was reached, which tends to support his case that the money
was intended to be used for investment purposes and that it was commonplace at MFS
Limited for investments to be entered into with related entities with money moving
through MFS Administration as the treasury company.
[949] They argued, therefore, that there were plausible inferences that Mr White had a broad
strategy in mind as to the nature of the proposed investment of the PIF funds but was
seeking to refine the details of replacing PIF’s maturing assets with new investments.
[950] In that context, they argued that his request of Mr Hutchings to seek ratification of the
investments by the IAC and CRPC was not a step likely to have been taken by a senior
executive who had misappropriated large sums of money. They next pointed out that
there was no secret about what had occurred and that it was happening when
Mr Hutchings had been discussing defects in the procedure with Mr Whateley who was
also discussing them with Mr White. They argued that one would expect Mr White, if he
was acting dishonestly, to have put a stop to communications of that nature with
Mr Whateley and that there was no evidence of any such attempts by him.
[951] They concluded their submissions by arguing that the MFSIM contraventions had not
been established and that in any event Mr White had not been shown to have been
involved in the alleged contraventions because it had not been proved that he knew that
PIF would receive no benefit, consideration or reward for the impugned payments. They
also submitted that the allegedly false documents were effective to confer the legal
benefits they provided in return for the impugned payments and that that part of the case
failed for want of proof of the necessary knowledge in Mr White.
Conclusions from submissions for Mr White
[952] I have dealt with several of the submissions for Mr White in passing already. Mr Jackson
submitted that the real issue raised on the pleadings was whether his client knew at the
time he ordered the $150 million drawdown from the RBS loan that there would be no
benefit to PIF. That was said to be based on a proper understanding, in particular, of para
58(i)(iii) of the statement of claim’s allegation that he knew that there was no benefit,
consideration or reward which MFSIM, as responsible entity for PIF, could or would in
fact gain, for example, from the $130 million payment to the extent of the $103 million
payment. He submitted that the evidence of his intention to restructure MYF argued
against any conclusion that he decided to misappropriate or steal the money. Rather, I
should conclude that there was no such intention and that the failure to document the
transactions did not evidence dishonesty but inefficiency. One might expect a bank
officer to have made sure that the transactions were properly documented and in place
before money was paid over but Mr White was not in such a position.
[953] The problem with that submission seems to me, however, to be the uncertainty associated
with the transactions said to have been in Mr White’s contemplation and his inability to
identify them to other employees until well after the payments were made. Nor do they
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square with his express reference to the money drawn down being paid back “in the next
12-30 days” as late as his email of 22 January 2008.581 The only rational inference I draw
from those facts is that the funds were illegitimately “borrowed” or taken in the short term
rather than as part of some planned scheme to make investments with the funds. His
behaviour equates to dishonesty more than just carelessness so as to establish liability as
alleged under para 59(a) as well as under paras 59(b), 59(c) and 59(d) of the statement of
claim.
[954] The apparent deficiencies in other attempts to document similar contemporaneous
transactions do not persuade me that the evidence in this case permits the conclusion that
there was an innocent explanation for the creation of the false documents. The obvious
conclusion, in my view, is that the transactions were not genuine but were, effectively,
created to justify, at a later stage, the drawdown of the moneys that had previously
occurred. Even if some such transactions were in the contemplation of people like
Mr White, the evidence establishes clearly that they were not agreements properly made
between the relevant entities at the time of the payment.
[955] One example supporting that analysis of the facts is the evidence of Ms Howard that on
18 December 2007 she asked Mr White to give her back her money. To which he replied
that it had “all been sorted”. Mr Jackson sought to characterise that as a joke by
Ms Howard but I did not perceive it that way myself. He made similar submissions, for
example, in respect of the “creative brain” email, that it may well have reflected a joking
culture within the organisation. He also relied upon Mr Anderson’s explanation of the
email that, on one view, refers to Mr Hutchings as the bomb that needs “diffusing”.582
[956] ASIC’s submissions about some of the documents, that the backdating evident in them
reflected an intention to show that they existed before the impugned payments, was
criticised by Mr Jackson on the basis that I would not draw that inference having regard
to the apparent carelessness within the organisation in the preparation of documents
generally. Again, that does not seem to me to be the likely explanation of the backdating
in some of the documents referred to. It is clear that it was intended to create the
impression that these transactions had occurred earlier than the payments.
[957] Paragraph 50 of the written submissions for Mr White criticised the effect of paras 58A
and 58B of the statement of claim. They alleged that a reasonable person in Mr White’s
position, would have prevented the making of the $130 million payment and the $103
million payment until satisfied that they were for investments which were authorised
under PIF’s constitution and for the benefit of PIF and its members and that Mr White
did not do that.
[958] The submission was that they did not support the allegation of absence of the degree of
care and diligence that a reasonable person would exercise made in para 59(b). They
were said not to plead a true alternative of negligence. That submission does not persuade
me. If I had been persuaded that the attempt to create later transactions to justify the
payments was not dishonest, it still seems to me to be careless to allow the payments to
be made in the absence of authorised investments to be transferred in return for the
581 DEL.0006.0001.0005.
582 DEL.2006.0003.3330. That was the view taken by Mr Anderson; T50-39/18.
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198
payments, something made clear by the allegation in para 59(b) referring both to paras 6
and 58(a)-(u) as well as paras 58A and 58B.
[959] My understanding is that ASIC does not now wish to proceed with the contraventions
alleged against Mr White about the keeping of false documents. They do not appear in
its amended schedule of alleged contraventions. Given my conclusions about the case it
is appropriate, therefore, to indicate that I propose to make declarations in the form of the
contraventions alleged against Mr White numbered 1 to 3, 7 to 13 and 15 to 68 of that
schedule.
[960] Nor is this a case where it would be appropriate to grant relief from liability for
Mr White’s conduct pursuant to s 1317S or s 1318 of the Act.
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ASIC’s case against the sixth defendant, Mr Hutchings
Submissions for ASIC
[961] Mr Hutchings was CEO of MFSIM from 23 May 2007 to 2 May 2008. ASIC’s case was
that he reported to Mr White but was, nevertheless, in a senior management role in spite
of his assertion in his amended defence that he did not have the role or responsibility of
CEO as it was commonly understood. In the internal documents of the MFS Group, he
was said to oversee the operations and investments of various managed funds, including
PIF. He was also a member of the MFSIM and MFS Causeway IACs. He is not alleged
by ASIC to have contravened the Act in respect of the $150 million drawdown, the $130
million payment or the $103 million payment, but that background is relevant to ASIC’s
case against him in relation to the false documents.
[962] ASIC does seek orders against him in respect of the $17.5 million payment.
[963] On 19 November 2007, the MFSIM management team met, including Mr Hutchings.
There was no mention of any looming transactions then, but at 4:20 pm, Ms Watts
emailed Ms Howard, copied to Mr Hutchings, and asked Ms Howard to phone her or
Mr Hutchings to discuss the possibility of drawing down on the PIF loan facility from
RBS to fund some planned investments later that week. Ms Howard’s evidence was that
Mr Hutchings asked her to review the RBS loan documents at some point before 21
November 2007 so that it could be ascertained what the process was for obtaining the
funds under the facility.
[964] On 21 November 2007, there was an MFSIM board meeting with a presentation related
to the “five products by December 2008 strategy” but no reference to MYF being
reorganised in the first quarter of the 2008 calendar year. There was no mention of
seeding PIF, nor any proposal in relation to the issuing of a new class of units, nor any
mention of an intention to restructure MYF at some point before the first quarter of 2008.
[965] ASIC submitted that these minutes were inconsistent with there being any intention on
the part of Mr Hutchings that MYF would be restructured immediately and that a new
class of units would be issued before the end of November. I have referred to the contrary
views about the history of this proposal earlier and my agreement with ASIC’s
submissions on this issue.
[966] At 11:48 am on 21 November 2000, Ms Howard emailed Ms Watts and Mr Hutchings,
providing an update on the RBS facility, noting that two business days’ notice was
required and that approximately $155 million was the maximum that could be drawn on
in order to keep within the gearing ratio limits related to the facility. Mr Hutchings
admitted that it was quite possible that he gave that information to Mr White. ASIC
submitted that it was likely that he did so as it was Mr White who would want to know
that information.
[967] At 1:05 pm, Mr Anderson sent an email to Mr Hutchings and Ms Howard suggesting that
MYF invest directly in MFS Pacific Finance notes to provide a better return for that fund
in which he was a significant investor. Mr Hutchings responded to Ms Howard, copied
to Mr White and Mr Anderson at 2:55 pm, saying that there would now be no assets going
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into the fund in the short term. He asked her, however, to implement Mr Anderson’s
suggestion which, ASIC submitted, revealed that he was prepared to do what
Mr Anderson had requested, apparently without further question, but believed then that
there would be no assets going into MYF in the short term.
[968] On Friday, 23 November, Ms Watts emailed Ms Howard, copied to Mr Hutchings, asking
that the process for a drawdown by PIF from the RBS facility commence as PIF would
have to fund some anticipated investments late in the next week. Mr Hutchings agreed
that it was possible that he did not then know what amount was to be drawn down the
following week or the purpose of the payment beyond the expectation that it was to be
used to fund assets that were maturing later in the year.
[969] On 26 November 2007, Mr Hutchings attended a MFSIM management team meeting
which referred to the drawing down of the RBS facility, but did not specify what
investments were to be made with it. There was a note that Mr Hutchings, Ms Howard
and Ms Watts were to meet about a proposal for the restructure of MYF, but nothing to
suggest that there was an intention to restructure that week, or for a new class of units to
be issued, or for PIF to acquire a substantial number of units in MYF that week.
[970] At 11:44 am, Mr White emailed Mr Hutchings to put the $150 million drawdown in train
which Mr Hutchings asked Ms Howard and Ms Watts to implement. ASIC’s submission
was that he did not then know what PIF was going to acquire with the money drawn down
and purported to answer questions about that by saying that he knew there was an
investment strategy to replace loans that were maturing and that the drawdown was part
of that strategy. He conceded, however, that he did not have detailed information in
relation to the specific assets said to be in contemplation.
[971] The $150 million was drawn down late on 28 November 2007. On 30 November 2007,
MFSIM had a business planning day at The Rocks in Sydney. Mr Hutchings was present.
Ms Howard says there was a proposal discussed for the restructure of MYF at that
meeting, but nothing was said to the effect that PIF may be making a large investment in
MYF. At that stage, he said MYF was dormant so that making a large investment in it
would not have made sense. All it had was approximately $2 million sitting in a bank
account.
[972] Mr Hutchings told Ms Howard during that meeting that $130 million of the drawdown
was to be paid to MFS Administration. She asked Mr Hutchings what those funds were
for and he told her that he would find out from Mr White. Mr Hutchings also told her in
a discussion that day not to worry about it because the funds would be back in three
weeks. That was the meeting which referred to a SWOT583 analysis recording that
MFSIM’s biggest weakness was getting past the perception that PIF was a slush fund.
[973] ASIC’s analysis of the evidence went on to assert that it was apparent that, at the very
least, by 3 December 2007, Mr Hutchings knew of the $130 million payment, that by
then, MYF had not yet been restructured and the proposed future restructure was to be
the subject of a paper for the IAC. A draft paper in respect of that was sent by Ms Watts
on 5 December 2007 relating to the future restructure of MYF.
583 An acronym for Strengths, Weaknesses, Opportunities and Threats.
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[974] Mr Hutchings amended it and sent an email back to Ms Watts on 6 December 2007 asking
her to proof-read it before Ms Molesworth circulated it to the IAC as a circular resolution.
There was no mention in that proposal of MYF being seeded with the funds from PIF or
that it had already been seeded. Nor was there any mention of the issue of class A units
in MYF or that PIF had made a substantial investment in it. As ASIC submitted, the
document was entirely inconsistent with there having been any plan as at 6 December
2007 for MYF to have been seeded in some way with a $130 million payment made in
November, or for MYF to have already issued a new class of units or for PIF to have
already acquired a substantial number of new units.
[975] At 10:48 am on 6 December 2007, Mr Hutchings was emailed the November asset and
holdings reports which showed that the $130 million payment was then recorded simply
as “other loan”.
[976] Mr Hutchings approved a draft minute of the IAC meeting of 6 December 2007 by a
circular approving the restructure of MYF by an email of 12 December 2007. Later that
day, Ms Watts emailed Ms Howard, copied to Mr Hutchings, stating that MFSIM would
need to make a further $15 million drawdown on the RBS facility to fund upcoming
settlements on 14 December and anticipating a final drawdown before Christmas of up to
another $35 million. ASIC submitted that that email and the subsequent drawdowns in
December underscored the cash flow problems for PIF by that point.
[977] On 17 December 2007, Ms Watts emailed Ms Howard, copied to Mr Hutchings, asking
Ms Howard to make a further drawdown from the RBS facility of $25 million, while at
5:15 pm Mr White emailed Mr Hutchings asking what had happened to the balance of
$20 million from the $150 million drawn down of which $130 million had been
transferred out.
[978] Mr Hutchings responded, explaining what the balance $20 million had been used for and
noting that a further $40 million had been drawn down from RBS to fund further
scheduled Causeway and Versa loans that week. Mr White then requested a copy of
MFSIM’s cash flow. Mr Parker emailed Mr Hutchings and others then, attaching an
updated holdings report, which again showed the $130 million payment as simply “other
loan”.
[979] On 18 December 2007, at 4:06 pm, Mr Hutchings emailed Mr White forwarding
Mr Parker’s most up to date cash flow. It contained nothing to suggest any anticipated
payment to PacFin on or about 27 December 2007. Nor did a later cash flow email by
Ms Watts to him at 5:44 pm on 18 December 2007.
[980] On 19 December 2007, there were further emailings of cash flow statements and, at
2:22 pm, an email from Ms Watts to Ms Howard, copied to Mr Hutchings and others. It
advised Ms Howard to make a final drawdown from the RBS facility of $10 million
bringing the total drawn down and outstanding from that facility to $200 million, taking
PIF to its facility limit and its 20 per cent limit under the PIF PDS. Ms Howard was
concerned that there would be a breach of the PDS because her understanding was that
only $155 million could be drawn down before the gearing ratio was breached. She told
Mr Hutchings that she wanted no part of it, but could not remember his response.
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[981] On 20 December 2007, it seems that there was a meeting between Mr Hutchings,
Mr White and Mr King. The file note referred to in evidence584 was accepted by
Mr Hutchings as having been prepared in mid-February 2008 rather than on the date it
bore, 20 December 2007.
[982] It referred to the “understanding that MFS would provide guarantees to PIF” and MYF in
relation to certain assets acquired in late November 2007 referring to the MYF
restructuring and relaunch and seeding by PIF as well as a purchase directly by PIF to
replace other facilities maturing in the March 2008 quarter.
[983] ASIC submitted that that note and Mr Hutchings’ evidence should be rejected as an
accurate record of what occurred at that meeting because it was apparent that, as at
7 January 2008, Mr Hutchings was not aware of any link between the $130 million
payment and the restructuring or seeding of MYF. His draft IAC paper did not refer to
MYF and the other documents prepared in early January 2008 did not suggest any such
link. ASIC also submitted that the structure of the later recorded transactions was not
worked out until late January 2008. It was also unlikely that Mr King would have offered
guarantees from MFS Limited when it was entirely unclear what it was that MFS Limited
would have been guaranteeing.
[984] ASIC also pointed to Mr Hutchings’ evidence in cross-examination in relation to the
meeting that he did not even raise a query with Mr White about what it was that PIF had
acquired for the $130 million payment. It should, therefore, have been readily apparent
to Mr Hutchings that at the time of the conversation on 20 December 2007, there had
been no determination of what it was that PIF was said to have acquired for the $130
million payment.
The $17.5 million payment
[985] ASIC’s submissions then went on to deal with the $17.5 million payment. On 27
December 2007, Mr Hutchings forwarded an email to Mr White containing a cash flow
spreadsheet, not mentioning any anticipated payment to PacFin that day. He later
confirmed to Mr White that PIF had $31 million available in its operating account.
[986] At 12:31 pm, Mr White sent Mr Hutchings an email, forwarding an email from
Mr Anderson of 24 December 2007, noting that clear funds were needed by 11:00 am
Queensland time on 28 December 2007 into a nominated PacFin bank account.
Mr White’s email indicated that $17.5 million was needed which Mr Hutchings
implemented by giving instructions in relation to the payment of $17.5 million from PIF’s
account. Mr Hutchings’ oral evidence was that he spoke to Mr White who would have
told him that, if PIF transferred $17.5 million to PacFin, then PIF would receive
something in return for those funds. ASIC submitted that Mr Hutchings’ statement was
a reconstruction and improbable and that it was clear that he did not know what it was
that PIF was going to be said to acquire for the $17.5 million payment. Mr Hutchings’
evidence that he would not have authorised a funds transfer without a proper instruction
and supporting documents identifying the details of the payment should not be believed
because he did authorise such a transfer without those documents.
584 OIM.0001.0001.0295 and see T44-76/22.
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[987] He was later sent two emails from Ms Ring, attaching what she described as a proper
instruction for Mr Hutchings to review and approve relating to a payment from PIF to
PAC on 27 December 2007. In context it appears that PAC is a reference to PacFin. At
2:28 pm, Ms Ring then sent another email to Mr Hutchings asking whether she could put
his electronic signature on the bottom of the instruction with his approval. He responded
at 2:33 pm to both emails, saying “agree” in respect of both. ASIC submitted that,
therefore, he was approving both the attached document and that his electronic signature
be affixed to it. Mr Hutchings denied having read the attachment to the first email, saying
that it was difficult to open it from his Treo personal digital assistant (PDA). ASIC
submitted that I should not believe his evidence on that point, that the attachment to
Ms Ring’s email was for a different transfer.
[988] ASIC also argued that it was clear that by responding “agree” to the two emails,
Mr Hutchings was approving the urgent payment of $17.5 million from PIF to PacFin.
He had been told of the request from Mr White for the payment to be made and knew of
its urgency. ASIC submitted that his denial that he approved the payment should be
rejected and was something which seriously damaged his credit.
[989] On 28 December 2007, Ms Howard emailed Mr Hutchings confirming that PacFin had
received the $17.5 million. Mr Hutchings’ evidence was that when he found out about
the payment he was irritated because the approval process had not been followed.585
ASIC submitted that his evidence should be rejected because it was plain that he knew of
the intended payment and approved it, knew that it needed to be paid urgently and it was
paid urgently. Mr Hutchings, ASIC pointed out, did not respond to Ms Howard’s email
to suggest any irritation about the payment.
[990] It was significant that, on 28 December 2007, Mr Hutchings circulated to the MFSIM
board an operational board report which contained this statement:586
“The Fund drew down $150m from its Royal Bank of Scotland (RBS)
leverage facility on 28th November. This was to facilitate a short term cash
flow mismatch between new commercial loans and investments due to
settlement at the end of November and other loans which are due to be repaid
in December. The facility will be repaid during January 2008.”
[991] In response to that, ASIC pointed out that Mr Hutchings was not aware of any new
commercial loans and investments due for settlement at the end of November 2007.
[992] In summarising Mr Hutchings’ alleged contraventions in relation to the $17.5 million
payment, ASIC made the following written submission:
“1060 It is apparent form [sic] the above that Hutchings:
(a) knew of, and approved, the $17.5 Million Payment;
(b) at the time of the authorisation of the payment, Hutchings knew
that:
585 HUTG.1100.0002.0002 at para 276.
586 DEL.1100.0005.0037.
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204
(i) the $17.5 million was being paid from funds managed by
MFSIM as responsible entity for PIF;
(ii) the $17.5 Million Payment was made for the purpose of
PacFin’s need for money to pay debenture and noteholders at
the end of December 2007;
(iii) there was no transaction which made the $17.5 Million
Payment a proper payment from PIF.
1061 A reasonable person in Hutchings’ position would have prevented the
making of the $17.5 Million Payment until satisfied that it was an
authorised investment for PIF and for the benefit of PIF.
1062 In those circumstances, Hutchings was involved in MFSIM’s
contraventions of:
(a) section 601FD(1)(a), as he knew the essential elements that
involved MFSIM not acting honestly in respect of the $17.5
Million Payment;
(b) section 601FC(1)(c), as he knew the essential elements that
involved MFSIM in failing to act in the best interests of the
members of PIF;
(c) section 601FC(1)(k), as he knew the essential elements that
involved MFSIM in failing to ensure that payments out of scheme
property were made in accordance with PIF’s Constitution; and
(d) section 208(1), as he knew the essential elements that involved
MFSIM in giving a financial benefit to PacFin, a related party of
MFSIM.
1063 Further, Hutchings himself as an officer of MFSIM contravened:
(a) section 601FD(1)(a), in failing to act honestly;
(b) section 601FD(1)(c), in failing to act in the best interests of the
members of PIF;
(c) section 601FD(1)(e), in making improper use of his position as
an officer of MFSIM to gain an advantage for PacFin;
(d) section 601FD(1)(f), in failing to take all steps that a reasonable
person would take to ensure that MFSIM complied with its
constitution.
1064 If the Court is satisfied that a person has contravened any of the
provisions set out in section 1317E, it must make a declaration of
contravention: section 1317E(1). The requirements of a declaration
are set out in section 1317E(2).
1065 Each of Hutchings’ contraventions (including his involvement in
MFSIM’s contraventions):
(a) was of a corporations/scheme civil penalty provision as defined
in section 1317DA;
-- 218 of 348 --
205
(b) materially prejudiced the interests of PIF and its members within
the meaning of section 1317G(1)(b)(i); and
(c) was serious within the meaning of section 1317G(1)(b)(iii).
1066 In order for the Court to order a pecuniary penalty, the Court needs to
be satisfied that the contraventions were of corporations/scheme civil
penalty provisions as defined in section 1317DA: section
1317G(1)(aa). In this case, the relevant contraventions of the civil
penalty provisions are set out in:
(a) section 1317E(1)(f) - that is, section 601FC(5);
(b) section 1317E(1)(g) - that is, section 601FD(3); and
(c) section 1317E(1)(b) - that is, section 209(2).
1067 In addition to this, the Court may order a pecuniary penalty if the
contravention either:
(a) materially prejudices the interests of the corporation of scheme;
or
(b) is serious.
1068 In this instance, ASIC pursues both of those limbs.
1069 The interests of PIF were materially prejudiced because PIF lost $17.5
million.
1070 Further, Hutchings’ contraventions were serious because:
(a) he was the CEO of MFSIM;
(b) the contravention of section 601FD(1)(a) involved dishonesty on
the part of Hutchings;
(c) the contraventions involved a substantial sum of money;
(d) the contraventions involved Hutchings acting in disregard of the
interests of PIF and its members in order to benefit PacFin.
1071 Accordingly, it is appropriate for this Court to:
(a) make a declaration of contravention pursuant to section
1317E(1);
(b) make an order that Hutchings pay a pecuniary penalty under
section 1317G(1).”
[993] ASIC’s submissions then address the attempts to explain the $147.5 million in payments
from early January 2008. There were exchanges between Ms Watts, Mr Hutchings and
Ms Howard of draft IAC papers concerning PIF investments in MYF. There were also
discussions about an asset report by email. The draft documents were being prepared in
a backdated form that Ms Watts noted were dated so as to be consistent with the
drawdown date. That should have been apparent to Mr Hutchings.
-- 219 of 348 --
206
[994] The drafts left blank bullet points where loan assets were to be completed. By 14 January
2008, Ms Howard had emailed Mr Hutchings asking whether there was any word from
Mr White about the draft IAC paper sent to him on 7 January. Ms Howard wanted to
finalise the accounts as she expected the auditors to want files before they arrived the
following week.
[995] There was still a lack of information about what PIF had acquired for its payments. By
17 January 2008, it was apparent that Mr Hutchings considered that MYF’s only
investment at that stage was the $2.1 million in PacFin notes. Ms James, by 18 January
2008, was asking about the allocation of $17.5 million and then of the $147.5 million
“sitting in PIF’s accounts with no allocation”.587 Ms James followed up her concern
about the non-allocation of the $147.5 million on 20 January 2008. Mr Hutchings
forwarded her email to Mr White and Mr Anderson on that day and Mr Anderson emailed
Mr Hutchings and told him that he would speak to the auditors about postponing the audit.
[996] Then, on 21 January 2008, Mr Hutchings received an email from Mr Bailey of RBS
seeking information on PIF’s current assets and liquidity. Mr Hutchings sent that email
to Mr White and Mr Anderson asking for their assistance. There was then a meeting
between Mr Hutchings, Mr Anderson and Ms Kercher where Mr Hutchings says he
specifically told Mr Anderson that he needed concrete assurances that his investors were
protected and that assets had been purchased with PIF’s funds. ASIC submitted that it
was apparent that by the time of those meetings Mr Hutchings was at least suspicious that
assets had not been purchased with PIF’s funds. He sent what has been called the
“escalation” email at 5:13 pm on 21 January 2008.
[997] ASIC drew attention to his cross-examination about that email.588 In summarising the
effect of this cross-examination, ASIC submitted, it seemed to me persuasively, that one
could conclude from it that Mr Hutchings was told in the afternoon of 21 January 2008
that the majority of approximately $200 million of PIF’s funds drawn down from RBS
had not been used to purchase assets for PIF and instead had been invested in a manner
in breach of PIF’s PDS. The most likely source of that information was said to be
Mr Anderson and to be consistent with the serious and longstanding difficulties that
Mr Hutchings was having obtaining information from Mr White about what had been
acquired with the $147.5 million in payments. The information was also said to be
consistent with the fact that there had been no IAC or CRPC or board consideration of
any transactions for the benefit of PIF.
[998] The evidence, ASIC submitted, suggests strongly that Mr White and Mr Hutchings spoke
to each other shortly after this email was sent. Mr Hutchings described the telephone call
with Mr White, but did not suggest that Mr White told him that his information was wrong
or that, in fact, transactions had been entered into for the benefit of PIF. Instead,
Mr Hutchings’ evidence was that he was placated by Mr White, telling him that
KordaMentha, the restructuring advisers, were now involved, that Stella was going very
well and that there were sources of cash being made available within the MFS Group to
support PIF.
587 DEL.2005.0004.1013.
588 Starting at T43-57/20.
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207
[999] Mr Hutchings’ evidence was then that he was reassured that his concerns about the use
of PIF’s funds were not warranted in spite of the extremely serious allegations contained
in his email. But, as ASIC submitted, his evidence discloses no response from Mr White
to the central allegation in Mr Hutchings’ email that there had been, in effect, a
misappropriation of PIF’s funds. That was buttressed by the contemporaneous following
emails, including one from Mr White to Mr Hutchings on 22 January at 7.04 am where
Mr White said nothing to dispute Mr Hutchings’ central allegations about the misuse of
PIF’s funds. The focus was on how the RBS money would be paid back in the short term.
[1000] Mr Withers for Mr Hutchings submitted, however, that it should have been apparent to
Mr Whateley at that point, from his conversation with Mr Hutchings, that there was a
problem because Mr Hutchings did not know how the $147.5 million had been used. I
am not sure what conclusion favourable to Mr Hutchings I should draw from that. Emails
later that day, ASIC submitted, showed that there was still no clarity about what it was
that PIF was said to have acquired with the payments.
[1001] ASIC’s submissions then went on to deal with the creation of the false documents.
Creation of the false documents
[1002] Mr Hutchings was given the listing of loans from Mr White on 23 January 2008 with an
attached spreadsheet to the email listing loans totalling almost $148 million. He reported
to the MFSIM board that day that PIF had drawn down the full $200 million from RBS
to fund new loans in the asset backed sector and also said that most, if not all, of that sum
drawn down would be repaid by the end of January 2008. He did not tell the board of his
concerns about the misuse of PIF’s money.
[1003] He was aware that the asset report was to be provided to RBS which had been seeking
that information since 21 January. On 24 January, Ms Platts sent Mr Bailey at RBS,
copied to Mr Hutchings, a PIF asset report that included the loans the subject of the listing
of loans document. It provided that the amount for PIF’s investment in MYF at that stage
was only $30 million. Mr Hutchings sent a similar asset report to RBS that evening as
well.
[1004] On 25 January 2008, Mr Bailey of RBS expressed concern about the significant shift in
PIF’s assets since RBS was introduced as a lender in June. That was at a stage when
Mr Hutchings knew that MYF had not yet issued further units and PIF had not yet
acquired those units. Mr Hutchings should have known that the information contained in
the asset report he sent was false and that the investments recorded in it had not occurred.
[1005] By 26 January 2008, he was engaged with others in going through the process of
ratification of the investments. It was also apparent that the final version of the split of
investments was not yet known. Mr Hutchings’ expectation by 29 January 2008 appears
to have been that the IAC papers needed to be tabled for ratification, even though the
papers attached to Ms Platts’ email of 27 January were backdated and drawn so as to
appear as if they had been prepared much earlier than truly was the case. At that stage,
PIF’s holding of units in MYF had increased from 30 million as at 24 January to 85
million units. Mr Bailey sought an explanation for such a significant change in an email
to Ms Watts on 30 January 2008. Ms Watts offered an explanation about that to
-- 221 of 348 --
208
Mr Bailey as did Mr Hutchings on 30 January 2008. As ASIC submitted, Mr Hutchings
was therefore aware, by that date, of increasing pressure from RBS for explanations about
how the funds drawn down under its facility had been used.
[1006] Mr Bailey followed up his request for information about the use of the funds on 31
January 2008. Ms Watts provided him with further information that marked a
considerable departure from the loans contained in the listing of loans document of 23
January 2008. The attachments she provided to Mr Bailey on 31 January 2008 listed “PIF
loans sourced from RBS facility as at 31 December 2007” and a figure totalling slightly
more than $200 million.
[1007] ASIC pointed out the following differences between that list and the original listing of
loans in respect of the $147.5 million payments:589
(a) The listing of loans was of “the MYF portfolio of high return sub loans” as per the
covering email from Mr White. The RBS list was split between investments
(apparently directly) in PIF as well as loans held in MYF.
(b) The amount for GIPL (Gersh Development Trust) had decreased in the RBS
document to $9,902,407.91 from the original $10 million.
(c) The amount for Blue Sky Development Trust had increased substantially from
$32,316,438 to $45,097,529.09.
(d) The amount for MFS RAP had reduced from $5 million to $4,883,771.04.
(e) The amount for Copperfield had reduced to $10 million from the original
$17,630,000.
(f) The amount for Investment Enterprises had reduced from $12.5 million to
$10,102,271.36.
(g) The amount for Southport Holdings had reduced from $20 million to
$11,057,278.66.
(h) The amount for Young Villages Estates Pty Ltd had increased from $15 million to
$23,683,612.88.
(i) The amount for Sagacious Opportunities Trust of $5.5 million in the listing of loans
document is missing entirely from the RBS list.
(j) The RBS list contained a separate loan for SPV 1 Pty Ltd in the sum of
$2,773,066.06, which is missing from the original listing of loans document.
[1008] ASIC’s case was that, when that email went to RBS, Mr Hutchings knew that there had
been no IAC consideration or approval for any of the transactions contained in the list for
RBS and that there had been no approval for those transactions by the MFSIM board or
by the CRPC. There had been no issue of units in MYF nor any acquisition of them by
PIF and no documentation prepared which recorded the transactions set out in the list of
loans to RBS. Mr Hutchings did not disclose any of those matters to RBS, but instead
allowed information to be given to it about transactions having occurred which he knew
to be false.
589 COURT.0029.0003.0001 at para 1154 (footnotes omitted).
-- 222 of 348 --
209
[1009] On the same day, Mr Bailey responded in an email copied to Mr Hutchings, noting a
significant level of related party transactions over the previous few months and requesting
loan documentation or agreements, including any ancillary charges or security
documents.
[1010] Ms Platts sought Mr Hutchings’ advice about some draft documents relating to
ratification of the proposed participation agreement between PIF and PacFin, as well as
PIF’s proposed acquisition of 85 million units in MYF. She had been told that ratification
would need to be sought because it was not possible to put a backdated proposal to the
CRPC. Mr Hutchings denied having said that to her, but the documents, although
backdated, showed an intention to seek ratification rather than to purport to backdate the
approval.
[1011] Mr Hutchings knew that there was no such meeting of the IAC as proposed to be recorded
in the documents sent by Ms Platts. That meeting was said to have occurred on 30
November 2007, although on the top of the second page it had a date of 17 January 2008.
[1012] Ms Platts had also prepared a MYF information memorandum for the issue of class A
units. It was dated 1 November 2007 and included a note that the class A units offer
opened on 1 November 2007 and closed on 31 January 2008. That document had been
backdated to appear as if it had in fact been issued on 1 November 2007, which
Mr Hutchings knew had not occurred. Ms Platts also emailed Mr Hutchings a draft IAC
paper at 11:24 pm on 31 January 2014, which was made to appear as if it had been
prepared before the issue of units described in it when Mr Hutchings knew there had been
no submission to the IAC for MYF or PIF proposing the issue of 100 million class A units
in MYF.
[1013] On 1 February 2008, Mr Hutchings was involved in the preparation of a board proposal
dated on its face 31 October 2007, although the date at the top of the second page was 27
January 2008. Again, it was not for ratification of the issue of class A units, but for the
MFSIM board to consider the proposal to issue an offer as the first step in the restructuring
of MYF. It is prospective in nature. In the second page under the heading “Background”
there is mention that there had been IAC approval of an investment plan for PIF to invest
in MYF in November 2007 which did not occur then, but he inserted that statement into
the document.
[1014] The next relevant date was 5 February 2008 when Ms Platts emailed Ms Watts two loan
participation agreements which Mr Hutchings accepts he signed. That seems to have
occurred on about 5 February because the documents were provided to RBS later that
evening. They were not dated, but when they were executed there had been no meeting
of the IAC of PIF or MYF considering or approving the transactions, nor had there been
a consideration or approval of them by the board of MFSIM as responsible entity for PIF
or MYF in spite of the loan participation agreements each being for sums greater than
$50 million. Nor had there been a request for or ratification of the proposed transactions.
On their face, they appear to have been entered into before 31 December 2007 when in
fact no agreement had been reached before February 2008, if at all, as to what loans would
be participated in and in what amount.
-- 223 of 348 --
210
[1015] Paragraph 125 of the statement of claim deals with the new loan notice likely to have
been executed on 5 February 2008. It is undated but is said to have an effective date of
31 December 2007. It has the form of effecting change to a pre-existing loan participation
agreement which needed to be varied from 31 December 2007.
[1016] By then, on ASIC’s case, there was no agreement between PIF and PacFin as to what, if
anything, PIF would be participating in with PacFin. Mr Hutchings knew that. Taken
together, the loan participation agreements and the new loan notice conveyed a false
impression of the dates the particular agreements had been reached and documented.
Schedule 2 to the new loan notice differed from the schedules in the loan participation
agreement. Mr Hutchings’ case is that, as at 5 February 2008, he was seeking ratification
of the transaction. At that stage, however, no ratification had been sought or obtained.
That process did not occur until later in February.
[1017] Mr Hutchings signed the loan participation agreements and the new loan notice when no
agreement, as recorded in those documents, had been made. Nor had there been IAC
consideration or board or CRPC approval and thus no authority to enter into the
agreement. Mr Hutchings also knew, on ASIC’s case, that there had been no such
transactions before 31 December 2007 contrary to the impression the documents
conveyed. Therefore, it was ASIC’s case that, in relation to each of the loan participation
agreements and the new loan notice, Mr Hutchings:590
(a) was involved in MFSIM’s contravention in relation to the creation of those
documents (paras 187K, 187L, and 187Q of the statement of claim) and the keeping
(paras 188K, 188L, 188Q of the statement of claim) of those documents (paras
204H(a) and (b), 204I(a) and (b) and 204N(a) and (b) of the statement of claim);
(b) breached the requirement as an officer of MFSIM to act honestly (s 601FD(1)(a) of
the Act (paras 204H(c), 204I(c), and 204N(c) of the statement of claim);
(c) failed to take all steps that a reasonable person would take if they were in
Mr Hutchings’ position to ensure that MFSIM complied with the Act (s
601FD(1)(f) of the Act (paras 204H(ca), 204I(ca) and 204N(ca) of the statement of
claim); and
(d) failed to take all reasonable steps to comply with, or secure MFSIM’s compliance
with, the obligation to keep written and financial records that correctly recorded
and explained the transactions of MFSIM as required by s 286(1) of the Act in
breach of s 344(1) of the Act (paras 204H(d), 204I(d), and 204N(d) of the statement
of claim).
[1018] On 6 February 2008, RBS continued to press MFSIM to provide information in relation
to MYF’s claimed investments. Mr Bailey expressed his concern to Ms Watts, copied to
Mr Hutchings, as to why they would not want to supply the MYF investment information.
The Risk and Compliance unit of MFS Limited was also seeking information about those
transactions as Mr Hutchings would have known from an email of 12:41 pm that day from
Mr Kennedy to Ms Howard.
[1019] Ms Platts, at 3:21 pm, emailed him what she described as final papers for his review,
attaching:591
590 COURT.0029.0003.0001 at para 1171.
591 DEL.2004.0001.7365.
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211
(a) MFSIM board proposal dated 1 February 2008 (although dated 27 January 2008 on
the top of the second page) for the board to ratify a decision to issue 100 million
class A units in MYF;592
(b) paper for the IAC of MYF dated 28 November 2007 seeking approval to provide a
$30 million loan to Sunleisure;593
(c) paper for the IAC of MYF dated 27 November 2007 seeking approval for a proposal
for MYF to enter into a loan participation agreement with PacFin for a total value
of $55 million;594
(d) paper for the IAC of MYF dated 20 November 2007 seeking approval for the issue
of a new class of units in MYF;595
(e) minutes of a meeting of the IAC for MYF on 21 November 2007 approving the
issue of 100 million units in MYF;596 and
(f) minutes of a meeting of the IAC for MYF on 28 November 2007 approving the loan
participation agreement with PacFin and approving the loan agreement with
Sunleisure.597
[1020] Mr Hutchings asked for them to be printed out for him and at 3:25 pm Ms Platts sent a
second email asking Mr Hutchings to review and provide changes to a further six
attachments, namely:598
(a) paper for the IAC of PIF dated 20 November 2007 seeking approval for PIF to enter
into a loan participation agreement with PacFin for $62.5 million;599
(b) information memorandum dated 23 November 2006;600
(c) minutes of a meeting of the IAC for PIF dated 23 November 2007 approving the
loan participation agreement with PacFin and the purchase of 85 million units in
MYF;601
(d) request for approval to the CRPC, undated, seeking ratification of PIF’s investment
in MYF;602
(e) MFSIM board proposal dated 1 February 2008 seeking ratification of a decision to
invest in the loan participation agreement with PacFin and PIF’s purchase of units
in MYF;603 and
(f) MFSIM board proposal dated 27 January 2008 seeking approval for a 90 day action
plan.604
592 DEL.2004.0001.7366.
593 DEL.2004.0001.7368.
594 DEL.2004.0001.7371.
595 DEL.2004.0001.7373.
596 DEL.2004.0001.7375.
597 DEL.2004.0001.7377.
598 DEL.0006.0001.0044.
599 DEL.0006.0001.0042.
600 DEL.0006.0001.0044.
601 DEL.0006.0001.0072.
602 DEL.0006.0001.0074.
603 DEL.0006.0001.0076.
604 DEL.0006.0001.0077.
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212
[1021] At 6:24 pm that evening, Mr Hutchings responded to Ms Platts and copied to Ms Watts
approving the papers without changes from him and saying that he had discussed with
Mr Whateley the board’s ratification of certain aspects as required.
[1022] That response, ASIC submitted, showed that Mr Hutchings had read the emails from
Ms Platts. Mr Hutchings’ evidence was, however, that his email responses did not
amount to approval of the documents on his part. ASIC submitted that I should reject
that evidence. It characterised Mr Hutchings’ statement in his email at 6:24 pm that the
papers captured the refinements required after the original transactions were approved
and completed as an attempt to distance himself from his involvement in the creation and
approval of the backdated documents. As ASIC submitted, persuasively in my view, he
should have known that the original transactions were not approved and that there had
been no earlier completion of them.
[1023] ASIC pointed out that the following were documents included as part of its pleaded suite
of false documents in the case against Mr Hutchings:605
(a) the minutes of a meeting of the IAC of MYF dated 21 November 2007 approving
the issue of 100 million class A units in MYF (para 112 of the statement of
claim606);
(b) the minutes of a meeting of the IAC of MYF dated 28 November 2007 approving
MYF advancing $55 million to PacFin by way of loan participation agreement and
lending Sunleisure $30 million (para 117 of the statement of claim607);
(c) the submission to the IAC of PIF dated 20 November 2007 recommending PIF enter
into an loan participation agreement with PacFin for $62.5 million (para 111 of the
statement of claim608);
(d) the information memorandum offering class A units in MYF dated 23 November
2007 (para 113 of the statement of claim609); and
(e) the minutes of a meeting of the IAC of PIF approving PIF advancing $62.5 million
to PacFin pursuant to a loan participation agreement and PIF’s acquisition of 85
million units in MYF (para 114 of the statement of claim610).
[1024] It did not pursue the allegation in para 118 of the statement of claim that Mr Hutchings’
signature was affixed to a request for approval for the CRPC for PIF to purchase 85
million class A units in MYF.
[1025] Mr Withers for Mr Hutchings submitted that the pleaded documents were different from
the ones approved by these emails and that Mr Hutchings was not cross-examined about
the pleaded documents.
[1026] Mr Moore made it clear, however, that ASIC was relying upon the documents pleaded,
for example, in para 112 of the statement of claim describing a document Mr Hutchings
signed on 6 February 2008 bearing the date 21 November 2007. He submitted it was
605 COURT.0029.0003.0001 at para 1182.
606 WIM.0002.0004.0199.
607 WIM.0002.0004.0075.
608 WIM.0002.0004.0139.
609 OCA.0002.0004.0108.
610 WIM.0002.0004.0137.
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213
plain from the text of the pleading that it was the document circulated and approved on 6
February 2008 which was the false document ASIC alleges constituted the contravening
conduct by him. The fact that later or different versions of document IDs are also referred
to in the relevant paragraphs of the pleadings did not detract, in his submission from the
wording of the pleading which made it clear that the documents approved by
Mr Hutchings were the ones attached to the 6 February emails. That submission correctly
reflects the language of the pleading.
[1027] ASIC’s case also alleged, in paras 112, 114 and 117 of the statement of claim, that
Mr Hutchings had approved the minutes of a meeting of the IAC of MYF dated 21
November 2007, approving the issue of 100 million class A units in MYF, the minutes of
a meeting of the IAC of PIF, approving PIF advancing $62.5 million to PacFin pursuant
to loan participation agreements and PIF’s acquisition of 85 million units in MYF and the
minutes of the IAC of MYF dated 28 November 2007, approving MYF advancing $55
million to PacFin by way of loan participation agreement and lending Sunleisure $30
million. Mr Hutchings’ electronic signature was on each of the documents and ASIC’s
argument was that, although he may not have expressly approved his signature being
placed on the original draft documents, by approving the electronic versions on
6 February 2008, he necessarily also approved the inclusion of his electronic signature on
each of them.
[1028] When he approved the documents in the early evening of 6 February 2008, Mr Hutchings
then knew that there were no such meetings of the IAC as were recorded in the minutes,
the $130 million payment and $17.5 million payment had not been invested in accordance
with PIF’s constitution and PIF had not invested in MYF on or about 30 November 2007.
He also intended that the document would form an apparently genuine part of MFSIM’s
books and records and that it would be made available to MFSIM’s auditors as an
apparently genuine part of those books and records and that the documents, together with
the other documents pleaded relevantly, would disguise the fact that PIF had not invested
in MYF back in November 2007.
[1029] Accordingly, therefore, ASIC alleges that Mr Hutchings:611
(a) was involved in MFSIM’s contravention in relation to the creation of those
documents (paras 187D, 187F and 187I of the statement of claim) and the keeping
(paras 188D, 188F and 188I of the statement of claim) of those documents (paras
204C(a) and (b), 204E(a) and (b) and 204F(a) and (b) of the statement of claim);
(b) breached the requirement as an officer of MFSIM to act honestly (s 601FD(1)(a) of
the Act) (paras 204C(c), 204E(c) and 204F(c) of the statement of claim);
(c) failed to take all steps that a reasonable person would take if they were in
Mr Hutchings’ position to ensure that MFSIM complied with the Act
(s 601FD(1)(f) of the Act) (paras 204C(ca), 204E(ca) and 204F(ca) of the statement
of claim); and
(d) failed to take all reasonable steps to comply with, or secure MFSIM’s compliance
with, the obligation to keep written and financial records that correctly recorded
and explained the transactions of MFSIM as required by s 286(1) of the Act in
breach of s 344(1) of the Act ( paras 204C(d), 204E(d) and 204F(d) of the statement
of claim).
611 COURT.0029.0003.0001 at para 1188.
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[1030] The next allegedly false document addressed by ASIC was the information memorandum
offering class A units in MYF dated 23 November 2007, an allegation made in para 113
of the statement of claim. This was part of a suite approved by Mr Hutchings on 6
February 2008 from the emails sent to him by Ms Platts. The information memorandum
was dated 23 November and purported to open an offer from 23 November 2007 that
closed on 31 January 2008, before the date on which Mr Hutchings approved the
document.
[1031] ASIC’s case was that its only apparent purpose was to disguise the fact that there was no
such information memorandum finalised until after the purported date the offer closed. It
alleged Mr Hutchings knew of the falsity and intended that the document would form an
apparently genuine part of MFSIM’s books and records with the other consequences that
followed from that so that he:612
(a) was involved in MFSIM’s contravention in relation to the creation of that document
(para 187E of the statement of claim) and the keeping (para 188E of the statement
of claim) of it (para 204D(a) of the statement of claim);
(b) breached the requirement as an officer of MFSIM to act honestly (s 601FD(1)(a) of
the Act) (para 204D(c) of the statement of claim);
(c) failed to take all steps that a reasonable person would take if they were in
Hutchings’ position to ensure that MFSIM complied with the Act (s 601FD(1)(f) of
the Act) (para 204D(ca) of the statement of claim); and
(d) failed to take all reasonable steps to comply with, or secure MFSIM’s compliance
with, the obligation to keep written and financial records that correctly recorded
and explained the transactions of MFSIM as required by s 286(1) of the Act in
breach of s 344(1) of the Act (para 204D(d) of the statement of claim).
[1032] ASIC’s submissions then dealt with the submission to the IAC of PIF dated 20 November
2007 recommending PIF enter into a loan participation agreement with PacFin for $62.5
million, the allegation made in para 111 of the statement of claim.
[1033] Again, that submission was approved by Mr Hutchings as part of the suite of documents
sent to him by Ms Platts on 6 February 2008. It was backdated to 20 November 2007 and
seeks prospective approval for a transaction it referred to as a proposal for PIF to enter
into a loan participation agreement. For similar reasons as expressed previously, ASIC
submitted that Mr Hutchings knew that the document was inaccurate and intended to
disguise the fact that there was no such proposal made to the IAC in November 2007 and
would have the consequential effects in respect of the genuineness of MFSIM’s financial
books and records with the result that Mr Hutchings:613
(a) was involved in MFSIM’s contravention in relation to the creation of that document
(para 187C of the statement of claim) and the keeping (para 188C of the statement
of claim) of it (para 204B(a) of the statement of claim);
(b) breached the requirement as an officer of MFSIM to act honestly (s 601FD(1)(a) of
the Act) (para 204B(c) of the statement of claim);
612 COURT.0029.0003.0001 at para 1194.
613 COURT.0029.0003.0001 at para 1200.
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215
(c) failed to take all steps that a reasonable person would take if they were in
Mr Hutchings’ position to ensure that MFSIM complied with the Act (s
601FD(1)(f) of the Act) (para 204B(ca) of the statement of claim); and
(d) failed to take all reasonable steps to comply with, or secure MFSIM’s compliance
with, the obligation to keep written and financial records that correctly recorded
and explained the transactions of MFSIM as required by s 286(1) of the Act in
breach of s 344(1) of the Act (para 204B(d) of the statement of claim).
[1034] The unit applications and unit certificates dealt with in paras 121 and 123 of the statement
of claim were signed by Mr Hutchings. One was dated 30 November 2007 for PIF to
acquire 67.5 million units in MYF and the other was dated 27 December 2007 for PIF to
acquire 17.5 million units in MYF. The unit certificates also signed by Mr Hutchings
recording those unit holdings referred to in paras 122 and 124 of the statement of claim
were the subject of admissions by Mr Hutchings in his amended defence that he had
signed them and statements in his affidavit that the documents appeared to contain his
signature. Nonetheless, there was said to be a genuine dispute about whether he had
signed them, he not having admitted in his oral evidence that he did sign them.
[1035] I am persuaded that Mr Hutchings’ signature was affixed to those documents with his
consent. The signatures are certainly very similar to the signature on his affidavit.614
[1036] ASIC’s case, similarly with the other documents, is that the only purpose apparent for
their creation is to disguise the fact that PIF had not acquired those units in MYF at about
the dates of the unit certificates. Again, it alleges that Mr Hutchings knew that and, in
signing the documents, intended they would form an apparently genuine part of MFSIM’s
financial books and records with the normal consequences that would follow from that.
Accordingly, in signing the applications for units and unit certificates, ASIC claimed that
Mr Hutchings:615
(a) was involved in MFSIM’s contravention in relation to the creation of those
documents (paras 187M, 187N, 187O and 187P of the statement of claim) and the
keeping (paras 188M, 188N, 188O and 188P of the statement of claim) of it (paras
204J(a) and (b), 204K(a) and (b), 204L(a) and (b) and 204M(a) and (b) of the
statement of claim);
(b) breached the requirement as an officer of MFSIM to act honestly (s 601FD(1)(a) of
the Act) (paras 204J(c), 204K(c), 204L(c) and 204M(c) of the statement of claim);
(c) failed to take all steps that a reasonable person would take if they were in
Mr Hutchings’ position to ensure that MFSIM complied with the Act
(s 601FD(1)(f) of the Act) (paras 204J(ca), 204K(ca), 204L(ca)and 204M(ca) of
the statement of claim); and
(d) failed to take all reasonable steps to comply with, or secure MFSIM’s compliance
with, the obligation to keep written and financial records that correctly recorded
and explained the transactions of MFSIM as required by s 286(1) of the Act in
breach of s 344(1) of the Act ( paras 204J(d), 204K(d), 204L(d) and 204M(d) of the
statement of claim).
614 See s 59(2) of the Evidence Act 1977 (Qld).
615 COURT.0029.0003.0001 at para 1211.
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216
[1037] The issue whether Mr Hutchings intended that the documents would form an apparently
genuine part of MFSIM’s books and records was alive. Mr Hutchings denied that he
intended that consequence in his affidavit. ASIC contended that I should not accept those
denials because the documents were of a nature which would be kept by MFSIM. It was
clear that Mr Hutchings knew the board was being informed that, in fact, the IAC had
considered and approved the transactions in November 2007, knew that RBS was
pressing for the documents as was MFS’s compliance section and knew that the
documents did not record true events. He had told Ms Platts that the completion of the
documents was greatly needed and his explanation that he simply misunderstood the
nature of the ratification process should be rejected because of his experience as a chief
investment officer and financial analyst.
[1038] It followed, in ASIC’s submissions, that Mr Hutchings knew the documents would be
made available to the auditors should they be sought, something he accepted in cross-
examination, but said that he did not turn his mind at the time to whether the documents
would be provided to the auditors.
[1039] Similarly, ASIC argued that he knew that the $130 million payment and $17.5 million
payment had not been invested in accordance with PIF’s constitution. For these
reasons:616
(a) there had been no IAC consideration of the $130 million payment and $17.5 million
payments;
(b) there had been no board or CRPC consideration of any transactions arising from
those payments;
(c) the payments were made at a time when there were no transactions which made the
payments proper payments from PIF’s funds;
(d) he had written to Mr White on 21 January 2008 specifically stating that he then
understood that the money drawn down from RBS had not been used to purchase
assets for PIF or for assets that would seed MYF. Mr White’s responses to that
email did not address the central question of whether PIF’s funds had been used for
purposes other than to benefit PIF;
(e) Mr Hutchings’ numerous and unsuccessful efforts in December and January 2008
to obtain information from Mr White and Mr Anderson about what assets PIF had
acquired for the payments; and
(f) despite Mr White having sent a listing of loans document on 23 January 2008, the
investments noted in that document evolved and were ultimately not fully reflected
in the documents that came to be prepared.
[1040] ASIC submitted that Mr Hutchings knew that PIF did not invest in MYF on or about 30
November 2007 and Mr Hutchings’ case that he believed that transactions had actually
occurred then should be rejected for similar reasons, including, again, the existence of his
email to Mr White of 21 January 2008 and the unsatisfactory responses to it. Some broad
general intention to effect transactions for the benefit of PIF could not have amounted to
PIF having acquired an investment in MYF in November 2007.
616 COURT.0029.0003.0001 at para 1217.
-- 230 of 348 --
217
[1041] In asking me to conclude that Mr Hutchings intended that the documents, taken as a
whole, would disguise the fact that PIF had not invested in MYF in November 2007,
ASIC submitted I should consider the false documents as a whole and conclude that there
can have been no other purpose than to disguise the true events, the various backdated
documents purporting to record events that simply did not occur. These were things that
Mr Hutchings knew the board was going to be asked to ratify and he has not explained
why ratification needed to involve the creation of backdated documents reflecting things
as having occurred in the past which he knew had not in fact occurred.
[1042] ASIC also argued that Mr Hutchings’ conduct involved him in the keeping of the false
documents in contravention of the duty to act honestly imposed by s 601FC(1)(a) and the
duty imposed by s 286 to keep correct financial records. I was also asked to conclude
that Mr Hutchings intended that the documents would form an apparently genuine part of
MFSIM’s books and records because of his experience in his position with the
consequence that he was involved in MFSIM’s contraventions of s 601FC(1)(a) in
relation to the making of the documents available to auditors. He was also himself in
breach of the requirement to act honestly imposed by s 601FD(1)(a).
[1043] Similar arguments were posed in respect of the half-yearly report signed by Mr Hutchings
which recorded that, as at 31 December 2007, PIF owned an asset comprising 85 million
worth of class A units in MYF. It also showed that PIF owned an asset consisting of
$62.5 million worth of participation loans pursuant to an agreement with PacFin as at 31
December 2007. Neither of those statements was correct, at least as at 31 December, to
Mr Hutchings’ knowledge. Therefore, he was involved in MFSIM’s contravention of
s 601FC(1)(a) and s 286 and s 305 of the Act, as well as breaching his own duties as an
officer to act honestly and to take all steps that a reasonable person would take to ensure
PIF complied with the Act pursuant to s 601FD(1)(a) and s 601FD(1)(f).
[1044] Similar conclusions were said to flow from his provision of false information to RBS.
The information was the asset reports, listing of loans and participation agreements. They
were said to falsely represent that transactions had been effected by PIF with the money
it drew down from the RBS facility. ASIC particularised Mr Hutchings’ involvement in
the provision of that information by reference to numerous emails, to some of which I
have already referred. MFSIM’s contraventions were said to arise from the following:617
(a) The emails to RBS on 23 January (at 4:48 pm) and 24 January (at 7:26 pm and
8:06 pm): para 192 of the statement of claim. Mr Hutchings received or sent each
of these emails. He knew the information in those emails to be untrue.
(b) The email to RBS attaching PIF’s listing of loans as pleaded in para 164 of the
statement of claim: para 193 of the statement of claim. Mr Hutchings was copied
with that email. He knew the information in it to be untrue.
(c) The sending of the loan participation agreements to RBS on or about 5 and 7
February 2008: para 194 of the statement of claim. Mr Hutchings was copied with
the email on 5 February 2008. For the reasons set out above, he knew that the loan
participation agreements did not accurately reflect events.
[1045] Accordingly, ASIC submitted, it was apparent that Mr Hutchings knew the essential
elements of MFSIM’s contraventions pleaded in paras 192, 193 and 194 of the statement
617 COURT.0029.0003.0001 at para 1242.
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218
of claim and was involved in them as contraventions of s 601FC(1)(a) with the further
consequence that his own pleaded conduct breached s 601FD(1)(a).
[1046] ASIC’s submissions also traversed the false information provided by Mr Hutchings to the
board, including a proposal dated 1 February 2008 seeking ratification of the issue of the
information memorandum dated 23 November 2007 and the issue of 100 million class A
units in MYF sent to the board members of MFSIM on 11 February 2008.
[1047] The proposal, for similar reasons to those already canvassed, was said to misrepresent
what had occurred in circumstances where Mr Hutchings knew the information in the
proposal was false with the consequence that he was involved in MFSIM’s contravention
of s 601FC(1)(a) in relation to the provision of this information to the board and himself
contravened s 601FD(1)(a) in knowingly providing the board with this false information.
[1048] Similar consequences were sought by ASIC in respect of the provision of information by
Mr Hutchings to the Compliance branch of MFS Limited. His dealings with Compliance,
relevantly, derived from an email by him of 18 February 2008 at 4:43 pm.618 Compliance
had sought advice from a Mr O’Connor of the solicitors’ firm, Mallesons, as to whether
there had been a breach of s 1017E of the Act. Their advice was preceded by an email
from Mr Colley containing information that on 23 November 2007 MYF released an
information memorandum which was only released to PIF, something which ASIC
alleged was untrue to Mr Hutchings’ knowledge. There were other misstatements relied
on by ASIC in that email seeking the solicitor’s advice related to PIF’s alleged application
for units in MYF on 30 November 2007 and the drawdown of funds from the RBS facility
and what its purpose was. Mr Hutchings did not take steps to correct the misinformation
in Mr Colley’s email by advising Compliance that they were proceeding on incorrect
information. Accordingly, ASIC submitted, Mr Hutchings was knowingly concerned in
MFSIM’s contravention pleaded at paras 195 and 196 of the statement of claim and
breached s 601FC(1)(a) by not acting honestly.
[1049] Mr Hutchings’ defence also sought to rely upon s 1317S or s 1318 by seeking to satisfy
the court that he had acted honestly and, having regard to the circumstances of the case,
ought fairly to be excused for the contraventions.
[1050] ASIC submitted that he cannot avail himself of either of those sections because of his
failure to act honestly and because it was inappropriate having regard to all the
circumstances. They pointed out that Mr Hutchings was one of two executive directors
and the appointed CEO of MFSIM so that even if he reported to Mr White in that role, he
still had a significant role in MFSIM’s management.
[1051] Although no contraventions were alleged against him in respect of the $130 million
payment, ASIC alleged that it was remarkable that he could have agreed to the drawdown
of $150 million of a facility for PIF and to the payment away of $130 million without
having any clear understanding of what it was that PIF was going to acquire for that
payment. The belief that Mr White and his team had investments in mind was so far from
the standard that one would expect of an executive director and CEO of a responsible
entity that I could not be persuaded that he ought to be excused.
618 DEL.2005.0001.7233.
-- 232 of 348 --
219
[1052] He should have gone beyond Mr White when he could not obtain from him the
information he needed about what was happening. It was clear from his email of 21
January 2008 that he had discovered that PIF’s money had been misappropriated and his
failure to accept that he had approved the $17.5 million payment despite his emails to
Ms Ring agreeing with his signature being placed on the payment direction, was a further
reason not to excuse him.
[1053] His involvement in the production of the false documents also told against a conclusion
that he was innocently trying to prepare documents that could be used for the purposes of
ratification. To prepare backdated submissions and minutes to record events that simply
did not occur, was not, on any understanding, something that could answer the description
of ratification. He did not disabuse the Compliance arm of MFS Limited of the false
information it had received about what occurred in 2007. Although he did not directly
gain or profit from the payments, that did not alter the gravity of his actions.
Submissions for Mr Hutchings
[1054] Mr Withers argued for Mr Hutchings that ASIC had failed to prove its case against him
because he, at all times, acted reasonably and honestly, did not contravene the Act and,
when he discovered that Mr White had caused $130 million of PIF’s funds to be
transferred to MFS Administration, he knew that there had been a failure by Mr White to
follow the investment approval processes and took steps to try to identify what
investments had been made. When Mr White failed to provide him with the details of the
investments, he escalated the issue by, amongst other things, sending his 21 January 2008
email to Mr White, Mr Anderson, Ms Kercher and by involving Mr Whateley and
Mr Corolis in the situation.
[1055] The situation at MFS Limited was chaotic from 18 January 2008, Black Friday. The
future of the company became highly uncertain and the chaos and tumult spread to affect
MFSIM. Mr Hutchings did his best to deal with the issues by trying to save PIF and
preserve value for its unitholders. He did not have the opportunity to pause and reflect
upon each of the individual issues confronting MFSIM.
False documents
[1056] Mr Withers did not dispute that many of the documents prepared with Mr Hutchings’
involvement were inaccurate in their description of certain events, but argued that ASIC
had failed to make out the case that Mr Hutchings intended that such documents would
form an apparently genuine part of the financial books and records of MFSIM. That was
based on Mr Hutchings’ evidence that he believed the documents were being prepared by
Mr White’s team as part of the ratification process. It was conceded that he had a
mistaken view about what was required for ratification, but Mr Withers submitted that
Mr Hutchings believed that if the board ratified the transactions, namely the issue of units
in MYF and the acquisition by PIF, there would have been a discussion and a record
would have been made that the investment processes had not been followed. He pointed
out that this is what happened in the case of the issue of units in MYF, that Mr Whateley
and Mr Diamond ratified the issue of 100 million units in MFY, noting that there had
been an administrative malfunction and that the transaction had, in effect, already
occurred. Entry into the loan participation agreements did not require ratification and
-- 233 of 348 --
220
Mr Hutchings’ case was that those were genuine and enforceable agreements entered into
on 5 February 2008.
[1057] I have already expressed my disagreement with that submission.
[1058] ASIC’s allegation that Mr Hutchings knew that the $130 million and the $17.5 million
had not been invested in accordance with PIF’s constitution and intended that the alleged
false documents would disguise that fact or that he was careless as to that result failed, in
his submission, because ASIC had not established that Mr Hutchings knew that the funds
had not been invested in accordance with PIF’s constitution. It was not alleged that he
knew anything about the use of some of PIF’s funds to repay Fortress. He submitted that
Mr Hutchings’ knowledge that there had been a failure by Mr White to follow the PIF
investment approval processes did not equate to knowledge that the funds had not been
invested in accordance with PIF’s constitution.
[1059] At the time the alleged false documents were said to have been “approved” by
Mr Hutchings, on 6 February 2008, Mr Hutchings and Ms Kercher had been told by
Mr White that the funds had been used to acquire investments in various investment loans
with different parties. Each of those two believed Mr White. He also relied on
Mr Anderson’s evidence as demonstrating that the accounts for the various entities
involved recorded the transactions as having been undertaken in November and
December 2007.
[1060] He submitted that ASIC failed to establish that PIF did not receive any benefits by way
of investments in return for the $147.5 million. It received 85 million units in MYF and
entered into a loan participation agreement with PacFin for $62.5 million. He argued that
ASIC had failed spectacularly in establishing that the transactions through which it had
acquired those investments were a sham.
[1061] Again I have already decided against that submission about the effectiveness of those
agreements.
[1062] Mr Withers also submitted that ASIC had failed to prove that Mr Hutchings ever believed
that PIF’s funds obtained from RBS had not been invested in accordance with PIF’s
constitution. The statement of claim discloses, he submitted, that ASIC’s case that
Mr Hutchings knew that the funds had not been invested in accordance with PIF’s
constitution was really only built on the proposition that he knew that the investment
approval processes for PIF had not been followed and Mr White had taken considerable
time to tell him how the funds had been invested. That did not translate into actual
knowledge that the funds had been misused and ASIC did not plead to the contrary.
[1063] It followed, in his submission, that Mr Hutchings could never have intended that the
alleged false documents should disguise a misuse of the funds if, at the time he is said to
have approved the false documents, he believed that the funds had been invested in
accordance with PIF’s constitution. ASIC’s case required it to establish actual
knowledge.
[1064] Mr Withers also submitted that there had been no approval by Mr Hutchings of the
pleaded false documents apart from his electronic signature which, he submitted, was
-- 234 of 348 --
221
meaningless in the context of this case. In so far as approval was said to have been given
by Mr Hutchings’ email of 6:34 pm on 6 February 2008, he argued that ASIC’s pleading
was that Mr Hutchings approved documents that did not exist at the time that email was
sent.
[1065] The documents that were approved by him at that time were subsequently amended by
Ms Platts. I have accepted, however, that the pleaded documents were the ones signed or
approved by him on 6 February.
[1066] ASIC also pleaded that the loan participation agreements were false documents when, in
Mr Withers’ submission, they were plainly genuine documents reflecting genuine
investments. Again, I have decided that they were false.
[1067] ASIC also pleaded that inferences could be drawn concerning Mr Hutchings’ state of
mind on a particular date based on documents which did not exist on that date. Those
deficiencies in ASIC’s case, he submitted, were fatal to it.
[1068] He also submitted that significant parts of Mr Hutchings’ evidence were not challenged
in cross-examination, including his statement to Mr Whateley at a meeting on 31
December 2007, that he did not know what investments Mr White had made with the
funds drawn down from the RBS facility, that he sought Mr Whateley’s assistance during
that meeting in finding out from Mr White how the funds had been used, thereby making
it apparent to Mr Whateley that the investment approval processes had not been followed
and that he sought to involve Ms Kercher and Mr Corolis from the Governance and
Compliance section of MFS Limited in his efforts to address the fact that there had been
a failure, caused by Mr White, to follow the investment approval process.
[1069] Other matters not challenged were his belief that MFSIM management and the board as
well as Compliance were aware that there had been a failure by MFSIM to follow the
investment approval processes for the use of the RBS funds and his belief in December
2007 and for the majority of January 2008 that Mr White had caused the funds to be
invested for the benefit of PIF.
[1070] The fact of his sending the 21 January 2008 “escalation” email as an attempt to force
Mr White to explain what had happened with the RBS funds was not challenged. Nor
was his evidence that he was given information about the investments on 23 January 2008
by Mr White and that he was told then by Mr White that he, Ms Kercher and Mr Corolis
were considering whether there were any reportable matters. He was also then reassured
by Mr Whateley’s involvement in the situation.
[1071] Mr Withers submitted that the evidence was that Mr Hutchings was not made aware that
the alleged false documents were kept as part of the books and records of MFSIM, if they
were, which he disputed. Nor was it challenged that he was heavily reliant on the
expertise, advice and involvement provided by KordaMentha and 333 Capital, a corporate
advisory group associated with KordaMentha, between 23 January 2008 and the signing
of the half-yearly report. Nor was it challenged that he did not personally benefit from
any of the conduct alleged against him.
-- 235 of 348 --
222
[1072] It was also argued that ASIC’s false documents case against Mr Hutchings failed because
ASIC had not established that many of the documents alleged to be false were actually
kept by MFSIM as an apparently genuine part of its books and records. Normally they
were kept by the company secretary, Ms Kercher and her team and her evidence was that
she was never given a copy of the alleged false documents. If it were the case that
documents maintained on a computer server were to be regarded as having been kept by
MFSIM because they were never deleted, he submitted, then every document on the
server must be regarded as having been kept by the company.
[1073] The other documents on the computer server also kept, on that understanding, revealed
exactly what happened and how the documents came to be recorded so that the complete
records of MFSIM showed the true position and no outsider looking at those records
would have been misled. He also submitted that the alleged false documents were a
shambles so that anyone reviewing them would have had questions about their accuracy.
It was likely that such a review would conclude that some of them at least had been
backdated and that the structure of the transactions had been developed after the funds
had been used.
[1074] That submission, to my mind, begs the question of how the false documents might have
been used, having been kept on the server. They need not have been used in conjunction
with the emails showing how and when they had been created to tell the whole truth.
They could have been used in isolation as they were when supplied to RBS, for example.
[1075] It was also submitted that Mr Hutchings’ conduct was inconsistent with a dishonest
intention on his part. The documents would not have been the subject of the extensive
email correspondence on which ASIC relies to establish their falsity if Mr Hutchings had
been involved in trying to disguise or cover up the misuse of $130 million of PIF’s funds.
If he had been engaged in dishonest conduct of the magnitude for which ASIC contended,
he would have taken steps to ensure that the fraud could not be so readily detected. Nor
would he have directed that the documents be sent to the Compliance section of MFS.
[1076] In summary, therefore, Mr Withers submitted that I should accept Mr Hutchings’
evidence that he:
(a) did not intend that the alleged false documents would form part of the apparently
genuine books and records of MFSIM nor did he give his approval in respect of the
same;
(b) believed that the documents were being prepared by Mr White’s team, for the
purposes of obtaining ratification of the transactions from the board;
(c) did not consider that MFSIM management or the board could be misled by the
alleged false documents because the fact that the investments had not been made in
accordance with the procedures described in the alleged false documents was
widely known;
(d) believed that the $147.5 million had been invested for the benefit of PIF and did not
know or believe anything to the contrary;
(e) had no motive to act dishonestly;
(f) did not obtain any personal gain or benefit from the conduct alleged by ASIC; and
(g) did not act dishonestly.
-- 236 of 348 --
223
[1077] In the event that I decided that ASIC had made out its case against Mr White,
Mr Anderson and Mr King and that $147.5 million of PIF’s funds were paid out without
it receiving any corresponding benefit, Mr Withers submitted that I should find that
Mr Hutchings was unaware of that fact and that the consequences of their wrongdoing
were concealed from him.
[1078] Further, he submitted, I should not attribute their conduct and knowledge to MFSIM
because it was directed against the interests of MFSIM and PIF and fell within the fraud
exception to the imputation of conduct and knowledge.619 Again, I have previously
decided against that submission.
[1079] Mr Withers’ written submissions traversed much of the evidence that I have already
considered. He submitted, contrary to the submissions for Mr Anderson, that
Mr Hutchings relied substantially on Mr Anderson’s experience as an accountant and that
Mr Anderson’s attempt to distance himself from PIF was not consistent with a large body
of documentary evidence which recorded him having an involvement in important PIF
matters even after November 2007. I accept his evidence about the involvement of
Mr Anderson in MFSIM’s affairs over that of Mr Anderson. It is more consistent with
the documentary record.
[1080] This was relevant to the proposal to restructure MYF, which he accepts had not been
completed at the end of December 2007. There were benefits from PIF investing in MYF
and Mr Hutchings had potential investments in mind on or around 28 November 2007,
the date on which his diary recorded the names of several of the investments that
Mr White later told him had been acquired using the RBS facility with the “listing of
loans” document provided to him on 23 January 2008. His submission was that
Mr Hutchings had those investments in mind on or around 28 November 2007, although
he could not recall whether he prepared the note in contemplation of a discussion with
Mr White or at the time of such a discussion. Either way, the note must have been
prepared soon after Mr Hutchings’ email exchange with Mr Davis of Causeway on 26
November 2007 which Mr Hutchings forwarded to Mr White.620 My view of that
evidence, for reasons I have expressed earlier, is that it was prepared at a significantly
later time.
[1081] Mr Hutchings expected that the appropriate approval processes for any drawdown would
be followed before the funds drawn down from RBS would have been invested. He did
not believe there was any urgency associated with the drawdown and that the funds would
remain in MFS Administration’s treasury account before they were invested.
[1082] He found out in the first week of December 2007 that $130 million had been drawn down
and used by Mr White and asked Mr White as soon as he saw him how the funds had
been invested. He believed Mr White was being truthful with him when he said that
investments had been made with the RBS funds. Nor was it suggested to him that he had
any reason to disbelieve what Mr White told him.
619 See Re Hampshire Land Co [1896] 2 Ch 743 and Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR
296, 366-367 at [282]-[284].
620 DEL.2006.0002.4302.
-- 237 of 348 --
224
[1083] He sought a guarantee from MFS Limited in respect of the investments using RBS funds
and the MYF restructure. He also relied upon the put option in respect of MFS Limited
dated 24 July 2006 which he understood entitled PacFin to put its assets to MFS. If that
happened, MFS Limited had to acquire them as well as any corresponding liability. That
was submitted to be a substantial safeguard in relation to investments made in PacFin
related loans.
[1084] Contrary to ASIC’s assertion that Mr Hutchings approved the payment of $17.5 million
to PacFin on 27 December 2007 by saying “agree” in response to emails from Ms Ring,
Mr Hutching’s evidence that he had not was said to be supported by the following facts:621
“97. Hutchings’ evidence is that he did not approve the payment of $17.5
million to PacFin on 27 December 2007. His evidence is supported by
the following facts:
(a) Kylie Ring, ASIC’s key witness in relation to the $17.5 million
payment case, had the role of drawing up proper instructions or
payment directions. Proper instructions/payment directions were
documents that the MFS Group forwarded to Perpetual (the
custodian of the assets of each of the MFSIM funds) in order to
arrange for Perpetual to transfer funds out of the Fund’s bank
accounts. Only certain people had authority to sign the proper
instructions (Ring [33-34]);
(b) The usual procedure was that proper instructions would include
supporting documentation which would explain the purpose for
which the funds were to be paid. If the supporting documentation
was not attached to the proper instruction, then it would not be
signed by the authorised signatories (Ring [35]);
(c) Ring emailed Hutchings on 27 December 2007 at 2:21 pm and
2:28 pm (GH [259] and [262]) attaching a proper instruction for
the payment of $17.5 million for him to approve. The second
email from Ring suggested that she could include Hutchings’
electronic signature at the bottom of the proper instruction, with
Hutchings’ approval. The proper instruction did not include
supporting documentation.
(d) Based on Hutchings’ usual practice he would have expected to be
provided with supporting documentation and only once it was
received could he sign a proper instruction authorising a payment
to be made (Hutchings [265], [Hutchings: T.D43-9.24-28]). Ring
accepted that this was the usual practice (Ring [35]) and it was
not done on this occasion (Ring: T.D7-32.1-3). Nor did Ring
provide any such documentation to the co-signatory of the proper
instruction, Kennedy (Ring: T.D7-37.43 - T.D7-38.12). Corolis’
evidence was also supportive of it being the practice for
supporting documents to accompany a payment direction (Corolis
[75]);
(e) at 2:33:19 pm and 2:33:30 pm on 27 December 2007, Hutchings
responded to both of Ring’s emails by stating ‘agree’ (see
621 HUTG.1100.0006.0003 at para 97.
-- 238 of 348 --
225
Hutchings [266]-[272]). Despite Ring’s assertion that it was
usual for Hutchings to send her an email to authorise his
electronic signature to a proper instruction (Ring [50]), she could
not recall any particular instance of when Hutchings permitted her
to affix his electronic signature to a proper instruction (T.D7-
28.21 -T.D7-29.2);
(f) that same minute, at 2:33 pm, Ring faxed a proper instruction to
Perpetual which contained the signatures of Hutchings and
Kennedy. Kennedy did not recall signing it but had no reason to
doubt that he did. Kennedy also did not recall ever signing a
payment direction unless Hutchings had signed or approved it by
email first (T.D17-83.11-36);
(g) the proper instruction sent to Hutchings mistakenly had the words
“MFS Cash Enhanced” on it and the description on it was
incorrect (reading “Transfer from Operating to Redemption”
instead of “Transfer from Operating to Pacific Finance”) (Ring
[51], [53-54]; Ring: T.D7-33.43 - T.D7-34.3, T.D7-40.15-17;
Kennedy [132], [134]);
(h) it was unusual for PIF to make a direct transfer to PacFin (Brown
[50]);
(i) Hutchings does not recall talking to Howard about a payment of
$17.5 million from PIF to PacFin on 27 December 2007
(Hutchings [257]) and Howard made no reference to a specific
discussion in her affidavit evidence. In cross-examination,
Howard accepted that it was possibly White or Anderson that
discussed it with her (T.D11-84.15 - T.D11-85.21);
(j) Hutchings denied that his email stating ‘agree’ to Ring was an
authorisation for any payment to be made, rather it was his
agreement that she could insert his electronic signature on the
proper instruction once he had reviewed the supporting
documentation and had approved the transaction; and
(k) the payment direction actually sent to the custodian, Perpetual,
was not the same document that was sent by Ring to Hutchings
twice that day (Hutchings [269], Ring: T.D7-37.15-27).”
[1085] Mr Withers’ submission was that the sequence of events showed that Ms Ring applied
Mr Hutchings’ signature to the document without first asking for his approval because
she sent off the payment direction at 2:33 pm, the same minute in which she received his
“agree” emails. Her evidence was, however, that it would have taken her about five
minutes to apply his signature to the document and a further five minutes to fax it to
Perpetual. She could not explain how she could have affixed Mr Hutchings’ signature to
the document, obtained Ms Kennedy’s signature on the document and faxed it to
Perpetual all within the same minute. The submission was, therefore, that Ms Ring had
already applied Mr Hutchings’ signature to the proper instruction before she received any
indication from him that she could use his electronic signature, even though she denied
that fact.
-- 239 of 348 --
226
[1086] Accordingly, Mr Withers submitted that Ms Ring could not reasonably have interpreted
Mr Hutchings’ “agree” emails as authorising the payment of $17.5 million to PacFin
without his having been provided with the documents that she had agreed were a
precondition to authorisation being given.
[1087] For that reason, he submitted that the payment direction he is alleged to have approved
by his email at 2:33 pm on 27 December 2007 saying “agree” did not authorise the
transfer of $17.5 million from PIF to PacFin. The instruction form to Perpetual with
Mr Hutchings’ signature on it was sent without his authorisation and the funds were
transferred to PacFin because Ms Ring was careless. At its highest, he submitted, ASIC
had proven that there was a miscommunication between Mr Hutchings and Ms Ring
which did not amount to a contravention of the Act, let alone a dishonest one.
[1088] I disagree with this submission and believe it reflects poorly on Mr Hutchings’ credit. He
expressed his assent with the use of the word “agree” to a proposal that he approve a
proper instruction or that Ms Ring put his electronic signature on the bottom with his
approval.622 That Ms Ring interpreted this to mean that she could attach his electronic
signature was hardly surprising.623 If he wanted to qualify his agreement by asking for
the supporting documentation it was up to him to make that clear.
[1089] It was also submitted that the evidence of Ms Watts in her affidavit that she was told
sometime, perhaps towards the beginning of January 2008, by Mr Hutchings that the
paperwork for the transactions “would need to be dated prior to the investments” was not
reliable. Mr Hutchings was not cross-examined about it, while Ms Watts agreed that she
only had a general, and not specific, recollection of the conversation and that her memory
about it was deficient because she said it occurred in Sydney on a date when
Mr Hutchings was in fact in Queensland. She agreed that it was possible that all
Mr Hutchings said to her at the time was that it was necessary for them to prepare
paperwork to be given to Mr White so that he would provide them with the information
that they required.624 Accordingly, Mr Withers submitted, I should find that Ms Watts’
memory in relation to that part of her affidavit was deficient and that Mr Hutchings did
not instruct her to backdate any documents.
[1090] Mr White’s reassurance of Mr Hutchings by his email at 7:04 am on 22 January 2008 was
also significant. That is where he said that the funds drawn down from the RBS facility
were his responsibility and subject to a guarantee from MFS, that, if there were reportable
matters, Mr Corolis and Ms Kercher would be informed. Mr White would arrange this
and communications with the MFS Limited board and Mr Whateley would be updated on
events and a plan on the following day. That was said to be part of several
communications he had with Mr White on the evening of 21 January 2008 and the
morning of 22 January 2008 after his “escalation” email.
[1091] Mr Hutchings relied on that as addressing his concerns that the organisation was properly
dealing with the funds drawn down from RBS. His evidence was that, from his
perspective, he had successfully established with Mr White that PIF and its investors’
money would be protected, which was significant in the context of the crisis following
622 DEL.2003.0001.0860.
623 Affidavit of Ms Ring at para 50; ASIC.2000.0017.0001.
624 T52-97/30-31.
-- 240 of 348 --
227
Black Friday and the chaotic environment then in the company. Mr Hutchings rejected
the proposition put to him by ASIC, that he knew, from Mr White’s communications, that
$130 million had not been used for the benefit of PIF.
[1092] It was likely that Mr Anderson had spoken to Mr White about the need to reassure
Mr Hutchings after his email to Mr White referring to the bomb that needs “diffusing”.
Mr Withers submitted that Mr Anderson’s denial of such a conversation was implausible.
I agree with that submission.
[1093] Mr Corolis’s evidence was also criticised. He should have told Mr Hutchings that he
should inform the board about the absence of information he had from Mr White about
what had happened with the RBS funds. He knew that from a conversation between him
and Mr Hutchings on 22 January 2008 noted by Mr Skepper. It was submitted that
Mr Corolis’s evidence was tailored to focus attention away from his responsibility for
signing the payment direction authorising the transfer of $130 million from PIF’s
operating accounts to MFS Administration without any supporting documentation being
attached.
[1094] Mr Hutchings’ receipt of the listing of loans from Mr White reassured him that there had
been no impropriety in the use of PIF’s funds, even if proper procedures were not
followed. That failure to follow the proper investment approval processes, Mr Hutchings
believed, was widely known among MFSIM management, the board and the Governance
and Legal and Compliance sections. His belief was consistent with his conduct at the
time in sending the “escalation” email and in enlisting help from Mr Whateley and in
speaking with Ms Kercher and others around that time.
[1095] Mr Hutchings could never have believed that he could successfully conceal or disguise
the misuse of PIF’s funds by making it appear, through the preparation of backdated
documents, as if the formal investment approval procedures had been followed in
November 2007 when he knew that so many people in the organisation were aware that
the processes had not then been followed. From that I was asked to conclude that
Mr Hutchings should be believed in his understanding that the ratification process
involved the preparation of documents and provision of information as if the formal
processes had been followed at the time, rather than ASIC’s contention that he was
involved in the preparation of documents designed to disguise the fact that the funds had
been misused.
[1096] The evidence that Mr Hutchings signed the application for MYF units and the unit
certificate was not satisfactory. He had no recollection of signing an application form for
class A units in MYF. Nor could he recall seeing any of the documents pleaded at paras
121-124 of the statement of claim. Although the documents appeared to contain a copy
of his signature, he was not able to inspect the originals to determine whether the signature
was electronic. Nor did he recognise the handwriting, particularly the handwritten dates
on those documents. It was not his. Nor was it put to him that the documents were already
dated when his signature was affixed to them so that there was no evidence that the
documents bore any date when that occurred. Similar submissions were made in respect
of the other alleged false documents said to have been approved by Mr Hutchings.
-- 241 of 348 --
228
[1097] The further submission was that the documents alleged against him in paras 109-125 of
the statement of claim were drafts attached to Ms Platts’ email of 6 February 2008 so that
many of the pleaded false documents were not sent to him then and there was no evidence
that he actually approved them. The fact of his electronic signature having been affixed
meant nothing having regard to the practice within MFSIM of documents being generated
using pre-existing templates that contained electronic signatures.
[1098] Mr Hutchings admitted that he had signed the new PIF participation agreements and that
he intended that they would form part of the books and records of MFSIM. He should be
believed, it was submitted, that, when he signed them, he believed that investments had
been made for the benefit of PIF using the RBS funds. The documents were undated
when he signed them.
[1099] Nor was the new loan notice dated, although the “effective date” was defined in the
agreement as 31 December 2007.
[1100] Mr Hutchings should not be criticised for failing to advise Mallesons that documents had
been backdated and contained false information, for example, about the release of an
information memorandum on 23 November 2007 when that did not occur. Mr Colley had
formed such a view but did not raise that issue with Mallesons, so Mr Hutchings should
not be criticised for failing to “second-guess” Mr Colley’s judgment as to what Mallesons
needed to be told when he did not review in detail the communications with Mallesons
by Ms Howard and Mr Colley.
[1101] Applying the objective test for honesty in such matters I find this submission unappealing.
[1102] The board proposal to ratify the decision to issue 100 million additional class A units as
a first step in the restructuring of MYF was not misleading in asserting that MFSIM had
issued an updated information memorandum for MYF on 23 November 2007. Elsewhere
in the document there was a statement that the most recent information memorandum for
MYF was dated 2 April 2007. If Mr Hutchings had in fact intended to mislead the board
as ASIC contended, Mr Withers submitted he would have deleted any reference to MYF’s
April information memorandum from the board proposal, nor would he have included, as
the document did, the section on MYF’s then attributes.
[1103] Again this submission is not attractive on the objective test required.
[1104] Mr Hutchings’ involvement in the preparation of the half-yearly report for the year ended
31 December 2007 was defended on the basis that the participation agreement was valid,
even if the 85 million units in MYF had not been formally issued as at 31 December 2007.
The submission was also made that PIF held investments in underlying loans in the
amount of $147.5 million according to the “listing of loans” document. It was conceded
that the structure of those investments had not been fully worked out as at 31 December
2007, but it had been by the time the half-yearly report was signed on 18 March 2008,
according to the submission. It was conceded that “to be completely accurate” the PIF
report could have included a statement that the ownership structure in relation to the
underlying investments had been put in place after the balance date of 31 December 2007.
-- 242 of 348 --
229
[1105] As I have said earlier such a note to the accounts was the least of the requirements that
should have been met.
[1106] In that respect, he deferred to Mr Anderson’s expertise as an accountant where the main
focus at this uncertain time was whether PIF would continue as a going concern.
[1107] It was submitted that I should accept Mr Hutchings’ evidence over Mr Anderson’s that
he sent a copy of the near final version of the half-yearly report to Mr Anderson on 17
March 2008 at 5:58 pm. That evidence was not challenged by counsel for Mr Anderson
in cross-examination, although, in cross-examination, Mr Anderson said that he did not
recall asking Mr Hutchings to send him the accounts in draft before they were filed. The
submission was that it was also logical that Mr Anderson would have wanted to see their
report first because of the cash flow challenges facing the MFS Group, including PIF, and
the significance of any potential failure of PIF on the reputational risks for the group. I
agree with that submission.
[1108] There was also, of course, an email from Mr Anderson at 9:17 pm saying that the half-
yearly report “on a very quick look” was “all fine”. That was the day after he had sent
another email to Mr Hutchings describing himself as the CFO of MFSIM.
[1109] There was significant evidence that electronic signatures, including Mr Hutchings’, could
end up on a document in a number of ways independently of the author approving his
application to the document. This followed from the common procedure of using
precedents with signatures on them, or copying and pasting from other documents, or
copying the signature directly from the computer server operated by the company which
was available to several people. Accordingly, the existence of an electronic signature did
not of itself prove that the purported author had approved its inclusion.
[1110] Ms Kercher’s evidence was that she had no recollection of seeing in November 2007 the
IAC’s submissions and minutes which ASIC alleges were false documents and no
recollection of attending any minutes in which they were discussed. Those documents
were not included within the records she maintained of papers and meetings of the IAC.
It was submitted that that undermines ASIC’s case that Mr Hutchings intended that the
alleged false documents would form part of the records of MFSIM because they were not
provided to Ms Kercher and her team to be stored with the other records of MFSIM,
including the records of the IAC.
[1111] As I have indicated elsewhere I find this an unconvincing submission. Documents these
days are commonly stored on computer servers and if they are kept there are very likely
to be part of the company’s records.
[1112] Mr Withers also submitted that there was a substantial flaw in various aspects of ASIC’s
false documents pleading.625 The submission was that ASIC alleges at para 109 of the
statement of claim that Mr Hutchings intended that the document referred to there that he
is said to have signed, “taken together with” other documents pleaded would “disguise”
the misuse of PIF’s funds. The other documents did not exist on 1 February 2008. ASIC
alleges that each of those documents were created on or around 5 and 6 February 2008.
625 HUTG.1100.0006.0003 at para 317.
-- 243 of 348 --
230
Mr Hutchings, therefore could not have any relevant “intent” in relation to documents
that did not yet exist. This issue, he submitted, also arose in relation to paras 119 and 120
of the statement of claim.
[1113] The point is only valid technically. I sincerely doubt that Mr Hutchings misunderstood
the case against him. The pleading could readily have been rephrased to allege that his
intention related to the documents produced during the period from 1 to 6 February
without any prejudice to him.
[1114] Mr Withers then addressed ASIC’s pleaded case as to Mr Hutchings’ knowledge and
intention at the time he was said to have approved the alleged false documents. He argued
that ASIC failed to prove that Mr Hutchings knew there had been a breach of PIF’s
constitution and has failed to prove that he intended to disguise that fact through the
“creation” and “keeping” of the alleged false documents, or was careless as to those
matters.
The $17.5 million payment
[1115] The argument for Mr Hutchings as to his knowledge and intention in respect of the $17.5
million payment was that his evidence that, when he said “agree” in his email to Ms Ring,
was simply him agreeing that Ms Ring could apply his electronic signature to a proper
instruction once he had been provided with the supporting documentation. Ms Ring’s
evidence was that she had never obtained approval for a signature to be applied to a proper
instruction without supporting documents, which it was argued lent support to the
conclusion I should draw having regard to the history of his attempts to obtain information
from Mr White about the use of the $130 million. The suggestion that he would have
approved the payment of $17.5 million to PacFin without satisfying himself that PIF
would obtain a corresponding benefit, was said to be ludicrous. The argument was that
the payment occurred because Ms Ring was careless and misinterpreted Mr Hutchings’
email as his authority to transmit the funds when she should have known that
authorisation would only be given if supporting documentation was attached to a proper
instruction. I have already rejected that submission.
[1116] He was irritated when he discovered that the payment had been made, it was further
submitted, and asked Mr White about it in evidence that was unchallenged and was told
by Mr White that the payment was part of the overall strategy of replacing maturing assets
of PIF with new investments. He believed what Mr White had told him and trusted that
he had used the funds, including the $130 million, to make investments for the benefit of
PIF. The submission was that ASIC could not establish that Mr Hutchings knew, at the
time he is said to have approved the alleged false documents, that the payment of $17.5
million to PacFin was not a proper payment for PIF. He had not sought evidence for the
transaction at the time, however, or made sure that an appropriate transaction was in place
before agreeing to the payment out of the money.
[1117] Similarly, it was submitted that I should find that if MFSIM contravened the Act in
relation to the payment, then Mr Hutchings did not have actual knowledge of that
contravention at the time so that ASIC has not established his knowing involvement in
the contravention.
-- 244 of 348 --
231
[1118] In respect of the false documents case, Mr Withers submitted, as I have already noted,
that many of the documents that ASIC pleads Mr Hutchings approved through his 6
February 2008 email to Ms Platts were variations of the documents amended by Ms Platts
after 6 February 2008. He submitted that ASIC has taken subsequent versions of the
documents which look in various instances less like drafts than the ones sent to
Mr Hutchings and has pleaded that he approved those documents through his 6 February
2008 email. That did not constitute the giving of his approval in relation to the pleaded
documents to the extent that they are different from the ones sent to him on 6 February
2008. Mr Moore made it clear in his oral submissions, however, that ASIC was relying
on the pleaded documents attached to the 6 February email.
[1119] A further issue argued was that Mr Hutchings’ email of 6:34 pm on 6 February 2008
responding to Ms Platts’ email of 3:25 pm attaching six documents which related to PIF,
did not respond to her 3:21 pm email attaching a different six documents relating to MYF.
ASIC did not plead any response to that email.
[1120] Mr Withers also submitted that the following issues in respect of particular documents
arose:626
(a) 5FASOC627 [109a)]:
(i) the only relevant act of “approval” is Mr Hutchings signature on the
document, but the use of electronic signatures does not establish approval;
and
(ii) the pleaded document is plainly a draft and was varied numerous times after
1 February 2008.
(b) 5FASOC [111(a)]:
(i) the document sent to Mr Hutchings is unsigned;
(ii) the document sent to Mr Hutchings is different to the pleaded document in
material respects; and
(iii) there is no evidence Mr Hutchings ever approved the pleaded document being
kept as an apparently genuine record of MFSIM.
(c) 5FASOC [112(a)]:
(i) apart from Mr Hutchings’ signature on the document, no relevant act of
approval is pleaded against Mr Hutchings in relation to the document (i.e.
ASIC does not rely on the 6 February 2008 email);
(ii) the document sent to Mr Hutchings is different to the pleaded document in
material respects; and
(iii) there is no evidence Mr Hutchings ever approved the pleaded document being
kept as an apparently genuine record of MFSIM.
(d) 5FASOC [113(a)]:
(i) the information memorandum must be considered together with other
documents in the records of MFSIM which demonstrate that it was not issued
on 23 November 2007.
626 HUTG.1100.0006.0003 at para 376. The references are to the relevant paragraphs of the statement of claim.
627 “5FASOC” means the fifth further amended statement of claim.
-- 245 of 348 --
232
(e) 5FASOC [114(a)]:
(i) the document sent to Mr Hutchings is different to the pleaded document in
material respects; and
(ii) there is no evidence Mr Hutchings ever approved the pleaded document being
kept as an apparently genuine record of MFSIM.
(f) 5FASOC [117(a)]:
(i) apart from Mr Hutchings’ signature on the document, no relevant act of
approval is pleaded against Mr Hutchings in relation to the document (i.e.
ASIC does not rely on the 6 February 2008 email);
(ii) the document sent to Mr Hutchings is different to the pleaded document in
material respects; and
(iii) there is no evidence Mr Hutchings ever approved the pleaded document being
kept as an apparently genuine record of MFSIM.
(g) 5FASOC [118(a)]:
(i) the document sent to Mr Hutchings is different to the pleaded document in
material respects (the document sent to Mr Hutchings is unsigned and
undated, unlike the pleaded document); and
(ii) there is no evidence Mr Hutchings ever approved the pleaded document being
kept as an apparently genuine record of MFSIM;
(h) 5FASOC [119(a)]:
(i) the pleaded document is genuine and is not a “false document”.
(i) 5FASOC [120(a)]:
(i) the pleaded document is genuine and is not a “false document”.
(j) 5FASOC [121(a)]:
(i) ASIC has not proven that Mr Hutchings signed the document or that the
document was dated when he signed it.
(k) 5FASOC [122(a)]:
(i) ASIC has not proven that Mr Hutchings signed the document or that the
document was dated when he signed it.
(l) 5FASOC [123(a)]:
(i) ASIC has not proven that Mr Hutchings signed the document or that the
document was dated when he signed it.
(m) 5FASOC [124(a)]:
(i) ASIC has not proven that Mr Hutchings signed the document or that the
document was dated when he signed it.
(n) 5FASOC [125(a)]:
(i) ASIC has misunderstood the New Loan Notice. It is not dated at all.
[1121] He also submitted, as has been indicated, that by the time Mr Hutchings was said to have
approved the false documents on 6 February 2008, MFSIM had entered into the loan
participation agreements and PIF had acquired 85 million units class A units in MYF,
-- 246 of 348 --
233
between them accounting for the full $147.5 million. In other words, the transactions
were said to be genuine and not a sham. Mr Hutchings’ intention was the opposite of one
that the transaction should not have legal consequences. He sought ratification of the
issue of units in MYF so that the ownership structure of the investments could be
finalised. He signed the participation agreements so that PIF would have legally
enforceable rights in relation to its investment of $62.5 million in PacFin loans. Further,
the parties have since treated them as creating valid and enforceable legal obligations.
[1122] As I have made clear, my view is that the transactions were not authorised or properly
ratified. Mr Hutchings may have hoped that they would be ratified but the form of the
documents, objectively speaking, was that they purported to be transactions that had
already occurred, not ones that needed ratification.
[1123] Mr Withers also submitted that ASIC has not made out all the elements of its false
documents case namely, that when Mr Hutchings caused his signature to be applied to
the alleged false documents, he knew that the $130 million and $17.5 million payments
had not been invested in accordance with PIF’s constitution. The submission is that the
allegation that he was aware that the RBS funds had not been invested in “authorised
investments” as required by cl 15.1 of the fund’s constitution, had not been made out. It
did not follow from the fact that he knew there had been a failure to follow the investment
approval processes that he knew that $147.5 million had not been invested in authorised
investments. They were defined in schedule 1 to include mortgage investments, bank
deposits, bills of exchange, registered managed investment schemes or investments
authorised under s 21 of the Trusts Act 1973 (Qld) which MFSIM considered a prudent
investment for PIF. He points out too that ASIC did not allege that Mr Hutchings was
then endeavouring to disguise with the alleged false documents the fact that the
investment approval processes had not been followed. It would have been impossible to
disguise that fact because so many people knew about it by February 2008 because of
Mr Hutchings’ own actions.
[1124] By 6 February 2008, also, his understanding was that Mr White had caused the RBS funds
to be used for the benefit of PIF by the making of investments with no improper use of
them. In addressing Mr Hutchings’ state of mind at this time, Mr Withers’ written
submissions said:628
“387. In this regard, Hutchings’ state of mind at the time he is said to have
approved the alleged false documents forming part of the books and
records of MFSIM is critical. The evidence is as follows. By the
period of 1-6 February 2008:
(a) Hutchings had sent his 21 January 2008 escalation email to
White, Anderson and Kercher in order to alert all of the relevant
people to the fact that there had been a serious process failure in
relation to the investment of the RBS funds (Hutchings [707]);
(b) Kercher had received documentation on 21 January 2008
indicating that the specific details of the investments remained
unknown at that time (Hutchings [480]);
628 HUTG.1100.0006.0003 at para 387.
-- 247 of 348 --
234
(c) Hutchings had received reassurance from White (who by that
time was the CEO of MFS Ltd) in his 22 January 2008 email that
if there were any ‘reportable matters’, that would ‘be
communicated through Taso [Corolis] and KK [Kim Kercher]’
(Hutchings [403]);
(d) Hutchings had told Corolis on 22 January 2008 that he understood
that the determination of whether there had been a reportable
event was in the hands of White, Kercher and Corolis (Hutchings
[410]);
(e) White had sent Hutchings the Listing of Loans document, listing
investments that had been acquired using the RBS funds (on 23
January 2008) (Hutchings [424]);
(f) Hutchings was relieved to have received that email as it
represented written confirmation of the assets that had been
purchased on PIF’s behalf and those investments were familiar to
him (Hutchings [426], [427]);
(g) Kercher had been copied on White’s “Listing of Loans” email and
was involved in ensuring that appropriate governance functions
were undertaken to normalise the transactions and prepare the
relevant documentation (Hutchings [431]);
(h) Kercher appeared to be satisfied by the Listing of Loans email
(see Part I, Section (F) above);
(i) Hutchings understood that Whateley knew that the investment
approval processes had not been followed and that he had been
regularly communicating with White, the other board members
and KordaMentha (Hutchings [708]);
(j) Hutchings had told Whateley that the information required to
ratify the transactions related to the drawdowns and that White
wanted them to go through the ‘normal steps’ in relation to
ratification. Whateley told Hutchings that he was speaking with
Korda, Jack Diamond, Deborah Beale and Steve Kyling about it
(Hutchings [465]);
(k) Whateley never suggested to him that anything needed to be
reported to ASIC;
(l) Hutchings asked Corolis to tell him (on 29 January 2008) if there
were any matters he needed to raise with the Board and Corolis
did not bring any such matters to his attention (Hutchings [524]);
(m) KordaMentha had become heavily involved in the management
of MFSIM (Hutchings [530]);
(n) Hutchings had instructed Platts that the paperwork for ratification
of the investments had to be run-past Corolis and David Kennedy
(Hutchings [581(b)]- [584]);
(o) Hutchings had been told by King that MFSL would provide
guarantees in relation to the ‘White transactions’, i.e. the
-- 248 of 348 --
235
investments made using the RBS funds (Part I, Section (C)
above);
(p) Hutchings signed the Loan Participation Agreements (on 5
February 2008), believing that that had been reviewed by
MFSIM’s lawyers and that they provided security in relation to
the investments (Hutchings [657]-[658]);
(q) Hutchings believed when he signed the Loan Participation
Agreements that PIF’s ownership of secured assets in relation to
money drawn down from RBS was being formalised (Hutchings
[668]); and
(r) Hutchings had not been told by any of White, Kercher or Corolis
that anything needed reporting to ASIC.
388. It is also important to recall that White had told Hutchings throughout
December and into January that the funds had been invested.
Hutchings became increasingly concerned when the detail of the
transactions was not forthcoming. That caused him to eventually send
his escalation email. He was ‘drawing a line in the sand’ and, as
Hutchings put it, ‘it worked’ (T.D44-28.45). He received the
information he was asking for and caused the relevant people
(Kercher, Corolis, Whateley, among others) to become involved.
389. When he received the Listing of Loans document, he believed that the
investments reflected in that document had been made using PIF’s
funds and he was relieved to finally have received written
confirmation. He knew that the ownership structure of the investments
was still being working out. But that, Hutchings believed, was a matter
that could be and was being worked through by White’s team. The
Court should accept that evidence. White was head of Funds
Management and controlled seven different managed investment
schemes (Anderson: T.D48-25.17-26). As Anderson explained
(T.D48-25.34 - T.D48-26.45) White could readily move funds around
and make investments among the different entities and managed
investment schemes that he effectively controlled. In other words, it
was entirely plausible that White could cause an investment to be
made using a large amount of PIF’s funds in either other funds
controlled by MFSIM or in loans owned by MFS Group entities
without having to negotiate to obtain the investments in the traditional
sense.
390. Hutchings’ evidence, at paragraphs [21], [277] and [1084] of his
affidavit and in cross-examination (T.D42-85.22-36) was that he
trusted White. White was his boss. Hutchings had a high opinion of
white’s business acumen, professionalism and his commitment to
MFSIM and its investment funds. He had no doubt that White was
being truthful. He had a lot of confidence in White’s team. See
Hutchings [192]. Moreover, in cross-examination, Hutchings gave
evidence that PIF was the ‘jewel in the crown’ of the MFS Group
managed investment schemes and that neither he nor King would ever
have done anything against the interests of PIF (Hutchings: T.D42-
43.3-8). That evidence was unchallenged.
-- 249 of 348 --
236
391. Nor was it suggested to Hutchings in cross-examination that he had
any reason to doubt what White had told him. It was suggested to him
in cross-examination that he was concerned about the lack of
information about the use of the funds prior to 23 January 2008 (see
e.g. Hutchings: T.D43-50.5). It was not suggested to him in cross-
examination that he had any specific reasons to disbelieve the Listing
of Loans email when it was supplied to him by White. The cross-
examination was directed to establishing that Hutchings knew MYF
had not been restructured by February 2008 and that no Loan
Participation Agreements were entered into on 30 November 2007.
But Hutchings explained why it was possible for PIF to have acquired
an interest in the underlying investments without the ownership
structure for such interests being finally worked out (T.D.42-57.30 -
T.D42-58.44). The fact that those details may not have been worked
out that stage was not a cause for him to disbelieve what he was being
told by White.”
[1125] It was also submitted, even though the formal structure of the investments was not
finalised on Mr White’s submission until February 2008, Mr White may have determined
in his own mind at the times when the $130 million and the $17.5 million were transferred
out of PIF’s funds that it would receive an equivalent value in investments but had not
specifically determined at that time what those investments would be. He submitted that
was a valid benefit for PIF because it was always within the power of Mr White, as the
head of funds management within the MFS Group, to ensure that PIF received a
corresponding benefit for the funds it paid out because he controlled the movement of
money within the group and could make investments among the different entities and
managed investment schemes that he effectively controlled. That, Mr Withers submitted,
is ultimately what happened on 23 January 2008 when Mr White sent Mr Hutchings the
listing of loans document.
[1126] He submitted it was not the same as a solicitor taking money from a trust account with
the intention of returning it at a later time as ASIC had argued. Here, in this case,
Mr White would have caused funds to be paid out of PIF and expected those funds to be
converted into investments. I should find that was his intention from the outset. The
precise terms of the consideration did not have to be identified on the date the funds were
transferred. If Mr White had that intention at the time and brought it into effect, then
ASIC’s case that PIF did not receive any benefit for the $147.5 million must fail.
[1127] The written submissions for Mr Hutchings also challenged the argument that PIF did not
acquire anything for the $130 million payment and the $17.5 million payment because
the alleged transactions subsequently documented were not entered into by persons
having authority to do so on behalf of MFSIM. The first reason for challenging that
argument relied on by Mr Hutchings was that ASIC had pleaded in the statement of claim,
particularly relating to his execution of the loan participation agreements and the
application for units in MYF, that Mr Hutchings executed them with the actual or
apparent authority of MFSIM. Accordingly, it had conducted its case before the reply
was filed by ASIC, on the basis that authority was not an issue in the proceedings and did
not explore issues of actual and usual authority in cross-examination and would be
prejudiced if ASIC was allowed to advance a case of absence of authority at this stage.
-- 250 of 348 --
237
That should have been pleaded in the statement of claim. I have discussed that argument
about the pleadings before and remain unconvinced by it.
[1128] The second argument on which Mr Hutchings relied on this point was that the only person
entitled to try to avoid the contracts for the acquisition of units in MYF and entry into the
participation agreements on the basis of an absence of authority is the responsible entity,
now Wellington Capital Ltd. It has not done that and has acted on the basis that the
transactions are legally enforceable. Again, I remain unpersuaded by that submission.
[1129] He also relied upon Ms Kercher’s apparent acceptance of the listing of loans email as
appropriate identification of the investments the money had gone to.
[1130] Nor had ASIC’s evidence established that Mr Hutchings intended that the alleged false
documents would disguise the fact that the funds had not been invested in accordance
with PIF’s constitution. He had no motive to try to disguise anything, believed that the
funds had been used to make investments in loans where the formal approval processes
ordinarily required to be followed had been bypassed but genuine investments had been
made which in some aspects needed ratification. Accordingly, Mr Withers submitted that
I should find that ASIC has not proven that the investments had not been made in
accordance with PIF’s constitution.
[1131] Nor did Mr Hutchings intend that the false documents would be kept as part of the books
and records of MFSIM based on the allegations in the statement of claim for the reason I
have addressed earlier that only draft forms of the documents pleaded were contained in
Ms Platts’ email to Mr Hutchings, which she has said to have approved by his response.
The argument was, also, that his response was not an approval. He understood they were
being prepared for the purposes of obtaining board ratification, did not have time to
review them in any detail and did not recall reviewing them.
[1132] Nor did it occur to him that the consequence of him sending his email on 6 February 2008
would be that the documents would form part of the books and records of MFSIM and be
made available to the auditors. If he had reviewed the details of the documents, he would
have noticed that they were “shambolic” and he would have sought legal advice or
escalated the issue. He was very pressed for time at that stage for a variety of reasons and
believed that the preparation of the documents was being undertaken by Mr White and
his team. There was no evidence to suggest that anyone told him that the documents
needed to be prepared so that they could be provided to the auditors or RBS. One would
think, however, as I have discussed elsewhere, that documents proposed like that would
eventually become part of the records of the company.
[1133] Mr Hutchings’ understanding was that Ms Kercher, as company secretary for MFSIM,
maintained the records of the meetings of the board and each of the company’s
committees. He did not supply those documents to her as company secretary. Had
Mr Hutchings reviewed them and appreciated that they had been backdated as ASIC
alleges, the submission was that he would never have approved them being kept as part
of the books and records of MFSIM in the absence of ratification or sign-off by
Compliance. That process was only at an early stage at 6 February 2008. Mr Hutchings
had expressly sought to involve the Compliance officers in the process and Mr Withers
-- 251 of 348 --
238
argued that that was not the conduct of someone seeking to disguise the misuse of PIF’s
funds.
[1134] It was also submitted that I should accept Mr Hutchings as an honest witness and conclude
that he did not intend that the false documents be kept as part of the books and records of
MFSIM applying the Briginshaw standard on the onus of proof.
[1135] Nor did Mr Hutchings delete any documents such as emails, which made it quite clear
that the alleged false documents were prepared some time after the RBS funds were used.
He was trying to bring the attention of the relevant people within MFSIM to the fact that
there had been a failure of its investment approval processes. That was submitted to be
inconsistent with any improper intention on his part.
[1136] For similar reasons, Mr Withers submitted that it had not been shown that Mr Hutchings
was careless in allowing the documents to be kept as if they were genuine books and
records of MFSIM. He believed that the documents were being prepared by Mr White’s
team for the purposes of ratification and that, if and when ratification occurred, a record
would be made that there had been a failure of administrative processes. He caused the
right people to be involved in that process. He was also dealing with a crisis situation
where he had very little time to deal with each of the issues confronting MFSIM and PIF.
[1137] Nor was he said to be responsible for failing to direct that the documents not be kept as
part of the books and records of MFSIM. He would have expected them to be kept by
Ms Kercher and her team if anyone and it would not have occurred to him that the
documents would be maintained on the computer server and thus form part of the books
and records of MFSIM. I find this submission unpersuasive.
[1138] Nor did Mr Hutchings contend or know that the false documents would be given to
anyone outside of MFSIM. Nor was there evidence that he actually knew that the
documents had been kept in hard copy or on the computer servers, let alone supplied to
the auditors. That was not put to him by ASIC. Accordingly, it was submitted that ASIC
has not established that he had actual knowledge that MFSIM kept the false documents
so that its knowing involvement case against him failed at that threshold level. These are
consequences that I can readily infer would happen, however.
[1139] Again, for similar reasons, Mr Hutchings argued that the alleged contraventions by him
of s 286 and s 344 had not been made out. Only some of the allegedly false documents
contained his signature. It had not been proved that he approved the alleged false
documents. There was no obligation on him to direct that the documents not form part of
the books and records of MFSIM as he was entitled to rely on the retention of documents
by Ms Kercher and her team to constitute the relevant records.
[1140] In relation to ASIC’s argument that he should have directed Ms Watts and Mr Anderson
that the written and financial records of MFSIM were to accurately record the transactions
described in paras 39-53 and 64-70 of the statement of claim, the submission was that,
first, responsibility for preparing the financial accounts for MFSIM lay with MFS Limited
through Mr Anderson and, after November 2007, Ms James as the full time fund
-- 252 of 348 --
239
accountant. Secondly, he was entitled to rely on the fact that Ms Watts was the fund
manager responsible for keeping records of the assets acquired by the fund.629
[1141] Thirdly, there was no evidence that Mr Hutchings knew about the transactions pleaded in
paras 39-53 of the statement of claim, namely the payments from the funds drawn down
from RBS, so that he could not have had any reason to know that they needed to be
documented.
[1142] The allegations in paras 64-70 of the statement of claim relate to the $17.5 million
payment and the records of MFSIM did disclose and record that payment to PacFin. The
steps he had taken to discover how Mr White had deployed the RBS funds, in the difficult
circumstances that existed at the time, were appropriate. There was nothing more that he
could have done to act reasonably in the circumstances so that there had been no breach
of s 344 relating to a director’s duty to take all reasonable steps to comply with or to
secure compliance with Part 2M.2 and Part 2M.3 of the Act.
[1143] The next aspect of the allegations against Mr Hutchings related to paras 139-141 of the
statement of claim which alleged that, in an undated report included in the MFSIM board
papers dated 23 January 2008, Mr Hutchings reported “PIF drew down the full $200
million of its Royal Bank of Scotland (RBS) facility to fund new loans in the Asset
Backed Sector” and orally told the board meeting on 23 January 2008 that the money
drawn under the RBS Loan Agreement was used to buy assets. The pleading continued
by alleging that he then knew, or should have known, that the information was false at
the time he provided it to the MFSIM board. Those facts are the basis of an allegation of
contraventions of s 601FD(1)(a) and s 601FD(1)(f), namely failure to act honestly or as
a reasonable person in his position would have done.
[1144] That case is said to fail, in Mr Withers’ submissions, because the statement that PIF had
drawn down the full $200 million to fund new loans in the asset backed sector ahead of
the pending maturity of other loans in that sector in January was accurate. The second
point made is that Mr Hutchings’ evidence was that he did not make any statement at the
board meeting that the RBS facility had been used to buy new assets. His case was that
Mr White made that statement and that was a further reassurance to him that the funds
had been properly invested. Mr Hutchings was not cross-examined about his evidence
on that issue. The minutes were unsigned and are of little or no evidentiary value.
[1145] It was further submitted that if the statement was made, it was accurate because PIF had
used the RBS funds to buy assets. He had received details through the listing of loans
document on 23 January 2008 as to what those investments were and was entitled to rely
on what he was told by Mr White.
[1146] Paragraph 205 of the statement of claim alleges contraventions, as I have said, of
s 601FD(1)(a) and s 601FD(1)(f) of the Act by reason of the allegations in paras 139-141.
For the same reasons as I have just outlined, Mr Withers’ submission was that ASIC has
not established any moral turpitude, deceit or conscious impropriety on Mr Hutchings’
behalf. If the information he provided to the board was not accurate, ASIC has not proven
that Mr Hutchings was aware of that fact.
629 Ms Watts’ case challenged this assumption; see WATTS.0001.0001.0060 at paras 382-383.
-- 253 of 348 --
240
[1147] Further, he submitted, that the statement of claim does not allege that any of the matters
pleaded in paras 139-141 of the statement of claim gave rise to a contravention of the Act
by MFSIM. That was a precondition to a contravention of s 601FD(1)(f) so that, in the
absence of a pleaded contravention by MFSIM, no contravention by Mr Hutchings has
been made out.
[1148] Paragraphs 142 to 146 of the statement of claim pleaded that Mr Hutchings sent emails
to the MFSIM board on 11 February 2008 and 25 February 2008 containing false
information in respect of a proposal to seek ratification of the issue of the information
memorandum dated 23 November 2007 and the issue of 100 million class A units in
MYF. The allegedly false information was said to be in five categories. The first was
that MFSIM’s IAC had reviewed a number of proposals in December 2007 to restructure
MYF when it had not. Mr Withers relied on documents sent to the IAC on 6 December
2007 reflecting proposals for the restructure of MYF in that month.630
[1149] The second allegedly false information was that a number of appropriate investment
opportunities were presented to the management of MYF in November 2007 when they
were not. Mr Withers’ response to that was that Mr White and Mr Hutchings had
developed the proposal to restructure MYF in November and had discussed investment
opportunities for MYF reflected in Mr Hutchings’ file note entered in his diary on the
date of 28 November 2008. That is contentious as the entry may well have been made at
some later date as discussed earlier.
[1150] The third area of alleged falsity is the allegation that it had been decided by management
of MFSIM to offer and issue a new class of MYF units to ensure that these opportunities
were not lost, when that had not been decided. Mr Withers’ submission was that MFSIM
management had decided to issue a new class of units in MYF for the purposes of MYF
acquiring new investments which was the whole point of seeking ratification of the issue
of the units.
[1151] The fourth allegedly false information was that the management of MFSIM issued an
information memorandum on 23 November 2007 which detailed an offer of 100 million
class A units when no such information memorandum was issued at that date and when
no such information memorandum had in fact made that offer at any date.
[1152] Mr Withers conceded that the statement that the information memorandum had been
issued on 23 November 2007 was wrong, but argued that it was not misleading, having
regard to the fact that the proposal stated on the previous page that the last information
memorandum issued by MYF was issued on 2 April 2007. I disagree.
[1153] The fifth category of allegedly false information was that the management of MFSIM
issued 100 million class A units in accordance with the information memorandum and
impliedly before 1 February 2008 when there had been no such issue. The argument to
the contrary was that the proposal does not say that expressly or impliedly. It sets out the
“current attributes” of MYF on the first page which was inconsistent with the proposition
that MYF had 100 million units on issue at that time.
630 WIM.0002.0004.0026 and WIM.0002.0004.0021.
-- 254 of 348 --
241
[1154] Accordingly, Mr Withers submitted that ASIC had failed to make out its case that
Mr Hutchings acted dishonestly in providing that proposal to the board and, in any event,
that his conduct did not demonstrate moral turpitude or conscious dishonesty on his
behalf. Ms Kercher had not suggested there was anything inaccurate in them either.
[1155] Paragraphs 178, 179, 184 and 207 of the statement of claim allege that Mr Hutchings
acted dishonestly by failing to inform Mallesons that the information in Mr Colley’s
20 February 2008 email was inaccurate in stating that MYF released an information
memorandum on 23 November 2007, when it did not, and in setting out the dates in
November 2007 when PIF was said to have applied for units in MYF and that it drew
$150 million from RBS to fund that purchase when that was not the purpose of PIF’s
drawdown on 30 November 2007. The allegation was that Mr Hutchings acted
dishonestly by failing to comment on Mr Colley’s email and the submission for
Mr Hutchings was that if inaccurate information was provided to Mallesons, it was
inadvertent on Mr Hutchings’ part and that he had not acted unreasonably in failing to
review the email because of the number of issues he was dealing with at the time and his
belief that Ms Howard and the Compliance section were able to carry out the process of
obtaining legal advice from Mallesons. The same submission about the alleged
contravention of s 601FD(1)(f), that no contravention by MFSIM had been established,
was also made. The pleaded allegation is, however, that he failed to ensure that MFSIM
complied with the Act and that he should have corrected the information provided to
Compliance. The submission also does not address the alleged contravention of
s 601FD(1)(a) of failing to act honestly in para 207(b) of the statement of claim.
[1156] Mr Hutchings’ failure to comment on Mr Colley’s email was submitted not to
demonstrate moral turpitude or conscious impropriety on his behalf. Nor, it was
submitted, had ASIC made out a case of dishonesty from a failure by Mr Hutchings to
comment on Mr Colley’s email.
[1157] Paragraph 206 of the statement of claim alleges that Mr Hutchings contravened the Act
in respect of communications with RBS by providing false information to it in creating
an asset report for MFSIM showing loans made by it to the entities and in the amounts
set out in Mr White’s listing of loans email. Central to those alleged contraventions, in
Mr Withers’ submission, were the allegations that Mr Hutchings knew that the
information in the asset report and in the listing of loans was false. He relied on
Mr Hutchings’ evidence that he believed the information to be true, as did Ms Kercher,
and that that was a reasonable belief for him to hold in the circumstances.
[1158] For similar reasons as discussed earlier, he also argued that ASIC had not established that
the information provided to RBS was inaccurate and had not proven a contravention of
the Act by MFSIM or Mr Hutchings in relation to the provision of that information.
[1159] Paragraphs 133 to 136 of the statement of claim, together with para 204P, allege that
Mr Hutchings contravened the Act because he signed the half-yearly report for PIF
containing the false information pleaded at para 135 that the accounts showed MFSIM as
responsible entity for PIF owning an asset comprising $85 million worth of class A units
in MYF when it did not and that it owned an asset consisting of $62.5 million worth of
participation loans pursuant to an agreement with PacFin when this was not so.
-- 255 of 348 --
242
[1160] That argument has also been traversed elsewhere and depends on the fact that the units,
on the best case for Mr Hutchings, were not the subject of an agreement until 6 February
2008, and should not have been shown as they were in the half-yearly report and financial
statements. This submission was that it was reasonable for Mr Hutchings to hold the view
that MFSIM had agreed to participate in certain PacFin loans by 31 December 2007, even
though the formal agreements had not been signed. Nor had he appreciated the timing
issue in respect of the acquisition of the units in MYF, they having been acquired, on his
case, after 31 December 2007, but which was not something that he then appreciated.
[1161] He was also assured by Mr Anderson that the report was “all fine” after it had been
reviewed by the Audit and Risk Committee and had been assisted in the preparation of
the report by KordaMentha and 333 Capital. He was also being advised by Mallesons.
Accordingly, it was submitted that he could not have been intending to and did not act
dishonestly by signing the half-yearly report. His conduct was reasonable for the reasons
set out.
[1162] In his oral submissions Mr Withers identified six flaws he said existed in the ASIC case.
The first was that the board, management and Compliance knew that there had been a
failure to follow the investment approval processes with respect to the money. He
identified Mr Whateley as knowing that by the end of December 2007. Others knew it
from 21 January 2008 after Mr Hutchings’ “escalation” email. It would have been silly
for Mr Hutchings to authorise false documents when so many other people in the
company knew of that situation.
[1163] The second flaw he identified was that ASIC had not proven that Mr Hutchings knew that
the funds had not been invested in accordance with PIF’s constitution. Since 23 January
2008 and his receipt of the “listing of loans” document, he genuinely believed that
investments had been made with the money, his concerns having been assuaged.
[1164] The third critical flaw in the dishonesty case he identified was that the evidence showed
that he intended that the “false documents” should be run past the Compliance officers.
Accordingly, he did not have a dishonest intention.
[1165] The fourth flaw was that there was no benefit for Mr Hutchings in engaging in this
conduct. There was a potential benefit to his reputation, however, to allay any concern
that he, as manager of the fund, had failed to ensure that there had been a return to it for
the funds paid out.
[1166] The fifth critical flaw in the dishonesty case identified by Mr Withers was that there was
no attempt to cover it up because all the documents were available, showing what had
happened. This was because of the email record that was available.
[1167] The sixth critical flaw in the dishonesty case he identified was that Mr Hutchings was a
good witness concerned to protect the unitholders and their interests.
[1168] He then turned to the argument by ASIC that Mr Hutchings’ behaviour was careless.
[1169] He submitted that it was utterly implausible that Mr Anderson would have told
Mr Hutchings on 21 January 2007 that he and Mr White had misused the funds drawn
-- 256 of 348 --
243
down from the RBS facility. Nor should there be any attribution of such knowledge to
PIF.
[1170] He also submitted631 that it was never put to Mr Hutchings that he knew that PacFin was
a related party of MFSIM. ASIC does not now pursue the alleged contravention of s 208
pleaded against Mr Hutchings so that issue can be disregarded. Mr Withers also
submitted632 that ASIC had not pleaded or put to Mr Hutchings that the use of the 6:35 pm
email as an act of approval in relation to MYF documents was not pleaded nor put to
Mr Hutchings in the witness box.
[1171] In respect of ASIC’s pleading of dishonesty, Mr Withers also made the point in response
to ASIC’s argument that Mr Hutchings did not tell Mr Whateley and others that no
transactions had been entered into by PIF in November and December 2007. That was
not something that he then knew as he believed what he had been told by Mr White that
the money had been invested for the benefit of PIF. His concern that there might be a
problem in relation to completing transactions on behalf of PIF commenced from about
18 January 2007. He was also told by Mr Whateley in a conversation on the evening of
21 January 2007 that Mr White had filled Mr Whateley in about the lack of information
about the use of the RBS funds.
[1172] He submitted that ASIC did not deal with his argument that Mr Hutchings changed his
mind between 21 January 2008 and 6 February 2008 about what had happened to the
funds. By 6 February 2008, he knew that they had been used in respect of the listing of
loans document. ASIC’s theory that he would cover up whatever occurred was not valid.
He submitted that ASIC had not come to grips with his submission that Mr Hutchings
could not cover up the transactions because he had told everybody he did not know what
happened about the use of the funds.633 Nor had ASIC succeeded in proving that
Mr Hutchings knew that the funds had not been invested in accordance with PIF’s
constitution. His belief that Mr White had invested the money properly was sufficient to
establish the relevant knowledge in him. Nor had ASIC come to grips with the argument
that Mr Hutchings brought people from Compliance in to examine what had happened.
He had not fettered the types of investigations that Compliance should perform.
[1173] Mr Withers also sought to distinguish the decision in ASIC v Hellicar634 on the basis that
the differences between the original approved document and the final documents here
were more significant. That decision seems to me to support the proposition that none of
the subsequent changes to the documents in this case approved by the defendants could
excuse their conduct in approving the 6 February 2008 draft documents.
[1174] Also in Hellicar, he submitted, ASIC pleaded both the draft document and the final
version to say that there were no material differences between the two to lead to the
conclusion that the defendants had approved the final version. That had not occurred in
this case. That pleading issue also covered the identification of what documents were
kept and was, he submitted, significant in that context too.
631 T55-53.
632 T55-56.
633 See T60-47 to T60-48.
634 (2012) 247 CLR 345.
-- 257 of 348 --
244
Summary for Mr Hutchings
[1175] The written submissions for Mr Hutchings concluded by reference to the provision of
s 1317S of the Act enabling the grant of relief from liability where it appears to the court
that a person has or may have contravened a civil penalty provision but has acted honestly
and, having regard to all the circumstances of the case, ought fairly to be excused for the
contravention.
[1176] In that context, Mr Withers submitted that Mr Hutchings had acted honestly, without
moral turpitude, namely without deceit or conscious impropriety, without intent to gain
an improper benefit or advantage and without carelessness or imprudence that negated
the performance of the duty in question.635 He also focussed on the extent to which
Mr Hutchings relied on the acts, advice and assistance of others, submitting that where
there is no cause for suspicion nor circumstances demanding critical and detailed
attention, it is reasonable for an officer to rely on advice, without independently verifying
the information or scrutinising the data or circumstances upon which that advice is
based.636
[1177] He submitted that each of those preconditions had been made out in the circumstances,
that I should be satisfied that Mr Hutchings did not act dishonestly and was a careful and
credible witness whom I had the benefit of seeing over six days during his cross-
examination. The strongest evidence of that was that he went to great lengths in order to
make sure that the right people were involved in the situation, he documented his
concerns, involved Mr Whateley from the board and the Compliance and Governance
officers. His understanding of ratification was misguided but not dishonest. His
behaviour in the difficult circumstances was reasonable and if he did contravene the Act
his conduct should be excused. There was no evidence of his having had any motive to
act dishonestly and no evidence of him having sought to gain personally from any of the
conduct alleged against him.
ASIC’s oral submissions in response to the submissions for Mr Hutchings
[1178] Mr Brady, for ASIC, argued that the submissions for Mr Hutchings that various matters
were not put to him in cross-examination so that the rule in Browne v Dunn637 should
permit me to accept his evidence, did not apply in cases where there had been an exchange
of affidavits as had occurred in this case.638
[1179] As Goldberg J said in White Industries (Qld) Pty Ltd v Flower & Hart:639
“The rule does not apply, in the sense that it is not transgressed, where the
witness is on notice that his version is challenged or that an inference may
635 ASIC v Healy (No 2) (2011) 196 FCR 430 at [83]-[89] and ASIC v Macdonald (No 12) (2009) 259 ALR 116 at
[22].
636 Vines v ASIC (2007) 73 NSWLR 451, 586 at [731], referring to Re HIH Insurance Ltd (in prov liq); ASIC v
Adler (2002) 41 ACSR 72, 166-167 at [372].
637 [1894] 6 R 67.
638 See ASIC v Fortescue Metals Group Ltd (No 5) [2009] FCA 1586 at [111]-[112] and White Industries (Qld)
Pty Ltd v Flower & Hart (1998) 156 ALR 169, 218.
639 (1998) 156 ALR 169, 218.
-- 258 of 348 --
245
be drawn against him and such notice may be found in the pleadings, in an
opening or in the manner in which a case is conducted.”
[1180] Here it was submitted that there were detailed pleadings and an opening as well as
affidavits raising the relevant issues available for many months before the trial started and
in excess of a year before he gave evidence. Mr Brady also submitted that it was put to
Mr Hutchings that he did not know what PIF was going to be getting for the $17.5 million
payment at the time it was paid.640
[1181] He also pointed out that by 15 January 2008, on Mr Hutchings’ own evidence, he was
becoming concerned that there may have been a problem with the use of the RBS funds
by Mr White.641 It was also put to him that he knew there was something untoward about
the draft IAC submission before PIF with its blank bullet points and that he knew there
had been no IAC or board approval of it or clarity about what PIF had acquired, if
anything.
[1182] There was extensive cross-examination about his 21 January 2008 email and the motives
causing him to send it. He was also cross-examined extensively about the listing of loans
email on 23 January 2008 where it was put to him that that was not information of what
loans had finally been agreed to be acquired but was merely the beginning of the
process.642 It was also put to him that neither Mr Corolis nor Mr Kennedy were actually
involved in the process of ascertaining evidence about the transactions, although he might
have wanted them to be. Mr Corolis left on 30 January 2008 and Mr Kennedy, it was put
to him, did not become involved.643 It was also put to him that Mr Whateley did not know
the detail of what the money had been used for so that he should not have been reassured
by his involvement in the process.644
[1183] It was also put to him on a number of occasions that he intended that each false document
would form an apparently genuine part of MFSIM’s records.645 There was no evidence
that KordaMentha and 333 Capital were actually told the real truth about what had
happened either, which was ASIC’s main point in respect of their involvement.
[1184] Although it was not put to him that he personally gained some benefit, there was a reason
for him to act in the manner that he did, because he was the chief executive officer of a
large fund from which $147.5 million had gone without anything coming in in
replacement for the money.
[1185] He then addressed the “six critical flaws” in ASIC’s case argued by Mr Withers.646 The
first flaw identified by Mr Withers related to whether the board and management and
Compliance knew there had been a failure to follow the investment approval processes
with respect to the money. ASIC’s first point was that none of these people were told
that there had been no transaction entered into in November or December 2007. If they
were told anything, it was that the paperwork did not keep up with the transactions.
640 At T43-9/4.
641 Para 325 of Mr Hutchings’ affidavit, HUTG.1100.0002.0001.
642 See T43-66-T43-68.
643 See T44-10-T44-11.
644 See T44-56/5 and following.
645 See, for example, T44-47/5.
646 T59-12/15-T59-22/9.
-- 259 of 348 --
246
[1186] ASIC’s second response to the first flaw identified by Mr Withers was that,
notwithstanding Mr Hutchings’ knowledge that there were no transactions in November
and December, he still went on to participate in the scheme to make it appear as if there
had, in fact, been transactions entered into at an earlier time.
[1187] The third point was that he did this as the chief executive officer concerned to shore up
his position. Fourthly, if other people within the organisation did know certain things, it
was limited information that was not an answer to the dishonesty case against
Mr Hutchings. ASIC’s final point on this issue was that Mr Hutchings knew that the
Compliance people were operating on incorrect information about what had occurred.647
[1188] The second flaw identified by Mr Withers was that ASIC had not proven that
Mr Hutchings knew that the funds had not been invested in accordance with PIF’s
constitution. Mr Brady submitted that Mr Hutchings knew there had been no IAC, board
or CRPC consideration or approval of either of the $130 million payment or the $17.5
million payment.648 He had to concede that he did not know what investments PIF was
going to get for those two payments. Even though he had not received information about
the first payment in November, he still agreed on 27 December to $17.5 million being
paid out to PIF. He also knew that Mr White seemed to be almost deliberately avoiding
the issue from the history of emails in the evidence. He therefore knew that the
investments had not occurred in accordance with PIF’s constitution and that there had
been no MYF restructure in November 2007. In that context, he knew that the
constitution of PIF required investments to be authorised.649
[1189] The third flaw asserted by Mr Withers was that there were two instances that
demonstrated Mr Hutchings wanted papers to be run past Compliance and that was said
to be inconsistent with dishonesty. ASIC’s submission was, again, that the Compliance
section was not told the whole truth. It had been put to him that Mr Kennedy did not
become involved in the process of settling the documents.650 Similarly, he was cross-
examined about the fact that Mr Corolis had no input into the paperwork.651
[1190] The argument that Mr Hutchings was unfamiliar with and misunderstood the ratification
process was inconsistent with his role as an experienced fund manager and what he knew
the board was being told about the transactions. He had told the board on 11 February
2008:652
“The issue of units and information memorandum should have been presented
to the board for approval in November and this oversight has only now been
identified.”
[1191] This was active misleading of the board and not consistent with what he says his
understanding was about what was necessary for ratification. He knew that there had
been no “oversight” and that the transactions had not occurred. No information
memorandum was ever issued on the date suggested in the board papers of 23 November
647 Summarised at paras 1251-1256 of ASIC’s written submissions.
648 Summarised in para 1219 of ASIC’s written submissions.
649 T44-30/5.
650 T44-11/30.
651 T44-10.
652 DEL.2004.0001.1540.
-- 260 of 348 --
247
2007. It was only prepared in February. Similarly, the other documents approved by
Mr Hutchings on 6 February 2008 contained information which he knew was incorrect,
such as the assertion that the IAC had approved the transaction in November 2007.
[1192] The fourth flaw identified by Mr Withers was that there was no benefit for Mr Hutchings
in engaging in the conduct alleged against him. That is not, Mr Brady submitted, a
prerequisite to a finding of honesty, but is easily explained as dishonest for the reason
discussed earlier that, on ASIC’s case, $147.5 million had been paid out for no benefit to
PIF at that time. That was something he would have known by 21 January 2008 which
made him a man under considerable pressure. That he may have received no direct
financial benefit did not tally against his dishonesty.
[1193] The fifth flaw argued by Mr Withers was that there was no attempt to cover up what had
occurred. ASIC’s case, on Mr Brady’s submission, was that there was an attempt to cover
up what had occurred which is what the false documents case was all about. He pointed
out that the emails obtained by ASIC were, in large part, recovered from an after mail
server, which was an archive system. That archiving was invisible to the end user so that
if there had been an attempt to delete an email, it would nevertheless be kept on the after
mail server.653 Accordingly, there was no evidence about whether there had been any
attempts to delete particular emails. There was, however, evidence of incorrect
information being provided to the board and the Compliance officers consistent with
Mr Hutchings being involved in an attempt to cover up the real truth.
[1194] Mr Withers’ sixth flaw was that Mr Hutchings was a good witness interested in protecting
unitholders and their interests. On ASIC’s case, however, he directed that $17.5 million
be paid to PacFin in circumstances where he did not know what PIF was getting for it, if
anything.
[1195] It was objectively dishonest on his part to prepare documents relating to substantial
payments that reflected matters that he knew had not occurred. Much of his evidence was
implausible and a number of critical parts were obvious lies. One obvious lie Mr Brady
identified related to his “escalation” email on 21 January 2008. He had said in that email
that he had just received information that the majority of the approximate $200 million
drawn from the RBS facility may have been invested in a manner in breach of the PIF
PDS and related party requirements. He sought to explain the email by saying that he had
not been told that and that this was just a way to try to find out from Mr White what the
loans were. Mr Brady submitted that was an obvious lie.
[1196] He also submitted that he had clearly agreed to the payment of the $17.5 million and now,
in seeking to resile from it in his explanation, committed a further obvious lie. He
submitted that his evidence on that latter issue was absurd when one looked at the terms
of the emails themselves. I agree with that submission.
[1197] He had also denied having read the documents attached to the 6 February 2008 email
from Ms Platts. He had, however, in his responsive email sent at 6:34 pm said, among
other things, “as discussed the papers capture the refinements required after the original
transactions were approved and completed”.
653 See the affidavit of Mr Payne, ASIC.2000.0025.0001 at paras 20-29.
-- 261 of 348 --
248
[1198] Mr Brady submitted, therefore, that I should reject his evidence that he did not even read
those documents. His submissions about his misunderstanding of the ratification process
should also be rejected as outright lies.
[1199] Instead of pursuing Mr White for the funds and proper evidence about what had happened
to them, he accepted Mr White’s reassurance that the money would be paid back in 12 to
30 days and that MFS Limited would provide a guarantee. That was not enough to satisfy
somebody in charge of trust funds. Mr Brady submitted he was a weak character despite
his senior position within the company, engaged in obviously dishonest conduct about
which he then lied in court.
[1200] Accordingly, he submitted that the six critical flaws in the ASIC case identified by
Mr Withers should not be accepted.
[1201] Other matters Mr Brady relied on he dealt with chronologically. He argued that
Mr Hutchings knew on 21 November 2007 that there would be no assets going into MYF
in the short term.654
[1202] He knew on 26 November 2007 at 11:44 am about the drawdown of the $150 million but
did not know what PIF was going to acquire with that money.655 Mr Brady submitted
that that was quite extraordinary for someone in charge of trust moneys.
[1203] Mr Hutchings did not know when the handwritten diary entry of 28 November 2007 was
made.656 That was the document dealing with “5 saleable products”. It should not be
used as evidence that Mr Hutchings or Mr White had certain investments in mind on or
around 28 November 2007. That was because Mr Hutchings repeatedly said he did not
know the specifics of what investments would be acquired for PIF. He said he knew
about a strategy but nothing about individual investments.
[1204] Similarly, he thought that a note on the page for 20 December 2007657 had been created
about the middle of February.658 Mr Brady submitted that this entry had been made to
appear as if it had been prepared at an earlier time, which Mr Hutchings rejected, but
Mr Brady submitted was beyond argument. For those reasons, I should conclude that the
note on 28 November 2007 is not a contemporaneous record of a conversation then. Nor
were there any clear agreed transactions reached by the end of November about precisely
what loans would be transferred in what amounts and to which entity.
[1205] In respect of Mr Hutchings’ agreement to the $17.5 million payment, Mr Brady submitted
that, whether Mr Hutchings opened the attachment to the relevant email or not, he knew
perfectly well that he was agreeing first, to the proper instruction being given for payment
and that that was urgent because of the heading of the email and, secondly, that he was
agreeing to his signature being placed on it. There was no suggestion in either email that
it was conditional on anything. Ms Ring was quite insistent that she did not place the
654 DEL.2002.0008.1365 and cf T42-16/30 - T42-13/6.
655 DEL.2002.0001.2596 and paras 983-985 of ASIC’s written submissions.
656 GHUT.0001.0001.0020.
657 GHUT.0001.0001.0026.
658 See T44-77/1-4 and T40-80/1-35. See also OIM.0001.0001.0295 and T44-76/22-45.
-- 262 of 348 --
249
signature on the proper instruction until she had Mr Hutchings’ approval. There was no
reason to reject her evidence. Nor was it put to Ms Ring in cross-examination on behalf
of Mr Hutchings that the word “agree” ought to have been taken by her to mean only
“agree after you have all the proper instructions”.659 This is persuasive to my mind.
[1206] Mr Brady submitted that the conclusion from the first few sentences of his “escalation”
email sent on 21 January 2008660 showed that Mr Hutchings was then aware that the
money had not been used to purchase assets for PIF, but had been spent in breach of its
PDS, contrary to his attempts to explain those passages in his cross-examination.661 There
he said that he believed Mr Anderson had told him that the assets could not be made
whole immediately. Remarkably, it was submitted, Mr Hutchings did not suggest that
Mr White told him that, in fact, transactions had been entered into for the benefit of PIF.
Rather, he was told that there was hope that moneys would become available from Stella.
This was consistent with Mr White’s email to Mr Hutchings the next morning662 in which
he said that capital would be released from Stella soon and that the $200 million RBS
drawdown would be paid back in the next 12 to 30 days. He does not there speak of PIF
having received assets for those payments. He does refer to MFS Limited providing a
guarantee, however.
[1207] As to the electronic signatures, Mr Brady pointed out that Mr Hutchings had agreed to
the $17.5 million payment and to his electronic signature being placed on the document.
ASIC’s submission also was that where drafts were sent to him that already contained his
electronic signature, he wrote back approving the document as a whole, including his
signature on it or, if there were a gap for the signature, and it was subsequently placed
there after his approval, then that was sufficient.
[1208] He also submitted that the response to Ms Platts constituted an approval of both sets of
documents sent by her to Mr Hutchings for PIF and MYF.663 Where the later email in
time says “please see my previous email” which had said, amongst other things, “no
changes from me”, he submitted that I should, therefore, infer that he was approving both
sets of documents. The later email at 6:35 pm was exhibited to Mr Hutchings’ affidavit.
Mr Brady conceded it was not expressly put to him during his cross-examination, but the
6:34 pm email was the more significant document to which the later email refers. I accept
that submission.
[1209] In relation to the submission at para 393 of Mr Withers’ written submissions, that PIF’s
interests would have been protected if Mr White had determined in his own mind at the
time he caused the funds to be transferred that PIF would receive $147.5 million worth
of investments, he made the point that PIF’s interests would not be protected if the
company went into liquidation. Such an approach to the issue could not possibly be in
the best interests of the unitholders. Again I agree with that submission as I have made
clear several times in these reasons.
659 T7-35 - T7-40.
660 DEL.0025.0001.0624.
661 See T43-57/20 and following.
662 DEL.0006.0001.0005.
663 See DEL.2005.0001.9739 and DEL.2005.0001.9738.
-- 263 of 348 --
250
Conclusions from submissions for Mr Hutchings
[1210] The evidence recited earlier about Mr Hutchings’ involvement with and knowledge of the
drawdown of $130 million illustrates clearly that he was not aware then of any proposal
that MYF would be seeded with the funds from PIF or that it had already been seeded.
That was clear from the draft paper relating to the future restructure of MYF of
5 December 2007, after Mr Hutchings knew of the $130 million payment. Nor did his
draft IAC paper of 7 January 2008 refer to MYF. As ASIC submitted, it should have
been apparent to him by the time of his conversation with Mr White on 20 December
2007 that there had been no determination of what it was that PIF was said to have
acquired for the $130 million payment.
[1211] Nonetheless, he agreed to pay out a further $17.5 million and to the preparation and
execution of documents in late January and early February 2008 which he must have
known were at odds with what had actually occurred in late November 2007.
[1212] By 17 January 2008, it was apparent that Mr Hutchings considered that MYF’s only
investment at that stage was $2.1 million in PacFin notes. Shortly after that he received
the email from Mr Bailey of RBS seeking information on PIF’s current assets and
liquidity. That was on 21 January 2008, before he sent his “escalation” email.
[1213] During the period between the provision of the listing of loans spreadsheet and the
preparation of the documents purporting to record the relevant transactions, he was
involved in the provision of misleading information to RBS about the use of the funds
drawn from its facility.
[1214] He also knew that there had been no meeting of the IAC on 30 November 2007 recorded
in the false documents or an offer of class A units in MYF dated 1 November 2007
purportedly closing on 31 January 2008. He also knew there had been no submission to
the IAC for MYF or PIF proposing the issue of 100 million class A units in MYF.
Similarly, he was involved in the preparation of the misleading board proposal asserting
that there had been IAC approval of an investment plan for PIF to invest in MYF in
November 2007 which had not occurred then.
[1215] He signed the loan participation agreements, which on their face appear to have been
entered into before 31 December 2007, when no agreement had been reached before
February 2008, if at all, as to what loans would be participated in and in what amounts.
Those loan participation agreements together with the new loan notice conveyed a false
impression of the dates the particular agreements had been reached and documented. I
do not accept his case that he was seeking ratification of the transaction at that stage,
5 February 2008. Rather, the documents were drawn as if agreements had been made
which were to be presented to the board in that form.
[1216] I do not accept that someone of his experience could not distinguish between ratification
of agreements previously made and the misrepresentation of documents as previously
made agreements. It was as clear as day to Mr Hutchings that there had been no such
transactions before 31 December 2007 contrary to the impression the documents
conveyed. In approving the papers sent to him by Ms Platts on 6 February 2008, he must
have known that they were false.
-- 264 of 348 --
251
[1217] The conclusion that he intended that those documents would form an apparently genuine
part of MFSIM’s financial books and records is obvious. That they would become
available to the auditors is also clear. He must have known that, through those documents,
the board was being informed that the IAC had considered and approved the transactions
in November 2007 when that had not occurred.
[1218] He must also have known that the $130 million payment and the $17.5 million payment
had not been invested in accordance with PIF’s constitution for the reason relied on by
ASIC.664 The consequence of his involvement in the preparation of the false documents
also leads, inevitably, in my view, to him being involved in their keeping by MFSIM
contrary to the duty imposed by s 286 to keep correct financial records. The same applies
to the information he provided to RBS, the MFSIM board and the Compliance branch of
MFS Limited.
[1219] His failure to look after investors’ funds properly, in the circumstances, is such that his
conduct cannot be excused pursuant to s 1317S or s 1318. His agreement to the payments
away of $130 million and $17.5 million without ensuring the investors in PIF were
provided with a quid pro quo was inexcusable and dishonest.
[1220] His email of 21 January 2008 was too little too late and can bear the uncharitable
interpretation of having been sent by him to cover his own back after the events of Black
Friday and before the advent of the auditors.
[1221] Accordingly, I propose to make declarations of contraventions in respect of the
contraventions numbered 1 to 3 and 5 to 88 of ASIC’s amended schedule of alleged
contraventions.665
664 COURT.0029.0003.0001 at para 1217.
665 COURT.0030.0001.0030.
-- 265 of 348 --
252
ASIC’s case against the seventh defendant, Mr Anderson
Submissions for ASIC
[1222] ASIC argued that Mr Anderson was involved in the $130 million payment, the $103
million payment and the $17.5 million payment as well as in the creation of the false
documents and the provision of false information.
The $130 million payment
[1223] He was instrumental in effecting the three month loan facility of $250 million from
Fortress from May 2007 and was aware in November 2007 that $252 million was owing
to Fortress near the end of that month. ASIC’s case was that, by then, he was aware that
the Fortress loan was most unlikely to be able to be repaid from the expected sources such
as the sale of Stella, the establishment of a bank facility or fund raising through
JP Morgan. He was in touch with Mr White about the need to raise cash evidenced by
emails on 21 and 22 November 2007.666
[1224] Mr King raised the possibility with him of undertaking a debt or capital raising of $350
million during the week after 22 November 2007.667 Mr Anderson agreed, however, with
the opinion of Mr King expressed on 24 November 2007 that a capital raising in the
market would be costly, inconvenient and undesirable. An extension of the loan was then
the preferred option.668
[1225] Mr King kept Mr Anderson informed of developments, including his negotiations with
Fortress. On Tuesday, 27 November 2007, there was an email exchange between him
and Mr White where Mr White told him that he had the cash for the Friday.
Mr Anderson’s oral evidence was that he believed that Mr White only said that he had
the money for Fortress at that time but not for the balance of moneys needed. He did not
believe that he asked where the money was coming from.669 On his evidence, Mr White
did not give him details about where the $130 million needed was coming from. There
were exchanges between him and Mr White about bank accounts into which payments
needed to be made.
[1226] By Friday, 30 November 2007, he was aware that a $130 million deposit was due to be
paid into MFS Administration’s account. That was shown by evidence of an email from
him to Mr White, Mr Parker of MFSIM and Mr Rook. Mr Parker also gave evidence that
he received a phone call from Mr Anderson in which he was instructed to transfer the
money into MFS Administration.670 Mr Anderson denied that conversation with
Mr Parker and did not believe that he took any notice of the fact that Mr Parker’s
description in his email was “Fund Analyst, MFSIM”. It seems probable to me that
Mr Parker’s evidence was accurate. There was no reason for him to invent such a
conversation.
666 See DEL.0006.0001.0120 and DEL.0021.0001.0078.
667 See DEL.2007.0004.0133.
668 See T49-44/26-35 and DEL.2002.0002.9972.
669 See T46-46/1-12, T49-52/39-T49-54/19.
670 See T7-96/15.
-- 266 of 348 --
253
[1227] Mr Parker believed that he was acting under instructions from Mr Anderson in respect of
this payment and sent an email at 1.06 pm on 30 November 2007 telling Mr Anderson
that the request for the funds had been faxed to “PNL” who were processing it then. PNL
was sometimes used then as a reference to Perpetual who held the funds on behalf of PIF
but Mr Anderson’s evidence was that he did not know at that point that the money was
coming from Perpetual.671 Nor did he focus on Mr Parker’s description as the fund
analyst of MFSIM.
[1228] Mr Riordan responded in his oral submissions to the argument for Mr Anderson that the
provision by Mr Anderson of the bank account details for the $130 million deposit was
simply the provision of information and not a direction. He submitted that the email’s
status as a direction was made clear by his later response to Mr Parker on 30 November
2007 at 11:30:11 am.672 There he noted Mr Parker’s statement that he would transfer the
money directly by saying: “Obviously need real time and please cc all re sent”.
[1229] At 1:55 pm on the same day, Mr Anderson signed a document required for the payment
of $103 million from MFS Administration to the Fortress nominated account. From that,
ASIC submitted, plausibly, that Mr Anderson was then fully aware that the purpose of
the funds being paid to MFS Administration was to allow for the payment of the $100
million part repayment to Fortress. That money was paid shortly afterwards on the
afternoon of 30 November.673
[1230] Mr Anderson then confirmed that by email to Mr White and later there was an email
exchange between him and Mr Slack where Mr Slack confirmed that the moneys had
been received. Mr King replied saying “great work guys”.674
[1231] Thus, the essence of ASIC’s allegations against Mr Anderson in respect of the $130
million payment and the $103 million payment was that he gave instructions in late
November for the $130 million payment to be made into the MFS Administration bank
account and the $103 million payment to be made into the Fortress account. He knew
then that the $130 million payment was being made for the purposes of the MFS Group
repaying $103 million to Fortress. The $130 million payment was made from funds
managed by MFSIM as the responsible entity of PIF and there was no transaction which
made the $130 million payment to the extent of the $103 million payment a proper
payment from PIF’s funds. ASIC submitted, therefore, that he did not act honestly or in
the best interests of the members of PIF in contravention of the Act as set out in paras 60
and 61 of the statement of claim. Counsel for ASIC relied on a number of emails sent on
30 November 2007 together with the conversation with Mr Parker as evidence of the
instructions.
[1232] In respect of his knowledge that the payments were made for the purpose of the MFS
Group repaying $103 million to Fortress, they submitted that it was demonstrated by the
emails and by his direct evidence that Mr White told him on 26 or 27 November 2007
that the $130 million deposit was for the purpose of paying Fortress.675
671 See T49-73/40-47.
672 DEL.2002.0001.9687.
673 See DEL.2002.0002.0660.
674 See DEL.0037.0001.0340.
675 See T46-46/45-T46-47/10.
-- 267 of 348 --
254
[1233] Mr Anderson denied being told that the $130 million payment was made from PIF funds
and says that he believed that there would have been a transaction which made the
payment a proper payment. His unchallenged evidence included his statement that, in
giving instructions to the staff of MFS Administration to make the bank transfer of $103
million from the MFS account to the account nominated by Fortress, he believed that
what was being transferred was money that belonged to MFS Administration. At the time
he said he was unaware that the money might belong to the payer of the $130 million.676
Nor was he challenged on his evidence that he did not know, at the time, that the $130
million bank transfer represented a financial benefit by PIF to MFS Administration, MFS
Castle, MFS Limited or MFS Financial Services.677
[1234] ASIC submitted that his evidence on these questions was inherently improbable because
of the following facts:678
“582 …:
(a) White, as the known organiser of the funds, was the Deputy CEO
of MFS and responsible for managed funds including PIF.
(b) Anderson was the CFO of MFS Limited whose responsibilities
included at least the monitoring of cash flow and in such position
had, not only a proper interest in, but a need to understand the
details of the substantial transaction for accounting, auditing and
other purposes. The implausibility of his evidence is heightened
by the fact that he said that he believed (although he did not
inquire) that the transaction probably involved the repayment of
loans by Pacific Finance Limited of which he was a director and
in which took particular interest with respect to cash flow.
(c) White and Anderson had numerous communications during the
week in which the $130 million payment was effected and
afterwards during which time:
(i) there was no suggestion that White or King would have had
any reason not to disclose the source of the funds to
Anderson; and
(ii) White did inform Anderson that in fact the amount of funds
becoming available was $150 million although only $130
million was being paid at that time.
(d) By email at 4:47 pm to White, Anderson adds a P.S. ‘we never
did get the extra $20m you spoke of - only 130m received.’
Anderson’s evidence was that White, in the last week in
November, ‘made some reference to and there could be another
20 later’ without telling him that $150m was being drawn down
by PIF is unlikely and not consistent with the statement in the
email.”
676 See the collection of his evidence said to be unchallenged in COURT.7000.0003.0002 and T46-67-T46-68/5;
T45-62/11-19.
677 T46-67/24-26.
678 See COURT.0029.0003.0001 (footnotes omitted).
-- 268 of 348 --
255
[1235] ASIC submitted that I should reject Mr Anderson’s evidence in respect of these issues as
inherently unlikely and that his evidence generally was also unreliable. Mr Riordan
submitted orally that I should not believe Mr Anderson’s evidence that he was not aware
that the funds were coming from MFSIM. One needed to take into account his position
as CFO for the MFS Group and his knowledge that the money had been organised by
Mr White who was in charge of the managed funds. Mr Anderson’s evidence that he did
not need to know about the source of the funds at that stage for financial reporting
purposes because he was focussed on the December 2007 accounts rather than November
was implausible.
[1236] In addressing that issue they drew attention to the emails, including information that
Mr Parker was a funds analyst employed by MFSIM where the funds were being
transferred from PNL, which Mr Anderson knew was a reference to Perpetual which held
the account for PIF.
[1237] They also relied upon the “creative brain” email of 15 January 2008.679 That was where
Mr White wanted his assistance in identifying assets that would, retrospectively, be said
to have formed the consideration for the payments of $147.5 million made by PIF at the
end of November and December 2007. The argument was that the email and the
attachment assumed background knowledge in Mr Anderson of the transactions. His
evidence that he had not read that email when he responded to it at 3:58 am on 17 January
2008, ASIC argued was implausible and inconsistent with him saying in the email that he
needed to turn his mind “in this direction”. Later, on 23 January 2007, he completed the
task requested and worked out what the $147.5 million went to.680
[1238] ASIC further submitted that Mr Anderson’s explanations of matters such as the “creative
brain” email, that he performed the role of a mere typist in relation to the listing of loans
that made its way in a modified form into the participation agreements, should be rejected
as entirely lacking any credibility. The reality was that he was one of two architects of
the scheme, with Mr White, that resulted in the production of the false documents.
[1239] ASIC’s supplementary written submissions dealing with the false documents case
continued as follows:681
“12. On 14 January 2008, Anderson provided a half-explanation of the
‘Funding of $100m for Fortress’ by referring to ‘moving Loans (either
to 3rd parties or to MFS Pacific Finance) into a new investment Fund’:
DEL.2004.0007.7377.
13. The next day, 15 January 2008, Anderson was asked by White to come
up with an explanation of ‘what the $147.5 went to’.682 That request,
made by White in his email of 15 January 2008, was accompanied by a
draft PIF IAC paper that was backdated to 28 November 2007.683
679 See DEL.0025.0001.0392.
680 DEL.0006.0001.0169 attaching DEL.0006.0001.0170.
681 COURT.0030.0004.0001.
682 DEL.0025.0001.0392.
683 DEL.0025.0001.0395.
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256
14. Shortly after Anderson told Hutchings that he was ‘confident of the way
forward’,684 Anderson did in fact provide the explanation that White
sought. Anderson first came up with a list of loans that totalled
$105m,685 just over the $103m of PIF’s money that had been paid to
Fortress. Twenty minutes later, Anderson sent a revised list, this time
with loans totalling just over $147.5m
15. When 333 Capital sought an explanation of the transactions in February
2008, they were told that Anderson could explain them, and Anderson
did so.686
16. On 8 February 2008, Anderson received and printed a collection of 8 of
the false documents: DEL.2004.0001.7204. The Court should reject
Anderson’s explanation that he did not read those documents, and find
that he did.
17. When all this objective evidence is considered, and if Anderson’s story
is rejected as it should be, it is plain that Anderson was instrumental in
setting up a scheme to create false, backdated documents to disguise the
fact that PIF investors’ money was taken in November 2007 without
there being any transaction at that time providing PIF with assets in
return.
18. Mr Anderson, therefore, is in the same position as the defendant in
Australian Communications and Media Authority v Mobilegate Ltd
[No 8] (2010) 275 ALR 293 who established a dishonest scheme that
was then implemented by others. There, the fact that the defendant did
not know the precise way in which the scheme was implemented by
others did not prevent the Court from finding that the defendant was
knowingly involve [sic] in their conduct. In fact, the case against
Mr Anderson is stronger than that against the defendant in Mobilegate.
Mr Anderson did know the precise form of the false documents alleged
against him. He was sent them on 8 February 2008.”
[1240] It was also submitted I should reject the contention for Mr Anderson that he gave no
direction to Mr Stride to draw up documents implementing the scheme Mr Anderson and
Mr White had come up with. Mr Anderson’s conduct in being present at the meeting as
CFO of the MFS Group with Mr Stride when the documents were being discussed without
objection by Mr Anderson was more than enough participatory conduct for the purposes
of knowing involvement in the relevant breaches. There was a practical connection with
at least one element of the false documents, their creation.
[1241] The contemporaneous documents also show that the acquisition by PIF of units in MYF
was discussed as well as the creation of loan participation agreements. The diagram
drawn by Mr Stride during that meeting recorded the entire scheme, including with
respect to the units.687
684 DEL.1300.0004.4242.
685 DEL.2000.0003.2936 attaching DEL.2000.0003.2937 [sic]. (Perhaps DEL.2006.0003.2930 attaching
DEL.2006.0003.2937).
686 DEL.1300.0003.1720; DEL.2006.0002.7742 attaching DEL.2006.0002.7743.
687 OIM.0001.0001.0377.
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257
[1242] As MYF was a closed fund, for new units to be issued to PIF, documentation such as the
information memorandum, application forms and unit certificates would obviously have
to be issued so that there was a clear practical connection between the meeting with
Mr White, Mr Anderson and Mr Stride and the subsequent meeting with Mr Stride,
Ms Platts and Mr Gavras-Moffat on 27 January 2008.
[1243] Nor was para 137 of the statement of claim confined to accounting records, contrary to
para 569 of Mr Anderson’s written submissions. Mr Anderson’s argument was that
“accounting record” was deliberate language used to describe documents of prime entry
and derivative documents. ASIC points out, however, that it was plain that the allegation
of what the auditors were provided access to included the false documents within para
137 of the statement of claim. Therefore, it submitted, the substance of its case was that
the false documents at the heart of the case were made available to PIF’s auditors and it
did not matter whether those documents could be described as “accounting records” or as
documents “which recorded loans made by MFSIM”. That argument seems to me to be
correct.
[1244] Therefore, Mr Anderson’s participation in the creation of the false documents rendered
him knowingly concerned in the contraventions related to the keeping of the false
documents and making them available to the auditors. In ASIC’s submission, it did not
matter that Mr Anderson himself may not physically have kept the documents or handed
them over to the auditors. Nor did it matter that there was no evidence that he knew of
their location on the computer server within MFSIM. There was a practical connection
with at least one of the essential elements of the contravention.688
[1245] Similarly, an email from Mr Hutchings to Mr Anderson of 18 January 2008 relating to
outstanding details with the $147.5 million loan was said by Mr Anderson not to have
been read by him.689 ASIC argued that I should reject that evidence and that its content
indicated the people with whom he was corresponding believed him to have the necessary
information to deal with the proposed transactions. Similar submissions were made in
respect of another email from Ms James to Mr Anderson on 18 January 2007.690
[1246] ASIC similarly criticised his evidence as unreliable in respect of the email from Ms James
identifying the auditing problem with respect to the $147.5 million payment.
Mr Anderson’s evidence in chief was that he became aware of the desire by PIF to delay
the auditors about that time, 20 January 2008. He said this was something he had become
aware of as a result of a telephone call from Ms James or Mr Hutchings when he was in
a taxi in Sydney. He said he had no recollection of reading the email from Ms James that
had requested the names of the three entities that were going to be allocated the $147.5
million on 18 January 2007.
[1247] ASIC’s argument was that Mr Anderson appeared already to be aware of the issue about
the auditors and the loans before he spoke to Ms James. In their submission, he must
have discerned that by reading her email. They argued that he was trying to reconstruct
events on the basis of the emails but reformulating them in an attempt to be consistent
688 Agricultural Land Management Ltd v Jackson (2014) 48 WAR 1, 56 at [294].
689 DEL.2006.0003.4552.
690 DEL.2005.0004.1013.
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258
with his denial that he knew of the source of the funds and that there would have been a
transaction in place making the payment proper.
[1248] Similarly, he denied opening the attachments relating to the IAC minutes and submissions
with respect to the alleged transactions sent to him by Ms Platts on 8 February 2008 at
10:25 am.
[1249] For these reasons, ASIC submitted that Mr Anderson always needed to know how the
payment of $130 million should be allocated so that it was probable that he would have
inquired from Mr White about the nature of that payment. One of his explanations was
that he did not need the details of the transaction for the November accounts because he
was then focussed on the December accounts which, ASIC submitted, was implausible.
They criticised his evidence that he had been told nothing about the underlying
transaction, it being inconsistent with the statement by him to Mr Ball in an email at
5:01 pm on 4 December 2007 about the treatment of the $130 million funding. There he
said to Mr Ball: “I think I know where we should put it - just need to clarify”.691
[1250] ASIC also relied upon an email sent by him to Mr White about cash flow at 12:10 pm on
14 December 2007 where he was asked about the expression in it “130m ‘Payable’ of last
month”.692 His variety of explanations for that expression, including that it was an
educated guess as to what the payment could have been was criticised by ASIC. Its
counsel argued that he was fully aware that the sum had been simply taken the previous
month so that it was “payable” until some decision was made as to what should be done
with it. It was initially treated as a repayable loan rather than as payment for assets
acquired.
[1251] I also drew attention to the fact that he had described himself as holding the position of
CFO of MFSIM in an email on 16 March 2008 to Mr Hutchings. His attempt to resile
from that in his evidence,693 ASIC argued, demonstrated his preparedness to give
evidence to suit the story then in his interests.
[1252] Other inconsistencies to which ASIC drew my attention included Mr Anderson’s dealings
with requests for information from Mr Gannon and Mr Cecil. They submitted he
demonstrated that he knew the money had come from PIF and that there was a need for
information or documentation supporting the alleged underlying transactions for which
the money from PIF’s funds had been paid. It is notable during that period that he
asserted, for example, on 19 December 2007, that PIF had not loaned MFS Limited any
funds but that MFS Limited had transferred to PIF the benefit of existing loans.694 When
asked for a copy of the documentation underlying the transfer of the loans on 20
December 2007 by Mr Cecil,695 however, he replies saying he does not understand why
the bank needs to have this information. When Mr Cecil explained why the banks would
need the information, that did not prompt Mr Anderson to provide it or the documents
supporting the underlying transactions.696
691 See DEL.2007.0003.7110.
692 See DEL.2004.0007.9585.
693 T48-80/1-5.
694 See DEL.2004.0007.7867.
695 See T49-87/35.
696 See DEL.0040.0001.0381.
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259
[1253] ASIC pointed to inconsistencies in his evidence about this issue as to whether he was
referring to the Fortress payment or the September transactions involving Living &
Leisure and Domain and argued that, by 14 January 2008, Mr Anderson was aware of, if
he had not already created, the ultimate fabricated transactions.697 They submitted that
his claim not to have known of the source of the funds and to have assumed that a
transaction was in place, should be rejected. It was inconsistent with his reference in his
email at 6:06 pm on 14 January 2008 that MYF had acquired about $100 million in loans
including unsecured loans to MFS Living & Leisure Group, a loan to Domain Aged Care
Group and a loan to Young Village Estates. He said that in essence the $100 million was
raised from moving loans either to third parties or from PacFin to a new investment
fund.698 It was notable that the email’s subject was “Funding of 100m for Fortress”.
[1254] ASIC rejected Mr Anderson’s explanation that he was confused at the time about this
email and submitted that there was no explanation consistent with his innocence for his
including in the email the reference to the scheme that would ultimately form the basis of
the alleged transaction.699 By that stage he was well aware of the process that was
occurring.
[1255] ASIC referred to a number of other responses by him to evidence and emails created by
him as implausible if he truly was as ignorant as he claimed of what had happened.700
These included the eruption, if I can call it that, by Mr Hutchings in his email of 21
January 2008701 which expressed his concern that the money drawn down from PIF had
not been used to purchase assets to replace a similar amount of facilities and may have
been invested improperly. It was that which drew the response from Mr Anderson that
Mr Hutchings or “it” could be the “bomb that needs diffusing [sic]” after which Mr White
replied by saying that he and Mr Anderson needed to have a pretty frank conversation the
next day.
[1256] ASIC attacked Mr Anderson’s attempt to characterise this phraseology as a reference to
Mr Hutchings being under extreme stress. Rather, it was more consistent, as is my view,
with an indication that Mr Anderson believed there was a significant problem requiring
resolution. ASIC also submitted that, if he was as ignorant of matters as he claims, then
his response to Mr White was entirely inconsistent with such ignorance in the face of an
allegation about misappropriation of $200 million. Similarly, his attempts to deal with
the email by saying that he believed it was a reference to deals in September rather than
the ones more logically referred to in the email was implausible.
[1257] ASIC also drew attention to Mr White’s email at 7:04 am on 22 January 2008 to
Mr Hutchings in which he says that the $200 million RBS drawdown would be paid back
in the next 12 to 30 days and MFS Limited would provide a guarantee702 as action taken
by Mr White to defuse the issue raised by Mr Hutchings. They submitted that it would
be extraordinary if that was done by Mr White without him discussing it with
Mr Anderson.
697 ASIC’s final submissions at paras 616-617.
698 See DEL.2004.0007.7377.
699 See Mr Anderson’s evidence at T50-16 and Mr Riordan’s oral submissions at T58-32-T58-33.
700 See ASIC’s written submissions at paras 619-637 and the oral submissions at T58-21-T58-27.
701 DEL.0025.0001.0624.
702 See DEL.0006.0001.0005.
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260
[1258] Then, on 23 January 2007, ASIC alleged it was apparent that Mr Anderson was
formulating lists of loans needed to justify the payments totalling $147.5 million and the
explanation Mr Anderson offered, that up to 7 February 2008 he only had a limited
understanding of the alleged transaction, was ludicrous and should be rejected. They also
submitted that his attempt to explain the payment by reference to the Living & Leisure
and Domain Guardian transactions was implausible and should also be rejected. The sale
of those loans to PIF was required by MFS’s need to raise money to pay its declared
dividend and the events occurred back in September 2007.
Summary of Mr Anderson’s contravention with respect to the $130 million payment and
the $103 million payment
[1259] ASIC submitted that this conduct by Mr Anderson constituted the following
contraventions of the Act:
“(a) s 601FC(5) and s 209(2) because he was involved, within the meaning
of s 79(c), in the contraventions of MFSIM with respect to the $130
million payment and the $103 million payment by:
(i) not acting honestly;
(ii) alternatively, failing to exercise the required degree of care and
diligence;
(iii) not acting in the best interest of the members of PIF;
(iv) failing to ensure the $130 million payment to the extent of the
$103 million payment was made in accordance with PIF’s
constitution.
(b) s 601FD(3)(a), (b), (c), (e), (f) with respect to the $130 million payment
and the $103 million payment by reason of respectively:
(i) not acting honestly;
(ii) alternatively, failing to exercise the required degree of care and
diligence;
(iii) not acting in the best interest of the members of PIF;
(iv) by making improper use of his position as an officer of MFSIM;
(v) failing to take steps that a reasonable person would take if they
were in the Anderson’s position to ensure that MFSIM as
responsible entity for PIF complied with its constitution.”
[1260] Each of the above contraventions, ASIC submitted:
“(a) was of a corporation/scheme civil penalty provision as defined in
s 1317DA of the Act;
(b) materially prejudiced the interests of PIF, and its members, within the
meaning of s 1317G(b)(i) of the Act for the reasons pleaded; and
(c) was serious within the meaning of s 1317G(b)(iii) of the Act for the
reasons pleaded.”
-- 274 of 348 --
261
The $17.5 million payment
[1261] ASIC submitted that Mr Anderson’s involvement in the contraventions of MFSIM and
his contraventions with respect to the $17.5 million payment were constituted by his
request in late December 2007 that the $17.5 million payment be made to PacFin’s
account when he knew that:
“(a) the $17.5 million payment was made for the purpose of enabling PacFin
to pay its debenture and noteholders by 28 December 2007;
(b) the $17.5 million payment was made from funds managed by MFSIM
as responsible entity of PIF; and
(c) there was no transaction which made the $17.5 million payment a
proper payment from PIF’s funds.”
[1262] Because of those facts, ASIC alleged that Mr Anderson did not act honestly and did not
act in the best interests of the members of PIF in contravention of the Act as set out in
para 61 of the statement of claim.
[1263] The evidence of the request for the $17.5 million was an email at 1:26 pm on 24 December
2007 from Mr Anderson to Mr White copied to Ms Brown and Ms Easton703 and was
admitted by Mr Anderson in evidence.704
[1264] His evidence was that the purpose of the $17.5 million payment was to allow PacFin to
pay redemptions due to its debenture and note holders.705 Mr Anderson conceded that he
was aware that the $17.5 million payment was to be made from PIF, possibly as early as
19 December 2007.706 He agreed that he instructed Ms Brown that the payment would
be coming from PIF before Christmas 2007.707 ASIC also relied upon a number of emails
making it clear that the payment was being made from PIF’s account.708
[1265] In supporting its argument that there was no transaction that made the $17.5 million
payment a proper payment from PIF’s funds, ASIC relied on its case that the
consideration was not formulated until late January 2008 and finally documented in
February 2008. In submitting that Mr Anderson was aware that there was no transaction
that made the payment a proper payment from PIF’s funds, it relied on the emailed
communications making no reference to the payment being an investment, much less
identifying the nature of the investment and on the fact that, even after the payment, on
3 January 2008, Ms Brown, the accountant at PacFin, Ms James, the accountant of
MFSIM and Mr Wilson, a corporate accountant, knew nothing of the terms of the
investment.709
703 DEL.2003.0001.1187.
704 T50-7/5-9.
705 T46-72/7-17 (examination in chief); T50-7/26-30 (cross-examination).
706 T46-71/37-45.
707 T50-6/33-46.
708 DEL.2003.0001.0146 and DEL.0009.0001.0097.
709 DEL.2005.0004.1268.
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262
[1266] That Mr Anderson was aware of the fact that there was no such transaction was to be
inferred from his request for the money solely to resolve PacFin’s cash flow issues, his
admission that he was unaware of any consideration being provided to PIF for its $17.5
million and because the payment of $17.5 million was made in an irregular manner direct
from PIF due to the urgency of the matter.710
[1267] Mr Anderson’s counsel challenged this assertion on the basis that Mr White told him that
consideration was being provided in the form of unsecured notes or debentures,
something he passed on to Ms Brown. This was also identified as one of the passages of
his evidence not challenged by ASIC in cross-examination.711 ASIC’s submission was
that I should not accept that statement and that none of the contemporaneous emails
referred to any investments having been made when employees were asking those precise
questions.712
[1268] ASIC also relied upon the comparison between a contemporaneous investment made by
MYF and this payment where it was clear that MYF was making a $2.1 million
investment in PacFin notes. On the other hand, the $20 million, which later became the
$17.5 million payment going into New Zealand was characterised as one to deal with a
redemption and interest obligation but did not identify any corresponding acquisition.713
[1269] ASIC submitted that Mr Anderson’s evidence that he thought Mr White may have done
the transactions without reference to him as a director should be rejected, as should his
belief that Mr White had organised an investment in PacFin notes for the reasons I have
set out. The submission was that this followed also because of the general unreliability
of his evidence with respect to the $130 million payment.
[1270] Mr Riordan’s summary in respect of Mr Anderson’s credibility was that he was willing
to use PIF’s funds for MFS’s purposes and that he had told lies to attempt to explain away
a whole series of otherwise inexplicable events. His conduct was inconsistent with the
contemporaneous emails and any reasonable interpretation of them.
[1271] Accordingly, ASIC submitted that this conduct by Mr Anderson with respect to the $17.5
million payment constituted contraventions of s 601FC(5) and s 209(2) of the Act
because he was involved, within the meaning of s 79(c) of the Act, in the contraventions
of MFSIM with respect to the $17.5 million payment in that he did not act honestly or in
the best interests of the members of PIF and failed to ensure the $17.5 million payment
was made in accordance with PIF’s constitution. ASIC argued that similar conclusions
should follow in respect of contraventions of s 601FD(3)(a), (b), (c), (e) and (f) of the Act
with respect to the $17.5 million payment because he did not act honestly, or in the best
interests of the members of PIF, made improper use of his position as an officer of
MFSIM and failed to take steps that a reasonable person would take if they were in his
position to ensure that MFSIM as responsible entity for PIF complied with its
constitution.
710 ASIC.2000.0034.0001; affidavit of Yvette Brown at para 50.
711 COURT.7000.0003.0002, item 4.
712 See Mr Riordan’s oral submissions at T58-43-T58-47.
713 DEL.2006.0004.1515.
-- 276 of 348 --
263
[1272] Again, ASIC argued that each of the above contraventions was of a corporation/scheme
civil penalty provision as defined in s 1317DA of the Act, materially prejudiced PIF’s
interests and those of its members within the meaning of s 1317G(b)(i) of the Act for the
reasons pleaded and was serious within the meaning of s 1317G(b)(iii) of the Act for the
reasons pleaded.
False documents and provision of false information
[1273] ASIC submitted that the key events that evidenced Mr Anderson’s primary
contraventions of the Act and rendered him knowingly concerned in certain
contraventions committed by MFSIM fell under five headings: the email from Mr White
to him seeking help from his “creative brain” and other requests for him to help,
Mr Anderson’s response to the request for his help including the listing of loans, the
meeting between Mr White, Mr Anderson and Mr Stride where Mr Stride was instructed
to prepare documents in relation to a transaction described in the meeting, the receipt and
printing of a suite of false documents and discussions with 333 Capital.
“Creative brain” and other requests for Mr Anderson to help
[1274] I have referred to the “creative brain” email714 on several occasions. Mr Hutchings had
asked Mr White for assistance with the identification of investments for the PIF
investment into a new asset backed loan. In his email forwarding that request to
Mr Anderson, he asked him to work out what the $147.5 million “went to”. ASIC
submitted that his explanation of matters such as the “creative brain” email, and him
performing the role of a mere typist in relation to the listing of loans that made its way
(in a modified form) into the participation agreements, should be rejected as entirely
lacking any credibility.
[1275] The importance of the identification of the investments was emphasised to Mr Anderson
in a further email from Mr Hutchings at 2:00 pm on 18 January 2008 forwarding an email
from Ms James in which Mr Hutchings emphasised the importance of the details
concerning the $147.5 million “loaned” as Ms James said in her email at that time.715 She
had referred to the need to have an answer by the close of business on that day, 18 January
2008, because the auditors were due on the following Monday.
[1276] Ms James reiterated her concerns at 3:25 pm on 18 January 2008 in an email to
Mr Anderson copied to Mr White and Mr Hutchings asking for the names of the three
entities to which payments were to be allocated.716 There was further correspondence on
20 January 2008 and 21 January 2008, including the “escalation” email from
Mr Hutchings at 5:13 pm on 21 January 2008 referred to earlier, directed to Mr White
and copied to Mr Anderson expressing his very serious concern that the money drawn
down by PIF from the RBS facility had not been used to purchase assets to replace a
similar “amount of facilities that are maturing in the month or so for assets that would
seed the maximum yield fund”. He went on to express his concern that it may have been
714 DEL.0025.0001.0392.
715 DEL.2006.0003.4552.
716 DEL.2005.0004.1013.
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264
invested in a manner in breach of the PIF PDS and related party requirements.717 Just
before midnight on 21 January 2008, Mr Hutchings also sent an email to Mr Anderson
and Mr White forwarding an email from Mr Bailey at RBS sent earlier that day,
requesting information about PIF’s assets.718
Mr Anderson’s response to the requests for his help: the listing of loans
[1277] In dealing with Mr Anderson’s response to the requests for his help including the listing
of loans, ASIC relied on the evidence of the exchange of emails between him and
Mr White speaking of Mr Hutchings being the “bomb that needs diffusing [sic]” and
Mr Anderson speaking of the need to “focus on what is best for the PIF investors in
getting all the loans back in that deal”.719 The email from Mr Hutchings to Ms Platts,
copied to Mr White and Mr Anderson of 23 January 2008 at 7:10 am concerning the
information requested by RBS, also included the statement that Mr Hutchings had just
spoken to Mr Anderson who was “confident of the way forward”.720 That same day by
email at 8:06 am to Mr White, Mr Anderson attached a list of loans “as requested”
totalling $105 million.721 Ms Platts was then sent the same list of loans as that attached
to Mr Anderson’s email of 8:27 am at 10:19 am on the same day.722 That email from
Mr Anderson to Ms Platts described the list “as discussed”.
[1278] Subsequently, at 2:28 pm on the same day, Ms Platts sent an email to Mr White and
Mr Anderson attaching an updated current PIF asset report incorporating the borrowers
and amounts identical to Mr White’s earlier list except that Maximum Yield Fund at
number 1 was substituted for the Qdeck $30 million entry. Ms Platts’ email said:723
“David/Craig
Please see updated Current Assets Tab on the attached report. The list of
loans have now been included.
Need to provide to RBS this afternoon, so please let me know as soon as you
can if you see major issues with the classifications etc.
(I have discussed with Marilyn from MFSIM - so I have them on board).”
[1279] Then, on 24 January 2008, Mr White and Mr Anderson met Mr Stride where he,
Mr Stride, was instructed to prepare documentation. Mr White explained most of the
transactions but Mr Anderson spoke to Mr Stride about at least one point concerning them
and was present for the entirety of the meeting where the instructions were given.724 His
unchallenged evidence included the statement that Mr White told him that the
transactions had occurred at the time, but that he had not done the paperwork. 725
717 DEL.2006.0003.3347.
718 DEL.0025.0001.0606.
719 DEL.2006.0003.3330 and DEL.2006.0003.3347.
720 DEL.1300.0004.4242.
721 DEL.0006.0001.0161 attaching DEL.0006.0001.0162.
722 DEL.2005.0006.4514 attaching DEL.2005.0006.4515.
723 DEL.2004.0006.8004 attaching DEL.2004.0006.8005.
724 T50-62/37-38.
725 T47-60/1-2; COURT.7000.0003.0002, item 14.
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265
[1280] Mr Stride recalled that Mr Anderson answered one question that Mr Stride had asked,
namely, whether there was to be security for the loan participation transaction that
Mr Stride was being asked to document.726
[1281] On 8 February 2008, Ms Platts sent Mr Anderson a number of the false documents “as
requested”.727 Mr Anderson then sent that email to his assistant, Ms Collins, asking her
to print those documents.728 ASIC submitted that Mr Anderson’s suggestion that he did
not read the attachments either electronically or in hard copy and merely had them printed
for the benefit of 333 Capital should not be accepted.
[1282] On 7 February 2008, Mr Hutson of 333 Capital received from Mr Anderson an
explanation of:729
“the transfer of loans worth approximately 100m between MFS Pacific
Finance PAC and MFS Premium Income Fund PIF in December 2007
which was not recorded in the books until early February 2008.”
Mr Anderson’s primary contraventions - false documents
[1283] ASIC’s case about Mr Anderson’s own primary contraventions was that at the time he
supplied the list of loans to Mr White, and when he participated in the meeting with
Mr Stride, he knew that $147.5 million of PIF’s money had been paid to MFS
Administration, and used to repay Fortress. He also knew that Mr White had not yet
“work[ed] out what the $147.5 went to” from PIF’s perspective. More than six weeks
after the payment to Fortress, he knew that PIF’s accounts still did not show any assets as
having been acquired with the $147.5 million. He also knew that when assets were
allocated to PIF for this purpose, that information would be provided to MFSIM’s
auditors as if those assets had been acquired in November and December 2007, when in
fact they were not.
[1284] ASIC submitted that I should reject Mr Anderson’s assertion that he did not read
Mr White’s “creative brain” email and conclude that he was asked to provide, and did
provide, a list of assets knowing that that list would form the basis of a retrospective
justification for PIF’s payments in November and December 2007. In reality, as
Mr Anderson knew, there was no transaction at the time of those payments pursuant to
which PIF received anything at all in consideration for paying $147.5 million of investors’
money to related companies. With that knowledge, Mr Anderson participated in a
meeting with Mr Stride knowing that what Mr Stride was being asked to do was to
prepare documentation that would be necessary to disguise what had really happened in
November and December 2007. His conduct was, in those circumstances, dishonest, and
if not dishonest, in contravention of his duty to take steps to prevent MFSIM from itself
breaching the Act.
726 ASIC.0029.0032.5333, p 31/1-9. This statement is tendered against all individual defendants
[COURT.0020.0001.0004] (no 7).
727 DEL.2004.0001.7204. For the attachments see DEL.2004.0001.7215, DEL.2004.0001.7217,
DEL.2004.0001.7205, DEL.2004.0001.7207, DEL.2004.0001.7213, DEL.2004.0001.7211 and
DEL.2004.0001.7209.
728 DEL.2007.0002.8781.
729 DEL.2006.0002.7742 attaching DEL.2006.0002.7743 (emphasis added).
-- 279 of 348 --
266
[1285] In arguing against para 80 of Mr Anderson’s written submissions, ASIC also submitted
that the absence of evidence as to who handwrote the dates on the application forms for
the MYF class A units and the unit certificates did not prevent a finding that the
responsible entity was responsible for the creation of those false documents. When the
documents were signed by Mr White and Mr Hutchings, they already had dates typed on
them, 23 November 2007 for the application forms and “2007” for the unit certificates.
Those were false dates and it could not sensibly be suggested that the insertion of the
dates by someone in hand was done without MFSIM’s authority. The whole point of the
dishonest scheme, attributable to MFSIM, was to backdate the suite of false documents.
[1286] It was also submitted I should reject the contention made for Mr Anderson that he gave
no direction to Mr Stride to draw up documents implementing the scheme Mr Anderson
and Mr White had come up with. Mr Anderson’s conduct in being present at the meeting
as CFO of the MFS Group with Mr Stride when the documents were being discussed
without objection by Mr Anderson was more than enough participatory conduct for the
purposes of knowing involvement in the relevant breaches. There was a practical
connection with at least one element of the false documents, their creation.
[1287] The contemporaneous documents also show that the acquisition by PIF of units in MYF
was discussed as well as the creation of loan participation agreements. The diagram
drawn by Mr Stride during that meeting recorded the entire scheme, including with
respect to the units.730
[1288] As MYF was a closed fund, for new units to be issued to PIF, documentation such as the
information memorandum, application forms and unit certificates would obviously have
to be issued so that there was an obvious practical connection between the meeting with
Mr White, Mr Anderson and Mr Stride and the subsequent meeting with Mr Stride,
Ms Platts and Mr Gavras-Moffat on 27 January 2008.
[1289] Nor was para 137 of the statement of claim confined to accounting records, contrary to
para 569 of Mr Anderson’s written submissions as I have already discussed. Therefore,
ASIC submitted, and I accept, the substance of its case was that the false documents at
the heart of the case were made available to PIF’s auditors.
[1290] Therefore, Mr Anderson’s participation in the creation of the false documents rendered
him knowingly concerned in the contraventions related to the keeping of the false
documents and making them available to the auditors. In ASIC’s submission, it did not
matter that Mr Anderson himself may not physically have kept the documents or handed
them over to the auditors. Nor, as I have discussed earlier, did it matter that there was no
evidence that he knew of their location on the computer server within MFSIM. There
was a practical connection with at least one of the essential elements of the
contravention.731
730 OIM.0001.0001.0377.
731 Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1, 56 at [294].
-- 280 of 348 --
267
Mr Anderson’s primary contraventions - providing false information to RBS
[1291] ASIC’s case about Mr Anderson’s provision of false information to RBS was that at
11:55 am on 21 January 2008, Mr Hutchings sent an email to Mr Anderson and
Mr White, forwarding an email from Mr Bailey at RBS sent earlier that day, which
requested information about PIF’s asset. Mr Hutchings’ email said:732
“Request from RBS as below. This will also need urgent attention and I will
need your assistance.”
[1292] The email from Mr Bailey forwarded to Mr Anderson said:
“Given the recent press coverage and announcements within the MFS Group
I would like to request more information on the funds current assets and
liquidity profile… At your earliest convenience would you please provide a
list of all assets by current value, maturity date and asset class.”
[1293] On 23 January 2008, at 2:28 pm, Ms Platts sent an email to Mr Anderson (and Mr White)
which informed Mr Anderson that the details set out in the listing of loans had been
recorded in the accounts of MFSIM as investments that PIF had made and attached an
asset report of PIF with highlighted entries under the headings “asset backed investments”
and “property managed investment schemes”, showing investments made by PIF based
on the lists of loans provided by Mr White to Ms Platts, which in turn was based on the
list Mr Anderson provided Mr White and informed Mr Anderson that the attached asset
report was to be provided to RBS that afternoon.733
[1294] Accordingly Mr Anderson knew that the list of loans he created was, with some relatively
minor modifications, being incorporated in information sent to RBS and used as the basis
of a suggestion that assets had been acquired by PIF in November and December 2007
with money drawn down from the RBS facility, when in fact there was no such
acquisition. Mr Anderson’s conduct was, in ASIC’s submission therefore, dishonest, and
if not dishonest, in contravention of his duty to take steps to prevent MFSIM from itself
breaching the Act.
Mr Anderson’s primary contraventions - misinforming and failing to inform Compliance
[1295] In this context ASIC’s submission was that Mr Anderson was directly involved in dealing
with the compliance section of MFS Limited when questions were raised about the
propriety of PIF’s alleged investment in MYF class A units. His statement in the
memorandum he prepared dated 17 February 2008 that MYF had issued class A units “a
few months ago” was known by him to be false. He knew that the memorandum would
be, and was, provided to the compliance section of MFS.734
[1296] Therefore, in preparing and sending his memorandum of 17 February 2008, Mr Anderson
acted dishonestly in contravention of s 601FD(1)(a), or at least carelessly in contravention
of s 601FD(1)(f).
732 DEL.0025.0001.0606.
733 DEL.2004.0006.8004 and DEL.2004.0006.8005.
734 See the email from Mr Hutchings on 18 February 2008 copied to Mr Anderson and Mr White;
DEL.2005.0001.7233, attaching DEL.2005.0001.7234.
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268
Mr Anderson’s involvement in MFSIM’s contraventions - creating and keeping of false
documents
[1297] ASIC’s argument that the documents the subject of the ancillary contraventions it alleges
against Mr Anderson related to this list of documents:
(a) the MYF class A units information memorandum dated 23 November 2007 (paras
113, 187E, 188E(a), 210A(a) and (b) of the statement of claim)
[OCA.0002.0004.0108];
(b) the loan participation agreement between MYF and PacFin (paras 119, 187K,
188K(a), 210A(c) and (d) of the statement of claim) [OPI.0002.0001.0079];
(c) the loan participation agreement between PIF and PacFin (paras 120, 187L,
188L(a), 210(e) and (f) of the statement of claim) [OPI.0002.0001.0126];
(d) the application by PIF for 67.5 million class A units in MYF (paras 121, 187M,
188M(a), 210A(g) and (h) of the statement of claim) [WIM.0006.0001.0138];
(e) the PIF certificate of unitholding in MYF for 67.5 million units (paras 122, 187N,
188N(a), 210A(i) and (j) of the statement of claim) [WIM.0006.0001.0140];
(f) the application by PIF for 17.5 million class A units in MYF (paras 123, 187O,
188O(a), 210A(k) and (l) of the statement of claim) [WIM.0006.0001.0135];
(g) the PIF certificate of unitholding in MYF for 17.5 million units (paras 124, 187P,
188P(a), 210A(n) and (o) of the statement of claim) [WIM.0006.0001.0137]; and
(h) the new loan notice dated 31 December 2007 (paras 125, 187Q, 188Q(a), 210A(o)
and (p) of the statement of claim [OIM.0001.0001.0324].
[1298] Its argument was that all of these documents flowed from three things:
(a) Mr Anderson’s list of loans he was asked to, and did, generate, and which was
modified by Mr White and Ms Platts and reflected in the above documents;
(b) his meeting with Mr Stride and Mr White, in which Mr Stride was instructed to
draw up the participation agreements; and
(c) the suite of documents that Mr Anderson was sent, and which he printed and ought
be taken to have read, on 8 February 2008.
[1299] Accordingly ASIC submitted that Mr Anderson was intentionally involved in the
formation of a dishonest scheme to create and backdate transactional documents in order
to “work out what the $147.5 went to”. He was sent and reviewed the finalised product
of that scheme, and provided the false documents to 333 Capital, without any statement
acknowledging that the documents were false.
[1300] Relying on the decision in Australian Communications and Media Authority v Mobilegate
Ltd (No 8),735 ASIC’s case was that Mr Anderson’s conduct and knowledge in relation to
the false document scheme rendered him a knowing participant in MFSIM’s
contraventions in relation to the creation and keeping of those documents.
Providing false documents to auditors
735 (2010) 275 ALR 293.
-- 282 of 348 --
269
[1301] ASIC’s case that Mr Anderson was knowingly involved in the provision by MFSIM of
false documents to PIF’s auditors was that the false documents sent to him on 8 February
2008 were, on their face, documents recording important decisions on behalf of two
managed investment schemes. Those decisions involved large amounts of investors’
money apparently being invested in specific assets. As an accountant, he knew that such
documents are available to, and considered by, auditors.
[1302] In particular, the submission went on, he knew from the two emails he received on 18
January 2008 referred to earlier that the $147.5 million in PIF’s accounts “with no
allocation against it” required an allocation of assets to PIF, and that that allocation would
be provided to the auditors purporting to be assets that PIF had acquired in 2007.736
[1303] The auditors themselves told Mr Anderson on 8 February 2008 that the funds drawn down
by PIF from RBS and related entity loans would be a key focus of the audit. In an email
directly to Mr Anderson, Mr Allman of PwC said:737
“Our initial assessment is that there has been some significant changes within
the fund, including the draw down of a $200M facility with RBS as well as
a number of highly material loans to related entities. I understand that many
of these facilities may be unsecured.”
[1304] Mr Anderson was thereby directly, and knowingly, involved in the provision by MFSIM
of false documents to PIF’s auditors even if he did not physically provide them to the
auditors himself.
Failure to report contraventions to ASIC
[1305] Accordingly, ASIC submitted, Mr Anderson knew that MFSIM had contravened the Act
in relation to the $130 million payment, the $103 million payment and the $17.5 million
payment, and was involved in the making of those payments. MFSIM had an obligation
to report its own contraventions to ASIC: s 601FC(1)(l). It did not. Mr Anderson took no
step to ensure that that was done. In those circumstances, Mr Anderson was involved in
MFSIM’s contravention of s 601FC(1)(l).
Mr Anderson as an officer of MFSIM
[1306] ASIC’s case on this issue, which I have discussed earlier, was that Mr Anderson was the
CFO of the MFS Group and, in 2007, received the third-highest remuneration paid by the
MFS Group (behind Mr King and Mr Gannon). He was a company secretary of MFSIM
from 18 August 2002 until 12 May 2008. Section 9 of the Act provides that “officer of a
corporation means … a director or secretary of the corporation”. He is therefore an officer
of MFSIM. Consistently with my discussion of that issue earlier, I accept that submission.
[1307] ASIC also relied on the evidence that Mr Anderson held the following positions with
MFSIM:
736 DEL.2005.0004.1013.
737 PWC.0001.0001.0201.
-- 283 of 348 --
270
(a) He was a responsible officer for the purpose of MFSIM’s Australian financial
services licence.738
(b) He was the public officer of MFSIM for taxation purposes.739
(c) He was an authorised signatory under the services agreement between Perpetual
and MFSIM.740
[1308] Further in the email of 16 March 2008,741 ASIC submitted accurately, Mr Anderson said
that he was the CFO of MFS. Of equal significance, in the email that Mr Anderson was
responding to was the suggestion by Mallesons and Mr Hutchings that:
(a) MFSIM should take control of its assets;
(b) MFSIM should hold “several million in liquids”; and
(c) the MFSIM CEO (Mr Hutchings) should approve movement of assets.
[1309] He responded to the suggestion by noting:
“(perhaps defensively) that I hold the following positions re MFSIM -
Company Secretary, Public Officer, CFO and if I am right also Responsible
Officer. It is not as if some third party has influence over the assets/funds.”
[1310] ASIC submitted that Mr Anderson was there unequivocally stating that he had influence
over MFSIM’s assets as an agent of MFSIM, not as a “third party”.742 This supports the
conclusion he was an officer of MFSIM.
Submissions for Mr Anderson
[1311] I have dealt earlier with the legal arguments whether Mr Anderson was an officer of
MFSIM and whether his conduct can be attributed to it so as to make it a principal
offender and him an accessory.
[1312] Mr Anderson accepted that the false documents were not prepared or signed by 30
November 2007 or 27 December 2007, that they were prepared after 24 January 2008 and
were likely to have been signed in the first week of February 2008. His argument was
that they were legally effective from the time each was signed. My conclusion, expressed
earlier, that the agreements were not effective as not authorised or ratified, particularly in
respect of the entry into the PIF/PacFin loan participation agreement and PIF’s acquisition
of 67.5 million units in MYF, disposes of the argument in respect of those transactions.
The $130 million payment
[1313] The submissions for Mr Anderson in respect of the $130 million payment were that the
decision to make it was made by Mr White who instructed PIF staff. Mr Anderson did
not give a direction to PIF to make the payment, did not know that PIF was making it or
738 T48-80/39-T48-81/16.
739 T48-79/45-47.
740 OCA.0008.0001.0258, p 0295.
741 DEL.2007.0001.1293.
742 T48-51/37-T48-82/5.
-- 284 of 348 --
271
that the payer was receiving no consideration. The submission also was that Mr Anderson
knew there were potential sources of the money other than PIF and did not know the
source until February 2008. Nor did he know that MFS Limited lacked funds to repay
Fortress.
[1314] The email from Mr Anderson providing the bank account details for the $130 million
deposit743 could not reasonably be taken to be a direction or requirement from him for the
money to be paid out of PIF’s account. This was said to be so in spite of the reference to
PNL processing the payment.744 It was submitted that I should decide that Mr Anderson’s
role was on the receiving side, not the paying side and that the email sent by him on 30
November 2007 at 11:14 pm setting out the bank account details for the deposit did not
involve him in any instruction to Mr Parker to make the payment into MFS
Administration’s bank account. Mr Anderson’s evidence was that Mr White had not told
him the source of the $130 million payment nor did he ask, not having a need to know at
that time.
[1315] Mr O’Donnell’s submission was that what probably occurred about 25 November 2007,
after Mr King had negotiated the $100 million payment with Mr Kelleher on that Sunday,
was that Mr White thought that PIF was drawing down the RBS facility to make
investments and when it made those investments that would enable PacFin to repay the
$100 million and Sunleisure to repay its $30 million. That would put MFS Limited in
funds to repay Fortress so that Mr White’s notional idea in drawing down the RBS money
was a genuine one for PIF to make investments. That would also lead to MFS
Administration receiving about $130 million that would happily coincide with the need
to pay Fortress $100 million. That explained, he submitted, why $150 million was drawn
down when Fortress only needed $100 million. He then wanted PIF to transfer $130
million on the basis that Mr Anderson had told him that MFS Limited needed $10 million
from a cash flow perspective.
[1316] Mr White knew they needed $100 million to repay Fortress. He was, notionally, thinking
about the New Zealand arm of the operation repaying $100 million to MFS
Administration. He also wanted to see the Sunleisure loan repaid. In this context,
Mr O’Donnell referred to Mr Hutchings’ handwritten notes on the diary page for 28
November 2007.745 It seems curious to my mind, however, that Mr White did not put any
such scheme into effect at that stage. Mr Hutchings was also doubtful about whether he
wrote that note on the date it bore, 28 November 2007.
[1317] It may be more likely, however, submitted Mr O’Donnell than attributing to Mr Anderson
the intention simply to steal the money from PIF, for no purpose of PIF and where PIF
would get nothing back.
[1318] His argument was that Mr White was acting independently of Mr Anderson in effecting
these transactions. It had not been shown that Mr Anderson positively knew there was
no transaction behind the $130 million payment and no consideration or benefit to PIF in
return for it. He argued that ASIC was confined to the particulars it identified in para
60(r) of the statement of claim. That read as follows:
743 DEL.2002.0001.2536.
744 DEL.2002.0002.0953.
745 GHUT.0001.0001.0020.
-- 285 of 348 --
272
“Anderson’s lack of knowledge is to be inferred from:
(a) the matters pleaded at paras 8(a) to (f) of the statement of claim;
(b) his knowledge of the matters pleaded at sub-paras 60(g), (h), (i), (ia),
G), (k), (m), (n), (o), (oa), (p) and (q) of the statement of claim;
(c) the use of the funds drawn down under the RBS Loan Agreement to
pay Fortress in accordance with the Agreement of 26 November
2007 as pleaded at paras 40, 42 and 43 of the statement of claim;
(d) the fact that there was no meeting of the board of MFSIM which
approved any investment of the funds obtained from the $150
Million Drawdown;
(e) the fact that Anderson was company secretary of MFSIM and
therefore knew that the board had not approved any investment of
the funds obtained from the $150 Million Drawdown; and
(f) the facts alleged in para 92(c), 93 and 96 of the statement of claim.”
[1319] It would have been ridiculous for someone in Mr Anderson’s position, it was submitted
by Mr O’Donnell, who was leaving as CFO in only a few months, to be a party to the
stealing of money from a managed investment scheme leaving no documents recording
the transactions.
[1320] Mr Anderson had not been asked to be responsible for sourcing the money. He had been
told that Mr White had it covered and all he had to do was the bank transfer, having been
told that Mr White had the cash. Nor was he alerted to the fact that the funds came from
PIF by the emails he saw referring to PNL and coming from Mr Parker.
[1321] Mr O’Donnell also submitted that the emails of exchanges between Mr Anderson and
Mr Parker did not suggest that there had been a conversation between them and also
suggested that, contrary to Mr Parker’s recollection, Mr Anderson was out of the office
for a while because he sent two emails from his PDA.
[1322] Mr Parker’s oral evidence implicated Mr Anderson as having telephoned him although
his affidavit indicated that he then thought it was either Mr White or Mr Anderson. His
confidence that it was actually Mr Anderson was explained by him because, in the witness
box, he had gone back over the emails. He concluded that he had received an internal
call from Mr Anderson, he having formed the view that Mr White was then heading out
of the office and not accessing an internal telephone.
[1323] Mr Anderson’s evidence, partly because of emails sent by him to Mr Parker at 1:04 pm
and 2:12 pm on 30 November 2007, was that he was likely to have been out of the office
because they came from his mobile telephone or PDA. Mr Parker’s evidence was
criticised as a reconstruction or rationalisation after the event. He had admitted that he
could not recall the details of any actual phone call with Mr Anderson.746
746 T7-96/9-41.
-- 286 of 348 --
273
[1324] My observation of Mr Parker at the time was that he was quite confident, having gone
back over the emails, that Mr Anderson had made the telephone call to him rather than
Mr White. It confirmed to him what he was hazy about initially. Although he could not
then recall the details of the telephone conversation, he was confident that there was one
with Mr Anderson. I could see no reason to disbelieve him about the issue.
[1325] Mr Anderson’s own evidence in chief about this issue was that the involvement of
Mr Parker did not lead him to form any view as to the source of the money.747 He knew
little about Mr Parker’s role at the time and he described the receipt of the $130 million
as a side issue in some respects.
[1326] The submission that Mr Anderson did not know that PIF was making the $130 million
payment was based on the submission that he did not need to know the source of the funds
and there was no particular focus on his part to know where they came from. Nor did he
know that it was coming from a managed investment scheme. When he was told by
Mr White that MFS Administration would be receiving $130 million in a telephone
conversation on 27 November 2007, his evidence was that Mr White did not say what the
source of the money was or what the underlying transactions were and he did not ask.
[1327] Mr Parker’s involvement did not lead him to believe anything about the source of the
money. Nor did he read anything into the reference to PNL in an email from Mr Parker
at that time. In response to ASIC’s submission that he should have realised from
Mr Parker’s involvement and the reference to PNL that PIF would be the source of the
funds, Mr Anderson’s counsel submitted that his evidence that the source of the funds
was not his focus was plausible. He was a busy person unlikely to closely analyse words
in different emails sent to him in an effort to decipher the source of the funds.
[1328] They compared his evidence to that of Ms Easton who also said that she did not ask any
questions as to the source of the funding even though she was also a senior member of
the corporate accounting team. At the time of the payment, the source of the funds was
not of direct concern to her although she would need to find out more information for the
preparation of the 31 December 2007 accounts.
[1329] Mr Anderson’s evidence also included an explanation that PNL was used within MFS
Limited as a reference to Perpetual in Australia and Perpetual in New Zealand where it
was the custodian for debenture holders in PacFin. In Australia, Perpetual was the
custodian for a range of funds only some of which were associated with MFS. He said
that Perpetual could have been acting in another of its roles as a nominee company as it
did not just act as a custodian for funds. Accordingly, the submission was that I should
accept Mr Anderson’s evidence that the emails from Mr Parker did not cause him to
understand that the $130 million had been paid by PIF.
[1330] The size of the payment was also not unusual as similar sums of money went in and out
of the MFS Administration bank account in the second half of 2007 regularly. Nor did
he know that PIF had a facility with RBS and he was not aware of the $150 million
drawdown from that loan facility. Nor did Ms Platts recall Mr Anderson being involved
in meetings with the representatives of RBS. The same applied to Mr Bailey.
747 T46-58/26-27.
-- 287 of 348 --
274
[1331] The submission that Mr Anderson was not necessarily involved in every transaction by
which a fund paid money to the MFS Group and may not have known of all transactions
before payments were received, had to deal with Mr King’s evidence that Mr Anderson
would have been, not expressly but impliedly, responsible on behalf of MFS Limited for
any consideration passing to PIF in return for the $130 million. Mr Anderson’s counsel
argued that I should reject Mr King’s evidence on this point and any conclusion that
Mr Anderson must have known that PIF had not received any consideration for the $130
million.
[1332] The submission that Mr King’s evidence should not be accepted on this point relied on
two arguments; the first was that his responsibility for the disposal of MFS Limited assets
had been passed to others by October 2007. The second argument was that there were
several ways by which Mr White could have procured the $130 million pursuant to a
transaction that might not have come to Mr Anderson’s attention before the payment.
[1333] The first submission relied upon evidence that Mr Anderson was listed as a contact, not
the person responsible, in respect of one only out of 44 assets listed for disposal produced
by Mr Richmond in September 2007. He was not even a member of what was called the
Recyclable Capital Committee.
[1334] The second submission related to Mr Anderson’s evidence about other ways in which
Mr White could have procured $130 million, he being head of the funds management part
of MFS Limited which included seven or eight responsible entities. In that position,
Mr White could have organised several transactions which would have resulted in money
flowing to MFS Administration without Mr Anderson being aware of the underlying
transactions. Mr Anderson gave examples of a number of such possibilities. An example
was the plan to sell Q Deck, the observation deck at the top of the Q1 tower on the Gold
Coast owned through the Sunleisure Group. Mr Anderson’s evidence was that that sale
could have taken place without him knowing.
[1335] Mr Anderson’s evidence was that he did not know that the $130 million or $17.5 million
had been obtained by drawing down on a facility with RBS until an email from Ms James
on 14 February 2008. In relaying that information to Mr Korda, Mr Anderson said that
he was informed that the moneys had been obtained, having received the information
from Ms James.748
[1336] Mr Anderson’s evidence also was that he did not know that MFS Limited lacked the funds
to repay Fortress. His expectation was that Mr King would organise a capital raising or
some other transaction. The later emails from Mr King about raising capital to repay
Fortress did not cause him any concern as he would not need to be involved to any great
extent in a capital raising. He could not recall Mr King asking him about the cash position
of MFS Limited around this time.
[1337] By 26 November 2007, his information from Mr King was that Mr King was not relying
only on bank finance to raise funds and the evidence showed that three major banks had
expressed interest in providing short term bridging finance of up to $250 million.
Mr Anderson recalled that, on either 26 or 27 November 2007, Mr White told him that he
had the money to repay Fortress, he thought in a telephone conversation. He did not ask
748 T47-73/1-28; DEL.2005.0004.0560 and DEL.2007.0002.6674.
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275
Mr White about the source of the money because that was not within his responsibility.
He was confident that Mr White or Mr King would have the situation in hand.
[1338] His reference to loans in an email to Mr Gannon on 19 December 2007 was a reference
to the Domain/Guardian and Living & Leisure transaction in October 2007 where the
benefit of loans with a value of about $108 million were assigned to PIF from a
combination of MFS Limited subsidiaries and PacFin.
The $103 million payment
[1339] The submission for Mr Anderson in respect of the $103 million payment from the $130
million that had been drawn down from RBS was that I should find that MFS
Administration did not act as trustee of the money received into its bank account. Rather,
that money became its own. The argument was that the $130 million received into the
MFS Administration bank account on 30 November 2007 was mixed with MFS
Administration’s own money without knowledge that the payment of the money involved
contraventions by MFSIM as responsible entity for PIF. It was further argued that MFS
Administration gave consideration for the payment of $130 million and that the $103
million payment was made by MFS Administration from its own money and not subject
to any trust arrangement. At the time of the $103 million transfer, counsel argued that
Mr Anderson believed that the money being transferred from the MFS Administration
bank account to Fortress was MFS Administration’s own money and was unaware that it
was the property of the payer of the $130 million.
[1340] Mr Anderson’s unchallenged evidence was that MFS Administration treated the money
that came into its bank account as its own and would forward it to other parties within the
MFS Group by making adjustments to the intercompany loan account between MFS
Administration and the relevant company in the group. He said it was not treated as a
trust account. Ms Easton’s evidence was also that the money in the MFS Administration
account was not regarded as money held on trust but was received as going into the
general pool of money and adjustments were made to loan account balances. The bank
account statement of MFS Administration’s bank for the period 24 November 2007 to 4
December 2007 showed that the $130 million was received and mixed with MFS
Administration’s own money.749
[1341] The submission that the accounts established that MFS Administration gave consideration
for the $130 million payment was that there was a credit to the loan owed to it by
PacInvest in the amount of $100 million and a repayment of a loan owed to in by
Sunleisure Group in the amount of $30 million. The evidence of Ms Easton was that
MFS Administration accounted for the $103 million payment with adjustments to its
intercompany loan account with MFS Castle.750
[1342] Accordingly, therefore, the submission for Mr Anderson was that the evidence establishes
that the $103 million payment to Fortress was made from MFS Administration’s own
money. The money was paid to an account at National Australia Bank at Fortress’s
749 CBA.0001.0001.0015.
750 Ms Easton affidavit at paras 77-83, particularly at para 82 and OCA.0025.0001.0081; OCA.0025.0001.0083;
OCA.0025.0001.0117; OCA.0025.0001.0121; OCA.0025.0001.0371; OCA.0025.0001.0369.
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direction with the result, according to the submission, that no approval of the members of
PIF was required for MFS Administration to make the payment.
[1343] Mr George developed that submission orally for Mr Anderson. He treated the ASIC case
as dealing with two related party benefit cases, namely the payment of the $130 million
said to be a financial benefit to MFS, MFS Castle, MFS Financial Services and MFS
Administration and the payment of the $103 million from MFS Administration to Fortress
pleaded to have been a payment of money belonging to MFSIM as responsible entity for
PIF. His argument was that MFS did not control MFSIM to the extent of making it a
related party, nor did it control PacFin to the extent of making it a related party.
[1344] He argued that the payment of the $103 million from MFS Administration to Fortress was
not of PIF’s money on the basis that, once the $130 million was credited to MFS
Administration’s bank account, it fell into MFS Administration’s general funds and
ceased to be the property of MFSIM held for PIF. Accordingly, he argued, ASIC’s case,
that the payment of the $130 million was a financial benefit to MFS Limited, MFS Castle,
MFS Financial Services and MFS Administration, should fail.
[1345] The conclusion of the submission was that MFS Administration’s receipt of the $130
million could be characterised as a financial benefit to MFS Administration in the sense
of a repayment by PacInvest of $100 million on its loan account and a repayment by
Sunleisure of its $30 million loan, but it was not a financial benefit by PIF to MFS
Administration or the other companies alleged to have benefited in the MFS Group.
[1346] In my view that argument fails factually here. I accept that money may be paid into an
account and fall into a general pool of funds. Here, however, the objective facts known
to MFS Administration must have included the fact that Mr White knew that the money
had been paid in breach of PIF’s rules. He must have known, in effect acting on both
sides of the transaction, that the funds were held on behalf of the PIF investors and had
been misapplied. That money would, therefore, be subject to a trust and could be traced
into the MFS Administration account as the property of MFSIM held for the PIF
investors.751
The $17.5 million payment
[1347] Here, dealing with the $17.5 million payment, Mr Anderson’s submission was that I
should find that Mr White gave the direction to make the $17.5 million payment, that
Mr Anderson did not give that direction and was told by Mr White and believed that the
$17.5 million payment was an investment by a fund in PacFin unsecured notes and,
possibly, that the fund was PIF. Mr Anderson did not know of anything improper about
the $17.5 million payment.
[1348] There was a history by which MFS Administration provided funding to PacFin over a
number of years for it to make its own loan advances or to pay redemptions or interest to
investors which fell due at the end of each calendar month. Mr Anderson was concerned
that funding for PacFin in December 2007 was complicated logistically because of
751 See the discussion at T55-24-T55-25. See also Twinsectra Ltd v Yardley [2002] 2 AC 164, 168-169, [12]-[13]
discussed in Quince v Varga [2009] 1 Qd R 359, 365-366, 372-378; [2008] QCA 376 at [1]-[4], [6], [25]-[40].
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holidays and staff being on leave in the context of a money transfer between Australia
and New Zealand with the consequential time differences.
[1349] Mr Anderson’s evidence was that he was contacted by Mr White on 17 December 2007
and told that Mr White would be organising a $20 million investment into New Zealand.
Mr Anderson inferred that it was an investment in notes or unsecured debentures in
PacFin and he said that he may have been told it was in PIF.752 After exchanges of emails,
it became evident that Mr Anderson believed he needed $17.5 million by 24 December
2007. The instruction to PNL was signed on 27 December 2007 and faxed to it at 2:33 pm
on that day.753 He was informed at 4:43 pm on 27 December 2007 that the funds had left
the account and the payment was in transition. It had been received by the next morning,
28 December 2007. Mr Anderson told Ms Brown, who maintained the PacFin accounting
recordings, that the money was being received as an investment in unsecured notes in
PacFin as an investment by PIF.754 That was recorded by Ms Brown.755
[1350] The submission was that the sequence of events showed that the direction was given by
Mr White, probably through Mr Hutchings, after Mr White had been informed by
Mr Anderson that $17.5 million was needed and about the logistical issues for the
payment.
[1351] Again, it was submitted that Mr Anderson’s role in respect of this payment was on the
receiving side, not on the paying side and that PIF paid PacFin directly because of
logistical issues related to the making of the payment at that time of year. Mr Anderson
believed what he had been told by Mr White that the payment was an investment by a
fund in PacFin unsecured notes and possibly that the fund was PIF. That related to the
conversation he had with Mr White on 17 December 2007. He expected that what
Mr White meant when he referred to an “investment” was in notes and debentures of
PacFin. He knew that PIF had made previous investments in PacFin notes and he himself
had previously encouraged MYF to invest in their notes. He expected that any investment
would be on arm’s length terms and did not draw any link between the $130 million
transfer and the $17.5 million transfer. He did not need to know the basis on which the
$17.5 million was being paid and regarded himself as not needing to be concerned about
that.
[1352] Nor did he know of anything improper about the $17.5 million payment, he having no
role in PIF payments, approvals, consideration of investments or compliance matters. He
expected that there should be a transaction to give a benefit back to PIF for the payment
of $17.5 million and understood that it had a system of approval processes and
requirements, independent directors, compliance plans, compliance officers and
compliance committees.
[1353] He could not have foreseen a circumstance where Mr White, or any person, could
circumvent all of those controls to make a payment. None of his previous dealings with
Mr White would have led him to believe that he would procure a fund to pay out a large
752 T49-89/10-20.
753 OCA.0002.0007.0002; OCA.0002.0007.0003; Ms Ring, affidavit, ASIC.3000.0017.0001 at para 51.
754 Mr Anderson: T50-6/40, T50-10/30-40 and T51-49/27-35.
755 BROY.0001.0001.0001 at .0003; Mr Anderson: T51-49/39-T51-50/15 and DEL.1300.0003.1720.
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sum of money without any transaction returning a benefit and for purposes foreign to the
fund.
[1354] The submissions for Mr Anderson were that his evidence was supported by Ms Easton’s
evidence who was not alarmed that the money had come from a fund. Nor was she
involved in any approval, scrutiny or audit process. She considered that it was for the
fund to satisfy itself that it complied with its own processes. She agreed that this accorded
with the “silo” culture within MFS. Mr Anderson’s evidence was that he did not become
aware that the $17.5 million was not an investment in PacFin notes until he was told that
on 8 February 2008.
Mr Anderson’s role
[1355] In this context, the submissions for Mr Anderson were that Ms Kercher performed the
role of company secretary of MFSIM, not Mr Anderson, although he wore that title. She
also was a company secretary of MFSIM and performed that role from 31 August 2005
to 25 February 2008. Mr Anderson ceased to be a company secretary on 12 May 2008.
[1356] The other principal submission about Mr Anderson’s position was that he did not, in
practice, perform the role of CFO of MFSIM. He was the CFO of MFS Limited on his
own evidence, which then had 200 to 300 wholly-owned subsidiaries. ASIC’s case was
that he, in practice, performed the role of CFO for MFSIM and the submission was that
that case was not made out on the evidence.
[1357] In respect of the position of company secretary, Ms Kercher’s evidence was that
Mr Anderson had no day to day role in that capacity in the latter half of 2007 into 2008.
Ms Kercher could not recall Mr Anderson ever attending an IAC meeting of PIF. She
would attend meetings of the MFSIM Audit Committee as secretary and could not recall
Mr Anderson ever attending such meetings. She was an authorised signatory for
drawdowns on PIF’s RBS facility.
[1358] Mr Anderson’s evidence was also that Ms Kercher was MFSIM’s company secretary. He
could not recall doing any company secretarial work for MFSIM in 2007 apart from the
possibility of signing documents if he was involved in a transaction and no other directors
or Ms Kercher were available. He did not perform any of the traditional roles of a
company secretary such as organising board meetings, minutes, providing support to the
MFSIM board and ensuring compliance with the lodgement of various ASIC forms and
things of that nature. That was done by Ms Kercher and her corporate governance team.
[1359] The evidence of Mr Diamond and Mr Whateley was also that they understood
Ms Kercher to be the company secretary.
[1360] In respect of whether Mr Anderson performed the role of CFO of MFSIM, his counsel
pointed to a range of evidence in an attempt to counter ASIC’s submission that
Mr Anderson was the person ultimately responsible for the financial and accounting
functions of MFSIM in his capacity as CFO for the MFS Group which included MFSIM.
[1361] Mr Anderson’s evidence was that his work did not include anything to do with any fund
of a responsible entity because the assets, liabilities, profits and activities of those funds
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did not flow into the MFS Limited consolidated accounts. The activities of the
responsible entities in their own right were included in the consolidated accounts, but not
the activities of the funds held by them for others. His major functions as CFO during
the late 2007 period related to the statutory financial reports required for MFS Limited,
the monthly management accounts of its consolidated group, not including the funds, the
supervision of financial regulatory matters, involvement in internal MFS Limited
committees, assistance to the CEO and project teams to understand the accounting
consequences of certain contemplated transactions and supervising the normal accounting
and cash flow monitoring function of the MFS Limited consolidated group, not including
the funds. Mr King agreed with that evidence.
[1362] Mr Anderson said that he intended to cease performing the role of CFO of MFS Limited
after 26 January 2008. His corporate accounting team was responsible for the accounting
functions of MFS Limited and a selected number of its subsidiaries. It had no role in
respect of the accounting of the funds. Ms Easton and her team did the accounting in
respect of assets and liabilities of MFSIM in its corporate capacity and as a subsidiary of
MFS Limited. She and her team would also calculate the net tangible assets of MFSIM
and its corporate capacity each month to ensure that it satisfied its licensing requirements.
[1363] They also had to charge management fees for the management of the funds by the
responsible entities. That was how the responsible entities earned income, but did not, in
Mr Anderson’s case, lead to his team having any control over PIF. The submission was
that the charging of the management fee was not a function of his role as CFO.
[1364] His evidence was that the fee charged by MFS Administration to MFSIM for services
provided was one he had the authority to determine, but its payment had no effect on the
MFS Limited consolidated balance sheet and, in his submission, did not give MFS
Limited any measure of control over the affairs of PIF.
[1365] The fund accounting team played no role in investment or payment decisions for the
funds, used separate accounting software from that used by the corporate accounting
team. Their data was also kept on a different server. Mr Anderson’s evidence was that
the fund accounting team reported to Mr White as the head of the fund’s management
business and that he had no involvement in the day to day work. On occasions up to
October 2007, he would have some limited involvement in discussions with Mr Noel
about accounting policies and processes when his advice was sought on those matters.
Sometimes he would help and sometimes he would not.
[1366] He did not see the fund accounting people as being part of his team. Mr Noel’s evidence
supported the conclusion that Mr Anderson’s team was not involved in management
decisions for PIF or the giving of financial input as to possible investments it might make.
Mr Anderson did not have any direct input into what Mr Noel and his assistant,
Mr Petherick, did. He sometimes raised technical issues with Mr Anderson such as the
proper interpretation of accounting standards.
[1367] Mr Noel disagreed with any proposition that the work that he and Mr Petherick performed
was that of the CFO of PIF. After the fund accounting team was dissolved around the
end of November 2007, Ms James began to do the accounting for the fund.
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[1368] Mr Anderson agreed, however, that senior people for MFSIM’s auditors, PwC, may
sometimes wish to speak with him, perhaps on a technical issue. His evidence was,
however, that it was not necessary for him to become involved in audits of funds because
neither he nor his team had the information that the auditors would probably need. He
did not recall being involved in the auditing of PIF’s June 2007 accounts. He was not on
the audit committee for the responsible entities and did not advise the MFSIM board.
[1369] After about October 2007, each fund began to take responsibility for its own accounting
functions with Ms James replacing Mr Petherick as the accountant for PIF. He believed
that occurred from about 30 November 2007. From the time the fund accounting team
was disbanded, he had no personal involvement with the preparation of the accounts for
individual funds or of the auditing of their accounts.
[1370] Mr Anderson had no involvement with PIF in November/December 2007 other than that
of receiving general updates to all MFS Limited staff as to what was happening with the
fund. His evidence was that he had very few dealings with Mr Hutchings as CEO of
MFSIM. That was said to be consistent with the evidence of Ms Watts and Ms Cole.
[1371] Mr Anderson’s own evidence was that he did not perform any of the duties that would be
expected of a CFO of PIF in the second half of 2007. He did not know details about its
assets, investment strategies, borrowers or terms and details of its investments. He had
access to MFS Administration’s Commonwealth Bank account but not to any other bank
accounts within the MFS Group. He and his accounting team did not have any access to
PIF’s or MYF’s bank accounts. He considered Ms Easton to be the CFO of MFSIM.
[1372] The signing of a letter to Standard & Poor’s on 12 October 2007 on his behalf concerning
accounting methodologies of PIF did not mean that he had adopted the role of its CFO.
He authorised it to be signed on his behalf but said that he did not have personal
knowledge of all the matters in the letter. It was prepared by others. He may not have
read it. The funds such as PIF and MYF had their own accounting teams which prepared
their own accounts according to Ms Easton as well.
[1373] Ms Kercher could not recall Mr Anderson attending meetings of MFSIM’s board. She
saw Mr Anderson as CFO of the corporate MFS Group and not of the investment funds
controlled by the responsible entities.756
[1374] Ms James could not recall Mr Anderson being actively involved in the audit of PIF’s
accounts for the half year ending December 2007. Nor did he attend a meeting with its
auditors on about 28 February 2008. Ms James’ response to the hypothetical question,
whose views would have prevailed in respect of the accounts at that meeting as between
her and Mr Anderson, said that his would due to his experience. It was pointed out on
Mr Anderson’s behalf that Ms James did not say that this would have been due to his
capacity to prevail because of his role.
[1375] The members of the MFSIM board could not recall Mr Anderson advising about matters
such as the size of funds, redemptions, new investments, profitability, cash flow
considerations or accounts. Nor did he attend their meetings or their committee meetings.
756 Ms Kercher: T10-16/43-T10-17/19; T10-26/19-27.
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281
Mr Kennedy could not recall Mr Anderson ever attending an IAC meeting. Ms Brown,
as an accountant for the MFS schedules, said she had little or no contact with
Mr Anderson, did not report to him, nor did he supervise her work. Nor could
Mr Petherick, who also worked as a fund accountant before moving to work in
Mr Anderson’s team, recall Mr Anderson becoming involved in the detailed financial
affairs of PIF. Ms James, who took over responsibility for the preparation of accounts
for PIF and MYF from Mr Petherick in about November 2007, said that it was likely that
PIF accounts were not routinely sent to Mr Anderson although she did send them to
various other people.
[1376] Mr King’s evidence was that Mr Anderson’s duties as CFO related to matters concerning
MFS Limited and its consolidated entities operating in a proprietary capacity. He did not
understand Mr Anderson to have a role in the managed funds carrying on their business
as managed funds. His evidence was that Mr Anderson was CFO of MFSIM regarding
its own assets as distinct from it acting as responsible entity of funds.
[1377] Mr Anderson’s counsel also relied on the “silo” model under which MFS Limited
operated. That related to Mr Anderson’s evidence that each business within the MFS
Group was actively encouraged to run its own show and pursue its own objectives
independent of the objectives of other units. Mr Anderson’s evidence was that Mr King
drove this philosophy. It was why the responsible entities were organised separately for
different asset types. Each had its own board with a majority of independent directors
with expertise in that asset type, its own senior management and chief executive officer,
staff and auditors. That structure was also referred to by several other witnesses.
[1378] Mr Anderson’s supplementary submissions argued that ASIC could not rely upon the
Australian Financial Services Licence (AFSL) nominating Mr Anderson as a responsible
officer for MFSIM on the ground that it was not pleaded against him. He was clearly
alleged to be the company secretary of MFSIM for the relevant period. He was also its
public officer for taxation purposes and an authorised signatory under the services
agreement between Perpetual and MFSIM. Accordingly, the issue whether he could have
been cross-examined about the AFSL application form consistently with the pleaded case
assumes little importance. I place no relevance on it in respect of the issue whether
Mr Anderson was an officer of MFSIM.
[1379] Similarly, there was a factual challenge as to whether Mr Anderson was an authorised
signatory under the services agreement between Perpetual and MFSIM. It seems to me
to be only marginally relevant again to the issue whether he was an officer of MFSIM.
Related parties and control
[1380] I have dealt with the related party and control issues earlier. Mr O’Donnell also pointed
to Mr Anderson’s evidence that he was not aware that MFS Limited controlled PIF so as
to make them related parties. Nor was he aware that it also controlled PacFin. He
described it as unchallenged evidence.
[1381] It was clear, however, that the allegation had been made against him and significant
evidence was led on that point by ASIC from which I can infer that he should have known
the relevant facts from his position in the company. He was a chartered accountant and
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CFO of the MFS Group and should have been familiar with its company structure
justifying the conclusion that MFSIM was a related party with the other companies in the
group. He and Mr White were directors of MFS Administration and two of the three
directors of PacFin and should have known directly the evidence I have discussed earlier
from which it can readily be concluded that PacFin was controlled by MFS.
[1382] In my view, for reasons I have discussed elsewhere, the rule in Browne v Dunn757 does
not require me to accept Mr Anderson’s evidence on this issue. It is quite implausible.
January 2008 events
[1383] Counsel for Mr Anderson also made detailed submissions about the factual findings I
should make relating to Mr Anderson’s involvements in the events of January 2008. He
was very busy during this period, receiving large numbers of emails every day and not
reading each in full. The “creative brain” email was one which he did not read in full,
but only read it to the extent of the subject line and first line of the email: “need your
creative brain”. His evidence was that he did not open the attachment to the email at any
time and that he did not respond in substance to Mr White’s request. He also gave
evidence that he did not believe that, if he had read the email and opened the attachment
at the time, he would have understood that there seemed in it to be an attempt
retrospectively to engineer the transactions underlying the $130 million payment in
November 2007. Nor, if he had read it and focussed on what it said, would he have
gleaned from the document that it was being prepared as evidence of pre-existing
transactions that did not happen or were not properly documented. Counsel for
Mr Anderson also argued that I should reject ASIC’s submission that it was inherently
improbable that Mr White would send the “creative brain” email to Mr Anderson without
any previous communication, rejecting the view that the text of the email and the
attachment assumed background knowledge on the part of the reader. The opening
paragraph of the attachment was said to explain the background.
[1384] Mr O’Donnell also pointed out that ASIC did not challenge Mr Anderson’s evidence
about his practice in respect of reading and actioning emails, his high workload and the
impact of the events of and following 18 January 2008 on him personally and
professionally.
[1385] The events of Black Friday, 18 January 2008, when MFS Limited’s share price fell
significantly, were dramatic and traumatic for him among other employees of MFS
Limited. He suffered shock because a significant amount of his personal net worth was
tied up in MFS, including shares subject to margin loans. His evidence was that on that
day he went from being extremely wealthy to being in the position of starting again.
[1386] In that context, I was urged to find that Mr Anderson did not read or respond to
Mr Hutchings’ email at 2:00 pm on that date or any of the emails in the chain below it.
The same submission was made in respect of Ms James’ email of 3:25 pm.758 These were
the documents where Ms James was very keen to discover the allocations of assets for
PIF’s accounts relating to the $147.5 million paid out from its funds. I was asked to
conclude that he could not, from the text of the emails, if he had read them, have known
757 [1894] 6 R 67.
758 DEL.0028.0001.0009, DEL.2006.0003.4552 and DEL.2005.0004.1029.
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that it was a request to him for the details of the investments made with the $130 million
and $17.5 million payments.
[1387] Mr Anderson’s belief was that he would have dismissed the email as having nothing to
do with him if he read it. Nor did Mr Anderson believe he read the email sent by
Ms James at 3:25 pm on that date where she spoke of the $147.5 million she still had
sitting in PIF’s accounts with no allocation against it. She also mentioned that she had
auditors arriving at 9:00 am on the following Monday. Counsel submitted that I should
not infer from those emails that Mr Anderson knew that the $147.5 million was the
aggregate of the two sums of $130 million and $17.5 million, that the $130 million
component was the money referable to the amount paid by PIF to MFS Administration
on 30 November 2007 and the $17.5 million component was the money referable to the
amount paid by PIF to MFS Administration on 27 December 2007.
[1388] On the Monday, 21 January 2008, Mr King resigned as MFS Limited CEO and Mr White
was appointed as his replacement. Mr Anderson was the only senior MFS Limited
executive left in Sydney. Counsel submitted that I should find that in the discussions
between Mr Hutchings and Mr Anderson on 21 January 2008 there was no discussion
about PIF getting value for funds or Mr Hutchings wanting “concrete assurances” that
assets had been purchased with PIF funds.
[1389] Mr Hutchings’ own evidence was that he was under significant stress that day and through
the following week. Although Mr Hutchings could not recall a conversation in the
morning of 21 January 2008, the submission was that the email suggested that there had
been such a meeting. There was also evidence of a second conversation between them
on 21 January 2008 about the giving of a guarantee by MFS Limited to pay all PIF
redemptions. Mr Anderson was not prepared to sign such a letter.
[1390] The conversation that Mr Hutchings gave evidence about was detailed in Mr Anderson’s
written submissions as follows:
“400. Hutchings’ evidence was that there was only one conversation
between him and Anderson on 21 January 2008.759 His affidavit set
out a version of this conversation.760 In his oral evidence, Hutchings
gave his best belief of what he thought was said on the occasion as set
out below:761
‘We spoke about this letter and being able to sign that in
support of PIF. We also talked about the White - what I’ve
called the White transactions and the current position in
relation to those. And we talked about MFS Group
supporting PIF funds. I also mentioned that if these things
couldn’t be resolved I'd have to think about resigning, and
Mr Anderson made an attempt to call Mr White, but he
couldn’t be reached. At the end of the conversation I said
759 Mr Hutchings’ affidavit at para 372.
760 Mr Hutchings’ affidavit at para 372.
761 Mr Hutchings: T39-30/40-43.
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284
that I’d really need to escalate these things and I would go
back to my office and write an email.’
401. Hutchings also said the following of the conversation:762
‘Well, using the best of your recollection, what did he say
about the assets not being able to be made whole
immediately?---Well, I can’t, as I say, now recall the
precise words, but I started off by asking that the letter be
signed to support PIF, and the second part of that was him
expressing that view as well. And that's what I took away
from the meeting. The context, I guess, was in terms of me
going in and seeing him to speak to him about the letter, if
that answers your question.’
402. Significant differences between Hutchings’ affidavit evidence and
oral evidence on what was said during his conversation with Anderson
are:
(a) Hutchings made no mention of discussing the ‘White
transactions’ in his affidavit evidence but gave oral evidence that
there was a discussion about the ‘White transactions’;
(b) Hutchings swore that he said words to the effect of ‘I want to
make sure that PIF gets value for the funds outstanding’. He made
no mention of that or words to similar effect in his oral evidence;
(c) Hutchings swore that Anderson said ‘I may not be able to make
the investments whole immediately’. When recalling the
conversation in oral evidence the first time, Hutchings made no
mention of Anderson saying those words. When recalling the
conversation the second time in his oral evidence, he said ‘I can’t
say, now recall the precise words’ and ‘that’s what I took away
from the meeting’;
(d) Hutchings’ oral evidence made no mention of words to the effect
of ‘I need to obtain concrete assurances that our investors are
protected and that assets have been purchased with our funds. If
they aren’t protected or if there are other MFS Group problems
that have no come to the surface and have not been escalated or
reported to a regulator...’ despite swearing to those words in his
affidavit;
(e) Hutchings made no mention of an ‘audit’ or similar expressions
in his oral evidence but his affidavit evidence was that he said
‘We need to draw a line in the sand on this and ‘audit’ what has
been happening.’;
(f) Hutchings did not give oral evidence about King resigning or the
circumstances surrounding King’s departure;
(g) Hutchings did not give oral evidence about the topic of MFS
giving guarantees for Living & Leisure.
762 Mr Hutchings: T43-58/38-43.
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285
403. Hutchings’ evidence was that during the conversation he told
Anderson that he was ‘going to put something in writing’ to White,
Anderson and Kercher as he needed to ‘escalate the issue’.763 He
subsequently sent his ‘escalation email’ at 5:31 pm to White, copied
to Anderson and Kercher.764 That email makes no mention of the
following matters:
(a) obtaining the guarantee letter from MFS Limited;
(b) Anderson’s refusal to sign the guarantee letter or the reasons he
gave for his refusal;
(c) needing ‘concrete assurances’ that assets had been purchased
with PIF funds;
(d) his employment and consideration of tendering his resignation;
(e) King’s resignation or circumstances surrounding it.
404. Anderson denies that he said words to Hutchings ‘I may not be able
to make the investments whole immediately’.765
405. Anderson’s evidence on the conversation was clear and consistent
when tested under cross-examination when the version from
Hutchings’ affidavit was put to him. Anderson’s evidence was that
Hutchings still seemed stressed and agitated during the afternoon
conversation but seemed more focused and Anderson was not as
concerned about this as he had been in the morning. Anderson:766
(a) did not recall Hutchings speaking in any conversation on 21
January 2008 about resigning but accepted he may have said
something to that effect in the morning discussion;
(b) did not recall Hutchings saying anything about PIF getting value
for funds or that he wanted a ‘concrete assurance’ that assets had
been purchased with ‘our funds’;
(c) recalled Hutchings speaking about needing confirmation from
White about some assets during the morning conversation;
(d) did not recall Hutchings asking about whether any other MFS
group problems had come to the surface;
(e) knows with certainty that Hutchings did not say anything about
whether King had been forced to resign over irregularities;
(f) did not recall Hutchings saying anything about the financial
position of Living & Leisure but agreed that it was a current topic
that day due to Davis’ correspondence.”
[1391] The submission was that I should prefer Mr Anderson’s evidence as to what was said in
the conversation. Mr O’Donnell argued that the differences between Mr Hutchings’ oral
763 Mr Hutchings’ affidavit at para 372.
764 Mr Hutchings’ affidavit at paras 373 and 376; DEL.0025.0001.0624.
765 Mr Anderson: T50-93/8-9.
766 Mr Anderson: T47-42/16-T47-43/9; T50-93/1-T50-94/47.
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286
evidence and affidavit demonstrated that his recollection was unreliable and was
inconsistent with his email sent at 5:31 pm on that day which has been referred to as the
“escalation” email.
[1392] This is the email where he said to Mr White, copied to Mr Anderson and Ms Kercher,
that he understood that the majority of the $200 million drawn down by PIF from the RBS
facility had not been used “to purchase assets to replace a similar amount of facilities that
are maturing in the next month or so or for assets that would seed the Maximum Yield
Fund. I understand that it may have been invested in a manner which is in breach of the
PIF PDS and related party requirements.”767
[1393] Mr Anderson denied giving Mr Hutchings any of the information set out in that email.
Mr Hutchings’ evidence was that he thought that the information he might have obtained
came from either Mr Anderson or Ms Kercher. I was asked to find that Mr Anderson did
not give Mr Hutchings the information referred to in the email. Mr Anderson’s evidence
was that the references to maturing PIF assets or the seeding of MYF meant nothing to
him. Nor did he know what the figure of $200 million meant. Nor that there was an RBS
facility or a drawdown from it. I was asked to conclude that a fair and reasonable reading
of the paragraph did not leave an understanding that $200 million had been
misappropriated. I find that difficult to accept, even taking into account the further
submission that the second-last sentence of the first paragraph of the email made it plain
that the money had been invested but that the investments may have been in breach of
PIF’s PDS and related party requirements.
[1394] Mr Anderson’s interpretation of the second paragraph of the email to be a reference to
matters he had become aware of that day regarding Living & Leisure was said to be
explicable by reference to its shares being placed in a trading halt that day.
[1395] Mr O’Donnell also submitted that the “escalation” email from Mr Hutchings and the
subsequent reference to the bomb that needed “diffusing” should not be interpreted as an
attempt to suppress information about the transfer of the $130 million and the $17.5
million, particularly because the next paragraph suggested bringing Mr Whateley, the
chairman of MFSIM, into the loop.
[1396] I was asked to conclude that it was not improbable that Mr Anderson and Mr White did
not speak following Mr Hutchings’ email of 5:31 pm. When Mr Anderson sent the email
to Mr White at 10:12 pm that night with the subject line “keep it up super star” and
including the words referring to Mr Hutchings as the “bomb that needs diffusing [sic]”,
that was said to be a reference to Mr Hutchings’ borderline mental state and not to a
misappropriation of funds from PIF’s RBS facility.768
[1397] It included the sentence sent by Mr Anderson to Mr White “need (I think) to focus on
what is best for the PIF investors in getting all the loans back in that deal etc”. That was
argued to be a reference to the Living & Leisure loans, the subject of the $108 million
transaction in September 2007 and not the $130 million payment. Again that seems
unlikely to me in the context set by the conversation with Mr Hutchings earlier.
767 DEL.0025.0001.0624.
768 DEL.0025.0001.0634.
-- 300 of 348 --
287
[1398] It was also argued that the references in the email to the MFSIM chairman being “brought
into the loop” were a response to an earlier email from Mr Hutchings dealing with the
issue of redemptions by Avenue Capital.
[1399] Again, it was submitted that the reference in the email by Mr White to the “pretty frank
conversation” that Mr Anderson and he needed to have was either a reference by
Mr White to Mr Anderson staying on as MFS Limited’s CFO or to MFS Limited’s
financial position and not a reference to discussions about Mr Hutchings, the
misappropriation of funds from the RBS facility, the $150 million drawdown, the $130
million payment, the $17.5 million payment or PacFin. I find this submission unattractive
and do not accept it.
[1400] In that context, I was urged to accept Mr Anderson’s evidence that the reference in the
email to the words “it could be the bomb that needs diffusing [sic]” was a reference to
Mr Hutchings’ mental state rather than the “it” being the misappropriation of PIF money.
Nor was the reference to “getting all the loans back in that deal” a reference to the loans
proposed to be put into the deal relating to the RBS drawdown. I also find this submission
unattractive and do not accept it.
Listing of loans
[1401] I was then asked to conclude that Mr Anderson’s involvement with the listing of loans
began on 23 January 2008 with Mr White asking him to prepare a list on his computer of
the authorised investments for PacFin as at 31 December 2007, telling him that QDeck
was to be included in the sum of $30 million and the names of other borrowers to be
included and in some cases the amount. Mr White then left the room leaving his list with
Mr Anderson who then prepared a list on his computer and emailed it to Mr White at
8:06 am. That list was amended as a result of further instructions from Mr White.
[1402] During their discussions, Mr White told Mr Anderson something to the effect that he had
not completed the documentation for the loan transfers that occurred last year and that
Mr Anderson would need to sign the documents once they were completed. He also told
Mr Anderson that the list was going to Ms Platts to complete the documentation for the
PacFin loans transferred in 2007 and asked Mr Anderson to send the list to her.
Mr Anderson said he was surprised that the documents had not been done but not alarmed
and told Mr White he would want to speak to Mr Korda before signing any documents,
to which Mr White did not object.
[1403] Mr Anderson’s evidence was that by then he had started to make a connection between
the listing of loans and the $130 million transfer in November 2007 but that the amount
of $147.5 million did not mean anything to him. Mr Anderson then emailed the amended
list to Ms Platts on 23 January 2008 at 10:19 am.769
[1404] Mr White, I was asked to conclude, did not in any of the conversations refer to the
“creative brain” email, ask for Mr Anderson’s opinion or advice about what assets should
be part of the list. That seems unlikely to me and one wonders why they would not have
769 DEL.2005.0006.4514 and DEL.2005.0006.4515.
-- 301 of 348 --
288
discussed what the function of the list was. Nor, on Mr Anderson’s evidence, did
Mr White ask Mr Anderson to do anything else about the list again.
[1405] The email from Mr Hutchings to Ms Platts, copied to Mr White and Mr Anderson, where
Mr Hutchings said that he had just spoken to Mr Anderson and that he, Mr Anderson, was
confident of the way forward and that they would speak to RBS today, sent on 23 January
2008 at 7:10 am,770 was said by ASIC to have prompted Mr Anderson to prepare the
listing of loans. Mr O’Donnell for Mr Anderson argued that I should reject that
conclusion based on the timing of emails between Mr Anderson and Mr White before
8:10 am. Nor did Mr Hutchings swear to any discussion with Mr Anderson on 23 January
2008. ASIC’s contention did not explain the sending of an earlier email on 23 January
2008 from Ms Coffee to Ms Guest attaching the PacFin loans list.771
[1406] Ms Platts’ evidence that she went to see Mr Anderson in his office and that he told her
that he would send her a document describing the assets purchased with the RBS facility
was criticised as incorrect on the basis that Mr Anderson was not in the Gold Coast office
at the time but in Sydney. He had denied having any such conversation with Ms Platts
and said that nothing about the purpose of the list was revealed during their conversation
which occurred briefly via telephone. ASIC did not challenge Mr Anderson about that.
[1407] I was asked to reject ASIC’s contention that Mr Anderson was the “creative mind” who
actually determined what particular assets would be put up retrospectively. It was more
likely that Mr White was responsible for the listing of loans document, Mr Anderson not
being involved in the development of subsequent changes of the loans after 23 January
2008. Nor was he involved in the drafting of the “false documents”.
[1408] On the issue of the drafting of the PIF asset report, Mr O’Donnell’s submissions were
that I should find that, during the afternoon of 23 January 2008, Mr Anderson was in a
meeting with 333 Capital staff to commence MFS Limited’s asset and liability review.
At 2:28 pm on that day, Ms Platts sent Mr White and Mr Anderson an email attaching a
PIF asset report that Mr Anderson did not read nor discuss with her. It was submitted I
should conclude that Ms Platts prepared that report from information taken from
Mr White’s listing of loans, perhaps supplemented by discussions she had with Mr White
during that day. Mr Anderson was not the “creative mind” who determined what the
particular assets were that would be put up retrospectively as the transactions made back
in November.
Meeting with Mr White and Mr Stride and creation of documents
[1409] I was asked to find that Mr Anderson attended a meeting in Mr White’s office during the
morning of 24 January 2008 in which Mr White explained to him the transactions which
led to MFS Administration receiving $130 million in November 2007. The first time
Mr Anderson had been provided details of the transactions behind that payment.
Mr White, using a white board, explained that PIF had invested in loans or had obtained
loans from PacFin as well as investing in units in MYF. MYF had obtained loans from
PacFin and had sent QDeck $30 million and PacFin used the proceeds to repay MFS
Administration.
770 DEL.1100.0004.1372.
771 DEL.2005.0009.3078.
-- 302 of 348 --
289
[1410] Mr White suggested Mr Stride draw up the documents and Mr Anderson called Mr Stride
to Mr White’s office where Mr White explained the transactions to Mr Stride and asked
him to prepare the loan agreements. There was no discussion identifying particular loans
the subject of the agreements. Mr White told Mr Stride that Ms Platts had all the details
of the loans and he would need to see her for those details. Mr Anderson did not give
Mr Stride any direction to prepare any documents, nor was he aware that there was
anything improper in what Mr White was asking Mr Stride to do, there being no
discussion of preparing any documents other than the loan agreements and no mention of
backdating documents.
[1411] Mr Anderson’s evidence was that it would have been better if the documentation had been
done contemporaneously with the transaction, but he did not have a particular concern
that Mr White was saying the transactions had occurred but were not documented. He
was aware, for example, of an earlier transaction with the Living & Leisure and
Domain/Guardian loans where PIF had been keen to do the transaction before the
documentation was done and had paid over the money with MFS Limited giving them a
receipt. Mr Anderson told Mr White that he still wanted to speak to Mr Korda before he
considered whether he would sign the documents to be produced. Counsel for
Mr Anderson submitted that Mr Stride’s evidence was largely consistent with
Mr Anderson’s version.
[1412] The point was made that it was difficult to cross-examine Mr Stride effectively because
of his claims for privilege. It was submitted that I should give his evidence little weight
because of that problem and because of the lack of particularity in the statement made by
him pursuant to s 19 where he often did not identify precisely who was speaking about
the topics referred to in that statement.
[1413] The submission was that I should reject ASIC’s case that Mr Anderson had directed
Mr Stride to draw loan participation agreements on the basis that the direction was given
by Mr White to Mr Stride and was confined to loan participation agreements involving
MYF, PIF and PacFin. The evidence also showed that Mr White had a heavy involvement
in the directions given to create the false documents and there was an absence of evidence
showing Mr Anderson had any such role. It was submitted that no weight should be given
to the absence of a statement by Mr Anderson or Mr White at the meeting that the
instructions were coming from Mr White and not jointly from Mr Anderson and
Mr White.
[1414] There was no evidence, therefore, the submission went, that Mr Anderson was involved
in the preparation of the information memorandum, unit applications and unit certificates.
[1415] I find this whole scenario thoroughly implausible. Based on the history of the matter
leading up to this event, the strong likelihood is that Mr Anderson was the co-author of
the listing of loans document with Mr White, something precipitated by the need to
prepare some explanation for the auditors and RBS of what had happened with the money
drawn down from PIF’s RBS facility. I find it very difficult to accept that Mr Anderson
was simply Mr White’s amanuensis or that he knew nothing of the need to provide some
explanation for these transactions before 23 January 2008.
-- 303 of 348 --
290
Meeting with Mr Korda and Mr White on 25 January 2008
[1416] I was asked to find that on 25 January 2008, Mr Anderson, Mr White and Mr Korda had
a meeting in Mr White’s office on the Gold Coast at the request of Mr Anderson who
wanted to obtain Mr Korda’s opinion about whether to sign the loan participation
agreements on behalf of PacFin. Mr Anderson and Mr Korda spoke about the impact on
the position of the parties to those agreements of the change in circumstances in the MFS
Group since the time of the transactions. In particular, Mr Anderson was unsure about
the law in New Zealand and how signing the documents might affect PacFin’s rights.
Mr Korda expressed the view that the signing of the documents would not change the
effectiveness or otherwise of the transactions that had been entered into. A note by
Mr White was said not to be an accurate record of the meeting. He asked Mr Anderson
to sign a document which Mr Anderson thought was a participation agreement. He
declined to sign it because he was uncertain about how the signing of the document might
change the rights of the parties, drawing on his previous experience as a liquidator. He
did not believe that document was one of the agreements the subject of this proceeding.
[1417] It was also submitted by Mr O’Donnell that Mr Anderson’s request to speak to Mr Korda
and the events which took place in the meeting were inconsistent with him being involved
in the creation of false documents or covering up a fraud. His behaviour was also
explicable by reference to his background as a liquidator concerned about questions
affecting the solvency of the MFS Group and the effect of actions by him at such a time.
Recording of transactions and accounts
[1418] This issue, the recording of transactions and accounts, related to the accounting treatment
of the payment out of the $130 million from PIF to MFS Administration. I was asked to
conclude that Mr Anderson spoke with Ms Brown and Ms Easton on 24 January 2008, he
having known by then that MFS Administration had received $130 million in late
November but not knowing with certainty what the money related to. His case was that
he thought that at least $100 million related to a repayment by MFS New Zealand of its
loan to MFS Australia. He told that to Ms Brown and Ms Easton and said that the $100
million was a loan from PacFin and $30 million was a repayment of a loan from
Sunleisure to MFS Administration. He directed them to make the necessary accounting
entries to record those transactions. Ms Easton subsequently did that in MFS
Administration’s accounts and Sunleisure’s accounts while Ms Brown made them in
PacFin’s general ledger. More detailed information had been provided to Ms Brown by
Ms Bennett in the loans administration team. Mr Anderson did not provide Ms Easton or
Ms Brown with any documentation.
Meeting with Ms Dunn and Mr Hutson on 7 February 2008
[1419] I was asked to find that Mr Anderson did not know until 7 February 2008, at a meeting
with Ms Dunn of 333 Capital and Mr Hutson of KordaMentha, that the $17.5 million
received by PacFin in December 2007 was tied in with the loan participation agreements
and not an investment by PIF in unsecured notes. The first time he received a copy of the
PIF/PacFin and MYF/PacFin participation agreements and the new loan notice was by
email received by him on 7 February 2008 at 8:12 pm.
-- 304 of 348 --
291
333 Capital information requests
[1420] I was asked to find that Mr Anderson was the contact person for 333 Capital for
information requests, acting as a conduit, providing the information requested but not
reviewing or considering it. He did not play any part in the preparation of the IAC papers
and minutes and had not seen them before 8 February 2008 when Ms Platts sent them to
him because 333 Capital had requested that they be provided through Mr Anderson.
Auditors and half year accounts
[1421] This issue related to ASIC’s allegation in para 189 of the statement of claim that
Mr Anderson was involved in the contravention by MFSIM in providing its auditors with
access to the false documents. The submission for Mr Anderson was that ASIC had not
proved the allegations in paras 137 and 138 of the statement of claim nor that he was
involved in providing any information to PwC in the course of PIF’s half-yearly review.
There was no evidence that Mr Anderson knew any of the material facts giving rise to the
alleged contravention by MFSIM, nor that “accounting records” which “recorded loans
made by PIF to the entities and in the amounts set out in White’s Listing of the Loans
document and included the False Documents” were provided to PwC. The conduct relied
on to establish Mr Anderson’s alleged knowing involvement at para 210A of the
statement of claim was not conduct capable of giving rise to a knowing involvement.
[1422] The submission was that Mr Anderson’s overall involvement in the audit was superficial
and that he had no involvement in the provision of any of the false documents to PwC.
Schedules 1 and 2 of the seventh defendant’s written submissions were relevant to these
issues.
[1423] Part of the submission depended on the argument that the loan participation agreements,
new loan notice, unit applications and unit certificates were not false documents for the
reasons set out earlier in the written submissions for Mr Anderson.
[1424] The allegation made in para 137 of the statement of claim was that MFSIM provided its
auditors with access to its accounting records which recorded loans made by MFSIM to
the entities and in the amounts set out in Mr White’s listing of loans document, including
the false documents. The term “accounting records” was said to be intentional use of
language by ASIC narrowing its case to those documents which, it was argued, were a
narrower class than “financial records”.772 The argument was that documents described
as “accounting records” are documents of prime entry where “financial records” are of a
broader and more functional nature and extend to derivative records which interpret the
primary records. The submission went on to argue that ASIC’s allegedly false documents
possibly meeting the description of “accounting records” were confined to the loan
participation agreements, the new loan notice, the two applications for units in MYF and
the certificate of unit holding in MYF and did not extend to other documents alleged to
be “false documents”.
772 See ASIC v Rich (2005) 53 ACSR 752, 816 at [293] where Austin J notes the shift in statutory language from
“accounting records” to “financial records” as a reason for not following the decision in Duke Group Ltd (in
liq) v Pilmer (1994) 63 SASR 364.
-- 305 of 348 --
292
[1425] It was also argued that ASIC’s allegation was further narrowed to only those “accounting
records which recorded loans made by … PIF to the entities and in the amounts set out in
White’s Listing of Loans Documents and included the False Documents”. The
submission that followed from this included that the false documents with which para 137
was concerned were only those meeting the description of “accounting records” which
recorded loans made by PIF to the entities and in the amounts set out in Mr White’s listing
of loans document. The allegation in para 137 was said not to be proved because there
was no document in evidence proved by ASIC to have been provided to PwC of the nature
described in the pleading.
[1426] Mr White’s listing of loans document contained the following information:
Borrower Amount
$
Qdeck 30,000,000
MFS Blue Sky Trust 32,316,438
Gersh Development Fund 1 10,000,000
MFS RAP 5,000,000
Young Village Estates 15,000,000
Sagacious Opportunities Trust 5,500,000
Copperfield 17,630,000
Investment Enterprises 12,500,000
Southport Holdings 20,000,000
Subtotal 147,946,438
[1427] The argument then was that no document provided to PwC, alleged by ASIC to be a “false
document”, records loans made by MFSIM to the entities and in the amounts set out in
Mr White’s listing of loans documents. Rather, the accounting records and “false
documents” record a series of transactions involving:
(a) PIF entering into a loan participation agreement with PacFin for $62.5 million
worth of loans;
(b) PIF acquiring 85 million class A units in MYF;
(c) MYF entering into a loan participation agreement with PacFin for $55 million
worth of loans; and
(d) MYF entering into a loan agreement with Sunleisure for $30 million (the loan
agreement between MYF and Sunleisure is not alleged to be a “false document” by
ASIC).
[1428] Other documents pleaded by ASIC to be false documents did not record any conduct of
PIF but related to MYF and also did not meet the pleading at para 137 and were not
“accounting records” because they did not record the making of prime entries. These
were:
(a) the board proposal from Mr Hutchings to the board of MFSIM recommending that
MYF offer to a select group of investors the opportunity to purchase class A
units;773
773 OCT.0001.0001.0038; 5FASOC, 109(a).
-- 306 of 348 --
293
(b) the submission to IAC of MFSIM as responsible entity for MYF recommending
that MYF issue up to 100 million class A units at $1.00 per unit;774
(c) the minutes of a meeting of the IAC for MFSIM as responsible entity for MYF
approving the issue of 100 million class A units in MYF;775
(d) the information memorandum dated 23 November 2007 offering information to
potential investors in respect of class A units in MYF, which offer was expressed
to close on 31 January 2008;776
(e) the submission to the IAC for MYF recommending that MYF enter into “a Loan
Participation Agreement” with PacFin contingent upon MFSIM as responsible
entity for MYF raising $55 million from the issue of A class units;777
(f) the IAC submission to the IAC for MYF recommending that MYF lend Sunleisure
$30 million, so that Sunleisure could repay that amount to MFS Limited in
satisfaction of a pre-existing debt;778
(g) the minutes of a meeting of the IAC for MYF approving MYF advancing $55
million to PacFin by way of loan participation agreements and lending Sunleisure
$30 million, subject to MFSIM as responsible entity for MYF raising $85 million
from the sale of class A units;779
(h) the request for approval from the CRPC for PIF to PIF purchasing 85 million class
A units in MYF;780 and
(i) the loan participation agreement between MYF and PacFin for $55 million.781
[1429] The further submission was made that the following documents make no mention of, and
do not record, MFSIM making loans to the entities and in the amounts set out in
Mr White’s listing of loans document:
(a) the submission to IAC of MFSIM as responsible entity for PIF recommending that
PIF enter into a loan participation agreement with PacFin;782
(b) the minutes of a meeting of the IAC for PIF approving PIF advancing $62.5 million
to PacFin pursuant to loan participation agreements and $85 million to MYF to
purchase 85 million class A units in that fund, and resolving that it was appropriate
to draw on the RBS facility to fund those advances;783
(c) the loan participation agreement between PIF and PacFin for $62.5 million;784
(d) the application by MFSIM as responsible entity for PIF for 67.5 million class A
units in MYF at a price of $67.5 million;785
774 WIM.0002.0004.0201; 5FASOC, 110(a).
775 WIM.0002.0004.0199; 5FASOC, 112(a).
776 OCA.0002.0004.0108; 5FASOC, 113(a).
777 WIM.0002.0004.0077; 5FASOC, 115(a).
778 OCA.0002.0004.0284; 5FASOC, 116(a).
779 WIM.0002.0004.0075; 5FASOC, 117(a).
780 OCA.0002.0009.0002; 5FASOC, 118(a).
781 OPI.0002.0001.0079; 5FASOC, 119(a).
782 WIM.0002.0004.0139; 5FASOC, 111(a).
783 WIM.0002.0004.0137; 5FASOC, 114(a).
784 OPI.0002.0001.0126; 5FASOC, 120(a).
785 WIM.0006.0001.0138; 5FASOC, 121(a).
-- 307 of 348 --
294
(e) the certificate of unitholding in MYF in the name of the MFSIM as responsible
entity for PIF for 67.5 million units;786
(f) the application by MFSIM as responsible entity for PIF for 17.5 million class A
units in MYF at a price of $17.5 million;787
(g) the certificate of unitholding in MYF in the name of the MFSIM as responsible
entity for PIF for 17.5 million units;788 and
(h) the new loan agreement.789
[1430] Consequently, it was submitted that there was no evidence that Mr Anderson knew of the
matters pleaded at para 137 of the statement of claim.
[1431] ASIC’s case pleaded in paras 133-136 of the statement of claim, that the half-yearly
reports were false because rights under the loan participation agreement and the
acquisition of units in MYF did not exist until the end of January 2008 and were,
therefore, not assets of PIF during the period covered by the accounts, attracted two
responses. The first was that, as put in oral submissions by ASIC, the argument was
outside the pleaded allegations. The pleading was that the accounts were false because
no rights under a loan participation agreement and no units in MYF were acquired.
[1432] ASIC did not plead a fall back case that, if the loan participation agreement and the
acquisition of the units were legally effective, then the accounts of PIF to December 2007
were nonetheless false because the time of acquisition of those assets post-dated the
period of the accounts. That should have been specifically pleaded pursuant to the UCPR
r 149(i)(c). Further, the submission went, the accounts were not false as they were post-
balance date events having retrospective operation.
[1433] In my view, one that I have expressed elsewhere, the simple answer to that argument is
that there should have been a note to the accounts if this were to be treated as a valid post
balance date transaction. There was not such a note. The pleading in paras 133-136 of
the statement of claim is adequate to cover the argument.
Anderson’s involvement with PIF audit and accounts preparation
[1434] The submission was that the evidence establishes that Mr Anderson had no involvement
in providing PwC with information or accounting or financial records. Mr Allman’s
evidence was that he had some communication with Mr Anderson at the outset of the
audit about the logistics but no further contact he could recall after that.790
Mr Woodbridge recalled a meeting with Mr Anderson as a part of the review process.
There was a series of meetings at which PwC presented their interim findings and
discussed issues arising in the course of the half-yearly review but Mr Woodbridge had
no positive recollection of Mr Anderson being present or participating in any of those.791
786 WIM.0006.0001.0140; 5FASOC, 122(a).
787 WIM.0006.0001.0135; 5FASOC, 123(a).
788 WIM.0006.0001.0137; 5FASOC, 124(a).
789 OIM.0001.0001.0324; 5FASOC, 125(a).
790 T27-78/4-18.
791 T28-45/34-T28-46/7.
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295
Nor did Ms James recall Mr Anderson being actively involved in any part of the audit of
the accounts of PIF for the half year ending December 2007 in so far as the provision of
information and documentation to the auditors was concerned.792
[1435] Apart from Mr Hutchings at one stage asking some questions of Mr Anderson about what
an audit opinion meant and Mr Anderson giving an explanation as to the various types of
audit opinions, he was said to have had no involvement in the preparation of the accounts
for PIF for the half year ended 31 December 2007. The accounts showed an asset in MYF
of 85 million units and the entry into a participation agreement with PacFin under which
the fund participated in loans up to $62.5 million. Mr Anderson did not play any part in
providing PwC with information about those assets or documents about them and also
had no involvement in the audit by PwC of those accounts apart from some early
discussions at the request of Mr Hutchings or Ms James about the start date for PwC’s
field work.
[1436] Although Mr Anderson received a copy of the financial accounts from Mr Hutchings by
email, he did not see that this email asked him to do anything. They included some
information relevant to Mr Anderson in that MFS Limited provided a $50 million support
mechanism to PIF, a contingent liability that, depending on the state of affairs of PIF in
their report, might influence how Mr Anderson and his team accounted for that liability
in the MFS Limited accounts. Mr Anderson’s evidence was that he had a very good look
at the accounts, he thought to see whether or not they were still unqualified and to look
for the section dealing with the MFS Limited support mechanism, but did not understand
that Mr Hutchings wanted his professional opinion on PIF’s final accounts.
[1437] Otherwise, he did not have any role in the management representation letter from the fund
to the auditors concerning those half-yearly accounts, nor any role in the board of
directors of MFSIM approving them. He was not aware, on his evidence, that any of the
documents provided to the auditors had been backdated.
[1438] Consequently, Mr O’Donnell submitted that the case alleged by ASIC in these respects
had not been made out, namely that MFSIM provided PwC in February 2008 with access
to its accounting records which recorded loans made by PIF to the entities and in the
amounts set out in Mr White’s listing of loans documents, including the false documents.
The submission went on to the effect that there was no evidence that PwC was provided
with any accounting record or false document other than the loan participation
agreements, the new loan notice, the two applications for units in MYF and the certificate
of unit holding in MYF which did not record “loans made by MFSIM … to the entities
and in the amounts set out in White’s Listing of Loans Document”.
[1439] Nor did Mr Anderson know any of the material facts giving rise to MFSIM’s alleged
contravention, nor did he know the matters alleged in para 138 of the statement of claim.
He himself did not provide PwC with any information or documents or access to
information and his involvement in PwC’s preparation of those accounts for the half year
ending 30 December 2007 and the audit was limited. He contacted PwC at the request of
Ms James or Mr Hutchings to delay PwC’s arrival to start field work by one day in the
chaotic circumstances of 18 to 21 January 2008. Otherwise, however, he had no
involvement.
792 T19-61/4-T19-62/2.
-- 309 of 348 --
296
Keeping of documents
[1440] The documents ASIC alleges Mr Anderson was involved in keeping, one of the alleged
contraventions by MFSIM as responsible entity for PIF, were:
(a) the information memorandum dated 23 November 2007;
(b) the loan participation agreement between PIF and PacFin for $62.5 million;
(c) the loan participation agreement between MYF and PacFin for $55 million;
(d) an application by PIF for 67.5 million class A units in MYF;
(e) a certificate of unitholding in MYF dated 30 November 2007 in the name of the
MFSIM as responsible entity for PIF for 67.5 million units;
(f) an application by PIF for 17.5 million class A units in MYF;
(g) a certificate of unitholding in MYF dated 27 December 2007 in the name of the
MFSIM as responsible entity for PIF for 17.5 million units; and
(h) the new loan agreement between PIF and PacFin.
[1441] Mr Anderson’s case was that he was not involved in keeping the documents, evidence
that was unchallenged in cross-examination and should be accepted. The argument was
that ASIC did not plead conduct engaged in by Mr Anderson, nor allege that he had the
necessary knowledge about the conduct of others and the purpose pleaded at paras 132
and 132A of the statement of claim. The conduct relied on by ASIC pleaded at para 210A
was not capable of amounting to knowing involvement in the keeping of documents
because Mr Anderson’s alleged conduct arose before the documents came into existence.
Nor was the conduct alleged capable of being considered to be “keeping” of documents
or giving rise to a knowing involvement in the keeping of documents. The third point
made on behalf of Mr Anderson was that the evidence did not establish that Mr Anderson
was involved in the keeping of the various documents, while the fourth was that MFSIM
did not contravene the Act in respect of the documents because they were not false and
ASIC has failed to prove that each of the eight documents were kept by MFSIM as
responsible entity for PIF.
[1442] In developing the argument that ASIC failed to plead and prove essential ingredients, the
focus of the submission was on the lack of any allegation of knowledge being held by
Mr Anderson of essential facts giving rise to the alleged contravention by MFSIM,
namely that each of the eight documents were being kept by MFSIM as responsible entity
as genuine records in hard copy folders or electronically, that MFSIM as responsible
entity was acting dishonestly in keeping the documents, nor the conduct or states of mind
of others which amounted to the keeping of the documents.
[1443] The final versions of the documents were not created before 5 February 2008, while
Mr Anderson’s conduct relied on by ASIC ceased at 24 January 2008 when the alleged
false documents did not exist. Accordingly, the submission went, there was no possibility
that the conduct alleged by ASIC could amount to the knowing involvement by
Mr Anderson in the keeping of the documents. The allegations of his involvement in the
creation of the listing of loans and the meeting with Mr Stride in paras 96 and 107(a) of
the statement of claim related to the creation of the documents rather than their being kept
and the knowledge alleged against him in paras 93 and 93A was at 20 January 2008 before
the documents were created concerning a topic detached from their being kept.
-- 310 of 348 --
297
[1444] Nor was there any evidence that Mr Anderson was involved in their being kept. His
evidence on that point was not challenged.
[1445] In developing the argument, counsel referred to their previous submissions that the
documents were not false and also argued that it had not been proved that MFSIM kept
the eight documents either in hard copy or electronically. The evidence of Ms Kercher
in respect of the keeping of hard copies of PIF’s IAC minutes and meeting information
listed in schedule E to her affidavit was that there were no hard copies of any of the
allegedly false minutes or IAC submissions nor any of the documents Mr Anderson is
alleged to have been involved in keeping and no evidence from Ms Kercher existed as to
the keeping of the eight documents.
[1446] It was also submitted that the information memorandum was a document of MFSIM as
responsible entity for MYF and there was no evidence that it was kept other than in
electronic form, nor as to where any electronic version was kept.
[1447] As to the application forms and unit certificates, Ms Platts’ evidence was that she
arranged for them to be signed by Mr White and Mr Hutchings, but there was no evidence
as to the date on which she produced the hard copies of the documents for signing and
where they were kept following their signing. In respect of the participation agreements
and the new loan notice, counsel submitted that the evidence did not support findings that
Mr Anderson knew that Ms Platts or Ms Howard held the original loan participation
documents. His evidence was that he understood that all the PIF loans documentation
was held by Ms Bennett and Mr Snowden and their team. His evidence was that he
sought those documents for Mr Dunn of 333 Capital and the argument was that his
seeking out others to provide the information was consistent with him not keeping the
loan documentation which was also said to be consistent with the evidence of others who
worked for Mr Anderson that they did not have access to the books of any other MFS
Group entity than MFS Administration.
[1448] Accordingly, it was submitted that the evidence favoured my finding that the loan
documents kept by MFS Limited and MFSIM as responsible entity for PIF were kept by
Ms Bennett and/or the loans management team and that none of the eight documents
Mr Anderson is alleged to have been involved in keeping were kept by Ms Bennett or
that team.
[1449] As to ASIC’s reliance on the keeping of documents electronically on the computer server
of either MFS Administration, MFSIM or others, it was argued that ASIC’s pleaded case
was not that the electronic documents were kept as email files or in the form of
attachments or on the local hard drives of computers of individuals who worked at MFS.
The submission was that the findings I should make in relation to the computer servers at
MFS Limited were that there was an email server called an exchange server and a
computer that ran a computer program known as Aftermail which archived emails sent in
and out of the MFS Limited computer system. No documents could be saved in the local
hard drives of computers and all documents had to be saved to a server. MFSIM had its
own folder on the MFS Group server and certain signed minutes for the IAC for MFSIM
as responsible entity for PIF and the MFSIM board were kept on the MFS Group server
in a departmental folder called “Company Registers”. The minutes saved to the
departmental folder were those prepared by Ms Kercher’s team and minutes not prepared
by her team were not saved into that folder.
-- 311 of 348 --
298
[1450] None of the eight documents Mr Anderson was said to be involved in the keeping of were
contained in the lists Ms Kercher identified as being kept in the Company Registers folder
on the server. Some others were located in the Income Funds folder on the server.
[1451] It was argued that the evidence supports a finding that access to the “Income Funds”
folder was restricted to those working for MFSIM in Income Funds and that Mr Anderson
and those in his team did not have access to those folders.
[1452] Nor was there any evidence that Mr Anderson knew the documents were on the server,
knew their location or had access rights to the area of the server where the documents
were stored. Accordingly, on counsel’s submission, the evidence did not support a
finding that MFSIM as responsible entity for PIF kept electronically any of the eight
documents pleaded against Mr Anderson.
[1453] Counsel for Mr Anderson also submitted that the two positive acts alleged to have been
undertaken by him in respect of the keeping of the false documents were the listing of
loans and the meeting with Mr Stride. It could not be argued properly that there was a
connection between those allegations and any finding that the information memorandum,
unit application forms, unit certificates and new loan notice were created or kept because
of those allegations. Nor, they submitted, was there a connection between Ms Platts
sending Mr Anderson certain documents and his involvement in the creation and keeping
of them. The documents Ms Platts sent him were none of the eight documents he is
alleged to be involved with. They were, however, earlier versions of those.
[1454] As I have said elsewhere, the keeping of documents in electronic form is one perfectly
feasible manner of keeping them. It seems clear from the evidence that they were kept
on the MFS Group’s computer servers. I have no doubt that they would have been
accessible to Mr Anderson in one of his various roles in the group, including his role with
MFSIM.
The discretion to excuse
[1455] The final aspect of Mr Anderson’s written submission referred to s 1317S(2) and
s 1318(1) and the discretion available to me there to excuse Mr Anderson from
contraventions if I find that he acted honestly but nonetheless contravened the Act.
Conclusions from submissions for Mr Anderson
[1456] Based on the history of the matter leading up to the listing of loans document, there is a
very plausible theory that Mr Anderson was its co-author with Mr White. It was
precipitated by the need to prepare some explanation for the auditors and RBS of what
had happened with the money drawn down from PIF’s RBS facility. I find it very difficult
to accept that Mr Anderson was simply Mr White’s amanuensis or that he knew nothing
of the need to provide some explanation for these transactions before 23 January 2008.
[1457] When one recapitulates the evidence that view becomes clearer. His explanation in an
email of 14 January 2008 of the “Funding of $100m for Fortress” by referring to “moving
-- 312 of 348 --
299
Loans (either to 3rd parties or to MFS Pacific Finance) into a new investment Fund”
suggests some familiarity at that stage with the scheme that was put into place.793
[1458] On the next day, 15 January 2008, in the “creative brain” email, he was asked by
Mr White to come up with an explanation of “what the $147.5 went to”.794 That request
was accompanied by a draft PIF IAC paper that was backdated to 28 November 2007.795
The language of the email is also consistent with Mr Anderson having some familiarity
already with the proposal being made. I find it very difficult to accept that he did not read
it or have it drawn to his attention at the time.
[1459] Early in the morning of 23 January, at 7:10 am he told Mr Hutchings that he was
“confident of the way forward” when asked for information about the RBS inquiries.796
Then, by email at 8:06 am on Wednesday, 23 January 2008 to Mr White, he attached a
simple list of six loans totalling $105 million “as requested”.797 However by 8:27 am he
emailed to Mr White a list of 10 loans totalling $147,511,950, which, for the first time,
included nine of the investments that form the basis of the listing of loans document.798
[1460] By email at 8:32 am on Wednesday, 23 January 2008 to Mr Hutchings and Ms Platts
regarding “Listing of Loans (2).xls”, Mr White attached a listing of loans and says:
“sorry for the delay
this is the Max Yeild [sic] portfolio of high return MFS sub loans.”799
[1461] The loans totalled a slightly different sum, $147,946,438, but the significant difference
was the removal of Kiwi International from the list.
[1462] By email at 10:19 am to Ms Platts, Mr Anderson attached the list of 10 loans totalling
$147,511,950 noting, “as discussed”.800
[1463] By email at 10:30 am on Wednesday, 23 January 2008 to Ms Kercher copying Ms Watts,
Mr Hutchings forwarded on Mr White’s email of 8:32 am with the attached “Listing of
Loans (2).xls” document. He asked Ms Kercher to provide Ms Watts with information
as a matter of urgency about the ownership structure and whether they were related party
transactions.801
[1464] When 333 Capital sought an explanation of the transactions on 7 February 2008, they
were told that Mr Anderson could explain them as “the best person to speak to about”
them.802 He did so.803
793 DEL.2004.0007.7377.
794 DEL.0025.0001.0392.
795 DEL.0025.0001.0395.
796 DEL.1300.0004.4242.
797 DEL.0006.0001.0161 attaching DEL.0006.0001.0162.
798 DEL.0006.0001.0169 attaching DEL.0006.0001.0170.
799 DEL.2004.0006.8010 attaching DEL.2004.0006.8011.
800 DEL.2005.0006.4514 attaching DEL.2005.0006.4515.
801 DEL.0006.0001.0001 attaching DEL.0006.0001.0002.
802 DEL.1300.0003.1720.
803 DEL.2006.0002.7742 attaching DEL.2006.0002.7743.
-- 313 of 348 --
300
[1465] On 8 February 2008, he received and printed a collection of eight of the false
documents.804 Mr Anderson’s explanation was that he did not read those documents. I
find that implausible and conclude that he knew that the instructions to create the false
documents had been implemented.
[1466] ASIC’s submission was that, when all this objective evidence was considered, it was plain
that Mr Anderson was at least partly instrumental in setting up a scheme to create false,
backdated documents to disguise the fact that PIF investors’ money was taken in
November 2007 without there being any transaction at that time providing PIF with assets
in return. That put him in the same position as the defendant in Australian
Communications and Media Authority v Mobilegate Ltd (No 8),805 who established a
dishonest scheme that was then implemented by others. There, the fact that the defendant
did not know the precise way in which the scheme was implemented by others did not
prevent the Court from finding that the defendant was knowingly involved in their
conduct.
[1467] Applying the principles in Mobilegate to Mr Anderson’s case, Mr Moore submitted that
he was, therefore, involved in the creation of the false loan participation agreements
because he knew there was no investment back in 2007 and generated a list of loans
knowing that it would make its way, in some form or another, even if modified, into a
loan participation agreement that would be used to suggest that it had been entered into
in 2007 at the time the RBS money was transferred. Therefore, his degree of involvement
was such that he satisfied both the conduct element, practical connection, and the
knowledge element, without knowing the precise detail of the way in which the
contravention came to be committed. He participated in setting up a scheme under which
documents like the loan participation agreements were produced.
[1468] Nor, he submitted, could later changes to documents proved by one or other of the
defendants mean that they had not been involved in the contravention themselves. Later
changes did not alter the falsity of the earlier drafts and were irrelevant to the contention
that at the time they approved documents, for example, on 6 February 2008, there was a
contravention. In this context, he referred to ASIC v Hellicar.806 I have referred to that
decision elsewhere, when discussing Mr Hutchings’ case. That proposition seemed to me
to be correct.
[1469] Mr O’Donnell, however, posed a number of opposing arguments to the too-easy
acceptance of this “case theory” and drew my attention to passages of Mr Anderson’s
evidence that had not been challenged.807
[1470] Mr Anderson's conduct needed to be measured against the fact that he was a very
experienced accountant and insolvency practitioner.
804 DEL.2004.0001.7204.
805 (2010) 275 ALR 293.
806 (2012) 247 CLR 345, 382-383 at [76], 388-389 at [88]-[91] and 392-395 at [100]-[110].
807 T55-3/28-T55-9/45. See COURT.7000.0003.0002 also, passages from which I have referred to earlier.
Consistently with my views about Browne v Dunn [1894] 6 R 67 expressed elsewhere I do not regard it as
essential to put every contradictory piece of evidence to a witness in a case like this.
-- 314 of 348 --
301
[1471] In the immediate aftermath of the $130 million bank transfer, nothing happened to show
what was to be done with the $130 million. There were no efforts to have MFS repay the
money and no attempt to document any transaction to justify the transfer. In itself that
argument seems to me to be equivocal. Why, as CFO of MFSIM as well as the MFS
Group, is Mr Anderson not trying to find out what had happened even then?
[1472] When the accounting treatment for the withdrawal is raised by Mr Ball on 4 December
Mr Anderson responds by suggesting that Ms Easton should decide what the accounting
entry should be.808 An experienced accountant would want to work out how to justify the
payment and make sure the first accounting entry of that amount would accord with how
it was later to be justified. Again the argument is equivocal. If he knew that something
untoward had happened he may have wished to distance himself from it.
[1473] When the $17.5 million was taken, his evidence was that he believed that it was an
investment by PIF in PacFin. He thought he probably told PIF that and that it could have
been an investment in unsecured notes in PacFin. PIF then had a standing investment in
unsecured notes in PacFin. So, on ASICs theory, Mr Anderson was a party to the taking
of $17.5 million in a way that contravened the statute when the same commercial outcome
could have been achieved in a way that did not. There was some urgency attached to the
payment that may explain this however.
[1474] He told Ms Brown who kept the accounts for PacFin to write up the $17.5 million as an
investment in unsecured notes, where on ASICs theory of the case he knew it was not an
investment in unsecured notes. He knew it was just a straight taking of money.
[1475] The email of 14 January 2008809 was not consistent with Mr Anderson’s knowledge of
transactions that had already occurred and the problems associated with transactions
between related parties where approvals had not occurred for proposed transactions.
He did not turn his mind immediately to the “creative brain” email when, if he were
a conspirator intending to fabricate transactions, he would have wanted “to get the
cover-up documents finalised as quickly as possible”. His own evidence was that
he did not see that email immediately. I am dubious about that, however.
He did not reply to requests for help from Mr Hutchings or Ms James on 18 January
in documenting explanations for the taking of both sums of money. If he were
creating a fraudulent scheme he would have wanted to assist them.
When asked to put off the auditors he does so for only one day when he must have
known a longer time would have been needed to prepare the false documents.
When Mr Hutchings’ “escalation” email arrives on 21 January he suggests to
Mr White that Mr Whateley should be involved.810 That had the potential that the
matter would be reported to the authorities.
He suggests a meeting with Mr Korda about the listing of loans documentation that
reveals that the documentation has not been signed.
About the same time he meets with his accounting staff, Ms Easton and Ms Brown,
and tells them the explanation he has been given from Mr White, about PIFs
808 DEL.2007.0003.7110.
809 DEL.2004.0007.7377.
810 DEL.0025.0001.0634.
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302
investment in MYF, that they both acquired loans from PacFin and to get details of
the loans from Ms Bennett.
He receives information from Ms James that the whole $147.5 million was entirely
funded from the RBS facility which, on ASIC’s case theory, he should have known
already himself.
He was not involved in the documentation of the cover-up.
He declined to go to the first status meeting with the auditors and was not present
at any subsequent meeting with them. He does not provide any documents or
information to them. He effectively leaves that to Ms James and the staff of PIF.
If he had wanted to cover up the transactions he would have wanted to monitor the
information given to the auditors.
[1476] The emails at this crucial period do carry the clear meaning on my reading of them,
however, that Mr Anderson is aware that funds have gone from PIF improperly, with
nothing in place to justify their payment out. That is where the text of the email of 21
January 2008 referring to the possibility of involving Mr Whateley needs to be considered
in more detail. It said in part:811
“Need (I think) to focus on what is best for the PIF investors in getting all
the loans back in that deal etc
Could be reading it wrong but if the MFS IM Chairman could be brought
into the loop and accepted the sense of the delay in formalizing any
concerns that might be last stand”
[1477] It seems clear to me that he knew then that $147.5 million had been paid out wrongly
from PIF. He is also aware that the “formalities” associated with the payment out of the
$130 million had not been met. My view is that it is most likely that he knew that PIF
was the source of the funds for the $130 million payment back in November 2007 but
expected that Mr White would put some explanation in place for the payment. In his role
as CFO for the MFS Group it was incumbent on him to ensure that there was a transaction
in place for the payment out from PIF’s funds to protect the interests of its investors.
[1478] One has to remember that, even though his background was as a chartered accountant and
liquidator, he was working in close proximity with Mr White whose reputation for
adhering to the formalities was not good. A plausible theory is that, for example, he too
had been kept in the dark for some time by Mr White about the “justification” for the
payment out of the $130 million but believed that some expedient backdated “solution”
could be put in place such as the repayment of the money. That could also be consistent
with the apparent carelessness within the organisation in the preparation of documents
generally. That is not good enough to meet his obligations as an officer of MFSIM,
however. Nor can I accept that he was acting on only one side of the transaction, on
behalf of MFS and its other associated companies. He owed significant duties to the
investors in PIF as CFO of MFSIM. He should have made sure that their “investment”
was protected.
[1479] As in the case of Mr King it is my view that, if he abstained from making an inquiry about
what purpose of PIF existed for the payment at the time, I also infer that he did so because
811 DEL.0025.0001.0634 (emphasis added).
-- 316 of 348 --
303
he knew there was none. He should have made inquiries about what was proposed and
have ensured that something was in place for PIF’s investors before the money was taken
from MFSIM as PIF’s responsible entity.812 Even if he did not know initially what the
source of the funds was, which I do not accept, he clearly became aware of it later and
then did nothing except to participate in a fraudulent scheme to disguise the reason for
the payment, thus becoming knowingly involved in MFSIM’s contraventions.
[1480] My reasons for not accepting his evidence that he then did not know where the funds
came from include the evidence summarised at para 582 of ASIC’s written submissions813
and of the involvement of Mr Parker, the MFSIM funds analyst.
[1481] My conclusion is that ASIC has established to the appropriate standard that he was
involved in MFSIM’s contraventions and committed contraventions himself that justify
findings of dishonesty against him in respect of the transaction in November 2007.
[1482] As to the $17.5 million payment in December 2007, he knew its provenance from PIF
and that it was wanted urgently to assist in PacFin’s cash flow issues over Christmas. He
says he was told by Mr White that that money was to be invested but did nothing to verify
that on behalf of PIF’s investors. Given the history with Mr White by then he was on
notice even more to ensure that it was paid for PIF’s purposes, not those of PacFin. In
failing to do so he again breached his duty to act honestly.
[1483] The arguments that Mr Anderson did not send documents to the auditors or participate
actively in the audit does not affect my views about the allegations of the provision of
false documents made against him. As one of the creators of the listing of loans document
and the giver of instructions to Mr Stride, I am satisfied that he was knowingly involved
in those offences relating to the creation of false documents.
[1484] I understand that ASIC is not pursuing the allegation of breach of s 344 made against
Mr Anderson in para 210A(s) of the statement of claim. It does not appear in the amended
schedule of alleged contraventions.814 As Mr O’Donnell pointed out, that offence can
only be committed by a director and Mr Anderson was not a director of MFSIM.
[1485] Accordingly I propose to make declarations against Mr Anderson in the terms of the
contraventions alleged against him numbered 1, 2, 5 to 10 and 12 to 46 of that schedule.
812 The Zamora (No 2) [1921] 1 AC 801, 812-813; Giorgianni v The Queen (1985) 156 CLR 473, 505, 507-508.
813 COURT.0029.0003.0001.
814 COURT.0030.0001.0030.
-- 317 of 348 --
304
ASIC’s case against the eighth defendant, Ms Watts
[1486] Ms Watts is not alleged to have been an officer of MFSIM so that no primary
contraventions are alleged against her. She is said, however, to have been involved in
several of MFSIM’s contraventions. In particular, the creation of the false documents,
the provision of the false documents to the auditors and sending false information to RBS.
Submissions for ASIC
False documents
[1487] ASIC did not pursue its case against Ms Watts in respect of the documents alleged in
paras 109 and 118 of the statement of claim. Otherwise it alleged that she was knowingly
involved in the creation of the following false documents:
the IAC (MYF) submission dated 20 November 2007 recommending that MYF
issue up to 100 million class A units (para 213B of the statement of claim, referring
to paras 110 and 187B);815
the IAC (PIF) submission dated 20 November 2007 recommending PIF enter into
a $62.5 million loan participation agreement with PacFin (para 213C of the
statement of claim, referring to paras 111 and 187C);816
the IAC (MYF) minute of meeting dated 21 November 2007 purporting to record
that IAC approves the issue of 100 million class A units in MYF (para 213D of the
statement of claim, referring to paras 112 and 187D);817
the IAC (PIF) minute of meeting dated 23 November 2007 PIF (1) entering into
$62.5 million loan participation agreement with PacFin; and (2) acquiring $85
million class A units in MYF (para 213E of the statement of claim, referring to
paras 114 and 187F);818
the IAC (MYF) submission dated 27 November 2007 recommending that MYF
enter into a $55 million loan participation agreement with PacFin (para 213F of the
statement of claim, referring to paras 115 and 187G);819
the IAC (MYF) memorandum dated 28 November 2007; and
the memorandum dated 28 November 2007 to the IAC of MFSIM as responsible
entity for MYF recommending that MYF lend Sunleisure $30 million (para 213G
of the statement of claim, referring to paras 116 and 187H).820
[1488] After setting out a detailed chronology of the events involving Ms Watts, ASIC
summarised its case against her in the following terms:821
815 WIM.0002.0004.0201.
816 WIM.0002.0004.0139.
817 WIM.0002.0004.0199.
818 WIM.0002.0004.0137.
819 WIM.0002.0004.0077.
820 OCA.0002.0004.0284.
821 See ASIC’s closing submissions COURT.0029.0003.0001 at paras 1269-1281.
-- 318 of 348 --
305
“1269 Ms Watts knew that the RBS was to be drawn down in the week
before it occurred.822 She knew that the drawdown occurred on the
day it occurred,823 and that PIF paid the $130 million straight from
its own bank account to MFS Administration’s.824
1270 Ms Watts then spent between 30 November 2007 and 23 January
2008 attempting to find out what assets PIF received on account of
the fact that $130 million of its money had been paid to MFS
Administration. Despite repeated requests of Mr Hutchings and
Mr White, no details were provided. Mr Hutchings said he did not
know what the transactions were. According to Ms Watts,
‘Mr White was the only possible source of the details of the
investments’.825 ‘All MFSIM staff were waiting for Mr White to
provide the investment details’. Between 30 November 2007 and 23
January 2008, Mr White did not tell Ms Watts or anyone else what
PIF had got in return, despite repeated requests. Not even informal
details of any transaction were provided to Ms Watts, let alone
documentation evidencing some transaction recording some
consideration that PIF received in return for paying over $100
million of investors’ money.
1271 To the extent that Ms Watts suggested in evidence that she thought
that Mr White was not giving her the information she sought because
he was busy or there was some other innocent reason, that ought to
be rejected as entirely lacking in credibility. The more obvious
explanation - that there had been no acquisition by PIF of any
specific asset - is the only logical inference. And that is the
explanation that Ms Watts herself admitted she came to believe. As
Ms Watts told ASIC six months after the false documents were
created, she came to the view that Mr White did not know what
investments PIF had acquired.
1272 The fact that there was no transaction on or about 30 November 2007
pursuant to which PIF received specific assets in return for the $130
Million Payment was confirmed to Ms Watts after details of the
supposedly allocated assets were eventually provided on 23 January
2008. On that day, Ms Watts was forwarded Mr White’s listing of
loans.826 But between then and the time the documentation
purporting to record PIF’s investments was finalised on about 6
February 2008, the details of the suggested transactions changed
markedly.
1273 For example, it is apparent from Ms Platts’ changes to the suite of
documents sent to Ms Watts by email on 27 January 20081019 that
Ms Platts had:
822 See, eg, DEL.2002.0002.8883 (21 November 2007), DEL.2002.0002.8883 (23 November 2007),
DEL.2002.0002.8883 (27 November 2007).
823 DEL.2002.0002.8914 (28 November 2007).
824 DEL.2002.0001.2693 (30 November 2007).
825 Affidavit of Ms Watts [AFF.MAW.0002] at para 132; see too para 134.
826 DEL.0006.0001.0001.
-- 319 of 348 --
306
(a) updated the list of investments - that is, she was still working
out what the investments would be;
(b) prepared IAC papers for the review of Mr Hutchings. The
papers were drafted in a manner as though the transaction had
not yet occurred and approval for a prospective transaction was
being sought;
(c) ensured that those documents were ‘match[ed] to outflows’ -
that is, that the documents were matched to the payments of
funds by PIF in November and December;
(d) split the investments in such a way as to ensure that PIF’s
various asset allocation thresholds and related party thresholds,
were met;
(e) suggested a further change to the investments by replacing
Sagacious with MFS RAP in December 2007.
1274 The differences between this list from Ms Platts and Mr White’s
original list include the following:
(a) Blue Sky Development Trust has changed from $32,326,438 to
$45,097,529.09;
(b) 3 investments placed under the heading of Max Yield Fund,
which was not in Mr White’s list;
(c) Gersh (GIPL) changed from $10m to $9,902,470.91;
(d) MFS RAP in Mr Whites list, not at all in Platt’s list;
(e) Young Village Estates has changed form $15m to
$23,597,768.32;
(f) Sagacious has changed from $5.5m to $5,174,356.55;
(g) Copperfield changed from $17.63m to $5,174,356.55.
(h) Southport changed from $20m to $10,644,004.02.
1275 In the face of such changes, Ms Watts could not genuinely have
believed that a transaction or transaction had been undertaken on or
about 30 November 2007, pursuant to which PIF received defined
assets in return for its $130 million.
1276 Moreover, the documents that Ms Watts assisted in preparing record
that the decision to make investments on behalf of PIF was made by
Mr White and Mr Hutchings. Ms Watts had, on her own account,
been continually chasing Mr Hutchings for details of the transactions
entered into on PIF’s behalf with the $130 million. Mr Hutchings
continually responded that he did not know. If, in truth,
Mr Hutchings had made decisions jointly with Mr White at IAC
meetings in November 2007 for PIF to enter into specific investment
transactions, there is no rational explanation for why Mr Hutchings
would not pass on details of the investments to Ms Watts, PIF’s fund
manager. The reality is that there were no such transactions.
-- 320 of 348 --
307
1277 When documents began to be drafted in February 2008 recording
Mr Hutchings as having made investment decisions jointly with
Mr White at IAC meetings in November 2007, Ms Watts did not ask
Mr Hutchings why he had been saying for the past six weeks that he
did not know what investments had been made. The reason why is
obvious. She knew that Mr Hutchings had not made any such
decisions in November 2007, contrary to the false suggestion made
in the documents she helped draft.
1278 Ms Watts knew that the date on each of the three submissions from
her to the IAC dated in November 2007 was false. She knew that she
had made no such submission as recorded in those documents to
anyone in November 2007.
1279 Ms Watts knew that there had been no meetings of the IAC as
recorded in the minutes dated 21 and 23 November 2007. That is to
be inferred from the facts that:
(a) the minutes purport to record specific decisions by Mr White
and Mr Hutchings in November 2007 that certain investments
should be made, when as discussed above, Ms Watts knew that
no such decision had been made; and
(b) the minutes purport to record consideration of a written
submission made by Ms Watts herself, when Ms Watts knew
that no such submission existed in 2007.
(c) Ms Watts acknowledged her wrongdoing to ASIC. As noted
above, in August 2008 she was asked this question and gave this
answer:
Q. So you didn’t think drafting a document in January,
dating it 20 November, because I think your words
were something along the lines of, ‘It wouldn’t be a
good look to have documents dated after the
transaction,’ you didn’t think that there was anything -
A. I definitely was not happy about that at all, and in
hindsight I certainly should have said, ‘No, I don’t want
my name on this paper at all.’ But I did.
1280 Ms Watts thus knew that there had been no investment by PIF with
the RBS money in November and December 2007, and that there
had been no meeting attended by Mr White and Mr Hutchings in
November 2007 in which such investment decisions were made. She
knew that because:
(a) As Ms Watts said herself to ASIC, she came to that realisation
when Mr White failed to provide any details of any such
investment for more than 6 weeks.
(b) If there had been a PIF investment decision made by
Mr Hutchings (as suggested by the documents Ms Watts helped
prepare), Mr Hutchings would have told her about that decision.
-- 321 of 348 --
308
He did not. Instead, he said that he did not know what assets
PIF acquired.
(c) When some details of the relevant assets came to be provided
by Mr White, they were then changed significantly before the
documents were finalised.
(d) The dates of the relevant meetings were changed, including by
Ms Watts herself, not because the meetings actually took place
on those dates, but merely so that the ‘documentation matches
to outflows.’
1281 On top of that, as she admitted, Ms Watts knew that she had not
made submissions to the IAC for PIF and MYF on the dates recorded
in the documents.”
Providing false documents to auditors
[1489] ASIC also contended that Ms Watts was involved in the MFSIM contravention, pleaded
in para 189 of the statement of claim, in para 213I. The contravention was that MFSIM
acted dishonestly in providing false documents to auditors. The false documents alleged,
ASIC submitted, were of a nature that would be kept by MFSIM as part of its financial
books and records as the documents purport to record the decision making process leading
up to and approving the purported transactions.
[1490] Ms Watts admitted that she knew that the documents would be kept by MFSIM as part of
its books and records and that they might be made available to its auditors.827 She was
also directly involved in providing the false documents to MFSIM’s auditors as shown
by a chronology set out in ASIC’s submissions.828 ASIC’s case then was that, for the
reasons set out in its chronology and submissions, Ms Watts knew that the documents
were false in material respects, failed to reveal that falsity to the auditors when providing
them with the documents and worsened their falsity by referring to the PIF-PacFin loan
participation agreement as “dated November 2007”.
[1491] ASIC also submitted that an email led in evidence by Ms Watts of 15 February 2008
attaching three of the false documents referred to in the statement of claim, one of which
was not pressed by ASIC, should be used in the allegation in the case against her that she
intended that the documents would be made available to MFSIM’s auditors as an
apparently genuine part of the books and records of MFSIM. Such an allegation was
made in, for example, para 110(c)(ii) of the statement of claim. That email was not
particularised as relevant to that allegation, but was dealt with in both ASIC’s evidence
and Ms Watts’ evidence, having been led in evidence by her. It was ASIC’s contention
that it was appropriate to have regard to it as evidence of her involvement in MFSIM’s
contravention pleaded in para 189 of the statement of claim and partly based on the
allegation in para 137 that in February 2008 MFSIM provided PwC with access to the
false documents.
827 T52-78/19-29.
828 See COURT.0029.0003.0001 at para 1285.
-- 322 of 348 --
309
[1492] That seems to me to be appropriate as there is no conceivable lack of fairness to Ms Watts
in considering that evidence in this context. Counsel for ASIC pointed to evidence
explaining the creation of the false documents in an email to Ms Howard on 15 February
2008829 where Ms Watts said that “auditors will always want to see a full approval trail
for any submission, especially anything large”. In that context, he pointed out that the
“full approval trail” that the auditors would see would not necessarily include the emails
showing that the documents were backdated and that there was in fact no approval given
at all before the large payments were made.
Providing false information to RBS
[1493] Paragraphs 214A and 214B of the statement of claim allege that Ms Watts was involved
in MFSIM’s contravention pleaded in paras 192 and 193, namely sending asset reports
and the listing of loans to RBS. The chronology of documents evidencing that was set
out in detail.830 For the reasons set out in its submissions, therefore, ASIC argued that
Ms Watts knew that in fact there was no “list of loans/assets funded with the RBS facility”
in 2007 and that documents had been backdated to hide that reality.
Mr Moore’s oral submissions regarding Ms Watts
[1494] Mr Moore made it clear that ASIC was relying upon the documents pleaded, for example,
in para 110 of the statement of claim describing a document Ms Watts signed on 6
February 2008 bearing the date 20 November 2007. He submitted it was plain from the
text of the pleading that it was the document circulated and approved on 6 February 2008
which was the false document ASIC alleges constituted the contravening conduct by, for
example, Ms Watts and Mr Hutchings. The fact that later or different versions of
document IDs are also referred to in the relevant paragraphs of the pleadings did not
detract, in his submission from the wording of the pleading which made it clear that the
documents approved by Ms Watts and Mr Hutchings were the ones attached to the 6
February emails. That submission correctly reflects the language of the pleading.
[1495] Mr Moore accepted that the allegations in para 104 of the statement of claim, that
Ms Watts orally instructed Ms Platts on or about 23 January 2008 to create more
documents which would appear to show that the $130 million payment and the $17.5
million had been invested by MFSIM on behalf of PIF, had not been made out. He
submitted, however, that that did not affect the efficacy of the allegations in paras 105
and 106, alleging the emailing of documents by Ms Platts, which were alternative
submissions.
[1496] He also submitted that I should reject the evidence from Ms Watts that she did not realise
at some stage in January that no investments had been made with the RBS funds. I should
also accept the proposition put to her that she knew that what assets were to be put back
into PIF had, until 23 January at least, not yet been decided. He argued that I should find
that she did know that the assets to be put back, after the event, into PIF had not yet been
decided before 23 January because one of the two people who decided what assets PIF
would get was Mr Hutchings and she was repeatedly asking him what assets had been
obtained through December and into the first three weeks of January 2008. She could not
829 DEL.2005.0001.7241.
830 See COURT.0029.0003.0001 at para 1288.
-- 323 of 348 --
310
have believed that Mr Hutchings had made a decision about those investments in
November 2007. Similarly, she repeatedly asked Mr White what the assets were and
again was not provided with that information. That is what she also told ASIC in her s 19
interview.
[1497] She also received lists of investments which changed more than once which should have
led her to know that there had been no decision in November or December 2007 for PIF
to get particular assets. She had also conceded to ASIC that she was not happy in putting
her name to the backdated document. ASIC’s written submissions relied on some of the
significant passages from her s 19 examination:831
“... if as a fund manager, I wanted to change anything on any of the funds, I
would have to put a paper up to the Investment Approval Committee.
…
I spent probably about three weeks asking Craig, or asking Guy to ask Craig,
where the investments were, what the names of the investments were, and
the mounts of each of the investments and to confirm whether or not they
were related party transactions.
Guy said to me he was pretty confident that they wouldn’t be related party
transactions, but he didn’t know what they were.
I had no indication at all from Craig White whether he actually knew what
these investments were. I guess originally I just thought he didn’t know what
they were. But after a couple of weeks, I really did feel he didn’t know what
they were and that he was waiting on formation [sic] as to what they were,
from Michael King or whoever it was that was organising it.”
…
“Q. Were those requests to Guy to find out more information about them done
by phone or email or in person?
A. I would go into Guy’s office and ask Craig White, would spend time in
the Sydney office from time to time. So whenever he was in the Sydney
office, I would pop in and say, ‘I need that paperwork. I need to know the
names of those. We need to do Investment Approval Committee,’ et cetera.
Q. And what sort of answers were you getting?
A. ‘I will get them to you as soon as I can.’ That was it. I didn’t get any more
elaboration on that.”
…
“Re IAC submission of 20.11.07: ‘I finalised the paper, proofreading and
putting it together. So it’s a hundred per cent my paper, if you like, in that
respect’
…
Q. Why did you date this document 20 November?
831 COURT.0029.0003.0001 at para 1268 (references omitted).
-- 324 of 348 --
311
A. because I was asked to.
Q. And did you ask why it had to have that date?
A. Yes, and the answer was obviously it wouldn’t be good form to have a
transaction on one date and the paperwork following a couple of days later.
Now, obviously I wasn’t comfortable with it and I would have preferred not
to have put my name to the paper.”
…
“Q. And who was it that told you to date it 20 November?
A. I don’t know that I got told it had to have that date on it, but it had to
have the date on it that the cash flow actually occurred around that
time.
...
“Q. But of course, you knew this one wasn’t going to the Investment
Approval Committee, because by January these transactions had taken
place?
A. Yes.”
…
“Q. So you didn’t think drafting a document in January, dating it 20
November, because I think your words were something along the lines of,
‘It wouldn’t be a good look to have documents dated after the transaction,’
you didn’t think that there was anything -
A. I definitely was not happy about that at all, and in hindsight I certainly
should have said, ‘No, I don’t want my name on this paper at all.’ But I
did.”
…
“Q. You mentioned earlier that you had the conversation with Craig along the
lines of, “We need to know the details so we can draft the Investment
Committee papers”?
A. Mmm-hmm.
Q. If by that stage the loans had already taken place, why would you be
drafting committee papers, because there would be nothing for the
committee to make a decision about?
A. It’s more for the paperwork, obviously to show a paper trail that it had
been considered.
Q. But it hadn’t been considered?
A. But it hadn’t been, no, that’s correct.”
…
“Q. There’s not reference in this, that I can see, and correct me if I am wrong,
there’s no reference to a proposal that the MYF issue 100m A class units?
-- 325 of 348 --
312
A. No, that’s correct.
Q. Am I right in thinking that that then means that was not a proposal that
was being considered as at 6 December - well, at least you were not aware
of it as at 6 December?
A. That’s correct, insofar as we hadn’t thought about the actual way of
restructuring the fund.”
…
“I’m sorry I actually put my name to these papers.”
[1498] Mr Moore made a number of telling submissions about aspects of the written submissions
for Ms Watts in particular. The fact that Ms Watts may merely have lent her name to the
proposals rather than being an advocate for them, he submitted, was irrelevant and really
made her conduct, if anything, worse by admitting that she genuinely did not recommend
these investments.
[1499] It was not ASIC’s case that Ms Watts was the decisive decision maker within MFSIM.
Rather, she with Mr Anderson, Mr White and Mr Hutchings, constituted its directing
mind and will, thus satisfying the principles of attribution applicable to that company.
Those principles depended upon the particular purpose for which attribution was sought
to be established, here a statutory contravention, and, therefore, knowing involvement, so
that it was not necessary for somebody to be a senior executive director for the purposes
of the principles of attribution coming into play. Where, therefore, there is an employee
who was so heavily involved in the falsification of documents as Ms Watts was, along
with Mr Hutchings, then her conduct and her state of mind can be attributed to the
corporation for the purposes of establishing a statutory contravention of the duty to act
honestly.
[1500] He did not accept that Ms Watts was limited to being the PIF manager within MFSIM.
She also signed as the manager of MYF and acted in the capacity of its fund manager. In
approving and participating in drafting false documents, making recommendations
supposedly in 2007 for MYF to undertake certain investments, she engaged in conduct
sufficient to establish the contravention by MFSIM with her knowing involvement in it.
In that context, he used as an example the email of 6 February 2008 where Ms Platts
asked her to review the final MYF documents.
[1501] The submission for Ms Watts832 that the whole purpose of the documents being prepared
by Ms Platts was to assist management in obtaining ratification of the investments, or that
ASIC could not show that she knew no such recommendation had ever been made, was
not available. There was no such evidence from Ms Watts and her evidence was only
consistent with her believing that the documents needed to be dated a few days before the
investments to pretend and have people believe that the transactions existed before the
November payment. She conceded that there was no submission in fact by her in
November 2007 to either the MYF or the PIF IAC.
[1502] He submitted that I should accept that Ms Watts did not think that what she was doing
was proper and that she knew by about the middle of January that the assets to go back
832 WATTS.0001.0001.0060 at paras 226 and 789(a).
-- 326 of 348 --
313
into PIF had not then been decided. That was consistent with what she said in her s 19
interview with ASIC.
[1503] Nor could a submission be drawn up pretending that it had been created in November
2007 as some method of specifying November as the operative date for the investment.
[1504] He pointed out that ASIC’s case that the $130 million and the $17.5 million payments
had not been invested in accordance with PIF’s constitution related to its analysis of the
events which showed that the payment of the money had been made without the making
of any investment at all which was clearly a breach of the constitution. It did not assist
by pointing out that the Trusts Act (Qld) gave trustees wide powers of investment.
[1505] Mr Freeburn’s written submissions833 that Ms Watts was not asked to review the false
documents because they were emailed to Mr Hutchings and merely copied to Ms Watts
did not withstand analysis. Ms Watts did review the final set of PIF and MYF papers and
responded to each.
[1506] She had access to Mr White, had asked him repeatedly to tell her the details of the assets
that PIF was said to acquire for the RBS funds and was repeatedly not given that
information.
[1507] Mr Freeburn’s argument that she had no motive to behave as alleged was answered, as
with Mr Hutchings, by her likely concern to protect her own reputation as a fund manager.
[1508] There were no investments made in November 2007 and no evidence on behalf of any
defendant to the contrary. If there was a transaction, it occurred in Mr White’s head, but
there is no evidence of any such transaction. Nor could it be said, as was submitted by
Mr Freeburn,834 that Ms Watts was not involved in the listing of loans process. She
received all three listing of loans documents circulated in late January from Mr White,
Mr Anderson and Ms Platts which put the lie to any argument that they were assets
acquired back in November 2007.
[1509] She was also someone who assisted in creating the false documents, even if her assistance
consisted mainly of ticking paragraphs or making general comments about the proposed
document. One of her changes was to change the date that a meeting was said to have
occurred, for example.
[1510] Contrary to Mr Freeburn’s submission,835 Ms Watts could not draw comfort from the
assertion by Mr Hutchings in his response to the 6 February 2008 emails attaching the
draft documents that the original transactions had actually occurred back in November
2007. Her evidence does not support that.
[1511] In respect of the case against her that she was knowingly concerned in the provision of
false documents to the auditors, Mr Moore pointed to the evidence that Ms Watts had sent
833 WATTS.0001.0001.0060 at para 591 and following.
834 WATTS.0001.0001.0060 at para 667.
835 WATTS.0001.0001.0060 at para 838(a).
-- 327 of 348 --
314
the final document to PwC on 15 February 2008 by the email referred to in her own
affidavit at 2:45 pm.836
[1512] In response to the argument that that date was not particularised in the case against
Ms Watts, Mr Moore submitted that the document was put into evidence by her.
[1513] The submission837 that Ms Watts did not recall authorising Ms Platts to affix her signature
to document 116, did not withstand analysis of the evidence. Ms Platts incorporated some
of the changes suggested by Ms Watts and Ms Watts later said in response to those
changes “all okay”. It was not extraordinary, therefore, for Ms Platts to have inserted
Ms Watts’ signature after receipt of that approval from Ms Watts. Ms Watts was plainly
one of the collaborators preparing and then approving the final version of the document.
[1514] Mr Moore’s submission also was that because documents were not found in a particular
place, even the usual place for the keeping of them, did not mean that they were not kept
by the corporation. They could be kept in a variety of ways in a variety of locations
described in the schedule attached to their written submissions. Nor could Mr Withers’
submission for Mr Hutchings, that the documents could not be regarded as false if they
were kept on a server because all the emails were also kept on the server, be correct. The
document itself was false and had been kept. The fact that somebody else might realise
that they were falsified by looking at the surrounding emails did not detract from the fact
that they were still false. Whether the documents were kept by MFSIM as responsible
entity for PIF or MYF did not matter. It was the legal person that contravened the Act by
keeping the falsified documents.
Submissions for Ms Watts
[1515] Mr Freeburn’s oral submissions focussed to a significant extent on the argument that
Ms Watts had not been shown to know that there were no original transactions back in
November 2007. He pointed to other employees such as Ms Platts apparently having
accepted that they existed. She had acknowledged that she had not made submissions to
the IAC and MYF on the dates recorded in the false documents, but the argument was
that the whole purpose of the exercise was to record properly what should have happened
earlier.
[1516] He also submitted that approval of the documents by Ms Watts, including ticks and
comments on them by her, did not mean that she assisted in creating them. I find that
hard to accept.
[1517] Mr Freeburn identified the case against his client as her being knowingly concerned in
contraventions by MFSIM of the Act in creating or assisting in creating the false
documents and, with five of the documents, signing or causing, or allowing her electronic
signature to be affixed to the documents.
[1518] He analysed the pleaded case that she was knowingly concerned in the provision of false
documents to the auditors by MFSIM in these terms:
836 DEL.2009.0001.6625.
837 WATTS.0001.0001.0060 at para 948.
-- 328 of 348 --
315
(a) She held the position of fund manager (para 9).
(b) PIF had a compliance plan and Ms Watts was the scheme manager under that Plan
(paras 31A and 31B).
(c) Ms Howard sent her an email on 11 January 2008 advising that she (Ms Howard)
had to get the audit packs out on Monday (para 91G).
(d) Ms Howard sent Mr Hutchings a further email on 14 January 2008, copied to
Ms Watts, saying she was just wanting to finalise accounts before the auditors
arrive next week (para 91I).
(e) By 20 January 2008 Ms Watts, and others, knew that Ms James had made requests
for details of the investments made with the $130 million and $17.5 million
payments, and no information had been received by Ms James (para 93).
(f) By 20 January 2008 Ms Watts, and others, knew that Ms James had made requests
for details of the investments made with the $130 million and $17.5 million
payments for the purposes of the audit of PIF (para 93A).
(g) She created, or assisted in creating, the false documents and did so knowing the
documents were false and intending that they would form a genuine part of
MFSIM’s books (paras 109, 110, 111, 112, 114, 115, 116 and 118).
[1519] The allegations of her knowing involvement in MFSIM’s contravention in sending the
asset report to RBS were analysed by Mr Freeburn in the following terms:838
(a) Ms Platts’ email to Mr White and Mr Anderson on 23 January 2008 enclosing the
asset report which included the listing of loans information and saying it was going
to be provided to RBS (nothing about this involves Ms Watts).
(b) Ms Platts’ statement to Ms Watts on 23 February 2008 that she (Ms Platts) was
going to provide the asset report to RBS and Ms Watts’ failure to object (nothing
about this, even Ms Watts’ failure to object comprises the essential element of
sending the report to RBS).
(c) Ms Watts’ creation, or assistance in the creation, of the asset report (this is wrong -
see below).
(d) Ms Watts’ knowledge that Ms Platts intended to send the asset report to RBS.
(e) Ms Watts’ knowledge that the information in the asset report was false.
(f) Ms Watts’ creation, or assistance in the creation, of the asset report and her
knowledge that the asset report would be provided to RBS.
[1520] In respect of her involvement in providing RBS with the listing of loans, he submitted
that her knowing involvement in the MFSIM contravention was limited to RBS’s request
of her to supply information about the use of the RBS money, the sending of the listing
of loans document to RBS, the falsity of that information and her knowledge of that
falsity.
[1521] He submitted she was not the fund manager of MYF and that she did not have a role in
management of MFSIM. Certainly, however, the particulars relied upon by ASIC
indicate some significant degree of involvement by her with MYF’s affairs. His
838 WATTS.0001.0001.0060 at para 58 (footnotes omitted).
-- 329 of 348 --
316
submission was that the position of MYF fund manager was vacant. For present purposes,
I am not convinced that the distinction is particularly important given that it is clear that
Ms Watts was a fund manager employed by MFSIM.
[1522] He submitted that she did not hold a decision making role in MFSIM and was at a lower
level of management than that. As with the other defendants, he attacked the fundamental
premise asserted by ASIC that there were no recommendations or transactions in
November and December 2007 and that the documentation was a sham. I have dealt with
those issues elsewhere.
[1523] He submitted, however, that ASIC did not make out its allegations that Ms Watts
positively knew that no such recommendation/submission or meeting recorded in the
false documents had ever been made or held, that she knew of the unconstitutionality of
the investment said to have been recorded and that she knew that PIF had not invested in
MYF on or about 30 November 2007. He criticised ASIC’s case as adopting a “scatter
gun” approach. He pointed out that other staff within the organisation accepted that the
transactions had occurred and prepared documents in reliance on that assumption,
accepted that documents had been backdated and that what was being sought was
ratification of transactions that had already occurred. In his submission, backdating could
occur without dishonesty and did not lead to an inference that the document was fictitious.
It had occurred previously within MFSIM.
[1524] She was not familiar with the terms of PIF’s constitution and did not know until 23
January 2008 what had happened to the $130 million and $17.5 million payments. On
that date, she was given the listing of loans document and told that those investments had
already been made. There was nothing in that document to lead to any view that the loans
investments were not investments made in accordance with PIF’s constitution.
[1525] She was aware of the drawdown of the $150 million from the RBS facility but, it was
submitted, she did not initiate or direct it. That was done by Mr White whose instructions
she implemented.
[1526] She also knew that $130 million had been paid out by 30 November 2007. Similarly, she
knew by 28 December 2007 that $17.5 million had been paid to PacFin. She did not,
however, have any detail other than asset reports recording the drawdown as “other loan”
or “other loans” in respect of what had been done with the money. She had been unable
to find out that information as was the case with many other staff.
[1527] She was also said to have known that PIF did not invest in MYF because on or about 5
December 2007 she drafted a paper for the IAC describing MYF as then having only $2.1
million of funds under management. In other words, ASIC’s case was that she then knew
that MYF was a largely inactive fund with only $2.1 million available to it on 5 December
2007. From that she knew that its recent history did not include an investment in MYF
and MYF’s entry into a participation agreement with PacFin. Mr Freeburn submitted that
that issue was beside the point because she did not know until 23 January 2008 what had
happened to the RBS money. This document was one relevant to the earlier proposed
restructure of MYF. One could not infer in her position, therefore, positive knowledge
that the investment had not been made simply because of her preparation of that
document.
-- 330 of 348 --
317
[1528] On the evidence, Mr Freeburn submitted, Ms Watts did not have access to the books to
enable her to ascertain otherwise what had happened with the moneys drawn down. Even
if she had access, there was no evidence that the accounting system would have disclosed
anything relevant.
[1529] Nor was she wilfully blind so as to permit the inference that she knew there had been no
underlying transactions.839 Nor should she have suspected that investments that were
unconstitutional had been made.
[1530] The fact that she had made no submissions to the IAC or CRPC in respect of transactions
in November 2007 was not something that should have caused her to be suspicious. She
was not on either of those bodies, nor was she the only person who could make
submissions to them. The failure to obtain information from Mr White did not necessarily
create a suspicion in her.
[1531] Her concern that there may have been a related party transaction could be put to one side
because of her being reassured by Mr Hutchings. These might be questions relevant to a
negligence case but not to the case made by ASIC against her. He submitted that the
allegations in para 85(g) of the statement of claim that Ms Watts suspected that the
payments had not been invested in accordance with PIF’s constitution should be struck
out or, if not, should be ignored as unsustainable. There seems to me to be no proper case
to strike out the allegation.
[1532] ASIC had not succeeded in showing that Ms Watts failed to make proper inquiries about
this investment of the $130 million and $17.5 million. She had pursued Mr White for the
information unsuccessfully until 23 January 2008.
[1533] The allegation in para 89 of the statement of claim relating to draft documents, comments
and discussions between Mr Hutchings, Ms Watts and Ms Howard on 3 and 4 January
2008 directed to identifying transactions that might justify the payments was also
criticised as vague. At that stage, none of those individuals knew the detail of the
investments so they produced a draft document with those details to be inserted. The
allegation was unclear as to whether ASIC contended that the object of this exercise was
to deceive in the sense of documenting a transaction that had not happened. That was
not, however, squarely put to Ms Watts and should not be vaguely suggested. Ms Watts
remained in the dark about the detail of the investments by the time of the drafting of the
purported memorandum for the IAC dated 28 November 2007 alleged in para 91 of the
statement of claim. The situation remained basically the same in respect of the degree of
knowledge of what had been acquired for the investments through the rest of January up
until 23 January. Ms Watts had been pursuing the investment detail from Mr White but
not obtaining it. She was not copied in to Mr Hutchings’ “escalation” email of 21 January
2008. Her next involvement was when she was copied into Mr Hutchings’ email of 23
January 2008 attaching Mr White’s listing of loans document.
[1534] Paragraph 103 of the statement of claim then alleged that Ms Watts knew that the
payments had not been invested in accordance with PIF’s constitution by that date, 23
January 2008. Mr Freeburn submitted that it was odd that ASIC made that allegation
when all that Ms Watts knew was the investments identified by Mr White when
839 Pereira v Director of Public Prosecutions (1988) 82 ALR 217; 63 ALJR 1, 3.
-- 331 of 348 --
318
Mr Hutchings was asking for her to be supplied with the ownership structure and
information as to whether they were related party investments. He criticised the
particulars from which that conclusion could be inferred on the basis that some had not
been proved and for the conclusion that, even in those circumstances, she should have
known that the investments were unconstitutional. All she had to go on then was the
listing of loans.
[1535] The allegation in para 104 that, on or about 23 January 2008, Ms Watts orally instructed
Ms Platts “to create more documents which would appear to show” that the payments had
been invested by MFSIM in the loans shown in the listing of loans document was
criticised as not being based in the evidence of Ms Platts. Ms Platts’ evidence was that
she was taking instructions from Mr White on the documentation. Her view was that she
was recording genuine transactions that had occurred in November and December 2007
where the documentation of them was late.
[1536] The draft documents alleged to have been created in para 105 of the statement of claim
by Ms Platts were not prepared by her pursuant to any oral instruction of Ms Watts, but
rather based on Mr White’s instructions. Ms Watts supplied a sample format for an IAC
paper and a draft document to assist Ms Platts in drafting the necessary document.
[1537] He submitted that the documents emailed by Ms Platts on 6 February 2008 were directed
to Mr Hutchings for his review and, although they were copied to Ms Watts, he submitted
they were not sent to her for her review. Mr Hutchings had the authority to approve the
MYF and PIF documents, but Ms Watts did not, on Mr Freeburn’s submission.
[1538] There was nothing in the circumstances to demonstrate that Ms Watts knew that the
investments were unconstitutional. She knew only that Mr White had supplied a list of
the nine investments which he said had been made.
[1539] Accordingly, Mr Freeburn submitted that ASIC had not proved to the appropriate
standard that Ms Watts knew that the transactions had not occurred. Many of the facts
on which it relied were neutral or led to an opposite conclusion or had not been proved.
[1540] Further, he submitted, the evidence of other witnesses demonstrated that Ms Watts did
not know what had happened to the RBS money. In the circumstances, ASIC’s case about
her knowledge should fail.
[1541] In respect of the false documents, Mr Freeburn commenced by looking at the background
to their creation and the possible discussions between Mr White, Mr Hutchings and
Mr Kyling in late November 2007 about using RBS money for new investments, seeding
MYF as part of its re-launch and individual investments.
[1542] He drew attention to the share price drop of MFS Limited on Black Friday, 18 January
2008 and Mr King’s resignation as a director on 21 January 2008. Then Mr Bailey of
RBS made his inquiry about PIF’s current assets and liquidity profile on 21 January 2008.
[1543] He referred to Mr Parker’s attempts to identify investments on 22 January, generically
referred to as “new loans”. Similarly, Mr Hutchings had supplied four figures totalling
$147,946,438.36 but no real detail on 22 January 2008, having sent his “escalation” email
-- 332 of 348 --
319
the previous day, 21 January 2008, that had not gone to Ms Watts. Nor was there
evidence that she was told of his concerns.
[1544] Then, on 23 January 2008, Mr White produced his “listing of loans”. Later, again on 23
January 2008, Mr Anderson sent Ms Platts another, different, listing of loans and then,
about four hours later, Ms Platts sent Mr White and Mr Anderson a PIF asset report as at
22 January 2008.
[1545] Mr Freeburn’s written submissions helpfully show the differences in the three lists.840 He
points out that Ms Watts was not involved in the process of refining the lists of loans,
except for some evidence that Ms Platts suggested that she was satisfied with the way the
investments were split up. Ms Platts copied the PIF asset report to Ms Watts inviting her
to ring her, but Ms Platts could not recall whether that occurred.
[1546] An email sent by Ms Watts, however, said that she had spoken to Mr Hutchings who was
happy with the asset report but was going to ring Ms Platts. Then, in the afternoon of 23
January 2008, Ms Watts sent Ms Platts a proforma for an IAC paper with the details for
the specific loans left blank. Accordingly, one should conclude that Ms Platts was
undertaking the task of documenting the transactions.
[1547] Mr White’s instructions to her were that the investments had already been made.
Ms Platts herself did not suspect that the transactions were anything other than genuine.
On 24 January 2008, Ms Watts expanded the information available in the asset report in
conjunction with Mr Parker and Ms Platts, who forwarded the latest version to Mr Bailey
at RBS.
[1548] Ms Platts worked on the documents on the Australia Day weekend, 26 and 27 January
2008 in circumstances where Mr Hutchings spoke of the ratification of the investments
and where Ms Watts sent Ms Platts an IAC submission on 26 January 2008. She had
made some typographical corrections, including the insertion of her electronic signature,
of a revised version of a document prepared on 5 December 2007 where she changed the
date to 6 December 2006 and emailed the paper to Ms Molesworth for circulation to the
IAC.
[1549] Ms Watts was offering assistance to Ms Platts during that period. But there was no
evidence that she had told Ms Watts about the detail of what she was preparing or that
the documents included the further units in MYF or that PIF was subscribing to them.
[1550] Mr Freeburn also drew attention to some of the correspondence after 27 January 2008
relating to Ms Platts and her involvement with the preparation of documents recording
the loan participation agreement, the listing of loans and an application for IAC approval
dated 10 December 2007.
[1551] He then addressed in some detail ASIC’s case on the false documents, focussing on the
three elements alleged in respect of each document, namely Ms Watts’ creation or
assistance in the creation of each of them, the affixing or the causing or allowing of an
electronic signature to be affixed and the element of knowledge or intention
840 WATTS.0001.0001.0060 at para 664.
-- 333 of 348 --
320
accompanying that. In doing so, he referred to each false document by reference to the
paragraph of the pleading that identified it. It will be useful for me to adopt the same
approach. The first document he addressed was that alleged in para 109 of the statement
of claim purporting to be a proposal dated 31 October 2007 from Mr Hutchings to the
board of MFSIM recommending that MYF offer a select group of investors the
opportunity to purchase class A units.841
[1552] His submission was that Ms Watts did not create or assist in the creation of any of the
three versions of that board proposal. The ASIC allegation was that Ms Watts created or
assisted in the creation of the second of four versions of the document. He submitted that
a draft document still being developed may not be able to be treated as “false”. ASIC’s
allegation was that the document was false because no such recommendation as was
recorded in the document, namely the second version, had ever been made. Mr Freeburn
pointed out that the fourth version of the document sought ratification of a decision
already made to issue an information memorandum and the issue of class A units. The
second version was criticised by ASIC as being created more than two months after its
purported date, but the fourth version had a purported date of 1 February 2008, the day it
was signed.
[1553] The third problem identified by Mr Freeburn was that it could not be said that Ms Watts
knew that no such recommendation as was recorded in the document, namely the second
version, had ever been made. She did not know what had happened. It was Ms Platts
who was taking Mr White’s instructions on what had happened to the RBS money.
Ms Watts had no direct contact with Mr White and so could only comment on the form
of the document, not its substance.
[1554] Mr Freeburn also submitted that Ms Watts cannot have intended the document would
form an apparently genuine part of the financial books and records of MFSIM and would
be made available to MFSIM’s auditors. He based that submission on his argument that
she had no role in its creation. I do not accept that submission. If one is preparing
documents such as these within a company it is clear that they are intended to be used as
part of the company’s records available to its auditors.
[1555] Other problems he identified related to Ms Watts’ lack of involvement in the creation of
the versions and her ignorance of the fact that the payments were unconstitutional or were
an attempt to disguise PIF’s non-investment in MYF on 30 November 2007.
[1556] Document 110 related to the allegations in para 110 of the statement of claim that
Ms Watts signed or caused or allowed her electronic signature to be affixed to a document
bearing the date 20 November 2007 purporting to be a submission from her to the IAC of
MFSIM recommending that MYF issue up to 100 million class A units at $1.00 per unit.
[1557] Ms Watts assisted in the creation of this document by ticking paragraphs and making
general comments. Mr Freeburn submitted that that could not constitute assisting in its
creation, but I disagree. Ms Platts affixed Ms Watts’ electronic signature to the first
version. Ms Watts did not object to that which, to my mind, amounts to her allowing her
signature to be affixed.
841 OCT.0001.0001.0038.
-- 334 of 348 --
321
[1558] He also argued that ASIC could not show that Ms Watts knew that no such
recommendation had ever been made. She may have known that she personally had not
made such a recommendation, but she did not know what had happened.
[1559] It seems to me abundantly clear that, with her knowledge of the preparation of this
document and the earlier lack of information about what had been proposed to be done
with the funds drawn down, she knew that no such recommendation to the IAC for the
issue of units had previously issued. Why otherwise would this document be prepared at
this stage?
[1560] It also seems clear to me that, having participated in the creation of the document, it is
very likely that she intended that the documents would form an apparently genuine part
of the financial books and records of MFSIM.
[1561] Otherwise, Mr Freeburn also relied on his argument that Ms Watts did not know that the
payments were unconstitutional or that PIF had not invested in MYF on 30 November
2007.
[1562] Document 111 reflected the pleading in para 111 of the statement of claim that Ms Watts
signed or caused or allowed her electronic signature to be affixed to a document bearing
the date 20 November 2007 purporting to be a submission from her to the IAC of MFSIM
recommending its entry into a loan participation agreement with PacFin involving
MFSIM as responsible entity for PIF advancing $62.5 million to PacFin.
[1563] Ms Watts recommended some changes to the third version of the draft submission which
Ms Platts incorporated. She also made some general comments about the types of
investments. Mr Hutchings emailed Ms Platts, copied to Ms Watts, dealing with a fourth
draft, saying that the papers captured the refinements “required after the original
transactions were approved and completed”. Ms Watts also responded to Ms Platts’
emailed and copied to Mr Hutchings saying “all okay”. Ms Platts said it was likely that
she then affixed Ms Watts’ electronic signature and made a sixth version with an
additional bullet point related to MFS Limited providing a guarantee to PIF.
[1564] Again Mr Freeburn submitted that the making of general comments and putting ticks next
to paragraphs cannot constitute assisting in the creation of a document. I disagree again.
Ms Watts did not recall authorising Ms Platts to affix her signature to the document, but
where the draft shows it as potentially to be signed by her and she describes it as “okay”,
one can readily infer such an approval or authorisation. The next problem Mr Freeburn
identified was his argument that ASIC’s case is based on the fourth, unsigned version.
The document relied on by ASIC as being false also contained the additional bullet point
dealing with the MFS Limited guarantee. That was a version Ms Watts did not see or
approve. Again, he argued that ASIC had not proven that Ms Watts knew that no such
submission had ever been made. She did not know what had happened and relied on what
Mr Hutchings said. Nor did she intend that the documents would form an apparently
genuine part of the financial books and records of MFSIM. That is a conclusion which,
as I have indicated, I find unattractive. Nor did she know that the payments were
unconstitutional or that PIF had not invested in MYF from 30 November 2007.
-- 335 of 348 --
322
[1565] Document 112 deals with the allegations in para 112 of the statement of claim that
Mr Hutchings, on 6 February 2008, caused or allowed his electronic signature to be
affixed to a document bearing the date 21 November 2007 purporting to be minutes of a
meeting of the IAC for MFSIM as responsible entity for MYF approving the issue of 100
million class A units in MYF. It is alleged that Ms Watts created or assisted in creating
the document.
[1566] Ms Watts was asked for her input and made no comments other than putting ticks on the
document, after which Ms Platts made further changes to the minutes after consultation
with Mr White. Ms Watts did not see the final document. Mr Freeburn’s argument was
that ticking a draft document cannot constitute assisting in its creation, something with
which I again disagree. That form of reassurance to the drafter of a document can be an
important part of its creation. Again, the fact that ASIC, in reality, rely on a draft
document as being false and intended to be kept as a genuine record was said to be
incorrect. There was also the “knowledge problem”, that ASIC could not show that
Ms Watts did not know that no such meeting had ever been held and lacked the intention
that the document would form an apparently genuine part of the financial books and
records of MFSIM, that the payments were unconstitutional, or that PIF had not invested
in MYF on 30 November 2007.
[1567] Document 114 relates to the allegations in para 114 of the statement of claim that on
6 February 2008 Mr Hutchings signed or caused or allowed his electronic signature to be
affixed to a document bearing the date 23 November 2007 purporting to be minutes of a
meeting of the IAC for MFSIM as responsible entity for PIF approving MFSIM
advancing $62.5 million to PacFin pursuant to loan participation agreements and $85
million to itself as responsible entity for MYF to purchase 85 million class A units in that
fund and resolving that it was appropriate to draw on the RBS facility to fund those
advances. Ms Watts was alleged to have created, or assisted in creating, the document.
[1568] She made some tracked changes to a draft, changing a date from 30 November to 23
November and making some other minor changes. She later made some comments on
the PIF part of the transactions which Ms Platts agreed with and implemented. A third
draft version of the minutes circulated by Ms Platts was approved by Ms Watts saying
“all okay”. Ms Platts then made some further changes of a minor nature.
[1569] Again, Mr Freeburn submitted that Ms Watts did not create, or assist in the creation of
the minutes, but the submission is incorrect in my view. Her assistance was there and her
suggestions were incorporated. Again, he pointed out that Ms Watts was involved at the
stage of the third draft of the document which is said also to suffer from the “knowledge
problem” that I have previously described.
[1570] Document 115 relates to para 115 of the statement of claim where it was alleged that
Ms Watts signed or caused or allowed her electronic signature to be affixed to a document
bearing the date 27 November 2007 purporting to be a submission from her to the IAC of
MFSIM as responsible entity for MYF relating to the loan participation agreement.
Ms Platts prepared a draft which Ms Watts commented on, changing one figure of $85
million to $55 million. She also changed an interest rate from 14 per cent per annum to
12 per cent. Ms Platts accepted the change to $55 million but not the interest rate change.
Ms Watts then “okayed” the second draft submission which was then still unsigned.
Ms Platts considered it likely that she then attached Ms Watts’ electronic signature
-- 336 of 348 --
323
without saying she had her authority but, again, I would draw the reasonable inference
that she was justified in affixing the signature.
[1571] Based on that evidence, I reject Mr Freeburn’s submissions, again, that Ms Watts did not
create, or assist in the creation of the document. Clearly, she did. The document also
raises other issues common to some of the other documents relating to the approval of a
draft rather than the final version and the “knowledge problem”.
[1572] Document 116 related to the allegations in para 116 of the statement of claim that on 6
February 2008 Ms Watts signed or caused or allowed her electronic signature to be
affixed to a document which bore the date 28 November 2007 purporting to be a
memorandum from her to the IAC of MFSIM as responsible entity for MYF
recommending that MFSIM lend Sunleisure $30 million. The document was said to be
created by or with the assistance of Ms Watts.
[1573] Again, Ms Watts ticked some paragraphs and made some comments in respect of the
draft, including an issue about whether it was a related party transaction. It appears that
Ms Platts ignored those comments. Ms Watts later expressed her agreement to the next
version sent her by Ms Platts by again saying “all okay”. She does not recall authorising
Ms Platts to affix her signature. The submission is made that it was extraordinary that
Ms Platts decided nonetheless to affix Ms Watts’ signature electronically where she had
suggested six changes, none of which were adopted. Nonetheless, she had expressed her
approval of the version by her email. In those circumstances, it seems to me that Ms Platts
was justified in affixing Ms Watts’ signature to the document. Ms Platts then made some
further changes to the submission reflecting the need to treat the transaction as a related
party transaction to be considered by the CRPC. That was something that Ms Watts had
earlier suggested.
[1574] Accordingly, it seems clear to me that Ms Watts did assist in the creation of the document
by making her comments. The other issues are whether ASIC was entitled to rely on the
final version of the document sent to Mr Anderson which Ms Watts did not see and the
“knowledge problem”.
[1575] Document 118 reflects the allegations in para 118 of the statement of claim that
Mr Hutchings and Ms Watts signed on 6 February 2008 or caused or allowed their
electronic signatures to be affixed to a document bearing the date 28 November 2007
purporting to be a request for approval from the CRPC of MFSIM to PIF purchasing 85
million units in MYF.
[1576] Again, Ms Watts made comments on the draft prepared by Ms Platts by ticking parts of
the document and underlining parts, but making no changes. She “okayed” the next
version emailed to her by Ms Platts and Ms Platts organised the insertion of her electronic
signature. That was done by Ms Molesworth and I infer that she was authorised to do so
by Ms Watts agreeing to the earlier draft.
[1577] As I have said earlier, it seems to me that the process of approving a draft, even without
making changes, can constitute assistance in the creation of a document. Mr Freeburn
also submitted, apart from the issue about authority to affix Ms Watts’ electronic
signature to the submission, that the “knowledge problem” existed here too.
-- 337 of 348 --
324
[1578] Mr Freeburn submitted, in general, that Ms Platts was not authorised in affixing
Ms Watts’ signature to the documents and that there was no proof of any common practice
within MFS Limited or MFSIM by which signatures could be affixed without any specific
authority. Where, however, the draft documents show a space for signing by Ms Watts
and she approves them, it seems to me logical to infer from that an authority to affix her
signature to them. What may remain as an issue is how I should treat a case where some
significant change in the document is made after it had been approved by Ms Watts.
[1579] With documents 111, 115, 116 and 118, Ms Platts created later versions which differed
from the earlier versions and were not referred to Ms Watts. There is no evidence of
Ms Watts protesting about her signature being placed on those documents, but the
submission was made that she was entitled to assume that she would be asked for her
permission for her electronic signature to be applied to the final version.
[1580] Accordingly, Mr Freeburn submitted that ASIC had not established that Ms Watts had
personally authenticated the documents.842 In further addressing the elements of
knowledge, intention and dishonesty, Mr Freeburn, in addressing the objective test of
dishonesty, submitted that:
“According to ordinary, decent people what Ms Watts did was not dishonest.
She was not the architect of the documents. She knew nothing of the real
facts. She was positively told there were transactions behind the documents.
She was told the directors and board were actively involved. And, in so far
as she ‘assisted’, Ms Watts, in effect, provided a proof-reading service and
some (apparently optional) suggestions on the documents. In so far as her
electronic signature was attached to documents that was done without
Ms Watts personally authenticating the documents or their content.”
[1581] In viewing the documents collectively, he submitted that they did not evidence an
intention to disguise the fact that the payments had not been invested in accordance with
PIF’s constitution or that PIF had not in fact invested in MYF. Ms Watts had no
involvement in the payments themselves and no personal financial interest and no other
interest which would have led her to participate in such a disguise. Other MFS Limited
employees accepted and believed that there had been earlier transactions and that their
task was to record properly what had happened. In that context, he referred to Ms Platts,
Ms Howard and Mr Parker.
[1582] Mr Freeburn then addressed the allegations that Ms Watts was involved with the
provision of false documents to the auditors. He criticised the pleaded case by submitting
that ASIC did not plead some positive act or conduct by Ms Watts in providing access to
the documents to the auditors. She provided some information attached to an email of 15
February 2008 relating to the $62.5 million loan participation agreement. She was in the
Sydney office where the financial accounts and records were held at the head office in
Southport. Many of the paragraphs related to this allegation had nothing to do with her.
[1583] The view of the pleading that Ms Watts intended the false documents would be made
available to MFSIM’s auditors as an apparently genuine part of the books and records of
MFSIM set out, for example, in para 109(c)(ii), was said not to support the view that
842 Goodman v J Eban [1954] 1 QB 550, 557.
-- 338 of 348 --
325
Ms Watts ever intended, when the documents were created, that they were to go to the
auditors. Ms Watts, herself, he submitted, was not involved in providing access to the
false documents.
[1584] She knew, however, that Ms James was requesting details of the investments because she
wished to finalise the accounts before the auditors arrived. In my view, a reasonable
person would infer from that the likelihood that these documents would then be supplied
to the auditors to assist in the understanding of the alleged transactions.
[1585] Mr Freeburn then addressed the allegations that Ms Watts was involved with providing
an assets report to RBS. Mr Freeburn’s submissions in respect of this aspect of the case
were that, until 23 January 2008, Ms Watts had been only peripherally involved and had
no role at all in the essential element of sending the asset report to RBS. Nor was she
involved in checking it. She at that stage had no access to the details of the loans. When
the asset report was supplied to RBS on 23 January 2008, Mr Bailey requested an updated
report on the following day, 24 January 2008 after a meeting in Sydney. Ms Watts then
responded to that request by preparing a later version of the asset report, in conjunction
with Mr Parker and Ms Platts, providing two columns of further information in response
to the request from RBS.
[1586] The submission was that Ms Watts, while correcting a mistake in that version of the PIF
asset report, had no role in the essential element of sending it to Mr Bailey or to other
representatives of RBS. She is said to have been involved, however, within the meaning
of s 79(c) of the Act through the discussions about the report and her correction of an
error, coupled with her knowledge that Ms Platts intended to send it to RBS. That was to
be inferred from a number of emails she received between 21 and 23 January 2008.
[1587] Ms Watts does not dispute that she knew that Ms Platts intended to send the asset report
to RBS. It does seem to me, therefore, that she was involved in its creation through the
facts I have outlined. When that occurs with the knowledge that it is intended to be sent
to RBS, it seems to me to be a logical conclusion that she was also involved with the
sending of it.
[1588] Mr Freeburn made a submission similar to those he made in respect of the earlier
documents that, merely because Ms Watts copied two columns supplied by Mr Parker
and to Ms Platts’ final version of the PIF asset report and corrected a typo, that could not
constitute assisting in the creation of the PIF asset report. I disagree. It seems to me to
be clear that that conduct can constitute assistance or participation in the creation of the
report.
[1589] He also submitted, however, that for the reasons already articulated, ASIC had not shown
that Ms Watts had the necessary knowledge of all the essential material factual
ingredients of the contravention to permit her to be found to be an accessory. It had not
been shown that she knew that the information in the asset report was false.
[1590] Mr Freeburn then addressed the allegation that Ms Watts was involved in the provision
of the list of loans to RBS. She did send that document to Mr Bailey, but merely copied
information from the PIF asset report into the listing of loans in circumstances, on
Mr Freeburn’s submission, where she did not know and could not have known that the
-- 339 of 348 --
326
information in the listing of loans was false. In that context, he relied upon his earlier
submissions about her lack of knowledge of the falsity of the transactions. She accepted
that the listing of loans document recorded genuine transactions. In sending it, she could
rely upon Mr Hutchings’ assertion that the false documents she had been involved in
preparing captured “the refinements required after the original transactions were
approved and completed”. It was not sufficient to show that Ms Watts should have
suspected or that a reasonable person might have suspected that they were false. ASIC
had to show that she actually knew of it.
[1591] Finally, Mr Freeburn argued that Ms Watts should be excused pursuant to s 1317S of the
Act on the basis that she acted honestly, having no knowledge of the Fortress transaction
and no reason to doubt that the listing of loans was accurate. She must have been
reassured by Mr Hutchings’ emails and conduct and have concluded quite reasonably that
these were genuine transactions subject to belated documentation. Other circumstances
on which he relied were that Ms Watts had been employed only for a short time, she was
not an executive or in a senior or decision making role. She pursued the directors for the
information, was not the principal drafter of the documents and had no way of checking
the accuracy of what she was told by, for example, Ms Platts. Her role in relation to the
documents was relatively minor, proof-reading, checking for internal inconsistencies and
perhaps “reviewing” without access to any source information. Similarly, he relied upon
the power to relieve from liability under s 1318(1).
[1592] Mr Freeburn also made some general submissions that Ms Watts was a candid witness,
willing to make concessions and not anxious to “bat for the cause”, conceding that she
was uncomfortable with backdating, concessions made both in her s 19 examination and
in her evidence. Nor was she dogmatic about her memory, conceding that she was
possibly mistaken in her recollection.
[1593] She was aware of the drawdown of the funds from the RBS facility, but did not initiate
that request, nor know the details of the investments said to have occurred with those
funds. She continually asked for details of the investments made with the RBS money.
Her understanding was that they had been made. She did not know why Mr White did
not provide her with the information and one could only speculate about what she may
well have thought at the time.
[1594] In respect of the dating of documents, Mr Freeburn submitted that Ms Watts’ answer to
Mr Moore’s question, why it was necessary to date the documents before the investments,
was that she thought that was the way the transactions ought to be recorded.843 He
submitted the answer was understandable given that the documents were presented to her
by Ms Platts in the way they were, that Mr Hutchings, her boss, accepted that method of
documentation and Ms Watts recalled Mr Hutchings giving her similar instructions.
[1595] Mr Freeburn went on to submit that the eight false documents alleged against Ms Watts
comprised disparate dates, mixed purposes and functions. They included undated and
dated documents and contemporaneous documents seeking ratification. The documents
had more in common with a chaos theory rather than ASIC’s conspiracy theory. If
Ms Watts, and others, seriously intended to make all of the documents appear as if they
843 T52-82/21.
-- 340 of 348 --
327
pre-dated the drawdown, he asked rhetorically, what was the point of document 109 dated
1 February 2008?
[1596] He also submitted that it was not logical to expect her to treat Mr White’s failure to
provide her with the details of the loans between 30 November 2007 and 23 January 2008
as evidence that the investments did not actually happen. Other staff members, she was
aware, had also not received any such details of the investments. It was not appropriate
to infer from that state of knowledge a positive understanding by her that Mr White was
withholding the information because he had not yet made a decision as to what
investments would be made.
[1597] Mr Parker had operated on similar assumptions that there would be more information to
come about the $150 million drawdown on 5 December 2007. Mr Petherick, on 10
December 2007, treated accounts as in draft form because he was still awaiting
finalisation of the classification of the $130 million loans. That position continued with
Mr Parker’s later circulation of a holdings report on 17 and 19 December 2007. They
included a note that the details of the $130 million “other loans” were “TBA by White”.844
[1598] That note “TBA by White” remained in the draft report until 23 January 2008 when
Ms Platts sent Ms Watts the asset report containing the details of the alleged investments
made with the $147.5 million. Ms Watts and other staff members believed the
transactions had been undertaken by Mr White.
[1599] In further written submissions replying to ASIC’s written submissions Mr Freeburn
addressed the advice by Ms Howard to Ms Malipaard on 27 November 2007, that there
would not be “IAC minutes or something similar” to be used as a back-up for the funding
notice for the drawdown of the $150 million. He pointed out that it was not copied to
Ms Watts.845 The earlier emails in the chain show, however, that Ms Watts understood
that the drawdown was to fund anticipated investments. Her later knowledge that those
“investments” were not identified in spite of her attempts to discover what they were
must, to my mind, colour the state of her knowledge when she was preparing the false
documents.
[1600] The further submissions included many particular arguments about individual paragraphs
of ASIC’s written submissions which were criticised as involving Ms Watts in allegations
that were either not pleaded against her or where she was not an active participant in the
behaviour described.
[1601] ASIC’s reliance on two emails on 15 and 20 February846 was criticised as not being
pleaded. They are emails from her in respect of the email of 15 February 2008847 that
attaches documents directed to employees of PwC. They were not pleaded against her in
circumstances where ASIC had the opportunity to plead that her knowing involvement
and providing access included the sending of that email of 15 February 2008. Instead,
Mr Freeburn submitted, ASIC’s case was based on the creation of the false documents
with the intention that they would be made available to MFSIM’s auditors. He criticised
844 DEL.2006.0004.2120 and DEL.2006.0004.2121.
845 DEL.2002.0002.8883.
846 DEL.2009.0001.6625 and PWC.0005.0002.0002.
847 DEL.2009.0001.6625.
-- 341 of 348 --
328
ASIC’s reliance now on the email of 15 February 2008 as trial by ambush, while
conceding that the email was in evidence both in ASIC’s case and in Ms Watts’ own
affidavit. He submitted, however, that Ms Watts had not explained her role in providing
the documents to the auditors or how she got them. The opportunity to cross-examine
Ms Molesworth and Ms Howard about this episode has been lost. Assuming her
involvement in the preparation of the documents, however, the normal expectation, in my
view, would be that they would go to the auditors.
[1602] In addressing the oral submissions made for ASIC, he submitted that its pleaded case of
dishonesty was that the false documents were prepared by Ms Watts where she knew that
no such recommendation as was recorded in the document had ever been made, not that
the document itself had ever been created or put up to the IAC or that the document was
apt to mislead a reader because it had a recent date on it or was backdated. ASIC’s focus
on the pleading, he submitted, was on whether anything lay behind what was recorded in
the document rather than the content of the document itself or its date.
[1603] He argued that the case Mr Moore put orally differed in substantial ways, namely that the
documents reflected transactions in 2007 that simply did not occur in 2007 and also
reflected other events again in 2007 that simply did not occur. Mr Moore argued that
Ms Watts, among others, knew subjectively that the purpose of the documents being
falsely backdated was to deceive a reader and that Ms Watts had participated in the
wrongful backdating of the documents. He asked for a finding that Ms Watts knew that
the money had been paid out by PIF without any transaction pursuant to which, then and
there, it should have been paid. The people who were deciding what assets would be put
back into the trust had not made that decision before 23 January 2008. Mr Freeburn
submitted that Ms Watts did not concede at any stage that she knew there were no
transactions behind the documents. She believed that the documents were intended to
document actual transactions that occurred in November 2007.
[1604] Ms Watts’ position could not be equated with the non-executive directors of James Hardie
in ASIC v Hellicar.848 In that decision, the board of directors actually resolved to approve
the offending press release. Here, Mr Hutchings approved the final versions, not
Ms Watts.
[1605] He also submitted that Mr Moore’s focus on the document described in the body of each
paragraph of the pleading as the one on which ASIC relied was difficult to understand as
it seemed to mean that the pleaded document ID numbers should be abandoned and in
their place should set the general description of the document in the body of the
paragraph. He submitted that was an attempt to remove the document identification
numbers and thereby amend the pleading because some documents went through as many
as eight drafts. I do not perceive that to be a problem as the pleading properly identifies
the relevant document in my view.
[1606] He also criticised the submission by Mr Moore that the documents were intended to be
read collectively rather than individually. He argued that ASIC was seeking to smear
Ms Watts with facts known only to other defendants by asking me to look at the
documents collectively. Again, I do not accept that submission. It was clear that this was
848 (2012) 247 CLR 345.
-- 342 of 348 --
329
a “suite” of documents. It was also clear that some at least were being backdated and that
Ms Watts accepted that she should not have been involved in that exercise.
[1607] Mr Freeburn criticised ASIC’s reliance upon Ms Watts not picking up the differences in
detail of the three different lists of loans available to her. He submitted that only one of
the lists was properly directed to her and that she explained why she did not notice any
differences in the lists.
[1608] ASIC’s contention that Ms Watts’ motive was a concern to protect her reputation was not
correct. She was not involved in the payments and did not authorise them. Mr Hutchings
was a director and CEO of MFSIM and was involved in the payments. The theory that
Ms Watts would have prepared sham documents to cover for unauthorised payments
made by others more senior than she was, out of a concern to protect her reputation, was
wrong.
[1609] Mr Freeburn submitted there was no obvious reason for ASIC to single out Ms Watts
from all the other staff and assert that she alone positively knew by 23 January 2008 that
Mr White had not yet decided what investments were going to be made. In concluding,
he submitted that ASIC had not proved knowledge against Ms Watts and he said the
claims failed for that reason as well as for the other reasons he had canvassed.
Conclusions from submissions for Ms Watts
[1610] In my view there was no “knowledge problem” in the case against Ms Watts. It was clear
that she knew that the drawdown occurred on the day it occurred and that PIF paid the
$130 million straight from its own bank account to MFS Administration’s account. In
my view ASIC has established very clearly that the only logical inference on the evidence
is that there was then no transaction in place to justify that payment out to MFS
Administration. As Ms Watts told ASIC, six months after the false documents were
created, she came to the view that Mr White did not know what investments PIF had
acquired.
[1611] The fact that there was no transaction on or about 30 November 2007 pursuant to which
PIF received specific assets in return for the $130 million payment must have been
confirmed to Ms Watts after details of the supposedly allocated assets were eventually
provided on 23 January 2008. On that day, she was forwarded Mr White’s listing of
loans. But between then and the time the documentation purporting to record PIF’s
investments was finalised on about 6 February 2008, the details of the suggested
transactions changed markedly. In the face of such changes, she could not genuinely have
believed that a transaction or transaction had been undertaken on or about 30 November
2007, pursuant to which PIF received defined assets in return for its $130 million. I accept
ASIC’s submissions on these points.
[1612] ASIC also submitted persuasively that the documents that Ms Watts assisted in preparing
record that the decision to make investments on behalf of PIF was made by Mr White and
Mr Hutchings. Ms Watts had, on her own account, been persistent in chasing
Mr Hutchings for details of the transactions entered into on PIF’s behalf with the $130
million. Mr Hutchings regularly responded that he did not know. If, in truth,
Mr Hutchings had made decisions jointly with Mr White at IAC meetings in November
-- 343 of 348 --
330
2007 for PIF to enter into specific investment transactions, there is no rational explanation
why Mr Hutchings would not pass on details of the investments to Ms Watts, who was
acting at least as PIF’s fund manager. The reality is that there were no such transactions.
[1613] When documents began to be drafted in February 2008 recording Mr Hutchings as having
made investment decisions jointly with Mr White at IAC meetings in November 2007,
Ms Watts did not ask Mr Hutchings why he had been saying for the past six weeks that
he did not know what investments had been made. The reason why is obvious. She knew
that Mr Hutchings had not made any such decisions in November 2007, contrary to the
false suggestion made in the documents she helped draft.
[1614] Ms Watts knew that the date on each of the three submissions from her to the IAC dated
in November 2007 was false. She knew that she had made no such submission as recorded
in those documents to anyone in November 2007. Ms Watts also knew that there had
been no meetings of the IAC as recorded in the minutes dated 21 and 23 November 2007.
She conceded in her evidence to ASIC that she should not have participated in drafting
the documents.
[1615] She was involved in providing false documents to the auditors and in sending false
information to RBS. In my view the contraventions alleged against her have been
established and I propose to make declarations in the form alleged in ASIC’s amended
schedule of alleged contraventions numbered 1 to 9.849
[1616] Nor do I believe that the circumstances justify relief under s 1317S or s 1318 of the Act.
Although she played a lesser role in the MFS Group than the other defendants she had a
specific role as a fund manager that required her to act in the investors’ interests. On any
analysis she did not. When it became obvious to her that the investors’ funds had not
been used for investments she participated in a scheme to hide that fact by falsifying
documents. That should not be excused.
849 COURT.0030.0001.0030.
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331
Loss
[1617] ASIC’s claim for the loss suffered as a result of the contraventions by some of the
defendants was expressed in the following terms:850
“1290 As a result of the contraventions by Mr King, Mr White, and
Mr Anderson with respect to the $103 million payment, MFSIM as
responsible entity for PIF suffered loss of $103 million paid on
3 November 2007 together with the consequential expenses
associated with the RBS Loan agreement being:
(a) interest attributable to the $103 Million
Payment:
$4,363,195.38
(b) fees on the $150 million drawdown
attributable to the $103 Million Payment: $601,241.14
(c) stamp duty attributable to the $103
Million Payment:
$253,127.69
1291 As a result of the contraventions by Mr White, Mr Anderson, and
Mr Hutchings with respect to the $17.5 million payment, MFSIM as
responsible entity for PIF suffered in the amount of $17.5 million.
1292 It is submitted that this loss arises, on ASIC’s case, on the basis that
the $103 million payment and the $17.5 million payment were made
from PIF’s account held with Perpetual for which it received no
consideration.
1293 It appears to be contended by the defendants that the losses of
MFSIM were reduced by the fact that in February 2008 transactions
were documented, with respect to transactions purportedly entered
into in November 2007; and that (even if false) such documents were
effective to transfer units and interests in participation agreements
from the date they were in truth documented.
1294 It is submitted that, even accepting the defendant’s contention in this
regard, the loss of PIF should not be reduced for the following
reasons:
(a) The false documents were not effective or legally enforceable
because (despite purporting to have the appropriate
authorisations) they were executed beyond authority; and have
not been ratified (see paras 73-103 above); and
(b) the loss of MFSIM was not reduced by such purported transfers
because the amounts due under the participation agreement and
the value of the units were unrecoverable.
1295 The evidence of nil recoverable value is contained in:
(a) the ‘Premium Income Fund Vendor Due Diligence Schedule’ by
333 Capital; and
850 See ASIC’s closing submissions COURT.0029.0003.0001 at paras 1290-1296 (footnotes omitted).
-- 345 of 348 --
332
(b) the Premium Income Fund Interim Financial Report for the half
year ended 31 December 2009, which was reviewed by PwC.
1296 The relevant references from these documents are set out in the table
below. The page references are to pages of the PDF document.
Borrower Final list 333 Capital PwC
Through alleged MYF unit holding
Qdeck/Sunleisure $30,000,000 pp 100-101 p 14
MFS Blue Sky Trust $45,097,529 pp 100-101 p 14
Gersh Development
Fund
$9,902,471 pp 100-101 p 14
Through alleged PIF-PacFin loan participation agreement
MFS RAP $4,883,771.04 pp 112-113 p 13
Young Village Estates $23,683,612.88 pp 130-131 p 13
Copperfield $10,000,000 p 87 p 13
Investment
Enterprises
$10,102,271.36 p 95 p 13
Southport Holdings $11,057,278.66 pp 122-123 p 13
SPV Pty Ltd $2,773,066.06 pp 126-127 p 13
Total $147,500,000.00
[1618] The defendants did not address any arguments to the issue of damages. I shall leave the
question in abeyance until the delivery of my reasons in this matter.
-- 346 of 348 --
333
Conclusion and orders
[1619] When all is said and done - and much has been said at least - this remains a sorry tale of
the misuse of other people’s money by those who should have known better. All the
defendants knew that the money belonged to the investors in PIF and that it should have
been used for their purposes. It was drawn down from the RBS loan for the improper
purposes of paying off the Fortress debt and, later, the PacFin debenture holders. It was
used to pay off the Fortress debt. Whether it was actually used to pay off the PacFin
debenture holders may not be established on the evidence, but it is perfectly clear that it
was not used for the investors in PIF.
[1620] It may have been possible to structure the drawdown differently so that it was “invested”
in other assets forming part of MFS Limited’s “recyclable capital”. To do that it would
have been necessary to have observed the statutory strictures affecting such transactions
between related parties in the MFS Group. That did not occur then or later.
[1621] The “mastermind” behind the scheme, Mr White, still considered the money to be a
repayable loan as late as 22 January 2008. His direction, with Mr Anderson, that the
transactions be explained by an attempt to re-characterise them as investments in a “listing
of loans” may have had some resonance with other plans within the MFS Group but those
plans had not been realised in any concrete form such as to justify the payments either
when they were made or later.
[1622] The “false documents” were just another part of this sorry tale. They were ineffective to
do what they purported to do and were prepared in haste in a transparent attempt to hide
the previous misappropriations from the auditors and RBS. They were further examples
of dishonest conduct within the MFS Group lending credence to the perception that PIF
was a “slush fund” run in the group’s interests rather than the interests of its investors.
[1623] All of the defendants were, in their own different ways, involved in MFSIM’s
contraventions. The declarations sought against them should be made in the terms I have
indicated, namely:
[1624] Against Mr King: declarations in the terms of the contraventions alleged against him
numbered 1 to 3, 7 to 13 and 15, 16 and 17 of ASIC’s amended schedule of alleged
contraventions.851
[1625] Against Mr White: declarations in the terms of the contraventions alleged against him
numbered 1 to 3, 7 to 13 and 15 to 68 of that schedule.
[1626] Against Mr Hutchings: declarations of contraventions in respect of the contraventions
numbered 1 to 3 and 5 to 88 of that schedule.
[1627] Against Mr Anderson: declarations in the terms of the contraventions alleged against him
numbered 1, 2, 5 to 10 and 12 to 46 of that schedule.
851 COURT.0030.0001.0030.
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334
[1628] Against Ms Watts: declarations in the terms of the contraventions alleged against her
numbered 1 to 9 of that schedule.
[1629] None of the defendants’ conduct should be excused pursuant to s 1317S or s 1318 of the
Act.
[1630] I shall hear further from the parties about the consent orders proposed to be made against
MFSIM, the form of the declarations, any claim for pecuniary penalties and other
ancillary orders including costs.
-- 348 of 348 --
Official source: https://www.sclqld.org.au/caselaw/QSC/2016/109