Commissioner of Taxation v Pavihi

[2019] FCA 2056

---

(Judgment by: Wheelahan J)

Commissioner of Taxation
v. Kalangalupe Pavihi

Court:

Judge:
Wheelahan J

Legislative References:
Bankruptcy Act 1966 - 82(3); 153(1)
Crimes Act 1914 - 4AA
Crimes Amendment (Penalty Unit) Act 2017 - The Act
Evidence Act 1995 - 191
Fair Work Act 2009 - 557
Federal Court of Australia Act 1976 - 53
Limitation of Actions Act 1958 (Vic) - 5(4)
Superannuation Guarantee Administration Act 1992 - The Act
Superannuation Guarantee Charge Act 1992 - The Act
Superannuation Industry (Supervision) Act 1993 - 6(1)(e); 10; 19; 31; 68B; 193(ca); 196; 197; 200; 315
Federal Court Rules 2011 - R41.10
Superannuation Industry (Supervision) Regulations 1994 - Part 1 of Schedule 1; 6.01(5)(a); 6.17(1); 6.17(2); 6.18
Supreme Court (General Civil Procedure) Rules 2015 (Vic) - The Reg

Case References:
Australian Building and Construction Commissioner v CFMEU - [2017] FCAFC 113; 254 FCR 68
ACCC v Chaste Corporation Pty Ltd (in liquidation) - [2005] FCA 1212
ACCC v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) - [2019] FCA 1544
ACCC v High Adventure Pty Ltd - [2005] FCAFC 247; (2006) ATPR 42-091
ACCC v Nonchalant Pty Ltd (in liq) - [2013] FCA 605
ACCC v South East Melbourne Cleaning Pty Ltd (in liq) (No 2) - [2015] FCA 257
ACCC v Reckitt Benckiser (Australia) Pty Ltd - [2016] FCAFC 181; 340 ALR 25
Bluescope Steel (AIS) Pty Ltd v Australian Workers' Union - [2019] FCAFC 84; 368 ALR 643
Commissioner of Taxation v Arnold (No 2) - [2015] FCA 34; 324 ALR 59
Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd (In Liq) - [2017] FCA 538
Commonwealth v Director, Fair Work Building Industry Inspectorate - [2015] HCA 46; 258 CLR 482
Fair Work Ombudsman v Al Hilfi - [2016] FCA 193
Mathers v Commonwealth - [2004] FCA 217; 134 FCR 135
Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd - [2004] FCAFC 72; ATPR 41-993
NW Frozen Foods Pty Ltd v ACCC - (1996) 71 FCR 285
Roy Morgan Research Pty Ltd v Commissioner of Taxation - [2011] HCA 35; 244 CLR 97
Trade Practices Commission v CSR Limited - [1990] FCA 762; (1991) 13 ATPR 41-076
Transport Workers' Union of Australia v Registered Organisations Commissioner [No 2] - [2018] FCAFC 203; 363 ALR 464

Hearing date:
Judgment date: 4 December 2019

Victoria
VID 1347 of 2018

---

Judgment by:
Wheelahan J

ORDERS

THE COURT DECLARES THAT:

1. The respondent, Kalangalupe Pavihi, contravened section 68B(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) on 22 occasions by promoting the following schemes:

(a)

a scheme, promoted between September and November 2016, which was likely to result, and did result, in payment of Toma Kite's preserved benefits being made from the Tuitufu Pahulu Kite Superfund otherwise than in accordance with the payment standards prescribed under s 31(1) of the SIS Act and contained in Part 6 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (Payment Standards);

(b)

a scheme, promoted between September and November 2016, which was likely to result, and did result, in payment of Lino Moata'Ane Tu'Itufu's preserved benefits being made from the Tuitufu Pahulu Kite Superfund otherwise than in accordance with the Payment Standards;

(c)

a scheme, promoted between September and November 2016, which was likely to result, and did result, in payment of Tupou Lakepa Tu'Itufu's preserved benefits being made from the Tuitufu Pahulu Kite Superfund otherwise than in accordance with the Payment Standards;

(d)

a scheme, promoted between September and November 2016, which was likely to result, and did result, in payment of Angahiki Foou Pahulu's preserved benefits being made from the Tuitufu Pahulu Kite Superfund otherwise than in accordance with the Payment Standards;

(e)

a scheme, promoted between January and February 2017, which was likely to result, and did result, in payment of Fakauo-'I-Ha'Amalo' Uhatafe's preserved benefits being made from the Uhatafe Superfund otherwise than in accordance with the Payment Standards;

(f)

a scheme, promoted between January and February 2017, which was likely to result, and did result, in payment of Siahi Wendy Uhatafe's preserved benefits being made from the Uhatafe Superfund otherwise than in accordance with the Payment Standards;

(g)

a scheme, promoted in January 2017, which was likely to result, and did result, in payment of Jenner Orayenza's preserved benefits being made from the Orayenza Superfund otherwise than in accordance with the Payment Standards;

(h)

a scheme, promoted in February 2017, which was likely to result, and did result, in payment of Ilaisaane Van Gestel's preserved benefits being made from the Fonohema Superfund otherwise than in accordance with the Payment Standards;

(i)

a scheme, promoted in February 2017, which was likely to result, and did result, in payment of Ofa Pahulu's preserved benefits being made from the Fonohema Superfund otherwise than in accordance with the Payment Standards;

(j)

a scheme, promoted between February and April 2017, which was likely to result, and did result, in payment of Uate Tupou's preserved benefits being made from the Kolofale & Tupou Superfund otherwise than in accordance with the Payment Standards;

(k)

a scheme, promoted between February and April 2017, which was likely to result, and did result, in payment of Robert Dicks Kolofale's preserved benefits being made from the Kolofale & Tupou Superfund otherwise than in accordance with the Payment Standards;

(l)

a scheme, promoted between March and April 2017, which was likely to result, and did result, in payment of Ioane Maka's preserved benefits being made from the Atelea Maka Superfund otherwise than in accordance with the Payment Standards;

(m)

a scheme, promoted between March and April 2017, which was likely to result, and did result, in payment of Susan Maka's preserved benefits being made from the Atelea Maka Superfund otherwise than in accordance with the Payment Standards;

(n)

a scheme, promoted in April 2017, which was likely to result, and did result, in payment of Mele Eke Ngungutau's preserved benefits being made from the Ngungutau & Aviga Superfund otherwise than in accordance with the Payment Standards;

(o)

a scheme, promoted in April 2017, which was likely to result, and did result, in payment of Petulisa Finehika Aviga's preserved benefits being made from the Ngungutau & Aviga Superfund otherwise than in accordance with the Payment Standards;

(p)

a scheme, promoted between June and July 2017, which was likely to result, and did result, in payment of Patelisio Fonua Loloa's preserved benefits being made from the Patelisio Loloa Superfund otherwise than in accordance with the Payment Standards;

(q)

a scheme, promoted between June and July 2017, which was likely to result, and did result, in payment of Katinia Loloa's preserved benefits being made from the Patelisio Loloa Superfund otherwise than in accordance with the Payment Standards;

(r)

a scheme, promoted between June and July 2017, which was likely to result in payment of Ivoni Tupou's preserved benefits being made from the Tupou & Tolu Superfund otherwise than in accordance with the Payment Standards;

(s)

a scheme, promoted between June and July 2017, which was likely to result in payment of Solomone Tupou's preserved benefits being made from the Tupou & Tolu Superfund otherwise than in accordance with the Payment Standards;

(t)

a scheme, promoted between July and August 2017, which was likely to result, and did result, in payment of Laumanu Moli Walter's preserved benefits being made from the Walter Superfund otherwise than in accordance with the Payment Standards;

(u)

a scheme, promoted between July and August 2017, which was likely to result, and did result, in payment of Siaosi Matakaionga Walter's preserved benefits being made from the Walter Superfund otherwise than in accordance with the Payment Standards;

(v)

a scheme, promoted between July and August 2017, which was likely to result in payment of Eseta Taupeamuhu's preserved benefits being made from the Taupeamuhu Superfund otherwise than in accordance with the Payment Standards.

THE COURT ORDERS THAT:

2. The respondent pay to the Commonwealth civil penalties in respect of the 22 contraventions in paragraph 1 above in the total sum of $220,000.

3. For a period of 7 years from the making of this order, the respondent be restrained, whether by herself or her employees, servants or agents, directly or indirectly, from inducing, advising or assisting or facilitating any person to:

(a)

establish a self-managed superannuation fund;

(b)

rollover or transfer money or property from any other funds into a self-managed superannuation fund; or

(c)

make payments from a self-managed superannuation fund.

4. There be no order as to costs.

THE COURT NOTES:

5. The applicant undertakes not to take any steps to enforce the civil penalties in paragraph 2 above following the expiry of 6 years from the date of these orders, unless:

(a)

the applicant has first sought, in light of any changes to the respondent's financial circumstances, the leave of the Court to take that step;

(a)

pending such application for leave, the applicant considers it necessary to seek ex parte interim relief to preserve or control assets for that purpose.

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

REASONS FOR JUDGMENT
(Ex tempore, revised)

Introduction

1 By an amended originating application filed 17 May 2019 the applicant seeks declaratory relief, a final injunction, and orders for the imposition of civil penalties on the respondent in respect of 22 contraventions of s 68B(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). The contraventions of the SIS Act relate to the conduct of the respondent in promoting to trustees or intended trustees of self-managed superannuation funds (SMSFs) a scheme that resulted, or was likely to result in the early release of funds otherwise than as permitted by the legislation.

2 The respondent is a single mother who is impecunious. She was initially unrepresented, but is now represented by pro bono counsel, Mr Matthew Peckham of the Victorian Bar, who accepted the brief upon a referral by the Court. After pro bono counsel became involved, the Court referred the proceeding to mediation which was conducted by a National Judicial Registrar of the Court. Following the mediation, the parties filed a statement of agreed facts, and joint submissions addressing the final orders that the Court should make. The statement of agreed facts was tendered by the applicant at the hearing pursuant to the Evidence Act 1995 (Cth), s 191. I attach as Annexure A to these reasons the parties' statement of agreed facts.That statement is subject to one agreed change to [115] which I have marked and initialled, and to a revised table under [177] which is attached separately as Annexure B.

Background

3 Section 68B of the SIS Act proscribes the promotion of a scheme that results in the payment of monies from a superannuation fund otherwise than in accordance with prescribed standards. The respondent admits that she contravened s 68B of the SIS Act in 22 instances involving 11 SMSFs by promoting schemes that led to the early release of monies from those funds. The contraventions occurred over the period between September 2016 and August 2017.

4 In the relevant period, the respondent was employed by Westpac Banking Corporation as a credit card customer service operator. There is no suggestion that any of the contraventions occurred with the involvement, or knowledge, or ostensible authority of Westpac. I infer from the agreed facts that the respondent undertook her promotion of the schemes in a private capacity. However, at no relevant time was the respondent a registered tax agent, the holder of an Australian financial services licence, or an authorised representative of an Australian financial services licensee. I shall return to the respondent's circumstances later when considering the proposed relief.

5 The schemes that are the subject of the agreed facts had common traits. The trustees had worked in a range of businesses, trades, and professions, including nursing, as a carer, a quality auditor, a credit analyst, a concreter, a warehouse supervisor, a truck driver, a mechanic, a commercial cleaner, and a metal fabricator. Some of the trustees were unemployed. None of the trustees had previously acted as a trustee of a SMSF. In each instance, the trustees had accumulated monies in superannuation funds, such as an industry fund, that were regulated superannuation funds and supervised by the Australian Prudential Regulation Authority. The accumulated monies were either rolled over or intended to be rolled over into a SMSF that the respondent assisted the trustees to establish. In most cases, the trustees of the SMSFs then released the funds otherwise than in accordance with the payment standards, and the funds were used for purposes including payment of everyday expenses, travel, renovations, medical expenses, gifts, and paying down debts.

6 The schemes involved the following steps -

(1)

the respondent discussed the establishment of a SMSF with one or more of the intended trustees of the proposed SMSF for the purpose of the intended trustees accessing or gaining control over their superannuation funds;

(2)

the respondent obtained personal details of the intended trustees and used those details to complete an online application form on the website of an organisation, ESuperfund Pty Ltd, which was a business that provided services in relation to SMSFs, including the provision and lodgement of documentation required to set up a SMSF;

(3)

the respondent received pre-populated documents for the establishment of the SMSF, which had been prepared by ESuperfund following its receipt of the online application;

(4)

the respondent handed or otherwise provided the documents, or at least signature pages for those documents, to the intended trustees for them to sign;

(5)

the respondent obtained the signed documents or signature pages from the intended trustees and lodged them with ESuperfund to enable it to complete the establishment of the SMSF as a self-managed superannuation fund within the meaning of s 17A and s 17B of the SIS Act and a regulated superannuation fund within the meaning of s 19 of the SIS Act; and

(6)

the respondent provided to ESuperfund, as required, further information necessary to complete the establishment of the SMSF.

7 The respondent did not advise the proposed trustees of the possible consequences of paying monies from a superannuation fund otherwise than in accordance with a lawful condition of release permitted by the payment standards prescribed under s 31(1) of the SIS Act. Those potential consequences were very significant, and included the following -

(1)

the dissipation of accumulated superannuation benefits that had been saved for retirement;

(2)

inclusion of the amount of the superannuation benefits in their assessable income;

(3)

imposition of interest and administrative penalties;

(4)

disqualification as a trustee of an SMSF;

(5)

exposure to civil penalties of up to 2,000 penalty units; and

(6)

exposure to imprisonment for up to 5 years, although counsel for the applicant disclaimed any suggestion that there was any real possibility that the trustees the subject of this proceeding might face criminal sanctions.

8 In most instances, the respondent charged a fee for her services that ranged from $600 to $7,000. The respondent did not declare the fees as assessable income for taxation purposes. In two instances, the trustees made loans to the respondent from monies that were transferred out of their SMSF.

9 A summary of the transactions that were effected pursuant to the schemes is set out in the following table -

10 The parties agree that the personal circumstances of the respondent are relevant to the orders that the Court should make. The respondent's circumstances were difficult at the time of the contraventions, and remain so. Those circumstances are set out in the statement of agreed facts in Annexure A to these reasons at [184] to [195], and I will not repeat at length what is set out there in plain terms. I highlight that the respondent is a single mother who is the victim of domestic violence, and is living in rented accommodation in straightened circumstances. She is currently unemployed, insolvent, and her future earning capacity is limited.

The legislation

11 In Bluescope Steel (AIS) Pty Ltd v Australian Workers' Union [2019] FCAFC 84; 368 ALR 643, Allsop CJ described the Superannuation Guarantee Charge Act 1992 (Cth) and the Superannuation Guarantee Administration Act 1992 (Cth) as, "pieces of legislation at the heart of the national economy, of the national arrangements for the financial welfare and financial security of Australian employees and retirees, and Australians generally." In Roy Morgan Research Pty Ltd v Commissioner of Taxation [2011] HCA 35; 244 CLR 97, the Court explained that the effect of that legislation is to supply an incentive to employers to make contributions to superannuation for their employees, which gives effect to a national policy which encourages savings for retirement. The objective is to ensure that Australians have adequate provision for their retirement and, through this, to reduce the burden on government, and thereby the community more generally, in providing social security benefits to persons who have retired from the workforce. There are other substantial components of the legislative matrix governing superannuation, including legislation providing for favourable tax treatment of monies paid into superannuation funds, and of income earned by superannuation funds. The legislative matrix includes the SIS Act and the regulations made thereunder, which contain detailed provisions relating to the regulation of superannuation funds, including the circumstances in which benefits may be paid out from funds.

12 Section 19 of the SIS Act provides for the criteria to be satisfied for a superannuation fund to be a "regulated superannuation fund" -

19 Regulated superannuation fund

Definition

(1) A regulated superannuation fund is a superannuation fund in respect of which subsections (2) to (4) have been complied with.

Fund must have a trustee

(2) The superannuation fund must have a trustee.

Trustee must be a constitutional corporation or fund must be a pension fund

(3) Either of the following must apply:

(a)

the trustee of the fund must be a constitutional corporation pursuant to a requirement contained in the governing rules;

(b)

the governing rules must provide that the sole or primary purpose of the fund is the provision of old-age pensions.

Election by trustee

(4) The trustee or trustees must have given to APRA, or such other body or person as is specified in the regulations, a written notice that is:

(a)

in the approved form; and

(b)

signed by the trustee or each trustee;

electing that this Act is to apply in relation to the fund.

Note: The approved form of written notice may require the trustee or the trustees to set out the tax file number of the fund. See subsection 299U(1).

...

13 In the present case, it is not in dispute that the SMSFs satisfy the above criteria.

14 Section 31 of the SIS Act provides for a regulation-making power to prescribe standards applicable to the operation of regulated superannuation funds.

15 Regulation 6.17 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations) provides for restrictions on the payment of a member's benefit from a regulated superannuation fund. Material to this case are sub-regs 6.17(1) and (2), which provide -

6.17 Restriction on payment

(1) For the purposes of subsections 31(1) and 32(1) of the Act, the standards set out in subregulations (2), (2A) and (2B) are applicable to the operation of regulated superannuation funds and approved deposit funds.

(2) A member's benefits in a fund:

(a)

may be paid:

(i)

by being cashed in accordance with Division 6.3; or

(ii)

by being rolled over or transferred in accordance with Division 6.4, 6.5 or 6.7; or

(iii)

by being allotted under Division 6.7; and

(b)

must not be paid in that way except when, and to the extent that, the fund is required or permitted under this Part to pay them; and

(c)

must be paid in that way when, and to the extent that, the fund is required under this Part to pay them.

16 Regulation 6.18 of the SIS Regulations provides that a member's preserved benefits in a regulated superannuation fund may be cashed on or after the satisfaction by the member of a "condition of release". Part 1 of Schedule 1 of the SIS Regulations specifies the conditions of release of benefits for regulated superannuation funds. Those conditions of release include retirement, death, a terminal medical condition, permanent incapacity, and attaining the age of 65. There are other conditions of release prescribed by Part 1, and they include "severe financial hardship" in respect of which there is a cashing restriction of a single lump sum in each 12 month period of not less than $1,000 and not more than $10,000. Sub-regulation 6.01(5)(a) provides for criteria to be satisfied in order that a person is taken to be in severe financial hardship for the purposes of Schedule 1 of the Regulations.

17 Section 68B of the SIS Act, which is the provision that the respondent contravened, provides as follows -

68B Promotion of illegal early release schemes

(1) A person must not promote a scheme that has resulted, or is likely to result, in a payment being made from a regulated superannuation fund otherwise than in accordance with payment standards prescribed under subsection 31(1).

(2) Subsection (1) is a civil penalty provision as defined by section 193, and Part 21 therefore provides for civil and criminal consequences of contravening, or being involved in a contravention of, that subsection.

(3) In this section:

promote, in relation to a scheme, includes the following:

(a)

enter into the scheme;

(b)

induce another person to enter into the scheme;

(c)

carry out the scheme;

(d)

commence to carry out the scheme;

(e)

facilitate entry into, or the carrying out of, the scheme.

scheme means:

(a)

any agreement, arrangement, understanding, promise or undertaking:

(i)

whether express or implied; or

(ii)

whether or not enforceable, or intended to be enforceable, by legal proceedings; or

(b)

any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

18 Section 193(ca) of the SIS Act provides that sub-section 68B(1) is a civil penalty provision. Section 196 of the SIS Act provides -

196 Court may make civil penalty orders

(1) This section applies if the Court is satisfied that a person has contravened a civil penalty provision, whether or not the contravention also constitutes an offence because of section 202.

Note: Section 220 provides that a certificate by a court that the court has declared a person to have contravened a civil penalty provision is conclusive evidence of the contravention.

(2) The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified superannuation entity, but need not so declare if such a declaration is already in force under Division 4.

(3) The Court may also make against the person an order that the person pay to the Commonwealth a monetary penalty of an amount specified in the order that does not exceed 2,000 penalty units.

(4) The Court is not to make an order under subsection (3) unless it is satisfied that the contravention is a serious one.

(5) The Court is not to make an order under subsection (3) if it is satisfied that an Australian court has ordered the person to pay damages in the nature of punitive damages because of the act or omission constituting the contravention.

19 The following should be noted -

(1)

section 196 is engaged upon the Court's satisfaction that a person has contravened a civil penalty provision;

(2)

sub-section 196(2) mandates that a declaration is to be made;

(3)

the power to make an order for a monetary penalty is discretionary, but the power is not engaged unless the Court is satisfied that the contravention is a serious one; and

(4)

the maximum penalty for a contravention is 2,000 penalty units.

20 As noted at [3] above, the admitted contraventions span the period between September 2016 and August 2017. Until 30 June 2017, s 4AA of the Crimes Act 1914 (Cth) provided that a penalty unit was $180. Section 4AA was amended by the Crimes Amendment (Penalty Unit) Act 2017 (Cth) with effect from 1 July 2017, by which the value of a penalty unit increased to $210, subject to indexation from 1 July 2020. The parties are agreed that it is appropriate to apply the penalty unit in force prior to 1 July 2017, and to proceed on the basis that the maximum penalty for each contravention is $360,000.

21 Under s 197 of the SIS Act only the Regulator, or a delegate of the Regulator, may make an application for a civil penalty order. The term "Regulator" is defined in the Act in s 10 as follows -

Regulator means:

(a)

APRA if the provision in which it occurs is, or is being applied for the purposes of, a provision that is administered by APRA; and

(b)

ASIC if the provision in which it occurs is, or is being applied for the purposes of, a provision that is administered by ASIC; and

(c)

the Commissioner of Taxation if the provision in which it occurs is, or is being applied for the purposes of, a provision that is administered by the Commissioner of Taxation; and

...

22 The applicant to this proceeding falls within the definition of "Regulator" because by s 6(1)(e) of the Act the Commissioner of Taxation has the general administration of a number of provisions of the Act to the extent that they relate to self-managed superannuation, including in particular part 7 of the Act, of which s 68B forms part.

23 Section 200 of the SIS Act provides that an order for a monetary penalty may be enforced as if it were a judgment of the Court -

200 Enforcement of order to pay monetary penalty

If the Court makes under subsection 196(3) an order that a person pay a monetary penalty:

(a)

the penalty is payable to the Regulator on the Commonwealth's behalf; and

(b)

the Regulator or the Commonwealth may enforce the order as if it were a judgment of the Court.

24 Section 315 of the SIS Act confers power on the Court to grant injunctions. The relevant provisions of s 315 are -

315 Injunctions

Restraining injunctions

(1) If a person (the perpetrator) has engaged, is engaging or is proposing to engage, in conduct that constituted, constitutes or would constitute:

(a)

a contravention of this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator; or

(b)

attempting to contravene this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator; or

(c)

aiding, abetting, counselling or procuring a person to contravene this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator; or

(d)

inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator; or

(e)

being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator; or

(f)

conspiring with others to contravene this Act, a condition imposed on an RSE licence or a direction given under this Act by APRA or the Regulator;

the Court may grant an injunction in accordance with subsection (2).

Nature of injunction

(2) If granted, the injunction:

(a)

is to restrain the perpetrator from engaging in the conduct; and

(b)

if in the opinion of the Court it is desirable to do so, may also require that person to do any act or thing.

The Court may only grant the injunction on the application of the Regulator, or of a person whose interests have been, are, or would be, affected by the conduct and may grant it on such terms as the Court thinks appropriate.

...

Consent injunctions

(4) If an application for an injunction under subsection (1) or (3) has been made, the Court may, if the Court determines it to be appropriate, grant an injunction by consent of all the parties to the proceedings, whether or not the Court is satisfied that that subsection applies.

...

Restraining injunctions

(7) The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:

(a)

whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; and

(b)

whether or not the person has previously engaged in conduct of that kind; and

(c)

whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.

...

25 The enforcement of judgments of the Court is the subject of s 53(1) of the Federal Court of Australia Act 1976 (Cth), which provides -

53 Enforcement of judgment

(1) Subject to the Rules of Court, a person in whose favour a judgment of the Court is given is entitled to the same remedies for enforcement of the judgment in a State or Territory, by execution or otherwise, as are allowed in like cases by the laws of that State or Territory to persons in whose favour a judgment of the Supreme Court of that State or Territory is given.

26 The above provision is to be read together with r 41.10 of the Federal Court Rules 2011 (Cth), which provides -

41.10 Execution generally

(1) A party who wants to enforce a judgment or order of the Court may apply to the Court to make an order, to issue any writ, or to take any other step that can be taken in the Supreme Court of the State or Territory in which the judgment or order has been made as if the judgment or order was a judgment or order of that Supreme Court.

(2) An order made under subrule (1) authorises the Sheriff, when executing the orders of the Court, to act in the same manner as a similar officer of the Supreme Court of the State or Territory in which the order is being executed is entitled to act.

(3) A party who wants to enforce an order in more than one State or Territory may adopt the procedures and forms of process of the Supreme Court of the State or Territory in which the judgment or order has been made.

27 In the present case, the above provisions and the question of enforcement of orders for penalties direct attention to the applicable Victorian legislation, including the enforcement procedures under the Supreme Court (General Civil Procedure) Rules 2015 (Vic), and to s 5(4) of the Limitation of Actions Act 1958 (Vic), which provides that an action shall not be brought upon any judgment after the expiration of 15 years from the date on which the judgment became enforceable.

28 Finally, it is necessary to mention the Bankruptcy Act 1966 (Cth). Under s 153(1), subject to some exceptions not presently relevant, a discharge from bankruptcy operates to release the bankrupt only from debts provable in the bankruptcy. And under s 82(3), a penalty or fine imposed by a court in respect of "an offence against a law" is not provable in bankruptcy. In Mathers v Commonwealth [2004] FCA 217; 134 FCR 135 Heerey J held that a civil penalty imposed upon a corporation under s 76 of the Trade Practices Act 1974 (Cth) was a penalty or fine imposed by a court in respect of "an offence against a law" for the purposes of s 533B (as then in force) of the Corporations Act 2001 (Cth) which was modelled on s 82(3) of the Bankruptcy Act. Heerey J reasoned that the word "offence" was not confined to a criminal offence, so that a contravention of s 46 or 47 of the Trade Practices Act attracting a civil penalty was an offence against a law. Mathers has been followed in ACCC v Chaste Corporation Pty Ltd (in liquidation) [2005] FCA 1212 at [169] (Lander J); ACCC v Nonchalant Pty Ltd (in liq) [2013] FCA 605 at [48] (Gordon J); ACCC v South East Melbourne Cleaning Pty Ltd (in liq) (No 2) [2015] FCA 257 at [11] (Murphy J); Fair Work Ombudsman v Al Hilfi [2016] FCA 193 at [49] (Besanko J); Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd (In Liq) [2017] FCA 538 at [9] (Logan J); and ACCC v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1544 at [31] (Gleeson J).

Consideration

29 The joint position of the parties is that the Court should -

(1)

make declarations of contravention pursuant to s 196(2) of the SIS Act;

(2)

pursuant to s 196(3) of the SIS Act make orders for penalties against the respondent in the total sum of $220,000; and

(3)

enjoin the respondent pursuant to s 315 of the SIS Act for a period of seven years from inducing, advising, assisting or facilitating any person to establish a SMSF, rolling money over into a SMSF, or making payments from a SMSF.

Agreed remedies

30 In Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 (the Agreed Penalties case) the Court held that in civil penalty proceedings a court is not precluded from receiving and, if appropriate, accepting agreed submissions as to civil penalties. The Court endorsed the practice that had been followed in relation to civil penalty proceedings generally that had been recognised in NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; ATPR ¶41-993. At [46] French CJ, Kiefel, Bell, Nettle and Gordon JJ held that there is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. Their Honours observed that such predictability of outcome encourages the acknowledgment of contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the Courts to deal with other matters. And their Honours stated at [48] that, in considering an agreed civil penalty submission, the Court is not bound by any figure suggested by the parties, but the Court asks itself "whether their proposal can be accepted as fixing an appropriate amount", citing NW Frozen Foods at 291. For that purpose, the Court must be satisfied itself that the submitted penalty is appropriate.

31 In the present case, the agreement of the parties is to be regarded as a desirable outcome. This case is illustrative of some of the benefits of encouraging parties to civil penalty proceedings to reach agreed positions. As is evident, the circumstances of the respondent are difficult, and somewhat complex. By her admissions, the respondent has spared the applicant the time and resources that would have been necessary to prove each of the 22 contraventions. Further, considerable court time has been saved by the presentation of the statement of agreed facts, and the joint submissions. In the special circumstances of this case, I shall therefore give considerable weight to the agreement reached by the parties in assessing whether the relief that is sought is appropriate. I also recognise, that in the unusual circumstances of this case, there is likely to be a broad range of reasonable views as to the appropriate orders, including as to monetary penalties.

Declarations

32 Having regard to the respondent's admissions which are the subject of the statement of agreed facts, I am satisfied of the 22 contraventions by the respondent of s 68B(1) of the SIS Act. Being so satisfied, s 196(2) of the SIS Act requires that declarations be made by the Court. Even absent that mandate, there would be sound arguments favouring the making of declarations, as they record formally the findings of contravention, and may serve important law enforcement purposes, and there is thereby a public interest in making declarations in these enforcement proceedings on the application of a statutory regulator.

33 The Court will accordingly make declarations substantially in the form submitted by the parties.

Injunctions

34 The findings that the respondent has engaged in conduct that constituted a contravention of the SIS Act engages the Court's power to grant an injunction under s 315 in accordance with the very broad terms of s 315(2). The parties are agreed on the terms of the injunctions, and I consider that in the circumstances the granting of the injunctions is appropriate.

Penalties

35 As I have mentioned, the parties jointly submit that penalties in the total sum of $220,000 should be imposed. The parties' rationale for arriving at that total sum was the subject of a joint submission. The parties prepared a schedule to that submission that provided an indicative rationale supporting the calculation which I attach as Annexure C to these reasons. It is necessary to emphasise that the fixing of civil penalties is an inexact process. I shall take the schedule into account, but only as being indicative of one of potentially many ways in which one might arrive at an appropriate assessment of penalties in the circumstances of this proceeding.

General deterrence

36 The purpose of civil penalties, such as those provided for by s 196 of the SIS Act is well established, and uncontroversial. The principal object of the imposition of civil penalties is deterrence: The Agreed Penalties Case at [55], citing Trade Practices Commission v CSR Limited [1990] FCA 762; (1991) ATPR ¶41-076.

37 For the reasons set out below, I accept that there are a number of considerations as to why contraventions such as those in this proceeding should attract penalties which will act as a strong deterrent to others. Similar considerations have been held to apply in relation to the imposition of penalties for the promotion of tax-related schemes: Commissioner of Taxation v Arnold (No 2) [2015] FCA 34; 324 ALR 59 at [164] - [176] and [206] - [207]; Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd [2018] FCA 528; 107 ATR 769 at [56]. Those considerations may be summarised as follows.

38 First, the adverse consequences for the immediate participants in the schemes are serious. I have identified some of those consequences at [7] above in another context. For completeness, the potential consequences that I have taken into account are as follows -

(1)

the dissipation of the trustees' accumulated superannuation benefits, resulting in reduced superannuation for use in retirement, with consequent potential reductions in living standards, financial support and the like;

(2)

the immediate expenditure in making payments, or providing benefits, to the promoter;

(3)

liability for a tax shortfall arising from the superannuation benefits being treated as assessable income in the year in which they are received;

(4)

administrative penalties of up to 75% on the tax shortfall;

(5)

shortfall interest charges or general interest charges in respect of unpaid tax;

(6)

legal action being taken by the applicant, either in respect of taxation liabilities or, potentially, for related breaches of the SIS Act; and

(7)

significant incidental costs and stress associated with all of the above.

39 As is apparent, the individuals who were persuaded to enter into the schemes that were promoted by the respondent are ordinary men and women whose retirement savings were held in their superannuation accounts, and were the product of many years of work. They benefited from a statutory scheme which encouraged their employers to make payments into their superannuation funds. I am prepared to infer that most, if not all of the trustees, by reason of their inexperience in managing superannuation funds were not financially sophisticated, and were therefore quite vulnerable. Penalties that act as a strong deterrent are therefore appropriate so that promoters of early release schemes are sufficiently deterred from taking fees or other benefits while leaving vulnerable persons, such as the trustees in the present case, with significant burdens and risks.

40 Second, as the Chief Justice indicated in Bluescope Steel, the superannuation regime is at the heart of the national economy: it is of critical significance to the Australian economy and to the well-being of Australians. By 30 June 2018 the superannuation system held total assets of $2.7 trillion, of which $1.774 trillion was held in APRA-regulated superannuation funds, and $749.9 billion was held in SMSFs. APRA-regulated funds had 26.8 million member accounts at 30 June 2018, while the 596,225 SMSFs registered at that time had 1,118,650 members. The conduct of the respondent in this case encouraged the trustees to take short term advantage of their retirement savings. Such conduct tends to undermine confidence in the value of the compulsory superannuation system. Any such diminution in the integrity of the superannuation regime thereby leaves the community bearing the social and economic costs associated therewith. It is therefore appropriate that those who might promote early release schemes face strong levels of deterrence.

41 Third, in Arnold (No 2) Edmonds J observed at [168] that it can be difficult for the Commissioner to detect ineffective tax schemes. His Honour stated that those difficulties are inherent in the self-assessment regime, under which taxpayers are effectively required to determine their own taxable income. I accept that similar considerations apply in relation to superannuation schemes. The nature, variety and number of superannuation schemes, particularly SMSFs, is such that it is not possible for the establishment and administration of each fund to be scrutinised or audited. I accept that this is a further consideration supporting the fixing of penalties at an appropriate level so as to give effect to the object of general deterrence.

42 Fourth, non-compliant superannuation schemes impose compliance costs on the regulators, and therefore upon the whole community. This is a further reason why promotors of schemes for the early release of funds should face the real risk of significant penalties.

Specific deterrence

43 In the present case, considerations of general deterrence are much more significant than specific deterrence. The respondent has ceased undertaking the promotion of schemes, has made full admissions, has shown appropriate contrition, and has consented to the granting of injunctions. For these reasons, the parties submitted, and I accept, that no penalty greater than that necessary to secure general deterrence is necessary.

Course of conduct

44 Section 196 of the SIS Act has the effect that liability for a penalty attaches to each contravention. There is no provision in the SIS Act that corresponds to s 557 of the Fair Work Act 2009 (Cth) by which conduct may be aggregated for the purposes of making findings of contravention. The consequence is that each of the 22 admitted contraventions potentially attracts the maximum penalty that might be imposed under s 196(3) of the SIS Act.

45 However, in assessing appropriate penalties for each contravention, it is necessary to have regard to whether the conduct giving rise to each contravention is factually related. An examination of the respondent's conduct and its course and its explanation factually and legally is necessary so as to inform the imposition of penalty orders, in particular so as to avoid double punishment: Transport Workers' Union of Australia v Registered Organisations Commissioner [No 2] [2018] FCAFC 203; 363 ALR 464 at [91] (Allsop CJ, Collier and Rangiah JJ).

46 The parties submitted that it is appropriate to group the contraventions relating to each of the 11 SMSFs into a single course of conduct with the consequence that the 22 admitted contraventions would be grouped into 11 courses of conduct. The parties also agreed that it was appropriate to allocate penalties by reference to the 11 courses of conduct, relying on what was said by the Full Court in Australian Building and Construction Commissioner v CFMEU [2017] FCAFC 113; 254 FCR 68 at [149] (Dowsett, Greenwood and Wigney JJ) -

In an appropriate case, however, the Court may impose a single penalty for multiple contraventions where that course is agreed or accepted as being appropriate by the parties. It may be appropriate for the Court to impose a single penalty in such circumstances, for example, where the pleadings and facts reveal that the contraventions arose from a course of conduct and the precise number of contraventions cannot be ascertained, or the number of contraventions is so large that the fixing of separate penalties is not feasible, or there are a large number of relatively minor related contraventions that are most sensibly considered compendiously. As revealed generally by the reasoning in Commonwealth v Director, FWBII, there is considerably greater scope for agreement on facts and orders in civil proceedings than there is in criminal sentence proceedings. As with agreed penalties generally, however, the Court is not compelled to accept such a proposal and should only do so if it is considered appropriate in all the circumstances. It is also at the very least doubtful that such an approach can be taken if it is opposed or the proceedings are defended.

47 See also, ACCC v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [165].

48 Given the joint position of the parties, it is appropriate in this case to evaluate penalties by reference to the contraventions relating to the 11 SMSFs, and further, it is appropriate for the Court to make an order for the payment of penalties in one lump sum.

Other factors

49 Relevant factors in the overall assessment of civil penalties were identified by French J in Trade Practices Commission v CSR Limited [1990] FCA 762; (1991) 13 ATPR ¶41-076, and they have been cited and applied in many cases since. The relevant factors that are material to this proceeding may be summarised as being: the nature, character and seriousness of the conduct; the loss and damage caused; the circumstances in which the conduct took place; the circumstances of the respondent; the deliberateness of the conduct and the time over which it occurred; and the respondent's degree of co-operation with the applicant as the regulator. It is also necessary to have regard to the maximum penalty: Reckitt Benckiser at [154]-[156]. As identified at [20] above, the parties agreed that the maximum penalty that should be regarded as applicable for each contravention is $360,000.

50 Nature and extent of conduct: The parties agreed that over a period of about 11 months the respondent encouraged 22 trustees to rollover their superannuation benefits into SMSF for the purposes of transferring those monies from the funds in circumstances that were not permitted by the SIS Act and the SIS Regulations. The respondent played a central role in the schemes.

51 Relevant circumstances, including deliberateness: The parties agreed that the respondent understood the basic and central requirements that made it unlawful for the trustees to have early access to their superannuation benefits in circumstances that were outside the payment standards prescribed by the Regulations. Paragraph [171] of the statement of agreed facts refers to a telephone conversation between the respondent and an officer of the ATO on 1 February 2012, in which the respondent confirmed that she understood that the purpose of a SMSF was to save money for retirement, that it was illegal to access superannuation funds before meeting a condition of release, such as retirement, and the trustees of SMSFs are required to lodge tax returns and to have the fund audited by an approved auditor each year. It was also agreed that the respondent was informed during the telephone conversation that trustees of SMSFs are bound by the SIS Act and that breaches of the legislation can have serious consequences, such as civil and criminal penalties. It is further agreed that despite being aware of the legal obligations of trustees of SMSFs, and of the consequences of illegal early release of preserved benefits, the respondent failed to advise the intended trustees of these things. In my view, these circumstances indicate a consciousness of breach which warrants significant penalties.

52 The parties also agree that the 22 contraventions in this proceeding occurred in the context where the respondent had assisted a total of 68 trustees or intended trustees in the establishment or proposed establishment of some 35 SMSFs. However, the applicant does not allege in this proceeding that those other activities gave rise to any contraventions of s 68B of the SIS Act.

53 It is also agreed that the respondent took steps to conceal her involvement in the establishment of the SMSFs, including by using different email addresses, by using the participants' names when communicating with Esuperfund, and by failing to disclose the fees which she earned as assessable income for taxation purposes.

54 Loss or damage caused: I have referred already to the very significant detriment that has been suffered by the trustees as a result of the respondent's contraventions. In addition to the detriment that has been mentioned, the parties agree that the trustees also experienced significant non-financial losses associated with the stress and anxiety of the financial and taxation consequences for them of the respondent's conduct. I take account also the broader harm to the public interest which is furthered by the superannuation regime which has been undermined by the respondent.

55 Benefits and potential benefits: As already indicated, the respondent charged the trustees fees in most cases in order to assist or facilitate the establishment of the SMSFs for the proscribed purpose of achieving the early release of funds. In addition, the respondent was loaned monies on two occasions from funds that were transferred from a SMSF, which amounts she has not repaid. The parties submit that while the amounts that the respondent received from her wrongdoing are not large, particularly in comparison to the harm that has been caused to the trustees, they underline the need for general deterrence so that other would-be promoters are dissuaded from securing fees through the promotion of illegal early release schemes.

56 Prior similar conduct: The respondent has not previously been found by a court to have engaged in any similar conduct, or any other wrongdoing more generally. The parties are agreed that this is properly to be taken into account in the respondent's favour.

57 The personal circumstances of the respondent: I have referred already to the difficult personal circumstances of the respondent that are identified at [184] to [195] of the statement of agreed facts which is Annexure A to these reasons. It is very likely that the respondent will never have the capacity to pay the penalties that are to be imposed. The respondent proposes to petition for bankruptcy; however as indicated at [28] above the penalties will not be provable in a bankruptcy, and a discharge from bankruptcy will not extinguish her liability for the penalties. The respondent will remain liable to processes of execution under enforcement procedures available in Victoria for a period of 15 years. In that respect, the position of the respondent, as a natural person, is quite different to that of an insolvent corporation which may cease to exist upon the completion of a winding-up.

58 Given the respondent's circumstances and her high level of co-operation, the applicant offers an undertaking with respect to any enforcement action that might be taken after six years from the date of the penalty. The effect of the undertaking is that before taking enforcement action after six years from the date of the order the applicant will be required seek the leave of the Court in light of any changes to the respondent's financial circumstances which may arise or come to light. The undertaking would not prevent the applicant after a period of six years from seeking to enforce the penalties with leave of the Court in light of any significant change to the respondent's financial circumstances, such as a financial windfall, the discovery of any concealed assets, or a significant increase in earning capacity. Otherwise, within the period of six years from the making of the order for the payment of the penalty, the order will be enforceable in the normal way.

59 Although the respondent's personal circumstances require some attention, and are to be taken into account, it remains necessary to ensure that the penalties imposed remain at a level which is sufficient to give effect to the object of general deterrence and which give appropriate recognition to the harm that the respondent has caused. Giving effect to the object of general deterrence may often require that a court impose penalties which are beyond the financial means of the wrongdoer: see ACCC v High Adventure Pty Ltd [2005] FCAFC 247; (2006) ATPR ¶42-091 at [11]; Arnold (No 2) at [200]-[204]; NW Frozen Foods at [293]. The joint position of the parties is that the penalties proposed are at the lowest end of the statutory range, but are still substantial when regard is had to the respondent's current and historic financial means. I would add that the respondent's likely impaired future earning capacity is also a material consideration.

60 Co-operation: The applicant submitted that the respondent's level of co-operation in this proceeding has been at the highest level. With the advice and assistance of counsel, that co-operation has included making complete admissions, and joining in the statement of agreed facts and joint submissions. For the reasons identified by the plurality in the Agreed Penalties Case and for the reasons I have identified at [30]-[31] above, the respondent's co-operation is a very significant matter to take into account in considering an appropriate penalty.

An appropriate penalty

61 Having regard to all the circumstances, including especially the deliberate nature of the respondent's conduct and the very significant harm that the respondent has caused, or was liable to cause to vulnerable individuals, I am of the view that each of the 22 contraventions was serious, and that the power in s 196(3) of the SIS Act to impose penalties is engaged.

62 I must accept the parties' joint submission that the total penalty that they propose is at the very lowest end of the range. This is especially so having regard to the very significant harm to which I have referred, and to the deliberate nature of the respondent's contravening conduct. However, given the other circumstances, including the respondent's high level of co-operation, her difficult circumstances, and the public resources that have been spared by the parties' agreement, I am persuaded that one appropriate response is to accept the joint submissions of the parties that there should be declarations, an injunction, and penalties totalling $220,000, and that the calculation of those penalties in the parties' table attached as Annexure C to these reasons is an appropriate rationale.

Conclusions

63 I will make declarations and grant an injunction substantially in the terms presented by the parties. Upon the applicant making the undertaking relating to the enforcement of the order for the payment of penalties, I will order that the respondent pay to the Commonwealth penalties for the 22 contraventions in the total sum of $220,000. The applicant did not seek costs, and there will be no order as to costs.

Pro Bono counsel

64 Before passing from this matter, the Court acknowledges the invaluable assistance that Mr Matthew Peckham of the Victorian Bar gave to the respondent, and to the Court, on a pro bono basis. Mr Peckham was initially involved in preparing written submissions and appearing for the respondent in opposition to a foreshadowed application by the applicant for default judgment. He thereafter acted for the respondent during the course of the mediation, the negotiation of the agreed documents, and appeared for the respondent at the hearing. Mr Peckham provided that assistance in the highest and best traditions of the Bar, and he is to be commended.

Annexures

Download Annexure A

Download Annexure B

Download Annexure C