Answer

Gore v ASIC [2017] FCAFC 13

Introduction

            The case involved Marina Gore, the appellant and the Australian Security and Investment Commission as the respondent. In the case, Ms. Gore appealed the decision of the first court concerning her alleged accessory liability involvement where securities were offered without lodging the required documentation with the ASIC (Floyd et al. 2017). The hearing of the case happened in the Federal Court of Australia. Craig Gore, a Gold Coast businessman and other parties made security offers through a private placement memorandum using BVI’s incorporated corporate vehicle and Cayman Island website. Earlier in the 2015 hearing, a federal court judge found the PPM to be in the form of a prospectus for the issuance of shares to investors without the required disclosure document with ASIC as required by the corporate Act. In this hearing, the court believed Marina Gore knowingly participated in the contraventions against section 727 of the Australian corporate Act. Ms. did not agree with the decision hence the 2017 appeal at the Federal court against the Australian Security and Investment Commission (ASIC).

            According to the case, Marina Craig was accused of breaching her duties and responsibilities as the director of MOGS ltd in connection with the accessory liability as outlined in the Corporate Act. The primary responsibilities violated were regarding the issuance of securities. The duties and reasons that were given for their sidelining.

Responsibilities Breached

            Firstly, the securities were issued without disclosure documents being lodged with Australian Security and Investment Commission. According to section 727 part 6D.2 of the Corporate Act, entities should neither make security offers nor distribute security offer application forms that require disclosure to stakeholders especially the investors unless the documentation to the exposure is lodged with ASIC (Bottomley et al. 2017). Then, the security offer forms must accompany the disclosure documentation. The reason given for a breach of this duty was that Ms. Gore did not know that documentation made in the PPMs of both WPO and SPG were not lodged with ASIC. In her submission, Marina argued that the initial decision of the judge was wrong in concluding that as the director she must have had the information that the disclosure documentation regarding the offers made to SPG and WPO were not lodged with the ASIC to be liable to section 7279(1) element 3. She opposed the judge’s characterization of her as having played an active role in the preparation of the two private placement memoranda. Ms. Gore indicated that the judge failed to draw the same inferences to Mr. Stonehouse who shared the involvement in the issue as her. She insisted that the only knowledge she and Mr. Stonehouse had was that MOGS required funds and that WPO and SPG were likely to provide the funds needed.   

            In response to this infringement, ASIC the respondent was to provide proof that Ms. Craig the knowledge about the issue of the security and that the documentation was not filled with them. They also had to prove that no exemption from disclosure requirements was applicable to the offer.

            Secondly, the director breached a corporate duty of determining the strategic objectives of the company. Ms. Gore’s main argument was that she had no knowledge of the failure by the company to the ledge the disclosure documents with the ASIC (Floyd et al. 2017).According to Keay & Murray (2015), as a director of the company, she has to account for company activities. Therefore this claim raises concerns in contravention of section 727 (1) and (2).To begin with, all the defendants in the case failed to contest the ASIC’s revelation that both the WPO and SPG offers required disclosure documentation provided to the investors and failing with ASIC. This shows that all the defendants were aware of the corporate Act regulations. But still was unable to follow up on the process to ensure that all requirements are met. Earlier in the preliminary judgment, the judge based the entire decision on the fact that Ms. Gore only needed to know about the offers or the distribution of the application forms and that they were not lodged with the appropriate body. The same conclusion applied in during the Full Court in Rafferty v Madgwicks (2012) 203 FCR 1 [257 to be specific (Floyd et al. 2017). ASIC linked the lack of knowledge by the director to recklessness in handling her duties.

            In response to the above provisions, the established that recklessness could be proven by proving reckless activities and the intention and knowledge of an individual who might be more much more dangerous than recklessness. Following the second and third elements of section 42 of the criminal code, it was unlikely that ASIC verifies the intention to be against the main contraveners (Saunders & Stone).

            Ms. Gore’s reason for not knowing the failure by the firm to lodge the documents with ASIC to the fact that she was not directly involved in the in the preparation of the offer documents.

The Courts decision

            In the view of the corporate act, the decision was made based on three primary considerations that appeared on appeal and cross-appeal. The issues include:

The conditional knowledge issue inferred by the judges.

            The judges found Ms. Gore to be knowingly worried about the contravention of section 727(1) and believed that she was aware that the memoranda of WPO and SPG were not lodged with ASIC. It was a general standing in the court as indicated in [109] that Ms. Gore had seen the final draft of the memoranda of the two companies since she forwarded the same documents to Mr. Burrows on March 8th, 2012. The report categorically indicated that the company’s shares were not registered under the regulation of any country. The SPG memorandum, however, did not suggest that it was yet to comply with the registration in Australia. Based on the documentation the director should have known that the SPG had not been registered. Besides. The currency and share values of the SPG had the Australian dollar denomination with one of its objective being acquisition of an asset in Australia. Again Ms. Gore had mentioned to Mr. Adamson that the reason she was visiting BVI was to confirm if its intention was applicable in Australia.

The issue of knowledge of representation

            Unlike Ms. Gore stated in her summations, she had received the private-public memoranda of WPO and SPG in addition to traveling to BVI to inquire about the proposal. The inquiry was necessitated by the fact that MOGS needed funding for its operations and the director that SPG and WPO were proposing the funding as early as November 2011 (Morabito & Waye, 2017). Ms. Gore did not challenge the judge’s discovery that the memoranda of both WPO and SPG contained a clause that the invested amounts in Australian SMSFs under the documents would later be used to purchase the assets in Australia by the two companies. Earlier the director challenged the judge’s finding in the preliminary hearing that she was concerned in principal’s contraventions 1041 part one.

Accessorial Liability

            Accessorial accountability, in the broad theoretical sense, relies upon the creation of a breach through a principal where the accessory, somewhat, intentionally took part. The usual range of proscribed accessorial involvement within the Commonwealth stature is that in section seventy-nine which is also mirrored in the obligations within section 1324 sub-section 1(c)-(f). As sir Harry Gibbs CJ observed in  156 CLR Giorgianni at 479 to 480, in Peoni 100 F 2d 401 ()1938 vs United States at 402 Judge Hand Learn had adjudicated the stature as well as common law descriptions of accessories where he articulate that: “It get noted that these entire descriptions having whatsoever related with the prospect that the forbidden repercussion would follow regardless of the accessory’s demeanor; and that they all demand that he in some way relate himself with the endeavor, that the person contributes in it as in something that he intended to generate, he pursues through his action to make it prosper (Middleton, 2003).. The entire words utilized-even the most colorless ‘abet’- convey an effect of deliberated defiance towards it”.

            In our perspective, for an individual to be significantly concerned in a breach of section 727 through a principal, the individual must, initially, recognize some facts which entail that, the principal made a proposal of protection, that the proposal required disclosure under Pt 6D.2 and finally that a disclosure file had not been presented with ASIC (Waye, 2018).. More importantly, through the act of omission, the person must be knowledgeably concerned in the situations that take effect in these facts. The individual cannot be considered as an accessory under section 1324 subsection 1(e) or section 79 (c) or even their analogs whether they do not recognize the fundamental facts that institute the principal contravention or offense. The person is not required to be informed that such facts measure a violation or a crime. Instead, the individual is mandated to recognize that these facts are present (Tomasic et al. 2014). What is indispensable to accessory accountability, is that the adjunct realizes that they are contributing in the principal deed, or neglecting, every vital fact which constitutes breach or offense.

Relevance of the case

The Court of Criminal Appeal validated the approach (developed among other cases under the Act) declaring that if one is found accountable as an assistant to another’s breach under the Act, the defendant must have:

• done so with an understanding of the fundamental concerns entailed within the violation; and
• Internationally taken part in the breach

The Full Court discovered that where the breach associated with failure to register the binding exposé document under the Act, the ‘fundamental concerns” that ASIC was obligated to substantiate that Ms. Gore recognized were:

• The proposal was of such nature or contained the specific aspects that partook the legal repercussions that it needed disclosure to investors under the Act;
• The main contraveners had suggested an offer of protection to investors; and
• There lacked any disclosure file that had been filed with ASIC

Concerning the subsequent “fundamental concern,” the Court of Criminal Appeal elucidated that the entire issue which ASIC was obligated to validate was that Ms. Gore recognized that the proposal had the features which would involve the necessity for disclosure. Constant with the standard that unfamiliarity with the law is no defense, SIC was not directed to authenticate that Ms. Gore acknowledged the legal mandates under the Act. This case, as well as others under this similar Act, possess the excellence to offer Australian courts with direction on the proper examination for accessory obligation under the 2013 Financial Markets Conduct Act (Kiel & Nicholson, 2013).