Australian Securities and Investments Commission v Aboriginal Community Benefit Fund Pty Ltd

[2004] FCA 963

FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission v Aboriginal Community Benefit Fund Pty Ltd [2004] FCA 963

CORPORATIONS – prohibition on unsolicited offering of financial products – consequential orders sought following finding that conduct contravened s 992A of the Corporations Act 2001 (Cth) – power of Court to make orders under s 1324 of the Act – whether sufficient power exists – whether discretion should be exercised to decline to make orders – orders not made

Corporations Act 2001 (Cth) s 992A, 1324, 1324(1), 1325
Corporations Regulations 2001 (Cth) Regulation 7.1.07D
Australian Securities & Investments Commission Act 1989 (Cth) s 12DA, 12GD

Constitution Chapter III

Australian Securities & Investments Commission v Aboriginal Community Benefit Fund Pty Ltd [2004] FCA 178 referred to
Harris v Caladine (1991) 172 CLR 84 referred to
Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672 cited
Medibank Private Ltd v Cassidy (2002) 124 FCR 40 applied

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v ABORIGINAL COMMUNITY BENEFIT FUND PTY LTD & ANOR
N 3056 OF 2003

HELY J
26 JULY 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3056 OF 2003

BETWEEN:

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
PLAINTIFF

AND:

ABORIGINAL COMMUNITY BENEFIT FUND PTY LTD
(ACN 055 222 565)
FIRST DEFENDANT

ABORIGINAL COMMUNITY BENEFIT FUND NO 2 PTY LTD
(ACN 054 951 923)
SECOND DEFENDANT

JUDGE:

HELY J

DATE OF ORDER:

26 JULY 2004

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The defendants pay the plaintiff’s costs of the proceedings up to and including 30 March 2004.

2.The plaintiff pay the defendants’ costs of the proceedings after 30 March 2004.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 3056 OF 2003

BETWEEN:

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
PLAINTIFF

AND:

ABORIGINAL COMMUNITY BENEFIT FUND PTY LTD
(ACN 055 222 565)
FIRST DEFENDANT

ABORIGINAL COMMUNITY BENEFIT FUND NO 2 PTY LTD
(ACN 054 951 923)
SECOND DEFENDANT

JUDGE:	HELY J
DATE:	26 JULY 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. It is common ground that in the period 11 March 2002 – 11 March 2003 each defendant was guilty of one or more contraventions of s 992A of the Corporations Act 2001 (Cth) (‘the Act’). By agreement between the parties, consideration of whether any, and if so what relief should be granted in respect thereof, was deferred pending determination of the question whether Regulation 7.1.07D of the Corporations Regulations 2001 (‘the Regulations’) which came into effect on 11 March 2003 applied to offers for issue or sale of the defendants’ products after that date.

2. In a decision which I gave on 5 March 2004 I determined that each defendant’s product (‘the Funds’) was not a ‘funeral expenses policy’ under the Regulations, and thus was a financial product for the purposes of s 992A of the Act: Australian Securities & Investments Commission v Aboriginal Community Benefit Fund Pty Ltd [2004] FCA 178. On 30 March 2004 declarations to that effect were made, and injunctions issued restraining any future contravention of s 992A.

3. Section 992A(4) provides that in addition to other penalties for breaches of the section, a failure to comply with the section gives the other person (namely the person to which the financial product is offered in contravention of s 992A(1)) a right of return and refund exercisable within one month after the expiry date of the relevant cooling off period for the financial product, or one month and fourteen days in the event that no cooling off period applies to the financial product. I was informed by counsel for the Australian Securities & Investments Commission (‘ASIC’) that the relevant cooling off period in relation to the defendants’ products was fourteen days.

4. ASIC submits that the Court should make further orders in the proceedings in addition to the declarations and injunctions already pronounced.  ASIC’s proposed orders are set out in a document styled ‘Short Minutes of Order’ which is some 17 pages in length.  This document has been placed with the papers.

5. In summary, ASIC’s proposed orders provide for:

   (a)notice to be sent to all present and past members of the Funds who took out membership after 11 March 2002 notifying them:

   ·of the fact and outcome of the judgment; and

   ·that if they joined the Fund in circumstances involving a contravention of s 992A, they have the opportunity either to receive a refund of the premiums paid, or to remain a member of the Fund.;

   (b)for notices giving similar information to be forwarded to a number of Aboriginal Legal Services and a number of Legal Aid Commissions and to be published in the Koori Mail newspaper;

   (c)the defendants to refund premiums paid by members who joined the Funds in circumstances involving a contravention of s 992A if the member elects to terminate his membership of the Fund, and receive a refund of premiums paid;

   (d)the defendants to appoint, and pay for, an external Claims Reviewer to determine, in the event of dispute, whether a member joined the Funds in circumstances involving a contravention of s 992A. The defendants are to be bound by any such determination; and

   (e)the defendants are to maintain a claims register which is to be available for inspection by the plaintiff at its request.

6. ASIC identifies s 1324(1) of the Act as the source of power to make these proposed orders. This section provides that if a person has engaged in a contravention of the Act, the Court may, on the application of ASIC:

   ‘… grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.’

   Counsel for ASIC was unable to inform me of any case in which orders comparable to those now sought had been made.

7. The power to order a person who has contravened the Act ‘to do any act or thing’ is of wide import. The power is sought to be invoked in relation to sections of the Act whose objective is consumer protection, hence the section should receive a liberal construction. However, the defendants submit that the Court has no power to make the orders sought by ASIC. In any event, they say that in the exercise of its discretion the Court should refuse to make the orders.

8. The defendants place reliance upon the decision of the Full Court in Medibank Private Ltd v Cassidy (2002) 124 FCR 40 (‘Cassidy’).  That case was concerned with the operation and effect of s 12GD of the Australian Securities & Investments Commission Act 1989 (Cth) (‘the ASIC Act’). Section 12GD relevantly provided that if the Court is satisfied that a person has contravened s 12DA, the Court ‘may grant an injunction in such terms as the Court determines to be appropriate’. The orders which were sought provided for the establishment of a regime under which Medibank would compensate persons who were not parties to the proceedings, but who suffered loss in consequence of Medibank’s misleading and deceptive conduct. The Court held that the general terms of s 12GD did not authorise the granting of this relief as specific sections of the Act imposed significant qualifications on the Court’s powers to make orders for compensation. Compensation could only be ordered by the Court where the application was brought by the person in whose favour the compensation is ordered, or where the application was brought on behalf of such a person by ASIC with the prior written consent of that person. The Court applied the rule that when a statute confers both a general power, not subject to limitations and qualifications, and a special power subject to limitations and qualifications, the general power cannot be exercised to do that which is the subject of the special power: see Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672.

9. The orders proposed by ASIC in the present case oblige the defendants to submit to a regime under which persons who became members of the Funds in the course of or because of an unsolicited meeting or telephone call after 11 March 2002 (‘proscribed circumstances’) may terminate their membership and obtain a full refund of the premiums paid.  The exclusive power of determining whether a person became a member of a fund in proscribed circumstances is given to the Claims Reviewer, by whose determinations the defendants are bound.

10. Section 1325 of the Act deals with the making of compensation orders and ancillary orders. There are two limitations on the power of the Court to make orders under s 1325 for compensation in favour of third parties. First, the orders may only be made in the case of contraventions of particular chapters of the Act, and of Part 7.10. Section 992A is not within those chapters or that Part. Second, the third parties must be identified in the application, and ASIC must have the written consent of each person on whose behalf the application is made.

11. If s 1324(1) had the width of operation for which ASIC contends, then the provisions of s 1325 would be otiose. It follows from the decision in Cassidy that s 1324 should not be construed as authorising the orders which ASIC seeks. As the Court pointed out in Cassidy, questions of constitutional validity may arise in relation to sections purporting to authorise orders for compensation in favour of third parties, hence the limitations on the Court’s power to make such orders contained in s 1325(2) and (3) represent a deliberate legislative choice. Confining the availability of s 1325 relief to contraventions of some only of the provisions of the Act also reflects a deliberate legislative choice.

12. I conclude s 1324(1) of the act does not authorise the making of the orders which ASIC seeks.

13. Had I come to a different conclusion on the issue of power, in the exercise of my discretion I would not have made orders in the terms which ASIC seeks for the reasons stated in the following paragraphs.

14. Under the terms of the Trust Deeds membership of the Funds is terminable on a month’s notice.  On termination of membership the Trustee is to repay contributions to the members in accordance with the membership application form.  Different application forms make different provision as to what contributions are repayable.  For the first defendant’s fund (‘ACBF’) after 48 two-weekly contributions, either 45 or 50 per cent of the contributions made thereafter will be repaid.  The first 48 contributions are not repayable.  For the second defendant’s fund (ACBF No 2’) twenty five contributions are not repayable, and the payout rate thereafter is one third.  The average fortnightly contribution in the ACBF is $10.34 and in ACBF No 2 it is $9.42.

15. The orders which the plaintiff seeks would oblige the defendants to make payments out of the Trust Fund in favour of those members who elect to withdraw from the Funds on terms which are much more generous than those for which the relevant Trust Deeds provide.  It is conceivable that this might have an adverse impact upon the persons who remain as members of the Fund if, as a result of the payments, the viability of either Fund was undermined. 

16. A representative of the remaining members has not been joined as a party to the proceedings.  In those circumstances I would need to be affirmatively satisfied that the making of the orders sought would not unfairly prejudice continuing members of either Fund.  An actuarial report in relation to ACBF dated 17 March 2004 certified as to the solvency of the ACBF, and as to the existence of a surplus of $460,000 which, in the opinion of the actuary, provided a good buffer against unexpected future experience, although some uncertainty flows from the inability of the Fund to accept new memberships.

17. An affidavit sworn on 26 March 2004 by Mr Conry, the Chief Executive Officer of the defendants, deposed that the following consequences will or might issue from the making of the orders sought by ASIC:

    ‘(e)The viability of [ACBF] might be undermined.  In that regard, the first respondent obtains regular actuarial reports to ensure the continuing viability of [ACBF].  To date, all such reports have concluded that [ACBF] was viable.  The reports, however, have assumed that memberships of the Fund will continue to be sold and that the historical rate of membership cancellations will be maintained.  In view of the findings of the Court, as the first respondent does not hold an Australian financial services licence the first respondent can no longer accept new memberships.  In conjunction with an increased rate of membership cancellations, I believe that this could imperil the viability of [ACBF] and leave the first respondent in a position of insolvency.

    (f)The viability of [ACBF No 2] might be undermined.  The second respondent’s only asset is a small reserve fund which is retained to cover the limited contingent cancellation entitlements of [ACBF No 2] members.  If the second respondent is required to make payments as proposed by the applicant, that limited Fund might be exhausted.  Payment of amounts as proposed by the applicant could leave the second respondent in a position of insolvency.’

18. Mr Conry was not cross-examined on his affidavit.  In the light of that evidence I am not affirmatively satisfied that the making of the orders would not unfairly prejudice continuing members of either Fund.

19. Because of the admissions made by the defendants and accepted by the plaintiff, there has been no occasion for the Court to determine which members of ACBF or ACBF No 2 became members of the Fund in proscribed circumstances.  ASIC’s proposed orders commit to the Claims Reviewer the ascertainment and adjudication upon that question and binds the defendants to the Claims Reviewer’s determination.  If the defendants failed to make the payment provided for in Clauses 7 and 9 of the Short Minutes of Order in consequence of that determination, then the defaulting defendant would be guilty of contempt of court.  There is no provision for a merits review by the Court of that determination.

20. Further, there is at least a real question as to whether ASIC’s proposed orders impermissibly invest the Claims Reviewer with the judicial power of the Commonwealth.  ASIC submits that while ‘some elements of the power conferred on the Claims Reviewer are suggestive of the existence of judicial power’, a consideration of all elements establishes that this is not the case, primarily because the determination would not be a determination of pre-existing rights arising from the operation of past events.  Rather, once such a determination is made, it creates new rights as between the Fund member and a relevant defendant.  Any determination made by the Claims Reviewer would properly be regarded as no more than the factum by reference to which the Court’s orders operate.  Nor, in ASIC’s submission, does the conferral of power on the Claims Reviewer involve any delegation by this Court of its judicial power or functions (see Harris v Caladine (1991) 172 CLR 84) as the Claims Reviewer does not exercise its power as a delegate of the Court.

21. In my view, ASIC’s proposed orders are not merely administrative procedures designed to give effect to orders of the Court. On the contrary the proposed orders provide a method of determining disputed primary facts, without any supervision by the Court, and on terms which deny to the defendants any avenue of appeal from the Claims Reviewer’s determination. For these reasons, it would not be an appropriate exercise of a discretionary power to make the orders sought, when, at best from the plaintiff’s point of view, it is debatable whether the making of the orders would contravene Chapter III of the Constitution.

    Conclusion

22. I decline to make orders in terms of ASIC’s proposed short minutes of order.  The only orders which I propose to make are in relation to costs.  I order that the defendants pay the plaintiff’s costs of the proceedings, up until 30 March 2004.  As the plaintiff was unsuccessful in obtaining relief in addition to that which I granted on 30 March 2004, I order that the plaintiff pay the defendants’ costs of the proceedings after that date.

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Associate:

Dated:             26 July 2004

Counsel for the Applicant:	R Darke SC, J Stoljar
Solicitor for the Applicant:	Australian Securities & Investments Commission
Counsel for the Respondent:	J Wheelhouse SC, P Fury
Solicitor for the Respondent:	Thomas and Company
Date of Hearing:	2 June 2004
Date of Judgment:	26 July 2004