Australian Securities and Investments Commission v Diversa Trustees Limited

[2023] FCA 1267

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Diversa Trustees Limited [2023] FCA 1267  

File number:

VID 573 of 2021

Judgment of:

BUTTON J

Date of judgment:

24 October 2023

Catchwords:

SUPERANNUATION – where defendant was trustee of superannuation fund – where defendant had contractual arrangements for the administration, promotion and provision of platform functions in relation to the fund – where ASIC alleged that the defendant knew or ought to have known of certain “vices” in relation to the business practices of a particular adviser group who joined members to the fund – whether knowledge of entities performing sponsor, promotion, administration and platform provision services were attributable to the defendant – whether s 769B(3) of the Corporations Act 2001 (Cth) applies where the state of mind is not held by the same person who engaged in the conduct

CORPORATIONS – financial services – where defendant was the holder of an Australian Financial Services Licence – where ASIC alleged contraventions of ss 912A(1)(a) and (ca) of the Corporations Act 2001 (Cth) – obligation of licensee to do all things necessary to ensure that the financial services covered by the license are provided efficiently, honestly and fairly – obligation of licensee to take reasonable steps to ensure that its representatives comply with the financial services laws – where trustee contracted with other licensees for provision of administration, promotion and provision of platform functions in relation to the fund – whether s 912A(1)(a) applies where financial service of giving general advice said to be provided by another licensee – effect of s 911B(3) of the Corporations Act 2001 (Cth) on who provides financial services – whether the second licensee was a “representative” of the defendant for the purposes of s 912A(1)(ca) of the Corporations Act 2001 (Cth)

AGENCY – attribution of knowledge of agents – whether services performed by the entities with which the defendant had contractual arrangements for the administration, promotion and provision of platform functions in relation to the fund were services performed as agent of the defendant or services provided to the defendant – where a subset of the contracts contained “no agency” clauses – no evidence of actual workings of the relationships between the defendant and the entities – evidence did not link knowledge of entities with tasks said to be undertaken as agent  

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth) ss 12CB, 12DA

Corporations Act 2001 (Cth) ss 9, 766A, 766B, 769B, 910A, 911A, 911B, 911D, 912A, 912B, 916A, 916D, 946A–947B, 991A, 1041H, 1101B

Superannuation Industry (Supervision) Act 1993 (Cth)

Superannuation Industry (Supervision) Regulations 1994 (Cth)

Cases cited:

Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133

Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) (2020) 275 FCR 57

Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) (2020) 377 ALR 55; [2020] FCA 69

Australian Securities and Investments Commission v Commonwealth Bank of Australia [2022] FCA 1422

Australian Securities and Investments Commission v Financial Circle Pty Ltd (2018) 131 ACSR 484; [2018] FCA 1644

Australian Securities and Investments Commission v National Australia Bank (2022) 164 ACSR 358; [2022] FCA 1324

Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) (2021) 156 ACSR 371; [2021] FCA 877

Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 266 FCR 147

Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147

Australian Securities and Investments Commission v Westpac Securities AdministrationLtd (2019) 272 FCR 170

Australian Securities and Investments Commission v Westpac Securities Administration Ltd (2018) 133 ASCR 1; [2018] FCA 2078

Briginshaw v Briginshaw (1938) 60 CLR 336

Certain Lloyd’s Underwriters v Cross (2012) 248 CLR 378

Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421

Commonwealth v Fernando (2012) 200 FCR 1

Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (2015) 230 FCR 298

Federal Commissioner of Taxation v Ludekens (2013) 214 FCR 149

Jones v Dunkel (1959) 101 CLR 298

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563

Lek v Minister for Immigration, Local Government and Ethnic Affairs (1993) 43 FCR 100

Lisciandro v Official Trustee in Bankruptcy (1995) ATPR 41-436; [1995] FCA 716

Naismith v McGovern (1953) 90 CLR 336

Paccioco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199

Sargent v ASL Developments Ltd (1974) 131 CLR 634

South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611; [2000] FCA 1541

Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193

Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699; [2011] NSWCA 389

Walplan Pty Ltd v Wallace (1985) 8 FCR 27

Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1

Westpac Securities Administration Ltd v Australian Securities and Investments Commission (2021) 270 CLR 118

Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537; [2012] FCAFC 107

GE Dal Pont, Law of Agency (LexisNexis Australia, 4^th ed, 2020)

Division:

General Division

Registry:

Victoria

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Number of paragraphs:

388

Date of last submissions:

16 August 2023

Date of hearing:

31 July–2 August 2023

Counsel for the Plaintiff:

O Bigos KC with D Luxton and S Hogan

Solicitor for the Plaintiff:

Australian Securities and Investments Commission

Counsel for the Defendant:

R McHugh SC with J Entwisle

Solicitor for the Defendant:

Allens

ORDERS

VID 573 of 2021

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Plaintiff

AND:

DIVERSA TRUSTEES LIMITED (ACN 006 421 638)

Defendant

ORDER MADE BY:	BUTTON J
DATE OF ORDER:	24 OCTOBER 2023

THE COURT ORDERS THAT:

1.The plaintiff’s originating process dated 8 October 2021 is dismissed with costs.

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

REASONS FOR JUDGMENT

INTRODUCTION	[1]
THE OPERATIONAL AND CONTRACTUAL CONTEXT	[17]
AFSLs	[19]
Roles and Agreements	[26]
Diversa and the Fund	[26]
The Administration Agreement: Diversa and Super	[27]
The Sponsor Agreement: Diversa and Wealth	[33]
The Promoter Agreement: Diversa and Wealth	[38]
The Platform and Custody Services Agreement: Diversa and Wealth	[42]
The OneVue Platform, the OneVue Platform Dealer Group Registration Form and SuperMatch	[47]
THE AFSL REGIME	[55]
WHAT DIVERSA SHOULD HAVE DONE AND WHEN: THE RELEVANT PERIOD	[70]
DIVERSA’S COMPLAINTS ABOUT ASIC EXPANDING ON, AND DEPARTING FROM, ITS PLEADED CASE	[86]
JONES V DUNKEL INFERENCES	[97]
ASIC’S ALLEGATIONS OF KNOWLEDGE	[99]
ASIC’s allegations concerning knowledge at the start of the Relevant Period	[99]
ASIC’s allegations concerning knowledge during the Relevant Period	[105]
ASIC’s aides memoire on knowledge	[108]
KNOWLEDGE AND ATTRIBUTION OF KNOWLEDGE	[109]
Overarching issues	[109]
The end point of relevant knowledge: 17 March 2020	[109]
Whether s 769B(3) is applicable at all	[112]
Whether s 769B(3) can apply where the state of mind is not held by the same person who engaged in the conduct	[120]
A note on a related pleading issue	[132]
Actual and constructive knowledge: approach in cases under s 912A(1)(a) and s 912A(1)(ca)	[135]
THE FIRST ALLEGED S 912A(1)(A) CONTRAVENTION: ISSUING OF UNITS	[141]
The “circumstances” and whether Diversa could breach its s 912A(1)(a) obligation by reason of deficiencies in the activities of the Bhandari Entities	[145]
Section 912A(1)(a) as a forward-looking obligation	[149]
Diversa personnel	[155]
Stephen Blood	[156]
Di Caldwell-Smith	[160]
Andrew Loveridge	[170]
Daniel Strachan	[174]
Diversa’s position on the attribution of knowledge of Mr Blood, Ms Caldwell-Smith, Mr Loveridge and Mr Strachan	[176]
Connie Mckeage	[179]
Consideration:  Knowledge of Diversa (other than by attribution of the knowledge of the OneVue Entities)	[180]
Hardship claims	[183]
Complaints about unauthorised transactions	[201]
Dummy email addresses	[208]
Re-using signatures and issues regarding documentation retained by the Bhandari Entities	[213]
Bhandari’s business model (general advice, fees for consolidation) and ASIC’s enquiries	[217]
Fees for consolidation	[238]
Overview: Diversa’s knowledge	[245]
Consideration: attribution of knowledge of the OneVue Entities	[246]
ASIC’s attribution case was confined to s 769B(3)	[246]
ASIC’s alternate attribution case relying on s 769B(1)(b) was not pleaded	[247]
Consequences of ASIC’s attribution case being confined to s 769B(3)	[249]
The failure of ASIC’s attribution case does not mean trustees can “wash their hands”, as suggested by ASIC	[253]
ASIC has not established a basis for aggregation of knowledge of OneVue personnel	[256]
The attribution of knowledge of agents	[276]
Whether the OneVue Entities were agents and, if so, the scope of the agency	[295]
The documents said to establish the OneVue Entities’ knowledge	[308]
Conclusions on whether Diversa failed to adhere to its s 912A(1)(a) duty	[318]
The knowledge case	[318]
Other matters relied on regarding the contravention of s 912A(1)(a)	[338]
THE SECOND ALLEGED S 912A(1)(A) CONTRAVENTION: PROVISION OF ADVICE	[346]
THE ALLEGED CONTRAVENTION OF S 912A(1)(CA): DIVERSA’S ALLEGED REPRESENTATIVES	[370]
CONCLUSION	[387]

BUTTON J:

INTRODUCTION

1. By its originating process, the Plaintiff (ASIC) sought declarations that, between 13 March 2019 and 18 December 2020 (the Relevant Period) “in relation to the promotion and sign-up or roll-over of customers by Mr Nizi Bhandari [(Mr Bhandari)], Australian Super Finder (ASF) and the Australian Dealer Group Pty Ltd (ADG) to the YourChoice Super fund or their use of that fund in the superannuation aggregation business”, the Defendant (Diversa) has contravened s 912A(1)(a) and s 912A(1)(ca) of the Corporations Act 2001 (Cth) (the Corporations Act).

2. ASF, ADG and Mr Bhandari were together referred to as the Bhandari Entities. Largely, the case was run without distinguishing between ASF, ADG and Mr Bhandari, although I explain the two corporate entities below.

3. Diversa was the trustee of YourChoice Super. It had various contractual arrangements with OneVue Wealth Services Ltd (Wealth) and OneVue Super Services Pty Ltd (Super) (collectively the OneVue Entities) concerning, inter alia, the administration, management and promotion of YourChoice Super. Diversa was previously a member of the broader OneVue Group, but was divested in mid-2019.

4. ASIC contended that Diversa contravened s 912A(1)(a) on two separate bases, and also contravened s 912A(1)(ca).

5. ASIC summarised the matters of concern to it, and the basis upon which it contended that Diversa contravened ss 912A(1)(a) and 912A(1)(ca), as follows in its opening submissions:

   The contraventions occurred in circumstances where customers were signed-up to YourChoice Super by a financial advisor firm, The Australian Dealer Group Pty Ltd (ADG) (whose principal was Nizi Bhandari (Bhandari)), which operated the Australian Super Finder business (ASF). (ADG, ASF and Bhandari are described collectively as the Bhandari Entities.) The overall effect of the promotion by the Bhandari Entities of the “free” super search on the ASF website was to lure in prospective customers to engage with the service of finding lost super. Customers who provided their details online received a telephone call from ADG’s call centre staff advising them to transfer their “lost” (or other) superannuation into an account with YourChoice Super. As a result of the roll-over into YourChoice Super, ADG earned substantial fees; customers became liable to pay additional fees, risked losing their insurance benefits, and signed-up to a superannuation account that may not have been in their best interests (eg in terms of costs and returns). Many of the customers who transferred their superannuation into YourChoice Super then rolled out or withdrew the funds, including on hardship grounds.

   The Bhandari Entities, through their use of OneVue’s secure online portal, located customers’ superannuation and opened the accounts with Diversa. Diversa, through its platform and outsourcing arrangements to OneVue Super and OneVue Wealth, erected the critical infrastructure to facilitate the issuing of its superannuation product to customers who faced risks of harm resulting from the product. Diversa delegated the promotion and administration of YourChoice Super, and in doing so demonstrated failures of monitoring, oversight and in some instances turned a blind eye to potential misconduct.

6. As is apparent, the underlying conduct of concern to ASIC was that of the Bhandari Entities. None of the Bhandari Entities was a party to the proceeding. Nor were either of the OneVue Entities.

7. The key issue at the heart of ASIC’s case is whether, given what Diversa knew or ought to have known about the conduct of the Bhandari Entities and the risks posed by that conduct to clients of the Bhandari Entities, Diversa should have given directions that would have cut the Bhandari Entities off, such that Diversa would no longer issue interests in YourChoice Super to clients of the Bhandari Entities.

8. The first alleged contravention of s 912A(1)(a) related to Diversa’s issuing of interests in YourChoice Super. Diversa accepted that, in issuing interests in YourChoice Super, it performed a financial service pursuant to its Australian Financial Services Licence (AFSL). ASIC alleged that, by reason of what Diversa knew or ought to have known about the conduct of the Bhandari Entities and the potential impact of that conduct on the clients of the Bhandari Entities, Diversa failed to “do all things necessary to ensure” that it performed financial services covered by its AFSL efficiently, honestly and fairly. ASIC put its case on the basis that, in order to comply with its obligation to “do all things necessary to ensure …”, Diversa should have put a stop to allowing the Bhandari Entities to put their clients into YourChoice Super; it should have cut off the Bhandari Entities.

9. The second basis upon which ASIC contended that Diversa contravened s 912A(1)(a) related to the performance by the OneVue Entities of the financial service of giving general financial product advice. Each of the OneVue Entities held an AFSL that authorised it to give general financial product advice. Diversa’s AFSL also authorised it to give general financial product advice, but ASIC did not allege that Diversa in fact gave general financial product advice at all. Rather, it contended that Diversa contravened s 912A(1)(a) on the basis that the service of giving general financial product advice was “covered” by its AFSL, notwithstanding that the advice was (on ASIC’s case) given by the OneVue Entities. ASIC’s contention was that Diversa failed to comply with its obligations under s 912A(1)(a) due to what it knew or ought to have known about the Bhandari Entities and their operations. Again, the case was put on the basis that, in order to comply with its s 912A(1)(a) obligations, Diversa should have cut off the Bhandari Entities.

10. The contravention of s 912A(1)(ca) was alleged on the basis that the OneVue Entities were Diversa’s “representatives” within the meaning of s 910A of the Corporations Act, that Diversa knew or ought to have known there was a risk that the OneVue Entities were not complying with their own obligations under s 912A(1)(a) and that Diversa failed to take reasonable steps to ensure that its representatives did all things necessary to ensure that they complied with s 912A(1)(a). Again the case was put on the basis that, in order to comply with its s 912A(1)(ca) obligations, Diversa should have cut off the Bhandari Entities.

11. In respect of each alleged contravention, ASIC relied on knowledge that it contended Diversa had directly, as well as knowledge of the OneVue Entities, which ASIC contended was to be attributed to Diversa.

12. The starting date of the Relevant Period is the date upon which s 912A became a civil penalty provision. The ending date of the Relevant Period is the date when the business operated by Mr Bhandari was sold.

13. Pursuit of a civil penalty case is not without consequence. The authorities recognise that pursuit of such proceedings has consequences in a number of areas: the framing and specificity of the allegations advanced; the nature of the proof required to make out the case; and the approach to be adopted in construing legislation.

14. A civil penalty proceeding of this kind is a serious kind of case, bearing a penal nature: Naismith v McGovern (1953) 90 CLR 336 at 341. To adopt observations made by the Full Court (Logan, Bromberg and Katzmann JJ) in Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (2015) 230 FCR 298 (BHP Coal) at [63], albeit in the context of the Fair Work Act 2009 (Cth), “[i]n this class of case, it is especially important that those accused of a contravention know with some precision the case to be made against them. Procedural fairness demands no less”. In a civil penalty proceeding, it is incumbent on the regulator to be clear and consistent regarding the allegations made; a “clear and tolerably stable body of allegations of contraventions of law” is required: Federal Commissioner of Taxation v Ludekens (2013) 214 FCR 149 (Ludekens) at [20]. It is not appropriate for the regulator to plant “a forest of forensic contingencies”, or to alter the basis of the allegation of the alleged contraventions on a rolling basis in the leadup to, and during, the trial: see Ludekens at [20] (Allsop CJ, Gilmour and Gordon JJ).

15. Civil penalty proceedings generally involve allegations of some gravity. This case is no exception. By impugning Diversa’s willingness to continue to allow the Bhandari Entities to put clients into YourChoice Super and to do so under a consolidation model, notwithstanding what it knew or ought to have known, ASIC’s case involved grave and serious allegations. The gravity of the allegations involved is reflected in the application of the civil burden of proof: Briginshaw v Briginshaw (1938) 60 CLR 336 (Briginshaw) at 362 (Dixon J); Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147 at [225] (Wigney J). As stated by the Full Court (Logan, Bromberg and Katzmann JJ) in BHP Coal at [63] (quoting Dixon J in Briginshaw), “where … the resolution of an issue exposes a respondent to a penalty, satisfaction on the balance of probabilities is not achieved by ‘inexact proofs, indefinite testimony, or indirect inferences’”. The conclusions I set out below do not depend on the application of any elevated standard of proof but, naturally, application of an elevated standard would only reinforce those conclusions.

16. ASIC’s pursuit of a civil penalty case also brings with it the need to construe the legislation in question having regard to its penal character, and to exercise caution before accepting any “loose, albeit ‘practical’, construction”: Stevens v Kabushiki Kaisha Sony Computer Entertainment (2005) 224 CLR 193 at [45] (Gleeson CJ, Gummow, Hayne and Heydon JJ); see also Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133 at [88] (Allsop CJ, Besanko and McKerracher JJ); Paccioco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at [300] (Allsop CJ, with whom Besanko J and Middleton J agreed). Precision of the kind referred to by Moshinsky J in Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) (2021) 156 ACSR 371; [2021] FCA 877 (RI Advice) at [410]–[411] is also of particular importance in civil penalty proceedings.

    THE OPERATIONAL AND CONTRACTUAL CONTEXT

1. According to its 2018 Annual Report, the OneVue group of companies (the OneVue Group) was engaged in “Fund Services”, “Platform Services” and “Superannuation Trustee Services”.

2. Diversa was a wholly owned subsidiary of the OneVue Group until 30 June 2019, at which point it was acquired by the Sargon Group. Accordingly, from 1 July 2019 (and thus for the majority of the Relevant Period), Diversa was not a related party of either of the OneVue Entities, or the broader OneVue Group.

   AFSLs

3. Each of the corporate protagonists had its own AFSL. The relevant details of their AFSLs are as follows.

4. While Diversa was a member of the OneVue Group, it provided trustee services to group funds, as well as to funds that were not OneVue Group funds. Pursuant to its AFSL effective 29 June 2017, Diversa was authorised to carry on a financial services business to provide general financial product advice for, inter alia, superannuation, and deal in a financial product by “issuing, applying for, acquiring, varying or disposing of a financial product” in respect of the financial product class of superannuation, to retail and wholesale clients.

5. There were a great many subsidiaries in the OneVue Group, but it is Wealth and Super that are particularly relevant to this proceeding. Super was also previously named Super Managers Funds Administration Pty Ltd. I will refer to the entity at all times as Super.

6. Super’s initial AFSL (effective 12 June 2014) and subsequent AFSL (effective 10 July 2020) both authorised it to provide financial product advice in respect of a wide range of financial product classes, including superannuation, and to deal in a wide range of financial products, including superannuation, and to do so by applying for, acquiring, varying or disposing of a financial product on behalf of another person. Wealth’s AFSL (effective 18 January 2019) was in substantially the same terms.

7. ADG was one of the Bhandari Entities. Pursuant to its AFSL (effective 27 September 2018), it was authorised to carry on a financial services business to provide general financial product advice for product classes including investment life insurance products, life risk insurance products, and superannuation. ADG was also authorised to deal in financial products by applying for, acquiring, varying or disposing of a financial product on behalf of another person in respect of life products and superannuation.

8. ADG appointed Marketing On Web Pty Ltd (MOW) (as trustee for the Saicare Trust) as its authorised representative. MOW traded as “Australian Super Finder”. MOW’s appointment as an authorised representative of ADG was effected by an Authorised Representative Deed dated 19 February 2019. By that deed, MOW was authorised to provide general financial product advice on, and deal in, superannuation and life insurance products “by applying, acquiring, varying and disposing of those products on behalf of another”.

9. The Bhandari Entities’ business involved assisting their clients to locate and consolidate lost super. This business was conducted under ADG’s AFSL.

   Roles and Agreements

   Diversa and the Fund

10. The MAP Master Superannuation Plan (the Fund) was established in 1992. MAP Management Company Ltd (later MAP Funds Management Ltd (MAP FM)) became the trustee of the Fund in 1994. Diversa replaced MAP FM as trustee on 10 May 2017. YourChoice Super was a sub-plan of the Fund.

    The Administration Agreement: Diversa and Super

11. At the same time that Diversa became the trustee of the Fund, the Administration Agreement (originally between Super and MAP FM) dated 8 August 2014 (the Administration Agreement) was novated to Diversa.

12. Under the Administration Agreement, Super provided various administration, accounting, insurance, investment, communication, online information, and banking services to the trustee (ie Diversa). The specific services to be provided by Super included all manner of administrative responsibilities relating to the day-to-day running of the Fund, and attendance to many regulatory requirements. Those tasks included admission of new members and the establishment of their records, liaison with the trustee, calculation and processing of all benefits and payments, managing hardship claims, and attendance at up to four board meetings of the trustee per year.

13. Super was obliged to provide the specified services in accordance with the “Service Levels”, but no copy of the Service Levels document has been located. ASIC invited the court to infer — and I do infer — that the service levels were similar to those specified in a similar Administration Agreement between Diversa and Super, entered into in August 2017, which related to a different fund. Those service levels made reference to the timeframes for answering client enquiries.

14. Super was also obliged to provide the services in such a way as to ensure compliance by the Trustee with the relevant Trust Deed, and the Relevant Law (which was defined to include the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) and the Corporations Act).

15. The trustee was obliged to do all things within its power and control that were reasonably necessary and required by Super for it to carry out its duties and obligations under the Administration Agreement. Super was only permitted to delegate, sub-contract or engage third party contractors to provide any of the services with the prior written consent of the trustee.

16. The Administration Agreement contained a clause providing that nothing in the agreement gave Super any authority to “bind the Trustee to any agreement, arrangement, obligation, liability, duty or understanding” or to “purport to act as agent of the Trustee”.

    The Sponsor Agreement: Diversa and Wealth

17. MAP Financial Planning Pty Ltd (MAP FP) and Diversa entered into the Sponsor Agreement on 18 December 2018. MAP FP was a member of the OneVue Group. That agreement was novated from MAP FP to Wealth on 24 May 2019. Each of those entities was the “sponsor” of the Fund.

18. The recitals to the Sponsor Agreement record that Diversa was appointed trustee on 10 May 2017 “and also acted as sponsor of the Fund”. The recitals made no reference to Diversa previously having acted as sponsor pursuant to any written agreement. The recitals go on to record that “Diversa wishes to cease acting as the sponsor of the Fund” and that the sponsor (MAP FP and later Wealth) wished to assume those responsibilities.

19. Under the Sponsor Agreement, Diversa was to be paid fees for performing the “Diversa Core Trustee Services” and a further fee for performing the “Diversa Non-Core Trustee Services”. The fee for those non-core services could only be charged by Diversa with written approval of the sponsor.

20. The sponsor was made responsible for the “sponsor services”, which included operating and maintaining the Fund website (including information and legal documents made available through the website), preparing the annual report and providing a call centre for Fund members and advisors to make telephone enquiries, with the proviso that Diversa and the sponsor would consult and agree when queries were to be handled by the administrator of the Fund. The sponsor’s services could not be sub-contracted, except with Diversa’s approval.

21. The Diversa Core Trustee Services were set out in Sch 2 and included “Monitor Service Providers performance to seek to ensure that they meet their contractual obligations and the Relevant Requirements”, which included requirements imposed by the SIS Act and the Corporations Act. The term “Service Providers” was defined to mean “any party appointed by Diversa to provide services to the Fund, including the Fund administrator, custodian, asset consultant, auditor, tax agent and any other party appointed with the consent of the Sponsor”.

    The Promoter Agreement: Diversa and Wealth

22. By a Promoter Agreement dated 6 June 2018, Diversa appointed MAP FP as promoter of the YourChoice Super sub-plan of the Fund. The Promoter Agreement was amended on 18 December 2018 and then amended again and novated to Wealth on 24 May 2019.

23. The promoter (initially MAP FP and then Wealth) warranted that it held a valid AFSL enabling it to perform the Promoter Services including but not limited to providing general advice for superannuation and life insurance financial products and dealing in superannuation and life insurance financial products.

24. The Promoter Agreement authorised delegation to an Authorised Representative (defined to pick up the authorised representative appointment process under the Corporations Act, which process is discussed further below), with certain conditions, and the appointment (with the prior written consent of Diversa) of a sub-promoter in respect of a sub-plan. The promoter warranted that it would ensure that any Authorised Representatives would be properly authorised under the Corporations Act and have undertaken and completed all necessary training as required by ASIC to perform the Promoter Services. The schedule of “Promoter Services” included the general marketing and distribution/sales functions for the sub-plans in compliance with the Relevant Requirements (defined to include requirements of legislation including the SIS Act and the Corporations Act), preparation and implementation of a marketing/business plan, the “appointment, training and control” of the promoter’s officers, employees and agents (including Authorised Representatives), as required under its AFSL and the Relevant Requirements, preparing Product Disclosure Statements (PDSs) as well as keeping them updated, and preparing and distributing marketing material.

25. The original version of the Promoter Agreement provided for Core Trustee Services to be performed by Diversa, however the provision of trustee services was removed from this agreement — and then provided for by the Sponsor Agreement — when the Promoter Agreement was amended on 18 December 2018 (also being the date of the Sponsor Agreement).

    The Platform and Custody Services Agreement: Diversa and Wealth

26. Wealth and Diversa were also parties to the Platform and Custody Services Agreement dated 19 December 2018 (the Platform Agreement). Under that agreement, Diversa appointed Wealth to provide the “Platform Services”, amongst other things, for fees paid by Diversa. All relevant intellectual property — including intellectual property in the platform itself — was owned by Wealth.

27. The “Platform Services” were detailed in Sch 1, which was structured so as to detail the “broad functional intent” of the “environment and the platform and administration services to be delivered to” Diversa. The matters set out included:

    (a)maintaining member record files, including the members’ applications, and communications, as well as a great many details about the members;

    (b)admitting new members and creating their accounts;

    (c)processing withdrawal requests;

    (d)administration of fees;

    (e)running a telephone service to answer queries (Diversa was to specify the wording of recorded messages to be played out of hours), and store call records;

    (f)providing accurate responses to enquiries, and recording and responding to complaints, as well as assisting Diversa with any complaints taken to the Australian Financial Complaints Authority (AFCA); and

    (g)reporting to Diversa the key issues raised by members and advisers in their complaints.

28. The Platform Agreement also provided for Wealth to “admit new advisers” once the adviser had been approved by Diversa, and to maintain dealer group details. Advisers were defined as “Super Wrap Member financial adviser[s]”.

29. Wealth warranted that it held an AFSL “covering the provision of the financial services to be provided by OneVue under this Agreement”.

30. The Platform Agreement also included a clause providing that no partnership, agency (otherwise than where stated to the contrary) or joint venture was formed.

    The OneVue Platform, the OneVue Platform Dealer Group Registration Form and SuperMatch

31. The OneVue Platform was operated by Wealth and allowed for financial advisers to be granted access to the Platform to supply or facilitate the supply of products and services. The products available via the Platform were not limited to YourChoice Super.

32. ADG (then named Financial Advisers Dealer Group Pty Ltd) completed a OneVue Platform Dealer Group Registration Form, signed on 13 December 2017 (the Registration Form).

33. The form stated that ADG appointed “OneVue” to “supply and facilitate the supply of YourChoice Super, [and] the OneVue Platform Products and Services …”. The form provided for access to the OneVue Platform to be granted to ADG, its advisers, and “Clients” (being actual or prospective clients of ADG and its advisers).

34. Pursuant to the Registration Form, OneVue was to (inter alia) provide current copies of documents including PDSs and provide assistance to ADG which was conducive to its effectively marketing and promoting (inter alia) YourChoice Super. ADG warranted that it held all necessary licenses, including an AFSL, necessary for it to perform its obligations under the agreement constituted by the Registration Form, and held insurance as required of financial services licensees (Licensees). ADG also undertook that all instructions given to OneVue in connection with YourChoice Super would be authorised by the relevant client and evidenced in writing.

35. Other than the Registration Form, there was no evidence of the contractual relationship between the Bhandari Entities and the OneVue Entities, or Diversa. There was no evidence addressing how it was that the Bhandari Entities were approved as a dealer group. ASIC’s case did not involve any allegations that there were due diligence, or other, deficiencies associated with the Bhandari Entities having been permitted access to the OneVue Platform and SuperMatch initially.

36. As set out above, ADG appointed MOW as its authorised representative.

37. The Bhandari Entities had access to SuperMatch. SuperMatch was an online service offered by the ATO, which allowed superannuation trustees and administrators (and their intermediaries) to identify “lost” superannuation services. Access to SuperMatch was by use of an electronic “key”, and was available via the OneVue Platform. The evidence did not ultimately establish whether it was technically Diversa’s entitlement to access SuperMatch (as trustee), or Super’s entitlement (as administrator) that was then made available to the Bhandari Entities via the OneVue Platform.

38. The Bhandari Entities accessed SuperMatch on behalf of their clients, to locate the client’s “lost” superannuation (cf ASIC’s pleaded contention at [32A] of its Further Amended Statement of Claim (FASOC) that the Bhandari Entities accessed SuperMatch on behalf of Diversa). In that respect access to SuperMatch was integral to the Bhandari Entities’ business model of consolidating their clients’ “lost” superannuation accounts into a YourChoice Super account.

    THE AFSL REGIME

39. Section 912A(1) prescribes the “general obligations” of Licensees. While ASIC alleges contraventions of ss 912A(1)(a) and (ca), the obligations imposed by those subsections are to be understood in the wider context of the AFSL regime, and the suite of obligations imposed by s 912A(1).

40. The AFSL regime is undoubtedly protective of the interests of those who engage with the providers of financial services, but protection of the consumers of financial services is not the only object of ch 7 of the Corporations Act. As Gordon J explained in Westpac Securities Administration Ltd v Australian Securities and Investments Commission (2021) 270 CLR 118 (Westpac HC) at [28], ch 7 was also designed to ease the administrative burden on financial service providers by introducing a single licensing regime. That licensing regime is found in pt 7.6 of the Corporations Act. It is, in some respects, a complex regime.

41. The starting point is s 911A(1): it requires that, subject to prescribed exceptions, a person carrying on a “financial services business” must “hold an [AFSL] covering the provision of the financial services”. Section 911A(2) sets out a number of exemptions, which relevantly include those who provide services “as representative” of the holder of an AFSL: s 911A(2)(a).

42. Section 911B restricts who can provide a financial service on behalf of a person who carries on a financial services business. Those persons include certain employees or directors of an AFSL holder (or a related body corporate), and a person who is an “authorised representative” of the AFSL holder principal, whose authorisation covers the provision of that service: s 911B(1)(a)–(b). In the second case, those who provide a service on behalf of the AFSL holder as an authorised representative may also provide services on behalf of a second principal as the authorised representative of that second principal in some circumstances: s 911B(b)(iv). In this way, the legislation recognises that a single provider may provide services on behalf of more than one principal.

43. The authorised representative regime enables providers of financial services to do so without obtaining their own AFSLs.

44. Another category of person who can provide services on behalf of a person who carries on a financial services business, is a provider who “holds their own [AFSL] covering the provision of the service”: s 911B(1)(d). This provision is to be read in light of s 916D(1), which provides that a Licensee cannot be the authorised representative of another Licensee. A note to that section specifies that “[i]nstead, the first licensee could use their own licence to provide financial services on behalf of the second licensee”, and refers to s 911B(1)(d).

45. As such, the Corporations Act recognises that a Licensee may provide services “on behalf of” another Licensee, but without being the “authorised representative” of the second Licensee. This concept is reflected in the definition of “representative” in s 910A, which, in the case of a Licensee, includes both “authorised representatives”, and those who act “on behalf of” the Licensee (as well as directors and employees of the Licensee or related bodies corporate).

46. Unless an exception to s 916D applies, an “authorised representative” will not have its own AFSL, but a “representative” may, where it is providing services on behalf of a Licensee pursuant to s 911B(1)(d) (see also s 911B(2), which provides that ss 912A(1)(a)–(c) do not apply if the provider is itself a Licensee, unless the principal is an insurer and the provider is acting under a binder).

47. The Corporations Act contains a specific provision which identifies who provides a service when a Licensee provides services on behalf of another person who carries on a financial services business, pursuant to s 911B(1)(d). Section 911B(3) provides that (emphasis added):

    If, as mentioned in paragraph (1)(d), the provider holds their own Australian financial services licence covering the provision of the service, then, for the purposes of the other provisions of this Chapter, the service is taken to be provided by the provider (and not by the principal) unless regulations made for the purposes of this subsection provide otherwise.

48. It is important to observe that the legislation is structured so that the provision of a financial service that is covered by the licensing regime is tied to an identifiable AFSL: viz, the AFSL of the actual provider of the financial service, or the AFSL of the appointor of an authorised representative. In the former category of case, ss 911B(1)(d) and s 911B(3) make it clear that, where the financial service is provided by one AFSL holder on behalf of another AFSL holder, it is the AFSL of the actual service provider that provides the necessary authorisation for the provision of the regulated service.

49. These provisions serve to emphasise the importance of distinguishing between situations in which a Licensee provides services on its own behalf, and in which it provides services “on behalf of” another Licensee.

1. Section 766A(1) states that a person “provides a financial service” when the person does one or more of the listed things, which include the following: “provide financial product advice” and “deal in a financial product”. This directs attention to what the provider of the financial service is actually doing. Linking this provision with s 911B, a person may only provide a “financial service” on behalf of a person who “carries on a financial services business” if one of the stated conditions is met. A person will carry on a financial services business in the jurisdiction where the person engages in conduct that is (inter alia) intended to induce people in the jurisdiction to “use the financial services the person provides”: s 911D(1)(a). As such, it is clear that a person who carries on a financial services business will be someone who provides financial services.

2. What is important to note is that, where a Licensee provides a financial service “on behalf of” another Licensee, the scheme of pt 7.6 of the Corporations Act elects to treat the first Licensee as the provider of the financial service, notwithstanding that that person provided the service “on behalf of” the second Licensee (the principal): ss 911B(1)(d) and (3). This means also that the first Licensee is subject to the panoply of obligations that come with providing a financial service, while the second Licensee is still subject to provisions such as s 912A(1)(ca) even where services are provided on its behalf by another Licensee (as a Licensee providing services on behalf of another Licensee is still a “representative”, albeit not an “authorised representative”).

3. The terminology of s 911A(2)(a) is also relevant. That section exempts a person who carries on a financial services business from having an AFSL covering the provision of “the financial services” if the person provides the service “as representative of” another person who is a Licensee (or is itself exempt). As such, the language used in s 911A(2)(a) focuses attention on the capacity in which the person provides the service.

4. Division 5 of ch 7 contains a regime for authorised representatives. Section 916A permits a Licensee to give a person (referred to as the “authorised representative”) a written notice “authorising the person, for the purposes of this Chapter, to provide a specified financial service or financial services on behalf of the licensee”. The specified services may be some or all of the financial services covered by the Licensee’s AFSL: s 916A(2).

   WHAT DIVERSA SHOULD HAVE DONE AND WHEN: THE RELEVANT PERIOD

5. ASIC’s primary case was that Diversa remained in breach of its statutory obligations until 18 December 2020, which was when ADG sold the ASF business. Its alternative case was that Diversa was in breach until 24 September 2020, when new clients stopped being signed up to YourChoice Super under Mr Bhandari’s adviser code. Its final alternative case was that Diversa was in breach until March 2020 “when Diversa removed access or authority for the Bhandari Entities to sign members up to YourChoice Super and deduct adviser fees from members accounts”.

6. Prior to the trial, ASIC had not identified what it contended Diversa should have done in order to comply with its “do all things necessary to ensure …” obligation under s 912A(1)(a) and its “reasonable steps to ensure …” obligation under s 912A(1)(ca). ASIC nailed its colours to the mast in the course of trial.

7. At trial, ASIC stated that the action Diversa should have taken to satisfy its obligations under both provisions was to exclude the Bhandari Entities from using YourChoice Super in the way that the Bhandari Entities had been using (or, in ASIC’s submission, misusing) it. While ASIC framed what it said Diversa should have done in three ways — which I will come to — they amount to the same thing: Diversa should have cut the Bhandari Entities off so that they could no longer put their clients into YourChoice Super.

8. The first means identified by ASIC was “removing” the Bhandari Entities’ access to YourChoice Super. ASIC accepted Diversa took that step in March 2020. On 17 March 2020, Daniel Strachan (Account Executive at Diversa) sent Stephen Blood (then Executive General Manager (EGM) Superannuation Services and Group Chief Risk Officer at OneVue) the following email:

   Hi Stephen

   As you are aware over the last 6 months the Trustee has dealt with a number of matters relating to certain Dealer Groups registered to the OneVue platform which, among other services, provides their advisers and clients with access to YourChoice Super (a sub plan of the MAP Superannuation Plan). Below is an example of the work the Trustee has been involved with relating to these Dealer Groups: —

   22 January 2020 — Notice Issued under s30 of the Australian Securities and Investments Commission Act 2001

   22 January 2020 — Notice of Direction under s912C(l) of the Corporations Act 2001

   9 October 2019 — Complaint lodged by a YourChoice [member] following the consolidation of their Superannuation accounts with in[sic] YourChoice Super

   In addition to these examples there have been other regulator requests and complaints received prior to the last 6 months that have required a Trustee response. These matters have specifically related to the following Dealer Groups:

   -     Australian Lost Super Pty Ltd

   -     Financial Advisers Dealer Group Pty Ltd

   We understand these Dealer Groups are licensed to provide general advice, and usually receive a one off fee for consolidating members superannuation accounts in to[sic] one Fund. YourChoice Super is used to enable this consolidation along with the collection of the one off advisor fee from the member.

   The Trustees involvement in addressing the requirements listed above has allowed us to review the agreements, processes, operating model and actual scenarios in relation to the operations of these Dealer Groups.

   As a result of these investigations and review, the Trustee has formed the opinion that any access or authority of these Dealer Groups to join members to YourChoice Super and deduct adviser fees from members accounts should be removed. We would also request that a review of other Dealer Groups registered to the OneVue platform and with the authority to join new members to YourChoice Super be completed to identify Dealer Groups with similar operating models to those listed above. Details of these Dealer Groups should be provided to the Trustee for review.

   We would be happy to discuss the matter further to confirm any queries, concerns or timing of the actions required.

   Regards

   Daniel 

9. The subject of the email was “YourChoice Super — Dealer Group Requirements”. It was copied to Andrew Peterson and Josh Haymes. Andrew Peterson became a director of Diversa following its divestment from the OneVue Group at the end of June 2019. Diversa relied on the apparent involvement of a member of the board in relation to the issue of who had the authority to cut off the Bhandari Entities.

10. ASIC contended, however, that the issuing of the 17 March 2020 email was not sufficient as the Bhandari Entities continued to sign up members for some months after that email was sent. ASIC relied on an Excel file which recorded members being signed up to YourChoice Super with the adviser name “Nizi Bhandari” into September 2020.

11. The second means identified by ASIC was to ensure there was no access to the OneVue Platform.

12. The third means identified by ASIC was cutting off access or persuading OneVue to cut off the Bhandari Entities’ access to SuperMatch. As I have noted, it was access to SuperMatch that enabled the Bhandari Entities to conduct the search for “lost” super that founded the consolidation process by which their customers came to be issued interests in YourChoice Super.

13. I do not consider that the second and third means of putting a stop to the Bhandari Entities’ activities are qualitatively different from the first. Each was a means by which (on ASIC’s case) Diversa could and should have stopped the Bhandari Entities putting clients into YourChoice Super. They are but different means of “cutting off” the Bhandari Entities.

14. In my view, on 17 March 2020 Diversa gave an unequivocal direction to cut off the Bhandari Entities. I consider that the direction given extended to cutting them off from the OneVue Platform and from access to SuperMatch via that platform. Cutting the Bhandari Entities off is exactly what ASIC contended Diversa should have done from the start of the Relevant Period, in order to comply with its obligations under s 912A(1)(a) and s 912A(1)(ca). The fact that effect was not given to Diversa’s direction promptly does not change the fact that the direction was given, and was given in unequivocal terms. Diversa did, on 17 March 2020, exactly what ASIC contended it should have done from the start of the Relevant Period.

15. It is important to note that ASIC did not contend that Diversa could or should have done more to ensure its instruction was acted on more promptly. ASIC did not seek to expose or pursue the causes of the delay in Diversa’s instruction being implemented as part of its case. Rather, when asked what accounted for the delay, counsel for ASIC said the cause was unknown.

16. For these reasons, even if ASIC had made out its case prior to 17 March 2020 (which I conclude it has not), I do not consider that a civil penalty case could be sustained beyond 17 March 2020 when Diversa gave the instruction to cut the Bhandari Entities off. That is the date when Diversa did that which ASIC contended it had to do in order to comply with its obligations under s 912A(1)(a) and s 912A(1)(ca).

17. I will deal with two further, related, matters.

18. First, as noted above, ASIC identified December 2020 as the end point of the Relevant Period. ASIC did not explain how or why Diversa could be said to have contravened s 912A(1)(a) or s 912A(1)(ca) in the period between September 2020 (when members ceased being signed up to YourChoice Super under the Bhandari Entities’ adviser codes) and December 2020, when ADG sold the ASF business. It was never explained how or why Diversa was in contravention of its statutory obligations beyond the point at which effect had been given to Diversa’s instruction to cut off the Bhandari Entities.

19. Secondly, it should be noted that the documents suggest that Diversa’s decision to cut off the Bhandari Entities arose from concerns about the regulatory focus on general advice business models, complaints received, and management time taken up with issues associated with the Bhandari Entities, rather than a view having been formed about the various vices alleged by ASIC, or non-compliance by the Bhandari Entities, or the OneVue Entities, with their obligations as Licensees. An email from Mr Blood to Mr Strachan on 24 March 2020 said he understood Diversa’s concerns “given the level of regulator interest in those business models”. Mr Blood went on to say:

    There has been no suggestion that those business models, if operated correctly, are not compliant. However, they have raised concerns, particularly with selling practice allegations and/or the level of fees.

20. In reporting on Diversa’s decision internally at OneVue, Mr Blood said (in an email dated 24 March 2020) that Diversa had made a “risk based decision that those adviser groups whose business model is to find and consolidate super accounts, under a general advice model, is now outside their risk appetite” (emphasis in original). Mr Blood reported that Mr Strachan had confirmed that Diversa had not made the decision on a compliance basis. Mr Blood told his colleagues: “I don’t see that the Trustee decision can be effectively challenged. It has been made on facts and a reasonable basis”. Mr Blood then made enquiries with a colleague about working to implement Diversa’s decision.

    DIVERSA’S COMPLAINTS ABOUT ASIC EXPANDING ON, AND DEPARTING FROM, ITS PLEADED CASE

21. On 6 June 2023, Diversa’s solicitors wrote to ASIC and asked for particulars of FASOC [34A] and [42(i)]–[42(k)]. ASIC’s response was delivered on 3 July 2023 along with ASIC’s written submissions. It was ASIC’s submissions that introduced, for the first time, the list of 11 “vices” in the Bhandari Entities’ conduct. The Further and Better Particulars (FBPs) delivered by ASIC on 3 July 2023 ran to 30 pages. The FBPs and submissions were delivered ahead of a trial scheduled to commence (and which did commence) on 31 July 2023. In its written submissions, delivered on 19 July 2023, Diversa complained that ASIC’s FBPs and written submissions impermissibly expanded the case outside the bounds of ASIC’s pleaded case. The list of matters said to have been alleged, for the first time, by ASIC on 3 July 2023 was set out in an annexure to Diversa’s submissions. It was a long list. ASIC responded with a document that set out the pleading references it relied on, which launched the reader on a merry trail of cross-references.

22. After the conclusion of the hearing (and with the court’s permission), Diversa submitted a further document in which it set out the ways in which it considered ASIC had departed from its pleaded case. This document included, but was not confined to, the complaints advanced before the hearing. ASIC then responded with a document that addressed Diversa’s further complaints and then again set out a series of 21 sets of pleading references and references to its FBPs. To the extent that ASIC’s response relied on the FBPs, it failed to engage with Diversa’s complaint that the provision of such extensive particulars, which advanced new allegations, could not fairly be delivered so close to the trial (despite Diversa having requested particulars of some allegations that had hitherto been unparticularised).

23. It would try the reader’s patience (and sanity) for these reasons to proceed by attempting to unpick each of the 21 sets of pleading references (including their internal cross-references) to explore to what extent each matter complained of by Diversa had been fairly raised by ASIC or, if not raised before, whether that matter could fairly be raised so late. I will address some key matters arising from the complaints at a more general level but, before doing so, note that the failure of both parties to raise this matter squarely and have it resolved before the trial left the court in the difficult position of proceeding with a trial run on uncertain foundations.

24. As will become apparent, save in some respects below where I have found that the contentions ASIC advanced at trial did go beyond the case it pleaded and articulated in its submissions, the matters raised by Diversa have not turned out, as my reasoning proceeds, to be material to the outcome. In particular, I have found that the matters known by Diversa did not reveal the “vices” contended for such that, in order to comply with its obligations under s 912A(1)(a) and s 912A(1)(ca), Diversa ought to have cut off the Bhandari Entities. Accordingly, it is not necessary or productive to attempt to trace through whether the “vices”, as they were articulated in ASIC’s submissions and aides memoire, were anchored in the pleaded case in all respects. That said, and while my discussion of what Diversa knew considers whether the “vices” alleged by ASIC were known by Diversa, I have, in assessing whether ASIC ultimately made out its case, considered the case against the allegations advanced in the FASOC.

25. To the extent that a number of matters that Diversa has raised relate to contentions advanced about the suitability of the YourChoice Super product for the clients of the Bhandari Entities (as distinct from complaints about the Bhandari Entities’ processes), for reasons which I detail below, I do not consider such issues assist ASIC in its case in circumstances where the Bhandari Entities promoted YourChoice Super on a general advice model, and ASIC did not set out to establish that the features of the YourChoice Super product were objectively inferior to other products on the market.

26. To the extent that the matters raised by Diversa relate to the asserted vulnerability of the clients of the Bhandari Entities by reference to the hardship claims, that matter has always been a feature of ASIC’s case (and is addressed in detail below).

27. Diversa also raised ASIC’s late reliance on the records of calls between the Bhandari Entities and their clients and other customer-related documents in the FBPs. The actual content of client interactions was not a feature of ASIC’s case before delivery of the FBPs. Nor had ASIC advanced a case that suggested that Diversa ought to have been aware of the contents of those calls or client documents. When a case delves into actual client interactions, it becomes important for the responding party to be able to examine the interactions and characteristics of the client fully in order to answer the allegations. Clearly, that could not occur where ASIC delivered over six pages of particulars referring to client interactions so late in the piece.

28. In any event, ASIC only referred briefly, and in a very limited way, to the transcripts of calls with one customer during the hearing and did so on the basis that Diversa’s objection to the tender of the call transcripts remained on foot. For reasons that remain unexplained, after the conclusion of the hearing, Diversa withdrew its objection to the tender of the call transcripts. Be that as it may, given the way ASIC put its case, the actual content of the calls between the Bhandari Entities and their customers did not (to the limited extent the calls were even touched on by ASIC in its submissions) advance its case for the reasons already noted. ASIC did not seek to establish that the content of the calls reflected any standard operating procedure such that those in evidence constituted proof of the likely content of interactions between the Bhandari Entities and the wider group of its clients. Nor did ASIC contend that Diversa was, or should have been, aware of the content of the calls. In short, the call transcripts had no clear forensic place in ASIC’s case.

29. The penultimate point I will note is that, in many (but not all) instances, ASIC’s note setting out how it contended the matters about which Diversa complained had been raised in its FASOC and FBPs involved trying to shoehorn certain matters into pleaded allegations. For example, ASIC submitted that the risk that the Bhandari Entities engaged in misleading or deceptive conduct because the dominant message was that the superannuation balances would grow was sufficiently pleaded at FASOC [34(c), (d)] and FBPs [2(b)(i), (ii), (iii) and (v)]. Those paragraphs of the FASOC cited simply plead matters about ASF’s website, and its claims about conducting a free superannuation search, which were then used to encourage the person to become a customer and open a YourChoice Super account. Nothing was said about superannuation being grown in the FASOC; rather, this matter was only, belatedly, raised in the FBPs.

30. Similarly, FASOC [34(g)] was said to be the pleaded basis (along with some paragraphs of the FBPs) for the contention that there was a risk that the Bhandari Entities engaged in misleading or deceptive conduct and/or provided inappropriate or deficient general advice because for some customers it was not a temporary consolidation account. The paragraph of the FASOC relied on only stated that, once the customer agreed, they were signed up to YourChoice Super as a temporary consolidation account. Nothing was said until the FBPs about that not being the actual use for some customers, or that there was anything significant about that. In any case, the FBPs that ASIC relied upon in support of the contention above were not particulars of FASOC [34(g)]. Rather, they were particulars of FASOC [34A] and FASOC [42(i)]. Nor were those FBPs cast in such a way as to directly connect them to FASOC [34]. The consequence of this is that, even with the benefit of the FBPs, it would be difficult for one to discern the pleaded “matter” in FASOC [34] that presented the “reason” ASIC contended that for some customers the YourChoice Super account was not a temporary consolidation account. In other words, the FBPs did not expose the relevance of FASOC [34(g)] to the contention that there was a material risk the Bhandari Entities engaged in misleading or deceptive conduct and/or provided inappropriate or deficient general advice because for some customers it was not a temporary consolidation account.

1. The final point is that ASIC brought this proceeding as a civil penalty proceeding, and sought, inter alia, declarations that Diversa had contravened ss 912A(1)(a) and (ca) of the Corporations Act, and pecuniary penalties in respect of the alleged contraventions. I have referred above to the need for civil penalty cases to be advanced with clear and consistent allegations. That was not a feature of ASIC’s case in this instance.

   JONES V DUNKEL INFERENCES

2. ASIC invited the court to draw adverse Jones v Dunkel inferences against Diversa on the basis that Diversa did not call any witnesses, and in particular it did not call Mr Blood.

3. There are two problems with this submission. First, after the divestment of Diversa, Mr Blood was no longer in Diversa’s “camp”. There is an obvious potential conflict between the interests of Diversa and those of the remaining OneVue Group entities. Secondly, inferences pursuant to the principles set out in Jones v Dunkel (1959) 101 CLR 298 are not drawn at large and do not fill in shortfalls in the evidence. Rather, the failure of a party to call a witness may allow the court more comfortably to draw an inference that is available on the evidence: Lek v Minister for Immigration, Local Government and Ethnic Affairs (1993) 43 FCR 100 at 124 (Wilcox J), quoted by the Full Court (Gray, Rares and Tracey JJ) in Commonwealth v Fernando (2012) 200 FCR 1 at [117]. ASIC did not identify any particular available inferences that it submitted the court could more comfortably draw given the failure of Diversa to call any witnesses.

   ASIC’S ALLEGATIONS OF KNOWLEDGE

   ASIC’s allegations concerning knowledge at the start of the Relevant Period

4. ASIC’s pleading did not separately identify the knowledge Diversa is alleged to have actually acquired, and the matters that it ought to have known.

5. By its FASOC (at [42]), ASIC contended that, by the beginning of the Relevant Period, Diversa “knew or ought to have known” the following matters:

   (a)Mr Bhandari and ADG operated the ASF business;

   (b)customers were charged upfront adviser service fees for the consolidation service;

   (c)ADG was not authorised to provide personal financial product advice;

   (d)Mr Bhandari, ASF and ADG, having been engaged by the OneVue Entities, used YourChoice Super in the ASF business, and promoted, and signed up or rolled over customers to, YourChoice Super;

   (e)a very high number of financial hardship and other withdrawal claims were submitted on behalf of their customers;

   (f)it was likely that many customers were vulnerable and/or unsophisticated;

   (g)prior to their relationship with the OneVue Entities, Mr Bhandari, ADG and/or ASF had been asked to leave another Licensee, MLC, because of the way in which they conducted their superannuation aggregation business;

   (h)Mr Bhandari, ADG and ASF had used “dummy” email addresses to establish new YourChoice Super accounts;

   (i)there was at least a material risk that, contrary to the ADG AFSL, Mr Bhandari, ADG and ASF had provided personal financial product advice to customers in relation to YourChoice Super as part of the processes whereby customers were signed up or rolled over to a YourChoice Super account as a temporary consolidation account into which the customer’s superannuation would be consolidated, and/or agreed to make a financial hardship application;

   (j)Mr Bhandari, ASF and ADG were being asked questions by ASIC about their superannuation consolidation business;

   (k)there was at least a material risk that:

   (i)Mr Bhandari, ASF and ADG were engaging in misleading or deceptive conduct or conduct that was likely to mislead or deceive, in contravention of s 1041H of the Corporations Act and/or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act);

   (ii)Mr Bhandari, ASF and ADG were engaging in unconscionable conduct, in contravention of s 991A of the Corporations Act and/or s 12CB of the ASIC Act;

   (iii)ADG as Licensee was not doing all things necessary to ensure that the financial services covered by ADG’s AFSL were provided efficiently, honestly and fairly, in contravention of s 912A(1)(a) of the Corporations Act; and

   (iv)ADG as Licensee was not taking reasonable steps to ensure that its representatives complied with the financial services law, in contravention of s 912A(1)(ca) of the Corporations Act;

   (l)by reason of the above matters (alone or in combination), there was at least a material risk that ADG and Mr Bhandari gave or purported to give general financial product advice to customers about YourChoice Super which was inappropriate, further or alternatively was deficient, further or alternatively strayed into personal financial product advice; and

   (m)by reason of the above matters (alone or in combination), Diversa was issuing interests in YourChoice Super to customers, in circumstances where there was at least a material risk that they were misinformed and prejudiced by the conduct of Mr Bhandari, ADG and ASF.

6. As to the last of these matters — the risk that customers were misinformed and prejudiced by the conduct of Mr Bhandari, ADG and ASF — ASIC referred to FASOC [34] and [34A]. FASOC [34A] pleaded that ADG and Bhandari gave or purported to give customers general financial product advice where that advice was inappropriate or deficient, or strayed into personal financial product advice. The giving of such deficient general financial product advice, and the straying into personal financial product advice, was said to arise from the following matters, pleaded at FASOC [34]:

   (a)the website of ASF, which offered a “free super search” if the customer entered certain details, which would then enable the Bhandari Entities to contact the person and encourage the person to become a customer, to open a YourChoice Super account and to transfer their existing superannuation balances in existing funds and any superannuation held by the ATO into that account;

   (b)customers being encouraged to make decisions about superannuation during the course of telephone calls or engagement with ASF’s website;

   (c)once customers were signed up or rolled over into a YourChoice Super account, they became liable to pay substantial fees, including fees associated with the YourChoice Super account and upfront consolidation service fees;

   (d)customers not being informed or sufficiently informed that they could access the results of their free super search without opening a YourChoice Super account which would expose them to fees and charges;

   (e)there was no sufficient or prominent communication to customers that the closing of their existing superannuation accounts would have resulted in a loss of any insurance benefits attached to those accounts;

   (f)many customers had applications submitted on their behalf for withdrawal of monies, including on the basis of financial hardship; and

   (g)a very high number of financial hardship and other withdrawal applications were submitted on behalf of customers of the Bhandari Entities.

7. ASIC also pleaded (FASOC [43]) that the OneVue Entities had actual or constructive knowledge of the same matters prior to the start of the Relevant Period, and that their knowledge was to be attributed to Diversa pursuant to s 769B(3) of the Corporations Act, or because the OneVue Entities were under an express or implied duty to inform Diversa of those matters. However, as explained below, ASIC did not, at trial, advance its attribution case at common law based on a duty to inform. Rather, it confined its attribution case to attribution of the knowledge of the OneVue Entities to Diversa under s 769B(3).

8. ASIC further pleaded (FASOC [44]) that ADG and Mr Bhandari knew or ought to have known of the same matters prior to the start of the Relevant Period, and that their knowledge was to be attributed to Diversa on the basis that:

   (a)ADG and Mr Bhandari acted, in relation to YourChoice Super, “at the direction or with the consent or agreement (whether express or implied) of the OneVue Entities, given within the scope of their actual or apparent authority as agents of Diversa”; and

   (b)accordingly, the state of mind of ADG and Mr Bhandari was to be attributed to Diversa under ss 769B(3) and 769B(1)(b) of the Corporations Act.

9. However, at trial, ASIC did not press its case on attribution of the knowledge of the Bhandari Entities to Diversa. Accordingly, I regard ASIC as having abandoned that aspect of its pleaded case.

   ASIC’s allegations concerning knowledge during the Relevant Period

10. As to the period after the start of the Relevant Period, ASIC contended that Diversa came to know, or ought to have known, additional matters: FASOC [45]. In other words, Diversa accumulated further actual or constructive knowledge such that, even if it was not in contravention of its s 912A(1)(a) and s 912A(1)(ca) obligations from the start of the Relevant Period, it contravened those provisions as its knowledge of issues with the Bhandari Entities’ business and conduct grew.

11. The additional matters pleaded by ASIC were as follows:

    (a)(from at least August 2019) that the Bhandari Entities were charging high fees, including fees that were excessive relative to the members’ account balances;

    (b)(from at least August 2019) that the closure of many customers’ initial accounts (in connection with the consolidation into the YourChoice Super account) “would have resulted in a loss of insurance benefits attached to those accounts”;

    (c)(from at least August 2019) that hardship (and other) withdrawals continued to be processed;

    (d)(from at least October 2019) that Mr Bhandari, ASF and ADG submitted a withdrawal request containing a false certification by re-using a signature;

    (e)(from at least 5 March 2020) that:

    (i)a customer had complained to the AFCA concerning the sales tactics and fees of the Bhandari Entities; and that

    (ii)ADG and Mr Bhandari’s practice in handling customer complaints was to refund the customer to prevent escalation; and

    (f)(from at least 17 March 2020) that the use of the “SuperMatch” service by the Bhandari Entities resulted in the ATO’s revocation of the OneVue Platform’s access to that service.

12. ASIC’s case on the attribution of the actual and constructive knowledge of the OneVue Entities and the Bhandari Entities was pleaded on the same basis as the attribution of knowledge to the start of the Relevant Period: FASOC [46]–[47]. Again, ASIC did not press its case regarding attribution of the knowledge of the Bhandari Entities at trial, and confined its case on attribution of the knowledge of the OneVue Entities to attribution under s 769B(3).

    ASIC’s aides memoire on knowledge

13. In the course of the trial, ASIC provided three aides memoire. One constituted a consolidated aide memoire on the attribution of knowledge, which identified the documents said by ASIC to show the knowledge of various persons, aligned each such document with the vices said to be exposed by the document, and stated whether the knowledge was said to be that of Diversa, OneVue, and/or Mr Blood. A further aide memoire contained the subset of documents said to show the knowledge of Diversa over the whole of the Relevant Period. The final aide memoire contained a subset of the documents said to show the knowledge of Mr Blood up until 30 June 2019, being the date when Diversa was divested out of the OneVue Group.

    KNOWLEDGE AND ATTRIBUTION OF KNOWLEDGE

    Overarching issues

    The end point of relevant knowledge: 17 March 2020

14. The first point to make is that I do not have regard to events post-dating 17 March 2020. For the reasons set out above, I consider that to be the latest date on which Diversa could have contravened s 912A(1)(a) and s 912A(1)(ca), having regard to ASIC’s case on what it was that Diversa should have done, in order to comply.

15. I will first consider the knowledge that Diversa had on its own account, as distinct from the knowledge of the OneVue Entities that ASIC contended should be attributed to Diversa.

16. Identifying Diversa’s knowledge brings attention to the personnel involved. I will treat those who had specific roles with Diversa (as distinct from other companies in the pre-divestment OneVue Group) as employees of Diversa, while acknowledging that it was not clear which entity formally employed each person (which is not uncommon in a group setting).

    Whether s 769B(3) is applicable at all

17. In broad outline, ASIC’s case was that, because Diversa knew or ought to have known of various matters, by failing to stop permitting the Bhandari Entities to arrange for customers to become members of YourChoice Super, Diversa breached the obligations imposed by s 912A(1)(a) and s 912A(1)(ca). ASIC structured its pleaded case on knowledge by reference to the actual and constructive knowledge of Diversa, and the actual and constructive knowledge of the OneVue Entities (which it said was to be attributed to Diversa). As I have noted above, the plea that the knowledge of the Bhandari Entities was to be attributed to Diversa was not pursued at trial.

18. ASIC relied on the statutory attribution provision (s 769B).

19. Section 769B(3) provides as follows (emphasis added):

    (3)If, in a proceeding under this Chapter in respect of conduct engaged in by a body corporate, it is necessary to establish the state of mind of the body, it is sufficient to show that a director, employee or agent of the body, being a director, employee or agent by whom the conduct was engaged in within the scope of the person’s actual or apparent authority, had that state of mind. For this purpose, a person acting as mentioned in paragraph (1)(b) is taken to be an agent of the body corporate concerned.

20. Section 769B(3) is to be read with s 769B(10)(b), which provides that “a reference to conduct is a reference to an act, an omission to perform an act, or a state of affairs” (emphasis in original) and s 769B(10)(c), which provides that “a reference to the state of mind of a person includes a reference to the knowledge, intention, opinion, belief or purpose of the person and the person’s reasons for the person’s intention, opinion, belief or purpose” (emphasis in original).

21. Diversa’s starting point was that s 769B(3) did not apply as s 912A(1)(a) and s 912A(1)(ca) are not provisions the contravention of which involves a mental element. It then contended that, in any event, s 769B(3) would not assist ASIC as the provision operates where there is an identified person who engaged in the relevant conduct (which includes an omission) and the same person had the mental state in question. Diversa contended that ASIC had not established that any particular person had both the knowledge and the power to cut the Bhandari Entities off, such that the mental state and engagement in conduct rested with the same person.

22. Diversa also contended that s 769B(3) could not be used to attribute constructive knowledge, describing ASIC’s proposition that it can as “novel and unsupported by the text of the Act or any authority”.

23. Whether or not a Licensee has done “all things necessary to ensure” that financial services covered by its licence are provided efficiently, honestly and fairly (s 912A(1)(a)) or has taken “reasonable steps to ensure that its representatives comply with the financial services laws” (s 912A(1)(ca)) will depend on the factual context in which the alleged contravention is said to have occurred. The range of matters that constitute the factual context will vary from case to case. In many cases (including the present matter), what the Licensee knew will constitute part of the relevant factual context. It may be “necessary to establish” state of mind as factual context, even if there is no distinct mental element to the contravention.

24. Accordingly, I do not accept Diversa’s submission that s 769B(3) cannot apply because there is no statutory mental element to establishing a contravention of s 912A(1)(a) or s 912A(1)(ca). While there is no mental element of the contravention, knowledge constitutes relevant factual context.

    Whether s 769B(3) can apply where the state of mind is not held by the same person who engaged in the conduct

25. My conclusion that s 769B(3) may apply to cases brought under s 912A(1)(a) and s 912A(1)(ca) does not mean that the section will necessarily be effective to establish the knowledge of a Licensee, particularly a corporate Licensee, when a contravention of s 912A(1)(a) or s 912A(1)(ca) is alleged.

26. As Diversa’s submissions highlighted, s 769B(3) anticipates that there will be an identifiable director, employee or agent who engaged in specific conduct (which may be constituted by an omission) and whose state of mind may be ascertained and attributed. In some cases, a contravention of s 912A(1)(a) or s 912A(1)(ca) may arise from the actions (or omissions) of identified individuals, but in many other s 912A(1)(a) and s 912A(1)(ca) cases involving corporate Licensees, the contravention will be said to arise from the failure of the corporation to do certain things. That much is obvious given s 912A(1)(a) requires a Licensee to “do all things necessary” and s 912A(1)(ca) requires a Licensee to “take reasonable steps to ensure”. Necessarily, an alleged contravention of either of those provisions will point to a failure to do something.

27. The failure of a corporate Licensee to do something will be established by proving that the thing was not done. In that way, there is no need to rely on the attribution of the conduct of one or more individuals to prove that matter. In other words, it will not be a necessary or useful enquiry to embark on identifying the particular directors, employees or agents of the body corporate who failed to do that thing. Yet the identification of specific conduct (acts or omissions) of identified directors, employees or agents is an integral step in applying s 769B(3).

28. The state of mind that is attributed by s 769B(3) is the state of mind of the director, employee or agent who engaged in the conduct in question.

29. In Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421 (Kojic), Edelman J (then a judge of the Federal Court of Australia) considered s 84 of the former Trade Practices Act 1974 (Cth) (Trade Practices Act), which was in similar terms to s 769B(3). His Honour observed (at [110], emphasis added):

    It is possible, although unnecessary to decide in this case, that although s 84 is generally broader than the common law rules of attribution, is a narrower rule in one respect. That respect, considered in detail later in these reasons, is the lack of a requirement in cases of fraud for the person who makes the representation to be the same person who knows of the fraud. If s 84 means that attribution to the corporation requires the conduct to have been committed by the same person who has the relevant state of mind then it would be narrower than the common law in this respect.

30. While Edelman J pointed out that the statutory attribution provision may be narrower than the common law rule in cases of fraud, this proceeding does not involve fraud, or allegations of unconscionable conduct (as did Kojic).

31. More to the point, in my view, s 769B(3) simply cannot be construed so as to attribute the state of mind of an agent when the agent’s conduct is not the conduct in respect of which it is relevant to establish the state of mind. Section 769B(3) operates to attribute conduct of certain persons, and the state of mind of those same persons. The language of s 769B(3) is specific. It begins by referring to a proceeding “in respect of conduct engaged in by a body corporate”. When the provision then refers to the “director, employee or agent by whom the conduct was engaged in”, it can only be referring to the conduct which is the subject matter of the proceeding. The section also only attributes the state of mind of the director, employee or agent “by whom the conduct was engaged in”.

1. ASIC’s written submissions referred, in fairly brief terms, to APRA’s Outsourcing Standard, Diversa’s outsourcing policy, Diversa’s obligations under its AFSL, Diversa’s monitoring role under the Promoter Agreement and certification to the ATO regarding risk processes being in place to monitor access to SuperMatch for fraudulent or inappropriate usage. These matters were then said to establish that Diversa “could not turn a blind eye” to how its YourChoice Super product was to be promoted. ASIC’s written submissions only took issue with the quarterly reports provided to Diversa and compliance attestations received by Diversa on the basis that they “did not address the vices in the way in which YourChoice Super was promoted, customers were signed-up and funds then withdrawn”. ASIC submitted that such controls that were in place did not prevent the Bhandari Entities’ conduct in relation to YourChoice Super, which only stopped when the business was sold in December 2020 (or the other, earlier dates identified by ASIC in the alternative).

2. Importantly, ASIC’s submissions on how it was that Diversa engaged in the first alleged contravention of s 912A(1)(a) did not pursue the pleaded case concerning Diversa’s “conduct and omissions”, as pleaded and referred to above, beyond submitting that monitoring obligations were imposed on Diversa by outsourcing agreements and that that supported its case that Diversa ought to have known of the alleged “vices”. The position is the same in respect of the second alleged contravention of s 912A(1)(a), and the alleged contravention of s 912A(1)(ca). While ASIC’s submissions pointed out that Diversa’s suite of controls did not prevent the Bhandari Entities’ conduct, a contravention of s 912A(1)(a) is not — at least in this case — made out on any res ipsa loquitur type of reasoning.

3. The only other point at which ASIC referred back to a subset of its “conduct and omissions” pleas (FASOC [59], [60(c)], [62] and [64]) was in its post-trial note addressing complaints raised by Diversa concerning (relevantly to this point) ASIC having expanded its case by its oral reply submissions. I have, however, already addressed the point made by ASIC in its reply submissions and set out why it is that the submissions made related to issues concerning aggregation of knowledge. ASIC did not run at trial a case that contended that a contravention of s 912A(1)(a) arose due to a failure to escalate concerns.

   THE SECOND ALLEGED S 912A(1)(A) CONTRAVENTION: PROVISION OF ADVICE

4. ASIC’s case on the second alleged contravention was that Diversa breached s 912A(1)(a) because it failed to do all things necessary to ensure that the general advice in respect of YourChoice Super was provided by the OneVue Entities efficiently, honestly and fairly.

5. ASIC contended that the alleged failure of the OneVue Entities to provide general advice efficiently, honestly and fairly resulted in Diversa breaching its obligations on the basis that the financial service of providing general advice in respect of YourChoice Super was a service that was “covered” by Diversa’s AFSL, even though Diversa did not itself provide general advice. Diversa’s AFSL authorised it to provide general financial advice about superannuation products. On ASIC’s case, “it does not matter whether the service was provided by the licensee itself, or by another licensee”. ASIC contended that, where the services in question are provided by another Licensee, the responsibility under s 912A(1)(a) is “carried and shared by both licensees”.

6. Section 912A(1)(a) refers to “services provided”. ASIC submitted that the use of the passive voice, and the fact that the section does not specify who is to provide the services, supported its construction. ASIC also pointed to the absence of express words limiting the obligation to the Licensee providing the service as indicative of an intention that the provision operate more widely. In its written submissions, ASIC suggested that as long as “a service is covered by the licensee’s AFSL, the licensee is obliged to do all things necessary to ensure that the service is provided efficiently, honestly and fairly” regardless of whether the Licensee is themselves providing the service. In those circumstances, ASIC contended that Diversa was required to ensure that the OneVue Entities provided general advice in respect of YourChoice Super efficiently, honestly and fairly.

7. Perhaps mindful of the absurdity of any suggestion that one Licensee could be liable for a contravention of s 912A(1)(a) based on the conduct of another, independent Licensee with which the first Licensee had no relationship, ASIC fixed on “delegation” as the necessary and sufficient nexus between the activities of the two Licensees. ASIC submitted that s 911B(3) (emphasis added):

   does not exempt Diversa from the obligation to do all things necessary to ensure that the service is provided by the delegate efficiently, honestly and fairly.

8. ASIC expanded on the submission and the foundation for the alleged delegation as follows (emphasis added):

   Diversa delegated the provision of general advice to OneVue Super and OneVue Wealth (Diversa’s agents), under the Administration Agreement, the Platform and Custody Services Agreement and the Promoter Agreement. Under those agreements, OneVue Super and OneVue Wealth were responsible for interactions with prospective customers about matters such as signing-up to YourChoice Super, and with existing customers about matters such as whether to withdraw from YourChoice Super. 

9. Diversa contended that the proper construction of s 912A(1)(a) does not extend to “services provided on behalf of a licensee by a person who has their own license … as those services are covered by the license of the person who is actually providing the service” (emphasis in original).

10. In my view, ASIC’s case fails for two independent reasons.

11. First, the only sensible construction of s 912A(1)(a) is that it operates in relation to financial services provided by the Licensee.

12. Where the service is provided by another Licensee who has its own AFSL, s 911B(3) provides that “for the purposes of the other provisions of this Chapter, the service is taken to be provided by the provider (and not by the principal) unless regulations made for the purposes of this subsection provide otherwise”. The effect of that provision on the facts of this case is that if (and assuming for present purposes that) the OneVue Entities provided general financial advice, and that they did so “on behalf of” Diversa, those services were provided by the OneVue Entities, and not by Diversa.

13. One Licensee may provide services on behalf of another Licensee if the first Licensee has an AFSL “covering the provision of the service”: s 911B(1)(d). Contrast the circumstance where the person providing financial services on behalf of a Licensee does not have its own AFSL. Pursuant to ss 911B(1)(a)–(c), one of the criteria is that the principal holds an AFSL “covering the provision of the service”. That requirement is absent from s 911B(1)(d), which applies where the provider has its own AFSL. In that circumstance, the service is provided by the first Licensee pursuant to its AFSL.

14. Section 911B(3) is a significant provision. It identifies clearly, and for the operation of all other provisions of the chapter, just who it is who is providing the financial service. That provision works with other provisions so that the provision of those services by that Licensee is subject to the array of provisions that make up the AFSL regime. As I have set out above in describing the statutory scheme, the provisions knit together and function based on whose AFSL is being used to authorise the provision of the services in question.

15. Where the person performing the financial service has its own AFSL, its AFSL is “in play”. If that person is performing services as “representative” of another Licensee, the second Licensee will still be subject to the “reasonable steps” obligations imposed by s 912A(1)(ca). But the second Licensee will not, in that situation, be liable under s 912A(1)(a) for any failure of the Licensee who actually performs the service to adhere to its own obligations under s 912A(1)(a).

16. Against these considerations — which, in my view, compel a conclusion to the contrary of ASIC’s construction — I do not consider that the use of the passive voice, and the failure of s 912A(1)(a) to expressly refer to who is providing the service, suggest that the construction for which ASIC contends is correct. Read in its context, and having regard to the scheme of provisions within which s 912A(1)(a) sits, it is clear that the preferable construction is one which imposes the obligation on the Licensee actually providing the service.

17. ASIC did not contend that Diversa itself engaged in the financial service of providing general financial advice. ASIC accepted that, but for Diversa happening to have an AFSL which would have authorised it to provide general financial advice, there would be no contravention of the kind alleged. Viewed in this way, ASIC’s case involved applying s 912A(1)(a) to a Licensee in respect of services it did not even provide, simply because its AFSL would have authorised it to provide such services, had it chosen to do so. On ASIC’s case, even if the activities of, and arrangements between, Diversa and the OneVue Entities were precisely the same as they were in this case, but it just so happened that Diversa’s AFSL did not authorise it to provide financial advice, no contravention would arise. I do not accept that a contravention of a civil penalty provision can be founded on such happenstance.

18. Secondly, ASIC has not established that the OneVue Entities provided general financial advice.

19. As noted above, ASIC contended that Diversa “delegated” the provision of general advice to Super and Wealth under three agreements. ASIC submitted that, under those agreements, Super and Wealth were “responsible for interactions with prospective customers about matters such as signing-up to YourChoice Super, and with existing customers about matters such as whether to withdraw from YourChoice Super”.

20. Counsel for ASIC accepted that it was not “in terms” part of any of the agreements with the OneVue Entities for them to provide general advice, but supported its submission that Diversa delegated the provision of general advice to the OneVue Entities by pointing to the Promoter Agreement — which provided for Wealth to market and distribute, inter alia, YourChoice Super — and to the fact that the OneVue Entities were responsible for distributing PDSs. In addition, ASIC referred to “consumer interactions” being referred to in the (inferred) service levels annexure to the Administration Agreement.

21. The tasks to be performed by the OneVue Entities under the Administration Agreement, the Promoter Agreement and the Platform and Custody Services Agreement involved, as ASIC submitted, “interactions” with members. However, in the absence of any evidence detailing what those interactions actually entailed, I am not satisfied that the OneVue Entities in fact provided financial product advice.

22. As defined by s 766B(1) of the Corporations Act, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that “is intended to influence a person or persons in making a decision in relation to a particular financial product or …. could reasonably be regarded as being intended to have such an influence”. ASIC did not establish that interactions of the kind that those agreements anticipated involved the OneVue Entities making any “recommendations” or “statements of opinion” at all, let alone recommendations or statements of opinion that would have the characteristics necessary to render the interaction one involving the giving of financial product advice.

23. While each of these two bases results in ASIC’s case on this ground failing, there is another issue. ASIC did not contend that there was anything wrong with the way in which the OneVue Entities provided general financial advice (assuming they did so, which ASIC did not establish). The only deficiencies, again, were said by ASIC to arise from the conduct of the Bhandari Entities. In substance, ASIC’s case on this contravention involved a contention that Licensee A breached its s 912A(1)(a) obligations because Licensee B also breached its s 912A(1)(a) obligations when Licensee B provided general product advice, but the only vices identified were those associated with how Licensee C performed its services. The case was muddled and, in my view, contrived.

24. During the hearing, I explored with counsel for ASIC how it brought home issues with the performance of services by the Bhandari Entities to the OneVue Entities in its alleged provision of general advice. I understood ASIC to rely on two matters. The first was that the Bhandari Entities were considered by the OneVue Entities to be “promoters”, despite the absence of any instrument of appointment. In that regard, I note that ASIC relied on an email from December 2018 that attached a template “POI Appointment of Promoter”. That template was circulated by Andrew Loveridge (of Diversa), following a request from Brett Marsh at OneVue, which said:

    Andrew

    Do you have requirements for promoter due diligence? If so, can you forward.

    We are looking at Nizi and his request to access margin which would require some promotion activities.

    We are looking at a range of options but want to be sure of a position before we go back with something.

25. There is no evidence this appointment was progressed. The only document in evidence that relevantly provides a contractual link between the OneVue Entities and the Bhandari Entities is the “OneVue Platform Dealer Group Registration” form.

26. While ASIC relied on the email just referred to on the basis that it showed that OneVue was referring internally to the Bhandari Entities as promoters, all that document records is that Mr Bhandari had requested to “access margin”. Whatever that meant, it appears that “accessing margin” would require some “promotion activities”. The document does not even show Mr Bhandari or the Bhandari Entities being referred to internally within the OneVue Entities as promoters.

27. The second matter that ASIC relied on was that Diversa had certain actual and constructive knowledge about how the Bhandari Entities were giving general advice (notwithstanding the absence of formal agreements tying the Bhandari Entities back to the OneVue Entities). ASIC submitted that the analysis could not be limited to formal agreements, but needed to look at the fact that it was the Bhandari Entities who were giving advice. ASIC relied on the fact that “what Diversa knew or ought to have known was that the people on the ground actually doing the giving of advice were the Bhandari [E]ntities”. This drew an objection from counsel for Diversa that a case to the effect that advice was given by the Bhandari Entities had been abandoned. I have referred above to the relevant plea that was abandoned by ASIC. Diversa was correct to submit that ASIC abandoned a case which was based on advice having been given by the Bhandari Entities (cf by the OneVue Entities).

    THE ALLEGED CONTRAVENTION OF S 912A(1)(CA): DIVERSA’S ALLEGED REPRESENTATIVES

28. ASIC’s case regarding this alleged contravention was that Super and Wealth were Diversa’s “representatives” and Diversa did not take reasonable steps to ensure that its representatives complied with their own obligations to comply with s 912A(1)(a). The OneVue Entities were said to be Diversa’s “representatives” under s 910A because they “‘acted on behalf of’ Diversa in the administration and promotion of YourChoice Super, and were responsible for interactions with prospective and existing members of the fund”. ASIC submitted that, while “on behalf of” (which includes acting “on the instructions of”, pursuant to the definition of “on behalf of” in s 9), is a wider concept than that of agency, Super and Wealth nevertheless acted as Diversa’s agents.

29. The argument, then, was that Diversa failed to meet the requisite minimum standard because it knew, or ought to have known, that there was at least a risk that Super and Wealth were themselves not complying with their s 912A(1)(a) obligations by reason of the activities and approach of the Bhandari Entities.

30. I accept that, as submitted by ASIC, a breach of s 912A(1)(ca) is not predicated on establishing an actual breach by the representative of its own obligations under the financial services laws: see, eg, Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) (2020) 377 ALR 55; [2020] FCA 69 (AMP) at [106] (Lee J); see also Australian Securities and Investments Commission v Financial Circle Pty Ltd (2018) 131 ACSR 484; [2018] FCA 1644 at [123] (O’Callaghan J). Rather, the obligation imposed on a Licensee is to take “reasonable steps” to ensure that its representatives comply with the financial services laws. As Lee J observed in AMP, a “reasonable steps” obligation imposed on a Licensee (there, s 961L) focuses on the conduct of the Licensee, “not the provision of advice by representatives (being the conduct to which the best interests provisions are directed)”: AMP at [123] (see also at [106]). In the context of s 912A(1)(ca), the relevant point is that the ultimate focus must be on what the Licensee (here) did or did not do, and whether it complied with its “reasonable steps” obligations. Any examination of the conduct at the level of the putative representative must be directed to that ultimate enquiry.

31. Like the obligation imposed by s 912A(1)(a), the obligation imposed by s 912A(1)(ca) is primarily forward-looking, and concerned with systems and processes: AMP at [105] (Lee J); RI Advice at [393] (Moshinsky J). As Moshinsky J emphasised in RI Advice, a reasonable steps obligation does not require a Licensee to “find and to take the optimal steps”: at [392].

32. Nevertheless, an immediate, and fatal, flaw in ASIC’s case is that it has not established what financial services the OneVue Entities were in fact providing, in respect of which a risk of non-compliance with s 912A(1)(a) may have existed. While ASIC’s pleaded case (FASOC [70]–[71]) referred to financial services that were “covered” by the AFSLs held by the OneVue Entities, for reasons already canvassed, I do not accept that s 912A(1)(a) is concerned with services that may be offered (as distinct from services that are offered) by a Licensee. As I have set out above in relation to ASIC’s second alleged s 912A(1)(a) contravention, ASIC has not established that the OneVue Entities gave general financial product advice. While the particulars to ASIC’s case also referred to the AFSLs of the OneVue Entities authorising dealing in interests in YourChoice Super (including by applying for, acquiring, varying or disposing of a financial product on behalf of another person), ASIC did not establish that the OneVue Entities did engage in such dealing. ASIC accepted that the OneVue Entities did not issue interests in YourChoice Super, but simply said, without elaboration, “there are other forms of dealing”.

33. The second issue in ASIC’s case (assuming for present purposes that the OneVue Entities were Diversa’s representatives and performed financial services), is that it overlooks the systems and processes that Diversa had in place. Section 912A(1)(ca) requires that a Licensee take “reasonable steps”. Whether or not Diversa failed in that duty is a conclusion that can only be reached on a wholistic analysis that takes into account the full framework of Diversa’s contracts, policies and procedures.

34. As detailed in Diversa’s submissions, the relevant features of the relationship between Diversa and the OneVue Entities included that: the OneVue Entities each had their own AFSLs; the contracts under which they were to provide services included obligations to ensure that the services they were providing were provided properly and in accordance with applicable regulatory requirements; and the OneVue Entities did have a compliance function and were actively monitoring the Bhandari Entities.

1. In addition, the Administration Agreement and the Promoter Agreement required Super and Wealth to provide regular compliance reports, which were received by Diversa. The reports to be provided to Diversa under the Administration Agreement included reports on the incidents logged and how they had been resolved. Each report was to be accompanied by a compliance declaration attesting to compliance with relevant requirements in respect of each of the services provided under the Administration Agreement. Wealth provided similar compliance declarations in respect of the services it provided. These reports and attestations then fed up to the Board of Diversa by quarterly Compliance and Risk Management Reports. Diversa’s Outsourcing Policy included a range of provisions including provisions requiring that APRA be notified of outsourcing arrangements, the key risks involved in such arrangements, and the risk mitigation strategies put in place.

2. ASIC did not detail, as part of the presentation of its case, why these procedures did not constitute the taking of “reasonable steps”. Rather, ASIC’s argument was that:

   Diversa failed to meet the requisite minimum standard because during the Relevant Period, it knew or ought to have known that there was at least a risk that OneVue Super and OneVue Wealth — who as licensees were themselves bound by the obligation in s 912A(1)(a) — were not doing all things necessary to ensure that the financial services covered by their licence were provided efficiently, honestly and fairly …

3. At that point of its written submissions, ASIC referred to various features of the Bhandari Entities’ conduct and its impact on customers, before concluding as follows:

   Diversa unreasonably allowed those entities [Super and Wealth] to continue to outsource to the Bhandari Entities dealings with prospective and existing customers in relation to Diversa’s financial product, YourChoice Super, in circumstances where Diversa knew or should have known about the vices in [the] Bhandari Entities’ conduct.

4. There are a few reasons why this submission fails. One is that ASIC did not, in my view, establish that the OneVue Entities (or Wealth more specifically) “outsourced” dealings with prospective or existing customers to the Bhandari Entities. The Bhandari Entities had access, as did others, to the OneVue Platform, and could, through that platform, sign up their clients to be issued interests in YourChoice Super. But providing a platform of that kind does not necessarily involve “outsourcing” a function. In addition, the submission as set out above depended on the knowledge of Diversa, but if the vice lay in Diversa having knowledge and not stopping the OneVue Entities “outsourcing” to the Bhandari Entities, that does not establish a potential contravention of s 912A(1)(a) by the OneVue Entities. Rather, the case is simply a restatement of ASIC’s first case on contravention by Diversa of s 912A(1)(a).

5. The case was put on a different basis orally. In oral submissions ASIC directed attention not to Diversa’s knowledge of the problems associated with the conduct of the Bhandari Entities, but to the knowledge of the OneVue Entities. ASIC said it relied on its consolidated aide memoire “to say that the OneVue Entities knew or ought to have known of the vices in the Bhandari Entities’ conduct sufficient to give rise to a breach of the 912A(1)(a) obligation”. Put on this basis, the case involves some mental gymnastics as Diversa can only have contravened s 912A(1)(ca) due to the OneVue Entities continuing to deal with the Bhandari Entities notwithstanding what they (the OneVue Entities) knew, if Diversa itself knew that the OneVue Entities knew those matters. That takes the analysis back to ASIC’s case on the attribution of knowledge of the OneVue Entities to Diversa, which I have found was not made out.

6. To this point, I have set out independent bases on which, in my view, ASIC’s s 912A(1)(ca) case ought to fail even if the OneVue Entities were Diversa’s representatives. I should, however, and for completeness, deal with the allegation that the OneVue Entities were Diversa’s representatives, as defined by s 910A.

7. I have already addressed ASIC’s “agency” contention above. Based on those conclusions, the OneVue Entities were not Diversa’s representatives by virtue of being its agents. That leaves for consideration whether, if the agency contention fails, ASIC established that the OneVue Entities were Diversa’s representatives because they “acted on behalf of” Diversa by acting on the instructions of Diversa (s 910A definition of “representative”, as extended by the s 9 definition of “on behalf of”).

8. As stated above, ASIC’s written submissions contended that the OneVue Entities acted on behalf of Diversa “in the administration and promotion of YourChoice Super, and were responsible for interactions with prospective and existing members of the fund”. ASIC further submitted, in reference to the extended definition of acting “on behalf of” (which includes acting on the instructions of a person), that:

   We say that there was more than simply just instructing, more than acted on instruction of Diversa. Diversa here outsourced the entire operation of the fund to the OneVue entities.

9. I accept that the phrase “on behalf of” has no strict legal meaning and can embrace a wide range of relationships (Walplan Pty Ltd v Wallace (1985) 8 FCR 27 (Walplan) at 37 (Lockhart J)). In Lisciandro v Official Trustee in Bankruptcy (1995) ATPR 41-436; [1995] FCA 716, Kiefel J (as her Honour then was) referred to Lockhart J’s observation in Walplan but cautioned that “there is a limit to how loose the connection can be”, finding that the expression “still conveys that something is done ‘for’ the company … or something similar to ‘in the course of the body corporate’s affairs or activities’”: at 40,903–4. I also accept that “on behalf of” may encompass circumstances that may not qualify as “agency” relationships.

10. However, in my view, the submission as it was put by ASIC was altogether too superficial to be accepted. It overlooked the detailed web of mutual obligations on which Diversa’s arrangements with Wealth and Super were based. It also overlooked the many respects in which Wealth in particular, was in the “driver’s seat”, and Diversa was taking instructions from it.

    CONCLUSION

11. ASIC’s originating process will be dismissed with costs.

12. Had ASIC’s case succeeded, it would have been necessary to grapple with the injunctions sought by ASIC, and the orders sought under s 1101B(1). The relief sought was cast in terms that were, in many respects, impossibly vague (eg an outright ban on outsourcing absent “appropriate systems, policies and procedures …” and a direction that Diversa implement and maintain “appropriate systems, policies and procedures …”). However, given my conclusions on the substantive issues, it is not necessary to say anything more about the relief sought.

I certify that the preceding three hundred and eighty-eight (388) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Button.

Associate:

Dated:       24 October 2023