Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3)

[2015] NSWSC 1527

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527

Hearing dates:

3-5, 9-12, 19, 22 June 2015

Decision date:

15 October 2015

Jurisdiction:

Common Law

Before:

Sackville AJA

Decision:

1. If the plaintiff (ASIC) wishes to file written submissions as to the form of the orders proposed in this judgment (such submissions to be consistent with these reasons for judgment), or as to costs, it should do so within fourteen days.
2. If the defendant (Park Trent) wishes to file written submissions as to the form of the proposed orders (such submissions to be consistent with these reasons for judgment), or as to costs, or if it wishes to reply to ASIC’s submissions, it should do so within a further fourteen days.

Catchwords:

CORPORATIONS LAW - whether defendant contravened s 911A(1) of the Corporations Act 2001 (Cth) by carrying on a financial services business without a financial licence – defendant sold investment properties on commission – defendant’s marketing strategy incorporated advice about establishing self managed superannuation funds (SMSFs) and using SMSFs to purchase investment properties – advice included projections as to the returns that could be achieved through SMSFs – whether the defendant made recommendations or stated opinions as to beneficial interests in SMSFs – whether recommendations and opinions were intended to influence decisions in relation to financial products

REMEDIES – whether declaratory and injunctive relief should be granted in respect of contravention of s 911A(1) of the Corporations Act 2001 (Cth) – form of declaration and restraining order.

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth), s 33
Corporations Act 2001 (Cth), ss, 20, 761A, 761C, 764A, 765A, 766A, 766B, 911A, 911B, 1101B, 1311, 1312, 1324, 1332; Ch 7, Pt 7.6
Income Tax Assessment Act 1997 (Cth), s 995-1(1)
National Consumer Credit Protection Act 2009 (Cth), s 29
Superannuation Industry (Supervision) Act 1993 (Cth), ss 10, 17A, 19, 42A, 45, 67A
Superannuation Industry (Supervision) Amendment Act 2010 (Cth), sch 1 [8]
Trade Practices Act 1974 (Cth)

 

Corporations Regulations 2001 (Cth), reg 7.1.29

 

Civil Procedure Act 2005 (NSW), s 56(1), (2), (3)
Evidence Act 1995 (NSW), ss 97(1), 140
Property, Stock and Business Agents Act 2002 (NSW), s 8
Supreme Court Act 1970 (NSW), s 75

Estate Agents Act 1980 (Vic), s 12(2)

Cases Cited:

Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424
Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342; 105 ACSR 116
Australian Securities and Investments Commission v Fuelbanc Australia Ltd [2007] FCA 960; 162 FCR 174
Australian Securities and Investments Commission v Monarch FX Group Pty Ltd [2014] FCA 1387; 103 ACSR 453
Australian Securities and Investments Commission v Narain [2008] FCAFC 120; 169 FCR 211
Australian Securities and Investments Commission v Oxford Investments (Tasmania) Pty Ltd [2008] FCA 980; 169 FCR 522
Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 1) [2015] NSWSC 752
Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 2) [2015] NSWSC 782
Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; 90 ACSR 523
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336
Certain Lloyd’s Underwriters v Cross [2012] HCA 56; 248 CLR 378
Commodore Business Machines Pty Ltd v Trade Practices Commission (1990) 92 ALR 563
Corporate Affairs Commission v Transphere Pty Ltd (1988) 15 NSWLR 596
ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248
In the Matter of Idylic Solutions Pty Ltd; Australian Securities Investments Commission v Hobbs [2013] NSWSC 106
Jones v Dunkel [1959] HCA 8; 101 CLR 298
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA 13; 205 CLR 1
Mercedes Holdings Pty Ltd v Waters (No 2) [2010] FCA 472; 186 FCR 450
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355
Re PFS Wholesale Mortgage Corporation Pty Ltd; Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC 192; 57 ACSR 553
Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; 216 CLR 53
Sankey v Whitlam 1978 HCA 43; 142 CLR 1
Walker v Wimborne [1976] HCA 7; 137 CLR 1

Category:

Principal judgment

Parties:

Australian Securities & Investments Commission (Plaintiff)
Park Trent Properties Group Pty Limited (Defendant)

Representation:

Counsel:
EA Cheeseman SC / TO Prince / KS Anderson (Plaintiff)
J Hewitt (Defendant)

  Solicitors:
Australian Securities & Investments Commission (Plaintiff)
HWL Ebsworth Lawyers (Defendant)

File Number(s):

2014/331307

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

v PARK TRENT PROPERTIES GROUP PTY LTD (No 3)

INDEX

Paragraph
ASIC’s Pleaded Case	8
The Alleged Contravention	8
Relief Sought	13
Statutory Framework	18
Corporations Act	18
Superannuation Industry (Supervision) Act 1993 (Cth)	31
Amendments to the SIS Act	35
Preliminary Matters	38
Interlocutory Judgments	38
Standard of Proof	40
Park Trent’s Business Structure	44
The Corporate Structure	46
The Reporting Structure	52
Mr Cross’s Role	56
Park Trent’s Interest in SMSFs	62
Formulation of the Strategy	62
The Practical Results	72
The Marketing and Sales Process	78
The Eight Stage Approach	78
The Marketing of Seminars	82
Website	87
The Seminars	94
Conduct of the Seminars	94
The PowerPoint Presentations	97
Transcripts	105
Home Visits	112
Home Visits	113
Action After the Home Visit	118
Run Meeting	121
Borrowing Capacity Form	123
The Property Investment Analysis (PIA)	127
The Purpose of the PIA	137
Mr Pavatich’s Analysis	141
Park Trent’s Record Keeping and Documentation	146
The Property Management System	146
Standardised Documentation	151
The Investor Witnesses	155
Mr Davis (2012)	159
The Evidence	160
The Home Visits	168
The Run Meetings	174
The Documentation	182
Transfer of Superannuation	190
Forfeiture of the Deposit	194
Mr Sier (2011)	199
Mr Knight (2012)	210
Investor Witnesses Not Cross-Examined	228
Ms Ashwood (2012)	228
Mr Gray (2012)	240
Mr O’Driscoll (2012)	255
Mr Gillies (2013)	268
Mr Anand (2014)	280
Mr Helder (2014)	294
Ms Robinson (2014)	306
Ms Zolin (2014)	324
Reasoning	339
The Issues	339
Findings as to Park Trent’s Business	342
Some Background	342
Mr Cross’ Position	348
The Position of Park Trent	353
An Integrated Business?	357
Financial Product Advice	361
The Construction of s 766B of the Corporations Act	361
Did the Park Trent Group Make Recommendations       or State Opinions?	370
Intention to Influence a Decision	390
The Recommendations and Opinions were in          Relation to Financial Services	401
Park Trent’s Submissions on Financial Products	410
Park Trent Conducted a Financial Services Business	426
Did Park Trent Change its Business in 2014?	429
The Compliance Manual	430
Implementation of the Compliance Manual	434
Third Party Accountants	453
Did the Changes Terminate Park Trent’s             Contraventions?	464
Relief	478
A Declaration	478
Injunctive Relief	492
Conclusion	516

JUDGMENT

1. SACKVILLE AJA: In these proceedings the plaintiff (ASIC) alleges that the defendant (Park Trent) has carried on “a financial services business” without an Australian financial services licence (AFSL) since January 2010, in contravention of s 911A of the Corporations Act 2001 (Cth) (Corporations Act). ASIC seeks declaratory and injunctive relief.

2. There is no dispute that between January 2010 and the date of the trial (the Relevant Period) Park Trent did not hold an AFSL. The contest is whether Park Trent, throughout the Relevant Period, carried on a financial services business.

3. ASIC’s claim requires reference to a complex series of interlocking statutory provisions. In substance, however, its case is that Park Trent, throughout the Relevant Period, conducted the business of providing “financial product advice” to its clients in relation to their existing and future superannuation interests. In its opening written submissions, ASIC alleged, in summary, that Park Trent had:

“(a)   promoted and recommended to members of the public the use of self-managed superannuation funds (SMSFs) as a means of investing in real property,

(b)   advised that clients should purchase real property by establishing a SMSF, and

(c)   advised that clients should transfer their existing superannuation account balances into a SMSF and

(d)   facilitated that transfer.”

This conduct is said to have constituted carrying on a “financial services business” in contravention of s 911A(1) of the Corporations Act.

4. The proceedings were heard over nine hearing days. The documentary evidence, including statements tendered and affidavits read, comprises approximately 11,000 pages of material. The case is therefore substantial, although not especially large by modern standards of hard-fought commercial litigation. What is surprising is that half way through the second decade of the twenty-first century, a national regulator conducts complex proceedings of this kind wholly in paper form. Even the contents of Park Trent’s website was tendered in hard copy form. Indeed, the only material made available in digital form (and therefore searchable) was the transcript, which is not prepared by the parties.

5. The documentary evidence was presented in 25 folders, each of which was crammed to capacity and therefore prone to collapse. The organisation of the folders was not such as to engender confidence that a great deal of thought had been given to presenting the material in the most user-friendly manner. It was not uncommon, for example, for a single footnote to ASIC’s submissions to require retrieval of and reference to five or more separate folders.

6. Perhaps there are advantages to the parties in litigation being conducted in this way. But an exclusive reliance on paper renders the preparation of a judgment an immeasurably more difficult process and inevitably leads to delays in finalising the case. The parties’ written submissions were generally well organised and helpful. But sifting through the evidence referred to in those submissions and in oral argument proved to be an extremely time-consuming and often frustrating task.

7. I do not underestimate the difficulties confronting bodies such as ASIC in preparing and presenting complex cases for trial or, for that matter, the task facing defendants in defending proceedings. I think it important, however, that regulating agencies should present cases in a manner that assists the Court to fulfil the overriding purpose stated in the Civil Procedure Act 2005 (NSW), namely to facilitate the just, cheap and quick resolution of the real issues in dispute. [1] In my opinion, that was not done as well as it could have been in the present case.

ASIC’s Pleaded Case

1. Civil Procedure Act 2005 (NSW), s 56(1), (2), (3).

The Alleged Contravention

8. ASIC commenced proceedings in the Corporations List of the Equity Division on 10 November 2014. ASIC pleads its case in a Statement of Claim filed on 28 November 2014. Unusually, the Statement of Claim has not been amended although ASIC had modified the form of injunctive relief it seeks.

9. The Statement of Claim pleads that Park Trent, the only defendant, is the “head company” of a group of nine companies (including Park Trent itself):

“which together operate as part of a single business trading under the name Park Trent Properties Group (… referred to collectively as the Park Trent Group).”

10. The eight companies other than Park Trent are identified as follows:

• Easy Plan Financial Services Pty Ltd (EasyPlan).

• Cross Country Realty Pty Ltd (CCR).

• Cross Country Realty Victoria Pty Ltd (CCRVic).

• Parktrent Properties Group W.A. Pty Ltd (Park Trent WA).

• Parktrent Properties Group S.A. Pty Ltd (Park Trent SA).

• Parktrent Real Estate Pty Ltd (Park Trent RE).

• Rhymney Pty Ltd (Rhymney).

• Parallel Projects Pty Ltd (Parallel).

11. ASIC alleges that Park Trent has conducted and continues to conduct a property investment business involving the sale of real property on a commission basis and that Park Trent has engaged in a repeated pattern of conduct throughout the Relevant Period. The conduct is said to include the following:

• Park Trent conducts telemarketing and advertising designed to promote its ability to provide information about SMSFs;

• Park Trent organises and presents seminars in which participants are urged by means of PowerPoint presentations to invest in real property through SMSFs and are told that Park Trent can provide expert advice in setting up SMSFs and in explaining how real property works within an SMSF;

• Park Trent arranges home visits during which a representative suggests to the potential investor the purchase of real property either in the name of the investor or by using an SMSF;

• Park Trent sets up office meetings at which a representative provides the potential investor with a projection of financial returns from real property on the basis of certain assumptions;

• where the potential investor has a superannuation account, Park Trent’s representative typically advises the investor how a purchase of a particular property can be financed through the creation of an SMSF and the transfer of the balance in the existing superannuation account to the SMSF;

• if the investor decides to proceed with a purchase at the office meeting, Park Trent obtains a holding deposit of $1,000 to enable the investor to secure the selected property;

• if the potential investor decides to purchase the property through a yet to be created SMSF, Park Trent charges a fee of $5,000 to arrange for an SMSF to be set up and requires the investor to sign documentation authorising an accounting firm with which Park Trent has an existing relationship to take the necessary steps; and

• Park Trent engages the accounting firm to establish the SMSF and liaising with the investor to transfer the balance in his or her existing superannuation balance to the SMSF.

12. Park Trent’s conduct as a whole, or discrete parts of it, is alleged to contravene s 911A of the Corporations Act. Specifically, ASIC pleads that Park Trent, as part of its business, makes recommendations and states opinions which:

“e)   [are] intended to influence a person in making a decision in relation to a superannuation interest within the meaning of the [SIS Act], or an interest in such an interest;

f)   further or in the alternative to e), [are] intended to influence a person in making a decision to acquire, vary and/or dispose of a superannuation interest within the meaning of the [SIS Act], or an interest in such an interest.”

Repeated acts of this kind by Park Trent are said to constitute the carrying of a financial services business in Australia, in contravention of s 911A of the Corporations Act.

Relief Sought

13. The declaratory relief sought by ASIC in the Originating Process is as follows:

“A declaration pursuant to s 1101B(1) of the Corporations Act that [Park Trent] persistently contravened during the period from January 2010 to date, and is continuing to contravene, s 911A(1) of the Corporations Act by:

(a)   Carrying on a business of providing financial services, namely financial product advice, by making recommendations or statements of opinion intended to influence persons (or which could reasonably be regarded as being intended to have such an influence) in making a decision to acquire, vary and/or dispose of a superannuation interest (or an interest in a superannuation interest) within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act),

(b)   Without holding an [AFSL] covering the provision of the financial services.”

14. Park Trent resists the grant of declaratory relief on the ground, among others, that a court does not ordinarily make a declaration that a person has committed a criminal offence. Since a contravention of s 911A(1) of the Corporations Act is a criminal offence, [2] Park Trent submitts that the Court should refuse to make a declaration in the terms sought by ASIC, even if the evidence establishes that Park Trent contravened s 911A(1) in the manner pleaded.

    2. Corporations Act s 1311(1)(a). The maximum penalty for a contravention by a body corporate is a pecuniary penalty of $170,000: s 1312(1); sch 3, item 262C.

15. To counter this argument, ASIC has proffered the following undertaking to the Court:

“ASIC is prepared, as a condition of the grant of declaratory relief against [Park Trent] in this proceeding (the Proceeding), to give the following undertaking to the Court:

ASIC undertakes that it will:

(a)   not initiate or pursue any criminal investigation of [Park Trent] which investigation relates to or concerns the subject matter of the Proceeding; and

(b)   not refer any brief of evidence to the Commonwealth Director of Public Prosecutions which brief relates to possible criminal proceedings against [Park Trent] relating to or concerning the subject matter of the Proceeding.”

16. In its Originating Process, ASIC sought orders pursuant to ss 1101B(1) and 1324(1) of the Corporations Act restraining Park Trent, by itself, its officers, servants, employees, agents or otherwise from:

“(a) Carrying on a business related to, concerning or directed to financial products or financial services within the meaning of section 761A of the Corporations Act;

(b) Providing financial product advice within the meaning of section 761A of the Corporations Act;

(c)   In any way holding itself out as doing the things in (a) or (b) above.

(d)   Carrying on any business related to, concerning or directed to superannuation interests within the meaning of the SIS Act 1993 (Cth)];

(e)   In any way holding itself out as doing the things in paragraph (d) above;

(f)   Being in any way, directly or indirectly, knowingly concerned in or a party to the conduct of another person or any business related to, concerning or directed to superannuation interests within the meaning of the SIS Act.”

17. In the course of final submissions, ASIC modified the terms of the injunctive relief sought in the Originating Process. It now seeks orders pursuant to ss 1101B(1) and 1324 of the Corporations Act restraining Park Trent, by itself, its officers, servants, employees, agents or otherwise:

“(a)   from directly or indirectly

(i)   making recommendations or statements of opinion to a person, whether orally or in writing, which recommendations or statements are made with an intention, or which could reasonably be regarded as being intended, to influence the person:

(A)   to establish a self managed superannuation fund or to become a member of a self managed superannuation fund; or

(B)   to dispose of, or reduce the person’s interest in all or part of an existing superannuation fund; or

(C)   to acquire an interest in a superannuation fund; or

(D)   to modify an investment strategy or a contribution level in an existing superannuation fund; and

(ii)   in any way advising, recommending, encouraging or suggesting that a person:

(A)   establish a self managed superannuation fund or to become a member of a self managed superannuation fund; or

(B)   dispose of, or reduce the person’s interest in all or part of an existing superannuation fund; or

(C)   acquire an interest in a superannuation fund; or

(D)   modify an investment strategy or a contribution level in a superannuation fund; and

(iii)   supplying, providing or arranging for the supply or provision of, any form of Financial Investment Analysis to a person where the supply or provision is intended, or which could reasonably be regarded as being intended, to influence the person:

(A)   to establish a self managed superannuation fund or to become a member of a self managed superannuation fund; or

(B)   to dispose of, or reduce the person’s interest in all or part of an existing superannuation fund; or

(C)   to acquire an interest in a superannuation fund; or

(D)   to modify an investment strategy or a contribution level in an existing superannuation fund; and

(b)   from in any way holding itself out as doing or being able to do any of the things in (a) above; and

(c)   from being in any way, directly or indirectly, knowingly concerned in or a party to conduct by another person or the kind described in (a) or (b) above.

In this order:

superannuation fund and self managed superannuation fund have the same meaning as in the Superannuation Industry (Supervision) Act 1993 (Cth); and

Financial Investment Analysis means any statement as to the projected future financial return, outcome or consequences of a particular investment or investment strategy.”

Statutory Framework

Corporations Act

18. Section 911A of the Corporations Act is in Chapter 7, Part 7.6 of the Act. Section 760 states that the “main object” of Chapter 7 is to promote:

“(a)   confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and

(b)   fairness, honesty and professionalism by those who provide financial services; and

(c)    fair, orderly and transparent markets for financial products; and

(d)    the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.”

19. Part 7.6 of the Corporations Act is headed “Licensing of providers of financial services”. Section 911A(1) is as follows:

“Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services.”

20. There are a number of exemptions from the prohibition in s 911A(1). Only one is of relevance – and then of only marginal relevance – to the present case. Section 911A(2)(j) exempts from the licence requirement a person who provides a financial service in the person’s capacity as the trustee of an SMSF.

21. Section 911B(1) of the Corporations Act provides that a person (the provider) must only provide a financial service on behalf of another person (the principal) who carries on a financial services business if, among other requirements, the principal holds an AFSL covering the provision of their service.

22. The expression “financial services business” is defined in s 761A of the Corporations Act (which is in Part 7.1) to mean “a business of providing financial services”.

23. Section 761C of the Corporations Act states that in working out whether someone carries on a financial services business, Part 1.2, Div 3, needs to be taken into account. Division 3 includes ss 19-21(1), which read as follows:

“19   A reference to a business of a particular kind includes a reference to a business of that kind that is part of, or is carried on in conjunction with, any other business.

20   A reference in this Act to a person carrying on a business, or a business of a particular kind, is a reference to the person carrying on a business, or a business of that kind, whether alone or together with any other person or persons.

21(1)   A body corporate that has a place of business in Australia, or in a State or Territory, carries on business in Australia, or in that State or Territory, as the case may be.”

24. Subject to a presently irrelevant exception, s 766A(1)(a) of the Corporations Act states that a person “provides a financial service” for the purposes of Chapter 7 if, inter alia, that person provides “financial product advice”. The meaning of “financial product advice” is addressed in s 766B(1):

“(1)   For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

(a)    is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

(b)    could reasonably be regarded as being intended to have such an influence.

(1A)   However, … the provision or giving of an exempt document or statement does not constitute the provision of financial product advice.”

25. Section 766B(2) states that there are two kinds of financial product advice: “personal advice” and “general advice”. “Personal advice” is financial product advice given or directed to a person in circumstances where the provider of the advice had considered one or more of the person’s objectives, financial situation and needs or a reasonable person might expect the provider to consider one or more of those matters. [3] “General advice” is financial product advice that is not personal advice. [4]

    3. Corporations Act, s 766B(3).

    4. Corporations Act, s 766B(4).

26. Section 766B(5) stipulates that certain advice, such as advice given by a lawyer in his or her professional capacity about legal matters is not “financial product advice”. Section 766B(7) states that if in response to a request, a person gives the inquirer information about the cost of a financial product or the rate of return on a financial product, and the request could have been complied with by giving the inquirer equivalent information about one or more other financial products, the act of telling the inquirer the information does not of itself constitute the making of a recommendation in relation to the financial product.

27. Section 764A of the Corporations Act identifies “[s]pecific things that are financial products”. Subject to subdivision D, which contains exclusions not presently relevant, the term “financial products” includes for the purposes of Chapter 7:

“(g)   a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993”.

28. Section 1101B(1) of the Corporations Act provides as follows:

“The Court may make such order, or orders, as it thinks fit if:

(a)   on the application of ASIC, it appears to the Court that a person:

(i)    has contravened … any other law relating to … providing financial services

…

However, the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person.”

29. Section 1101B(4) of the Corporations Act, without limiting s 1101B(1), gives examples of the orders that a court can make pursuant to s 1101B(1). The examples include an order restraining a person from carrying on a business or doing an act or classes of acts in relation to financial products, if the person has persistently contravened or is continuing to contravene a provision of Chapter 7. [5]

    5. Corporations Act s 1101B(4)(a).

30. Section 1324(1) of the Corporations Act provides as follows:

“Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a)   a contravention of this Act;

…

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

Superannuation Industry (Supervision) Act 1993 (Cth)

31. To ascertain the meaning of superannuation interest, it is necessary to refer to the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). Section 10(1) of the SIS Act defines “superannuation interest” to mean “a beneficial interest in a superannuation entity” and a “superannuation entity” to include a “regulated superannuation fund”.

32. Section 19(1) of the SIS Act provides that a regulated superannuation fund is a superannuation fund in respect of which subsections (2) and (4) have been complied with. Those subsections are as follows:

“(2)   The superannuation fund must have a trustee.

(3)Either of the following must apply:

(a) …

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

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

(a)    in the approved form; and

(b)   signed by the trustee or each trustee;

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

33. Section 17A(1) of the SIS Act provides that a superannuation fund, other than a fund with one member, is a “self managed superannuation fund” if it satisfies the following conditions:

“(a)   it has fewer than 5 members;

(b)   if the trustees of the fund are individuals - each individual trustee of the fund is a member of the fund;

(c)   if the trustee of the fund is a body corporate - each director of the body corporate is a member of the fund;

(d)    each member of the fund:

(i)    is a trustee of the fund; or

(ii)    if the trustee of the fund is a body corporate--is a director of the body corporate …”

Section 17A(2) specifies the requirements for an SMSF with only one member.

34. As Park Trent’s submissions point out, real property as such is not within the definition of “financial products” in s 764A(1) of the Corporations Act. A “credit facility” within the meaning of the Corporations Regulations is also expressly excluded from the definition. [6]

    6. Corporations Act s 765A(1)(h)(i).

Amendments to the SIS Act

35. There were a number of references in the evidence to the changes in the rules applicable to SMSFs that prompted Park Trent to provide information (to use a neutral expression) to clients about investing in property through an SMSF. Mr Hewitt’s final written submissions helpfully explained the legislative amendments that apparently led Park Trent to adopt the business model described later in this judgment.

36. Section 67(1) of the SIS Act provides that, subject to certain exceptions, a trustee of a regulated superannuation fund, including an SMSF, must not borrow money or maintain an existing borrowing of money. Prior to the enactment of the Superannuation Industry (Supervision) Amendment Act 2010 (Cth) (SIS Amendment Act 2010), s 67(4A) of the SIS Act exempted certain non-recourse borrowings from the prohibition in s 67(1). [7] The SIS Amendment Act 2010, which came into force on 7 July 2010, repealed s 67(4A) and introduced s 67A into the SIS Act. [8]

    7. Section 67(4A) became law on 24 September 2007.

    8. SIS Amendment Act 2010, sch 1 [8].

37. The effect of s 67A, relevantly is that a trustee of an SMSF may borrow money to purchase a “single acquirable asset”. [9] An “acquirable asset” is any asset that is not money, provided the trustee is not prohibited from acquiring the asset. [10] Since an “asset” is defined as “any form of property”, [11] an acquirable asset includes real property. [12] The borrowing arrangement must, however, provide for the acquirable asset to be “held on trust so that the RSF [Regulated Superannuation Fund] trustee acquires a beneficial interest in the acquirable asset”. [13] In addition, the RSF trustee must have the right to acquire legal ownership of the acquirable asset by making one or more payments after acquiring the beneficial interest and the lender’s rights on default must be limited to rights relating to the acquirable asset. [14] The latter requirement limits the borrowing permitted to a trustee to a non-recourse loan.

Preliminary Matters

9. SIS Act, s 67A(1)(a).

10. SIS Act, s 67A(2).

11. SIS Act, s 10(1).

12. The Explanatory Memorandum to the Superannuation Industry (Supervision) Amendment Bill 2010 (Cth) makes it clear that the purchase of real property constitutes a single acquirable asset: see at [1.14].

13. SIS Act, s 67A(1)(b).

14. SIS Act, s 67A(1), (c), (d).

Interlocutory Judgments

38. I gave two interlocutory judgments during the hearing. In the first, I overruled an objection taken by Mr Hewitt on behalf of Park Trent to the tender or reading of statements and affidavits by investors or potential investors who had dealt with representatives of Park Trent. [15] Mr Hewitt objected on the ground that the material constituted tendency evidence within s 97(1) of the Evidence Act 1995 (NSW) and was inadmissible because it did not have significant probative value. I held that the evidence was relevant to the facts in issue, independently of its tendency to show that Park Trent had a propensity to act in a particular way. I also considered that, in any event, the evidence had significant probative value.

    15. Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 1) [2015] NSWSC 752.

39. In the second interlocutory judgment, I refused an application made by Park Trent on the sixth day of the trial to amend its defence. [16] The proposed amendment sought to plead that by reason of reg 7.1.29 of the Corporations Regulations 2001 (Cth), Park Trent’s conduct was an “exempt service” within the meaning of reg 7.1.29(5) and thus it did not provide a “financial service” for the purposes of s 766A(1) of the Corporations Act. I ruled that the application raised fresh evidentiary issues and was made too late in the proceedings.

    16. Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 2) [2015] NSWSC 782.

Standard of Proof

40. A contravention of s 911A(1) of the Corporations Act is a criminal offence and, where the contravention is by a body corporate, carries a maximum penalty of 1,000 penalty units (equivalent to $170,000). [17] In the present proceedings, ASIC does not seek to have criminal penalties imposed on Park Trent. It seeks only declaratory and injunctive relief in respect of the alleged contravention by Park Trent.

    17. Corporations Act s 1311(1), 1311(1A), 1312(1), sch 3 item 262C.

41. Section 1332 of the Corporations Act provides that where, in proceedings other than proceedings for an offence, it is necessary to establish that a person has contravened a provision of the Act, it is sufficient if the contravention is established on the balance of probabilities.

42. There is authority for the proposition that proceedings for declaratory and injunctive relief pursuant to ss 1101B and 1324 of the Corporations Act are not proceedings for the imposition of a penalty, even where the basis for the relief is an alleged contravention of a provision of the Corporations Act that can attract criminal sanctions. [18] Nonetheless, ASIC accepts that the standard of proof that it must satisfy in the present proceedings is to be understood in the light of s 140(2) of the Evidence Act 1995 (NSW) (Evidence Act). [19] Section 140(2) provides that in determining whether, in a civil proceeding, the court is satisfied that the case has been proved on the balance of probabilities, it may take into account:

“(a)   the nature of the cause of action or defence;

(b)   the nature of the subject-matter of the proceedings; and

(c)   the gravity of the matter alleged.”

18. Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342; 105 ACSR 116 at [74]-[75] (White J).

19. ASIC v ActiveSuper at [87].

43. It follows that the principles stated in s 140(2) of the Evidence Act, which reflected those stated in Briginshaw v Briginshaw,[20] apply in the present case. The principles were restated by the plurality in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd as follows: [21]

“The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.” (Citations omitted.)

In making findings of fact, I have borne these principles in mind.

20. [1938] HCA 34; 60 CLR 336 at 361-362 (Dixon J).

21. [1992] HCA 66; 110 ALR 449 at 449-450 (Mason CJ, Brennan, Deane and Gaudron JJ).

Park Trent’s Business Structure

44. ASIC contends that:

• Park Trent operates a single integrated business along with other companies in the Park Trent Group;

• Park Trent is the core or head company of the Park Trent Group and controls the operation of the business; and

• Mr Ronald Cross (Mr Cross) is the ultimate controller of Park Trent and other companies within the Park Trent Group.

45. I shall address later whether the evidence supports ASIC’s contentions. In order to do so, it is necessary to consider the business structure of Park Trent and the relationship between Park Trent and other members of the Park Trent Group. This includes an examination of Mr Cross’ role as CEO of the Park Trent Group and as the moving force behind the Group’s operations. One reason that Mr Cross’s role is particularly important is that ASIC submits that his failure to give evidence justifies an inference that his evidence would not have assisted Park Trent on contested factual issues. [22]

    22. Jones v Dunkel [1959] HCA 8; 101 CLR 298.

The Corporate Structure

46. The Statement of Claim alleges that Park Trent is the “head company” of the Park Trent Group. If what is meant by this allegation is that Park Trent is the holding company of other companies within the Group, the evidence does not support the claim. Park Trent, throughout the Relevant Period, has not held any shares in other companies within the Park Trent Group. However, there is no dispute that all companies within the Park Trent Group are related. The common element is that Mr Cross is a shareholder of each company within the Group. [23] In some cases, including Park Trent, Mr Cross holds 100 per cent of the shares. In all others, he and other members of his family hold 100 per cent of the issued capital between them.

    23. I use the present tense for convenience. Except in immaterial respects, the structure of the Park Trent Group was constant throughout the Relevant Period.

47. Mr Cross or a member of his family is a director of each company within the Park Trent Group. Mr Cross himself is a director of all companies within the Group, except EasyPlan and CCR. Non-family members are also directors of some companies within the Group.

48. The structure of the Park Trent Group is set out in a chart prepared by ASIC, which is reproduced below. The chart differentiates between the so-called “Head Company” (Park Trent), the “Finance Company” (EasyPlan), the five “State Based Companies” and the two “Development Companies” (Parallel and Rhymney).

46. The members of Mr Cross’ family who are directors or shareholders of companies in Park Trent Group are:

• Renee Cross (daughter)

• Kellie Cross (daughter)

• Jennifer Cross (sister)

(The reference to “Roni Cross” in the chart appears to be a mistaken reference to Renee Cross.) Renee Cross ceased her active involvement in the business of the Park Trent Group (other than as a director) some years ago. Kellie and Jennifer Cross continue to be actively involved, the former as the director of Park Trent’s Gold Coast office. Neither gave evidence.

50. Park Trent admits in its Defence that each of six companies within the Park Trent Group (Park Trent, CCRVic, CCR, Park Trent WA, Park Trent SA and Park Trent RE) operates a real estate business and has its own individual real estate licence. For example, Park Trent holds a licence issued pursuant to s 8 of the Property, Stock and Business Agents Act 2002 (NSW), while CCRVic’s licence is issued pursuant to s 12(2) of the Estate Agents Act 1980 (Vic). The Defence also admits that each of the six companies sells properties as agents for the vendors on a commission basis. Some of the properties sold by companies within the Park Trent Group are developed or under development by Rhymney and Parallel, but most are sold on behalf of vendors unrelated to the Park Trent Group.

51. EasyPlan, which provides mortgage and insurance broking services, has held an Australian Credit Licence since 2011. This Licence is issued pursuant to the National Consumer Credit Protection Act 2009 (Cth) and authorises EasyPlan to engage in credit activities other than as a credit provider. An Australian Credit Licence is required to engage in a “credit activity”, which includes arranging finance for real estate transactions. [24]

    24. National Consumer Credit Protection Act 2009 (Cth), s 29.

The Reporting Structure

52. The most senior person within Park Trent to give evidence was Mr Pavatich. He described his position as Group General Manager for the Park Trent Group and said that he provided his services to Park Trent through his “personal company”. Mr Pavatich, who had occupied his position since 2007, said that his role covers the whole of Australia.

53. Mr Pavatich explained that as Group General Manager of Park Trent, he worked at Park Trent’s Queensland and Western Australian offices, travelling to Western Australia about once a month. Until early 2015, he also had responsibility for the South Australian operations of the Park Trent Group. He identified his primary responsibilities as:

• overseeing home visits and office meetings conducted by Park Trent’s sales consultants;

• overseeing the performance of sales consultants;

• training sales consultants in Queensland, Western Australia and South Australia; and

• ensuring that sales consultants adhere to Park Trent’s compliance procedures.

The representatives conducting home visits are known within the Park Trent Group as “homers”. The office meetings are known as “run meeting” and the representatives who conduct them are known as “runners”.

54. Mr Pavatich said that he reported directly to Mr Cross on the operations in Queensland, Western Australia and South Australia and took directions from Mr Cross. He also said that Mr Cross was the Chief Executive Officer (CEO) of Park Trent and ran the operations in New South Wales, Victoria and the Australian Capital Territory. Mr Petrov who has been contracted to Park Trent as a Senior Property Consultant for nine years and is based at Park Trent’s Head Office in Wollongong, described Mr Cross as the CEO of the whole Park Trent Group.

55. Mr Pavatich and other witnesses gave additional details of the reporting structure within the Park Trent Group.

• Mr Eichmann, the most senior employee of Easy Plan, reported both to Mr Pavatich and to Mr Cross.

• The General Manager of CCRVic (first Ms Hogan and then Ms Parr) reported directly to Mr Cross.

• Mr Kutup, the Sales Manager employed by Park Trent, reported to Mr Cross. Mr Kutup was based in Park Trent’s Head Office in Wollongong, New South Wales, but travelled regularly to Victoria and South Australia to attend sales meetings, and to conduct property sales.

• Ms Johnston, who has been employed since 2004 by Park Trent as its Chief Operating Officer, reports to Mr Cross. Ms Johnston described her duties as including the preparation of slides for PowerPoint presentations at investment seminars and the co-ordination of marketing and of human resources. Ms Johnston said that she was responsible for preparing updating the slides on Mr Cross’s instructions.

Mr Cross’ Role

56. The evidence establishes that Mr Cross played a key role in the operations of Park Trent and of the Park Trent Group throughout the Relevant Period. As might be expected from Mr Cross’s role as CEO of Park Trent and of the Park Trent Group, and from the reporting lines within the Group, he was actively involved in the day to day management of companies within the Group. Mr Petrov, among others, confirmed that this was the case.

57. Mr Cross determined on a weekly basis the payments that should be made to “homers” (those conducting the home visits) and to runners (those conducting office meeting with clients). Sales consultants were entitled to receive specified amounts as commissions on completed sales, while employees of Park Trent or other companies within the Group were entitled to be paid lesser amounts by way of commission. The payments Mr Cross authorised each week were made on account of commission, but were not necessarily tied to the precise contractual entitlement of each consultant or employee. The payments were made at Mr Cross’ discretion, on the basis of his assessment of the relevant person’s “productivity”. They were regarded as in the nature of advances on commission, since a period of two or three years might elapse before a contract for the sale of a unit off the plan was completed. Mr Pavatich described the payments process as a “running productivity account”.

58. As has been noted, Mr Cross gave directions to Ms Johnston as to the changes to be made to the PowerPoint presentations to be given at the seminars attended by potential clients. The changes made at Mr Cross’ direction included details of new properties that were available for sale to clients. Mr Cross himself conducted Seminars, although he was not the only person within the Park Trent Group to do so. However, Mr Pavatich agreed that in his experience, the main presenter was Mr Cross himself.

59. During the Relevant Period initial training of the property consultants, wherever based, was invariably provided at Park Trent’s Wollongong Head Office. The training program generally took place over four days and was conducted by Mr Cross. He received assistance from other employees or consultants including Mr Kutup, the State Manager for New South Wales; Mr Placek, a Contracts Co-ordinator employed by Park Trent; and Mr Gibson, an Assistant State Manager, who reported to Mr Kutup. About 15 to 20 trainees would usually participate in each four day program, although the numbers varied from time to time. As Mr Kutup explained in his evidence, training programs were required quite frequently because of the very high rate of turnover of property consultants contracted to members of the Park Trent Group.

60. When a consultant conducted a run meeting with a client in Wollongong, the usual practice was that the consultant asked Mr Cross to prepare the projections known as the Property Investment Analysis (PIA), on the basis of information provided by the client. Mr Cross himself also conducted run meetings both in Wollongong and in other State offices of the Park Trent Group.

61. The evidence establishes that Mr Cross, throughout the Relevant Period, was the key decision-maker on behalf of Park Trent and the Park Trent Group as a whole. In the absence of any contrary evidence from Mr Cross or any of the other directors of companies within the Park Trent Group, I am satisfied that he is the person who made (and continues to make) all important decisions concerning the strategy and business practices of Park Trent and of the other companies within the Park Trent Group.

Park Trent’s Interest in SMSFs

Formulation of the Strategy

62. The evidence indicates that Park Trent developed a strategy in 2010 to encourage clients to purchase property through SMSFs. The strategy more or less coincided with the enactment of the amendments to the SIS Act which made it easier for SMSFs to borrow by way of non-recourse loans to acquire real property. [25]

    25. See at [35]-[37] above.

63. It is convenient to record the evidence of Mr Moss, a principal of Munro Moss Hunt Pty Ltd (MMH), an accounting firm based in Sydney which provides superannuation services. Mr Moss was briefly cross-examined, but there was no challenge to the accuracy of his evidence. His evidence is helpful in establishing when and how Park Trent implemented its strategy and demonstrating that Park Trent received an early warning of the dangers posed by its business model.

64. Mr Moss was contacted on about 11 March 2010 by Ms George, then Park Trent’s Chief Financial Officer. Mr Moss summarised what Ms George told him:

“(a)   Park Trent was a company in the property business and it was seeking to move into selling properties to SMSFs;

(b)   Park Trent did not have any expertise in setting up SMSFs and they were looking for someone to assist them in relation to the establishment of SMSFs, corporate trustees and SMSF borrowing arrangements; and

(c)   Separate to the set-up of SMSFs, some of Park Trent’s clients would be obtaining finance for SMSF property purchases and lenders required certificates to be signed stating that the clients had received financial advice. Ms George asked me whether MMH could assist Park Trent by signing off on these types of certificates.”

65. Mr Moss met Ms George and Mr Cross on 12 March 2010 at Park Trent’s offices in Wollongong. On 16 March 2010, Mr Moss sent a letter to Ms George outlining the services MMH could provide and the terms it was prepared to offer. The letter included the following:

“Thank you for offering us this opportunity to provide a proposal for our firm to assist Park Trent and its clients in setting up borrowing arrangements for Self Managed Superannuation Fund’s (SMSF’s).

Service Summary

Following our meeting last Friday 12 March, my understanding is that Park Trent would be seeking to engage Moss Munro Hunt to provide it with the following services:

●   Setup of SMSF’s and corporate trustees for these entities

●   Setup of SMSF borrowing trusts and corporate trustees for these entities.

My understanding is that the client or their SMSF would be seeking to independently engage Moss Munro Hunt to provide the following service:

●   Review the affairs of the SMSF and provide it with a Limited Statement of Advice regarding the investment

●   Sign off documentation provided by the lender, to confirm that the client has received financial advice regarding the investment

(The points are assuming Moss Munro Hunt agrees that the investment is appropriate for the particular client)

My understanding is that Park Trent would be providing the following services to the client:

●   Asset selection for the client and SMSF

●   Ongoing management of the asset for the client and SMSF

●   Any other service that is sought by the client or SMSF, that is not listed above in the services to be provided by Moss Munro Hunt.

…

This pricing is based upon the expected circumstances your office advised me of, being entity setups and Advice being required for 4+ clients per week, with an estimate of 200-500 clients per year. Despite the discount to our standard pricing, given the volume expected the proposed fees will provide a comfortable profit margin for Moss Munro Hunt and I hope also a comfortable margin for Park Trent.”

66. MMH commenced to receive instructions to set up SMSFs for Park Trent clients shortly after 16 March 2010. The instructions were conveyed by means of a standard form prepared by MMH, entitled “Establishment of Self Managed Superannuation Fund (SMSF), SMSF Borrowing Trust and Corporate Trustees” (SMSF Instructions). The SMSF Instructions were ordinarily completed by the Park Trent “runner” at the run meeting, on the basis of information provided by the client. The form was then signed by the client.

67. MMH provided services to Park Trent and its clients between March 2010 and September 2011. In doing so, Mr Moss dealt with Park Trent’s National Superannuation Co-Ordinator, a position occupied by five different people during the eighteen months period. MMH established a total of 37 new SMSFs and prepared nine “limited SoAs [statements of advice]” for Park Trent clients during this period. The services included establishing corporate trustees and borrowing entities for clients who decided to invest in property using SMSFs. (Other accounting firms established SMSFs in conjunction with Park Trent after September 2011.)

68. MMH charged the following fees for services provided to Park Trent’s clients:

• $2,580, GST inclusive, for establishing an SMSF, corporate trustee and borrowing entity;

• $1,980, GST inclusive, for the preparation of a limited SoA in relation to the purchase of a property by an SMSF using a limited recourse borrowing arrangement.

Invoices for the first category of services were usually issued to Park Trent, while invoices for the limited SoAs were issued directly to the client.

69. Mr Moss said he initially understood that the invoices for establishing SMSFs were on-forwarded by Park Trent to the clients. He believed that the client paid Park Trent and then remitted the payment to MMH. Later he was told by the Superannuation Co-Ordinator that Park Trent issued its own invoices to clients and that Park Trent added its own charges to the MMH’s fees. This was in fact Park Trent’s practice during the Relevant Period.

70. In February 2011, Mr Moss informed Mr Cross that he (Mr Moss) considered that changes should be made to Park Trent’s practices. Mr Moss set out his concerns in a letter to Mr Cross dated 14 February 2011. The letter included the following passages:

“… the Federal Government, Australian Taxation Office, Australian Securities & Investment Commission and Australian Prudential Regulation Authority all recently advised they will be further stepping up their surveillance and regulation of the superannuation and SMSF industry. There are some issues I very strongly recommend ParkTrent look to address ASAP. This can help prevent Park Trent from falling foul in the event of surveillance operations and potentially being viewed as a company that poses a risk to government policy.

…

●   Risks and responsibilities of having a SMSF. Clients need to be made aware of the very serious risks and responsibilities of having a SMSF. ParkTrent should document that they have made an effort to ensure this occurred upfront, before a client enters into any transaction. The risk of not pursuing this issue is that at some point a client may make a claim that a ParkTrent representative recommended that they setup a SMSF. This would be a very serious breach of corporations law for ParkTrent and their representative and could result in serious financial penalties, incarceration and injury to reputation.

This could be addressed by ensuing [sic] that at the first stage of a ParkTrent representative meeting with the client (at Home Meeting) and the use of superannuation being discussed, Moss Munro Hunt factsheets are provided. The client would on the spot sign confirmation of receipt.

●   Costs of using a SMSF and borrowing arrangement. Clients need to be made aware of the costs involved in running a SMSF and making use of a borrowing arrangement. ParkTrent should document that they have made an effort to ensure this occurred upfront, before a client enters into any transaction …

●   SMSF not being able to rollover or obtain loan finance. Before a client signs to purchase a property through a SMSF, their ability to finance the purchase should be tested first. ParkTrent should ensure this is done upfront and before a client signs up for a property purchase using superannuation. The risk of not doing this is that a portion of ParkTrent clients that initially commit to using superannuation to purchase property will be unable to pay the property deposit or obtain finance to settle in the future …

●   Complying with SMSF borrowing legislation

In order for a SMSF to be allowed to borrow and purchase property through the fund, it must satisfy certain conditions. In the last 4 months the Federal Government made some changes to these conditions. ParkTrent should follow a process to ensure their clients purchasing property through superannuation follow the required procedures. The risk of not ensuring this occurs is that the property purchases entered into by ParkTrent SMSF client may result in the SMSF’s being subject to audit by the Australian Taxation Office and potentially being subject to a 45% penalty tax. The other risk is that ParkTrent may be viewed as a “Promoter” by the regulators and subject to financial and other forms of penalties itself.

This issue can be addressed by ParkTrent not accepting a deposit on a superannuation property purchase until a SMSF has actually been setup and not accepting deposit payments from an individual personally or any other entity. ParkTrent should instead wail until the SMSF is setup and rollovers from their existing superannuation funds are received to fund the payment.” (Emphasis added.)

Mr Moss accepted in his cross-examination that he was not intending to suggest in this letter that Park Trent had breached the Corporations Act.

71. Mr Moss was subsequently advised by the National Superannuation Co-Ordinator that Mr Cross had decided to continue with Park Trent’s existing procedures and did not propose to implement Mr Moss’ suggested changes. While Mr Moss may not have directly stated that Park Trent was acting in breach of the Corporations Act, his letter warned Park Trent that there was a risk that its business practices might constitute serious contraventions of the law.

The Practical Results

72. I shall describe in the next section Park Trent’s marketing and sales process during the Relevant Period. Before doing so I summarise the evidence as to the practical significance of the strategy concerning SMSFs adopted by Park Trent in 2010.

73. Ms Ponton, a Financial Investigator with the Forensic Accounting Services team of ASIC, undertook an investigation of Park Trent’s records. In particular she compiled information from Intuit Quickbooks produced by Park Trent in response to a notice served on Park Trent under s 33 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Intuit Quickbooks is a computer software program used for bookkeeping and accounting purposes.

74. Ms Ponton’s report addressed the following questions:

• the administration fees charged to clients of the Park Trent Group;

• the fees charged to clients relating to the establishment of SMSFs;

• payments made by the Park Trent Group to third party accountants in respect of SMSF set fees; and

• the net operating profit of each of the companies within the Park Trent Group for the 2012-2013 financial year and for the period from 1 July 2013 to 11 February 2014.

Ms Ponton was not required for cross-examination. Thus her evidence was not challenged.

75. Ms Ponton summarised the results of her investigation in a number of charts. I reproduce the charts recording the following information:

1.   Client transactions by reference to the number of SMSF set up fees and administration fees.

2.   The revenue generated by Park Trent (not any associated company) from SMSF set up fees and mark-ups on SMSF set up fees.

3.   The net operating profit for each company within the Park Trent Group during the specified periods.

All amounts recorded in the charts are exclusive of GST.

Chart 1

Financial Year	Net number of Park Trent Group client transactions in relation to the Superannuation Set Up Fee	Net number of client transactions in relation to the Administration Fee	Percentage of Superannuation Set Up Fee transactions
2010/2011	32	727	4.40%
2011/2012	79	815	9.69 %
2012/2013	217	804	26.99%
1 July 2013 to 14 February 2014	148	373	39.68%
TOTAL	476	2,719

Chart 2

Financial Year	Amount generated by Superannuation Set Up Fee $	Payments made for Third Party Superannuation Set Up Fees $	Mark-up on Superannuation Set Up Fee $
2010/2011	70,613.64	55,297.63	15,316.01
2011/2012	249,436.62	224,399.91	25,036.71
201212013	768,076.80	506,017.22	262.059.58
1 July 2013 to 14 February 2014	469,090.45	206,477.28	262,613.17
TOTAL	1,557,217.51	992,192.04	565,025.47

Chart 3

Quickbooks data file	Net ordinary income
	1 July 2012 to 30 June 2013	1 July 2013 to 11 February 2014
PTPG	-6,283,548.12	-5,063,526.65
CCRQ	1,425,910.64	442,401.04
CCRV	2,765,548.42	8,701,778.34
PTPGWA	254,069.20	292,107.66
PTPGSA	544,142.24	736,475.10
Rhymney	512,871.03	-618,517.28
Parallel	2,631,752.46	196,792.61
PTRE	-285,353.34	-535,550.63
EPFS	1,333,843.58	1,095,838.70
TOTAL NET ORDINARY INCOME FOR THE PARK TRENT GROUP	2,899,236.11	5,247,798.89

76. Unchallenged evidence was given by three third party accountants who dealt with the Park Trent Group during the Relevant Period, namely Mr Moss, [26] Mr Gorrie of Network Navigator Pty Ltd and Mr Zughbi of Kelly Partners Group. Their evidence establishes the following:

• Between March 2010 and September 2011, Moss Munro Hunt set up 37 new SMSFs for clients of Park Trent.

• Between March 2012 and March 2014, Network Navigator Pty Ltd set up 152 new SMSFs for clients referred by Easy Plan.

• Between mid-September 2013 and January 2014, Kelly Partners Group set up 15 new SMSFs for clients referred by Park Trent.

These were not the only third party accountants who dealt with the Park Trent Group during the Relevant Period. Consequently the figures are not complete.

26. Mr Moss’ evidence has been referred to earlier: see at [64]-[71] above.

77. In addition to this material, the evidence suggests that as at March 2015 a total of 868 separate clients of Park Trent or the Park Trent Group had purchased or agreed to purchase an investment property using an SMSF. This figure, together with the other material to which I have referred, shows just how successful Park Trent was in encouraging clients to purchase investment properties through SMSFs and to set up SMSFs to enable the clients to purchase properties on offer.

The Marketing and Sales Process

The Eight Stage Approach

78. ASIC relied on an internal Park Trent document entitled “The 8 Stage Approach to Property Investment” (8 Stage Document) as demonstrating the approach Park Trent took to selling property throughout the Relevant Period. The document is as follows:

79. It will be seen that the 8 Stage Document bears the name “Park Trent Properties Group” and lists the Group’s office locations in Australian and Shanghai. Mr Pavatich said that the 8 Stage Document was made available to consultants and employees who undertook home visits or participated in run meetings. The general practice was to provide the 8 Stage Document to clients at the home meeting, although this was a matter for the “homer” conducting the meeting. The evidence establishes that, although there may have been earlier and somewhat different versions of the 8 Stage Document, it accurately reflects the practices followed by Park Trent throughout the Relevant Period. (Mr May, a representative contracted to Park Trent since 2010, had a recollection that an earlier version of the 8 Stage Document may have referred only to five stages, although he was not entirely sure.)

80. ASIC’s Statement of Claim concentrates on four stages of the marketing and sales process, namely the Seminars, the home visit, the run meeting and the discussion with Easyplan (should the potential client reach that stage of the process). The chart describes the run meeting as “Property Selection & PIA Analysis [Property Investment Analysis]”. As Mr Pavatich and others explained, the practice was for the discussion with the Easyplan mortgage broker to take place after the client had paid a holding deposit of $1,000 to secure a property. The practice was also to have the client sign a contract of sale in respect of the property and other documentation prior to contact with Easy Plan.

81. Park Trent admitted in its Defence a number of the matters alleged in the Statement of Claim. The following account of the marketing and sales process is based on the matters admitted by Park Trent and uncontroversial (or largely uncontroversial) documentary evidence.

The Marketing of Seminars

82. Park Trent operated a call centre from its Head Office in Wollongong throughout the Relevant Period. Employees of Park Trent made telephone calls from the centre inviting members of the public to attend a Park Trent Property Investment Seminar. Park Trent also promoted the Seminars through its website, the print media, commercial radio, social media and other means.

83. Park Trent provided its call centre employees with speaking notes to use when calling potential clients. The speaking notes (self-described as “Conference Spiel”) issued prior to 2012 suggested that the caller inform the potential client that it was possible to receive “$100,000 tax free dollars” over ten years under the National Rental Affordability Scheme (NRAS). The caller was to advise the potential client that the “best way to take a positive step” was to attend a Seminar, for which a booking could be made. The pre-2012 call centre speaking notes apparently made no mention of superannuation.

84. Two versions of the speaking notes used in 2012 were in evidence. Both versions stated that at the Seminar:

“we will be discussing:

-   What’s happening in the property market in 2012 …

-   How to utilise superannuation and property together in a DIY [Do it Yourself] super fund”.

85. Three versions of speaking notes prepared in 2013 included similar references to superannuation, although two of the versions omitted any specific reference to a “DIY super fund”. The 2014 version did not identify SMSFs as a specific topic for the Seminars.

86. Several sets of speaking notes provided a script for a call back to a potential client who expressed interest during the initial call, but did not attend the Seminar. Each of these scripts referred to SMSFs, while one referred to “New options for investors (Self managed – super funds, borrowing against your super)”. None of the call back speaking notes in evidence was dated.

Website

87. Throughout the Relevant Period, the Park Trent Group maintained a website at URL address This was the only website maintained by Park Trent and it provided material relevant to all activities of the Park Trent Group, subject to the qualification that Easy Plan introduced its own website in late 2014 or early 2015. However, after the Easy Plan website was set up the Park Trent website provided a link to the Easy Plan site.

88. A hard copy of the material available on the Park Trent website on 22 January 2014 was in evidence. The website advertised Seminars and provided a great deal of promotional material concerning the activities of the Park Trent Group. This included details of properties for sale throughout Australia.

89. A person accessing the website might be directed to invitations to attend Seminars, as well as material promoting the benefits of investing in property through SMSFs. The following are examples of material on the website:

By attending our 90 minute conference, you will learn the most up-to-date and innovative methods of:

• Ways to legally reduce your income tax

• How to borrow within your Self Managed Super Fund for property investment

• Exciting new options with mortgage elimination product

• Cash flow benefits created by investing in property

With a Park Trent Property Investment Evaluation, we can provide information on how to best achieve your property investment goals – completely free of charge.

…

What we offer

The property investment evaluation will include the following;

• Effective tax. minimisation strategies

• ParkTrent Property Investors Security Plan

• Self Managed Super Funds

• Detailed explanation of negative gearing

• Mortgage reduction

• Structure (line of credit)

• Determining what property will best suit you

• Personal investment strategy tailored to you

(Emphasis in original.)

90. It is convenient to record here other features of the website, although these are perhaps less relevant to the sales and marketing process than to the relationship between Park Trent and other companies within the Park Trent Group. The significant features include the following:

• Each page on the website contains logos for “ParkTrent Properties Group”, “ParkTrent Investment”, “ParkTrent Real Estate”, “ParkTrent Property Management” and “EasyPlan Financial Services”.

• Each page on the website contains a statement: “Copyright 2009-2012 ParkTrent Properties Pty Ltd. All rights reserved.”

• A paged headed “About ParkTrent” identifies Mr Cross as the CEO and founder of “ParkTrent Properties Pty Ltd”, who “provides leadership and direction to Australia’s largest privately owned real estate group”.

• The same page contains the following statement:

"As a comprehensive group of companies, ParkTrent offers the convenience of the full range of services required to buy and sell property. This comprehensive range of services offers clients the convenience of a "One-Stop-Shop" and makes us a leader in the field of property sales and property investment."

The page also stated that “our group of companies” includes “ParkTrent Property Investment”, “ParkTrent Real Estate”, “ParkTrent Property Management Services” and “EasyPlan Property Management”. The Group is said to have eleven offices nationwide and joint venture operations in other countries.

91. Extracts taken from the Park Trent Group’s website on 5 July 2013 and 8 September 2013 indicate that the features outlined above were also present on those dates. Some changes were made to the website later in 2014, to which I shall refer later.

92. Throughout the Relevant Period, Ms Johnson, an employee of Park Trent, was responsible for managing the website. Ms Johnson took directions from Ms Johnston, the Chief Operations Officer of Park Trent, who reported to Mr Cross. It is clear that the website was established and maintained by Park Trent and contained material relevant to the operations of Park Trent as well as its associated companies.

93. There was no direct evidence as to the form of the website prior to January 2014. As will be seen, Ms Johnson removed some (but not all) references to SMSFs from the website between November 2013 and January 2014. I infer that the website prior to those references being removed contained more detailed material promoting investment in real property through SMSFs.

The Seminars

Conduct of the Seminars

94. Throughout the Relevant Period, Park Trent conducted Seminars in each Australian State. The presenter at a Seminar typically used a PowerPoint slideshow to convey information to attendees. The presenter typically addressed topics including the following:

• investment in real property;

• the impact of trends such as population growth, housing availability and government subsidy schemes in driving capital growth and rental yields in Australian real property; and

• the advantages of borrowing to invest in property and doing so as soon as possible.

95. Ms Johnston, who has been Park Trent’s Chief Operations Officer since 2004, estimated that the Park Trent Group conducted, on average, about six Seminars per week, excluding the Christmas period, across the country. She said that attendances varied from as few as ten up to about 150, but that an average of about 30 to 40 people would attend each Seminar.

96. In the course of a Seminar, attendees were invited to provide Park Trent with their names and contact details. This information was collected in order to facilitate home visits by Park Trent representatives (with the attendees’ permission).

The PowerPoint Presentations

97. In response to a notice issued by ASIC pursuant to s 19 of the ASIC Act, Park Trent produced some 400 versions of the PowerPoint presentations prepared for the use of Park Trent’s representatives at Seminars during the Relevant Period. The PowerPoint presentations were regularly updated to take account of changes in the properties being promoted for sale at the time the Seminars were conducted.

98. ASIC tendered what it said was a representative sample of PowerPoint presentations prepared during the Relevant Period. As might be expected, the PowerPoint presentations extolled the virtues of the Park Trent Group and of investing in real estate. Much of the material painted a glowing picture of the opportunities for substantial capital growth and high rental returns for investors. Some of the PowerPoint presentations encouraged potential investors by invoking “Ron’s Story” – a “wonderful journey through life’s Experiences and Challenges”.

99. Perhaps of more relevance for present purposes, the presentations in evidence from 2010 to 2013 referred to SMSFs. A presentation dated 9 April 2010, for example, informed attendees that the “conference will be delivered in 5 parts” as follows:

“1.   ParkTrent Profile

2.   Successful investing in today’s property market (National Rental Affordability Scheme)

3.   Structuring investment properties.

4.   Utilising superannuation to purchase investment property.

5.   Why we need to invest in property now”. (Emphasis added.)

The section on superannuation in the presentation included the following slides:

100. All versions of the PowerPoint presentations in evidence that were prepared between 2010 and 2013 included a slide informing attendees that the Park Trent Properties Group had available expert advice to assist in setting up SMSFs. All versions prepared during the same period also informed attendees that the Park Trent Group had access to expertise to advise how property investment worked in an SMSF.

101. Many of the PowerPoint Presentation used between 2010 and 2013 included projections as to the profitability of a purchase of a particular property through an SMSF. A presentation prepared on 17 March 2011, for example, contained the following slide concerning apartments in the “Arkana” development:

102. As can be seen, this projection assumed a constant five per cent per annum compounding growth in the capital value of the property over a period of ten years. The same “capital growth” would be derived from the purchase of any asset, if it is assumed that a uniform rate of five per cent per annum capital growth will be derived on the original price of $197,500 and that the costs of the transaction would total $13,500.

103. In 2012 and 2013, in addition to the standard advice concerning the purchase of property through an SMSF and commentary on what was said to be the poor performance of general superannuation funds, the presentations included slides explaining how the purchase of a property off the plan through an SMSF worked:

Between 2010 and 2013, the presentations included slides characterising particular properties on offer as “a perfect property to place a DIY superannuation fund”.

104. The latest PowerPoint presentations in evidence were prepared on 17 and 20 February 2014. These differed from earlier versions in that they do not say that the issues to be addressed include utilising superannuation to purchase property. Nor do the presentations include any of the slides reproduced above. The possible use of SMSFs is addressed in two slides, one of which follows an Australian tradition of showing a fist full of dollars. The slides are as follows:

Transcripts

105. ASIC tendered a number of transcripts of presentations at Seminars. The transcripts were produced from recordings made by ASIC investigators who attended the Seminars. When this material was tendered, Mr Hewitt requested that those instructing him be given the opportunity to check the accuracy of the transcripts. That opportunity was duly provided. No submission was made that the transcripts are inaccurate.

106. The earliest transcript is from a Seminar held in Melbourne on 28 August 2013. The presenter was a Mr Lanacella. [27] The transcript includes the following passages:

     27. In another transcript his name is recorded as “Lamicella”.

“We have available excellent advice that can assist you when it comes to structuring self managed superannuation funds, rapid repayment of your current home loans. …

If you don’t know specifically how your super is travelling, you really, really, really should find out. …

Superannuation can definitely work for you, what we have is we have access at ParkTrent to expertise, we have access to people who can advise you on how property can work by utilising property investment in a do it yourself superannuation fund.

Who’d like to look have a look at how this can work? Let me go through and put some numbers around this and just show you specifically how this can work for virtually anyone in the room here. Okay. So what we’re going to in this example is we’re going to buy an apartment in the Melbourne CBD. …

For us to establish a superannuation fund on your behalf, our fee is $4000, we have to have the money up front, we have to find that. The property purchase price is 350, the cost to purchase would be $18,000, the total amount of funds that you’ll need will be $372,000. You have your property in your own do it yourself fund. Now, here is the question: how will this perform in 10 years from now? The good news is, I can tell you very accurately and very predictably, is exactly how you will finish. So the future value of the property in 10 years is going to be $570,000 based on what? Based on a 5 per cent annual growth rate per annum.

Am I being conservative? Yep, absolutely …

It gets even more exciting. I’m not going to take questions, just in case you have some. We’re getting to the real fun. Now, your superannuation will continue to come your way. Imagine putting your super into this fund, and imagine on a weekly, monthly basis we take all of this cash flow and actually reinvest it short term in fixed interest rates or long-term interest rates, and have that flow at the same time. …

All the funds that you, your wife have will actually be combined into your new do-it-yourself fund if you pay the deposit, of course. All the surplus funds get invested in the term deposits during the construction of your property purchase, which is important. All the future contributions from your employer obviously will go into your new fund at the same time. On completion, the fund can borrow up to 30 per cent of the property purchase price in some examples up to 80 per cent. These are new rules.” (Emphasis added.)

107. Not all transcripts tendered by ASIC incorporate similar advice about the virtues of investing in property through SMSFs or the ability of Park Trent to assist in the steps required to do so. Two presentations made on 13 February 2014 and 16 July 2014 in Melbourne and Sydney, respectively, make only cautious and qualified references to SMSFs. Both presentations, made by representatives of Park Trent other than Mr Cross, plainly fall short of recommendations to the attendees to invest in property through SMSFs.

108. The caution evident in these transcripts seems to be a consequence of Park Trent having engaged a firm of solicitors in September 2013 to provide advice on the requirements of Chapter 7 of the Corporations Act. The solicitors prepared a Compliance Manual, the first version of which appears to have been created before February 2014. Among other advice, the Compliance Manual warned that Park Trent could not give financial products advice without a licence and that care had to be taken not to present factual information in a way that could be regarded as suggesting or implying a recommendation to acquire a financial product, including SMSFs

109. The warning in the Compliance Manual appears not to have been heeded by Mr Cross. The record of his presentation at a Seminar in Melbourne on 13 August 2014 suggests that he paid little attention to the Compliance Manual. His presentation included the following passages:

464. Park Trent has persisted in using PIAs as a marketing tool and has adhered to its business model despite having been told of ASIC’s concerns about people being encouraged to invest inappropriately in SMSFs. Mr Cross and other senior management attended the meeting of 21 January 2014 where Mr Walton identified ASIC’s concerns. [66] Not all of Park Trent’s clients were naïve or inexperienced investors, but many were. For those investors, setting up an SMSF and using borrowed funds to purchase an investment property and using virtually the whole of the investor’s superannuation balance to do so exposed them to precisely the concerns that ASIC had identified.

     66. See at [438]-[440] above.

465. The fact that Park Trent has belatedly instituted a practice of providing clients-with a printed form [67] does not detract from the significance of its practice of using optimistic projections in PIAs as a marketing tool. There is nothing to indicate that anything short of the intervention of the Court will cause Park Trent to cease and desist from the use of PIAs as a means of encouraging clients to set up SMSFs and purchase investment properties through the SMSFs.

Relief

67. See above at [446].

A Declaration

478. The Court has power to grant a declaration that Park Trent has contravened s 911A(1) of the Corporations Act. It has that power by virtue of s 1101B(1) of the Corporations Act and s 75 of the Supreme Court Act 1970 (NSW).

479. The principles governing the grant of declaratory relief were summarised by Gordon J in ASIC v Monarch [68] as follows:

“[62] The Court has a wide discretionary power, pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth), to grant declarations that particular persons have engaged in conduct that contravenes the Corporations Act: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97-98; Australian Securities and Investments Commission v Axis International Management Pty Ltd(2009) 178 FCR 485 at [9]-[12]; and Australian Competition and Consumer Commission v MSY Technology Pty Ltd(2012) 201 FCR 378 at [8]-[9].

[63]   Considerations relevant to the exercise of the discretion to make declarations in the present case include whether the declaration will have any utility, whether the proceeding involves a matter of public interest and whether the circumstances call for the marking of the Court's disapproval of the contravening conduct: Australian Competition & Consumer Commission v Renegade Gas Pty Ltd (trading as Supagas NSW) [2014] FCA 1135 at [65], citing Tobacco Institute at 99-100; Australian Competition and Consumer Commission v Powerballwin.com.au Pty Ltd [2010] FCA 378 at [41] and Forster v Jododex Australia Pty Ltd(1972) 127 CLR 421 at 437-8.

[64]   Declarations are not made as a matter of course. The Court will not make declarations of contravention unless it is satisfied that there is sufficient evidence to support those declarations, to the standard set out in Briginshaw v Briginshaw(1938) 60 CLR 336 at 361-2: Re Scott at [17]; Australian Securities and Investments Commission v Lindberg [2012] VSC 332 at [6]. Where it is appropriate for a declaration to be made, attention must be given to the form of the declaration, so that it is at least informative as to the basis on which the Court declares that a contravention has occurred. The declarations should contain appropriate and adequate particulars of how and why the impugned conduct is a contravention of the Act: Renegade Gas at [66] and the cases cited.”

68. [2014] FCA 1387; 103 ACSR 453.

480. In that case, her Honour made declarations because

“they will define the contravening aspects of the relevant conduct and also enable others in the foreign exchange industry to recognise the unlawfulness of the conduct, and serve as a warning. In addition, the declaration will mark the Court’s disapproval of the contravening conduct, and may inform affected persons that the conduct occurred and was unlawful” [69]

69. See also In the Matter of Idylic Solutions Pty Ltd [2013] NSWSC 106 (Re Idylic Solutions) at [35]-[36] (Ward JA).

481. Subject to the form of the declaration, in my view this is a clear case for the grant of declaratory relief. The evidence demonstrates to the requisite standard of proof that Park Trent has conducted a business in contravention of 911A(1) of the Corporations Act. It has done so systematically over a long period.

482. Park Trent was warned by Mr Moss as early as February 2011 that its business operations needed to be carefully scrutinised to ensure that they did not fall foul “in the event of surveillance operations” by regulators. While Mr Moss did not specifically draw Mr Cross’ attention to s 911A of the Corporations Act, he warned that if a Park Trent representative recommended to a client that he or she set up an SMSF this:

“would be a very serious breach of [C]orporations [L]aw for ParkTrent and their representatives and could result in serious financial penalties [or] incarceration …” [70]

Mr Cross chose to ignore the warning.

70. See at [70] above.

483. There is a clear public interest in the Court expressing its disapproval of Park Trent’s behaviour. To use the language of Besanko J in ASIC v Stone Assets, [71] Park Trent has shown “open disregard for the requirements of the Act”. As his Honour observed, a contravention of s 911A of the Corporations Act is a very serious matter because the licensing of providers of financial services is a key element in the regime established by Chapter 7 of the Corporations Act.

     71. ASIC v Stone Assets at [42].

484. Park Trent conducted its business by utilising sophisticated techniques to induce investors to invest all or at least much of their superannuation balances in a single asset which it was in Park Trent’s interests to sell to them (and for which Park Trent charged fees). Not all investors were financially naïve, but many were. They were influenced to make important decisions concerning their superannuation strategy with little or no genuine consideration of whether the decisions took proper account of their individual financial circumstances. Some suffered financial loss as a consequence.

485. A declaration also serves as a warning to others who conduct or propose to conduct businesses which seek to influence clients to establish SMSFs for investment purposes, without having the necessary licence to do so. It is troubling that Park Trent could have conducted its business in this way for so long without being required to desist or to change its practices. If there are others in a similar position, a declaration may bring home to them the importance of ceasing their unlawful conduct and of ensuring that they are appropriately licensed.

486. Mr Hewitt submitted that even if I found that Park Trent had contravened s 911A(1) of the Corporations Act, I should decline to make a declaration to that effect. He pointed out that a contravention of s 911A(1) is capable of constituting a criminal offence. He contended that courts generally … decline to declare that a person has committed a criminal offence and that practice should be followed in the present case. In his written submissions, Mr Hewitt said that the usual practice should be adhered to because the possibility of a criminal prosecution of Park Trent remained open.

487. The authority relied on by Mr Hewitt recognises that a court undoubtedly has jurisdiction in an appropriate case to make a declaration that a person has engaged in criminal conduct. [72] There is ample authority to support the view that the traditional reluctance of courts to make a declaration that a person has engaged in criminal conduct is of little weight where a statutory authority seeks a declaration that conduct has contravened regulatory legislation designed to protect the public. [73] In any event, the undertaking given by ASIC [74] makes the prospect of any criminal prosecution arising out of Park Trent’s conduct remote if not impossible. I therefore reject Mr Hewitt’s submission.

     72. Corporate Affairs Commission v Transphere Pty Ltd (1988) 15 NSWLR 596 at 603 (Young J), referring to Sankey v Whitlam 1978 HCA 43; 142 CLR 1 at 20-21 (Gibbs ACJ).

     73. See especially Australian Securities and Investments Commission v Fuelbanc Australia Ltd [2007] FCA 960; 162 FCR 174 at [51-[61] (Heerey J) and authorities cited there.

     74. See at [15] above.

488. I have set out the form of declaration proposed by ASIC. [75] ASIC describes the proposed declaration as a “wordier version” of the declaration made by Gordon J in ASIC v Monarch. The proposed declaration follows closely the language of s 911A(1) of the Corporations Act, although it identifies the subject of the recommendation or statement of opinion as a decision as “to acquire, vary and/or dispose of a superannuation interest within the meaning of the [SIS Act]”.

     75. See at [13] above.

489. In Rural Press Ltd v Australian Competition and Consumer Commission,[76] the High Court criticised the form of a declaration which stated that companies had contravened sections of the Trade Practices Act 1974 (Cth) by entering into an arrangement without specifying the nature of the arrangement or indicating the gist of the findings made in that case by the trial Judge. Consistently with that approach, the declaration in the present case should incorporate the gist of the findings I have made as to the conduct of Park Trent that constituted making recommendations or stating opinions intended or that can reasonably be regarded as intended to influence persons in making decisions in relation to financial products, being superannuation interests within the meaning of the SIS Act.

     76. [2003] HCA 75; 216 CLR 53 (Rural Press v ACCC) at [89]-[90] (Gummow, Hayne and Heydon JJ, Gleeson CJ and Callinan J agreeing).

490. The declarations should therefore refer specifically to Park Trent’s contravening conduct. ASIC in its written submissions accepts that there might be “scope for some improvement in expression”. That improvement might be achieved by a declaration in the following form:

A declaration pursuant to s 1101B(1) of the Corporations Act 2001 (Cth) (Corporations Act) that the defendant (Park Trent), throughout the period from March 2010 until the date of the trial, contravened s 911A(1) of the Corporations Act in that it carried on the business of providing financial services, namely financial product advice, by making recommendations or statements of opinion intended to influence persons (or which could reasonably be regarded as intended to have such an influence) in making a decision to acquire, vary or dispose of a superannuation interest within the meaning of the Superannuation Investment (Supervision) Act 1993 (Cth) (SIS Act), without holding an Australian Financial Services Licence (AFSL) covering the provision of the financial services, and did so by:

(a)   making recommendations and stating opinions to persons attending Seminars conducted or arranged by Park Trent that they should establish their own Self Managed Superannuation Fund (SMSF) (of which they would be members) in order to invest in real property, transfer the whole or part of their current superannuation balances to the newly established SMSF and invest in real property through their own SMSF;

(b)   making recommendations and stating opinions of the kind referred to in (a) to persons (clients) who attended home visits or run meetings conducted or arranged by Park Trent, such recommendations and statements of opinion being made by employees or persons contracted to Park Trent or employees or persons contracted to other companies within the Park Trent Group;

(c)   making recommendations and stating opinions referred to in (a) by presenting clients who attended run meetings conducted or arranged by Park Trent with Property Investment Analyses (PIAs) incorporating projections as to financial returns, prepared on the basis that the clients would establish or use SMSFs to invest in real property; and

(d)   facilitating the establishment of SMSFs by clients, the transfer of clients’ superannuation accounts or balances to the newly established SMSFs and the completion of the purchase of investment properties through the SMSFs.

491. It will be seen that this declaration relates to the period from March 2010, rather than January 2010, as proposed by ASIC. The evidence suggests that Park Trent commenced the financial services business in about March 2010, when Mr Moss was contacted by Mr Cross.

Injunctive Relief

492. Section 1324(1) of the Corporations Act provides that where a person has engaged in or is proposing to engage in conduct that constituted, constitutes or would constitute a contravention of the Act:

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

493. Section 1101B(1) of the Corporations Act empowers the Court to make such orders as it thinks fit on the application of ASIC, if it appears to the Court that a person has contravened a provision of Chapter 7, including s 911A(1). The power is subject to the proviso that the Court may only make such an order if it is satisfied that the order will not unfairly prejudice any person.

494. Section 1101B(4) provides that the orders that may be made under s 1101B(1) include:

“(a) an order restraining a person from carrying on a business, or doing an act or classes of acts, I relation to financial products or services, if the person has persistently contravened or is continuing to contravene [a provision of Chapter 7].”

The Court therefore has power to grant permanent injunctions under s 1101B(1) restraining a person from doing an act or a class of acts in relation to financial products. [77]

77. Re PFS at [399].

495. The findings I have made establish that the Court’s powers under ss 1101B(1) and 1324 of the Corporation Act have been enlivened. In particular, I have found that:

• Park Trent contravened a provision of Chapter 7, namely s 911A(1), thus enlivening the power in s 1101B(1);

• Park Trent has persistently contravened and is continuing to contravene a provision of Chapter 7, namely s 911A(1), thus enlivening the specific power referred to in s 1101B(4)(a); and

• Park Trent has engaged and is proposing to engage in conduct that constituted and would constitute a contravention of the Corporations Act, namely s 911A(1) thus enlivening the power in s 1324(1).

496. Issues can arise as to the relationship between ss 1101B and 1324 of the Corporations Act. For example in Re Idylic Solutions, a question arose as to whether s 1101B operated as a code, so as to preclude ASIC obtaining relief under s 1324 by way of an injunction having the effect of a financial services disqualification order without a contravention of the kind that enlivens the power in s 1324. [78] Mr Hewitt did not suggest that any such question arises in the present case. Nor did he submit that different principles governed the exercise of the discretionary power conferred on the Court by each provision. Indeed there was not real dispute as to the principles governing the exercise of the powers conferred by ss 1101B(1) and 1324(1) of the Corporations Act.

     78. Re Idylic Solutions at [82]. Ward JA held that s 1101B is not a code in the sense suggested in that case: see at [90].

497. In Re Idylic Solutions, Ward JA stated the general principles governing the exercise of the discretionary jurisdiction conferred by s 1324(1) of the Corporation Act, as follows: [79]

     79. Re Idylic Solutions at [65]-[69].

“[65]   In Triton Underwriting Insurance Agency (2003) 48 ACSR 249; [2003] NSWSC 1145 at [22] (Triton), the court noted that the discretionary jurisdiction conferred by s 1324(1), to make orders where in the opinion of the court it is desirable to do so, turns upon an assessment by the court of a broad concept of what is ‘desirable’.

[66] The jurisdiction which the court exercises under s 1324 is a statutory jurisdiction, (Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd (2002) 42 ACSR 605; [2002] NSWSC 741 (Mauer-Swisse)) and hence the court is not confined by the considerations which would be applicable if it were exercising the traditional equity jurisdiction … s 1324 was drafted with the intent that a court should grant an injunction in circumstances where a court of equity would ordinarily have refused to grant such an injunction; the operative principle underlying s 1324 being for the remedies available to the court to be used in such a way that would serve some utility or purpose within the contemplation of the Corporations Act (such as protecting the community from a real risk of wrongdoing where a person has a propensity to contravene the Act or to mark the disapproval of the court and community with the actions of the defendant).

[67] That said, s 1324 does not displace the court’s equitable jurisdiction (Mauer-Suisse …) and it has been said that equitable principles represent a sound basis for undertaking a preliminary assessment which should then be reviewed against the statutory role ASIC plays and the wider question of what is ‘desirable’ in the statutory context (Triton at [25] …)

[68] As to the general principles application where injunctive relief is sought under s 1324, Palmer J, in Mauer-Suisse, said (at [36]) in the context of an application for injunctive relief:

- amongst the considerations which the court must take into account in an application for an injunction under s 1324 … are the wider issues [that] may be gathered under the broad question whether the injunction would have some utility or would serve some purpose within the contemplation of the Corporations Act; (emphasis added)

- where there is an appreciable – that is, not fanciful – risk of particular future contraventions of the Corporations Act by a defendant, it would serve a purpose within the contemplation of the Corporations Act that the court grant not only a permanent injunction but, in an appropriate case, an interim injunction restraining such conduct. Section 1324 evinces an intention that the possibly severe consequences and the relative promptness of proceedings for contempt of court be added to criminal prosecutions as a deterrent to contraventions of the Corporations Act. [Emphasis added.]

[69] ASIC submits, and I accept, that the Corporations Act is concerned primarily with the protection of the public interest in the prevention of particular conduct … and that (as was recognised to be the position in relation to the former Trade Practices Act) the statutory jurisdiction to grant an injunction is essentially a public interest provision. Hence, considerations of public policy are relevant in the exercise of the discretion whether to grant such relief.” (Some citations omitted.)

498. Other propositions relevant to the present case include the following:

• Injunctions should be based on the case proved against the defendant and should indicate the conduct which is enjoined so that the defendant knows what is expected in order to conform with the orders. [80]

• Injunctions should not be worded so as simply to reproduce the language of the statutory provision that the defendant has contravened. [81]

• It is not “appropriate” for a court to restrain conduct if, on its face, it operates on conduct that does not have the required relationship with the contraventions that enliven the power to grant the injunction. [82]

  80. Commodore Business Machines Pty Ltd v Trade Practices Commission (Commodore v TPC) (1990) 92 ALR 563 at 575 (Full Federal Court) per curiam; Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [2001] HCA 13; 205 CLR 1 at [60] (Gleeson CJ, Gummow, Hayne and Callinan JJ).

  81. Commodore v TPC at 574-575.

  82. ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 267 (Gummow J); Rural Press v ACCC at [91] (Gummow, Hayne and Heydon JJ).

499. For the reasons I have given in relation to declaratory relief, I think that, subject to arguments advanced by Mr Hewitt to which I refer below, this is an appropriate case for the grant of injunctive relief. I consider that unless such relief is granted, it is likely that Park Trent will continue to conduct its business in a manner that contravenes s 911A(1) of the Corporations Act, although perhaps not as flagrantly as in the past. In particular, it is likely that Park Trent will use PIAs in order to influence clients to establish SMSFs and purchase investment properties though the SMSFs. There is certainly a significant chance that it will continue its business model which, to a considerable extent, depends on persuading relatively unsophisticated investors of the virtues of using their superannuation accounts to purchase investment properties and to establish SMSFs (at considerable expense) to enable the purchase to proceed.

500. Park Trent’s contraventions of s 911A(1) of the Corporations Act have influenced investors to purchase investment properties through SMSFs without receiving appropriate financial advice. Investors have therefore been influenced to make decisions that, as Mr Walton clearly pointed out to Park Trent’s senior management in January 2014, expose the investors and their superannuation accounts to significant risks of financial loss (notwithstanding the optimistic projections presented to them).

501. In my view, it is clearly in the public interest that Park Trent be restrained from continuing to engage in conduct that contravens s 911A(1) of the Corporations Act.

502. Mr Hewitt advanced many arguments against the ground of injunctive relief. As in my opinion, they lack substance, I propose to deal with them briefly.

503. Mr Hewitt submitted that Park Trent’s contraventions were insufficiently serious to warrant injunctive relief. I have explained why I consider the contraventions, which took place over a period in excess of five years, to be serious. Moreover, the contraventions were continuing at the date of the trial.

504. Mr Hewitt next submitted that Park Trent had shown that it was willing to act within the parameters of the law. It had done this be revising its business practices in 2014 so that by the trial it was complying “completely or almost completely” with its obligations under the Corporations Act. I have explained why I reject this submission.

505. I have also given reasons for rejecting the contention that there is no reason to think that in the future Park Trent will disregard its statutory obligations. In my view, it is likely to do so if not restrained. It has failed to comply with its own compliance regime which, in any event, was inadequate to prevent it contravening s 911A(1) of the Corporations Act.

506. It is true, as Mr Hewitt pointed out, that ASIC has not alleged that Park Tent acted fraudulently or dishonestly. But the absence of egregious misconduct of this kind does not exempt Park Trent from injunctive relief if such relief is otherwise appropriate.

507. Contrary to Mr Hewitt’s submission, there is no evidence that Park Trent co-operated with ASIC’s investigation in such a way as to render an injunction unnecessary or inappropriate. There is nothing to suggest that Park Trent did anything more than comply with its statutory obligations to provide documentation and other information to ASIC.

508. Mr Hewitt asserted that an injunction should not be granted against Park Trent because it would have an adverse effect on third parties. The only third parties he identified were other companies within the Park Trent Group, but he did not refer to any evidence that they would be prejudiced in the conduct of their respective businesses.

509. I have found that the making of recommendations and stating opinions as to the desirability of purchasing investment properties was integral to Park Trent’s business. But that finding does not mean that an injunction would prevent other companies within Park Trent Group continuing to conduct the business of selling investment properties to clients on a commission basis. That is precisely what Park Trent’s submissions contend that the other companies (except Easy Plan) have been doing throughout the Relevant Period. In any event, if any companies within the Park Trent Group suffer any prejudice, it is not “unfair prejudice” within the meaning of s 1101B(1) of the Corporations Act. If they do sustain any prejudice, it will be because Park Trent’s business in which they have participated and from which they may have derived some benefit, can no longer be conducted unlawfully.

510. Park Trent adduced no evidence that if an injunction in the terms sought by ASIC was granted, its consultants and employees would suffer unfair prejudice. Park Trent has consistently maintained that even if it contravened the Corporations Act prior to 2014, it has conducted its business since 2014 in compliance with the legislation. Its position throughout has been that it can conduct its nationwide business of selling investment properties on a commission basis and providing ancillary services (such as managing the properties and organising finance) without contravening the Corporations Act. The granting of injunctive relief will not inhibit Park Trent from pursuing that course. I am satisfied that the grant of injunctive relief will not cause unfair prejudice to employees of or consultants to Park Trent.

511. It is appropriate that the Court make a restraining order against Park Trent pursuant to s 1101B(1) of the Corporations Act, the terms of which are closely tied to the findings of contravention I have made. I therefore propose an order that broadly follows the form of the declaration referred to earlier: [83]

Pursuant to s 1101B(1) of the Corporations Act 2001 (Cth), the defendant (Park Trent) be permanently restrained, by itself, its servants or agents or otherwise, from the following conduct:

(a)   making recommendations or stating opinions to persons attending Seminars or other meetings or presentations conducted or arranged by Park Trent that they should establish their own Self Managed Superannuation Fund (SMSF) in order to invest in real property, transfer the whole or part of their current superannuation accounts or balances to the newly established SMSF or invest in real property through their own SMSF;

(b)   making recommendations or stating opinions as to the matters referred to in (a) to persons (clients) who attend or participate in home visits, run meetings or on other meetings conducted or arranged by Park Trent, whether such recommendations are made or opinions are stated by employees or person contracted to Park Trent or employees or persons contracted to other companies within the Park Trent Group;

(c)   making recommendations or stating opinions as to the matters referred to in (a) by presenting or making available to clients, whether at meetings or otherwise, Property Investment Analyses (PIAs) or other similar documents incorporating projections as to financial returns achievable by investing in real property, when the projections are prepared on the basis that the clients will establish or use an SMSF to invest in real property; or

(d)   facilitating or otherwise assisting in the establishment of an SMSF by clients or the transfer of clients’ superannuation accounts or balances to an SMSF.

83. See at [490] above.

512. It should be noted that the proposed order does not restrain Park Trent from facilitating the purchase of investment properties by means of an SMSF. The reason for this exclusion is that such an order might prohibit activities customarily performed by real estate agents (although Park Trent’s past conduct in facilitating purchases through SMSFs has gone considerably further).

513. For the reasons I have given, I consider that s 1101B(1) of the Corporations Act empowers the Court to make a restraining order against Park Trent in the terms I have proposed. I therefore do not think it necessary to consider whether the specific power granted by s 1101B(1), in the circumstances of the present case, precludes reliance on the general power conferred by s 1324(1) of the Corporations Act to grant an injunction against a person who has engaged in conduct constituting a contravention of the Corporations Act against Park Trent by reason of its contraventions of s 911A(1) of the Corporations Act.

514. Since neither party addressed this question, [84] I do not propose to do so.

     84. See Re Idylic Solutions at [72]-[90]; Mercedes Holdings Pty Ltd v Waters (No 2) [2010] FCA 472; 186 FCR 450 at [30]-[31] (Perram J).

515. I note, however, that the common assumption of the parties appeared to be that s 1324(1) is an available source of power for an injunction to be granted against Park Trent. If the assumption is correct, s 1324(1) also authorises the restraining order that I propose and I would invoke that provision as a source of power to make the order.

Conclusion   

516. I have found that Park Trent has persistently contravened s 911A(1) of the Corporations Act throughout the period from March 2010 until the date of the trial. My present view is that I should make a declaration and grant an injunction in the terms set out above. [85]

     85. See at [491], [511]] above.

517. I propose, however, to give the parties a further opportunity to comment on the form of the proposed declaration and injunction, provided the comments are consistent with my reasons. It is not an opportunity to re-argue matters dealt with in the judgment.

518. Subject to any submissions by the parties on costs, my present view is that Park Trent should pay ASIC’s costs of the proceedings.

519. The orders I propose to make are as follows:

1.   If the plaintiff (ASIC) wishes to file written submissions as to the form of the orders proposed in this judgment (such submissions to be consistent with these reasons for judgment), or as to costs, it should do so within fourteen days.

2.   If the defendant (Park Trent) wishes to file written submissions as to the form of the proposed orders (such submissions to be consistent with these reasons for judgment), or as to costs, or if it wishes to reply to ASIC’s submissions, it should do so within a further fourteen days.

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Endnotes

Amendments

03 December 2015 - [3(b)] - "be" amended to "by".

[374] - 3rd line: "would have made" similar ... .

[398] - 5th line: "control" amended to "contact".

[436] - last line: "SMSFS" amended to "SMSFs".

[480] - 1st line: "made a declaration" amended to "made declarations".

[490] - 1st line of indent: "2001 (Cth) (Corporations Act) added to Corporations Act; 3rd line of indent "2001 (Cth)" deleted; 10th line of indent: (ASFL) amended to (AFSL).

[492] - in quote: first-mentioned "person" added.

[494] - 1011B(4) amended to 1101B(4).

Endnote 83 - [400] amended to [490].

Decision last updated: 03 December 2015