Australian Securities and Investments Commission v Ultiqa Lifestyle Promotions Limited (in liq)

Case [2022] FCA 561

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Ultiqa Lifestyle Promotions Limited (in liq) [2022] FCA 561

File number(s): QUD 354 of 2021
Judgment of: DOWNES J
Date of judgment: 17 May 2022
Catchwords: CORPORATIONS – whether contraventions of ss 961L and 912A Corporations Act 2001 (Cth) – whether holder of Australian financial services licence took reasonable steps to ensure that its representatives complied with ss 961B, 961G and 961J Corporations Act 2001 (Cth) – where representatives engaged in process of selling interests in managed investment scheme in time-share category – where representatives gave personal advice to consumers – where consumers were not told and were not aware that they were receiving financial advice – where only limited information was obtained from consumers prior to advice being given – where representatives were provided with template statement of advice document, training manual and sales script – where focus of documents provided to representatives was to make a sale of an interest in scheme – contraventions established – declaratory relief granted
Legislation:

Corporations Act 2001 (Cth) ss 761A, 764A(1)(b), 766B, 910A, 912A(1)(a), 912A(1)(c), 912A(1)(ca), 912A(5A), 912C, 960, 961(1), 961B, 961G, 961H, 961J, 961L, 1101B(1)(a)(i), 1317E(1), Ch 7 Pt 7.7A

Federal Court of Australia Act 1976 (Cth) s 21
Cases cited:

Australian Competition & Consumer Commission v Renegade Gas Pty Ltd (trading as Supagas NSW) [2014] FCA 1135

Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) (2020) 275 FCR 57; [2020] FCA 208

Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) (2020) 142 ACSR 277; [2020] FCA 69

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

Australian Securities and Investments Commission v NSG Services Pty Ltd (2017) 122 ACSR 47; [2017] FCA 345

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

Australian Securities and Investments Commission v Westpac Securities Administration Ltd (2019) 272 FCR 170; [2019] FCAFC 187
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 130
Date of hearing: 4 March 2022
Counsel for the Plaintiff: Mr SJ Cleary and Mr SE Seefeld
Counsel for the Defendant: The Defendant did not appear

ORDERS

QUD 354 of 2021
BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Plaintiff
AND:

ULTIQA LIFESTYLE PROMOTIONS LIMITED (IN LIQUIDATION) (ACN 096 169 256)

Defendant

ORDER MADE BY:

DOWNES J

DATE OF ORDER:

17 MAY 2022

THE COURT NOTES THAT:

In these Declarations and Orders, the following terms have the following meanings:

(a)Act means the Corporations Act 2001 (Cth).

(b)Authorised Representative Steps, means the following steps:

(i)implement an advice process to be followed by authorised representatives which was designed to comply with sections 961B, 961G and 961J of the Act;

(ii)provide policy and procedure documents to authorised representatives designed to ensure compliance during the advice process with sections…

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AGLC
Australian Securities and Investments Commission v Ultiqa Lifestyle Promotions Limited (in liq) [2022] FCA 561
Case
[2022] FCA 561
Decision Date

CaseChat Overview and Summary

The Australian Securities and Investments Commission (ASIC) brought proceedings against Ultiqa Lifestyle Promotions Limited (in liquidation) in the Federal Court, seeking declarations, pecuniary penalties, injunctions, and costs. ASIC alleged that Ultiqa had contravened sections 961L, 912A(1)(a), and 912A(1)(ca) of the Corporations Act 2001 (Cth) by failing to ensure that its authorised representatives complied with certain financial services laws when providing advice to consumers about purchasing interests in a managed investment scheme. The court had to decide whether the representatives provided personal advice within the meaning of the Act, and if so, whether they complied with the relevant sections of the Act, and whether Ultiqa took reasonable steps to ensure compliance.

The court found that the authorised representatives did provide personal advice as they made recommendations intended to influence the consumers' decisions about purchasing interests in the scheme. The court also found that the representatives did not comply with sections 961B, 961G, and 961J of the Act because they did not obtain sufficient information about the consumers' objectives, financial situation, and needs before giving advice, and they did not provide the consumers with a Statement of Advice that was tailored to the consumers' needs. The court further found that Ultiqa failed to take reasonable steps to ensure that its representatives complied with the financial services laws, and that it therefore contravened sections 961L, 912A(1)(a), and 912A(1)(ca) of the Act. ASIC was granted the declaratory relief it sought, with some modifications.

The court ordered that ASIC serve a copy of the judgment on the defendant and listed the matter for a case management hearing for further directions. The six consumers who provided affidavit evidence are Bianca Lindrea and Daniel Perkins, Sharon and Gregory Collins, Caterina and Brett Waterford, Kevin Wood and Ah-Hong Jr Ah-Hong, Christopher and Rachael Gill, and Kelly and Terrence McLean. The dates on which the consumers were given advice by Ultiqa's representatives are 10 July 2018, 12 July 2018, 5 October 2017, 6 April 2018, 11 January 2018, and 21 March 2019, respectively.

Orders

Orders of the court

1. The plaintiff forthwith serve a copy of this judgement on the defendant.

2. The matter be listed for a case management hearing at 9.30 am on 27 May 2022 for further directions.

Schedule A

No

Consumer Name

Date advice given

1

Bianca Lindrea and Daniel Perkins

10 July 2018

2

Sharon and Gregory Collins

12 July 2018

3

Caterina and Brett Waterford

5 October 2017

4

Kevin Wood and Ah-Hong Jr Ah-Hong

6 April 2018

5

Christopher and Rachael Gill

11 January 2018

6

Kelly and Terrence McLean

21 March 2019

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

ASIC seeks declarations, pecuniary penalties, injunctions and costs, and has provided a draft order as being the first set of orders sought by it. For the following reasons, ASIC has established the contraventions and is entitled to the declaratory relief sought by it in its draft order, with some modifications. I will relist the matter for directions in relation to the question of the remainder of the relief sought by it in this proceeding.EVIDENCE ASIC relies upon affidavit evidence from each of the six consumers listed in schedule A to the Orders which will be made. The six consumers are actually six couples. The affidavit evidence of the consumers is as follows: (a)affidavit of Bianca Lindrea filed 15 December 2021 (affirmed 20 August 2020);(b)affidavit of Sharon Collins filed 15 December 2021 (affirmed 3 September 2020);(c)affidavit of Caterina Waterford filed 15 December 2021 (affirmed 28 January 2021); (d)affidavit of Kevin Wood filed 15 December 2021 (affirmed 28 January 2021); (e)affidavit of Christopher Gill filed 15 December 2021 (affirmed 14 September 2020);(f)affidavit of Kelly McLean filed 15 December 2021 (affirmed 18 August 2020); and(g)affidavit of Kelly McLean filed 15 December 2021 (affirmed 18 November 2020). ASIC also relies upon the following evidence:(a)expert report of Paul Green, an independent expert accountant and director of forensic services at Vincents Chartered Accountants, dated 15 October 2021 as updated by an affidavit filed on 1 March 2022 (Green Report);(b)expert report of Cheyenne Walker, an independent expert in financial services compliance and managing director of Australian Independent Compliance Solutions Pty Ltd, dated 11 December 2021 (Walker Report);(c)affidavit of Jennifer Leisfield, a lawyer employed by ASIC in its Financial Services Enforcement Team, which was filed on 15 December 2021, and a supplementary affidavit of Ms Leisfield filed on 1 March 2022.RELEVANT FACTSUltiqa Scheme The Scheme was registered with ASIC on 27 August 2001 as a managed investment scheme in the time-share category. The Scheme operates by offering various classes of interests to its members. Each class of interest has different rights and are all subject to the restrictions provided for in the Scheme’s constitution. Ultiqa Sales Process During the relevant period, the following sales process was used by the authorised representatives of Ultiqa:(a)a marketing consultant would typically approach consumers at a shopping centre, theme park or similar location and give the consumers a scratch card. If the consumer scratched three matching symbols on the card, they may be entitled to win a prize. To be eligible for the prize, the consumer was required to be married or living together for a minimum of two years, aged between 28 and 65 years, and have a minimum combined annual income of $50,000. To receive the prize, the consumer was required to attend a 90-minute sales presentation;(b)upon attendance at the presentation at a sales office, the consumer completed a document called a “Lifestyle Survey”. The Lifestyle Survey recorded the consumer’s name, age, employment, marital status, address, combined yearly income range and whether the consumer was a homeowner. Usually, no information was sought in relation to the consumer’s expenses, assets or liabilities;(c)the consumer would then be seated with an authorised representative, who would obtain information from the consumer about their holiday preferences, including the frequency and approximate cost of those holidays. This was recorded in a document called a “Holiday Survey” which was part of a sales aid template referred to as a “T-sheet”. All authorised representatives based at a sales office used the T-sheet for that office, which could not be changed;(d)the only documents provided by Ultiqa to the authorised representatives for the collection of consumer information were the Lifestyle Survey and the Holiday Survey. As set out below, Ultiqa’s stated position to ASIC is that, “Our investigations into the client’s affairs are limited to understanding the client’s holiday profile”;(e)the authorised representative would then give a presentation to the consumers about purchasing interests in the Scheme following an approved sales script and using the T-sheet. Ultiqa required the authorised representative to use the T-sheet without modification;(f)at the conclusion of the presentation, the authorised representative would provide the consumer with a Statement of Advice (SOA) which recommended the purchase of interests in the Scheme. The SOA was a template two page document which attached, or was provided with, a recommendation page and each of the consumer’s completed survey pages. The representative did not go through the SOA with the consumer;(g)the consumer was then invited to purchase an interest in the Scheme. The price to acquire an interest in the Scheme during the relevant period was between $9,990 and $19,992. In most cases, any purchase was funded by a loan from a related company, called Future Holiday Finance Pty Ltd;(h)generally, indirect pressure was placed on the consumer to make a decision before leaving the presentation. Such pressure included offering incentives to the consumer to sign up at the presentation and giving inadequate time and privacy to the consumer to enable a considered decision to be made about whether to proceed;(i)when the consumer agreed to acquire an interest in the Scheme, the consumer would be provided with and would initial a document described as an “At a glance” document, the content of which varied depending upon which product had been recommended to that client. The authorised representative was required by Ultiqa to use this document and could not change it. Other documents were also shown to the consumers and signed by them, but without adequate time being allowed for the consumer to be able to read and understand what they were signing.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

The following issues arise from the Concise Statement and the form of the Orders sought by ASIC:(1)whether the Ultiqa authorised representatives provided advice within the meaning of Chapter 7 Pt 7.7A Div 2 of the Act to the consumers such that they were required to comply with ss 961B, 961G and 961J of the Act;(2)whether the Ultiqa authorised representatives complied with s 961B of the Act when providing advice to the pleaded consumers;(3)whether the Ultiqa authorised representatives complied with s 961G of the Act when providing advice to the pleaded consumers;(4)whether the Ultiqa authorised representatives complied with s 961J of the Act when providing advice to the pleaded consumers;(5)whether Ultiqa contravened s 961L of the Act by failing to take reasonable steps to ensure that its authorised representatives complied with ss 961B, 961G and 961J of the Act when providing advice to the pleaded consumers;(6)whether Ultiqa failed to do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly and thereby contravened s 912A(1)(a) of the Act;(7)whether Ultiqa failed to take reasonable steps to ensure that its authorised representatives complied with the financial services laws, namely ss 961B, 961G and 961J of the Act and thereby contravened s 912A(1)(ca) of the Act;(8)whether Ultiqa failed to comply with the financial services laws, namely ss 961L, 912A(1)(a) and 912A(1)(ca) of the Act and thereby contravened s 912A(1)(c) of the Act;(9)whether ASIC is entitled to declaratory relief in the form sought by it.CONSIDERATIONWhether advice was provided within the meaning of Chapter 7 Pt 7.7A Div 2 of the Act By s 764A(1)(b) of the Act, an interest in a registered scheme is a financial product for the purposes of Chapter 7 of the Act. Accordingly, an interest in the Scheme is a financial product for the purposes of Chapter 7 of the Act. By s 766B(1) of the Act, financial product advice includes a recommendation or a statement of opinion, or a report of either of those things, that is intended to influence a person in making a decision in relation to a particular financial product. Applying these sections of the Act and on the facts of this case, the recommendation by the authorised representatives of Ultiqa that each consumer acquire an interest in the Scheme was financial product advice within the meaning of s 766B(1). For the purposes of Chapter 7 of the Act, personal advice includes financial product advice that is given or directed to a person in circumstances where the provider of the advice has considered one or more of the person’s objectives, financial situation and needs (other than for purposes which are not relevant to the facts of this case) or a reasonable person might expect the provider to have considered one or more of these matters: see s 766B(3) of the Act. Applying s 766B(3) of the Act and on the facts of this case, the recommendations by the authorised representative of Ultiqa that each consumer acquire an interest in the Scheme was personal advice within the meaning of s 766B(3). That is because either the representatives in fact considered the respective consumer’s objectives, financial situation and needs (to an extent) or a reasonable person might expect the provider to have considered one or more of these matters (having regard to the Green Report).