Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd - [2009] FCA 883

FEDERAL COURT OF AUSTRALIA
Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd [2009] FCA 883
TRADE PRACTICES – financial services – suspension of representative under corporate authorised representative agreement deed – termination of deed – whether material breach of deed by representatives – if so, whether representative suspended and deed terminated for reason other than material breach of deed – whether representation made that suspension or termination of deed would only follow material breach – if so, whether representation constituted misleading or deceptive conduct – if no material breach of deed, whether representation that no areas of non‑compliance with material obligations under the deed required rectification – whether representation by entering into deed that respondent would provide training to applicants – whether representation constituted misleading and deceptive conduct – whether s 52 Trade Practices Act 1974 not applicable to misleading and deceptive conduct pleaded and s 12DA Corporations Act 2001 applicable
HELD – material breach of deed by applicants – suspension of representative and termination of deed lawful – s 52 Trade Practices Act 1974 applicable to pleaded conduct – representation made that representative would not be suspended and deed would not be terminated except for material breach – no misleading or deceptive conduct in respect of such representation – no representation by respondent that applicants were complying with material obligations under deed and no areas of non‑compliance required rectification – representation that respondent would train applicants – no misleading and deceptive conduct in respect of representation that respondent would train applicants – respondent not liable to applicants – applicants not entitled to declaration that respondent not entitled to suspend second applicant and terminate deed – no entitlement to damages and/or compensation for loss and damage caused by suspension and termination
Acts Interpretation Act 1901(Cth) s 13(1), s 15AA
Australian Securities and Investments Commission Act 2001 (Cth) s 12 BA(1), s 12BAA(1), s 12 BAA(8), s 12BAB, s 12BAB(1), s 12DA, s 12DA(1), Part 2 Div 2, subdiv D
Australian Securities and Investments Commission Act 1989 (Cth)
Corporations Act 2001 (Cth) Ch 7, Div 3 subdiv B subdiv C subdiv D, Div 4, Div 5 Pt 7.6, Pt 7.7, Div 6, s 760A, s 761A, s 761C, s 763A, s 766A(1), s 766A(1)(a), s 766A(1)(b), s 766B, s 910A, s 911A, s 911A(1), s 912A, s 912A(1), s 912A(1)(c), s 912A(1)(ca), 912A(1)(f), s 912D, s 915B(3), s 916A(1), s 916B(3), s 917B, s 941A, s 941B, s 941B(2), s 941D, s 941D(1), s 941E, s 942A(1), s 942C, s 942C(2), s 942D, s 942DA, s 944A, s 945A, s 945B, s 945B(3), s 945B(2), s 946A, s 946A(2), s 946AA, s 946B, s 947A, s 947C, s 947C(2), s 947C(3), s 947C(4), s 947D, s 947D(2)(a), s 947D(2)(b), s 947E, s 949A
Financial Sector Reform (Consequential Amendments) Act 1998 (Cth)
Trade Practices Act 1974 (Cth) s 51AF, s 51AF(1), s 51AF(2)(a), s 52, s 82, 87(1A), Pt V
Corporations Regulations 2001 (Cth) reg 7.7.01, reg 7.7.07, reg 7.7.07(3), reg 7.7.07(4)
AVOCA CONSULTANTS PTY LTD and LAURENCE MARTIN CUNNINGHAM v MILLENNIUM3 FINANCIAL SERVICES PTY LTD
WAD 251 of 2008
BARKER J
14 AUGUST 2009
PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 251 of 2008

BETWEEN:
AVOCA CONSULTANTS PTY LTD
First Applicant

LAURENCE MARTIN CUNNINGHAM
Second Applicant

AND:
MILLENNIUM3 FINANCIAL SERVICES PTY LTD
Respondent

JUDGE:

BARKER J

DATE OF ORDER:

14 AUGUST 2009

WHERE MADE:

PERTH

THE COURT ORDERS THAT:
1.The application is dismissed.
2.Subject to order 3, the applicants to pay the respondent's costs, to be taxed if not agreed.
3.Liberty to apply in respect of any reserved costs within 21 days.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 251 of 2008

BETWEEN:
AVOCA CONSULTANTS PTY LTD
First Applicant

LAURENCE MARTIN CUNNINGHAM
Second Applicant

AND:
MILLENNIUM3 FINANCIAL SERVICES PTY LTD
Respondent

JUDGE:

BARKER J

DATE:

14 AUGUST 2009

PLACE:

PERTH

REASONS FOR JUDGMENT
INTRODUCTION

The respondent, which is referred to in these reasons as M3FS, is a corporation engaged in the business of providing financial services and which holds an Australian financial services licence (AFSL) under the Corporations Act 2001 (Cth) (CA).
In about July 2007, M3FS formally acquired the business assets of Mawson Group Australia Limited (Mawson) and Aurora Financial Services Pty Ltd (Aurora). The proposed acquisition had been announced some time earlier.
Prior to M3FS's acquisition, the applicants provided financial services under arrangements with Mawson. Following the acquisition, the first applicant, Avoca, became an authorised representative of M3FS pursuant to a deed called the Corporate Authorised Representative Agreement (CARA) dated 16 July 2007, and the second applicant, Mr Martin Cunningham, became a sub‑authorised representative pursuant to the deed.
On 8 July 2008, nearly a year later, Mr Cunningham was suspended by M3FS for alleged "material breach" of the CARA. In December 2008, M3FS terminated the CARA and the authorities of the applicants for the same reason. In this proceeding, the applicants challenged the right of M3FS to take such actions.
OUTLINE OF THE PARTIES' CASES
The applicants plead that:
· M3FS breached the CARA by suspending Mr Cunningham's authority and then terminating the deed in circumstances where the applicants had not committed any material breach of the deed and M3FS did not have any reasonable cause to suspect the applicants had committed any material breach of the deed (statement of claim para 6 – 7, 17 and 18.1);
· By entering into the CARA, M3FS represented to the applicants that it would not suspend or terminate the authorities of the applicants for anything other than a material breach of the deed or where there were reasonable grounds to suspect a material breach; and that this representation constituted misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA) because the respondent had no reasonable grounds for making the representation (statement of claim paras 8 – 9, 16.1, 17 and 18.2.);
· That by entering into the deed M3FS represented to the applicants that it would provide training to the applicants as required by the CA and the conditions of its AFSL; and that this representation constituted misleading and deceptive conduct in contravention of s 52 of the TPA because the respondent had no reasonable grounds for making the representation (statement of claim paras 8, 10, 16.2, 17 and 18.3);
· Alternatively, if the applicants committed a material breach or there were reasonable grounds to suspect so, M3FS represented to the applicants on three separate occasions (being in December 2007, January 2008 and May 2008) that they were complying with their material obligations under the CARA and there were no areas of non‑compliance that required rectification; and that those representations constituted misleading and deceptive conduct in contravention of s 52 of the TPA (statement of claim paras 11 – 15, 16.3 – 16.6, 17 and 18.4 – 18.6);
· Consequently the applicants are entitled to a declaration that M3FS was not entitled to suspend the authority of the second applicant or terminate the authorities of the applicants as they purported to do, pursuant to cl 12.2(3) and (10) of the CARA; and that the applicants are entitled to damages (at common law, alternatively under s 82 of the TPA) and/or compensation (pursuant to s 87(1A) of the TPA) for loss and damage caused by the suspension and termination.
The matter went to hearing on the issues of liability only. At trial the applicants abandoned an earlier claim for a mandatory injunction requiring M3FS to reinstate them as representatives following their appointment on 5 February 2009 as representatives for another duly licensed financial advisor.
Factually, the applicants say, in short, that at all material times they provided financial services to retail clients, including by issuing Statements of Advice (SOAs) and otherwise acted in accordance with the requirements of an M3FS compliance review report dated 29 November 2007, and a December 2007 action plan agreed to by the parties. They say that, as a result of the conduct of Mr Jonathon Nguyen, M3FS's State Development Manager and their Relationship Manager, on 15 January 2008 – when, in the absence of Mr Cunningham, he inspected five of Mr Cunningham's client files at the offices of Avoca, ostensibly for the purposes of pre‑vetting, and did not thereafter indicate any difficulties with those files – Mr Cunningham and Avoca were entitled to consider they were compliant with the requirements of M3FS notified through the November audit process and the December action plan.
Further, the applicants says that this understanding was compounded by the subsequent actions of Mr Nguyen in April 2008, when, by prior arrangement with Mr Cunningham, he collected six client files from Mr Cunningham at the offices of Avoca on 8 April 2008 and did not communicate any non‑compliant conduct on the part of the applicants revealed by those files until late June 2008. The applicants say that if there were any compliance difficulties revealed by an inspection of those six client files, they would have expected to have heard from Mr Nguyen, or some other officer of M3FS, well before late June 2008.
The applicants say the real reason why Mr Cunningham was suspended on 8 July 2008 was because the M3FS compliance committee then believed, on the basis of an incorrect electronic file notation made by Mr Nguyen in respect of his visit to the offices of Avoca on 15 January 2008, but not actually made and entered in the M3FS Myworkspace computer system until 4 July 2008, that the applicants had not made any client files available for pre‑vetting by M3FS as required by the December action plan. The applicants say, in effect, it was on the basis of this belief, based on incorrect information, and not for any other alleged "material breach" of the CARA, that the compliance committee initially suspended Mr Cunningham in July and later terminated the CARA in December 2008.
In the alternative, the applicants say that, if M3FS was entitled to suspend the applicants and terminate the arrangements with the applicants for material breach of the CARA, not relevantly related to the incorrect electronic file entry, then the conduct of Mr Nguyen complained of in the period January 2008 to late June 2008, was conduct on behalf of M3FS that impliedly represented to the applicants that they were compliant with the requirements of the CARA. Thus, at the time the applicants were put on notice and shortly after suspended, on the basis they were in material breach of their obligations under the CARA, they had been provided no opportunity to become compliant. Put another way, the applicants say that, by reason of these representations, they were induced to believe they were compliant and thereby had no need to, and did not take any steps to, make themselves compliant, as a result of which M3FS was able to suspend and then terminate the arrangements for material breach of the CARA by the applicants.
The applicants also argue that M3FS represented it would properly train Mr Cunningham, which representation it failed to meet.
M3FS defends its position by saying it was justified in first suspending Mr Cunningham's authority and then terminating the CARA deed because, in mid 2008, during the currency of the CARA, it detected that SOAs issued by the applicants were substantially defective in a number of significant respects and those failures on their part obliged M3FS to exercise its power to suspend Mr Cunningham's authority on 8 July 2008.
As to the applicant's plea there were no reasonable grounds to support the alleged representation that M3FS would provide training to the applicants as required by the CA and the conditions of its AFSL, M3FS acknowledge that s 912A(1) of the CA refers to training, but say the licence does not. In any event, M3FS say the applicants were provided with training.
As to the alleged representations that M3FS would not suspend or terminate Avoca's authority for anything other than a material breach or where there were reasonable grounds for suspecting a material breach, and in respect of training, M3FS contends that as a matter of commonsense, it borders on the absurd that a corporation would enter into a contract without any intention of performing it. In short, the respondent rejects these grounds.
In relation to the allegations that in December 2007, and then again in January 2008 and May 2008, M3FS represented to the applicants that they were complying with their obligations under the CARA and that there were no areas of non‑compliance which required rectification, M3FS says, first, that the evidence does not support such allegations; and secondly that, even if there were satisfactory evidence in proof of the matters pleaded and even if those matters could reasonably have induced the applicants to form the claimed belief (neither of which conditions are conceded), the most that could be said is that the alleged conduct of M3FS's employees amounted to a waiver of its rights to suspend or terminate Avoca's appointment as its authorised representative for a very limited period. Having regard to the statutory obligations imposed by the CA, a proposition that M3FS would conduct itself in such a way as to forego those rights, even if Avoca did nothing to rectify its faults, is untenable.
Further, M3FS contends that the representations that it is alleged to have made, simply cannot be said to be causative of any loss or damage said to have been incurred by Avoca. The matters which led to the suspension and subsequent termination were Avoca's non‑fulfilment of its obligations under the CARA and the requirements of the CA.
M3FS also contends that the claims made against it by reference to s 52 of the TPA cannot be sustained on the basis that this provision is excluded by the operation of s 51AF of the TPA.
REGULATION OF FINANCIAL SERVICES
Chapter 7, Corporations Act 2001: Chapter 7 of the Corporations Act 2001 (CA) at all material times regulated financial services and markets. The CA followed earlier legislative reforms to the Australian financial system introduced in 1998 that included similar regulatory provisions to Ch 7.
The object of Ch 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.
(Section 760A CA)
The provisions of Ch 7 impose a range of duties, including disclosure duties, on licensees and their representatives in relation to the provision of financial services including advice.
Australian Financial Services Licence: Part 7.6 of Ch 7 deals with licensing of providers of financial services. Subject to s 911A, a person who "carries on a financial services business" must hold an Australian financial services licence (AFSL) covering the provision of financial services (s 911A(1)).
A "financial services business" means a business of "providing financial services" (s 761A Definition). The meaning of "carry on a financial services business" is affected by s 761C. A "financial service" has the meaning given by Div 4. Section 766A(1) within Div 4 provides that for the purposes of Ch 7 a "person provides a financial service" (emphasis in original) if they:
(a) provide financial product advice (see section 766B); or
(b) deal in a financial product (see section 766C); or
(c) make a market for a financial product (see section 766D); or
(d) operate a registered scheme; or
(e) provide a custodial or depository service (see section 766E); or
(f) engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.
In the present case, it is the activities of providing financial product advice and dealing in a financial product (s 766A(1)(a) and (b)) that are of particular relevance to the business of the applicants.
A "financial product" under the CA has the meaning given by Div 3 (see s 761A definition). As a result s 763A provides the following general definition of a "financial product":
(1)For the purposes of this Chapter, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
(a) makes a financial investment (see section 763B);
(b) manages financial risk (see section 763C);
(c) makes non‑cash payments (see section 763D).
This has effect subject to section 763E.
(2) For the purposes of this Chapter, a particular facility that is of a kind through which people commonly make financial investments, manage financial risks or make non‑cash payments is a financial product even if that facility is acquired by a particular person for some other purpose.
(3) A facility does not cease to be a financial product merely because:
(a) the facility has been acquired by a person other than the person to whom it was originally issued; and
(b) that person, in acquiring the product, was not making a financial investment or managing a financial risk.
(emphasis in original)
The expression "financial product advice" has the meaning give by s 766B (s 761A Definition). Section 766B provides that for the purpose of Ch 7 "financial product advice" means a recommendation or a statement of opinion, or a report or 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.
The respondent, M3FS, carries on a financial services business and holds an AFSL.
General obligations of holder of AFSL: The holder of an AFSL has general obligations that arise under s 912A(1), which relevantly include the following:
(a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and
…
(b)comply with the conditions on the licence; and
(c)comply with the financial services laws; and
(ca) take reasonable steps to ensure that its representatives comply with the financial services laws; and
…
(e) maintain the competence to provide those financial services; and
(f) ensure that its representatives are adequately trained, and are competent, to provide those financial services; and
…
A "representative" is defined by s 910A to mean relevantly:
(a) if the person is a financial services licensee:
(i) an authorised representative of the licensee.
In this case, the applicants fall within this definition.
Under s 912D, the holder of the AFSL has an obligation to notify the Australian Securities and Investments Commission (ASIC) of certain matters if it breaches or is likely to breach any of the relevant obligations under s 912A or the obligation under s 912A(1)(c).

Relevantly, under s 915B(3), ASIC may suspend or cancel an AFSL held by a body corporate by giving appropriate notice.
Division 5 of Pt 7.6 deals with authorised representatives. Section 916A(1) empowers the holder of an AFSL to give the authorised representative a written notice authorising the person for the purposes of Ch 7 to provide a specified financial service or services on behalf of the licensee.
Under s 916B(3) a body corporate who is an authorised representative of a financial services licence may give an individual a written notice authorising that individual, for the purpose of Ch 7 to provide a specified financial service or services on behalf of the licensee, but only if the licensee consents in writing given to the body corporate.
In the present case, M3FS authorised the body corporate of Avoca as its authorised representative, and approved of Mr Cunningham and Mr Gyi as sub‑representatives.
Division 6 of Ch 7 deals with liability of the holder of an AFSL for representatives. Under s 917B, if the representative is the representative of only one financial services licensee, as is the case here, the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative's conduct is within the authority.
Financial Services Guide (FSG): Part 7.7 of Ch 7 deals with financial services disclosure. Section 941A places an obligation on the holder of the AFSL to give a FSG if a financial service is provided to a person as a retail client. Section 941B places an obligation on an authorised representative to give a FSG if a financial service is provided to person as a retail client.
Section 941B(2) provides a FSG must not be given to the person by the providing entity (which includes an authorised representative) unless the authorising licensee has authorised its distribution by the providing entity.
Section 941D deals with the timing of giving a FSG. Section 941D(1) states that the general rule is that the FSG must be given to the client as soon as practicable after it becomes apparent to the providing entity that the financial service will be, or is likely to be, provided to the client. It must in any event be given to the client before the financial service is provided. Section 941E provides that the information contained in the FSG must be up to date as at the time when it is given to the client. Section 942A(1) provides that the title "Financial Services Guide" must be used on the cover, or at or near the front, of a FSG.
Section 942C sets out requirements where a FSG is given by an authorised representative. Section 942C(2) specifies the contents, which by para (f) includes information about the remuneration (including commission) or other benefits that the providing entity or its employer or authorised licensee is to receive in respect of the provision of any of the authorised services.
Section 942D provides that a FSG may consist of two or more separate documents given at the same time. But each document must contain words to indicate that it is part of a FSG. Section 942DA provides that a FSG and a Product Disclosure Statement may be combined in a single document.
Statement of Advice (SOA): Division 3 specifies additional requirements for personal advice provided to a retail client, which applies where advice is provided by an authorised representative of a holder of an AFSL (s 944A).
Subdivision B of Div 3 specifies requirements relating to the "basis of advice":
·First, there is the requirement to have a "reasonable basis" for the advice (s 945A).
·Secondly, there is "an obligation to warn" a client if the advice is based on incomplete or inaccurate information (s 945B). This warning must be given to the client at the same time as the advice is provided and subject to subs 3, by the same means as the advice is provided (s 945B(2)).
Subdivision C specifies the requirements for a Statement of Advice (SOA) to be given:
·The first is the obligation "to give" the client a SOA (s 946A).
·However, the SOA may be the means by which the advice is provided, or a separate record of the advice (s 946A(2)).
·The providing entity does not have to give the client a SOA for small investment advice, in certain circumstances (s 946AA) which are not relevant in this case.
·There are also other situations in which an SOA is not required (s 946B). But these exceptional situations are presently not relevant.
Subdivision D deals with "content" of a SOA. Sections 947A and 947C specify the following requirements:
·The title "Statement of Advice" must be used on the cover of, or at or near the front of, a SOA (s 947A).
·Subject to subs 3 of s 947C and the Regulations, the SOA must include the following statements and information (s 947C(2)):
(a)Statement setting out "the advice".
(b)Information about "the basis" on which the advice is or was given.
(c)A statement setting out the name and contact details of the providing entity.
(d)Information about any remuneration (including commission) and any other benefits that any of the providing entity, director or employee thereof is to receive that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice.
(e)Information about any other interests that might influence the providing entity in providing the advice.
(f)If s 945B requires a warning to be given to the client in relation to the advice – a statement setting out or recording the warning.
(g)Any other statements or information required by the Regulations.
·Subject to subs 4 of s 947C, the level of the detail about a matter that is required is such as a person "would reasonably require for the purpose of deciding whether to act on the advice as a retail client" (s 947C(3)).
·Any information required by s 947D if applicable.
·The statements and information must be "worded and presented in a clear, concise and effective manner".
Product replacement requirements: There are additional requirements under s 947D when advice recommends replacement of one product with another, namely information about the following, to the extent that the information is known or could reasonably be found out, by the providing entity:
·any charges the client will or may incur in respect of the disposal or reduction;
·any charges the client will or may incur in respect of the acquisition or increase;
·any pecuniary or other benefits the client will or may lose (temporarily or otherwise) as a result of taking the recommended action (s 947D(2)(a));
·information about any other significant consequences for the client from taking the recommended action that the providing entity knows or ought reasonably to know are likely (s 947D(2)(b));
·any other information required by the Regulations.
General: A SOA is not to be combined with a FSG or Product Disclosure Statement (s 947E).
Other disclosure requirements are imposed by Div 4, s 949A including:
·An obligation to warn a retail client to whom general advice is given that the advice does not take account of the client's objectives, financial situation or needs, where that is the case.
The Corporations Regulations 2001 (Cth) also supplement the requirements of Ch 7 of the CA:
· Regulation 7.7.01 specifies how documents, information and statements are to be given.
· Regulation 7.7.07 requires the FSG given by an authorised representative to include information to the extent it is able to be ascertained at the time the FSG is given to the client, about all remuneration including commission and other benefits that a person has received, or is to receive, for referring another person to the authorised representative or the holder of the AFSL.
· Under Reg 7.7.07(3), if the remuneration, including commission or other benefits, are able to be ascertained at the time the FSG is given to a client, then the remuneration, including commission and other benefits, must be included.
· Under Reg 7.7.07(4), if the remuneration etc are not able to be ascertained at that time and the providing entity believes the advice will be given to the client, the particulars of the remuneration including a statement of the range of amounts or rates of remuneration (including commission); or general information are to be given; or a statement that if the remuneration, including commission or other benefits are calculated at the time the personal advice is given the remuneration including commission or benefits the person receives will be disclosed at the time the advice is given or as soon as practicable after that time; or if the remuneration etc are not calculable at the time the personal advice is given, the manner in which the remuneration etc are to be calculated are to be disclosed at the time the personal advice is given or as soon as practicable after that time.
Section 51AF TPA: ASIC was established by the Australian Securities and Investments Commission Act 1989 (Cth), and was part of the 1998 package of reforms to the Australian financial system. This Act was repealed by the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act 2001). Part 2 of the ASIC Act 2001 deals with "Consumer protection in relation to financial services". Section 12DA deals specifically with misleading or deceptive conduct and provides:
(1)A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
Part V of the TPA had prior to 1998 dealt with "Consumer protection". Following the 1998 reforms, s 51AF of the TPA was introduced to provide that Pt V does not apply to financial services:
51AFPart does not apply to financial services
(1)This Part does not apply to the supply, or possible supply, of services that are financial services.
(2)Without limiting subsection (1):
(a)sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and
(b)if a financial product consists of or includes an interest in land, section 53A does not apply to that interest; and
(c)section 63A does not apply to:
(i)a credit card that is part of, or that provides access to, a credit facility that is a financial product; or
(ii)a debit card that allows access to an account that is a financial product.
(3)In subsection (2):
credit card has the same meaning as in section 63A.
debit card has the same meaning as in section 63A.
(emphasis in original)
THE PERIOD LEADING UP TO AUTHORISATION OF APPLICANTS AS REPRESENTATIVES OF M3FS ON 16 JULY 2007
Leading up to the authorisations by M3FS of Avoca and Martin Cunningham, and Melvyn Gyi, in July 2007, while time plainly was of the essence in getting the new business arrangements into the market place, it seems there were pressures in settling arrangements with the many new advisers coming over to M3FS from Mawson and Aurora, including the applicants.
Mr Cunningham, on behalf of Avoca, had been pressing M3FS to confirm when they and Mr Gyi would be duly authorised. They were also anxious for M3FS to approve the documents they were required by the CA and the CARA to utilise in their businesses, including the Financial Services Guide (FSG) and pro forma Statement of Advice (SOA).
In Western Australia, at that time, Mr Jonathon Nguyen was the State Development Manager for M3FS. He was also the designated Relationship Manager for the applicants. The joint managing director of M3FS with responsibility in relation to the engagement of advisers and regulatory compliance issues was Mr Barry Martin, who was based in Brisbane, Queensland. Ms Dale Hare was also based in Brisbane and held the position of Risk and Compliance Manager. She had an active role in relation to the authorisation process for new advisers and the materials to be approved by M3FS for their use, although she had line responsibilities to Mr Martin. She was assisted at material times by Ms Susan Papi, a compliance analyst. Ms Helen Ruano was at material times M3FS's Training Manager as well as a compliance analyst, also based in Brisbane. Ms Ruano was not however involved in the initial contractual and regulatory authorisation and materials approval processes affecting the applicants. Prior to his appointment as the Western Australian State Development Manager M3FS, Mr Nguyen had also been a compliance analyst.
On 28 May 2007, Avoca completed its written application to be appointed as an authorised representative of M3FS. It indicated that the level of authority required was life risk and superannuation and accumulation only. The application was accompanied by applications for individual authority completed by Mr Cunningham and Mr Gyi.
On 21 June 2007 Jonathan Nguyen sent an email to Martin Cunningham advising:
FYI, in the next couple of weeks M3 will be designing and completing your FSG.
On 5 July 2007, Jonathon Nguyen sent an email to Dale Hare concerning amendments to an Avoca Consultants’ brochure. Jonathon Nguyen advised Ms Hare he had "taken into consideration your points and you will notice a lot of the text that has been amended on the marketing brochure have been taken from the FSG to ensure safeguarding". He invited Ms Hare's comments.
Between 9 July to 17 July emails were exchanged between Jonathon Nguyen and Worldwide Printing regarding the brochure.
On 11 July 2007 Mr Cunningham sent Jonathon Nguyen an email concerning the brochure and requesting that he take out the back page, because it needed to read that Avoca Consultants were authorised representatives of M3FS.
On 13 July 2007 Dale Hare sent an email to a number of M3FS officers including Jonathan Nguyen and Helen Ruano, which was copied (cc'd) to a number of other M3FS officers including Barry Martin, and further copied (bcc'd) to a large number of persons (seemingly a number of the proposed advisers) including Martin Cunningham and Melvyn Gyi, advising:
DO NOT ACTION ANYTHING CONTAINED WITHIN THIS EMAIL UNTIL YOU HAVE BEEN OFFICIALLY ADVISED OF YOUR AUTHORISATION UNDER MILLENNIUM 3 FINANCIAL SERVICES PTY LTD.
WE WILL EMAIL YOUR AUTHORISATION WHEN APPOINTED ON THE ASIC REGISTER.
As of next week we anticipate you will be an Authorized Representative of Millennium3. Once authorized you will receive written authority of your appointment. This sets out what you are authorized to provide advice on. If you have any queries please contact your Relationship Manager.
Stationery at World Wide Printing is currently being approved by M3 and we will advise you when we have authorized it to print. All stationary must be approved by M3 prior to use.
I have attached the M3/Mawson Approved Product List transition rules which your M3 Relationship Manager discussed with you. If you have any questions in relation to the transition rules please contact them.
I have also attached the following documents for your use commencing next week:
-M3 Representative Manual
-Induction Manual
-Xplan Fact Finder
-SOA word templates and guidelines for Risk and Super
-M3 Risk Profile Questionnaire
-M3 Conflicts of Interest Register – these entries must be inserted into your current register.
...
Important note:
-As you are moving licensees you can not use a Record of Advice until you have provided an SOA under the M3 licence.
-Please destroy or amend all documents that refer to Mawson Securities or Aurora eg business stationery, SOAs, email sign offs, websites, newsletters etc.
-if you have not returned your M3 FSG for approval please do so immediately.
If you have any questions please contact your Relationship Manager.
KEY TERMS OF CARA DATED 16 JULY 2007
On 16 July 2007 the CARA was executed by Avoca. Mr Cunningham and Mr Gyi also signed the deed as "representatives" and agreed to be bound by its terms (see Sch 5 of the deed).
Section 1 of the CARA dealt with appointment and authority of Avoca as the authorised representative of M3FS. Clause 1.2 provided that the "Distribution Entity" (M3FS) appointed the authorised representative (Avoca). Section 1.2 stated that the authorised representative was appointed to "Deal in Approved Products" and "Provide advice to Clients and such other services … as Distribution Entity may approve from time to time in writing".
Clause 1.6 provided that:
Distribution Entity may by Notice to the Authorised Representative immediately suspend the authority of the Authorised Representative or any of its Representatives pending the investigation of any material breach of this Deed or suspected material breach by the Authorised Representative or any of its Representatives. To avoid doubt, a Suspension Notice may be issued pending the investigation by the Distribution Entity and/or by any Regulatory Authority of:
a.any events, incidents or conduct under clause 2.7(4); or
b.any events, incidents or conduct which may give rise to any of the events listed in clause 2.4; or
c.the issue of any Notice by any Regulatory Authority concerning the conduct of the Authorised Representative or any Representative.
whether or not such events have been notified by the Authorised Representative.
Clause 1.7 provided:
During such suspension, the Authorised Representative must ensure that neither he or she (if the Authorised Representative is suspended) or its Representatives (if they are suspended) deal in any Approved Products, provide advice to Clients or provide any of the Agreed Services.
Clause 1.8 provided that:
When the investigation is completed, Distribution Entity may do one or more of the following:
a.reinstate the authority of the Authorised Representative or its Representative;
b.revoke the authority of the Authorised Representative or any of its Representatives;
c.impose such conditions or limitations on the authority of the Authorised Representative or its Representatives as Distribution Entity considers appropriate in the circumstances;
d.terminate this Deed immediately under clause 12.
The CARA dealt with the authorised representative's responsibility in s 2. Section 2.1 dealt with compliance and provided:
The Authorised Representative must comply with:
1. the terms of the deed, including the Schedules;
2. its obligations under the law including the Financial Services Reform Act 2001, the Corporations Act 2001, the Australian Securities and Investment Commission Act 2001 and the Privacy Act 1988;
3. the provisions, from time to time, of any guide, policy or code issued by any relevant industry body such (NIBA) or any Regulatory Authority including the Australian Securities and Investment Commission (ASIC) or the Australian Prudential Regulatory Authority (APRA);
4. Distribution Entity’s Compliance Manual (as amended from time to time) and perform its obligations under this Manual and this Deed in a diligent and faithful manner;
5. Distribution Entity’s training requirements;
6. any lawful instructions given by Distribution Entity to the Authorised Representative which are consistent with the Deed.
Section 2.2 dealt with applications from clients and provided:
The Authorised Representative must:
1. represent Approved Products to the Clients in a fair and accurate manner;
2. use the Financial Services Guide, the Statement of Advice and any other standard form documents approved by the Distribution Entity in providing any advice or Agreed Services to Clients;
3. ensure that all disclosures relating to remuneration or other benefits are made to Clients pursuant to clause 9.10 and in accordance with the law;
4. remit all applications and moneys promptly to the Product Providers or their Custodians;
5. promptly remit to Distribution Entity all moneys (without deduction) received from Clients relating to fees charged for advice given or services provided in relation to authorities provided by M3 FS.

Section 2.4 dealt with conduct and provided:
The Authorised Representative must not:
1. engage in false or misleading conduct, or conduct that is likely to mislead or deceive;
2. engage in conduct which is unethical, unprofessional or in breach of any guide, policy or code under clause 2.1 or any conduct which may bring the Distribution Entity into disrepute;
3. contract for, or hold itself out as being capable of contracting for, or on Distribution Entity’s behalf, including entry into any pledge of credit, other than as expressly authorised under this Deed;
4. represent to any Client either expressly or by way of implication that Distribution Entity endorses or recommends any financial product or instruments other than the Approved Products.
Section 4 dealt with compliance. Section 4.1 provided:
The Authorised Representative will:
1. permit the Distribution Entity to conduct an Annual Compliance Review for the purpose of assessing compliance with this Deed and the law; and
2. permit the Distribution Entity to conduct such Additional Compliance Reviews as the Distribution Entity considers reasonably necessary including those Additional Compliance Reviews conducted under clause 4.4.3;
on the provision of not less than 24 hours Notice by the Distribution Entity.
Section 4.3 provided:
The Authorised Representative will:
1. promptly implement all recommendations made by the Distribution Entity and/or its auditors to rectify any areas of identified non compliance and in accordance with any timetable specified;
2. ensure that its Representatives co‑operate and assist in the prompt implementation of all recommendations for rectification of any areas of identified non compliance:
3. promptly notify the Distribution Entity of any difficulties in implementation of any of the recommendations and propose a solution.
Section 12 of the CARA dealt with termination of the deed. Section 12.1 provided:
Either party may terminate this Deed by giving the other 14 days' Notice that this Deed is terminated.
Section 12.2 provided that:
The Deed may be terminated immediately by Distribution Entity by written notice to the Authorised Representative if any of the following events occur:
…
3. the Authorised Representative breaches any material obligation under this Deed;
…
10. Distribution Entity forms the reasonable opinion that the Authorised Representative or any of its Representatives has:
a. failed to perform or observe their material responsibilities under the terms of this Deed or any other arrangement between the Authorised Representative and Distribution Entity; or
b. engaged in any conduct which is prejudicial to Distribution Entity, or unprofessional or unethical or in breach of any relevant Code.
THE PERIOD 17 JULY 2007 TO END OF JULY 2007: FSG AND SOA
By letter dated 17 July 2007, Peter Johnson, Managing Director of Mawson Group Australia Ltd, thanked Avoca Consultants for the "wonderful service" and "excellent representation" it had provided and confirmed that Avoca was now released from its obligations as an authorised representative of Mawson.
The same date, 17 July 2007, Dale Hare emailed Martin Cunningham and Melvyn Gyi concerning the subject of "Millennium3 Information Pack and Welcome - Martin please give to Melvyn". This email was in nearly identical terms to that copied to Martin Cunningham and Melvyn Gyi on 13 July, save that it stated in the second paragraph "As of this week we anticipate you will be an authorised representative of Millennium 3" (emphasis added).
Having regard to the terms of the CARA, and from what had passed between the parties before 16 July, and this email of 17 July, Avoca and Mr Cunningham and Mr Gyi knew they needed M3FS to approve the FSG and SOA and other documents they were required or desired to use as M3FS representatives, and which at the date of the CARA had not been approved.
In this regard, on 16 July 2007, Benita Keen (Office Manager / Personal Assistant) of Avoca sent Dale Hare an email stating:
Dear Dale
Please find attached copies of the statement of advices for Risk & Super, Super only and Risk only together with the fact finder for your perusal.
It does not appear that there was any response to this email. Dale Hare states in her witness statement (para 21), after mentioning this email, that "I recall that these amended SOA's and Fact Finder were not approved at that time and there is no record from Myworkspace that states that they were". She also states:
I had a conversation with Jonathon during the appointment of the former Mawson representatives and said to him, 'We will not be approving templates due to the volume of representatives being processed'.
Mr Cunningham states in his witness statement that he had a telephone conversation with Jonathon Nguyen "In or about mid‑July 2007" during which time Jonathon said words to the effect, "Avoca is ready to go once you have received an email from head office approving the SOA templates, FSG and stationery".
On 17 July 2007, just before 2pm, Benita, e-mailed Dale Hare again, as follows:
Just spoke to Jonathan – he said we would receive an email from yourself informing us that we are ready to go. Are we nearly ready? I know the stationary (sic) is not but what about the FSG and SOA's?
Look forward to hearing back from you.
On 18 July at about 1.20 pm, Jonathan Nguyen emailed Dale Hare attaching the final draft of the Avoca Consultant’s brochure that he had received from the M3FS printer, Worldwide. He noted that, "Amendments have been made according to your requirements". He asked for Ms Hare's confirmation of approval. He copied his email to Martin Cunningham.
On 18 July 2007 at about 2:16pm Martin Cunningham emailed Jonathan Nguyen in these terms:
Okay – lets go – when can we have them??
On 19 July 2007 at about 2.11pm, Susan Papi, Compliance Analyst with M3FS, emailed Benita Keen and advised:
Dale is away sick today and I'm catching up with emails.
I actually sent the approval email to Martin and Melvyn yesterday. Can you check whether it was received.
Has Melvyn resolved his email issues yet?
Benita Keen replied by email on 19 July 2007 just after 3pm and advised Susan Papi:
Yes we did receive the authority but there were no attachments with it – confirming the FSG and SOA that we sent up are okay to use??
Susan Papi sent a further e-mail to Benita on 19 July 2007, not long before 6pm, attaching "the email I sent earlier yesterday enclosing the FSG's".
The attached e-mail was sent 18 July 2007 just after 9am concerning the subject "FSG". It was addressed to "Martin and Melvyn" and advised:
Thank you for your e-mail and attachments.
I have now attached your FSG which has been approved for use once you are authorized (which we anticipate will be today however please await our formal notification.) You should also have received from Dale Hare, our Compliance Manager, an Induction Welcome Pack.
Melvyn, please let us know urgently when you have sorted out your email glitch.
As a corporate authorized representative there are two documents that must be provided to your client. They are your corporate FSG and the M3FS FSG. (attached)
These two documents provide the required disclosure to the client. They must be issued as separate documents to the client.
...
We remind you that all marketing material of any nature including images automatically attached to your emails, websites, newsletters, signage, advertising material such as TV and radio ads etc and, of course, your letterheads, business cards, 'With Compliments' slips etc must be approved by our compliance team before release.
...
If you have any questions, please contact your Relationship Manager, Jonathan Nguyen.
It seems the original email sent 18 July was not received at the Avoca end. Mr Cunningham said he had had difficulties due to a changeover by Avoca to the Aladdin system. Be that as it may, the email system was working most of the time, as these email exchanges show. In any event, the relevant text and advice was received by Avoca by this further email communication from Susan Papi on 19 July 2007. As noted it approved the FSG, but no mention was made of the SOA.
In the period following this exchange of emails, it appears that Avoca decided, with the approval of Jonathan Nguyen, to engage another firm to do the designing and printing of Avoca's required stationery. On 25 July 2007 Jonathan Nguyen emailed Worldwide and Debbie Stubbs at M3FS, and advised as follows:
Please advise(sic) that Avoca Consultants have put into place alternative arrangements for the designing and printing of there(sic) stationary(sic).
This includes stationary(sic) for both Martin Cunningham and Melvyn Gyi.
Mr Cunningham says (in his witness statement, Exhibit A at para 36) that he started to use the new FSG, stationery and SOA templates "which had been approved on or about 24 July 2007". This obviously is a generalisation. At that point only the FSG had been expressly approved and the stationery was still to be printed. Indeed, in cross examination Mr Cunningham conceded (transcript 69) that he assumed what he had sent for approval – a merger of two M3FS templates – had been approved.
By the end of July, the state of play seems to have been as follows–
- The CARA had been executed on or about 16 July 2007.
- The authorisations had actually issued on or about 18 July 2007.
- Avoca and Martin Cunningham and Melvyn Gyi had each been relevantly authorised as a representative of M3FS.
- The Avoca Consultants' brochure had been approved by M3FS and had been printed.
- On 19 July 2007, Susan Papi had expressly confirmed the approval of the FSG.
- However, the SOA, which Benita Keen apparently submitted with her email of 16 July 2007, had not been approved.
- Nonetheless Avoca and Mr Cunningham commenced using the SOA pro forma document that they had earlier submitted to M3FS, with the approved FSG.
- Stationery was about to be printed for Avoca Consultants and Martin Cunningham and Melvyn Gyi.
Whether Avoca and Mr Cunningham had reasonable grounds to believe, in all these circumstances, that the SOA had been approved at this stage perhaps does not need finally to be determined in these proceedings. However, having regard to later evidence concerning the manner in which Mr Cunningham tended to conduct his business at all material times, he rarely sought guidance or confirmation from M3FS or its representatives as to the relevant state of affairs. Plainly it was open to Mr Cunningham to seek confirmation about approval of the SOA, but he chose not to do so. He "assumed" the SOA he had prepared had been approved, and began to use it, but did not check with Ms Hare or Mr Nguyen that it had actually been approved.
This was the case notwithstanding that Mr Cunningham well understood at all material times through July 2007 that, under the CARA, he required M3FS's approval of all documents he was required to give to clients as a representative of M3FS. The terms of s 2.2 of the CARA set out above, specifically required representatives to use the FSG and SOA and other standard form documents "approved by" M3FS in providing any advice or agreed services to clients.
The M3FS Information Pack and Welcome document, received on 17 July 2007 confirmed those contractual requirements. It also attached an M3FS Representative Manual (manual). The manual (TB 325 and following) specified "The key behaviours" required by M3FS representative and the consequences of not meeting those behaviours, as well as key processes utilised by M3FS to monitor and supervise representatives and relevant policies, processes and templates required to be used by M3FS representatives.
Pertinently, the manual under the heading "PLEASE ASK" stated:
If you have any questions or do not understand what is required of you, then please ask your Manager of the M3FS Compliance.
The manual also specified that "I DID NOT KNOW IS NO EXCUSE" and pointedly confirmed to its representatives that:
You are a professional. M3FS anticipates that you will act professionally, run your practice professionally and take responsibility for your actions.
Consistent with the provisions of the CA (and the CARA) the manual advised representatives that M3FS had obligations to inform ASIC of certain things:
INFORMING ASIC
If you fail to act professionally in any significant manner, M3FS is required to inform ASIC. ASIC has the power to ban representatives from the industry.
The manual then went on to set out the 20 required behaviours of an M3FS representative, the very first one of which was "Know your Obligations", including understanding a representative's legal obligations in relation to:
·providing appropriate advice;
·providing FSGs, SOAs and PDS;
·not holding out;
·managing and disclosing conflicts;
·replacing products;
·misleading and deceptive or fraudulent conduct;
·general advice warnings;
·privacy;
·suspect transactions.
In cross examination (transcript 61 and following), Mr Cunningham acknowledged that he received this manual and was aware of its contents.
Nonetheless, as subsequent events suggest, Mr Cunningham was content to make an assumption that M3FS had approved the merged SOA he had Benita Keen send by email to Ms Hare for approval on about 17 July 2007, when he could not be sure, one way or the other, that it had actually been approved. He simply did not think to follow up with his Relationship Manager, Mr Nguyen, or Ms Hare, to whom the draft SOA had been sent for approval, to ascertain whether all was in order. Later, at the November audit, this omission came to light, as explained below, and, in the words of Mr Cunningham, Ms Hare "threw a hissy fit" over the issue (see LMC 31 to Mr Cunningham's witness statement, Exhibit A).
THE PERIOD OF AUGUST TO OCTOBER 2007: SETTLING IN
On 6 August 2007, Mr Cunningham says he had a meeting with Jonathon Nguyen to discuss his (Mr Cunningham's) "vision for Avoca Consultants". Mr Cunningham produced a document (TB 379-380) that he says he prepared for the purposes of this meeting. It is typed in part and handwritten in part. The document is headed, "VISION FOR AVOCA CONSULTANTS". The handwritten date "6 August 2007" appears at the top right together with the words, "Meeting with Jonathon". In smaller type at the bottom of the first page, "Earnings to date" are noted next to the words, "Current status as of Monday, 11 June 2007". These are followed by the typed words:
Optimum $25 million FUM (981,000 pounds to be transferred in from UK).
Over the page in type are what appear to be some projections, followed by the typed words:
To achieve above, (Must change current business mix Optimum IP 30/2/2 TLI+TPD)
New Mix TPD outside super + TRAUMA
Mr Cunningham insists this is a document that he used as an agenda for a discussion with Jonathon Nguyen on 6 August 2007. He says that in the course of the meeting, amongst other things he told Jonathon Nguyen about a link he had on a website and how he facilitated the transfer of UK pension funds to Australian superannuation funds. He says he told Jonathon Nguyen that he had £981,000 still to be transferred over from the UK, or words to that effect. He says that Jonathon did not say anything about him not being authorised to facilitate the transfer of UK pensions to Australian superannuation funds.
Jonathon Nguyen claims absolutely no recollection of any such meeting or of being told anything at that time about this website or anything about the transfer of UK pension funds to Australian superannuation funds. Indeed, Jonathon Nguyen, when cross examined about Mr Cunningham's evidence, made it clear that he was saying positively that the meeting did not happen (transcript 226). This conflict of evidence bears generally on the credibility of each of Mr Nguyen and Mr Cunningham and the way each tends to conduct themselves professionally, although a finding as to what actually was said on this occasion is not central to the issues for determination in these proceedings. I am prepared to accept that Mr Cunningham referred to this document at the meeting, although it is not a document that was given to Mr Nguyen. I also accept that if the website was referred to, it was in passing such that its significance did not register with Mr Nguyen at the time. Later, in July 2008, when M3FS's compliance committee became aware of this website, they insisted Mr Cunningham take it down as he was not authorised to process this business.
From Avoca's point of view it seems that it was business as usual through August and into October. On 16 October 2007, Barry Martin sent an email to all advisers on the subject of "Compliance Department Access". The email reminded each adviser that they each had a M3FS relationship manager. The email stated:
The purpose of this system is so that you have one particular Millenium3 manager who becomes your 'go to' person whenever you need assistance or advice.
Our compliance team has been under an extra layer of pressure over the last few months caused by a number of things including the Mawsons requisition, ASIC regulation changes and the pending introduction of the new Anti‑Money Laundering legislation.
I have noticed that a large number of advisers are contacting members of the compliance team directly. Whilst the compliance team are eager to provide the best service possible, leaving the Relationship Manager out of the loop can cause serious problems within our group.
I am sending this email to remind each of you that any assistance or advice you require from Millennium3 and particularly at the moment in relation to compliance should first be directed to your designated Relationship Manager.
In a lot of cases your Relationship Manager will be able to either provide some of this advice themselves, but if not, will be in a better position to quickly get answers for you.
Having emphasised the importance for advisers to deal with their relevant relationship manager, Mr Martin finally advised in the email, that:
Dale, Helen, Susan and Steve will be on the road conducting audits and running PD days and state conferences for most of the period now leading up to Christmas and so it is even more important to direct your queries to your Relationship Manager.
THE PERIOD OF NOVEMBER TO DECEMBER 2007: AUDIT AND ACTION PLAN
In early November 2007, Jonathon Nguyen advised Mr Cunningham that Avoca would be audited on 13 November 2007. Mr Cunningham says Mr Nguyen told him that he needed to have "every piece of approved written material we use ready for inspection", or words to that effect.
The audit was conducted on 13 November 2007 by Dale Hare. Jonathon Nguyen was also present. The audit occurred over a period of about five hours.
Mr Cunningham attended and produced a folder of materials including:
·His business card.
·An Avoca brochure referring to the services it can provide.
·A referral card.
·A FSG.
·A short term financial needs analysis questionnaire.
·A document entitled "The Realities of Superannuation".
·A document entitled "Why do we need personal insurances?".
·A document entitled "Investor".
·A newspaper article entitled "Cover Your Pay".
·A newspaper article entitled "Young Chef Left Nine Flavours".
·A thank you card, birthday card and Christmas card.
When asked to provide two of his files, Mr Cunningham provided files in relation to DK (an apprentice chef) and JT (a sous chef).
In the course of the audit Mr Cunningham produced the SOA templates he was using, on which the M3FS letterhead appeared. Dale Hare indicated that M3FS had not approved the documents she was shown. Mr Cunningham insisted they had, although he could not show her the email he considered approved the SOAs, and explained it was no longer on his system. Mr Cunningham said he believed that the email in question had been lost in the July period when a lot of files were lost from Avoca's computer system when it installed a new server in or about mid to late July 2007.

Following Mr Gyi's report of Mr Nguyen's quick inspection of the five files at the offices of Avoca on 15 January 2008, Mr Cunningham on his own behalf and on behalf of Avoca assumed that the files were to M3FS's satisfaction. He had provided the files, on the face of it, for pre‑vetting purposes as per the action plan requirement. Having heard nothing to the contrary from Mr Nguyen in the immediate period after 15 January 2008, it seems to me it was reasonable for him to assume that the pre‑vetting requirement of the action plan had been satisfied. However, I do not consider he was entitled to assume anything more than that. Mr Cunningham knew from what Mr Gyi had reported that Mr Nguyen had not made a thorough audit of the files – it was a quick look in the course of "chit chat" with Mr Gyi. He knew he laboured under the continuing obligation not to breach the material obligations of the CARA deed and so the CA.
So far as May 2008 is concerned, the position is different again. Mr Nguyen, having collected the six files of Avoca and Mr Cunningham on 8 April 2008, did absolutely nothing with them, as I have found above. He eventually handed them to Ms Ruano for review when she attended the Perth PD Day on 27 May 2008. Ms Ruano had no discussion or conducted any review with Mr Cunningham concerning those six files at that time. Nothing overtly happened in May 2008 to support any express or inferred assurance on the part of M3FS that Mr Cunningham and Avoca were compliant with M3FS requirements.
Mr Cunningham knew – or believed – the purpose of Mr Nguyen collecting the files was for the purpose of review, to ascertain if he was meeting the requirements of the CA and his other material obligations under the CARA. I do not consider that it can be inferred, or that it was reasonable for Mr Cunningham to assume, by reason of the fact that he heard nothing further from Mr Nguyen or anyone else at M3FS about those six client files during May, that the client files in question were considered "compliant". While he might have begun to think that there probably were no difficulties, because no one had come back to him quickly to raise any issues, at the same time Mr Cunningham did nothing himself to inquire whether there may have been any issues. In my view, he was not entitled to assume anything, one way or the other, at that point and the conduct of M3FS in May did not convey any representation of the type pleaded. Indeed, the fact the files were collected for review begged the question whether there were compliance issues.
This position in May is also to be contrasted with that of 15 January 2008 and following when, to Mr Cunningham's reasonable understanding, Mr Nguyen quickly looked at the five client files for pre‑vetting purposes and left the files behind; and then did not actively follow up on his visit during January.
In all of these circumstances, I do not consider that by its conduct in December 2007, January 2008 and May 2008 – taken separately or together as a course of conduct – M3FS represented to the applicants that they were or remained compliant with their material obligations and that there were no areas of non‑compliance that required rectification.
Following Ms Ruano's review of the six files collected by Mr Nguyen from Mr Cunningham on 8 April 2008, the position dramatically escalated. As explained above, I find that a review of the six files and subsequent inquiries revealed to the reasonable satisfaction of M3FS, that Mr Cunningham had failed to meet his material obligations under the CARA.
While the manner in which Mr Cunningham was going about providing financial services should perhaps have been discovered earlier than it was by M3FS, its failure to do so is explicable by the inexplicable conduct of Mr Nguyen in the period January to May in doing nothing to review substantively Mr Cunningham's work. But even if Mr Nguyen had acted differently, and a proper review had occurred sooner, the problem simply would have been discovered sooner by M3FS. That problem was all of Mr Cunningham's own doing, stemming from his failure to give proper attention to the recommendations and requirements of the November audit report. Mr Nguyen's cursory review of five client files on 15 January 2008 did not absolve Mr Cunningham of that obligation. Indeed, nothing done by Mr Nguyen on behalf of M3FS in the period January to May 2008 altered the position of the applicants. They remained at risk at all material times, by their own conduct, of being considered by M3FS to be in breach of a material obligation under the CARA.
This is not a case where the applicants allege the respondent waived compliance with key terms of the CARA deed, or that the respondent, by the conduct of its officers, is estopped from relying on the actions or conduct of the applicants said to constitute a breach of the material obligations under the deed. Rather, it is claimed that, by its conduct as pleaded, the respondent represented the applicants were complying with their material obligations and there were no areas of non‑compliance. I do not consider such a representation is made out. At material times, there was no such continuing representation in place. At the very least, as of 20 June 2008 Mr Cunningham was expressly aware M3FS had concerns after Mr Nguyen met with him. However, he was on general notice of review of his work when Mr Nguyen collected the six files for review on 8 April 2008. Neither of these events is consistent with a representation of the type pleaded. But even more fundamentally, I do not consider that Mr Nguyen's conduct on 15 January 2008 constituted anything more than a representation that the five client files he quickly looked at that day were satisfactory and the pre‑vetting requirement of the action plan had been met.
Accordingly, I reject the applicant's claim that the conduct of M3FS on the three separate occasions complained of in the statement of claim constituted misleading and deceptive conduct in contravention of s 52 of the TPA, namely representations that there were no areas of non‑compliance that required rectification. Accordingly, the applicants claim on this ground must fail.
THE QUESTION OF MR CUNNINGHAM'S TRAINING
The applicants say that, by entering into the CARA, M3FS represented to the applicants that it would provide training to the applicants as required by the CA and the conditions of its AFSL and that that representation constituted misleading and deceptive conduct in contravention of s 52 of the TPA because the respondent had no reasonable grounds for making the representation.
M3FS refute the claims made, on a number of grounds. First, that s 52 of the TPA is not applicable in light of the provisions of Ch 7 of the CA and s 51AF of the TPA. I have dealt with this matter above and have concluded that s 52 of the TPA indeed continues to apply to such a pleaded representation in the circumstances of a case like the present. Secondly, M3FS contend that it would be surprising if in a business relationship of the type that the parties were embarking upon at the time the CARA deed was executed that M3FS did not intend to honour any representations concerning training that can be drawn from the deed. Thirdly, M3FS question whether any such obligations can be drawn from the CA in the circumstances pleaded. Finally, M3FS say there is the question whether there was any breach of the training representation in any event.
The assumption of an obligation by an authorised representative that it would meet the requirements of M3FS in relation to training, when one has regard to a licensee's training obligations under the CA lends some first blush support to the view that the applicants would have had some expectation that they would receive advice, assistance or some form of training in that regard, and that the CARA conveyed such a representation.
Section 912A(1)(ca) of the CA requires the licensee "to take reasonable steps to ensure that its representatives comply with the financial services laws"; and (f) requires the licensee "to ensure that its representatives are adequately trained, and are competent, to provide those financial services".
The terms of the deed do not expressly provide for M3FS to provide training. However, s 2.1 of the CARA provides that a representative must meet M3FS's "training requirements".
Given the general objectives of Ch 7 of the CA, set out above, and the tightening of the law governing the provision of financial services, and the rigorous licensing system outlined above, the obligation in (f) of s 912A(1) to "ensure its representatives are adequately trained, and are competent", to provide such services, when combined with the obligation in (ca) to take reasonable steps to ensure they also comply with the laws, strongly suggests the holder of an AFSL should undertake a continuing training program that is calculated to produce competent representatives or maintain their level of competence.
Given, that the CARA obliges M3FS's representative to meet the M3FS's training requirements, it seems to me reasonable to conclude that the CARA conveyed a representation by M3FS to the applicants that M3FS would provide training to Mr Cunningham to enable him to attain or maintain a reasonable level of competence commensurate with the demands of the CA on a licensee and its representatives.
Accordingly, I consider the applicants' pleaded representation is made out.
However, as to the applicants' further plea, that it was a misleading or deceptive representation because, when made, there were no reasonable grounds for M3FS to make it, I find there is simply no evidence to support such a finding. Indeed, the evidence is all to the contrary.
The evidence shows M3FS from the outset were concerned to ensure the applicants (and representatives generally) were compliant with the CA, and pursued training opportunities.
Accordingly, I reject the applicants' claim that at the time the representation was made it was either misleading or deceptive on the basis there was no reasonable grounds for its making, as alleged. There is nothing to suggest that there was no reasonable basis for the making of the representation by M3FS at the time it was made.
The evidence discloses that M3FS offered, and indeed the applicants received, appropriate training from M3FS.
It is common ground that Avoca and Mr Cunningham were previously representatives of Mawson and had been engaged and trained in the financial services industry for some years. Mr Cunningham had relevant experience, knowledge of the legislative requirements governing their industry and, generally speaking, an appreciation of the finer points of the provision of financial services.
In the case of Mr Cunningham, the Kaplan Training Summary concerning him sets out training he undertook prior to becoming a representative of M3FS. It shows that Mr Cunningham undertook "video workshops" periodically between 2003 and June 2007. In the period thereafter it shows that Mr Cunningham undertook video workshops periodically between February 2008 and November 2008.
It shows that Mr Cunningham in July 2004 took a Kaplan course in Investment Planning 1. It also shows that following the period he commenced as a representative of M3FS, Mr Cunningham undertook workshops by way of an Induction Programme in October 2007, a workshop, Zurich - Claims and Underwriting in November 2007, Kaplan 2007 – 12 CPD - in December 2007 and ING – A Global Window Superannuation and investment outlook 2008 in February 2008. It also shows that Mr Cunningham while with M3FS undertook training in AML CTF Module 1 – The Clean Money Legislation in December 2007, and at the same time undertook Module 2 – The Know Your Customer Rule. Additionally, as noted earlier, Mr Cunningham attended a PD Day organised by M3FS on 27 May 2008. He also undertook other training in July 2007 and April 2008.
Ms Ruano explained that Mr Cunningham had thereby completed the appropriate training to be compliant with ASIC Regulatory Guide 146. He had, for example, completed the Tribeca Diploma of Financial Services (Financial Planning) modules. He had also successfully completed the following Tribeca Diploma of Financial Services (Financial Planning) modules:
·Superannuation and Retirement Planning and Investment Planning 1.
·AMP Core Knowledge and Essential Accreditation.
·Independent Centre of Financial Training – Step by Step Accreditation Programme.
Ms Ruano says Mr Cunningham had also complied with his annual training plan. As an adviser with at least ten years experience she expected he would understand his advice obligations, particularly since he had been receiving the Kaplan (formerly Tribeca) training material since he had been with Mawson and had continued to receive the material since joining M3FS. This is, in the Court's view, a reasonable observation to make.
Ms Ruano explained that the Kaplan material has repeatedly focussed on superannuation switching advice since 1995, the ASIC Shadow Shopping Projects in 2003 and 2006, and ASIC's 2005 surveillance campaign on Superannuation Switching Advice which led to the AMP surveillance and subsequent enforceable undertaking dated 27 July 2006. Regulatory Guide 84 "Super switching advice: Questions and answers" dated 20 June 2005 is also relevant. In October 2006, Kaplan issued a training article specifically addressing the AMPFP undertaking.
It follows, in my view, that Mr Cunningham had, as Ms Ruano and M3FS accepted, appropriate training through the Tribeca/Kaplan training systems.
So far as professional development is concerned, Mr Cunningham, as noted, attended the PD Day in Perth at the Mount Lawley Golf Club in May 2008. The sessions that day included software facilities, fraud training and technical/research matters. During the PD Day in Perth, attendees were given a demonstration of the Midwinter software computer application that generates SOA documentation. A demonstration of a case study was performed to show how a specific section of the SOA – replacement of financial product – was generated by the programme. This demonstrated the type of information needed to complete that particular section of the SOA.
When Avoca and Mr Cunningham first became representatives of M3FS they were given induction training by Mr Nguyen, which included a video presentation. While Mr Cunningham in his evidence tended to discount the value of that induction programme I have little doubt that it was administered. To the extent that Mr Cunningham may have considered the video presentation a form of light entertainment, as he seems to have done, it is probably an indication of the fact that he was, by then, well experienced in the financial services industry – or considered himself to be – and the content of the video presentation probably did not convey to him anything particularly new or different.
Mr Cunningham did not attend the Millennium3 State Conference in November 2007, as explained above, due to the ill‑health of his wife's father.
In my view, it cannot be said, with any reasonable justification, that M3FS fell down on meeting any representation made concerning the provision of training to Avoca and Mr Cunningham.
The greater concern is that Mr Cunningham, by reason of his long experience in the financial services industry, in many respects is shown by the evidence to have assumed that his prior experience, practices and way of delivering financial product advice was consistent with the practices and requirements of M3FS, and that he perhaps did not give sufficient attention or consideration to M3FS's specific requirements. To that extent it appears, from all the evidence, including the way Mr Cunningham explained and defended his own practices in providing advice to his clients, that Mr Cunningham did not see the transition of his business from Mawson to M3FS as requiring any significant changes to his practice once he became a M3FS representative and proceeded on the basis it was pretty much "business as usual". The fact that in July 2007 he personalised his old SOAs and put M3FS letterhead on them is but one indication of his approach. As is his continued use of the acronym "TBA" on SOAs, both before and after the November 2007 audit, when he had not obtained relevant information that needed to be disclosed on advice to a client.
It is surprising in many ways, despite the findings I have made about what happened on 15 January 2008 when Mr Nguyen attended the offices of Avoca, that Mr Cunningham did not see fit to follow up Mr Nguyen directly in the days following, when he understood he had quickly looked at the five files, to ascertain the outcome of the visit, from Mr Nguyen's point of view. This suggests he did not take the agreed action plan requirements as seriously as he should have. So too does the fact that Mr Cunningham did not himself follow up Mr Nguyen at any stage for over two months – from 8 April to 20 June 2008 - in relation to the six files collected by Mr Nguyen from his office on 8 April 2008.
Mr Cunningham seems to have assumed at all times that what he had done in the past was appropriate and that, notwithstanding the rather pointed observations about his usual practice made orally during the November audit and in the 29 November compliance review report, and in the agreed action plan in early December 2007, gave them relatively little close regard.
As a result, it is ultimately difficult to find, as alleged in the statement of claim by the applicants, that there were not reasonable grounds for the representation M3FS made about training. The facts disclose that at all material times M3FS had systems in place to provide guidance, advice and training in the various ways described earlier in these reasons, and indeed that it did so. Accordingly, the applicants' claim that M3FS's representations concerning training constituted misleading and deceptive conduct in contravention of s 52 of the TPA must fail.
CONCLUSION AND ORDERS
In these circumstances, the applicants' claim that they are entitled to a declaration that M3FS was not entitled to suspend the authority of the second applicant or to terminate the authorities of the applicants as they did, pursuant to the CARA, and to damages and costs should be dismissed.

I certify that the preceding three hundred and sixty-six (366) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.
Associate:
Dated: 14 August 2009

Counsel for the Applicants: Mr DH Solomon

Solicitor for the Applicants: Solomon Brothers

Counsel for the Respondent: Mr DE Grieve QC

Counsel for the Respondent: Mr RGH Keller

Counsel for the Respondent: Mr MB Duncan

Solicitor for the Respondent: nortonsmith & co

Date of Hearing: 16 - 20 March 2009

Date of Judgment: 14 August 2009

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 251 of 2008

JUDGE:	BARKER J
DATE OF ORDER:	14 AUGUST 2009
WHERE MADE:	PERTH

JUDGE:	BARKER J
DATE:	14 AUGUST 2009
PLACE:	PERTH

Counsel for the Applicants:	Mr DH Solomon
Solicitor for the Applicants:	Solomon Brothers
Counsel for the Respondent:	Mr DE Grieve QC
Counsel for the Respondent:	Mr RGH Keller
Counsel for the Respondent:	Mr MB Duncan
Solicitor for the Respondent:	nortonsmith & co

Date of Hearing:	16 - 20 March 2009
Date of Judgment:	14 August 2009