Betalli and Australian Securities and Investments Commission
[2021] AATA 1953
•24 June 2021
Betalli and Australian Securities and Investments Commission [2021] AATA 1953 (24 June 2021)
Division:Taxation and Commercial Division
File Number(s): 2021/2774
Re: Christopher Nadir Betalli
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:24 June 2021
Place:Sydney
The application for a stay is granted.
..............................SGD.......................................
Deputy President Bernard J McCabe
CATCHWORDS
PRACTICE AND PROCEDURE – STAY APPLICATION – application for stay of publication of banning order by the Respondent – where applicant is banned for 2 years for – objectives of the regulators in making a decision – protection – objective of transparency – stay application granted
LEGISLATION
Administrative Appeals Tribunal Act 1975
Australian Securities and Investments Commission Act 2001
Corporations Act 2001
CASES
Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185
Scott and Australian Securities and Investments Commission [2009] AATA 798
Rent-to-Own Australia Pty Ltd and ASIC [2011] AATA 689
SECONDARY MATERIALS
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Final Report February 2019)
REASONS FOR DECISION
Deputy President Bernard J McCabe
24 June 2021
Mr Christopher Betalli provides a range of services to his individual and small business clients. He is a mortgage broker, an equipment finance broker, an accountant, and a registered tax agent. A company that he controls holds an Australian Credit Licence. Companies that he controls are also authorised representatives of a third party that holds an Australian Financial Services licence. Mr Betalli is (or was, until recently) an authorised sub-representative of those companies. In that capacity, Mr Betalli provided financial planning and superannuation advice to his own clients under the third party’s Australian Financial Services licence.
The Australian Securities and Investments Commission (ASIC) made a reviewable decision under ss 920A and 920B of the Corporations Act 2001 to ban Mr Betalli from providing financial services for a period of two years. The banning decision was made on 22 April 2021. Notice of the decision was served on 1 May 2021. ASIC has already recorded the decision in the relevant registers it maintains under the Corporations Act. It has not so far publicised the decision in the ordinary way through a press release and an announcement on its website that the banning order has taken effect.
Mr Betalli promptly instructed his lawyer to lodge an application for review in the Tribunal. He has asked the Tribunal to order a stay under s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) while the review proceeds. He initially asked that the stay orders extend to restrain ASIC from publicising the reviewable decision. Mr Beaumont, SC, who appeared for the applicant at the hearing of stay, confirmed the applicant was not seeking a private hearing or asking for what amounted to suppression orders under ss 35 or 41. The reasons that follow deal with the application for a stay of the substantive banning decision and do not otherwise deal with the publication question.
After considering the material provided at the stay hearing and the submissions provided by each party, I am satisfied the decision to impose a ban should be stayed until further order. The stay order will be conditional on the applicant writing to each of his clients to inform them of the banning order, the stay and the review proceedings. The form of the letter must be agreed with ASIC, and Mr Betalli must also undertake to provide a copy of the letter to any new client of his firm between now and the hearing. The parties must agree the final wording of the order by 30 June 2021[]. If they cannot agree, they must make submissions on the final wording by close of business on 1 July 2021.
THE LAW WITH RESPECT TO STAY ORDERS
Decisions made by primary decision-makers ordinarily take effect and are implemented according to their terms. Merely filing an application for review in the Tribunal does not hold up the operation or implementation of the decision: see s 41(1) of the AAT Act. A Tribunal applicant that wants a stay must ask for orders under s41(2). Those orders are only available for the purpose and in the circumstances set out in the sub-section.
The sub-section is drafted elliptically, but the language has been disentangled in a long line of cases in the Tribunal and the Federal Court. The provision says the stay power is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review”. The Tribunal must be satisfied it is “desirable” to exercise the discretion to that end “after taking into account the interests of any persons who may be affected by the review”. As Downes and Moore JJ explained in Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185 at [50]:
The power in s 41(2) of the AAT Act is to make an order staying or otherwise affecting the operation or implementation of a decision under review. The power is conditional on the making of a request and the holding of an opinion by the AAT. The required opinion is that it is desirable to make the order. The AAT may only form this opinion after taking into account "the interests of any persons who may be affected by the review". Accordingly, the AAT must identify for itself and consider the relevant interests. Unless it does so, the AAT cannot form the required opinion.
The order may stay the entirety of the reviewable decision, or part of it, and the stay order may be subject to conditions. A stay order can also be revoked or modified in due course – most obviously if the circumstances which justified the order have changed, or where it becomes apparent the stay is being abused. It has also been accepted the stay power extends to restrain, where appropriate, routine actions of a regulator undertaken in the course of implementing its decision, such as issuing a press release or making entries on a register which record the reviewable decision – particularly where that decision-maker has an educative or informative function, like ASIC: see Australian Securities and Investments Commission v Administrative Appeals Tribunal at [70]-[71] per Downes and Jagot JJ.
The decision of Downes J in Scott and Australian Securities and Investments Commission [2009] AATA 798 sets out a number of matters that are relevant to the exercise of the discretion in s 41(2). These include (at [4]):
1.The prospects of success.
2.The consequence for the applicant of the refusal of a stay.
3.The public interest.
4.The consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not.
5.Whether the application for review would be rendered nugatory if a stay were not granted.
6.Other matters that are relevant, amongst which I would include the length of time that the ban has already been in place and the gap between today and the hearing of the application
The decision in Scott does not purport to offer an exhaustive list of considerations. The identification of (and weight given to) any particular consideration will depend on the nature of the reviewable decision and the legislation under which it is made. In this case, we are dealing with the exercise of a power to ban a person from a regulated occupation under ss 920A and 920B of the Corporations Act. The exercise of that power is informed by the objectives of the legislation.
Those objectives are expressly identified in s 760A of the Corporations Act, although they are also evident in the text of the banning power. Taken together, those provisions emphasise ASIC’s protective and facilitative roles in regulating individuals entrusted with the privilege of providing high quality financial services to businesses and ordinary members of the public. I use the expression ‘privilege’ advisedly in this context: while in one sense the provision of financial services is a business like any other, parliament has decided there is a public interest in regulating those who provide services of this kind. (For a good explanation of that public interest, one might refer to the proceedings and report of the recent Royal Commission into the provision financial services[1].
[1] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Final Report February 2019)
The privilege is certainly valuable for those who become entitled to exercise it. The regulatory framework ensures a measure of protection from competition, and other features of our financial system (most obviously Australia’s compulsory superannuation system and its emphasis on saving and investing for retirement) ensure there is steady demand for the expertise of suppliers of financial services. Those who participate in the regulated occupation must be taken to accept the rigours of the regulatory arrangements as a condition of entering into that occupation. Those arrangements include the role and powers of the regulator, the primacy of the public interest, a decision-making process attended by relatively elaborate procedural fairness requirements, the Tribunal’s review mechanism, and the inevitable possibility of hardship in the event of regulatory action: see Australian Securities and Investments Commission v Administrative Appeals Tribunal at [52]-[54], [56] per Downes and Jagot JJ. The Tribunal must keep that context in mind when exercising the powers under s 41 of the AAT Act.
It is also important to keep the identified purpose of the stay power – to preserve the efficacy of the hearing and review process – at the forefront. That objective is arguably captured in the reference in Scott to the risk of the hearing being rendered nugatory, but that consideration should not be weighed in the same way as the others.
With those qualifications, I will use the framework in Scott to deal with the application for a stay in this case.
PROSPECTS OF SUCCESS
The Tribunal is not in a position to undertake a detailed evaluation of the merits of the applicant’s case. The review process is at an early stage, and it is inappropriate to conduct a mini-trial to assess prospects. Having said that, it is generally true that a case with obvious merit is more likely to attract the exercise of the discretion. Conversely, an obviously weak case will weigh against the exercise of the discretion.
The applicant referred to a number of matters in paragraphs [15]-[17] of his written submissions which he says suggest reasonable prospects of success. In oral submissions, Mr Beaumont said the applicant acknowledged a number of shortcomings in his operation that prompted the regulatory action but pointed out most (if not all) of the matters of concern were remediated before the hearing in front of the delegate. Mr Beaumont added the applicant did not agree with ASIC about the seriousness of some of the findings made against him. The applicant also disputed at least one other important finding about the failing to act in the best interests of client. In any event, Mr Beaumont pointed out conditions that had been placed on the AFSL in response to the concerns had since been lifted in apparent recognition of the applicant’s progress. Mr Beaumont also pointed out there was no suggestion of recklessness or dishonesty, and there was no evidence of any of the affected clients suffering an actual loss.
Mr Beaumont readily acknowledged that success in these proceedings was a relative concept. The applicant was banned for two years; Mr Beaumont said the Tribunal might still make adverse findings but agree that a two-year ban was excessive and disproportionate. Mr Knowles, who appeared for ASIC, agreed there was no evidence of dishonesty or recklessness before the delegate, and acknowledged the delegate had not found evidence of a client suffering loss – although Mr Knowles pointed out evidence of loss may yet be found and introduced in the course of the Tribunal’s de novo review. Mr Knowles also suggested the delegate’s concerns that the shortcomings in question pointed to a lack of commitment to compliance. That is more worrying.
From this vantage point, it appears there may be some dispute over the factual findings, but the most hotly contested aspect will be whether a banning order is appropriate, and the duration of any such order. I am satisfied the applicant has an arguable case. It is difficult to be more precise than that. It follows this consideration does not count heavily for or against the exercise of the discretion.
THE CONSEQUENCES FOR THE APPLICANT
The applicant will be entitled to continue providing financial services subject to any condition I impose if I order the stay. That assumes the licence-holder does not cancel his authorisation. Mr Betalli says the licence holder will certainly cancel the authorisation if the Tribunal does not order a stay. In his statement, he says the licence-holder would be unlikely to re-issue the authority even if the applicant were successful at the final hearing. Mr Knowles said in oral submissions that the applicant’s evidence on this issue was effectively conjecture. Mr Knowles said the licence-holder might cancel (or not cancel) the authorisation in any event.
Mr Betalli also explained in his statement that he was eligible to be a registered as a tax agent by the Tax Practitioners Board (the Board) because he was a member of a professional association, the Self-Managed Superannuation Funds Association. He said his membership of the association was (or would be) cancelled following the reviewable decision. If his membership of the SMSF Association was cancelled, his registration as a tax practitioner would presumably be cancelled by the Board in due course. But he said the constitution of the SMSF Association permitted the governing body to reinstate membership notwithstanding a banning order. The applicant appears to be confident that a stay order from this Tribunal would count in his favour if he were to ask the governing body of the SMSF Association to reinstate (or not cancel) his membership.
Mr Knowles argued it would not be appropriate for the Tribunal to order a stay in order to provide the applicant with a bargaining chip in his dealings with his professional association or another regulatory body. I agree it would be inappropriate to order a stay with that end in mind. Mr Knowles also pointed out the applicant’s argument embodied several contingencies: the applicant assumes a stay will put him in a strong position to attract the exercise of a discretion which would in turn satisfy the Board that no action ought to be taken (at least for now) in respect of his registration as a tax practitioner. There is force to Mr Knowles’ criticism.
There is certainly no guarantee that ordering a stay will preserve Mr Betalli’s registration as a tax practitioner. But if he does become ineligible to practice in that capacity, his business may have to close. The applicant is the supervising tax agent and I was told none of the other staff would be suitable to undertake that role. That leaves the possibility the applicant might recruit somebody in the short term.
If the accounting practice is forced to close, there would be implications for the small number of employees. There would also be disruption for clients of the firm. There would also presumably be adverse financial implications for Mr Betalli and his family.
I am satisfied this consideration weighs in favour of the exercise of the discretion, although the speculative nature of the evidence about some of the likely consequences if a stay is not ordered diminishes the weight somewhat.
THE PUBLIC INTEREST
The earlier discussion of the objectives of the regulatory scheme makes clear the public interest is a significant concern in a case like this. I should say at once the factual findings of the delegate and the material produced in support of the stay application do not suggest there is a serious risk of harm in the short term if the decision was stayed – although it stands to reason that individual clients should be permitted to know of the risk and make a more informed decision about whether they wish to continue engaging the applicant. Mr Beaumont pointed out the shortcomings had already been addressed to the apparent satisfaction of ASIC given ASIC had lifted the conditions on the AFS licence. Mr Knowles argued it was impossible to say there was no risk of harm given the delegate’s concerns about the applicant’s judgment.
I accept it is appropriate for the Tribunal to be risk-averse in a situation like this. The expert regulator appears to have undertaken a careful evaluation of the facts in the course of a decision-making process which included important procedural safeguards. As Downes J pointed out in Scott, the public is, other things being equal, entitled to the protection afforded by that decision: at [4]. I also note Downes J and Hack DP warned in Rent-to-Own Australia Pty Ltd and ASIC [2011] AATA 689 that the Tribunal should not be overanxious to permit regulated activity. But one must not lose sight of the fact I am here concerned with the question of whether the applicant can safely be left to deal in financial services in the short term while the decision is reviewed. The applicant is aware of the consequences of any slip ups while the review continues. I am satisfied the public is not in any imminent danger if the Tribunal imposed a stay albeit that the stay should be conditioned upon disclosure of appropriate information to clients. This consideration weighs in favour of a stay, albeit on conditions.
THE CONSEQUENCES FOR ASIC IF A STAY WERE GRANTED
The Tribunal’s review – which includes the possibility of a stay – is part of the continuum of administrative decision-making under the Corporations Act in banning cases. Where the Tribunal decides to order a stay, that would not ordinarily be regarded as a rebuke to the decision-maker. It is not, without more, a reflection on the quality of the decision under review. In circumstances like this, the Tribunal is required to make a prudential judgment about the likely consequences (for the hearing, and for persons affected by the review) of a stay in the short term. The Tribunal is not carefully evaluating the reviewable decision at this point.
ASIC quite properly did not contend that a stay order would affect it in the performance of its regulatory function. It follows this consideration does not count for or against the exercise of the discretion.
WOULD THE APPLICATION FOR REVIEW BE RENDERED NUGATORY IF THE STAY IS NOT ORDERED?
This question goes to the heart of the stay power. I understood the applicant to argue he would have a more difficult time progressing the application if his business were to close and he lost the ability to fund his lawyers. That is not a strong argument. He could always represent himself, if it came to that. A stronger argument was that he would not be able to recover the losses he would experience in the short term even if he were successful at the final hearing. But even that is not an especially compelling argument given the observation of Downes and Jagot JJ in Rent to Own (Aust) Pty Ltd and Australian Securities and Investments Commission Tribunal[2] that the potential for loss and hardship in connection with regulatory action was an inevitable consequence of participating in a regulated occupation.
[2] [2011] AATA 689 at [70]
The relatively short duration of the ban counts in the applicant’s favour in the sense that a substantial part of the ban would likely have been served by the time the proceedings concluded. It is a truism that any damage might be contained by bringing on the proceedings as quickly as possible. After discussing the issue with the parties, I am hopeful the matter could be heard and determined by the end of the year, but that still means a significant portion of the ban will have been served.
I am satisfied that, in all the circumstances, it is possible the review would be rendered less effective, if not wholly nugatory, should the applicant be successful yet not have the benefit of the stay.
CONCLUSION
I am satisfied there are no other matters that are relevant to the exercise of the power. I am satisfied in all the circumstances it would be desirable to order a stay, albeit that the stay should be conditioned on disclosure of the fact of the reviewable decision and the stay proceedings to all existing clients of the business that consume financial services provided by or through the applicant. The letter should also advise clients of any implications if the banning order is upheld. Any new clients should be advised of the reviewable decision and the proceedings and the implications for them if the banning order is upheld. The text of the letter should be agreed between the parties, and the stay would take effect upon the despatch of the letter to the clients. If the parties cannot agree on the text of the letter within 7 days, they should provide submissions to the Tribunal and will incorporate an appropriate form of words into the directions. In the meantime, ASIC is free to publicise the reviewable decision in the ordinary way.
I certify that the preceding 31 (thirty -one) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe.
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Associate
Dated: 24 June 2021
Date(s) of hearing: 26 May 2021 Counsel for the Applicant: Mr Nicholas Beaumont SC (counsel) Solicitors for the Applicant: Hamilton Blackstone Lawyers Counsel for the Respondent: Mr Patrick Knowles Solicitors for the Respondent: Self - Represented
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