Cassidy and Australian Securities and Investments Commission
[2020] AATA 66
•23 January 2020
Cassidy and Australian Securities and Investments Commission [2020] AATA 66 (23 January 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2019/7601
Re:Adrian Cassidy
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:23 January 2020
Place:Sydney
The application for further orders under s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) is refused. The interim orders will be discharged as of 10am on 24 January 2020.
.............................[SGD]...........................................
Deputy President Bernard J McCabe
CATCHWORDS
PRACTICE AND PROCEDURE – STAY APPLICATION – application for stay of decision to ban applicant from providing financial services – publication of decision to ban by media release – where applicant is no longer acting as a financial advisor – where applicant in process of selling his business – whether stay necessary to secure the effectiveness of the hearing – where financial penalty and reputational damage – prospects of success – public interest – public’s right to know – stay refused
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 35, 41
Corporations Act 2001 (Cth) ss 760A, 920A, 946A, 946B, 1014G
CASES
Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185
Kender and Australian Securities and Investments Commission [2018] AATA 4445
Scott and Australian Securities and Investments Commission [2009] AATA 798
REASONS FOR DECISION
Deputy President Bernard J McCabe
23 January 2020
On 14 November 2019, a delegate of the Australian Securities and Investments Commission (ASIC) banned Mr Adrian Cassidy from providing financial services for a period of six years. The ban takes effect on the date of the reviewable decision. Mr Cassidy has asked the Tribunal to review that decision. He also applied for orders under s‑41(2) of the Administrative Appeal Tribunal Act 1975 (Cth) (the AAT Act) that stay the operation and implementation of the reviewable decision until the conclusion of the review process.
An interim order was made under s 41(2) until the Tribunal held a stay hearing on 22 January 2020. At the conclusion of the hearing, I reserved my decision and indicated I would provide written reasons for my decision on the stay application. I also made directions setting out a timetable for the parties to prepare for a hearing. I indicated that hearing might be held as soon as April 2020.
These reasons for decision relate to the stay application, which is refused.
The reviewable decision
The delegate concluded the applicant had contravened ss 946A, 946B and 1041G of the Corporations Act 2001 (Cth) (the Corporations Act). The delegate found it unnecessary to make findings in relation to potential contravention of ss 963G and 1041H. The finding the applicant had engaged in dishonest conduct contrary to s 1041G was arguably the most serious of the claims that was made out. The delegate exercised the discretion in s 920A to ban the applicant from providing financial services for six years in light of those findings. That decision is a reviewable decision.
Having made the decision, several consequences follow. When the decision takes effect, the applicant is prevented from providing financial services. ASIC records the fact of the banning decision on the statutory register it maintains. It will also, as a matter of routine practice, publicise the decision. Typically, it will announce the decision on its website. It may issue a press release. Where an application for review is filed with the Tribunal, ASIC is expected to include that information in its publicity so the public is not misled as to the state of play. It is now settled law that the Tribunal has the power under s 41(2) to restrain ASIC from making entries on the register or from publicising the reviewable decision in appropriate cases because those activities are plainly “an aspect of the operation and implementation of the banning order”: see Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185 at [81] per Downes and Jagot JJ.
The power in s 41(2) of the AAT Act
The stay power is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review.” The Tribunal can only make such an order when it “is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review”. The stay order may extend to all or part of the decision under review.
Applicants in a case like this often have two objectives. They typically want permission to remain at work in the regulated occupation so they can derive income and preserve their business. But many are also concerned to manage the adverse publicity that typically accompanies regulatory action. Many applicants would prefer that the regulator be restrained from implementing and publicising the reviewable decision. More than a few applicants ask for confidentiality orders under s 35 of the AAT Act so they can be sure the hearing occurs in private.
The applicant in this case has not asked for any directions pursuant to s 35 although he is plainly concerned about bad publicity. Indeed, the prospect of bad publicity is the focus of the application under s 41(2) since the applicant has already ceased providing financial services. He is in the final stages of completing the sale of his firm. I understand he is meeting with clients and encouraging them to stay with the new owners. He is concerned that adverse publicity might complicate the handover. In particular, I was told the contract of sale of the business includes a provision that says the price paid to the applicant will be reduced if the business has lower billings than projected. That may occur if the clients are spooked by news of regulatory action against the applicant.
If the applicant is not in the business of providing financial services and has no plans to provide those services in the foreseeable future, it is difficult to see how I could justify staying that aspect of the reviewable decision. Such an order would have no utility. It is unclear how the banning decision of itself would prevent the applicant in this case from participating in the transition to the new owner; in those circumstances, it is hard to see how a stay of the banning order would be for the requisite purpose of securing the effectiveness of the hearing and review. But I accept there may be a point to staying the publication of that decision. If the news of the regulatory action were to have an impact on the business in the very short term while the sale is finalised, the amount of the sale price might be substantially reduced, resulting in a significant financial penalty through loss of client base and reputational damage. That impact might be hard to fix if the applicant ultimately prevailed. The damage will be done, and the review process might be rendered pointless.
It follows I accept the stay power is enlivened because the applicant has identified a proper purpose. But the power is discretionary. Decisions of the Tribunal like Scott and Australian Securities and Investments Commission [2009] AATA 798 and Kender and Australian Securities and Investments Commission [2018] AATA 4445 provide routine guidance as to the considerations that may be relevant. I will address those matters in turn.
Prospects of success
An applicant who obviously has strong prospects of success in relation to the reviewable decision will likely have an advantage when asking for a stay. An applicant with obviously poor prospects on the substantive review might attract less sympathy at the stay hearing. In most cases, it is difficult for the Tribunal to assess the applicant’s prospects. Stay hearings are usually convened at relatively short notice before the evidence is in. It is not appropriate to conduct a mini-trial. In most cases, the Tribunal will not go much beyond satisfying itself that, in light of the information provided by the parties, there is a serious dispute which must be resolved at the hearing.
Mr Cassidy’s lawyer explained there was a serious question over the delegate’s interpretation of s 1041G and a challenge to the factual findings. He also said Mr Cassidy disagreed with the length of the ban if adverse factual findings were made. ASIC disagreed, but I accept the applicant has raised serious issues that are best dealt with at a hearing. Having said that, I acknowledge most of the applicant’s criticisms were directed to the findings under s 1041G. ASIC points out there were other findings which justified regulatory action. The applicant’s prospects of a clean win are less clear.
The impact on those affected by the decision under review
The banning decision has the effect of preventing the applicant from providing financial services. But he is not currently providing services. He said he has no plan to do so in the foreseeable future. He is worried that, even so, news of the banning decision will have a significant adverse financial impact. It is not just the prospect of losing clients in the short term; lost clients can usually be recovered or replaced in the medium term if he were successful in the substantive review. If that were all that was at stake, the Tribunal might quickly respond that the risk of such loss upon regulatory action was one of the risks of participating in a regulated business. That is why the Full Court of the Federal Court observed in ASIC v AAT that the risk of a damaged reputation and loss will rarely be reason enough to justify making a stay order: at [76] per Downes and Jagot JJ.
The problem for the applicant in this case is that losing clients during the handover period for his new business may have outsize consequences that cannot subsequently be mitigated because of the clause in the contract which will ratchet down the price for which he is selling the business. I was told this is an especially bad time for the news to emerge. The applicant argues that is a good reason to restrain ASIC from publicising its regulatory action.
While the applicant’s interests will be adversely affected if the stay is not granted, it is unclear what impact the stay (or refusing to grant the stay) will have on others. The firm will continue in operation. The interests of employees are unlikely to be affected. The new owner will not be deprived of the applicant’s input – it was not established that the banning decision would prevent the applicant from assisting with the handover. The new owner might be affected if the clients were unsettled by the regulatory action and started to leave, but it seems the contract of sale insulates the new owners from that loss to some extent (albeit at the expense of the applicant).
The interests of the clients are obviously important. They will not be deprived of the applicant’s services if the ban takes effect, since those services will be provided by the firm under the direction of its new owners. But if news of the ban were effectively suppressed, they might have cause for complaint if it subsequently came to light they were deprived of timely information they might reasonably have expected would be disclosed, as Downes and Jagot JJ observed in ASIC v AAT at [54]. (I acknowledge that observation was made in the context of an application for confidentiality orders, but it is a relevant consideration here as well.)
The ‘right to know’ is a particular concern in matters like this where the regulatory scheme is not merely concerned with consumer protection. The objectives of the regulatory scheme are set out in s 760A of the Corporations Act. The objectives include promoting “confident and informed decision making by consumers of financial products” and “fair, orderly and transparent markets…”. The applicant acknowledged the importance of informed decision making but says there is no harm in circumstances where the applicant is not providing financial services.
ASIC points out the applicant plans to meet with each of his existing clients to introduce and refer them to the new owners of the firm. ASIC says those clients might prefer to know if there are issues with the service they have received, or the service provider, when making a decision whether to remain with the firm or go. The fact the applicant fears the clients might leave if they learned the news of the regulatory action tends to suggest the clients would regard that information as relevant to their decision making.
The public interest in an informed market weighs in favour of disclosure, even if the public is unlikely to be at risk of bad behaviour in the short term.
The interests of the regulator are unlikely to be prejudiced if the applicant were able to continue providing financial services in the short term. An applicant is entitled to access the review process in the Tribunal, and the stay power is part of that process. An order under s 41(2) should not be regarded as a form of rebuke nor does it ordinarily cast doubt on the decision making process that has occurred. But ASIC may be embarrassed in the performance of its regulatory function if it were prevented from accurately reporting the reviewable decision to anyone who might ask about it.
I accept the review process might be compromised if publication is restrained since the damage will be done by the time of the review. To that extent, the hearing would be rendered nugatory.
CONCLUSION
There is no reason to stay the banning order in the short term. The applicant does not need to continue work as a financial adviser in order to progress the review. I accept there are reasons why it might be appropriate to restrain publication of the banning order, however. I acknowledge the applicant might be particularly vulnerable to bad publicity while the handover of his business proceeds. On balance, however, I am not satisfied it is desirable to make an order under s 41(2) directing ASIC to refrain from activities that implement the decision, including making entries in the register or otherwise publicising the banning decision. The interest of clients and the wider public in being informed outweighs the applicant’s interests. I am also mindful of ASIC’s interest as it goes about its regulatory function.
The application for further orders under s 41(2) is unsuccessful. The interim orders will be discharged as of 10am on 24 January 2020.
I certify that the preceding 23 (twenty -three) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
...........................[SGD].............................................
Associate
Dated: 23 January 2020
Date(s) of hearing: 22 January 2020 Solicitors for the Applicant: B Hemsworth, Somerville Legal Counsel for the Respondent: K Anderson Solicitors for the Respondent: J Walker, Australian Securities and Investments Commission
R O'Loughlin, Australian Securities and Investments Commission
2
0