Daly and Australian Securities and Investments Commission
[2020] AATA 1516
•27 May 2020
Daly and Australian Securities and Investments Commission [2020] AATA 1516 (27 May 2020)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2019/7614
Re:Peter Daly
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
File Number(s): 2019/7640
Re:Ian Williams
APPLICANT
AndAustralian Securities and Investment Commission
RESPONDENT
File Number(s): 2019/7740
Re:Paul Raftery
APPLICANT
AndAustralian Securities and Investment Commission
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:27 May 2020
Place:Sydney
The applications for stay and confidentiality orders are refused. As of 4:00pm on Thursday 28 May 2020, the respondent is released from the undertakings given while the interlocutory application was on foot. The interim orders made under s 35 are also discharged at that time.
...............................[sgd]....................................
Deputy President Bernard J McCabe
CATCHWORDS
PRACTICE AND PROCEDURE – STAY APPLICATION – application for stay of publication of banning order by the Respondent – where applicants were banned for 5 years for mismanagement of funds – where publication of ban may impact sale of a business to compensate investors hurt by Applicant’s conduct – whether publication may hurt identifiable group of investors – objectives of the regulators in making a decision – where objective of legislation evince concern for consumer protection – objective of transparency – where there may be reputational damage – impact on family and business interests – where granting stay may subvert fundamental logic of legislative regime – stay application refused
LEGISLATION
Administrative Appeals Tribunal Act 1975 ss 35, 41
Australian Securities and Investments Commission Act 2001 s 1
Corporations Act 2001 s 760A
CASES
Australian Securities and Investment Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130
Scott and Australian Securities and Investments Commission [2009] AATA 798
SECONDARY MATERIALS
Joseph Heller, Catch-22 (1961)
REASONS FOR DECISION
Deputy President Bernard J McCabe
27 May 2020
The applicants were all involved in the provision of financial services. The Australian Securities and Investments Commission (ASIC) banned each of them from providing financial services for a term. The applicants have asked the Tribunal to review those decisions. In the interim, while the review proceeds, the applicants have each asked the Tribunal to make orders under ss 35 and 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) that will have the effect of suppressing information about ASIC’s decisions.
The applicants are not asking for the underlying decision in each case to be stayed. They say they merely want to prevent ASIC from publicising news of the banning orders. The applicants argue any announcement by ASIC would derail negotiations for the sale of a business with which the applicants are or were involved. The twist here is that a successful sale of that business might provide the funds to compensate investors who were said to be hurt by the very conduct which brought the applicants to ASIC’s attention in the first place.
While the applicants have not conceded they engaged in the misconduct that prompted ASIC’s regulatory action against them, they say they are trying to make the best of a bad situation in which innocent investors have lost money. They argue that publicising news of the regulatory action taken to protect the investing public will perversely hurt an identifiable group of investors who may yet be provided with meaningful restitution.
The applicants’ argument in favour of interlocutory orders potentially raises important questions of public policy. They argue this is a case where the important public value of transparency works in opposition to the interests of consumers. In doing so, the applicants are positing a catch-22: an unsolvable logical dilemma in which doing what one is required to do will have the effect of achieving the very thing the rules are designed to prevent.[1]
[1] Joseph Heller’s Catch-22 was one of the great satirical novels of the twentieth century. The catch referred to in the title was a Kafka-esque device deployed by members of a corrupt and bovine bureaucratic organisation to perpetrate abuses of power. The characters in the novel never precisely defined ‘catch-22’ – its lack of definition was, after all, a feature of the catch and a key to its utility – but the expression potentially includes the kind of confounding dilemma that the applicants say can be found at the heart of this interlocutory application. In fairness, the applicants in this case never actually used the expression ‘catch-22’ in the course of their submissions. They certainly did not accuse ASIC of the cynicism or vicious stupidity that Heller chronicled in his novel. But they did point to an existential tension in the regulatory regime which invites the comparison.
But it turns out the dilemma is not insoluble, and the outcome is not perverse when one understands the logic of the regulatory regime. The application for orders under ss 35 and 41 is refused, for reasons I will explain. As of 4:00pm on Thursday 28 May 2020, ASIC is released from the undertakings it gave while the interlocutory application was on foot. The interim orders made under s 35 are also discharged at that time. In the absence of further orders, these reasons will thereafter be published without redaction in the ordinary course.
Background to the reviewable decisions
The applicants were all involved in the management of a group of companies that conducted a range of financial services businesses. The group included the holding company, Linchpin Capital Group Ltd (in liq), and Beacon Financial Group Pty Ltd, a group company that controls a number of other companies that I will refer to as the Beacon group. The Beacon group is a discrete group of companies within the Linchpin group.
The companies in the Beacon group conduct a financial services business that manages funds, provides financial advice and offers mortgage broking services. The success of the business depends on the work of a network of independent authorised representatives and credit representatives. The representatives channel work or funds towards the companies in the group. While each of the representatives have an established relationship with the group, they are not beholden to the group companies and could break off their individual relationship at any time and direct their business elsewhere. If representatives quit the Beacon group network, the Beacon group’s business will diminish in value.
The companies in the Beacon group are not the source of the applicants’ present difficulties. Those difficulties arise out of the activities of Linchpin and other group companies involved in the Investport Income Opportunity Fund (the IIOF). The IIOF was essentially comprised of registered and unregistered managed investment schemes. Linchpin was the trustee of the unregistered scheme while a subsidiary company was the responsible entity for the registered scheme. ASIC claimed in Federal Court proceedings against Lynchpin that the funds were mismanaged in a variety of ways that I do not need to particularise here. (The allegations were summarised in a concise statement that ASIC provided to the Federal Court). The investors in the IIOF are likely to suffer a substantial loss.
Importantly, ASIC says the three applicants in these proceedings were involved in the mismanagement of IIOF in various respects. The first applicant, Mr Peter Daly, was the key executive in the Beacon group companies and a director of Linchpin and the subsidiary involved in IIOF. He was also a member of the lending committee of the unregistered scheme and the investment committee of the registered scheme. The committees effectively operated the schemes as a single fund and mismanaged them in a variety of ways – including appointing unauthorised transfers between the funds and approving loans to related parties that did not comply with the conflict policy and other internal procedures. ASIC’s delegate decided Mr Daly should be banned from providing financial services for a period of five years after:
(a)making adverse findings about his failure to comply with financial services laws and involvement in the contraventions of others; and
(b)concluding it had reason to believe Mr Daly would contravene financial services laws (or become involved in the contraventions of others) in the future.
Mr Daly provided an affidavit in which he outlined his personal circumstances and the impact the reviewable decision has had on him and his family. He also explained in some detail the efforts he has been making to negotiate the sale of the financial services business owned by Beacon to a third party. It was ultimately unclear what formal authority Mr Daly had from the liquidators of Linchpin – the parent of the Beacon group companies – in relation to the sale. I was told, however, that Mr Daly had not expressly informed the liquidators of the banning orders.
The second applicant, Mr Ian Williams, was also a director of Linchpin and its subsidiary. He has been involved in the Beacon group in recent times but he is not currently employed. Mr Williams was apparently involved alongside Mr Daly in IIOF. ASIC’s delegate made essentially the same findings against Mr Williams as those made in relation to Mr Daly. The delegate decided to ban Mr Williams from providing financial services for a period of five years. Mr Williams also provided an affidavit in connection with these proceedings in which he described hardship he was currently experiencing. He said that hardship might be relieved if a stay were ordered. He said he expected to lose his family home because a financier had taken steps to enforce personal guarantees he had given. He explained how that prospect was particularly burdensome in circumstances where the house had been adapted to meet the special needs of a family member. He said he hoped the sale of the Beacon group business would satisfy the financier and his personal guarantees would not be enforced leading to the sale of the house.
Mr Paul Raftery is the third applicant. He was a director of Linchpin and the subsidiary that conducted the IIOF. He was not a director of the Beacon group companies. He is not employed by the Beacon group. He has his own business interests: in particular, he is a director of at least two companies that are working on projects of their own. He says the publication of the banning order will likely imperil the sale of the Beacon group business. He also says news of the banning order will cause trouble for his own companies and threaten their projects. That would cause him loss and impact on the well-being of those involved in the projects, including employees of his companies that have nothing to do with the Linchpin mess.
ASIC’s delegate found Mr Raftery had been involved in the mismanagement of the IIOF funds. Without descending into the detail of those findings, it is enough to note Mr Raftery was the subject of serious criticisms that led the delegate to decide Mr Raftery should be banned from providing financial services for five years.
The legal framework
When ASIC makes a banning decision, it sends a notice to the individual concerned. The implementation of the reviewable decision typically involves additional steps. ASIC would ordinarily record its banning decisions in the relevant statutory register. It would also announce news of the decision on its website. In many cases, ASIC would issue a press release. Publicity is required as part of ASIC’s educative function. Publishing news of regulatory action also sends a message to market participants that the regulator is doing its job. That enhances confidence in the administration of our system of financial regulation.
Section 41(1) of the AAT Act makes clear that a decision comes into effect according to its terms notwithstanding an application for review in the Tribunal. If an applicant wants a stay of execution while the review proceeds, the applicant must make an application for an order under s 41(2).
The power in s 41(2) is flexible if it is enlivened. It permits the Tribunal to suspend the operation of the decision in its entirety. The Tribunal might also order a stay on conditions that are fashioned to ensure the purpose of the power is better achieved. The Tribunal could also make orders affecting aspects of the decision or the processes which ordinarily attend its implementation – including orders that restrain the regulator from publishing news of the reviewable decision: see Australian Securities and Investment Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130 per Downes and Jagot JJ at [62], [68]-[70].
The Tribunal will look carefully at requests to suppress news of a reviewable decision even where the Tribunal is otherwise prepared to issue a stay under s 41(2). The reasons for that caution are obvious enough. The Tribunal’s review mechanism is intended to operate in a transparent way. But the Tribunal is also conscious that others who continue to deal with an applicant will be understandably angry if they later discover they were kept in the dark about a reviewable decision that might have influenced their choices as consumers of the applicant’s services.
While the Tribunal will consider the reputational damage and economic loss that an applicant might experience if the reviewable decision is published while the review proceeds, it might not give those concerns much weight. Requests for suppression orders – for that is what they are, in substance – will be scrutinised very carefully where the reviewable decision in question relates to a person’s right to participate in a regulated occupation. Participation in a regulated occupation brings many benefits, including (in many cases) economic advantages that accrue to licence holders. Those economic advantages flow from the establishment of barriers to entry that incidentally reduce competition between the favoured few. The licence necessarily carries with it a requirement that the licensee conform to the rules and participate in regulatory processes according to law. Most of those regulatory regimes – including the one established in Chapter 7 of the Corporations Act 2001 (the Corporations Act) – place a premium on transparency. It follows that a risk of bad publicity accompanying adverse regulatory action will often be regarded as an incident of a licensee’s participation in a regulated occupation.
But I digress. The power in s 41(2) is available for the purpose of “securing the effectiveness of the hearing and the determination of the applicant for review”. Every application for orders under s 41(2) must satisfy the Tribunal that the orders are appropriate for this purpose before the discretion is enlivened. The power is not available for the purpose of containing loss and damage or preventing hardship. It is for the purpose of securing the status quo where that is necessary to facilitate the review. If the discretion is enlivened, the Tribunal may only proceed to make orders if it forms “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”. It is at this point in its deliberations that the Tribunal will address evidence of hardship to the applicant, amongst others. The Tribunal will also have regard to the merits of the substantive application and the prospects of success at the final hearing – a difficult task in many cases, given the evidence may not have been assembled and the outlines of the dispute might not yet have taken shape.
The Tribunal will also consider the objectives of the legislative regime under which the reviewable decision was made. In this case, the express objectives of the regime are set out in s 760A of the Corporations Act. That section refers, inter alia, to the need to promote:
·confident and informed decision-making by consumers of financial services;
·fairness, honesty and professionalism amongst providers of financial services; and
·fair, orderly and transparent markets for financial products.
I must also keep in mind the statutory objectives of the regulator since the Tribunal steps into the regulator’s shoes and exercises the regulator’s powers (and is subject to the same constraints) as the Tribunal remakes the decision under review. Those objectives are set out in s 1 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act). They include:
·Promot[ing] the confident and informed participation of investors and consumers in the financial system;
·Ensur[ing] that information is available as soon as practicable for access by the public.[2]
[2] The information in question is presumably information that has been supplied to ASIC in the course of its duties which is properly released to the public, consistent with its statutory function and the other objectives identified in the ASIC Act.
The objectives identified in the legislative regime evince a concern for consumer protection – but they also proceed on the assumption that the interests of consumers will usually be protected and advanced by promoting transparency. One should keep in mind that participation in a market always includes the possibility of loss. The regulatory regime is not intended to eliminate risk. Risk is inherent in markets. Markets work better – and market participants are better able to manage the risk they face – when the market has access to all relevant information including adverse information about a service provider.
The legislative regime reposes a high degree of confidence in the wisdom of informed markets. The regulator (and the Tribunal upon review) should be cautious before presuming to decide what the market needs to know, or how the market would interpret what it learns. The regulator should be slow to substitute its own judgment for that of the market.
The value of transparency also arises in relation to the applicants’ request for confidentiality orders under s 35 of the AAT Act. There is no point issuing an order under s 41(2) restraining the regulator from publicising news of its decision if I am not also prepared to contemplate orders under s 35. Section 35(1) makes clear that the Tribunal’s review processes are ordinarily conducted in public. In the absence of confidentiality orders or a secrecy regime in the legislation, the names of the applicants are published on the press list to inform members of the public of hearing events. Those hearing events are usually accessible to any member of the public, including reporters. An individual is entitled to sit quietly in the back of the hearing room and listen to the evidence in an open hearing. The individual may also report to others what he or she heard. When the Tribunal publishes its reasons for decision, those reasons will ordinarily name the applicants and disclose information about them that pertains to the decision under review. It would be futile to make what amounts to suppression orders under s 41(2) if any member of the public can read the names in the press list or wander into the hearing room and learn about the reviewable decision without restriction. Indeed, if suppression orders are to be made under s 41(2), there may be good reasons why they should be accompanied by orders under s 35 to prevent the disorderly release of information to the markets.
Section 35 acknowledges there may be good reasons why some information should be suppressed. That suppression might be temporary or permanent. But s 35(5) makes clear the Tribunal is required to start from the proposition that:
·hearings are conducted in public;
·evidence provided at a hearing (including any documents tendered in evidence) should be made available to anyone who wants to access it; and
·documents filed with the Tribunal by one party will be accessible to all parties for the purposes of the review.
The applicants in this case are seeking directions under:
·s 35(2) for a private hearing, which would exclude members of the public;
·s 35(3) that suppress the identity of the applicants and other individuals and entities that would enable them to be identified. To that end, the Tribunal assigns each of the applicants a pseudonym which is used when the Tribunal publishes the press list and (if the directions remain in place) when it publishes any directions or reasons for decision.
·s 35(4) that suppress evidence provided by the parties.
The commitment to public decision-making evident in the AAT Act is born partly out of the conviction that public hearings will promote confidence in the AAT’s decision-making, and in the decision-making of the entities whose decisions are being reviewed. The objective of promoting public confidence in Tribunal decisions is clearly articulated in s 2A of the AAT Act.[3]
[3] As Justice Brandeis famously observed, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman”: see Louis Brandeis, “What publicity can do” in Other People’s Money and how the Bankers use it, (1914).
Transparency does not just promote accountability and enhance confidence, however. It is also essential to the Tribunal’s role of modelling good decision-making behaviour.
It is true the Tribunal’s processes in the General and Other Divisions are relatively costly precisely because they include forensic fact-finding processes, judicial-style hearings with a contradictor and carefully reasoned decisions which are published for all to read. But there is a bigger picture. The Tribunal’s decision in each case establishes a norm that can be adopted and applied in the bureaucracy at low cost when decision-makers come across similar cases in the future. Decision-makers and the public can avoid disputes because the Tribunal has already told them where they are likely to stand. The cost of the Tribunal is therefore an investment that yields much larger savings in the form of better-quality executive decision-making.
Should the Tribunal issue a stay under s 41(2) that restrains ASIC from publicising the reviewable decision?
I have already explained the power in s 41(2) must be exercised for the requisite purpose – namely, securing the effectiveness of the hearing and the review. The applicants in this case say they and many others will experience significant losses that cannot be recovered even if the applicants (or any of them) are successful at the hearing. They have each provided affidavits which claim the proposed sale of the Beacon group companies will be threatened if the news of ASIC’s banning orders were to come out now.
Mr Daly explained the Beacon group companies depended on the loyalty and support of the network of representatives who steered business their way. The representatives were easily spooked, I was told, because they had their own reputations to protect. They would be nervous about remaining associated with companies that had an ongoing relationship with Mr Daly if news of his banning were to be announced. Mr Daly said the network of advisers had already shrunk in response to news of the litigation against Linchpin and its subsidiary and the commencement of winding up proceedings. He expected a more stringent reaction in the absence of a stay order.
The reaction of the representatives was particularly problematic because the Beacon group companies had negotiated a Share and Business Sale Agreement that would see the sale of the Beacon group to a third party. A copy of the agreement was annexed to an affidavit of Mr Williams. Mr Daly and Mr Williams said the purchaser might pull out of the agreement if it got wind of the regulatory action before the settlement date. At a minimum, the business would be less valuable if the network of representatives were to shrink in response to an announcement by ASIC. I was told the contract provided for the final sale price to be calculated with reference to certain performance measures. If those measures were impacted because the representatives reacted adversely to ASIC’s news about the applicants, the final sale price would be lower – which meant less money would be available to the investors in IIOF who had sustained a loss. The applicants say there is unlikely to be any controversy if ASIC made an announcement after settlement day. If settlement occurred, the Beacon group companies would be under new management. On the other hand, if the sale did not proceed and the network of representatives were to dissipate in response to bad news, the worst case scenario included the failure of the Beacon group companies as the business was compromised.
It struck me as passing strange that Mr Daly and perhaps Mr Williams were able to negotiate on behalf of Linchpin and the Beacon groups without disclosing the regulatory action to the liquidators or the prospective purchaser. At the stay hearing, I made clear to the applicants that the present application and the interim orders did not prevent them from disclosing any matters if it were otherwise appropriate for them to do so. I ensured the interim orders reflected that position when we adjourned.
ASIC says the applicants are speculating about the effect of the announcement on the prospects of the sale. That is true, but it does not strike me as unfounded speculation. It would be reasonable to expect an adverse reaction in the current environment. ASIC says there is reason to doubt whether the sale will proceed in any event. ASIC points out the sale agreement was negotiated some time ago and the purchaser had failed to complete. The applicants say there are good reasons for the delay, including regulatory issues in the United States and the onset of the pandemic. At the interlocutory hearing, I was told the applicants expected the settlement to occur between 12–18 May, give or take a few days. If the settlement occurred and the sale was completed, I was given to understand the applicants might even withdraw the application for orders as they would have achieved their object.
I understand the settlement has not occurred as at the date of these reasons. (The applicants acknowledged as much in further submissions exchanged after the interlocutory hearing.) There must be a serious question over whether that sale will ever be completed, although I am told the applicants remain hopeful. I will have more to say about this below. For now, I accept in the applicants’ favour that an announcement from ASIC may disrupt the sale or diminish the price realised that would limit the money available to the IIOF creditors. I also accept for present purposes that such a loss, once realised, may be irrecoverable and may even make the review pointless. It follows I am prepared to accept (for the purposes of the argument, at any rate) that the power to make a stay order is enlivened.
That brings me to the factors I must take into account when considering whether and how to exercise the discretion to make an order under s 41(2). As I have already explained, the sub-section requires that I consider the “interests of any persons who may be affected by the review”. In doing so, I will keep in mind the reasoning of Downes J in Scott and Australian Securities and Investments Commission [2009] AATA 798. The factors referred to in [4] of Scott are often used as a framework in connection with stay applications.
The parties discussed the prospects of success of their applications for review. As is often the case, it is hard at this early stage of the proceedings to get a clear handle on whether any of the applicants have merit on their side. The applicants spoke of shortcomings in the delegate’s approach. They claim other officers were responsible for the mismanagement that led to the problems at IIOF which suggest a dispute on the facts. They set out their criticisms in statements of issues that have been filed in these proceedings. ASIC says the Federal Court proceedings and the winding up process point to doubts over the applicants’ prospects of successfully resisting the bans – although the applicants point out they were not parties to the Federal Court proceedings and those proceedings were not seriously contested in any event. There is also a question over the length of the ban even if the factual findings are substantially affirmed. It should be noted there is also a possibility the bans imposed on one or more of the applicants might be increased by the Tribunal. It all depends on how the evidence comes out.
I will assume for present purposes that the applicants do not have a hopeless case, but it is difficult to be more positive than that. In the circumstances, this factor does not weigh heavily for or against orders under s 41(2).
The interests of the individual applicants are potentially impacted if the stay orders are not made. Mr Daly said his reputation would be significantly compromised in the short term, and that reputational damage would lead to economic loss. He would also experience financial hardship if the sale of the Beacon group companies were impacted by the disclosure. Mr Williams said his prospects of getting work in the financial services industry are poor enough already given what is publicly known; he would have virtually no hope of getting work in the industry in the short term if it came out that he were banned. Mr Williams said he was already facing the loss of his home. His family circumstances, detailed in his affidavit, suggest the loss of that home will cause particular hardship. He said he expected to be in a much better position with respect to his financier if the sale of the Beacon group went through. That outcome depended crucially on the Tribunal agreeing to make orders under s 41(2) and s 35.
Mr Raftery, for his part, said the reputational damage if orders were not made in the short term would impact on his other businesses. He explained companies under his control were engaged in projects that might be threatened if news of his banning order were made public. That would impact on his personal fortune in the short term but it would also impact on employees and other contracting parties.
I accept the applicants will experience reputational damage and loss in the short term if the orders are not made. That damage and disruption might impact on their families and their business interests. I have sympathy for Mr Williams in particular given his family circumstances. Even so, it is difficult to give much weight to those considerations. I have already explained the prospect of reputational damage in connection with regulatory action is one of the risks one takes when one enters into a regulated occupation. While I have rather more sympathy for Mr Williams – or, more accurately, for his family – given the circumstances, I am not satisfied this factor weighs heavily in favour of the exercise of the discretion for any of the applicants.
The interests of other persons appear to count heavily against making orders under s 41(2), with one or two possible qualifications. I am deeply uncomfortable with the prospect of suppressing information that would be of interest to the liquidators of Linchpin and its subsidiary. That information would also be of interest to the prospective purchaser of the Beacon group – and to the network of representatives who provide much of its work and who are crucial to its success. I know the information would be of interest to all these entities precisely because that is the point of the application for orders: if those entities were not interested in the information, the applicants would not care about them learning it. The applicants argued, in effect, that the information was not material to any decisions these entities had to make. I was also told the problem was one of messaging: most entities would hear the word ‘ban’ and react peremptorily without stopping to be informed of the merits of the applicants’ case. That may or may not be true, but the Tribunal plays a dangerous game when it presumes to know what others might or should do with information.
If the applicants are right and an ASIC announcement has the effect of spooking the purchaser or the network of representatives, the Beacon group companies might end up suffering collateral damage to their business. That would be regrettable. If the sale of those companies were to be frustrated by an unfortunately-timed announcement, or if the sale yielded less profit because of the bad news, that might work to the disadvantage of the investors in IIOF. That would also be regrettable. But for reasons I have already explained, the risk of those outcomes might have to be endured precisely because they will be the result of the operation of an informed market. At a minimum, it is unclear why the interests of the Beacon group or the unfortunate investors in the IIOF funds should be prioritised over the interests of others who have every reason to expect disclosure of information like this would proceed in a timely way.
I have already discussed the public interest in informed and efficient markets. Suffice to say that public interest weighs against ordering a stay.
The last consideration is the interests of the regulator. Requiring ASIC to keep quiet about its own decision will leave the regulator in an awkward position. The public expects ASIC will enforce the law. How should ASIC respond if a reporter enquires whether any regulatory action has been taken against individuals – including the applicants – involved in the IIOF debacle? How is it meant to deal with the liquidators of Linchpin? I made clear in the interim orders that ASIC was not prevented from disclosing news of the banning orders to the liquidators if that became necessary in the course of discharging its statutory responsibilities. That is not sustainable over a longer period while the review proceeds towards a conclusion.
Requiring the regulator to suppress news of its own decisions places that regulator in a potentially embarrassing situation. That weighs against making an order under s 41(2).
Conclusion in relation to s 41(2)
This is not a case where the final hearing can be brought on quickly to contain the reputational damage. The review process may take some time. Having regard to that fact and all the matters discussed above, I am not satisfied it is desirable to make orders under s 41(2). While acknowledging that decision may result in reputational damage to individuals and loss (or lost opportunities) for third parties, I am satisfied the best course is to refuse the application for orders under s 41(2), release ASIC from its undertakings and let events take their course. To do otherwise would be to subvert the foundational logic of the legislative regime.
Conclusion in relation to the related application for confidentiality orders
Section 35 operates independently from s 41(2) and any application for confidentiality orders must be evaluated according to the criteria in s 35. In these proceedings, the applicants requested orders under both provisions that operated together to achieve a desired outcome. I have already explained why I do not propose making orders under s 41(2) but it is possible to achieve what the applicants desire using s 35 orders alone. As it happens, I am not satisfied orders should be made under s 35. For the sake of completeness, I will explain my reasons for that conclusion.
I have already explained the Tribunal’s hearings are generally conducted in public, and that – in the absence of confidentiality orders or restrictions in the particular legislation – any attentive member of the public is able to discover the applicants had sought review. Members of the public would also be able to sit in the hearing and listen to the evidence. They would be able to read the Tribunal’s reasons for decision in due course. While s 35(5) establishes a clear expectation that proceedings are conducted in the open, the Tribunal has the power to make confidentiality orders in an appropriate case, including where the information in question is of an inherently confidential nature.
The reviewable decisions which the applicants want to suppress are the product of a formal process conducted by a public official in the discharge of his or her responsibilities. The usual practice is to announce those decisions to the public. The legislative regime, as I have already explained, proceeds on an assumption of openness and the ASIC Act expressly requires ASIC to process and disseminate relevant information in a timely way. It follows the information about the banning orders is not inherently confidential.
I am not aware of any other reasons that would justify making confidentiality orders under s 35. The prospect of hardship to the applicants does not justify a departure from the usual practice, for reasons I have already discussed in relation to s 41(2). The prospect that participants in the market might react to the information and make their own judgments does not suggest they should be denied access to the information in question, even if their reactions would have serious repercussions for others. The objective of preserving the value of an asset sale that may yet not occur does not justify treating that information as confidential.
There is a theoretical possibility that judicious intervention in the distribution of information might make up for what some would say is a market failure. The failure is a product of the danger that participants in the market were liable to misunderstand or overreact to complex information. Alternatively, they might be prompted to act against their own interests because coordinated action is impossible. In an ideal world characterised by perfect information and unburdened by transaction costs, a wise regulator would anticipate what the parties needed to know and ration the information accordingly. But that world does not exist, and no regulator is that wise.
Disposition
The applicants ask the Tribunal to make orders that have the effect of interfering in the market for financial services. I accept the applicants have rational – even commendable - reasons for seeking that intervention. They may end up being right about the unpleasant consequences they have forecast if the orders are not made. But every intervention creates the risk of unintended and unforeseen consequences. The intervention may end up causing more harm then it avoids.
Markets are unpredictable things, but the Parliament has decided to invest its trust in their operation. The legislative regime explicitly commends free and informed markets as a desirable policy outcome. The Tribunal should hesitate before presuming to know better.
I certify that the preceding 54 (fifty -four) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
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Associate
Dated: 27 May 2020
Date(s) of hearing: 29 April 2020 Date final submissions received: 14 May 2020 Counsel for Mr Williams: Mr D J Freeman Solicitors for Mr Williams: 23 Legal Counsel for Mr Daly and Mr Raftery: Ms L Keily Solicitors for Mr Daly and Mr Raftery: Liam Young Legal Counsel for the Respondent: Mr M Brady QC Solicitors for the Respondent: Australian Securities and Investment Commission
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