Daws and Australian Securities and Investments Commission
[2006] AATA 321
•5 April 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] aata 321
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2005/008
GENERAL ADMINISTRATIVE DIVISION ) Re CHRISTOPHER JOHN DAWS Applicant
And
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
REASONS FOR DECISION
Tribunal S Penglis, Senior Member Date5 April 2006
PlacePerth
1. At the conclusion of the hearing of this application, the terms of the decision intended to be made and the reasons for that decision were stated orally.
2. The respondent has requested the Tribunal to furnish it with a statement in writing of the Tribunal’s reasons for its decision.
3. The oral reasons for decision have been transcribed by Auscript Australasia Pty Ltd, the Commonwealth Reporting Service.
4. A copy of the transcript of 14 pages, which has been edited to correct spelling, grammar and other matters of form, but not substance, is attached and is provided as the statement in writing of the Tribunal’s reasons for its decision.
...........(sgd S Penglis)...............
Senior Member
ORAL REASONS FOR DECISION
ADMINISTRATIVE APPEALS TRIBUNAL
MATTER NO W2005/8
By MR S. PENGLIS, Senior Member
DAWS and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PERTH, 15 FEBRUARY 2005 [11.03am]MR PENGLIS: This is an application to the Tribunal dated 5 January 2005 to review a decision of the respondent dated 10 December 2004. That decision was not to vary or cancel a banning order made by the respondent against the applicant on 2 May 2001. The order was made by consent of the applicant. That consent was in writing and dated 30 April 2001. I do not propose to read in detail the terms of the banning order, save that it was before the Tribunal. It was pursuant to section 829 of the Corporations Law and effectively provided as follows: (1) That the Mr Daws,
“...is permanently prohibited from acting as a representative/proper authority of a securities dealer or investment adviser unless each of the following requirements are fully complied with.”
Those requirements were then detailed as follows:
First:
That within 12 months from the date of execution of the order the applicant shall provide ASIC with the original transcript of academic record from the Securities Institute of Australia showing successful completion of certain identified units.
Second:
Prior to commencing employment with a licensed entity for whom the applicant will be an authorised representative, the applicant would nominate a director or principal of the licensee to be responsible for his supervision.
Third:
Prior to commencing employment with the licensee the applicant shall obtain from the licensee a letter confirming that it undertakes to supervise him in the manner set out in the order, the letter to name the supervisor.
Fourth:
The licensee does not terminate the applicant's proper authority for improper conduct.
There were other conditions that were imposed which, for present purposes, I need not detail.
It is important to note that the order arose from what can only be described as serious misconduct on the part of the applicant. That misconduct is detailed in the consent that the applicant signed. I do not propose to read the entirety of the consent, save that I think the following description that is set out in the respondent's reasons for its decision of 10 December 2004 is accurate. The applicant's conduct was described as follows:
“During his employ at CIBC the applicant apparently changed adviser codes on buy orders to increase his commission. While employed by Merrill Lynch the applicant apparently: (1) Placed orders without prior written client authorisation to operate accounts on a discretionary basis; (2) Bought shares in Freight Lynx Express Holdings Australia Ltd referred to hereafter as "FLE" - as principal then allocated the shares to other persons without disclosing he was acting as principal and charging commission; (3) Recommended that clients buy FLE shares without disclosing that the majority of price increases in FLE were attributable to trades from his recommendations to other clients; (4) Failed to disclose his interest in FLE when making recommendations to clients; (5) Placed orders for the purchase of or sale of FLE shares at prices substantially lower than market; and (6) Proposed to underwrite FLE shares through his own company and was advised this would be in breach of the law.”
The applicant now contends that the respondent had power pursuant to the Corporations Act to vary or revoke that order, that it ought to have exercised that power and, in particular, ought to have exercised it by effectively revoking the order and accepting in lieu thereof an enforceable undertaking which has been offered on the part of the applicant.
Section 920D of the Corporations Act relevantly provides as follows:
“ASIC may vary or cancel a banning order by giving written notice to the person against whom the order was made if ASIC is satisfied that it is appropriate to do so because of a change in any of the circumstances based on which ASIC made the order.”
The terms of the enforceable undertaking that the applicant has proffered are summarised in the applicant's Outline of Submissions in the following way:
“The applicant will comply with section 911A of the Corporations Act; (2) The applicant will complete a recognised director's duties course; and (3) The applicant will not apply to be an authorised representative of a licensee without first complying with the educational and supervisionary requirements set out in paragraph one of the banning order.”
The relevant provision governing enforceable undertakings is section 93AA of the Australian Securities and Investments Commission Act and it provides as follows:
“ASIC may accept a written undertaking given by a person in connection with a matter in relation to which ASIC has a function or power under this Act.”-
The section further provides that:
“If ASIC considers that the person who gave the undertaking has breached any of its terms, ASIC may apply to the court for any of the following orders -
(a)An order directing the person to comply with that term of the undertaking;
(b) An order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;
(c) Any order that the court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach; and
(d)Any other order that the court considers appropriate.”
The fact of the matter is that an enforceable undertaking finds statutory form in the ASIC Act and its breach is a serious matter.
The reasons advanced by the applicant as to why the Tribunal ought uphold his application can be summarised, in no particular order, as follows. First, almost four years have passed since the banning order was made. Secondly, the applicant is no longer the securities industry (and has not been for some time). Thirdly, the order is now having an unintended consequence for the applicant. I will come back to that in a moment. Next, he now exhibits greater maturity and insight than he did prior to the banning order and further, that it was not his fault that he could not comply with the conditions of the banning order.
Let me come back and briefly deal with the suggestion that the order is now having unintended consequences for the applicant. That is a matter which, in my view, is made out on the evidence and having said that, it was not seriously contested by the respondent. In this regard, two letters were tendered before the Tribunal, both from the company Niagara Mines Ltd of which the applicant is the Chief Executive Officer. Both are from Ross Kestel, the Company Secretary. The first is dated 30 March 2004 and the second is dated 10 February 2006. They are to the effect that whilst the banning order is on foot the question of the applicant's appointment to the Board cannot be considered by the Board.
The letter of 10 February 2006 simply reads as follows:
“I have been instructed by the board to write to you in relation to recent discussions on you being appointed as an Executive Director of the company. As you are aware, this matter has previously been discussed and the board is reluctant to proceed with any appointment while you are still the subject of a banning order by the Australian Securities and Investment Commission. The Board understands your desire to be promoted to the role of Managing Director, especially given the proposed redevelopment of the Mt Windarra Nickel Project, however the board has decided to defer any such appointment whilst the ASIC banning order is in place. We trust you understand our position.”
It is clear from the correspondence that even if the banning order is lifted the appointment of the applicant to the Board is not a foregone conclusion. Nevertheless, I am satisfied that whilst the banning order remains in place it is simply not an option so far as that Board is concerned and therefore, therefore find that the order is having unintended consequences for the applicant. I accept that the applicant's appointment to boards of companies was not an intended consequence of the banning order.
I now turn to the applicant's assertion that it was not his fault that he could not comply with the condition of the order. In this regard, various witness statements were tendered on behalf of the applicant. One was dated 5 August 2005. It included the following paragraphs:
“19. During that time I had discussions with my current employer, Amro, about the conditions the subject of the proposed banning order. The directors of Amro agreed that I would continue my employment whilst I completed the education conditions imposed by the respondent and Amro would undertake the supervision conditions set out in the proposed banning order. It was agreed that Mr Kim Roberts, a director of Amro, would supervise me in accordance with the supervision conditions of the proposed banning order.”
20: On 30 April 2001 I consented to the banning order on the basis that I would be able to continue to work in the financial services industry, subject to complying with the conditions set out in the banning order. I was confident that the conditions could be satisfied, thereby resulting in the removal of the banning order, because I had already arranged for Amro to supervise me according to the conditions of the banning order. …”
23: Subject to the making of the banning order on or about 2 May 2001 the respondent published a notice in respect of the banning order. ….
24: After the publications I was informed by the directors of Amro that they were unable to undertake the supervision conditions of the banning order because of the impact it may have for Amro, notwithstanding that the banning order would be removed if I satisfied the education and supervision conditions of the banning order.
25: At the time I recognised that no other brokering firm, especially firms with which I had no previous association, would be prepared to employ a person the subject of a banning order and who would also be prepared to undertake the supervision conditions of the banning order.
26: As I did not believe that I could find an alternative brokering firm to undertake the supervision conditions of the banning order I decided not to continue to work in the financial services industry. Accordingly, I did not complete the education conditions set out in the banning order.”
In the course of his evidence-in-chief, the applicant gave evidence which I found to be inconsistent with that statement. The evidence he gave in-chief, although when cross-examined he resiled to some extent from his certainty of the timing, was to the effect that the notification from ABN Amro that if there was publication of the banning order they would not be able to continue with his employment, was made to him prior, not subsequent, to the making of the banning order and indeed, prior, and not subsequent, to his consent of 30 April 2001.
That evidence is indeed reinforced by a document that was tendered into evidence which was referred to as "an ASIC running sheet". That is a document which essentially diarises all relevant attendances undertaken by the relevant officers of ASIC in regard to their investigation and resolution of this matter. There is an entry for 1 March 2001 which reads as follows:
“Met with Howard Dawson and Chris Daws re possible agreed outcome for Daws as a result of his misconduct. Daws agreed to consent to an order being made that should he not adhere to strict supervision by the licensee and undertake studies, that he will be permanently banned from acting as a securities representative. Mr Dawson agreed that ABN Amro would supervise Daws for the duration of the order. Dawson also discussed the possibility of having some input as to the wording of the media release. It was agreed that Mr Dawson should forward via email his thoughts on how ABN Amro may supervise Daws and the preferred wording of the media release for our consideration”.
There is an entry then for 26 April 2001. It reads as follows:
“Received telephone call from Howard Dawson from ABN Amro Morgans. Mr Dawson advised that Mr Daws had shown him the consent and he was not aware that Mr Daws would have to make omissions in the consent. Given this, ABN Amro had reconsidered its position in relation to the supervision of Mr Daws and should Daws sign such a document making those omissions, then ABN Amro would have no choice but to terminate Mr Daws' employment.”
There is also an entry dated 26 April, 1315 hours, in the following terms:
“Received telephone call from Mr Daws who advised that he had been advised by ABN Amro that if he signed the consent as it is then they will terminate his employment. I advised Mr Daws that if he is terminated after he signs the consent, then permanent banning would apply. I also advised him that it is unlikely that we would be able to change the consent, other than to take into consideration that ABN Amro were no longer willing to supervise him and would change the period of supervision from when he took up a new position with the licensee.”
There is a further entry dated 26 April 2001 at 1500 hours as follows:
“Received telephone call from Mr Dawson and Mr Daws. Mr Dawson advised that ABN Amro would not be able to employ Mr Daws if he were to make any admissions, ie, sign the consent. Reasons being that it would not be commercially viable because of PI insurance and possible liability action that may be taken against them for advice given by Mr Daws.”
I, therefore, find that the statement made by the applicant that he was:
“...confident that the conditions could be satisfied …”-
this is when he consented, I should add, on 30 April 2001,
“… thereby resulting in the removal of the banning order because I had already arranged for Amro to supervise me according to the conditions of the banning order.”
is not a correct statement of fact. I also find that the suggestion that the applicant was informed after the publication that the directors of ABN Amro were unable to undertake the supervision conditions of the banning order also wrong in fact. I find that the position of ABN Amro was arrived at well prior to 30 April and that the applicant was well aware of that fact.
The applicant's submission can be summarised as follows:
First, it is submitted that section 920D of the Act should be given a wide construction. Second the circumstances have changed. Third that the respondent and therefore, I, have power to accept an enforceable undertaking from the applicant. Fourth that the public interest is not compromised by doing so.
The respondent's submissions can be summarised as follows:
First, that section 920D of the Act should be given a narrow construction. Second that there was no change in relevant circumstances. Third it accepts that if, contrary to its submissions I find that there has been a change of circumstances, therefore enlivening the discretion under section 920D, it is open for ASIC, and thus for me, to accept an enforceable undertaking. In my view, that is a concession rightly made, in view of the authority to which I was referred by both parties, namely, the Australian Securities and Investments Commission v Donald (2003) FCAFC 318, a decision of the Full Court of the Federal Court of Australia. Fourth that the public interest required the banning order to continue.
Before going on I wish to make the observation that it is not part of my review to consider whether or not the banning order initially imposed was properly made. In this regard, I note that no submission to that effect was advanced before me by Mr Hall, Senior Counsel for the applicant, although a submission to that effect was made to the delegate of ASIC at the original hearing. I should also note that the evidence before me, particularly the running sheet, shows that ASIC turned its mind at the time to whether or not an enforceable undertaking ought be accepted in lieu of a banning order. It resolved not to accept an enforceable undertaking in lieu of a banning order because of the nature and severity of the matters giving rise to the banning order. And whilst, as I have said, it is not part of my task here today to form a view as to whether or not that decision was right, I simply make the observation that there is a lot to be said for the view that ASIC adopted at that time.
I then turn to consider each of the matters. The first issue is whether or not I have any jurisdiction by reason of the operation of section 920D. This largely turned on the proper construction of the section and, in particular, the words:
“Because of a change in any of the circumstances based on which ASIC made the order.”
In my view section 920D is clear. I need not consider whether it ought be given a narrow or wide meaning. The words ought be given the natural and ordinary meaning that they bear. Section 920D requires ASIC and, in these circumstances, myself, to first consider and identify the circumstances based on which ASIC made the initial order. It is not any change of circumstances which enlivens the jurisdiction under section 920D. It is only a change of those circumstances upon which ASIC based the order. Therefore it is necessary to consider and identify those circumstances and then question whether or not they have changed.
Having said that, however, I am not persuaded by Mr McGrath, Counsel for the respondent, that that necessarily means that a change must post date the making of the order. I find no warrant for any such limitation in section 920D. Indeed, this is a good example of a case where to so hold would be to give section 920D a meaning it does not, and in my view was not intended to, bear. That is by reason of the fact that a review of the evidence, particularly the running sheet that ASIC prepared, shows that a decision was made as to what order ought follow well prior to the actual making of the order. In this regard I note that the running sheet, and I don't propose to read every relevant entry, clearly shows that a decision was made that the appropriate arrangement ought be for the applicant to be banned for a period during which he would undertake certain educational activities and then, upon re-entering the profession, be supervised.
Whilst the wording of the actual order was later refined, the basis upon which the order was made did not change. Indeed, from the portion of the running sheet to which I have referred, it is clear that even after ASIC was informed that the applicant would not be able to continue in his employ with ABN Amro, there was no change made to the consent, other than in certain respects which are of no present consequence. That running sheet shows that the decision to impose a banning order of the nature of that which was ultimately made was made by ASIC as early as February 2001. Indeed, the actual wording of the consent was finalised well prior to Amro deciding to terminate the employ of the applicant. That is borne out by the fact that the wording of the consent order had been settled and, indeed, posted to the applicant on 6 April 2001.
I acknowledge that there was some subsequent changes to the wording of the consent order in light of the news received as to the position of ABN Amro's changed position, but that did not change the essential nature, purport and effect of the order. I therefore find that it is open to me to identify circumstances that have changed notwithstanding that that change may have occurred prior to the order having actually being made, because I am satisfied that the circumstances which ASIC based the order were identified by ASIC well prior to that time and that the term of the proposed order not change when the applicant was informed that he would not be able to continue in employ with ABN Amro.
The circumstances upon which I find that ASIC based the order were the contraventions that I have identified, the fact that the applicant remained and wished to remain in the securities industry and that the applicant required further education and supervision for a period to do so.
The terms of the order itself are such to make it clear that it was not ASICs intention that the conduct giving rise to the banning order was such that a life long ban, and I use those words intentionally, ought be imposed upon the applicant. What was done was to make an order in terms that would self-execute, but made on the assumption that the applicant could and would satisfy the conditions set out therein.
Having identified those as the circumstances the question then arises as to whether those circumstances changed. Schedule A to the application before me sets out five factors which the applicant contends constitute circumstances within the meaning of section 920D which changed. They are as follows:
“(a) The applicant's cessation of employment in the financial services industry; (b) The applicant's commencement of employment in the resources and mining industry; (c) The applicant's intention to not re-enter the financial services industry; (d) The applicant undertaking modules conducted by the Australian Institute of Company Directors; (e) The applicant becoming an associate member of the Securities Industry Association”.
For reasons I have already alluded to, I find that the applicant's cessation of employment in the financial services industry was a change of circumstances within the meaning of section 920D. Even if I am wrong in my construction of section 920D and it does require me to have regard only to matters which arose subsequent to the date of the order, my finding is that as at the date of the order the applicant was in fact employed; it was only subsequent to the order that his employment ceased. In this regard I note that there was reference in the running sheet suggesting that Mr Daws had retired or resigned prior to the making of the order. That was not a matter that was pursued with the applicant in cross examination. The applicant's evidence was to the contrary effect and I was shown a document filed with ASIC which tended to reinforce that he did in fact only terminate his employment with ABN Amro after the date of the order. My finding is that as at the date of the order the applicant was employed by ABN Amro and was a circumstance that clearly was relevant to ASIC’s decision. I say it was clearly relevant because it would have been a perverse order for ASIC to have made had it not understood that the applicant would continue in the industry. It would be perverse in the sense that it would be unfair to impose upon the applicant conditions which ASIC knew would be impossible for him to comply with.
To make it clear, I don't attribute that for one moment to ASIC. It is clear, and this is reinforced by the evidence given by Mr Byrne, that ASIC believed that the applicant had the capacity to and would satisfy the conditions and that is why it made the order in those terms. I therefore find that in that respect there has been a change in circumstances. Even if the cessation of the applicant’s employment was on the cards, so to speak, at the time the order was made, that is neither here nor there. As I have indicated, the circumstances upon which ASIC based the order was the fact that he was employed and the fact that he subsequently informed ASIC that that circumstance had changed did not result in any relevant change to the order.
I also accept that at the time the applicant was in the securities industry but he is not now (and has not for some time been) in the securities industry. I accept that has been established as a fact on the evidence. And, importantly, whereas at the time, even if he thought the writing was on the wall and was unlikely to be able to continue in the financial services or securities industry, he now has the positive intention not to re-enter that industry. I find that to be a further change of circumstances.
I therefore find that had those matters that I have identified been known to ASIC at the time, I am confident that ASIC would have styled an order in different terms.
I therefore find that the jurisdiction under section 920D is enlivened.
That, however, does not necessarily mean that the applicant ought be successful in his application. One now needs to further consider whether or not those changed circumstances are such as to warrant the exercise of discretion in the manner that the applicant seeks. I identify the following factors which I consider to be relevant to the exercise of that discretion.
First, it has been many years since the relevant conduct which gave rise to the banning order.
Second, it has been almost four years since the banning order was made.
Third, it is apparent that it was ASIC’s view that the conduct complained of did not warrant a lifetime ban. Mr Byrne accepted the proposition put to him by Mr Hall that “the applicant was not beyond redemption”. I also note in this regard a passage of the transcript of the proceedings before the ASIC delegate. In discussion with the solicitor representing the applicant the delegate said this. (and I am reading from page 4 of the transcript, page 104 of the T documents):
“When you say ASIC has not disputed those views. ASIC has taken the view that there was an order made certain courses be undertaken and completed prior to the lifting of any order. Those courses have not been undertaken or completed. So, when you ASIC has not disputed, ASIC has indicated that there has not been a change in the circumstances and the circumstances are that he should complete - Mr Daws should complete certain courses in relation to the securities industry.”
It seems to me that the delegate indeed accepted that the intent of the order was that the applicant should not be able to continue in the securities industry without completing certain courses. It is notable that the delegate used the expression "should" as in the future tense. Of course, without any change or modification to the banning order, even if the applicant did complete those courses, that would not have any effect. The banning order would still operate in its terms as a lifetime ban.
Another relevant factor in the exercise of my discretion is that the applicant has demonstrated, and I accept he is, remorseful and has shown contrition.
Subject to an issue which I will come to in due course in regard to certain answers given by the applicant to the delegate, I accept that the applicant is now a more mature person that he was at the time and that he is now aware and far more conscious of what is right and what is wrong.
I also have noted a reference that was contained in the papers dated 16 October 2003 from Senator Ross Lightfoot which reads as follows:
“My personal involvement with Mr Christopher Daws has been over several decades. In fact, for the whole of his mature life. I have invariably found him to be consistently serious when the occasion demands with a high work ethic and innovative approach to many problems. An applied work ethic that is unparalleled and a sense of humour that makes for an additional personal feature in an office environment. He is completely trustworthy, handles my personal and company banking. And when I am absent from the office he uses his own initiative, the outcomes of which I have always agreed to. During his employment as my adviser earlier this year, he has worked diligently in Canberra and Perth on a wide and varied range of commercial and political subjects. Christopher's decision to leave my employ is his and his alone. The writer will miss him. His appointment to a new responsible position bringing with it elevated salary has my blessing. For any further details, please contact the writer.”
Another factor that is relevant to the exercise of my discretion is, and this was accepted by the respondent, the purpose of a banning order is not punitive but is to uphold and maintain and protect the public interest. In this regard I refer to the decision of this Tribunal in the Donald case, (2001) AATA 366 and the authority that is referred to at paragraphs 110 through to and including 116. I also refer to the decision of the High Court of Australia in Rich v Australian Securities and Investment Commission (2004) HCA 42. I accept, as was submitted by counsel for the respondent, that part of that interest is to deter others from repeating the conduct that is the subject of the banning order.
In that regard I accept that publication is an important issue. In this case, that publication occurred. I refer to an ASIC media information release dated 3 May 2001 as well as a subsequent article which appeared in the West Australian newspaper on Monday, 7 May 2001, both of which in the clearest of terms set out the conduct for which the applicant was banned and the terms of the banning order. During the course of the hearing I asked counsel for the respondent whether he wished to submit that in those circumstances that aspect of the matter carried with it any particular impact as to whether or not I ought grant or I ought accept an enforceable undertaking. Counsel accepted that in the circumstances he was not in a position to do so. In my view that is a proper position to take.
The next factor that is relevant to the exercise of my discretion arises from the decision of Sage v The Strand Securities and Investments Commission (2005) FCA 1043, a decision of Goldberg J of the Federal Court of Australia. In particular my attention was taken to paragraph 31 of His Honour's reasons for decision which reads as follows:
“The applicant responded to the proposition that there would be no restraint on him by offering an enforceable undertaking that he would not provide financial services pending the determination of the proceeding. The difficulty with that course is, as counsel for the Commission pointed out, that pursuant to section 922A(1) of the Act the Commission must establish registers relating to financial services which would open for public inspection. If a banning order is made regulation 7.6.06 of the Corporations regulations of 2001 requires details of the banning order to be placed on the register, including the name of the person banned. The making of the banning order is then available as a public record.
The register can be searched by a person such as interested investors or their advisers pursuant to section 922B(10 of the Act. If an injunction were to be granted or an undertaking accepted by the court, there would be no similar basis upon which the fact that the applicant has been restrained from providing financial services or had undertaken to the court not to provide such services would be readily searchable by the investing public. To that extent accepting an undertaking from the applicant would not be an adequate alternative to a banning order if it were ultimately to be made by the Commission.”
I accept that the fact of a banning order or the provision of an enforceable undertaking is material which must be readily accessible by the investing public. However, in this case I make the following observations. First, I was informed by counsel that enforceable undertakings are in fact recorded on a register by the respondent. I was informed that that is not as easily searchable as the register in regard to banning orders, but nevertheless there is a public register of enforceable undertakings that is available for inspection to the public. Second, in this case, the weight to be placed on this aspect is diminished by reason of the fact that the applicant is not and does not intend to re-enter in the securities industry. The obvious importance of the public being able to search the register is heightened where a person is or has recently been in the industry. That is not this case.
Two matters were raised by the respondent as to why, in the exercise of my discretion, I ought not accept the contrition and remorse indicated by the applicant or accept that the passage of years has seen him mature and gain greater insight into the ways of the industry. They are alleged contraventions of section 911A of the Corporations Act and the applicant's response to a question put to him by the delegate in the hearing below.
Dealing with the latter first, the evidence establishes that the applicant provided a pro forma reference to various of his clients and former clients. Two such former clients were a Mr and Mrs Birman. I was informed from the bar table, in fact there was an affidavit to that effect although not tendered in evidence, that these pro forma references were provided with a covering letter from the applicant (this letter has since been misplaced). I accept that as fact. That covering letter requested the pro forma letters be signed and returned to the applicant. So although they were addressed to the respondent, the intention was that they would be signed and returned to the applicant. The pro forma letters sent to Mr and Mrs Birman, however, were substantially amended and sent by them direct to ASIC. They were not favourable to the applicant. During the course of the proceedings before the delegate, the delegate asked the following question:
“Mr Birman…”
I presume that should have been indeed a reference to Mr Lemonis, the solicitor appearing at that hearing for the applicant -
“Mr Birman, can I ask Mr Daws if he is aware as to how I came to receive these letters from Mr Birman and Mrs Birman? I mean they, to my knowledge, were not aware of that the first hearing - which was to be held. So, can I ask how Mr Birman and Mrs Birman came to send these letters to me?”
The transcript of the proceedings bears the following answer:
“I have no idea. I don't know. They were put forward to the ASIC. I do not know”.
Counsel for the respondent, submitted, that the applicant’s answer was either positively misleading or, at the very least, less than forthright. It was submitted that the answer "I have no idea" was of that nature. It was submitted that clearly the applicant did have an idea because he was the source of the pro forma letter and that he ought to have but did not disclose that to the delegate. Senior Counsel for the applicant submitted that no such finding can and therefore should be made. He submitted that the proper construction of the question was specifically referrable to not how the reference came to exist, but how they came to find their way to the delegate. In that sense it is submitted that the applicant's answer was true and complete, because the applicant did not know that they had been, prior to the hearing, forwarded to ASIC, let alone how they got there.
These proceedings have a serious consequence for the applicant. They affect his livelihood. The law is clear. The test in Briginshaw's case ((1938) 60 CLR 336) requires an exact approach to the evidence, having regard to the consequences to the applicant. Adopting the Briginshaw test, I find that I cannot to the necessary degree conclude that the applicant's answer was misleading. It certainly gives rise to a reasonable apprehension that it was misleading. The answer was in one view far from complete. But it is very difficult, based merely on transcript which is difficult to understand in the first instance - there is a suggestion in fact that there is a word missing from the answer - that the respondent apprehended the question to be anything other than that which was advanced by Senior Counsel for the appliant. So, this is a matter to which I have had to give very careful attention. If indeed I had upheld the respondent's submission, it would have weighed very heavily on the exercise on my discretion, but in all the circumstances I feel compelled to give the applicant the benefit of the doubt. I do not believe I am able to conclude that the statement was in fact untrue, misleading or an example of the applicant not being forthright. I therefore do not find that a factor that ought cause me to exercise my discretion against the applicant.
That then leaves the alleged contravention of section 911A of the Act. This arises out of two transactions, both using companies which were the alter ego of the applicant. Counsel for the respondent submits that there were contraventions of section 911A and that this is a reason why I ought exercise my discretion against the application. Senior counsel for the applicant contended to the contrary.
Whether or not these circumstances gave rise to one or more contraventions of section 911A is a question that is attended with substantial difficulty. My provisional view is that the transaction concerning Nimbus, which was undertaken in Nimbus' own right, did not constitute the provision of financial services and for that reason my provisional view was that it did not constitute a contravention of section 911A of the Act. In respect to the Moongold transaction, my provisional view is that, given the nature of the underwriting to a third party, it did constitute the provision of financial services, but whether or not it constituted the business of provision of financial services is a difficult matter to resolve.
I express it in those terms because, for the reasons which follow, I find it unnecessary to reach any final conclusion as to whether or not there has been a contravention. Assuming that for the purpose of these reasons that, had I considered the matter more closely, I would have found the alleged contraventions made out, I find as a fact that the applicant did not apprehend his conduct to constitute a contravention of section 911A. In other words, he had an honest belief that his conduct did not constitute a contravention; and I find that that belief was reasonably held. I find that for the simple reason that the applicant is not a lawyer and these issues tax lawyers let alone lay persons.
But what is more, there is a letter dated 5 December 2003 from Phillips Fox, the applicant's then legal adviser, regarding the banning order and whether or not certain conduct, I think it is the Moongold transaction, constituted a breach of the banning order. The letter dated 5 December 2003 to the applicant reads as follows:
“You asked whether, under the terms of your banning order, you are able to invest in public companies and underwrite placements as a professional investor. From the terms of the order which you faxed to me, I confirm that the order prohibits you from acting as a representative or proper authority holder of a securities dealer or investment adviser unless you comply with the conditions stated in the banning order. The banning order does not prevent you from personally investing in public companies or underwrite placements in your own right. In underwriting the placements, you must not act in any way as a securities dealer or an investment adviser or as a representative of one. I trust that this addresses your queries.”
I therefore conclude that even if the conduct of Nimbus and Moongold constituted contraventions of section 911A, in the circumstances neither of them gives rise to any reason why I ought exercise my discretion against the application.
In the end, therefore, I am satisfied that I have the power and that I should accept an enforceable undertaking from the applicant and order that the banning order be revoked. I am satisfied that in so doing the public interest, which is the paramount consideration, is not compromised. Accordingly, subject to agreeing the terms of the enforceable undertaking and hearing counsel as to the orders ought be made, I intend to set aside the review decision.
I certify that the 14 preceding pages are a true copy of the reasons for the decision herein of S Penglis, Senior Member
Signed: (sgd E M Jordan) .....................................................................................
Associate
Date/s of Hearing 14 & 15 February 2006
Date of Decision 5 April 2006
Counsel for the Applicant Mr S Hall
Solicitor for the Applicant Mr S Lemonis
Counsel for the Respondent Mr J McGrath
Solicitor for the Respondent Mr B Rassool
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