Dollas-Ford and Australian Securities and Investments Commission
[2006] AATA 835
•29 September 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 835
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2005/333
GENERAL ADMINISTRATION DIVISION ) Re PAULA DOLLAS-FORD Applicant
And
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal Mr S Penglis, Senior Member Date29 September 2006
PlacePerth
Decision 1. The reviewable decision of the respondent dated 12 September 2005 is set aside.
2. The Tribunal substitutes a decision that:
"Pursuant to sections 920A and 920B of the Corporations Act 2001, Paula Dollas-Ford be prohibited from providing financial services within the meaning of section 920B of the Act for a period of 4 years from 12 September 2005".
........[Sgd. Mr S Penglis]...................
Senior Member
CATCHWORDS
Corporations Law - Banning Order - Length of banning order to be made by Tribunal – Relevant factors - turns on its own facts.
LEGISLATION
Corporations Act 2001 - ss 920A, 920B
CASES
Dollas-Ford and Australian Securities and Investments Commission [2006] AATA 704
Re HIH Insurance Ltd (in provisional liquidation): Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129
REASONS FOR DECISION
29 September 2006 Mr S Penglis, Senior Member 1. On 12 September 2005, pursuant to sections 920A and 920B of the Corporations Act (2001) (“Act”), a delegate of the respondent permanently banned the applicant from providing any form of financial services.
2. On 15 August 2006 I published Reasons for Decision wherein I upheld the decision of the Respondent’s delegate that a banning order should be made against the applicant, but declined to affirm the delegate’s decision to impose a permanent ban: Dollas-Ford and Australian Securities and Investments Commission [2006] AATA 704.
3. I therefore directed that the matter be re-listed for further hearing in accordance with those reasons for decision.
4. That further hearing occurred on 7 September 2006. No further evidence was adduced on that day.
THE PARTIES’ POSITIONS
5. In a minute of proposed orders provided on behalf of the applicant, the applicant contended for a ban of 24 months, with the applicant being permitted in the second half of that period to provide financial services under the direct supervision of an authorised representative of no less than 5 years experience in the financial planning industry.
6. In a minute of proposed orders provided on behalf of the respondent, the respondent contended for a ban of 7 years, alternatively a ban of 7 years with the applicant to provide financial services conditional upon various matters after 4 years.
THE APPLICANT’S SUBMISSIONS
7. Counsel for the applicant, Mr Mendalow, informed the Tribunal that the applicant is 66 years of age. He said that the limited extent to which she wants to be in the financial services industry was to hand over her client base to her son and was not to “provide financial services as such”. In response to questions from the Tribunal, Counsel clarified the applicant’s position as follows:-
“She wants to facilitate and ensure that those persons remain with (the son’s business) where she possibly can do so and not provide financial services necessarily as such. So she wants to be there in the office … in a capacity promoting, making appointments with those customers, whom she has many contacts with.”
8. As I indicated at the hearing, and as was confirmed by Ms Vernon, Counsel for the respondent, those intentions are irrelevant to the period for which the applicant ought be banned as the terms of the ban will not preclude her from undertaking such activities.
9. The essence of the applicant’s submission was that, having regard to the findings I made in my previous decision, this matter fell within the category of case referred to in numbered proposition 15 of Santow J’s decision in Re HIH Insurance Ltd (in provisional liquidation): Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80.
10. Counsel for the applicant also emphasised that, in fixing the period of the ban, one needed to have regard to the fact that, as the applicant was 66 years old “she would probably remain in the industry if permitted to do even if it is on a limited basis, but it will be nice if she had the choice to do otherwise, until she is 70 years old”.
11. Counsel submitted that “what that in effect means that is that the banning order for one year has already taken up 20% of the remainder of her working life”.
12. Counsel submitted that as the absolute ban had taken up “20% of the remainder of her career, the public interest has been accordingly been protected in that regard. The punitive aspect has been satisfied. It has been a source of severe embarrassment to Mrs Dollas-Ford. If a further period of a year was to be imposed, or if a further period of a number of years was to be imposed, that would in effect be, if it was say another year, that would be 40% of the remainder of her working life”.
13. Counsel therefore submitted that if the applicant was to be banned for a period in excess of the ban imposed thus far, the order should be crafted so as to allow the applicant to work in the financial services industry but under strict conditions as to supervision.
THE RESPONDENT’S SUBMISSIONS
14. Counsel for the respondent rightly pointed out that there was a gap between the period of disqualification referred to in numbered propositions 14 and 15 of the decision of Santow J in Adler: proposition 15 refers to a period of disqualification for up to 3 years, whilst proposition 14 refers to a period of disqualification from 7 to 12 years. Counsel submitted that the decision of Santow J was not intended to be prescriptive, but was intended to offer guidelines.
15. The essence of the submissions advanced on behalf of the respondent were that, applying the guidelines identified by Santow J, this matter falls within the level of “seriousness” referred to in proposition 14 of the decision of Santow J in Adler. Counsel pointed to the fact that the applicant had acted “irresponsibly”, with the relevant conduct involving a degree of dishonesty and constituting a knowing and wilful contravention of the law and disregard for legal obligations.
16. Ms Vernon submitted:
“There was in effect a fraud of a type, and that of itself we say is something that the profession, the financial services profession needs to be aware of. There needs to be a significant ban, and we say that ban falls in the category of 7 years, that will send a message in effect that this is not the sort of behaviour that even if you just do it once because you think it just suits the circumstances at the time and you don’t actually have any intention to deprive anybody of anything, it underlies trust which exists between members of the public and their financial advisers”.
FINDINGS
17. In determining the period for which to ban the applicant, I consider the following passage of the decision of McHugh J in the decision of Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [43] to be instructive:
“In exercising their discretion, however, courts which administer the legislation do not concern themselves solely with the issue of whether the defendant now is or in the future will be a fit and proper person to manage corporations. They take into account a wide variety of factors in addition to determining whether any and, if so, what period of disqualification should be imposed. They consider more than the present and future fitness of the defendant to manage corporations. They take into account factors such as the size of any losses suffered by the corporation, its creditors and consumers, legislative objectives of personal hardship and the willingness of the defendant to render assistance to statutory authorities and administrators. No doubt some – maybe all – of these matters are relevant in determining whether the defendant ought to be disqualified or the period of disqualification that is required in order to protect the public. But in practice courts do not use these matters merely as evidentiary indicators of the time when the defendant will, if ever, be fit to manage corporations. Rather, they become part of a synthesis from which the judges make a value judgment concerning whether to order disqualification and, if so, the period of disqualification that should be imposed. It is not the practice of judges to say: “On the evidence, I find that after (say) five years, the defendant will be sufficiently reformed to make it safe for him or her to manage corporations.” This suggests that the disqualification provisions are not purely protective in nature”
18. The 15 propositions stated by Santow J in Adler, are as follows:
“1.Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards.
2.The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office.
3.Protection of the public also envisages protection of individuals who deal with companies, including consumers, creditors, shareholders and investors.
4.The banning order is protective against present and future misuse of the corporate structure.
5. The order has a motive of personal deterrence, though it is not punitive.
6. General deterrence is an object of the legislation.
7.In assessing the fitness of an individual to manage a company, it is necessary that the individual have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company.
8.Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty.
9.In assessing an appropriate length of prohibition, consideration is given to the degree of seriousness of the contraventions, the propensity of the defendant to engage in similar conduct in the future and the likely harm that may be caused to the public.
10.It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the defendant’s conduct.
11.A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming.
12.The eight criteria to govern the exercise of the court’s powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (114) have been influential. It was held that in making such an order it is necessary to assess:
(a) the character of the defendant;
(b) the nature of the breaches;
(c)the structure of the company or companies and the nature of its or their business;
(d)the interests of shareholders, creditors and employees;
(e)the risks to others from the continuation of the defendant as a director;
(f)the honesty and competence of the defendant;
(g)hardship to the defendant an to his or her personal and commercial interests; and
(h)the defendant’s appreciation that future breaches could result in future proceedings.
13.Factors that have led to the imposition of the longest periods of disqualification (that is, disqualifications of twenty-five years or more) include:
(a) large financial losses;
(b)high propensity that the defendant may engage in similar activities or conduct;
(c)activities undertaken in fields in which there was potential to do great financial damage such as in management and financial consultancy;
(d)the defendant’s lack of contrition or remorse;
(e)disregard for the law and compliance with corporate regulations;
(f)dishonesty and intent to defraud; and
(g)previous convictions and contraventions for similar activities.
14.In cases in which the period of disqualification ranged from seven years to twelve years, the factors that led to the conclusion that these cases were serious though not the “worse cases”, included:
(a) serious incompetence and irresponsibility;
(b) substantial loss;
(c)the fact that the defendant had engaged in deliberate courses of conduct to enrich himself or herself at others’ expense, but with lesser degrees of dishonesty;
(d)continued, knowing and wilful contraventions of the law and disregard for legal obligations; and
(e)lack of contrition or acceptance of responsibility, although that must be weighed against the prospect that the defendant may reform.
15.The factors leading to the shortest disqualifications (that is, disqualifications for up to three years) were:
(a)although the defendant had personally gained from the conduct, he or she had endeavoured to repay or partially repay the amounts misappropriated;
(b)the defendant had no immediate or discernible future intention to hold a position as a manager of a company; and
(c)the defendant had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings against him or her.”
19. It is also important to appreciate that numbered propositions 13, 14 and 15 of the decision of Santow J in Adler, which were referred to with approval by McHugh J in Rich, are clearly no more than instructive; they do not purport to be and are not prescriptive. I take them to be a distillation by his Honour of the various cases to which his Honour was referred in that matter in respect of the factors – not intended to be exhaustive or exclusive - which led to the imposition of varying periods of disqualification.
20. It was common cause before me that this was not one of the “worst cases” and therefore did not fall in the category of cases referred to in proposition 13 of Santow J’s decision.
21. As I stated in my earlier decision, the applicant’s conduct in this matter was palpably dishonest: “the conduct was very serious”. I have found that it constitutes a wilful contravention of the law. To that extent, this matter satisfies the first of the elements referred to in proposition 14 of Santow J’s decision in Adler, namely a serious act of irresponsibility. However, other factors referred to therein are not established on the evidence, including the absence of any (let alone substantial) loss, the absence of any enrichment of the applicant, the fact that this was a “once off” occurrence and the fact that the applicant has shown contrition and acceptance of responsibility
22. Whilst I accept that certain of the factors referred to in proposition 15 of the decision of Santow J in Adler are satisfied in this matter – there was no question of repaying or partially repaying the amounts misappropriated as there were no amounts misappropriated, the defendant has expressed remorse and contrition and has not contested the proceedings against her (other than, as was her right, to make submissions with respect to the appropriate penalty) and the applicant has indicated, through counsel, that she does not propose to hold a position as manager of a company -- I do not apprehend Santow J to be suggesting that, where those factors are satisfied, disqualification for up to 3 years will always be the appropriate period. Further, I do not apprehend Santow J to there be referring to matters as serous as this.
23. The findings I have made clearly include factors falling within both numbered propositions 14 and 15 of the decision of Santow J in Adler. I find this matter does not reside exclusively in either category of case; it sits somewhere in between.
24. Having regard to the findings I have made with respect to the incident which has led the applicant to be in the position she now finds herself - particularly that it was not demonstrative of any fault of character, but was an isolated, albeit serious, error of judgment, and that there is no real (let alone high) propensity that the applicant may engage in similar activities or conduct - it follows that, when determining the period for which the applicant ought be banned, no element arises in respect of having to keep the applicant out of the industry for any period of time in order to protect the public.
25. However, as was submitted by Counsel for the respondent, and accepted by Counsel for the applicant, the public interest does not end there, but extends to the general interest of providing a sufficient deterrent to the repetition of such or similar conduct by others.
26. Weighing up all relevant factors, I have concluded that the appropriate period for which the applicant should be banned is 4 years. I was informed by Counsel for the applicant that the applicant is 66 years of age and intends to work until 70. Whilst there was no evidence of the applicant’s age before me, I am prepared to accept that she is nearing the end of her working life (although exactly when that will occur I cannot tell). The imposition of a 4 year ban on someone in the applicant’s position would obviously operate more harshly upon her than it will against someone whose working life is to be measured in decades. Whatever number of years the applicant will work for, 4 years will represent a sizeable part of it. I consider this approach to be open to me having regard to the judgment of Bryson J in Re HIH Insurance Ltd (in provisional liquidation): Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 where his Honour held, at p692, that relevant considerations included “age and stage of career at which disqualification would fall”.
27. As I indicated at the hearing of this matter, I do not consider this to be a matter which lends itself to the making of a conditional banning order, that is banning the applicant from providing financial services, but not if she does so under conditions as to supervision to be determined by the Tribunal. The applicant has had an unblemished career in the financial services industry for a significant period. The conduct which has given rise to this matter is not one that has arisen due to any lack of understanding of the industry on the part of the applicant. Nor does the public interest require the applicant to be supervised if and when she returns to the financial services industry. Indeed, the gravaman of this matter would not have been avoided, nor if I thought there was a propensity for it to happen again, would it be avoided in the future, by the applicant working under strict supervision: in this regard it is appropriate to restate that the applicant’s conduct was the fraudulent creation, signature and dispatch of a fictitious document purportedly created and signed by clients of her son’s business, but in fact created and signed by the applicant.
28. Finally, I wish to make it clear that had any of my findings which were favourable to the applicant not been made, or had the applicant not been in or at least approaching the twilight of her working life, the period of disqualification may well have been greater. However, in all the circumstances, I conclude that the public interest is satisfied in this matter by a period of disqualification of 4 years.
CONCLUSION
29. It therefore follows that the reviewable decision of the respondent ought be set aside and in lieu thereof a decision made banning the applicant for a period of 4 years from the date of the reviewable decision.
I certify that the 29 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S Penglis, Senior Member
Signed: ........[Sgd. R Riberi].....................................
AssociateDate of Hearing 7 September 2006
Date of Decision 29 September 2006
Counsel for the Applicant Mr P Mendalow
Solicitor for the Applicant Mr D Isaacs
Counsel for the Respondent Ms K A Vernon
Solicitor for the Respondent Mr W Bellew
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