IMS FX Services Pty Ltd and Australian Securities and Investments Commission
[2016] AATA 664
•31 August 2016
IMS FX Services Pty Ltd and Australian Securities and Investments Commission [2016] AATA 664 (31 August 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number
2016/1025
Re
IMS FX Services Pty Ltd
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal Ms G Lazanas, Senior Member
Date 31 August 2016 Place Sydney The application for a stay of the Decision is refused. The application for the suppression orders is refused.
..............[sgd]..........................................................
Ms G Lazanas, Senior Member
CATCHWORDS
PRACTICE AND PROCEDURE – application for stay of decision – decision to cancel Australian financial securities licence – relevant principles – prospects of success – consequences for Applicant – public interest and consequences for Respondent in carrying out its functions – whether application would be rendered nugatory without stay – request for stay order refused
PRACTICE AND PROCEDURE – suppression orders – proceedings generally held in public – open administration of justice – request for suppression orders refused
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 35, 41(2)
CASES
Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130
Re Commonwealth of Australia and Quirke (1986) 9 ALD 92
Re Dart and Director-General of Social Services (1982) 4 ALD 553
Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 33
Scott and Australian Securities and Investments Commission [2009] AATA 798
Repatriation Commission and Delkou [1985] AATA 297; (1985) 8 ALD 454
Sovereign Capital Ltd and Australian Securities and Investments Commission [2008] AATA 901YFFM and Australian Securities and Investments Commission [2009] AATA 409
REASONS FOR DECISION
Ms G Lazanas, Senior Member
31 August 2016
INTRODUCTION
On 22 February 2016, a delegate of the Australian Securities and Investments Commission (ASIC) made a decision to cancel the Australian Financial Securities Licence (AFSL) of the Applicant under s 915C(2)(a) of the Corporations Act 2001 (Cth) (Corporations Act) (the Decision).
The Decision took effect on 24 February 2016, the day on which written notice of it was given to the Applicant.
The Applicant has commenced these proceedings in the Tribunal seeking a review of the Decision and seeks the following interlocutory orders:
(a)Pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act), the operation and implementation of the Decision be stayed;
(b)Pursuant to ss 35(2), (3) and (4) of the AAT Act, that:
(i)the Applicant be described by a pseudonym;
(ii)publication of the name of the application and any material tending to identify it be restricted to members and staff of the Tribunal, the parties, their representatives and professional advisors;
(iii)publication of the evidence given before the Tribunal and of matters contained in documents lodged with the Tribunal be restricted to members and staff of the Tribunal, the parties, their representatives and professional advisors; and
(iv)the hearing be held in private.
ASIC opposes the Applicant’s application.
I have decided to refuse the stay and the suppression orders sought by the Applicant for the reasons set out below. It is helpful to first set out a brief background of the events leading to this proceeding.
THE FACTUAL BACKGROUND AND EVIDENCE
The Applicant was registered on 19 March 2015 under the name One Investment Services Pty Ltd. At that time, its sole shareholder was One Investment Group Pty Ltd (OIG) and its directors were Mr Frank Tearle and Mr Justin Epstein.
On 25 March 2015, the Applicant applied for an AFSL. The application form listed Mr Tearle as the contact person for the application. The evidence before the decision maker was that Mr Tearle engaged in correspondence and telephone discussions with ASIC officers about the application between 5 March 2015 and 16 September 2015, when the AFSL was issued to the Applicant.
On 3 July 2015, OIG transferred its shares in the Applicant to One Managed Investment Funds Ltd (OMIF), a company of which Mr Tearle, Mr Epstein and Ms Elizabeth Reddy were the directors.
On 7 August 2015, that is, approximately five months after the application was lodged with ASIC and prior to ASIC’s determination of the application, OMIF entered into a share sale agreement in which it agreed to sell its shares in the Applicant to a company known as LMS Global Group Ltd.
On 16 September 2015, as noted above, the AFSL was issued to the Applicant.
On 24 September 2015, after the issue of the licence, the share sale agreement referred to in [9] above was novated to IMS FX Group Pty Ltd (IMS FX Group). On the same day, OMIF ceased to hold the shares in the Applicant and IMS FX Group commenced to hold 100% of the issued shares in the Applicant. Also on 24 September 2015, the name of the Applicant was changed from One Investment Services Pty Ltd to IMS FX Services Pty Ltd and Mr Tearle and Mr Justin Epstein resigned as directors of the Applicant and, in addition, Mr Timothy Gerber was appointed as sole director of the Applicant.
On 22 December 2015, ASIC gave notice to the Applicant of a hearing to consider whether to cancel or suspend its AFSL. That hearing was held on 3 February 2016.
On 22 February 2016, as noted at the outset, a delegate of ASIC made the Decision pursuant to s 915C(2)(a) of the Corporations Act. The basis for that decision was that the application for the AFSL was false in a material particular or materially misleading, namely, ASIC was not notified by the Applicant that OMIF had entered into the share sale agreement on 7 August 2015 to sell the shares in the Applicant and, accordingly, it determined that the application for an AFSL by the Applicant was misleading from that date. The delegate of ASIC put it this way at paragraph 43 in his Decision, in refuting the Applicant’s submissions that the new management of the Applicant had not engaged in making an application that was false in a material particular or materially misleading:
…it is irrelevant as to whether the current controllers and officers of [the Applicant] differ from those existing when the application was materially misleading, and whether the current controllers and officers were aware or not aware of the application being materially misleading.
SHOULD THE TRIBUNAL GRANT OR REFUSE THE STAY ORDER?
The Tribunal’s power to stay the operation and implementation of the Decision is found in s 41(2) of the Administrative Appeals Tribunal Act 1975 which provides as follows:
(2) The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.
In Scott and Australian Securities and Investments Commission [2009] AATA 798 at [4], Justice Downes set out the following factors for consideration when determining a stay application:
(a)the prospects of success;
(b)the consequences for the Applicant if the stay is not granted;
(c)the public interest;
(d)the consequences for the Respondent in carrying out its functions;
(e)whether the application for review would be rendered nugatory if a stay were not granted; and
(f)any other relevant matters.
The parties approached the issue of the stay by addressing the abovementioned factors which I now address.
Prospects of success
It is well established that it is not the role of the Tribunal in considering the prospects of success in a review application for the purposes of an interlocutory application to conduct a preliminary hearing of the review application based on the evidence: Re Dart and Director-General of Social Services (1982) 4 ALD 553 at 555; Re Repatriation Commission and Delkou [1985] AATA 297; (1985) 8 ALD 454 at [32]. It is relevant, however, for the Tribunal to consider whether there are facts or circumstances which, if established in the substantive hearing, would provide a basis for success in the review application or points of law raised which, if sustained, would lead to that conclusion: Re Commonwealth of Australia and Quirke (1986) 9 ALD 92 at 95; YFFM and Australian Securities and Investments Commission [2009] AATA 409 at [9].
The Applicant argued that it has reasonable prospects of success in the application to set aside the Decision. First, it says that there is no evidence that at the time the application was made on 5 March 2015, it was false in a material particular or materially misleading. It points out that the Decision acknowledges that it is based on the period from 7 August 2015 to 16 September 2015. In other words, it argues that the Applicant’s representations are to be evaluated at the time of the making of its application.
Secondly, during the relevant period identified by ASIC, it says other persons were in control both of the Applicant and of the application process, in particular, Mr Tearle. The current sole director of the Applicant (Mr Timothy Gerber) and the current sole shareholder (IMX FX Group Pty Ltd) did not assume control until 24 September 2015, that is, after the AFSL was issued. The Applicant submits that it was not incumbent on them to correct any matter as the AFSL application process was already finalised. It follows, the Applicant submits, that the Decision effectively punishes the new owner of the Applicant.
Thirdly, the Applicant takes issue with paragraph 43 of the Decision, which is relevantly extracted at [13] above. It submits that the fact of the current controllers and officers being different must be relevant to the exercise of the ASIC’s discretion to cancel the AFSL. Furthermore, the Applicant submits that Mr Tearle relevantly made statements to ASIC during the relevant period in his capacity as executive director of a different entity and not in his capacity as a director of the AFSL applicant.
Fourthly, the Applicant states that the ASIC delegate made assumptions in the Decision about what the purchaser would uncover in a due diligence of the Applicant before entering into the share sale agreement.
Finally, the Applicant argues that the Decision was disproportionate and excessive taking into account the legislative scheme and relies on the following passage in Sovereign Capital Ltd and Australian Securities and Investments Commission [2008] AATA 901:
A licence should only be suspended or cancelled if it is necessary to do so in order to accomplish the objects of the legislative scheme. A suspension will ordinarily be preferable if there is a reasonable prospect that the licence-holder can remedy the defects which prompted the concern. If there is no reasonable prospect of the issues being resolved, cancellation may be the appropriate course. The power to suspend or cancel should not be used merely to punish the licence-holder for transgressions: see Story v National Companies and Securities Commission (1988) 13 NSWLR 661.
The Applicant’s arguments are not without foundation and raise important questions of law, in part because of the seriousness of the alleged misconduct. However, following careful consideration and without wishing to prejudge the matter, my view is that the Applicant would not have reasonable prospects of success at the full hearing. I have specifically taken into account the fact that the application lodged with ASIC conveyed that Messrs Tearle and Epstein were and would continue to be officers and responsible managers of the Applicant’s financial services business and that the Applicant did not inform ASIC about the execution of the share sale agreement regarding the Applicant while the application was still under consideration. This was notwithstanding the fact that there were telephone calls between ASIC’s officers and Mr Tearle during the relevant period including on 12 August 2015 (five days after the share sale agreement was entered into), at which time an ASIC officer specifically raised with Mr Tearle ASIC’s concerns about the sale of several companies issued with ASFLs. The combination of those matters may be tantamount to the application being materially misleading. In this regard, ASIC pointed to numerous established authorities in the context of the Australian Consumer Law concerning silence as misleading or deceptive conduct.
Consequences for the Applicant if the stay is not granted
There is little doubt that the continuation of the Decision pending the hearing will cause hardship to the Applicant. The Applicant’s current director, Mr Gerber, has sworn an affidavit in which he describes the likely detriment to the Applicant, including damage to the Applicant’s reputation, the likelihood of its six employees having to find alternative employment, the inability of the Applicant to pay rent on its business premises and the possibility that the Applicant will incur a break fee if the lease is terminated. Mr Gerber also asserts that if the Decision is not stayed the Applicant will lose the value of a substantial asset being its AFSL and, additionally, the investment by the Applicant’s parent company in the Applicant will be lost.
I was not convinced that the hardship to be experienced by the Applicant pending the hearing is so significant as to compel a stay. Significantly, any reputational damage to the Applicant is limited in circumstances where the Applicant has “only recently established its operations in Australia” and may “stunt its very beginnings”, especially as “it has not had a substantial amount of time to generate relationships with clients of product issuers”. If the Applicant is successful in having the Decision set aside, it will have the opportunity to build its reputation and there will not be a complete loss of the value of the AFSL asset nor will the investment by the Applicant’s parent company be wasted. Furthermore, although the interests of dependants, associates and employees must be considered, they are “of lesser significance” than the public interest in the right of the market to know relevant information as soon as possible: Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130 at 144.
Public interest and consequences for the Respondent in carrying out its functions
The critical issue here is the public interest and the Respondent’s role in the protection of the public.
The Applicant argued that in this case the conduct with which ASIC is concerned occurred before the issue of the AFSL and, therefore, before the provision of any financial services. Also, the Applicant argued that there has not been any prejudice to consumers caused by the misconduct which underpins the Decision. The Applicant finally stated that it did not offer any services or products to retail clients and has only been operating as an introducing broker in respect of wholesale clients.
The Respondent argued that the provisions of the Corporations Act, with respect to the cancellation of licences as well as the consequential actions for notification of such a decision, demonstrate the importance of protecting the public by ensuring that the public is fully and promptly informed of matters relevant to the provision of financial services. This was acknowledged to be a relevant consideration by Downes and Jagot JJ in Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130 at 147-148. Accordingly, the Respondent submitted that, in the particular circumstances of this case, the public interest in the protection of the Applicant’s existing and potential clients and the public at large is best served by maintaining the full force and effect of the statutory scheme in relation to an AFSL that was obtained by an application that was materially misleading.
The Respondent also submitted that the misleading character of the application goes to the heart of the risk to the public of allowing the Applicant to continue under its AFSL. The Respondent stated that the application indicated that the Applicant would operate as a subsidiary of OMIF, that Messrs Tearle and Epstein would be officers and responsible managers and that the application was assessed and granted on that basis, as evident from the “Key Person Condition” that was imposed. (That condition relevantly required that ASIC be notified if either Mr Tearle or Mr Epstein ceased to be officers of, or to perform duties on behalf of, the Applicant.) However, without informing ASIC, while the application was still pending, arrangements were put in place by way of execution of a share sale agreement for the ownership of the Applicant to be transferred and for Messrs Tearle and Epstein to resign as directors and, additionally, for them to remain as responsible managers only for a transitional period in order to allow time for the purchaser to appoint a new key person and responsible manager.
The Respondent argued that it is irrelevant that the cancellation, in the present case, “visits” the consequences of the misleading conduct of the previous owners and directors of the Applicant upon the new owner. This is because s 915C(2)(a) of the Corporations Act focuses on the application and not the conduct of individual persons.
The Respondent further submitted that it was concerned that the Applicant’s new structure created risks to the public because of alleged inconsistencies which emerged about other representations made by the Applicant (both in its application and other commercial documents) as to where it would provide financial services and the kind of financial services it was authorised to provide under its AFSL. It is unnecessary to detail these concerns, especially as the Applicant was not in a position to provide a meaningful response because the Respondent’s concerns had only been raised less than 24 hours before the interlocutory hearing.
In the circumstances, I am satisfied that there is considerable risk to the public if the Decision is stayed. I consider that there is considerable merit in the Respondent’s submission that the asserted misleading character of the application made by the Applicant goes to the heart of the risk to the public of allowing the Applicant to continue under its AFSL. Furthermore, there is, as submitted by the Respondent a further aspect of the public interest which lies in the general deterrent effect of the Respondent publicising the fact that an AFSL obtained by means of a materially misleading application has been cancelled which supports the role of the Respondent in carrying out its function of protecting the public.
Whether the application would be rendered nugatory if the stay is not granted
There is no doubt that the review application, if successful, would be rendered less useful if the stay is not granted, however, it will not be rendered nugatory.
Any other relevant matters
All the relevant matters appear to have been raised above.
SHOULD THE TRIBUNAL GRANT OR REFUSE THE SUPPRESSION ORDERS?
The provisions of s 35 of the AAT Act give effect to the basic principle that proceedings before the Tribunal are to be open and documents and other material lodged with the Tribunal in the course of a proceeding should also be available to the public. Thus, that is the starting point in any analysis of whether the Tribunal should grant or refuse the application for the suppression orders.
However, where the Tribunal is satisfied that it is desirable, by reason of the confidential nature of any evidence or matter or for any other reason, to order the hearing or part thereof take place in private (s 35(2)) and/or to give directions restricting the publication of the names of witnesses or evidence which is given before the Tribunal (s 35(3)), the Tribunal may make directions accordingly.
Section 35(5) of the AAT Act provides as follows:
(5) In considering whether to give directions under subsection (2), (3) or (4), the Tribunal is to take as the basis of its consideration the principle that it is desirable:
(a)that hearings of proceedings before the Tribunal should be held in public; and
(b) that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and
(c) that the contents of documents lodged with the Tribunal should be made available to all the parties.
However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.
The relevance of these provisions have been considered in detail in a number of decisions. In Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130, the Full Federal Court made the following points at [74] – [76]:
·the norm is that proceedings before the Tribunal shall be in public and this norm is reinforced by the requirements of s 35(3) which expressly confirm the principle that it is desirable that hearings be held in public;
·the power to depart from that norm (as authorised by s 35(2)) is to be exercised sparingly: Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 33 at 55–6;
·the reason matters are not kept secret is the overriding importance of justice being administered openly and in public. This applies equally to persons who are in business even when, for example, employees may be disadvantaged; and
·the Tribunal would need some cogent reason by reference to the particular case to depart from the ordinary requirement of a public hearing. It is difficult to accept that harm, even serious harm, to the applicant’s reputation would be a sufficiently cogent reason.
The Applicant argued that, in this case, there is a real possibility of doing injustice to the Applicant if the proceedings were held in public, namely, reputational damage. The Applicant submitted that as there has been no actual prejudice to consumers or to the market by the conduct underpinning the Decision, those factors should also be considered in weighing in favour of confidentiality orders.
I was not satisfied that the reasons given by the Applicant warrant a variation to the norm referred to above. The fact that reputational harm will result for the Applicant is not a sufficient basis for making the suppression orders. Also, the fact that no prejudice has resulted to consumers is not an influential consideration.
DECISION
The application for a stay of the Decision is refused. The application for the suppression orders is refused.
I certify that the preceding 41 (forty -one) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member ..............[sgd]..........................................................
Associate
Dated 31 August 2016
Date of hearing 11 March 2016 Counsel for the Applicant G A Sirtes SC and A Avery-Williams Solicitors for the Applicant Sophie Grace Pty Ltd Counsel for the Respondent S Donaghue QC and A Pound Solicitors for the Respondent Australian Securities and Investments Commission
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