JTMJ and Australian Securities and Investments Commission
[2010] AATA 350
•11 May 2010
CATCHWORDS – CORPORATIONS LAW – banning order – whether transaction likely to have had effect of creating artificial price for trading in financial product – whether misleading or deceptive conduct – whether falsification of records – decision varied.
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DECISION AND REASONS FOR DECISION [2010] AATA 350
ADMINISTRATIVE APPEALS TRIBUNAL )
) 2009/0315
GENERAL ADMINISTRATIVE DIVISION )
Re:JTMJ
Applicant
And:AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal: Deputy President S A Forgie
Place: Melbourne
Date: 11 May 2010
Decision:The Tribunal decides to:
1.set aside the decision of the respondent dated 19 January 2009; and
2.substitute a decision that the applicant be prohibited from providing a financial service for a period of three years from the date of this decision.
S A FORGIE
Deputy President
REASONS FOR DECISION
Under an order made by another member on 17 March 2009, which is in terms consistent with his earlier orders in the matter:
“Publication of the evidence given before the Tribunal and of matters contained in documents lodged with the Tribunal insofar as the publication identifies the applicant as the applicant in these proceedings continue to be restricted to members and staff of the Tribunal, the parties and their respective and professional advisers except insofar as the respondent or the Commonwealth Department of Public Prosecutions may need to disclose any information material to a court or to a persons [sic] for the purposes of criminal proceedings against … [named persons]”.
In view of that, I have used pseudonyms to identify the applicant and many of those involved in the activities that led to the decision by the Australian Securities and Investments Commission (ASIC) in this matter. A key identifying the persons behind the pseudonyms has been given to the parties and their representatives with these reasons.
The applicant, JTMJ, is an authorised representative (AR) of the holder of an Australian Financial Services Licence (AFSL) under the Corporations Act 2001 (Corporations Act). He has applied for review of a decision made by ASIC that an order be made under ss 920A and 920B of the Corporations Act prohibiting him from providing any financial services for ten years. A delegate of ASIC reached that decision on 19 January 2009 after finding that:
1.JTMJ had contravened ss 1041A and 1041H of the Corporations Act by taking part in trading certain shares on the Australian Stock Exchange (ASX) in a manner that had the effect of creating or maintaining an artificial price for the shares; and
2.between 10 March 2006 and 14 August 2006, JTMJ had failed to comply with ss 1041H and 1101F(1A) of the Corporations Act by engaging in conduct that resulted in falsification of order records; and
concluding that, within the meaning of s 920A(1)(f), he or she had reason to believe that JTMJ will not comply with a financial services law in the future.
The findings that I have made in reviewing the decision are based on an assumption that the transactions conducted by brokers and others in relation to the shares of the Company concerned were made in the normal course of trading and reflected the normal ebbs and flows of the market. I have no evidence to find otherwise. I have found that JTMJ was in breach of s 1041A on two occasions when he took part in a transaction that led to the creation of an artificial price in the financial market operated by ASX. I have also found that he was in breach of
ss 1041H and 1101F(1A). I have decided that ASIC’s decision should be set aside and there be substituted for that decision a decision that a banning order be made against JTMJ for a period of three years commencing on and from the date of my decision. In view of the stay orders made by another member of the Tribunal, notice of the banning order cannot be published in the Gazette and entered in the register of banned persons before the expiration of the appeal period provided in s 44(1) of the Administrative Appeals Tribunal Act 1975 (AAT Act) or, if an appeal is lodged, before the determination of that appeal. As the operation of the banning order itself was not stayed, it comes into operation immediately.
BACKGROUND
In this section of my reasons, I will set out the matters on which there was no dispute between the parties or which are based on material which is found in the affidavits of JTMJ and which was not challenged during cross-examination.
The applicant
The applicant, JTMJ, has worked in the financial services industry for the past 40 years. Although he engages in other professional activities, JTMJ has been employed principally as a technical share analyst in stockbroking houses and has been a client adviser for most of his working life. In addition, he is a registered company auditor, a registered taxation agent, a fellow of the Institute of Chartered Accountants in Australia and a member of the Securities Institute of Australia.
He holds a Bachelor of Commerce degree from the University of Melbourne.
In 2002, he and a stockbroking firm, which I will refer to as SB Firm, entered a consultancy agreement. He was to work as a Share Adviser and his remuneration was solely commission based. SB Firm was the holder of an Australian Financial Services Licence (AFSL) under the Corporations Act and was a Participating Organisation in the ASX. As a Share Adviser or Client Adviser at SB Firm, JTMJ was allocated an adviser identity unique to him. I will refer to it as JTMJUN. Among his duties were those requiring him to accept and execute buy and sell trade orders.
During the relevant period, JTMJ worked from two offices. One was located within the offices of SB Firm and the other in another State. I will refer to the first as SBF Office located in a State I will describe as State 1. The second will be referred to as the JTMJ Office and is located in a State I will describe as State 2.
Opening an account with SB Firm
The person employed by the SB Firm as its Compliance and Audit Adviser (CA Adviser) was responsible for the development, implementation and monitoring of SB Firm’s compliance policies and procedures to ensure that they met regulatory requirements at the relevant times. He also handled complaints and liaised with regulators, lawyers and other professional personnel as required.
On the basis of his evidence, which was not contradicted, I find that SB Firm required each client to complete a number of forms before trading shares. Among the forms was a form entitled “Account Opening” requiring the potential client to provide a name, address, contact details and those authorised to deal on the account. The form had to be signed and dated by the client. Information on the form is entered on SB Firm’s electronic broking system, which I will refer to as the EB System. The system creates an account with a unique client number allocated to that client. That number is never re-allocated even if the client were to close the account or cease trading. Trades conducted through SB Firm by that client are recorded against that account. The EB System also generates an historical ledger or a Client Ledger showing all trades for each client.
SB Firm’s new clients can complete a CHESS[1] Sponsorship form enabling their shareholding to be registered as being broker sponsored by that firm. This facilitates a clients’ trades as well as settlement of those trades. Once a client is registered as being broker sponsored, CHESS allocates that client account a unique Holder Identification Number (HIN). SB Firm records the HIN against the client’s account.
[1] CHESS is the Clearing House Electronic Subregister System
The company
Many years ago, fully paid shares in a company were first listed on the Australian Stock Exchange (ASX). That company later changed its name to its present name. I refer to that company as the Company.
The Company’s directors
At all relevant times, a director of the Company was a person who will appear in these reasons as DCO. He was the executive chairman of the Company’s board of directors from August 2000 until November 2005. In November 2005, another person became the non-executive chairman of the Company’s Board.
DCO lives with his partner, who I will refer to as Elizabeth. Together, they live in Colorado in the United States of America (USA). JTMJ believes that DCO travels between the USA and Europe and Australia.
JTMJ’s advice in relation to the Company and association with DCO and the Company
JTMJ first met DCO at a work function in or about 1996 and again in or about 2004 at the funeral of Freda’s mother.[2] On the basis of JTMJ’s affidavit evidence, I find that these are the only two occasions on which he and DCO actually met physically. As will appear later in these reasons, they had substantial telephone contact.
[2] See [19] below
In the years before 2002, DCO was JTMJ’s client at another stockbroking firm (ASB Firm). On or about 3 February 2002, DCO opened an account with SB Firm and JTMJ was allocated as the client adviser to the DCO account. Trading on DCO’s account in relation to the Company’s shares took place between 27 April 2006 and 15 May 2006.
On seven different occasions between June 2000 and November 2004 JTMJ issued a general recommendation to investors that they buy the Company’s shares. In that period, the shares traded at various levels between 45 and 72 cents.
JTMJ recalls at least two visits that DCO made to the offices of SB Firm for the purpose of delivering promotional presentations regarding the Company and the value of its shares. Those visits occurred after August 2000. JTMJ has always found DCO to speak positively, enthusiastically and persuasively about the Company’s prospects. During at least one telephone conversation with DCO in or about 2006, DCO had told him that he was expecting a New York research house to produce an independent report ascribing a value of at least $1.00 to the Company’s shares. Despite their contact and their professional dealings, JTMJ does not regard DCO as a friend.
In July 2003, JTMJ bought a parcel of the Company’s shares for himself.
Freda: friend of DCO
A person, whom I will call Freda, is a friend of both JTMJ and of DCO. JTMJ first met her in the early 1990s. Freda lived in London in 2005. In June of that year, she and JTMJ holidayed together in France. Her mother had died the previous year and JTMJ understood her to have received an inheritance from her mother’s estate.
Freda told JTMJ on several occasions during the holiday that she was interested in investing in shares and in buying a house in France. JTMJ particularly recalled Freda’s asking him whether it would be wise to invest in the Company’s shares. Some five years earlier and when JTMJ worked for ASB Firm, Freda had asked him to buy the Company’s shares. From the nature of her questions of him in June 2005, JTMJ formed the view that she seemed quite familiar with the Company’s business. He also formed the view that she had been encouraged to buy the shares by her friend, DCO. He was happy to discuss the shares with her as he had previously analysed them and expected that she would place an order with him to buy more at some time in the future.
Opening Freda’s account with SB Firm
I find that there is no disagreement between the parties that JTMJ opened an account in Freda’s name with SB Firm on 10 March 2006. He was the client adviser for the account. This accords with the evidence of both JTMJ and CA Adviser.[3] The information initially recorded on the EB System did not record details of any person, other than Freda, who was authorised to operate the account. A Third Party Authorisation Form dated 3 May 2006 was signed by both Freda and DCO and showed DCO as a Nominated Agent on the account. It was received by SB Firm on
7 May 2006.[4] There are no telephone records showing that Freda and JTMJ telephoned each other in relation to the trading that occurred on her account.[3] Exhibit E at [34] and Exhibit 4 at [19]
[4] Exhibit 4 at [22]
Trading on Freda’s account took place from 10 March 2006 to 26 April 2006.
Elizabeth: life partner of DCO and client of JTMJ
On the basis of the limited evidence that I have and on the basis that it is uncontradicted, I accept for the purposes of this case that Elizabeth is the life partner of DCO. On the basis of the evidence of JTMJ, I find that Elizabeth has been a client of SB Firm since 14 February 2003 and, perhaps, since an earlier date. JTMJ became her principal adviser on or about that date. Although, he has never met her, JTMJ has spoken with her on the telephone on some ten to 15 occasions.
Opening Elizabeth’s account with SB Firm
An Account Opening Form was prepared but is undated.[5] Elizabeth and DCO signed a Third Party Authorisation form prepared by SB Firm.[6] It is dated 14 May 2006 and sent to JTMJ on 16 May 2006. It appoints DCO as her nominated agent. JTMJ first entered BIDs on the ASX and on Elizabeth’s account on 16 May 2006. The Third Party Authorisation form came to be signed after JTMJ sent it to DCO by facsimile and telling him “Dear …, Third Party form attached. Regards, … [JTMJ]. P.S. Please fax back to … on … . May be better to postdate it to yesterday.”[7]
[5] T documents, Volume 1, Tab 6
[6] T documents, Volume 4, Tab 20
[7] M00374154, T documents, T3 at Tab 20
There are no telephone records showing that Freda and JTMJ telephoned each other in relation to the trading that occurred on her account. Trading on Elizabeth’s account in respect of the Company’s shares took place between
16 May 2006 and 1 June 2006.
The ASX’s Automated Trading Systems: SEATS and ITS
On the basis of the statement by Mr Richard James Flynn,[8] I have made the following findings regarding the Automated Trading System that was owned and operated by ASX Operations Pty Limited, which is a wholly owned subsidiary of ASX. Mr Flynn is the Manager of the Surveillance Division of ASX Markets Supervision Pty Limited (ASXMS), which is a subsidiary of the ASX. ASXMS was incorporated in June 2006 and is responsible for the ASX’s key operational supervisory functions. The Surveillance Division was previously part of ASX Operations Pty Ltd. Mr Flynn has been employed in that Division from 1997 until 2001 and again from 2003 to date. The Surveillance Division is responsible for carrying out surveillance of trading in equities, warrants and options on the ASX’s markets.
[8] Mr Flynn is employed as an Investigator within the Market Integrity (Deterrence) Division of ASIC.
ASX previously used a computerised operating system known as “SEATS”. All trading in quoted equities on the ASX was conducted by means of it until 29 September 2006. SEATS enabled brokers (Trading Participants) throughout Australia to have equal access to the market. Other than off-market transfers between a holder of a security and an acquirer occurring without the aid of a broker, all trading in quoted equities on the ASX was conducted through SEATS.
On 2 October 2006, the ASX replaced SEATS with a new computerised system, which it called the Integrated Trading System (ITS). Whereas only equities could be traded through SEATS, ITS enabled financial products such as warrants and derivatives to be traded in addition to equities. Each Trading Participant is licensed by the ASX to access ITS and is allocated an individual broker identification number. I will described SB Firm’s broking identification number as xxx. A Trading Participant employs a Designated Trading Representative (DTR) who has been approved by ASX to act as that Trading Participant’s operator of an ITS terminal or workstation (previously known as a SEATS Trader Workstation). Each Trading Participant usually maintains at least one ITS terminal in its office.
When the ASX transferred from SEATS to ITS, it transferred to ITS any bids that had been entered on SEATS up to 29 September 2006 but had not yet traded. It transferred them at 5.00am on 2 October 2006. For the purposes of this case, there was no difference between SEATS and ITS.
The ASX also operates an electronic system known as the Open Interface. It is defined in the ASX’s Market Rules as “the electronic protocol and message structure used to provide a mechanism for Trading Participants to access ITS which enables a Trading Participant to submit trading messages”. Open Interface transmits the order and trade data to all Trading Participants, whether they used an ITS terminal or the Open Interface. Clients of Trading Participants can gain access to ITS via Automated Order Processing (AOP) and Open Interface. AOP refers to the process by which orders are registered in a Trading Participant’s system and submitted as orders into ITS without being entered by a DTR.
Trading on the ASX
Currently, a Trading Participant’s identification number is automatically recorded in the ITS when its DTR makes an entry in ITS. The ASX records both the number and the entry and they are incorporated in the trading records of ASX. When a Trading Participant is instructed by its client to buy securities, its DTR enters the order, known as a BID, in ITS at a price and for a quantity that accords with the instructions. When instructed to sell securities, its DTR enters the order, known as the ASK, in ITS at a price and for a quantity that accords with the instructions. All BIDs and ASKs are shown on all ITS terminals and are recorded by the ASX. Trading Participants are able to see on the ITS terminals the relevant security’s ASX code, the quantity of the relevant security in respect of BIDs and ASKs entered, the price of all BIDs and ASKs and the time, quantity and price of trades that have occurred during the relevant day’s trading.
ITS is a priority based trading system. Until they are traded or cancelled, all BIDs entered on ITS are given priority and displayed in order first of price and then of the time of entry on ITS. In so far as price is concerned, the BID with the highest price is shown first and the others in descending order to the lowest. Until they are traded or cancelled, ASKs are also shown on ITS in order first of price and then of the time of entry on ITS. Unlike BIDs, the ASK with the lowest price is displayed first and the others in ascending order to the highest.
Trading in quoted securities on the ASX during what is known as the “Normal Trading” phase is conducted through ITS between 10.00am and 4.00pm Eastern Standard Time on each trading day. In addition to Normal Trading, BIDs and ASKs can be entered in ITS during the Pre-open phase but trades of securities cannot be executed during that phase. The Pre-open phase refers to the period from approximately 7.00am to 10.00am each trading day. During that period, brokers and online clients via brokers may enter, amend and cancel orders. SEATS does not trade any orders during this period. When the Opening phase commences at 10.00am, stocks commence trading in five staggered groups sorted alphabetically. The first is traded at a time up to 15 seconds before or after 10.00am, the second within the same range of 10.02am and so on at two minute intervals up to 10.09am. The precise time of each is randomly decided upon by SEATS. The Single Price Auction (SPA) occurs for the stocks in each of the respective groups.
Normal trading on the ASX ceases at 4.00pm. Stocks are placed in Pre-open. Just as happens in the morning Pre-open, BIDs and ASKs may be entered, amended or cancelled but neither SEATS nor ITS processes any trades. A Closing Single Price Auction (Closing SPA) then takes place. Between 28 November 2005 to 14 July 2006, SEATS randomly decided the precise time at which the Closing SPA took place but it always occurred for 60 seconds at some time between 16.15 to 16.17pm.
A trade in a security occurs automatically when the price of a BID and an ASK for that security overlap on ITS. The overlap will occur either when they are identical or the price of a BID is greater than that for an ASK. On the basis of
Mr Dent’s evidence, I find that:“A principal underlying the algorithm used the calculate the volume of shares to be traded and at what price in the SPA’s is predicated on the fact that a buyer is willing to purchase at a lower price than their existing Bid and a seller is willing to sell at a higher price than their existing Ask. The objective of the algorithm is to match the greatest number of shares possible at one price. If a clear result cannot be achieved when the first decision rule is applied, the model progresses to the second decision rule and so on. The four stages of the algorithm are:
a.Determining the Maximum executable volume and at what price steps if more than one;
b.Establishing the minimum surplus (either Bid or Ask) at the various price steps (the quantity of shares un-traded at the potential auction price (‘PAP’) should always be the least possible);
c.Ascertaining where the market pressure exists (where multiple potential auction prices exist); and
d.Narrowing the PAP to two. Consulting the reference price (the last traded price). The higher PAP will be used where the reference price is equal to or greater than it, and the lower PAP will be used where the reference price is equal to or less than it. Where the reference price lies between the two PAP’s the reference price is used.”[9]
[9] Exhibit 1 at [21]
At the end of each trading day, there is a Closing Single Price Auction (CSPA). At that time, all overlapping buy and sell orders are automatically matched and traded. Up to and including 25 November 2005, that occurred at or around 4.05pm on each trading day. From 28 November 2005, the CSPA took place at approximately 4.15pm each day and, from 17 July 2006, at approximately 4.10pm.
ASX’s record of transactions
In the course of trading, all entries on SEATS were handled electronically. Each day, a file was produced showing all the transactions effected on SEATS during the day. This is the SEATS log file and provided a time stamp of those transactions accurate to one-hundredth of a second. Each SEATS log file was sent electronically to the Surveillance Division after 7.00pm each day. It is retained as part of the SEATS Archive database.
The ITS is a little different. Rather than producing a file at the close of each day’s trading, each transaction effected on the ITS is passed electronically in real-time to the SMARTS System. The transactions are recorded in log files providing a time stamp of those transactions to one-hundredth of a second. The SMARTS System has a number of application modules that extract and analyse the data it holds.
The Surveillance Division itself has computer programs that enable it to analyse all trades effected on SEATS or ITS in a particular security and in a given time period (Course of Sales report), transactions on SEATS (SEATS Transactions) and transactions on ITS as recorded on the SMARTS System (All Transactions).
The latter two reports record all SEATS or ITS entries respectively in a particular security during a given time period in a date and time order and includes details of all trades and of the entry, amendment, cancellation and deletion of all BIDs and ASKs.
The Surveillance Division can produce a replay of trading using electronic programs called SEATScan, for SEATS trading, and Market Replay, for ITS trading. Both programs enable the screen to be divided into three. The top band displays a line-by-line description of each transaction which is about to be entered on the relevant system. The middle band displays the depth of the market for both buying and selling or what is known as the BID and ASK schedule, at a point in time. The lower band lists the last ten trades. BIDs and ASKs and subsequent trades can be identified by reference to a particular client.
EXPERT WITNESS
I find that Mr Stuart Dent is an officer of the Australian Public Service and, since 1991, has been engaged by ASIC as a Market Analyst in its Enforcement Directorate. During 1990, he was engaged by ASIC’s predecessor as a Compliance Officer in its Investigations Department. His previous professional experience included four years with AC Goode and Co Ltd as an investment adviser, two years in the Eurobond Division of the London office of the merchant bankers, Morgan Stanley International and a period as a post clerk with ASX. He is currently a Senior Associate Member of the Financial Services Institute of Australasia. Mr Dent is familiar with the ASX’s Market Rules, the Stock Exchange Automated Trading System (SEATS) and the ASX Integrated Trading System (ITS) as well as with the provisions of the Corporations Act governing the procedures for offering to sell or purchase listed securities on the ASX.
Under the Australian Securities and Investments Commission Act 2001 (ASIC Act), Mr Dent has been delegated certain functions and powers under Part 3 of that legislation. Part 3 gives ASIC powers to conduct investigations and gather information. He has been involved in hundreds of investigations including those into alleged market manipulation, insider trading, short selling, false and misleading statements, breaches of the takeover provisions and failure to satisfy continuous disclosure obligations. Mr Dent said that his duties required him to compile and analyse evidence that included market and trading data as well trading data provided by the ASX and other service providers. In a market manipulation investigation, he analyses that material “… for the purpose of providing evidence as to the effect of particular transactions on the price at which a particular security has been traded and the volume of securities traded within the context of the market for these securities.”[10] Mr Dent has also considered the materiality of information and statements as to the effect on the price at which a particular security has been traded and the volume of securities traded. In undertaking his duties, he has developed significant experience in the use of two software tools developed by ASIC for the analysis of trading data provided by the ASX: Seatscan and R-Tools.
[10] Exhibit 1 at [6.a.i]
As part of ASIC’s investigation into the trading of the Company’s securities, I accept that Mr Dent was asked to analyse and prepare trading data in its shares during the period from 10 March 2006 to 1 June 2006 and, in particular, to look at the trading conducted on the accounts of Freda, DCO and Elizabeth conducted through SB Firm.[11] On the basis of his evidence, I find that Mr Dent has given evidence as an expert on approximately six occasions in the Melbourne Magistrates’ Court, the Melbourne County and in ASIC’s internal enquiries. He is aware that most courts have guidelines for expert witnesses to guide them in the preparation of their evidence and is reasonably familiar with them. As to those prepared by the Federal Court, he said that he had probably read them.
Challenge to Mr Dent’s being called as an expert witness
[11] Exhibit 1 at [14]
A. The submissions
Mr Young challenged the basis on which Mr Dent gave his evidence. His statement, which was admitted in evidence, is headed “Expert Statement”.[12]
In cross-examination, Mr Dent said that he might have received written instructions to carry out his investigation and prepare his statement. He believed that some of his instructions would have come orally and he might have made a diary note of them but acknowledged that he had not produced them with his report. Neither any written instructions nor any written note of oral instructions was attached to his statement.[12] Exhibit 1
Mr Young drew his attention to [2.7] of the Guidelines for Expert Witnesses in Proceedings in the Federal Court of Australia (FC’s Guidelines) dated
5 May 2008, which provides:“There should be included in or attached to the report; (i) a statement of the questions or issues that the expert was asked to address; (ii) the factual premises upon which the report proceeds; and (iii) the documents and other materials that the expert has been instructed to consider.”
The FC’s Guidelines apply only to expert witnesses.
Mr Young referred also to the draft Guidelines relating to Opinion Evidence issued by the Tribunal’s President in October 2008 (Draft AAT Guidelines). Paragraph [2(b)] states that:
“A written report prepared for the purpose of proceedings in the AAT must include the following information either in the body of the report or as an annexure:
(b)the letter of instruction or details of the questions or issues the person was asked to address in the report as well as a reference to any documents or other materials the person was given to consider”.
It appears from [1], which deals with the “Duty to the AAT”, that it is directed to a “… person giving evidence based on his or her special knowledge in an area …” and from [4] of the introductory passages under “Scope of the guidelines” that it applies to “… any evidence before the AAT that has been obtained from a person because he or she has particular knowledge or experience in a subject area.” Whether this is limited to the expert witnesses that are the subject of the FC’s Guidelines or whether it is of wider application remains to be seen.
B. The law relating to expert evidence and its application to the Tribunal
The role of the Tribunal is to review the decision that is the subject of the application made to it. For the purpose of doing that, s 43(1) of the AAT Act provides that it “… may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision …”. When it reviews a decision in this way, the Tribunal is often said to be engaged in ‘merits review”. That task is an administrative task and differs in significant respects from the task facing a court engaged in judicial review of a decision. The Tribunal’s task is not to enquire whether the decision-maker made an error in making the decision. That is the task of courts under the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) or s 39B of the Judiciary Act 1901 if a person affected by the decision wants to question it on the basis that it is affected by errors within the scope of those Acts. The Tribunal’s task is not to adjudicate upon whether the decision-maker is able to defend the decision he or she made.[13] Despite the fact that the Tribunal’s proceedings often have the appearance of an adjudicative process in a court, its task takes it beyond a consideration simply of the cases put by one party or another and the authorities on which they rely.[14] It is not limited by the Statements of Facts and Contentions lodged by the parties for they do not have the character of pleadings in a court. The task of the Tribunal is to determine the correct process it should itself follow and follow it. That process starts with ascertaining the law that is applicable and the issues that are relevant, considering the probative material that is available to it and make findings of fact that are based on that material and relevant to the issues. Unless varied by another enactment, the Tribunal makes any findings of fact on the basis that it is reasonably satisfied of them.[15] This equates with its doing so on the civil standard of proof and so on the basis of the balance of probabilities.[16] Having done that, the next step is to ascertain the decision or range of decisions that can correctly be made in light of the law and the facts. If more than one decision can be correctly made, it should then choose the decision that is the preferable decision. In doing so, it must ensure that it follows the rules of procedural fairness so that the parties are aware of those and of the issues it is considering and have an opportunity to present their cases accordingly.
[13] Re Mann and Capital Territory Health Commission (No. 2) (1983) 5 ALN N261 as set out and adopted in Re Wertheim and Department of Health (1984) 7 ALD 121 at 154
[14] Consequently, it is not faced with difficulties of the sort that potentially faced the Full Court of the Federal Court in Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211; Finkelstein, Jacobson and Gordon JJ
[15] Minister for Immigration and Ethnic Affairs v Pochi (1980) 4 ALD 139
[16] Repatriation Commission v Smith (1987) 74 ALR 537
In assessing the evidence or material that is probative, the Tribunal is not bound by the rules of evidence.[17] When assessing evidence or material before it, the Tribunal often expresses itself in terms of whether the evidence has weight or not or whether it will be given more or less weight. There are occasions, though, on which it will decide that the probative value of evidence or matter is so slight or non-existent that it will not have regard to that evidence or matter. When it decides that the probative value is so slight or non-existent, it will often do so on the basis that the evidence would not be admissible in a court according to the rules of evidence. The rules of evidence generally reflect the views reached by the courts as to the evidence that can be relied on to have probative value.
[17] Administrative Appeals Tribunal Act 1975, s 33(1)(c)
Opinion evidence is evidence of “a belief or judgement which seems likely to be true, but which is not based on proof …”.[18] It has been described in a legal context as “a conclusion, usually judgmental or debatable, reasoned from facts”[19] and as “an inference from observed and communicable data”.[20] It is the subject of Part 3.3 of the Evidence Act 1995, which provides that such evidence is not admissible to prove the existence of the fact about the existence of which the opinion was expressed.[21] The general inadmissibility of such evidence is subject to certain exceptions. One of those exceptions is found in s 79(1) which provides:
“If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.”
[18] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
[19] RW Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 34 NSWLR 129 at 130 per Giles J
[20] Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 75 per Lindgren J citing JH Chadbourn (ed), Wigmore on Evidence (1978), Vol 7, par 1917.
[21] Evidence Act, s 76(1)
Opinion evidence that is given by a person who has specialised knowledge based on the person’s training, study or experience and that is wholly or substantially based on that specialised knowledge is in a different category. It is admissible in the courts as an exception to the opinion rule[22] and is taken into evidence in the Tribunal. As Gaudron J expressed the principle in HG v The Queen:[23]
“The position at common law is that, if relevant, expert or opinion evidence is admissible with respect to matters about which ordinary persons are unable ‘to form a sound judgment … without the assistance of [those] possessing special knowledge or experience … which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience’.”[24]
[22] Evidence Act, s 79
[23] (1999) 197 CLR 414 at 427
[24] HG v The Queen (1999) 197 CLR 414; 160 ALR 554 at 432, 566; [58] quoting from a judgment of King J in R v Bonython (1984) 38 SASR 45 at 46-47 and see also Clark v Ryan [1960] HCA 42; (1960) 103 CLR 486 at [4]; 491 per Dixon CJ adopting the notes by JW Smith to Carter v. Boehm 1 Smith L.C., 7th ed. (1876) p. 577
It is clear from the authorities that the “… categories of expert evidence are unlimited …”[25] and that they are not limited to areas in which a person’s special knowledge or skill is derived from scholastic studies. As Thomas JA, with whom McPherson JA and Chesterman J agreed, said in R v Lam:[26]
“There are many fields in which an expert’s skill does not derive from scholastic studies. Examples include the practical experience of an Aboriginal tracker …, a mechanic with much practical experience of engines … and even the capacity of a heroin addict to identify a substance as heroin …”.[27]
Of some relevance in this case is the fact that the courts have recognised accountancy and auditing as fields of expertise. Speaking of forensic accountants, Austin J said in Australian Securities and Investment Commission v Rich (Rich):[28]
“ This broader field of expertise, generally relating to understanding the financial health of a business enterprise, is the realm of forensic accountants. It has been said that ‘their role is really to assist the court to understand the financial information, using their skills to organise, display and communicate financial information’ … or to ‘help explain complex financial and accounting issues raised in criminal and civil proceedings’ …. Thus, in modern litigation forensic accounting evidence is admitted to assist, not only in determining the state of insolvency of the company at the particular time as in Quick v Stoland,[[29]] but in a variety of other broadly similar financial tasks, exemplified from Australian cases decided in the recent past …”[30]
[25] Weal v Bottom (1966) 40 ALJR 436 at 439
[26] (2001) 121 A Crim R 272 (Qld CA)
[27] (2001) 121 A Crim R 272 at [81]; 290
[28] [2005] NSWSC 149; (2005) 190 FLR 242
[29] Quick v Stoland Pty Ltd (1998) 87 FCR 371
[30] [2005] NSWSC 149; (2005) 190 FLR 242 at [278]; 308
Whether or not such a field of knowledge exists is a question that must be answered first:
“In determining whether or not there is, or is not, a field of knowledge which requires expert assistance, the judge is to a large extent involved in an exercise of personal judgment, for which authority provides little help: see per Blackburn J in Millirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 at 160.”[31]
The question can be answered by asking two questions that are directed to the reasons why the courts have permitted expert evidence to be admissible when opinion evidence generally is not. Those questions were identified in R v Bonython[32] when King CJ observed that:
“Before admitting the opinion of a witness into evidence as expert testimony, the judge must consider and decide two questions. The first is whether the subject matter of the opinion falls within the class of subjects upon which expert testimony is permissible. This first question may be divided into two parts: (a) whether the subject matter of the opinion is such that a person without instruction or experience in the area of knowledge or human experience would be able to form a sound judgment on the matter without the assistance of witnesses possessing special knowledge or experience in the area, and (b) whether the subject matter of the opinion forms part of a body of knowledge or experience which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience, a special acquaintance with which by the witness would render his opinion of assistance to the court. The second question is whether the witness has acquired by study or experience sufficient knowledge of the subject to render his opinion of value in resolving the issues before the court.”[33]
[31] R v Bartlett [1996] 2 VR 687 at 695 (Vic CA) per Winneke P
[32] (1984) 38 SASR 45; 15 A Crim R 364 (SA CCA)
[33] (1984) 38 SASR 45; 15 A Crim R 364 at 46-47; 366
Parties themselves have been permitted to give expert evidence but only if their evidence meets the standards expected of independent expert witnesses. This has been accepted in the United Kingdom[34] and has also been accepted in various Australian jurisdictions. In FGT Custodians Pty Ltd (formerly Feingold Partners Pty Ltd) v Fagenblat,[35] Ormiston JA, with whom Chernov and Eames
JJ agreed, said:“It is sufficient to say that in large numbers of commercial disputes, one party or the other frequently has particular expertise of a kind where it is frequently, but often only incidentally, necessary to qualify the witness to give expert evidence as to some particular aspect of that trade or business. It would be remarkable if one had to obtain another expert from a competitor or even from outside the country to prove particular aspects of that evidence, whether related to trade usages or technical mechanical processes or whatever. Such evidence can surely be given by a party, or by an officer of a corporate party, and the fact that it comes from such a witness, qualified if required as an expert, should be a matter merely for comment by counsel in argument and a matter of weight for consideration by the judge in reaching his ultimate decision.”[36]
[34] Shell Pensions Trust Ltd v Pell Rrischmann & Partners [1986] 2 All ER 911 (QBD)
[35] [2003] VSCA 33
[36] [2003] VSCA 33 at [24]. See also Fortson Pty Ltd v Commonwealth Bank of Australia [2008] SASC 49; (2008) 100 SASR 162 at [114]; 192 per Bleby J
In Rich, Austin J summarised the law on this point after a comprehensive survey of it:
“ In summary, the fact that the expert may have had a family, personal or business relationship with the party retaining him or her, of a kind that might cause a reasonable bystander to apprehend or even expect a lack of impartiality in the expert’s opinions, is not of itself a ground for determining that the expert lacks testimonial capacity or competency, or otherwise for holding that the expert’s opinion evidence is inadmissible. The possibility remains that matters of this kind might influence the Court to exercise its discretion to exclude the evidence under s 135, but such a matter would not, of itself, to [sic] cause the discretion to be exercised against admitting the evidence. …
There may, however, be additional factors that would make the evidence inadmissible or, at least, would cause the Court to exclude it in the exercise of its discretion. For example, the Court might exclude an expert’s evidence if it appeared that the expert, having formed his or her opinions for another purpose, was not prepared to consider changing his or her mind for the purposes of giving evidence in court. …
One additional factor especially pertinent in the present case is that expert opinion evidence might be excluded if the expert, in the course of his or her prior relationship with the party who has retained him or her, has obtained information relevant to the formation of his or her expert opinion, which is not part of the identified body of information to which the expert is authorised to have regard in preparing the report. Here the problem is not lack of independence per se, but the fact that, in the course of acting in relationship with a party to the litigation in a non-independent way, the expert may have obtained information which is not appropriate or permissible to be used as a factual basis for expert opinions.
ASIC submitted that it is common, as well as being proper and understandable, that an expert will obtain additional information in dealing with his or her client, which is not included in the factual basis for the expert opinions. For example, it is proper and common for an expert to express views to his or her client about documents within the expert’s field of specialised knowledge produced by another party on discovery, or about expert reports from another party, and the expert may sit in court and listen to evidence and provide explanations to the client of the evidence that is given, and even suggestions to counsel as to relevant questions that may be asked.
I accept that there is a range of such things that the expert may do without providing ground for excluding his or her opinion evidence. This because, in engaging in such conduct, the expert does not raise any question as to whether his or her opinions are based wholly or substantially on his or her specialised knowledge. Where, however, the expert has obtained extraneous information in the course of another relationship with the client prior to reaching his or her opinions, and the information is relevant to the opinions, a question would seem to arise as to whether the expert has failed to set out the factual basis that the opinions and has therefore made it impossible for the court to be sure whether the opinions are based wholly or substantially on the expert knowledge.”[37][37] [2005] NSWSC 149; (2005) 190 FLR 242; at [346]-[349]; 324-325
This passage highlights the triple requirements that an expert witness be sufficiently independent, have specialised knowledge and base his or her expert opinion on both that specialised knowledge and a relevant factual basis. The reason for this is found in the judgment of Heydon JA in Makita (Australia) Pty Ltd v Sprowles:[38]
“… If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert’s specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ’s characterisation of the evidence in HG v The Queen (at 428 [41]), on ‘a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant and a process of reasoning which went well beyond the field of expertise.”[39]
[38] [2001] NSWCA 305; (2001) 52 NSWLR 705
[39] [2001] NSWCA 305; (2001) 52 NSWLR 705 at [85]; 744
The way in which a court or tribunal satisfies itself that the opinion is based on specialised knowledge:
“… would normally be satisfied by the person who expresses the opinion demonstrating the reasoning process by which the opinion was reached. Thus, a report in which an opinion is recorded should expose the reasoning of its author in a way that would demonstrate that the opinion is based on particular specialised knowledge. Similarly, opinion evidence given orally should be shown, by exposure of the reasoning process, to be based on relevant specialised knowledge.”[40]
[40] Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 at [23] per Black CJ, Cooper and Emmett JJ
The expert report must:
“… must be presented in such a way that the court can readily assess whether the requisite correlation between opinions and specialised knowledge is present.
Proper categorisation of an intermediate proposition depends on reaching an understanding as to the role of that proposition in the reasoning process, its derivation and its relationship with the assumed or accepted facts. In my opinion, it is sufficient under s 79 [of the Evidence Act 1995] for the report to make it plain, in substance and on a fair reading, that a particular proposition has been deduced by a process of inference from the assumed or accepted facts, and that the process of inference involves the application of the expert’s specialised knowledge. If, as a matter of substance rather than form, a proposition is an inference from the assumed or accepted facts, drawn by the expert with the aid of his or her specialised knowledge, it is potentially admissible under s 79 whether it is introduced by some such words as ‘in my opinion’ or is presented as an assertion of fact. But if, in substance, a proposition cannot fairly be regarded, directly or indirectly, as an inference from the assumed or accepted facts drawn with the aid of the expert’s specialised knowledge (because, for example, the expert’s reasoning process leading to the proposition has been inadequately disclosed or is non-existent), the proposition is not admissible under s 79 even if it is expressed to be an opinion. …”[41]
[41] [2005] NSWSC 149; (2005) 190 FLR 242; at [267]-[268]; 305-306
The assumed or accepted facts to which Austin J referred are important in that, if the expert’s opinion depends upon them, they must be proven or agreed upon between the parties before the expert’s opinion can be give weight.[42] The expert witness may observe facts that do not depend upon specialist knowledge and that evidence is admissible even under the Evidence Act as opinion based on evidence of what the person saw, heard or otherwise perceived about the matter.[43]
[42] Australian Securities and Investments Commission v Rich [2005] NSWSC 149; (2005) 190 FLR 242 at [260]; 304 (citations omitted)
[43] Evidence Act, s 78
The consequences of failing to identify and articulate the assumed, accepted and observed facts were said by Austin J in Rich in a court and I respectfully suggest that the consequence is no different in this Tribunal:
“ Thus, if the expert fails to identify and articulate the assumed, accepted and observed facts upon which he or she proceeded, the court may well be unable to identify those facts, with consequences of several kinds. First, if the court is uncertain about the factual basis used by the expert, it may be unable to comprehend the opinion so as to decide how much weight or probative value to give it. Second, if the factual basis is not articulated, the court may be unable to determine whether the facts assumed or accepted by the expert correspond to the facts proved or admitted at the hearing …. This difficulty goes to the weight or value of the evidence, on any view, and may go to strict admissibility, if the ‘basis rule’ discussed at 6.7 is correct. Thirdly, in extreme cases the consequence of failure to articulate the factual basis may even be inadmissibility for irrelevancy. In Quick v Stoland, Branson J remarked that a bare expression of opinion which does not disclose its factual basis will be incapable of affecting the assessment of the probability of the existence of any fact in issue in the proceeding, and will therefore be irrelevant under
s 56(2).”[44][44] [2005] NSWSC 149; (2005) 190 FLR 242 at [297]; 312
This is consistent with the earlier case of Arnotts Ltd v Trade Practices Commission,[45] in which the Full Court of the Federal Court specifically approved passages from the work of Sir Richard Eggleston, Evidence, Proof and Probability[46] regarding four functions of expert witnesses: “generalising from experience, acting as librarian, acting as statistician and acting as advocate.”[47] The generalisation engaged in by expert witnesses when expressing an opinion in their field of expertise is based on their experience and calls in aid all their training and professional experience. In doing so, Sir Richard said:
“… It is often said that an expert cannot give an opinion as to the ultimate fact that the court has to decide. This is inaccurate, as experts, especially valuers, often give evidence as to the ultimate fact, and in many cases the question whether that fact exists can be answered only by experts … What the rule really means is that an expert must not express an opinion if to do so would involve unstated assumptions as to either to either disputed facts or propositions of law. …”[48]
[45] (1990) 24 FCR 313; 97 ALR 555 per Lockhart, Wilcox and Gummow JJ
[46] 2nd edition, 1983 at 145-158, (1990) 24 FCR 313; 97 ALR 555 at 351; 594
[47] (1990) 24 FCR 313; 97 ALR 555 at 350; 594
[48] Quoted in Arnotts Limited v Trade PracticesCommission (1990) 24 FCR 313; 97 ALR 555 at 350; 594
He went on to give examples, as did the Full Court when it concluded that:
“… What does matter – the point emphasised by Sir Richard – is that the assumptions upon which the opinion is based are identified and articulated. Of course, if the assumptions made by the witness turned out to be different to those ultimately found by the Court, the opinion might have little relevance. …”[49]
[49] (1990) 24 FCR 313; 97 ALR 555 at 351; 595
Although the Full Court in Arnotts contemplated an expert’s making assumptions about propositions of law, it is clear from the judgment of French J in Woodside Energy Ltd v Commissioner of Taxation[50] and the cases to which he referred that:
“generally, it is not for an expert to give evidence as to the application of a legislative provision, as opposed to furnishing evidence from the view point of an economist with respect to what factors can or should be taken into consideration or ignored.”[51]
[50] (2006) 155 FCR 357; 233 ALR 710
[51] (2006) 155 FCR 357; 233 ALR 710 at 374; 725-726
It is, in relation to the notice and the register, unnecessary to consider whether the power to make the order also flowed from the expression ‘[the] implementation of the decision’ in s 41(2). However, for completeness,
I should indicate that I doubt this is so. …”[293]
[292] [2009] FCAFC 185; (2009) 113 ALD 449 at [5]; 451
[293] [2009] FCAFC; (2009) 113 ALD 449 185 at [5]-[7]; 451
In Australian Securities and Investments Commission v Administrative Appeals Tribunal, the Full Court of the Federal Court did not have to consider a situation in which the banning order had not been given to the person against whom it had been made. Therefore, its attention would not have been drawn to the fact that a banning order does not come into effect until it is given to the person against whom it has been made.[294] It is one thing to make it but, I would respectfully suggest, another to implement it by giving it. Once it is given, the banning order comes into operation. This interpretation is supported by the fact that ASIC cannot publish the notice in the Gazette until it has been given because, among the information it must publish, is the date on which the banning order took effect: s 920E(2)(a). The date on which it took effect is the date on which it was given: s 920E(1). The interpretation is also supported by reference to ASIC’s obligation to maintain a register of banned persons. Regulation 7.6.06(1)(b) provides that ASIC must include in that register “the day on which the banning order took effect”. Again, it took effect only after it was given and not by virtue merely of being made.
[294] Corporations Act, s 920E(1)
In the case I must consider, the banning order has clearly been given to JTMJ and, when it was given, it came into effect. Once in effect, it was on any view in “operation”. On the view of either the majority or of Moore J in Australian Securities and Investments Commission v Administrative Appeals Tribunal, s 41(2) of the AAT Act confers power on the Tribunal to stay the operation of the decision. That extends to power to stay the consequential or ancillary acts or events that attend that decision as well as the operation of the decision at all. In the case of a banning order, that power would extend to giving the banning order to the person if the person were to become aware of the decision before it were given.[295] It would also extend to the publication of the notice in the Gazette, the entry in the register of banned persons and, if relevant, the notice to the operator of the licensed market or CS facility.
[295] The right to apply to the Tribunal for review is a right “for review of a decision made under this Act by … ASIC” and others: Corporations Act, s 1317B(1) (emphasis added). It is not a right that is limited to decisions that have come into effect or into operation and so is not limited to a banning order that has been given to the person against whom it has been made.
E.The exercise of the power in relation to the banning order made against JTMJ
The power given to the Tribunal under s 41(2) of the AAT Act is exercised in respect of identifiable consequences of a decision’s having been made provided those consequences are properly characterised as relating to either the operation or implementation of the decision. In the case of the order made on
17 March 2009, the consequences that are identified are the publication in the Gazette and the entry in the register. Those consequences are stayed. No reference is made to the operation of the decision and it is not stayed. Therefore, it remained in effect from the day it was given until the present day. If JTMJ has been continuing to act as an AR, it would be understandable in view of the conditions that are imposed on him by [3] of the member’s order. They are consistent with an order’s having been made. If consideration were to be given to taking action against JTMJ for acting contrary to a banning order, it is to be hoped that regard is had to the way in which a quick reading of the member’s stay order could easily have led him to think that he had an order staying the effect of the banning order.
F. The relationship between the stay order and my decision
I have taken the time that I have on the stay order because it has caused me a lot of concern. My injury and subsequent lengthy sick leave have meant that
I was not able to complete the hearing and the decision as quickly as I would have liked. That, combined with a stay order that did not do what the parties might have expected it did, may have left JTMJ exposed to an allegation that he has been acting contrary to a banning order. The stay order also has an impact on the way in which
s 43(5C) operates. As things stand at the moment and assuming the Federal Court makes no subsequent order to the contrary, if I do nothing other than make the decision I have indicated I am making, the effect of s 43(5C)(c) and (d) is that, the publication of the details of the banning order in the Gazette and the entry in the register of banned person will continue to be stayed until either the time within which JTMJ may appeal to the Federal Court has expired or, if he lodges an appeal, that appeal is determined. The decision will come into effect immediately as it has not been stayed and, by virtue of s 43(6) will be deemed to have come into effect when ASIC’s decision dated 19 January 2009 came into effect i.e. the day on which it was given to JTMJ.
It seems to me that the better course would be to have my decision take effect from the day on which ASIC is obliged to publish notice of it and register its details. I could make that the day on which I give my decision but, if there should be an appeal and if I should be found to have made an error of law, the worth of a stay order that was given presumably for the purpose of securing the effectiveness of the determination of the application for review as well as the effectiveness of the hearing would seem to be undermined.
Unfortunately, I cannot achieve the outcome I think preferable. For the reasons I have already given, I cannot achieve it by using the power under s 41(2) of the AAT Act at this late stage. If I use the only power that I have at this stage – the power in s 43(5B) – I can defer the operation of my decision to a later date but it will not achieve the outcome I seek. It will not do that because the decision under review has not been stayed and continues to operate until I substitute another. That is so despite the fact that the stay order made by the member might have been intended to stay the operation of the decision to make the banning order itself.
I have also faced another problem. My decision is that JTMJ should be the subject of a banning order for a two year period. It is not a two year period commencing on or shortly after 19 January 2009 during which the parties thought the decision was stayed and JTMJ has continued acting as an AR. It is a two year period during which he is the subject of a banning order that is in effect for all practical purposes. The problem has been how I should frame that decision.
The powers that I have are those under ss 43(5B) and (6) of the AAT Act. Section 43(6) enables me to order that the decision I am substituting has a different date of effect from that of ASIC. Section 43(6) enables me to specify the date on which the decision comes into effect. Even if I were to defer the date of effect of my decision for the length of the appeal period so that JTMJ can consider his position, the fact that the original decision has not been stayed would mean that he would continue to be subject to a banning order. If I were to delay the date on which my decision comes into operation by using the powers under s 43(5B), the outcome would be the same. For the reasons I have given, I cannot use the powers under
s 41(2) of the AAT Act at this stage. As I do not propose to make any order affecting the publication of the decision in the Gazette or its entry in the register of banned persons, the effect of my decision when read with s 43(5C) will be that, unless the Federal Court makes an order to the contrary, the two year banning period will come into effect immediately and that the publication and entry in the register will be stayed until the appeal period specified in s 44(1) has passed or, if an appeal is lodged in the Federal Court, when the appeal is determined.
Therefore, for the reasons I have given, I:
1.set aside the decision of the respondent dated 19 January 2009; and
2.substitute a decision that the applicant be prohibited from providing a financial service for a period of three years from the date of this decision.
I certify that the two hundred and eighty-one paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,
Signed: ....................................................................
Kate Conners Associate
Date of Hearing 5-8 May and 9-10 November 2009
Date of Decision 11 May 2010
Counsel for the Applicant Anthony YoungSolicitor for the Applicant Tony Hargreaves
Tony Hargreaves and PartnersCounsel for the Respondent David Gilbertson
Solicitor for the Respondent Tim Chalke
ASIC
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