Legat and Australian Securities and Investments Commission - [2019] AATA 685

Legat and Australian Securities and Investments Commission [2019] AATA 685 (9 April 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2017/6000
Re:Robert Legat
APPLICANT

AndAustralian Securities and Investments Commission
RESPONDENT

DECISION
Tribunal:Deputy President Bernard J McCabe
Date:9 April 2019
Place:Brisbane

The Tribunal varies the decision of the Respondent dated 28 September 2017, increasing the banning order from three years to five years.
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Deputy President Bernard J McCabe
CATCHWORDS
CORPORATIONS – banning order – prohibition from engaging in any credit activities for a period of 3 years – contravention of consumer credit regulations – model of operation to avoid interest rate cap – sham business model – misleading and deceptive conduct – poor diligence, competence and judgement – contempt for decisions of Federal Court and Tribunal – whether applicant is likely to contravene credit legislation, or be involved in the contravention of any credit legislation – fit and proper person – regulatory action – protection of consumers – specific deterrence – general deterrence – decision under review is varied – banning period increased
LEGISLATION
Administrative Appeals Tribunal Act 1975 s 43
Consumer Credit (Queensland) Special Provisions Regulation 2008 s 3
National Consumer Credit Protection Act 2009 ss 37, 80, 81
CASES
Australian Securities and Investments Commission v Adler [2002] NSWSC 483
Australian Securities and Investments Commission v Fast Access Finance Pty Ltd [2015] FCA 1055
Australian Securities and Investments Commission v Fast Access Finance Pty Ltd (No 2) [2017] FCA 243
Carter and Anor v Fast Access Finance (Beaudesert) Pty Ltd and Anor [2011] QCAT 525
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129
Sullivan and Anor and Australian Securities and Investments Commission [2013] AATA 592
SECONDARY MATERIALS
Australian Securities & Investments Commission – Regulatory Guide 204: Applying for and varying a credit licence
Australian Securities & Investments Commission – Regulatory Guide 218: Licensing: Administrative action against persons engaging in credit activities (November 2010)
REASONS FOR DECISION
Deputy President Bernard J McCabe
9 April 2019

Mr Robert Legat, the applicant in these proceedings, was a director and legal counsel to a number of entities involved in a consumer finance business. Consumer finance businesses operating in this part of the market loaned small amounts of cash to customers, often at very high rates of interest. Those businesses are ordinarily subject to the consumer credit laws which include a number of limitations, such as a cap on the amount of monthly interest that can be charged. The businesses also require an Australian Credit Licence.
Mr Legat came up with a plan for avoiding what he plainly regarded as pesky restrictions. He devised ‘the Diamond model’, a transaction in which the customer bought diamonds from one company and then immediately resold those diamonds at a significant discount to a related company. The Diamond model achieved the same effect as a loan: the customer got access to cash in the short term but he or she also had to make instalment payments on an agreed schedule that amounted to far more than the amount received from the consumer finance company under the terms of the arrangement. The profit on the transaction that was earned by the provider was equal to a high rate of interest. But – and this was the supposed genius of the plan – Mr Legat’s companies and their associates would not need to hold an Australian Credit Licence or otherwise comply with the consumer credit laws because they were dealing in diamonds, not providing credit.
The plan was too clever by half. The Federal Court concluded the Diamond model was a sham intended to disguise the true nature of what were plainly credit transactions regulated under the relevant law: see Australian Securities and Investments Commission v Fast Access Finance (No 2) [2017] FCA 243 (Fast Access Finance (No 2)) at [22] per Dowsett J; see also Australian Securities and Investments Commission v Fast Access Finance Pty Ltd [2015] FCA 1055 (Fast Access Finance (No 1)). The Court said the Diamond model involved the “deliberate and premeditated exploitation of…vulnerable people”: see Fast Access Finance (No 2) at [23].
The Australian Securities and Investments Commission (ASIC) took regulatory action against Mr Legat in the wake of the Federal Court’s findings. On 28 September 2017, ASIC decided to prohibit Mr Legat from engaging in credit activities for a period of three years. The decision was made pursuant to ss 80 and 81 of the National Consumer Credit Protection Act 2009 (the NCCP Act). Mr Legat asked the Tribunal to reconsider that decision. He has defended his role in the whole affair.
The reviewable decision should be varied. I explain my reasons below.
THE INTRODUCTION OF THE DIAMOND MODEL
Mr Legat is a solicitor who practised on the Gold Coast for many years. In his witness statement dated 23 November 2017 (exhibit two), he explained he undertook a range of work in the course of his practice including providing advice in relation to consumer and credit finance. He has been involved with the Fast Access Finance group of companies (‘the FAF group’) since at least 1997 when he was appointed company secretary of Fast Access Finance Pty Ltd (‘FAF’). He was subsequently engaged as in-house counsel to the group in 2002 and was made a director of the holding company, FAF, on 1 May 2011.
The FAF group companies were actively involved in the consumer finance business in Queensland. In the early days, the business worked like this: FAF, the holding company, issued licences of intellectual property to other companies in the group and to other entities that operated as FAF franchises. Under the terms of those licensing arrangements, the individual licensees provided small loans of between $250-$2000 to customers who needed money quickly. The customers were charged a high rate of interest on the repayments. But then the law changed.
On 31 July 2008, the Consumer Credit (Queensland) Special Provisions Regulation 2008 commenced. Section s 3(1) of the regulations imposed a 48% interest rate cap on consumer credit contracts in Queensland. An interest rate of 48% is still eye-wateringly high, but it turns out lenders like the FAF group companies were effectively charging even higher interest rates. In his statement, Mr Legat recounted his efforts to justify these high rates of interest by reference to the high costs of providing small-amount loans: exhibit two at [14], [19]-[26]. In any event, the FAF group companies and others in the industry were unhappy at the prospect of a legislated interest rate ceiling. Before the new law came into effect, the applicant resolved to identify whether it was possible to restructure the lending transactions so they fell outside the consumer credit laws. He argued the Consumer Credit Code “was not all-encompassing” and noted the legislation did not include any anti-avoidance provisions: exhibit two at [33].
Mr Legat described his efforts to devise alternative models that would permit the FAF group companies to lawfully avoid the consequences of the interest cap: exhibit two at [30]-[36]. The search came down to two alternatives that were put to a barrister for advice. One of the alternatives was the Diamond model. Mr Legat acknowledged in cross-examination that the barrister he briefed was comparatively junior, and had general commercial experience rather than any particular relevant expertise. It is not clear why Mr Legat thought it was appropriate to brief that particular barrister, other than the fact the barrister was already known to the applicant. It turns out they had worked together in the past. They had also played together in a band: transcript at p 25. Subsequently, Mr Legat sought to justify the choice of the particular barrister by asserting “it was better than talking to a stranger”: transcript at p 34. Mr Legat added that he was not experienced in litigation so he wanted to brief a barrister who would understand that gap in his experience: transcript at p 101.
The briefing documents and the advice received from counsel were not before the Federal Court when it considered the operation of the Diamond model. They were tendered in evidence in these proceedings. I have already noted Mr Legat was a solicitor who had some relevant experience. He prepared what was described as a ‘scenario brief’ which served as the briefing document. The document is reproduced in exhibit one at pp 3203– 3206. It is headed “Suggested Scenarios for Circumventing Interest Rate Cap”. The document sought advice on whether it was possible to incorporate a range of fees and charges into the credit contract as contingency fees that would not count towards the capped amount. The document also asked whether it was possible to escape the coverage of the legislation altogether by using what came to be known as the Diamond model. The second aspect of the advice that was sought is of central importance here.
A copy of the advice from counsel was included in exhibit one at pp 1499–1507. The advice was premised on at least two assumptions articulated in the briefing document and expressly acknowledged in the advice. First, Mr Legat was aware the Diamond model was to be offered to consumers who approached FAF licensees seeking consumer credit loans; and second, the item that was to be traded – whether Diamonds or Bartercard Dollars, or something else – “will be figuratively useless to [the consumer], but not of itself worthless”: exhibit one at p 1505.
The advice in relation to the transaction which came to embody the Diamond model was disturbingly brief. After discussing the earlier scenario which involved imposing a range of contingency fees and concluding those fees and charges would count towards the interest rate cap, counsel’s advice summarised the Diamond model as outlined in the briefing note. He continued:
The operation above allows a situation where the customer receives $1000 and pays back $1500, thereby creating the profit component of the transaction, without attracting the provisions of the Consumer Credit Code.
FAF believes that, since the transaction between [the licensee company] and customer does not attract any interest or fees and charges, then it may fall outside the Consumer Credit Code. Section 6(1) of the Code, in point (c), states that for credit to fall under the Code, then “a charge is or may be made for providing the credit”.
I am briefed to advise whether this transaction falls outside the coverage of the Consumer Credit Code.
It is my view that the method of proceeding described in Scenario 2 [ie the substance of the Diamond model] would provide more certainty for avoiding the onerous requirements of the proposed amendments than proceeding in accordance with the first Scenario.
And that is it. The advice Mr Legat came to reply upon to justify an obviously problematic business model was that short. The advice did not analyse the Diamond model against provisions of the proposed legislation. It did not discuss or identify relevant cases. There was no clear explanation for what is ultimately an equivocal opinion. Counsel’s advice that the Diamond model “would provide more certainty” than an even more flawed alternative is hardly a ringing endorsement of the applicant’s position.
Mr Legat claimed during cross-examination that the written advice from counsel was supplemented by oral advice that offered more comfort. (He suggested one of the discussions with counsel ran for several hours when Mr Legat visited chambers in Brisbane: transcript at p 101.) But that advice is not recorded, nor is there any evidence the totality of the advice was carefully considered by Mr Legat or the board of FAF. Oral advice is not the worth the paper is it not written on in these circumstances.
As I have already noted, the Federal Court did not have the advantage of the briefing document or the advice from counsel when it made adverse findings in relation to the Diamond model that reflected on Mr Legat. Even so, Dowsett J concluded (Fast Access Finance (No 2) at [17]-[18]):
…I doubt whether those who controlled FAF really believed that they had devised a lawful scheme which would not engage such legislation. The idea of selling diamonds to people who came looking for small loans, and expecting to pay high interest rates, borders on the ridiculous…
On the most favourable view of the matter for FAF, its controlling officers must have had at least a strong suspicion that the diamond model was contrary to the relevant legislation.
I have a more complete picture after reading the documents, and it looks even worse. Mr Legat’s obvious attempt on behalf of FAF in the briefing document to avoid the operation of the credit laws by proposing a contrived transaction is evidence of cynicism. That is not in and of itself evidence of bad behaviour, of course: cynics are entitled to probe the boundaries of the law in privileged conversations with their lawyers. But Mr Legat should have known the proposal was flawed, and it is alarming that he came to use a plainly inadequate letter of advice from counsel as a fig leaf to disguise FAF’s brazen purpose. His behaviour suggests he knew he had a plan of doubtful legality that he was determined to justify. That was much was confirmed in cross-examination, when the following exchange occurred (transcript at p 33):
Mr Cleary: This is the advice that you wanted to receive, isn’t it, Mr Legat?
Mr Legat: It was the advice I was happy to receive.
Mr Cleary: It was the advice you wanted to receive?
Mr Legat: Of course it was. It aligned with what my thinking was.
Mr Cleary: It was advice you wanted to receive because you were intent on finding a way to evade the 48% cap?
Mr Legat: That’s correct.
The cynicism of the whole exercise becomes even clearer when one appreciates the advice was prepared having regard to an exposure draft of the new regulation. Mr Legat acknowledged in cross-examination (transcript at p 33) he did not follow up by providing counsel with the final version of the regulation once it was introduced. I am satisfied he did not confirm the advice because he already had what he wanted. The fact Mr Legat proceeded to oversee the introduction of the plan without the benefit of proper advice was deeply troubling to ASIC, and is certainly troubling to me. Mr Legat’s conduct reflects poorly on his diligence, competence and judgment.
Mr Legat was centrally involved in devising the Diamond model. He was its principal author. He was also involved with the implementation of the model. He agreed in cross-examination that he participated in meetings that discussed the practical details of the roll-out of the model to the licensees: transcript at p 37. He was also responsible for negotiating the arrangement with the company that supplied the diamonds – not that he ever caused that agreement to be reduced to writing: transcript at p 37. He was also involved in the development of the template documents that recorded and explained the (sham) transactions. The templates were supplied by FAF to the licensees. The documents included a number of questionable or false explanations that were offered to the consumer for structuring the transactions as a sale rather than a loan. For example, the documents instructed the sales assistant to tell the potential customer: “Government legislation prevents us from giving you a consumer credit loan,” if asked why the sale of diamonds was a necessary feature of the deal: exhibit one at p 1625. That statement is untrue. The transaction was structured that way because FAF group companies could not offer consumer loans that charged excessive interest. The legislative rule in question did not prevent the supply of consumer credit as such. When challenged on this during cross-examination, Mr Legat defended the statement he authored with what amounted to a verbal shrug, explaining there was no point giving a technical response to a consumer enquiry because “consumers don’t understand interest rates”: transcript at p 41. That high-handed behaviour reflects poorly on Mr Legat’s judgment.
It gets worse. Mr Legat attempted to sustain an argument before me that he did not know that customers were approaching the FAF group companies to obtain loans, contrary to the findings of the Federal Court in Fast Access Finance (No 1) and (No 2) and QCAT (in Carter and Anor v Fast Access Finance (Beaudesert) Pty Ltd and Anor [2011] QCAT 525) and the plain import of the briefing document he authored. He suggested customers were really approaching the licensees looking for cash or finance, as distinct from loans. The distinction was important, he explained (transcript at p 49), because:
Unfortunately finance is more than one, finance is a whole range of monetary things. It’s often pejoratively put together with loans, but if you think about a household finances, you’re not talking about someone’s loans. You’re talking about budgets and incomes, and expenses.
When I pressed him on what else a consumer might regard as ‘finances’ supplied by a firm like FAF or its licensees, Mr Legat responded:
…leases, business loans, there is a range of things. It’s just loans happens to fall under that umbrella, as one of the largest ones. And it was already the existing trading name of the company and it had a presence.
That is nonsense. Mr Legat knew potential customers of FAF group companies were looking for loans. The briefing document he provided to the lawyer makes that plain. For him to attempt to rationalise that reality away now suggests, at a minimum, he has a worrying capacity for flexible thinking.
Mr Legat argued before me that he should not be criticised over how things turned out at FAF licensees because he was not actively involved in the sales activities that occurred pursuant to the Diamond model. He insists he should not be held responsible for the excesses or abuses that might have occurred at the hands of overzealous sales people engaged by licensees. His preparedness to wash his hands of any responsibility for that conduct reflects poorly on his diligence. But he is missing the point in any event. The regulatory action against him (the subject of these proceedings) did not occur because Mr Legat’s good intentions and expertise were effectively abused by bad people over which he had no control. He is not the victim in all this. He is in trouble because the model he promoted was a terrible idea in and of itself, and because any competent and diligent person in his position would have seen the difficulties coming. The fact he could come up with such a model and continue to defend it reflects on his fitness to be involved in the provision of credit.
Dowsett J in Fast Access Finance (No 1) had found Mr Legat was not necessarily privy to the precise details of what was said when a prospective customer walked into a licensee’s premises and asked for a loan but was told he could buy some diamonds instead. (I note Mr Legat acknowledged in cross-examination during the current proceedings that he did author template explanations that were to be offered to clients as part of a sales patter: transcript at p 61.) His Honour said the fact Mr Legat was removed from the shop floor did not excuse Mr Legat from criticism over what occurred there in any event. Dowsett J pointed out it would not require much in the way of imagination to appreciate the difficulties that would likely ensue if the model were adopted: Fast Access Finance (No 1) at [33]. His Honour added Mr Legat and other managers would have been disabused of any doubts as to the problems with the model once they became aware of decisions made by the Queensland Civil and Administrative Tribunal (QCAT). I was referred to a number of decisions made by QCAT that should have put the applicant on notice, including Carter and Anor v Fast Access Finance (Beaudesert) Pty Ltd and Anor [2011] QCAT 525 delivered on 25 October 2011 by Adjudicator William LeMass. Dowsett J pointed out FAF did not discontinue the offending model at that point: Fast Access Finance (No 1) at [32]. Mr Legat said that in the immediate aftermath of Adjudicator LeMass’s decision in October FAF had attempted a ‘fix’ in the form of a ‘Product Disclosure Card’ that was issued to the licensees’ staff and read to prospective customers. The card bore a statement emphasising the nature of the transaction: transcript at pp 61-62. The fix was unsuccessful and the Diamond model was finally abandoned in April 2012 – although Mr Legat acknowledged some of the customers introduced under that model were still repaying their loans as recently as 2017: transcript at p 63.

Mr Legat has continued to defend the Diamond model and protest that it was introduced in an apparent good faith attempt to deliver a valuable service desired by customers in the face of what Mr Legat apparently considered was parliament’s ill-judged legislative intervention. Customers did not really care about the form of the transaction so long as it delivered them the desired outcome, he explained in cross-examination: transcript at pp 51-52. Besides, he insisted, some of the customers might have actually wanted to buy diamonds: transcript at p 23. His arguments about the unwisdom of the government’s approach were set out at length in the statement of facts, issues and contentions. He referred to reports and other evidence that were critical of the laws. He is entitled to hold that opinion of the law, of course, but the fact he offers that material in defence of his role in FAF’s brazen attempts to avoid the laws is deeply problematic.
Mr Legat acknowledged the Diamond model was no longer viable in light of the decisions in the Federal Court and QCAT, but that does not mean he accepts those decisions are correct. During cross-examination, he criticised Dowsett J. Mr Legat said his Honour got the facts and the law wrong in a number of respects. Mr Legat did not stop there. He was taken to the submissions he had made to the ASIC in 2017 in which he had offered (transcript at p 68 and exhibit one at p 886):
It appears strange that His Honour saw fit to disregard uncontested evidence especially without any apparent basis for doing so.
Mr Legat went on in his submission to the delegate to suggest Dowsett J’s reasoning established a “dangerous precedent”: transcript at p 68; see also exhibit one at p 887. He said some of the factual findings were “patently untrue and remarkably short-sighted” (transcript at p 70; exhibit one at p 888) and “ill-informed” (transcript at p 71; exhibit one at p 890). He also criticised the length of time it took his Honour to produce the decision. For good measure, Mr Legat acknowledged he told the ASIC delegate (during the Delegate’s Hearing) when asked about the whether he accepted the Federal Court decision (transcript at p 73; exhibit one at pp 44-45):
No. No. I accept it, and as an officer of the court, I have to. I have to accept it. It is the decision of the court. I don’t necessarily have to agree with it, but I think there are a number of discrepancies and curiosities in there, and I don’t think it’s Justice Dowsett’s finest decision, to be honest.
I suggested to Mr Legat at the hearing that his language and the sentiments recorded in the transcript of his hearing before the ASIC delegate were extraordinary. Surely as a lawyer he should have known it was inappropriate to say such things about a judge and a decision of the Court which had not been appealed? He responded lamely that he said those things in a private conversation with the delegate, so he did not think it was an issue: transcript at p 70.
There was worse to come later in the cross-examination. Mr Cleary, for ASIC, asked Mr Legat about an exchange he had with the delegate about the length of time Dowsett J had taken to deliver his reasons. Mr Legat had suggested he thought the delay was “curious”. The delegate, obviously mystified by that comment, asked the applicant to explain what he meant. Mr Cleary put the exchange with the delegate to Mr Legat at the hearing before me (transcript at p 75):
Mr Cleary: And asked you, in effect, what that meant, and you answered to the effect that the decision had taken some time before it was handed down?
Mr Legat: Yes.
Mr Cleary: You then say at line 3 – rather, the delegate says:
Is there some issue in it taking nine months or 11 months or whatever?
And you say:
No, I’m just saying it’s curious.
The delegate says:
Why? What do you think is behind it? That he was influenced by others?
And you say:
Well, who knows. Who knows.
The delegate says:
I’m not having a bar of that. I think that’s silly.
And you then say:
I only said that because you asked the question.
Mr Cleary then had the following exchange with Mr Legat (transcript at pp 75–76):
Mr Cleary: Now, Mr Legat, the question was put to you, “What do you think is behind it? That he was influenced by others?” That was an opportunity for you to say, “No, certainly not. I wouldn’t make that suggestion ever.” But rather than answer in that way, you left it hanging with an inference that perhaps that is what had occurred, didn’t you, Mr Legat?
Mr Legat: No, and that conversation is taken out of context.
Mr Cleary: In what sense is it taken out of context, Mr Legat?
Mr Legat: Well, the delegate was pressing and trying to bait me, in my estimation.
Mr Cleary: What words in that transcript amount to baiting?
Mr Legat: Well, that he was influenced by others. The delegate put that out there. I didn’t put that out there. She was trying to get me, apparently or possibly, to state that he wasn’t influenced by others.
Mr Cleary: Well, that is a conclusion that comes from the – rather, it is a question that’s put after the exchange between the two of you which had gone on for some time. And if, indeed, you believed that you were being baited, you could have answered with a no, an unequivocal no, couldn’t you?
Mr Legat: I could have answered in a number of ways, but what I did not say was that I had the supposition that he had been influenced by others.
Mr Cleary: Well, you left it hanging. You suggested that perhaps that was the case, didn’t you?
Mr Legat: No, I did not.
Mr Cleary: What else can the words, “Well, who knows? Who knows” mean?
Mr Legat: It means I don’t know what happened.
I suggested to Mr Legat at the hearing that his insinuations about the integrity of the decision were subversive, and might even constitute contempt. But he did not stop there. He proceeded to defend other comments he had made about the Federal Court decision in which he suggested his Honour had taken one view at the trial and expressed the completely opposite view in his published reasons: transcript at p 79. I then had the following exchange with him (transcript at p 80):
Deputy President: You’ve accepted you’re bound by it but you’ve made it quite clear that, you know, the judge got it completely wrong?
Mr Legat: Yes, but it’s still binding and it is what it is. So I – – -
Deputy President: The reasons why I’m asking questions about this is because one of the things I would have thought we expect from someone who is going to be entrusted with exercising the privilege of holding a credit licence, is they’ve got to have a respect for the law and for the process, and that that is as much a feature of fitness as is technical skill?
Mr Legat: Right.
Deputy President: And there’s been a number of remarks that we’ve been taken to now in that transcript, which don’t immediately suggest that you got that, that you don’t actually – while you accept you may not have much choice but to follow it, you’re nonetheless – you’ve not demonstrated a respect for the process?
Mr Legat: I draw a difference between respecting a process and agreeing with it. I think it’s a poor society that doesn’t allow people to question things. But regardless of whether or not I agree with something, if I respect it and follow it, which is what we’ve done, I can respect something I don’t agree with. And I certainly haven’t gone out and publicly made any of these comments, and nor would I. I would be improper to do so.
Mr Legat was also dismissive of the various QCAT decisions that had criticised the Diamond model. During cross-examination, he was asked about correspondence with ASIC that he had signed as a director. The letter said a QCAT decision “was full of errors”: transcript at p 54; see also exhibit one at pp 2059 – 2061. The exchange continued:
Mr Cleary: And you make some criticisms of the decision, and then say – of the criticisms that you make: This is not particularly surprising seeing the decision was made by a non-judicial member of a tribunal which is not a court of law. What is surprising is the regard that it is being afforded. Were you not aware at that time that QCAT was a court of record?
Mr Legat: I was aware.
Mr Clearly: You were aware of that. Right. There’s no legislative differentiation, is there, between the weight to be provided to a non-judicial member of QCAT when compared to a judicial member of QCAT?
Mr Legat: Not unless you really want to split hairs.
Mr Legat went on to suggest he was not really the author of the document; he was merely a signatory. He explained (transcript at p 55):
I signed it. I didn’t put my name on it as coming from me. It’s just coming from the directors in general.
The exchanges I have quoted capture something of the flavour of Mr Legat’s performance as a witness. He was at once arrogant, supercilious and obtuse. The exchange relating to QCAT also provides a neat illustration of an essential feature of the applicant’s conduct and, I suspect, his character: he made (or was party to the making of) a statement to ASIC that was factually and legally incorrect (ie QCAT “is not a court of law”: exhibit one at p 2060) even though, as he subsequently acknowledged, he knew it was incorrect when it was said. The exchange I had with him where I suggested he lacked respect for the process goes to the same essential point: Mr Legat did not respect the law and the institutions that administer it. He presented as a recalcitrant who thinks he knows better. That finding does not bode well for an individual seeking to overturn a banning order.
Some of Mr Legat’s final submissions were baffling. He cited an article I wrote many years ago about corporate social responsibility to explain why the FAF group companies failed to comply with some of the orders to compensate customers that were made in the court proceedings. He suggested (transcript at p 134) “companies must look to their economic bottom line as their primary consideration” when deciding whether to satisfy particular obligations, including, it would seem, obligations incurred pursuant to Federal Court orders. That is not what I suggested in my article. No competent lawyer or director would suggest that. It is deeply troubling that Mr Legat should advance that argument in defence of conduct with which he was associated. At a minimum, that behaviour suggests Mr Legat has an oddly flexible attitude towards compliance with legal obligations, even where a failure to do so occasions loss to consumers. That is a problem for somebody seeking to be involved in the provision of credit.
Mr Legat’s extraordinary performance at the hearing reached its nadir when he appeared to ‘call out’ ASIC’s counsel during the course of submissions. The exchange began at p 131 of the transcript and proceeded as follows:
Mr Legat:…my friend, Mr Cleary, has seen fit to say that I wouldn’t know a sham if I fell over it, I think were his words. Perhaps he and I can have a conversation about that later.
Deputy President: I am not sure what that means, actually.
Mr Cleary: And it troubles me, Deputy President.
Deputy President: What do you mean by that?
Mr Legat: The concept of my understanding of sham.
Deputy President: No, no, I got that bit, but when you suggest that might have a discussion about it later, what do you mean by that?
Mr Legat: Well, rather than bog down the tribunal now. I don’t understand what the concern is.
Deputy President: Well, it was like an invitation to call him outside.
Mr Legat: No, not in any respect.
Mr Legat’s initial remark during that exchange was odd. I suggested to him at the time that it appeared to be further evidence of a pattern of behaviour in which he made apparently provocative remarks that elicited a reaction which he then met with a wide-eyed “Who me?” response that smacked of disingenuousness. At a minimum, that conduct reflected poor judgment and a failure to appreciate how his behaviour might be perceived. It also reinforced my concerns over his level of respect for the tribunal process and the regulator.
Taken as a whole, Mr Legat’s behaviour suggested he was contemptuous of the Federal Court and QCAT, in almost every sense of that word. He was casually rude about the quality of the decisions and dismissive of their authority. The disrespect he demonstrated to those bodies in the evidence before me at the hearing comes on top of the underlying evidence that he had sought to get around the law because he thought he knew better than the parliament about what was required. In doing so, he sought cursory legal advice to cover himself and justify a course on which he was determined to embark. He only reluctantly accepted the FAF group companies could not persist with a sham once it became completely untenable. And yet, after the Federal Court and QCAT pointed out that which should have been obvious from the beginning, he has persisted in an increasingly shambolic defence of the indefensible in these proceedings.
IS REGULATORY ACTION JUSTIFIED?
I turn now to the question of whether regulatory action should be taken against Mr Legat in light of the findings I have made. ASIC’s power to make a banning order is set out in s 80 of the NCCP Act. For present purposes, ASIC’s power to take regulatory action will be enlivened if ASIC (or the Tribunal, upon review) is satisfied the applicant:
·is likely to contravene any credit legislation, or be involved in the contravention of a provision of any credit legislation by another person, for the purposes of s 80(1)(e)(i) of the NCCP Act; or
·is not a fit and proper person for the purposes of s 80(1)(f) of the NCCP Act.
Mr Legat has demonstrated poor judgment and a want of care and diligence. He has also been a party to misleading behaviour. He proposed and oversaw the implementation of a sham business model that should never have seen the light of day, and which the Federal Court said “border[ed] on the ridiculous”: Fast Access Finance (No 2) at [17]. That model resulted in real detriment to consumers who paid higher premiums on what were, in substance, loans, than was permitted by law. The applicant was motivated – indeed he appeared to be blinded – by a desire to avoid the operation of a law that the FAF group found inconvenient. He did not take proper steps to obtain advice that was consistent with his position; on the contrary, he appears to have contrived to obtain cursory advice that would ‘paper the file’ rather than offer a genuinely independent evaluation of the model he proposed. After the flaws in his model became manifest as a result of court proceedings, he responded to the courts, tribunals and the regulator by lashing out inappropriately. That bad behaviour continued at the hearing where he demonstrated conduct that was remarkable in any applicant, let alone a legal practitioner. He persists in denying responsibility for what went wrong – he says that, to the extent there were problems, they were the fault of others – and concedes only that the FAF group is formally bound by the court’s decision that was not appealed.
Given those findings of fact, and given his startling lack of contrition which suggests he has learned nothing from the whole experience, I am satisfied the applicant is likely to contravene credit legislation in the future, or be involved in the contraventions of others. It follows I am satisfied the ground identified in s 80(1)(e)(i) is made out. The findings I have made also lead me to the conclusion that the applicant is not a fit and proper person within the meaning of s 80(1)(f). ASIC relied on Regulatory Guide 204 – Applying for and varying a credit licence which says that the fit and proper person requirement means one “has the attributes of good character, diligence, honesty, integrity and judgment” required to engage in credit activities. I am satisfied that formulation of the test is appropriate, and I am satisfied the applicant does not meet it.
WHAT FORM SHOULD THE REGULATORY ACTION TAKE?
Having concluded that the power to take regulatory action is enlivened, s 81(1) of the NCCP Act permits ASIC to make a banning order that prevents a person from engaging in credit activities. The banning order may be permanent or for a specified period: s 81(2).
ASIC decided to ban Mr Legat for a period of 3 years. At the conclusion of the first day of the hearing, I made it clear to both parties that I had the power to make a range of orders under s 43 of the Administrative Appeals Tribunal Act 1975. I referred them both to my decision in Sullivan and Anor and Australian Securities and Investments Commission [2013] AATA 592 where I increased the length of a banning order after the applicant performed badly at the hearing. I referred to that decision in these proceedings because, as I explained, I had the option to vary the decision in this case and impose a shorter or longer banning period. I expressly cautioned Mr Legat that he might conceivably end up in a worse position following the Tribunal review: transcript at pp 89-90. While I had not reached a view about my ultimate decision at that point, I wanted Mr Legat to approach the review with open eyes and appreciate the risk he was running. He decided to push on.
The starting point for discussing the exercise of the banning power in s 80 is s 80(2). That provision requires that I have regard (at least for present purposes) to matters referred to in s 37(2)(a)-(f) and 37(2)(g)(i). None of those matters is relevant here, as it happens. I am therefore entitled to have regard to any other matters that I consider relevant: s 80(2)(d).
ASIC cited remarks from my decision in Sullivan in its written submissions by way of introduction to its discussion of relevant matters. In Sullivan, I explained (at [20]):
The legislative scheme, and banning orders in particular, are designed to protect consumers and promote efficiency and confidence in the integrity of credit providers.
ASIC went on to point out a wide variety of matters might be relevant to the question. I was referred to a range of authorities which discussed the different matters, including Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 and Australian Securities and Investments Commission v Adler [2002] NSWSC 483. After reviewing those authorities, and after hearing the submissions of the parties, I am satisfied the following matters are relevant:
·Mr Legat’s conduct was not a single, isolated instance where his judgment temporarily failed. The problems arose out of a deliberate scheme to avoid the operation of the law and enrich the group of companies for which he worked;
·Mr Legat did not just conceive and promote a sham scheme. He was involved with the misleading statements made in the documents provided with the scheme;
·The scheme was rolled out throughout a large organisation, and many vulnerable consumers – indeed, some of the most vulnerable consumers – experienced financial harm. Some of the consumers were still repaying obligations years after entering into the sham agreements;
·The scheme ran for four years, and continued for some time after tribunal decisions made clear it was not viable.
I am satisfied I should give particular weight to the following matters:
·Specific deterrence: Mr Legat plainly has not learned anything from the experience. He continues to defend his conduct and attempt to shift blame to others. He did not show contrition or insight at the hearing. That behaviour is all the more surprising in circumstances where ASIC has decided he should be subject to a three year ban;
·General deterrence: most other credit providers obeyed the law that the applicant sought to avoid. Their good behaviour should be affirmed, and the need for them to remain in strict compliance with the laws must be reinforced;
·The public’s confidence in the integrity of credit markets and the behaviour of industry participants has undoubtedly been shaken by the brazen conduct authored by the applicant.

Given those matters, I am satisfied the only appropriate course is to impose a banning order against Mr Legat. But for how long?
ASIC concluded Mr Legat should be banned for three years. Mr Legat’s conduct – particularly the lack of contrition and the absence of any insight into his behaviour – suggests a longer term of disqualification is appropriate. He needs to be a taught a lesson and the prospect of a three year ban is unlikely to have the desired result. (In making that observation, I am conscious the regulatory action is not to be used as a form of punishment. It is intended to be educative and protective. The applicant needs to be taught a lesson because, in the absence of re-education, he is likely to contravene the law in the future.)
I have had regard to the ‘tariff’ suggested by ASIC in Table 2 to Regulatory Guide 218 – Licensing: administrative action against persons involved in credit activities. The behaviour of Mr Legat most closely approximates the descriptors that are suggested to result in a banning period of between 3-10 years. Mr Legat’s incompetence and irresponsibility, the misleading or deceptive conduct, and the deliberateness of the conduct – together with the absence of contrition or insight which suggests he remains a risk – suggest a banning period closer to the middle of that range is appropriate.
In all the circumstances, I am satisfied Mr Legat should be banned from engaging in credit activities for a period of five years from the date of the original decision.
CONCLUSION
The decision under review is varied: the banning period is increased from three years to five years.

I certify that the preceding 51 (fifty -one) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

...............................[SGD].........................................
Associate
Dated: 9 April 2019

Date(s) of hearing: 17 – 18 May 2018

Applicant: In person

Counsel for the Respondent: Mr S J Cleary

Solicitors for the Respondent: ASIC

Date(s) of hearing:	17 – 18 May 2018
Applicant:	In person
Counsel for the Respondent:	Mr S J Cleary
Solicitors for the Respondent:	ASIC