Luff and Australian Securities & Investments Commission
[2024] AATA 2637
•17 July 2024
Luff and Australian Securities & Investments Commission [2024] AATA 2637 (17 July 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2024/2322 2024/2323
Re: Christopher Luff
APPLICANT
Re: Build Your Wealth Pty Ltd
APPLICANT
And Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:17 July 2024
Place:Sydney
The stay application and confidentiality orders sought by the applicants are refused.
................................[SGD]........................................
Deputy President Bernard J McCabe
Catchwords
PRACTICE AND PROCEDURE – STAY APPLICATION – interim stay application – ASIC undertaking – objectives of the regulators in making a decision – protection – objective of transparency – stay application and confidentiality orders refused
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
Cases
Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185
Scott and Australian Securities and Investments Commission [2009] AATA 798
Xtrade.Au Pty Ltd and Australian Securities and Investments Commission [2024] AATA 1372
REASONS FOR DECISION
Deputy President Bernard J McCabe
17 July 2024
The corporate and individual applicants have made interlocutory applications for stay and non-publication orders while the Tribunal deals with the decisions under review. An interim stay is currently in place in favour of the corporate applicant while the interlocutory applications are progressed. For reasons I will explain below, I have decided against making the interlocutory orders sought. The interim stay is dissolved (and the respondent is released from its undertaking with respect to publication) as of 4pm on 24 July 2024. These reasons and earlier reasons published to the parties on 3 July 2024 will not be published beyond the parties until 25 July 2024.
The background to the interlocutory application
Build Your Wealth Pty Ltd (BYW) is the corporate applicant in these proceedings. BYW has asked the Tribunal to make orders under s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) staying the operation and implementation of a decision by a delegate of the Australian Securities and Investments Commission (ASIC). The delegate made a reviewable decision on 8 April 2024 under s 915C of the Corporations Act 2001 to cancel the Australian Financial Services Licence (AFSL) of BYW. The same delegate also decided to disqualify Mr Luff, the individual applicant, from providing financial services pursuant to s 920A of the Corporations Act. Mr Luff was a responsible manager of the corporate applicant. He remains the controlling shareholder of the corporate entity.
BYW has also asked for orders under:
·s 41(2) of the AAT Act that would restrain ASIC from announcing the reviewable decisions on its website in the ordinary course pending the outcome of the review, and;
·s 35 of the AAT Act that would effectively grant a private hearing.
The regulator sometimes agrees to an interim stay in proceedings like these. An interim stay allows each party to properly prepare to deal with the issues that can arise in a contested hearing of stay. But ASIC was initially reluctant to agree to an interim stay in this case. ASIC said the specific conduct which led to the regulatory action against BYW was the product of poor processes and personnel, and it was worried further problems might manifest themselves in the short term. After hearing from the parties, I decided an interim stay was appropriate while BYW simultaneously progressed an application it had already made to ASIC’s licensing team for variation of an AFSL that provided for (amongst other things) the appointment of a new responsible manager. If approved by ASIC, the individual, would replace Mr Luff in that role. BYW also spoke about important process changes that it was implementing. ASIC acknowledged the appointment of a new responsible manager, along with the implementation of revised compliance arrangements, might be relevant to the question of whether a stay should be ordered in favour of BYW. The net effect of the interim stay order was that BYW was not required to immediately cease the regulated activity pending the outcome of the (adjourned) interlocutory hearing of stay. I did not make any orders relating to publication of the reviewable decision at that point although ASIC offered an undertaking not to announce news of the reviewable decision on its website while the stay application was on foot.
The application to ASIC’s licensing team for the variation of the AFSL has taken longer than anticipated. ASIC has agreed to adjournments of the stay application in these proceedings so the licensing team could complete its information-gathering and deliberations. Ms Davidson, ASIC’s counsel, pointed out the licensing team operated separately from the enforcement team dealing with the delegate’s decisions in this review. Ms Davidson explained the legal team representing ASIC at the hearing was not able to press or influence the licensing team in its work.
Separately to the variation application, and notwithstanding the agreement to adjourn the stay hearing, ASIC informed the Tribunal and the applicants on 26 June 2024 that it proposed contacting three corporate entities and several named individuals in the course of its regulatory work. ASIC explained it would necessarily disclose the reviewable decisions to those people. At a directions’ hearing listed in the wake of ASIC advising of the proposal, BYW pressed its earlier application for non-publication orders under s 35. Mr Flecknoe-Brown, who appeared for BYW, emphasised his client did not suggest ASIC should refrain from communicating with the entities in question in the discharge of its regulatory responsibilities. He explained the orders were sought to prevent disclosure of news of the reviewable decisions beyond those third parties. ASIC opposed making non-publication orders even on an interim basis but agreed it would persist with its undertaking not to publish news of the reviewable decisions on its website (provided it was not otherwise constrained from carrying out its regulatory functions). I was also told the application for approval of the variation of the AFSL remained with ASIC’s licensing team, and that further information was being obtained and evaluated. ASIC was content to defer consideration of the stay application and other outstanding issues (apart from the application for non-publication orders that was pressed by BYW) until 16 July.
After hearing from the parties on 2 July, I confirmed on 3 July that ASIC was not obliged under the terms of its undertaking to refrain from directly contacting the third parties. I also declined to make the orders under s 35 that BYW had sought. I issued written reasons explaining my reasons. Those written reasons were not published beyond the parties pending the outcome of the stay hearing where any residual questions over non-publication orders could also be addressed. Those reasons can now be published, and they should be read in conjunction with these reasons.
The state of the application for appointment of a new responsible manager
As I explained, the stay application was adjourned until 16 July. It was expected ASIC’s licensing team would have decided the application for variation of the AFSL (which included the appointment of a new responsible manager) by the time of the resumed hearing. And so it has, after a fashion.
The substance of ASIC’s decision – such as it is - was contained in an email ASIC wrote to BYW on 15 July, the afternoon before the resumed stay hearing. The email noted the licensing team had not at that point formally finalised its consideration of the variation application. The officer said ASIC was awaiting the outcome of the Tribunal’s deliberations in relation to the stay application. The analyst explained:
If the stay order is lifted and ASIC’s cancellation decision stands, ASIC will then pre-lodge reject the application as there will be no valid current licence against which to decide a variation application.
If however, the AAT decides to grant the stay order until the substantive cancellation review decision is determine [sic] by the AAT, ASIC could then make a formal decision on the variation application. We note that based on the information currently available to us, ASIC is presently minded to refuse the variation application under s 914B(2) because Mr Luff is currently an officer and/or the controller of BYW…
I was perplexed by this: I thought the whole purpose of ASIC agreeing to adjourn the stay application was to allow the licensing team to make its decision because that decision would be relevant to the outcome of the stay application. Yet the licensing team seemed to assume it should wait for the Tribunal to act. I assume this confusion was an unfortunate side effect of the internal arrangements put in place to protect the integrity of the licensing team’s deliberations.
Ms Davidson acknowledged there may have been some confusion but pointed out the substance of the email was not in doubt. Even if a formal decision had not been forthcoming from the licensing team as anticipated, that team’s attitude to the variation application was clear enough. The application was unlikely to be approved in its current form by the licensing team. Ms Davidson pointed out the next step if that decision were contested would involve a hearing before a delegate.
While it is possible the delegate might reach a different view to the licensing team, it is clear the variation application (which provided for a replacement of Mr Luff in the responsible manager’s role) has not been successful at this point.
Mr Flecknoe-Brown, who appeared for the applicants, asked for a further adjournment so his clients might consider other options. Those options were not spelled out, but I infer they included making arrangements for Mr Luff to exit the business, one way or another.
I decided against granting the adjournment because it was unclear how anything could occur in the in the meantime that would assist me to decide the stay application. While Mr Luff might have the opportunity to engineer an exit from BYW if it remains in operation under the interim stay, the delay in obtaining an approved variation of the licence leaves BYW in a precarious position. I said I would decide the stay application sought by BYW and invited further submissions. Mr Flecknoe-Brown and Ms Davidson made some observations at that point but substantially relied on their earlier oral and written submissions and (in BYW’s case) the affidavit material.[1]
[1] Affidavit of Christopher Luff dated 6 May 2024; Supplementary Affidavit of Christopher Luff dated 15 May 2024; Further Supplementary Affidavit of Christopher Luff dated 29 May 2024; Further Supplementary Affidavit of Christopher Luff dated 18 June 2024; Affidavit of Christopher Luff affirmed 1 July 2024; Supplementary Affidavit of Christopher Luff dated 15 July 2024.
The stay application
Downes J pointed out in Scott and Australian Securities and Investments Commission [2009] AATA 798 (at [10]) the public was generally entitled to the benefit of a regulatory decision made by a regulator charged with administering a regime established for the public benefit. That helps explain why s 41(1) of the AAT Act provides a reviewable decision generally takes effect according to its terms unless and until the Tribunal issues a stay order.
The power to order a stay is found in s 41(2). It is important to focus on the text of that sub-section without being distracted by authorities relating to injunctive relief before the courts. As the Tribunal explained in Xtrade.Au Pty Ltd and Australian Securities and Investments Commission [2024] AATA 1372 at [13]:
[The power] is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review.” The power may only be exercised for that purpose “if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review”. Orders under s 41(2) may stay the operation and implementation of the reviewable decision wholly or in part, and the orders may be conditional upon the applicant giving undertakings as to its conduct while a stay order is in force. It is accepted that the orders may extend to administrative action that takes place in consequence of a reviewable decision, such as issuing a press release or making an entry on a register.
It is also important to keep in mind (a) the objectives of the regulatory regime in question, which are set out in s 760A of the Corporations Act, and (b) the role of the regulator into whose shoes I step. The regulator’s responsibilities are set out in s 1(2) of the ASIC Act.
The Corporations Act provisions highlight the importance of consumer protection and efficient and informed markets. The ASIC Act also refers to consumer protection and the role of ASIC in promoting fair, efficient and informed markets.
Both parties agreed it was appropriate to approach the stay application with reference to the factors identified by Downes J in Scott at [4]. While his Honour was not purporting to lay down an exhaustive list of factors that were relevant to deliberations in every case, the factors he mentioned provide a convenient starting point for present purposes.
The first consideration is the merits of the underlying application and the prospects for success at the final hearing. It stands to reason that an obviously strong case on the merits might weigh in favour of ordering a stay, while an obviously weak case might count against the exercise of the discretion under s 41(2). Mr Flecknoe-Brown raised questions about the regularity of the reviewable decision and expressed doubts over whether cancellation was an appropriate regulatory response in any event. ASIC takes a different view and notes aspects of the problematic conduct have effectively been conceded. While I have been provided with material describing the applicants’ concerns with the reviewable decision, it is difficult at this early stage to form a clear view as to merits. It is certainly possible the Tribunal might take a less stringent view of any problematic behaviour and decide on a different regulatory outcome – particularly if appropriate changes have been made to the operations and personnel in the period between the offending conduct and the date of the hearing. All that remains to be seen. It would not be appropriate to conduct a mini-trial to delve any further into this question at this point in the proceedings. I am not prepared to say it is a hopeless case, but nor can I conclude it is a strong one. In those circumstances, this ground does not count for or against the exercise of the discretion in s 41(2).
I turn next to the consequences for the applicants if a stay is (or is not) ordered. The applicants say they will experience dire commercial consequences if they do not secure a stay. Mr Luff has said BYW will be forced to put off its staff if the decision is not stayed. It may be that the company fails entirely or ends up in external administration in that event: it is difficult to predict all that might occur if BYW is required to cease operating under the AFSL in the short term, although loss and hardship can be expected. Mr Flecknoe-Brown confirmed at the hearing on 16 July that serious consequences can still be expected if I were to deny the stay now. There are some questions over the extent of BYW’s financial resources and its ability to survive in mothballs, as it were, but I am prepared to accept for the purposes of the argument that the consequences of not ordering a stay are particularly serious for BYW and its staff.
Mr Luff might also expect to experience loss if there is no stay and the business fails. He has an economic interest in BYW. His interests are relevant since they will almost certainly be impacted. They carry less weight because the possibility of loss consequent upon regulatory action must be accepted as an incidental risk of participating in a regulated occupation: see generally Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185 at [76] per Downes and Jagot JJ.
The prospect of irrecoverable loss nonetheless tends to weigh in favour of ordering a stay. Having said that, there must be some question over whether ordering a stay will secure BYW’s position in the short term if ASIC does not grant the variation application. BYW probably needs that application to be accepted if it is to remain viable should a stay be ordered. While I have already noted ASIC has not made a formal final decision on that application, BYW appears to face an uphill battle in securing the variation it seeks in the short term.
In all the circumstances, this consideration weighs in favour of exercising the discretion to order a stay, albeit not heavily.
The public interest is particularly important in a case like this. The reviewable decision suggests the public was exposed to serious risk. Financial products can be hazardous, and they must be marketed with care. ASIC found that did not occur here because of shortcomings in the compliance regime and the leadership.
For the purposes of the stay application, the focus must be on the risk to the public in the short term if BYW is allowed to continue operating while the review occurs. The affidavit material described some potentially important changes to the compliance regime and personnel that have already been made which offer some reassurance. Ms Davidson pointed out the changes have only been in place for a limited time: she argued it was unclear whether they have had the desired effect. Mr Flecknoe-Brown said further changes could be made (eg the appointment of the new responsible managers) if BYW succeeded in its variation application. He emphasised the company has done everything it can do in the meantime to meet ASIC’s concerns.
I accept BYW has taken steps which should reduce the risk. The fact remains that Mr Luff continues to play a role – perhaps a central role, given his economic interest – in the life of the organisation. He has not yet been replaced notwithstanding the attempts which have been made to secure a new responsible manager and make alternative arrangements. I accept BYW’s freedom to take decisive action to address risks is to some extent constrained by the terms of the AFSL and the need to seek approvals of variations.
It is unclear whether the underlying problems have been adequately addressed, which means the risk to the public – both actual and potential customers and the market more generally – may remain. This consideration weighs against the order of a stay, although I acknowledge it weighs somewhat less heavily than it would otherwise have done given (a) BYW’s apparently genuinely efforts to seek a variation of the AFSL that would be required to make more substantive changes, and (b) I understand the organisation has few active clients at present.
The implications for the regulator are limited provided any order does not restrict ASIC from discharging its regulatory function. The issue of a stay is not ordinarily regarded as some sort of rebuke to the regulator. A stay is an incident of the review process, and the review process is part of the continuum of executive decision-making.
I spoke briefly about ASIC’s educative function in my earlier reasons. ASIC ordinarily publishes news of regulatory decisions as part of its function of informing the market and educating providers. In those reasons, I explained why I declined to make interim non-publication orders under s 35 or otherwise restrain ASIC from contacting individual entities to raise matters of concern even where that might occasion loss or reputational damage.
ASIC should not be further restrained from publishing the reviewable decision even if BYW is permitted to remain in business in the short term. Of course, any public announcement of the regulatory action might strike at BYW’s viability and further complicate the exit of Mr Luff. His exit appears, at face value, to be in everyone’s interest. But a stay order that does not preclude ASIC from publicising the regulatory action would not otherwise prejudice it in the performance of its role. I am not disposed to give this consideration much weight.
I next turn to the question of whether refusing a stay would render the review nugatory. This consideration goes to the heart of the purpose of the stay power, which is about preserving the status quo where necessary to effectuate the review. I acknowledge there is some evidence that the applicants will suffer loss if the business ceases which cannot be remedied even if they are successful at the conclusion of the review process. I also accept there is at least a possibility BYW will go out of business and become unable to complete the review. Having said that, I apprehend Mr Luff is concerned to achieve a breathing space so he can execute his withdrawal from the business, perhaps by achieving a sale to another party that is in a better position to satisfy ASIC.
This consideration weighs in favour of exercising the discretion to order a stay, albeit that it is unclear whether BYW will remain in business and able to deal with the review even if it gets a stay in the short term.
I discussed other considerations which may relevant, including the potential for an earlier hearing. The parties agreed the matter could be heard before the end of the year, subject to the Tribunal’s availability. That is not an expeditious timetable, but nor is it a delayed one. I do not think this consideration weighs heavily one way or the other.
Conclusion in relation to the stay application
If there were reasonable prospects of BYW quickly obtaining the variation of its licence that would permit it to implement further changes, the arguments for a stay would have been much stronger. I accept BYW is making progress towards addressing concerns ASIC has raised in reviewable decision. That progress offers some assurance that it can safely remain in business in the short term. But ASIC’s findings point to very serious breaches which were apparently attributable to systemic, personnel and leadership failures, and the ongoing role of Mr Luff is inevitably a concern. Having regard to all the factors I have discussed above, I do not think, on balance, it would be desirable to order a stay. It follows the interim stay should be dissolved. That should occur as of 4pm on 24 July 2024.
Subject to my observations about non-publication orders, ASIC should also be released from its undertaking with respect to publication as of 4pm on 24 July 2024.
Non-publication orders
The applicants both asked for non-publication orders under s 35 of the AAT Act. I refused to make interim non-publication orders for reasons I have already explained on 3 July. Those reasons also explain why I am not disposed to make continuing orders today. Crafting effective orders would create logistical difficulties and be difficult to enforce. Such orders may also prejudice the respondent in the discharge of its function. Ultimately, I am not persuaded why I should depart from the default position referred to in s 35(5) of the AAT Act, which contemplates open justice. I should add I would not be disposed to make continuing orders that kept news of the regulatory action from participants in the market even if I had made stay orders under s 41(2) of the AAT Act.
I certify that the preceding 37 (thirty-seven) paragraphs are a true copy of the reasons for the decision herein of
.................................[SGD].......................................
Associate
Dated: 17 July 2024
Date(s) of hearing:
16 July 2024
Counsel for the Applicant:
Alexander Flecknoe-Brown
Solicitors for the Applicant:
Barry Nilsson Lawyers
Counsel for the Respondent:
Joanna Davidson
Solicitors for the Respondent:
Australian Securities and Investments Commission Lawyers
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