Matai and Australian Securities and Investments Commission

[2023] AATA 340

Matai and Australian Securities and Investments Commission [2023] AATA 340 (22 February 2023)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2022/10263

Re:Jeneve Nirosh Matai

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

Decision

Tribunal:Deputy President Bernard J McCabe

Date:22 February 2023

Place:Sydney

1. The application for orders under s 41(2) of the Administrative Appeals Tribunal Act 1975 is refused.

   ......................................SGD..................................

   Deputy President Bernard J McCabe

   Catchwords

   STAY – financial services industry – banning – suppression order – restrain publication – discretion – legal representation – director - management

   Legislation

   Administrative Appeals Tribunal Act 1975
   Australian Securities and Investments Commission Act 2001

   Corporations Act 2001

   Cases

   Scott and Australian Securities and Investments Commission [2009] AATA 798
   Administrative Appeals Tribunal v Australian Securities and Investments Commission (2009) 181 FCR 130
   Anderson and Australian Securities and Investments Commission [2022] AATA 339

   REASONS FOR DECISION

   Deputy President Bernard J McCabe

   22 February 2023

1. Mr Jeneve Matai works in the financial services’ industry – or at least he did until a delegate of the Australian Securities and Investments Commission (ASIC) made a banning order under s 920A and s 920B of the Corporations Act 2001. The banning order was made on 8 December 2022 following an ASIC investigation into Mr Matai’s performance in providing financial advice to clients. The banning order prohibits Mr Matai from providing financial services or being involved in a financial services business for a period of four years. Mr Matai has sought review of the banning order but he wants to continue working in the industry while the review proceeds. He also wants ASIC to refrain from publicising the banning order or making an entry in the statutory register. To that end, he has asked the Tribunal to make orders under s 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act). The applicant did not ask for non-publication orders under s 35 of the AAT Act.

The stay power

1. Section 41(1) makes clear that a reviewable decision will ordinarily come into effect according to its terms notwithstanding an application for review being lodged with the Tribunal. That is certainly the norm in regulatory decisions where it is assumed (other things being equal) the public is entitled to the protection afforded by the exercise of a regulator’s powers: Scott and Australian Securities and Investments Commission [2009] AATA 798 (Scott) at [10] per Downes J. If an applicant wants to prevent that from occurring in the short term, the applicant must apply for a stay under s 41(2).

2. The power under s 41(2) is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review”. The discretionary power may be exercised “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”. The orders may stay the operation or implementation of the decision, or part of the decision. The stay orders may also be made on condition: s 41(6). The power extends to steps taken by the regulator in consequence of the decision – such as publicising the decision or making entries in a statutory register.

3. The power to restrain publication is not the same as a suppression order, and orders under s 41(2) would not ordinarily have the effect of creating a comprehensive confidentiality regime. Applicants seeking confidentiality typically ask for non-publication orders under s 35 to supplement a stay order that directs the regulator to refrain from publication. An application for non-publication orders under s 35 must be considered against the criteria in that section, starting with the ‘openness’ principle set out in s 35(5). The ‘openness’ principle in s 35(5) is not directly relevant to an application under s 41(2), but – given the evident commitment to principles of openness in the Corporations Act and the Australian Securities and Investments Commission Act 2001 (the ASIC Act) – the Tribunal will be slow to make what are, in substance, suppression orders under s 41(2).

4. The reference to the objectives of the Corporations Act and the ASIC Act call attention to the fact stay orders are not made in a vacuum. When exercising its jurisdiction in a particular case, the Tribunal must be conscious of the nature of the reviewable decision and the objectives of the regulatory regime which prompted it. In this case, the regulatory regime is set out in Chapter 7 of the Corporations Act. The objectives of the regime are explained in s 760A. The objectives of the regulator referred to in s 1 of the ASIC Act will also be relevant.

5. In Scott, Downes J identified several matters that would ordinarily be relevant when assessing a stay application. These included:

   1)The prospects of success.

   2)The consequence for the applicant of the refusal of a stay.

   3)The public interest.

   4)The consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not.

   5)Whether the application for review would be rendered nugatory if a stay were not granted.

   6)Other matters that are relevant, [including] the length of time that the ban has already been in place and the gap between today and the hearing of the application.

   The parties agreed these indicia were relevant in this case. I will address each in turn.

The prospects of success

1. The parties accept it is not appropriate or even possible to conduct a mini-trial at this early stage of the proceedings. ASIC accepts the applicant has an arguable case but insists it is impossible to say anything more than that at this stage. Ms Derrington, counsel for ASIC, argued this consideration did not count for or against the exercise of the discretion in the circumstances. Ms Kearney, counsel for the applicant, suggested the merits of the case were such that the consideration weighed in favour of the applicant.

2. In regulatory cases, there may be a dispute on the underlying facts or the application of the law which could result in the decision being set aside. There may also be a dispute over the form or extent of the regulatory action. It is certainly possible for an applicant to be partially successful – for example, by avoiding a banning order or having the period of the banning order cut short. It is simply too early to make a meaningful assessment of the applicant’s prospects at this stage. In those circumstances, I am satisfied this consideration does not weigh for or against the exercise of the discretion.

The consequences for the applicant

1. Ms Kearney relied on the statement of Mr Matai to argue he would experience significant financial hardship and reputational damage if he were prevented from working while the review proceeded. I was provided with details of his financial situation and information about his familial obligations. I accept the applicant will experience a loss of income if he does not receive the benefit of a stay, and he will be forced to find alternative employment outside the financial services’ industry. That may be difficult for him in the short term given he has spent his adult working life in the industry. He is the sole wage-earner in his family and he has financial commitments that will become pressing. His current employer has agreed to retain him if the Tribunal permits it to do so, but the company will be forced to replace Mr Matai if he is not available under the terms of a stay order. The applicant will also experience reputational damage in any event if the Tribunal does not restrain ASIC from publicising the reviewable decision. (I note Ms Kearny confirmed she had been instructed the employer would retain Mr Matai if the Tribunal issued a stay without restraining ASIC from publication.)

2. I accept this consideration weighs in favour of the exercise of the discretion, although it does not weigh heavily. I take that view because the recipient of a banning order will almost always experience financial hardship. It is an inherent risk attaching to participation in a regulated occupation: see, generally, Administrative Appeals Tribunal v Australian Securities and Investments Commission (2009) 181 FCR 130 at [76] and Anderson and Australian Securities and Investments Commission [2022] AATA 339 at [71].

The public interest

1. The public interest is of central importance. The objectives of the legislative regime must be kept squarely in mind. They are essentially protective although the regime also prizes transparency.

2. The public, as a class, includes the applicant’s current employer as well as its clients. A director of the applicant’s current employer provided a statement in which she spoke about the value the applicant brought to the firm. She said, in effect, the applicant’s experience, reputation and skill-set filled a gap in the organisation.

3. The delegate focused on shortcomings in the quality of the applicant’s advice when he was engaged by another firm, and on his failure to properly appreciate his obligations to have regard to the best interests of clients. The delegate accepted the applicant had not behaved dishonestly, but there are questions over the applicant’s understanding of his obligations. The applicant says he has learned from his experiences, and he has in any event undergone further training and development such that he is unlikely to repeat any mistakes he might have made in the past. He points out he has offered an undertaking that he would not be involved in the provision of financial advice by his current employer if he were otherwise permitted to work in the industry while the banning order was reviewed.  The applicant says he would leave that activity to the established staff and processes in place at his current employer.  Those arrangements include a role for an outside consultant.

4. There was some uncertainty about the role of the outside consultant and whether it had expressed opinions about the quality of Mr Matai’s work in the past. I do not need to resolve that uncertainty for now. The point is this: a director of a financial services business needs to understand the business. He cannot accept an appointment as a director – particularly as an executive director – on the basis that he would leave responsibility for the core of the business to others. The statement provided by the co-director makes clear Mr Matai would play a key role in running the business. ASIC says Mr Matai demonstrated shortcomings as an employee in his previous firm, yet a stay would permit him to play a leadership role at his current employer.

5. While I accept there is limited risk of Mr Matai engaging in the same conduct that is alleged against him given the undertaking, the criticism ASIC makes is ultimately a more general one. The delegate banned him from being involved in the management of a financial services business because of concerns about his judgment. Those questions need to be addressed.

6. The applicant might have learned from his experience, but the findings made against him raise serious questions over his judgment. A person with flawed judgment occupying a position of authority in a financial services business poses a risk to the firm’s clients. If anything untoward were to happen while that person remained in place, that could reduce confidence in the provision of financial services and the competence of the regulatory regime. I am satisfied this consideration weighs reasonably heavily against ordering a stay.

The consequences for the respondent

1. The review process is part of the continuum of decision-making ordained by the regulatory regime. The stay power is available to make that process effective. If the Tribunal exercises the power in s 41(2) to order a stay, that will not of itself reflect on ASIC. But there may yet be consequences for ASIC in the short term which need to be considered.

2. In this case, the applicant says he will refrain from being involved in the provision of financial advice, even as he plays a central role in the management of the company. It is conceivable ASIC might have some difficulty monitoring the applicant’s compliance with that undertaking given it occurs behind closed doors. The extent of that difficulty is unclear.

3. I have more serious concerns about ASIC being placed in an awkward position if it were required to refrain from publicising the reviewable decision. While the absence of s 35 orders means ASIC could respond to enquiries from members of the public or the media, it is unable to manage the dissemination of information about the reviewable decision in an orderly way. The orderly dissemination of information about regulatory action is an important value evident in the legislation.

4. On balance, I am satisfied this consideration counts reasonably heavily against making an order preventing ASIC from publicising the reviewable decision. I have less concern about the consequences for ASIC if I were to order a more limited stay.

Would the review be rendered nugatory?

1. This consideration goes to the heart of the purpose of the stay power. The applicant says he would be unlikely to recover all the financial loss or repair all the reputational damage even if he were fully vindicated at the conclusion of the review process. While it stands to reason his reputation will be damaged if the reviewable decision is publicised, and he will certainly experience disruption and financial loss in the short term if he is not permitted to remain in the industry, it is unclear whether that adverse effect would endure if he were vindicated. The long term impact of the regulatory action is difficult to gauge.

2. Mr Matai also doubts whether he would be in a position to progress the review application if the stay were not granted: if he cannot work for his current employer, he says, he may not be able to afford to pay his lawyers to conduct the review.

3. Legal representation is not essential in these proceedings. The Tribunal is used to dealing with unrepresented applicants if it comes to that. I accept access to competent lawyers is attractive to the applicant, but I do not think it can be said the review process will be rendered nugatory if the applicant were required to represent himself.

4. I am satisfied this consideration does not weigh in favour of granting a stay. That conclusion rather suggests the orders are not necessary for the purpose of securing the efficacy of the review process.

Other relevant matters

1. ASIC says it is in a position to prepare its case relatively quickly so the matter can be brought on as soon as possible. But Ms Derrington says the rate of progress depends on the applicant. I was told the applicant would need at least ten weeks to prepare his materials. That seems slow, although not inordinately so. It seems likely the matter could be heard and determined within a matter of months. On balance, that weighs in favour of ordering a stay, but only lightly.

Conclusion

1. I have some doubt whether the stay power is properly engaged in this case because it is not clear that a stay is necessary to secure the efficacy of the hearing and review. But even if I decided that issue in favour of the applicant, I am not persuaded on balance it would be desirable to order a stay, even one conditioned on the undertakings offered by the applicant. I acknowledge he is likely to experience financial difficulty if he cannot work in his chosen occupation in the short term. I regret the disruption to his family in particular. But the applicant is asking for the opportunity to remain in a pivotal position in a financial services business in circumstances where serious questions have been raised over his judgment. It may become apparent those concerns are not justified, but that remains to be seen. The public interest concerns in particular tip the balance against ordering a stay.

2. The application for orders under s 41(2) of the AAT Act is refused.

29.     I certify that the preceding 28 (twenty- eight) paragraphs are a true copy of the reasons for the decision herein of

...............................SGD.........................................

Associate

Dated:  22 February 2023

30.     Date(s) of hearing:	31.     22 February 2023
32.     Counsel for the Applicant:	33.     Ms M Kearney
34.     Solicitors for the Applicant:	35.     O’Loughlin Westhoff
36.     Counsel for the Respondent:	37.     Ms S Derrington