McDermott and Australian Securities and Investments Commission

[2020] AATA 3362

McDermott and Australian Securities and Investments Commission [2020] AATA 3362 (27 August 2020)

Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL              )

)         No: 2017/7385

TAXATION AND COMMERCIAL DIVISION            )

Re: Ross McDermott
Applicant

And: Australian Securities and Investments Commission
Respondent

CORRIGENDUM TO DECISION OF 27 August 2020

TRIBUNAL:Deputy President S A Forgie

CORRIGENDUM DATE:     4 November 2020

PLACE:Melbourne

The Tribunal amends its decision of 27 August 2020 as follows:

1.delete “Davies J” from line 3 of paragraph 125 and substitute “Bowen CJ and Deane J”.

[sgd]

S A FORGIE

Deputy President

Division:Taxation and Commercial Division

File Number:          2017/7385

Re:Ross McDermott

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

Decision

Tribunal:Deputy President S A Forgie

Date:27 August 2020

Place:Melbourne

The Tribunal decides:

to affirm the decision made by a delegate of the respondent dated 9 November 2017 to refuse the applicant’s application dated 30 March 2016 for an Australian Financial Services Licence.

[sgd]

S A FORGIE
Deputy President

CORPORATIONS – application for review of decision to refuse Australian Financial Services Licence (AFSL) – whether no reason to believe that applicant is likely to contravene obligations in s 912A of the Corporations Act 2001 – onus of proof – meaning of likely – whether Statement of Agreed Facts can be relied upon to refuse AFSL – decision affirmed

Legislation
Acts Interpretation Amendment Act 2011 s 3
Australian Securities and Investments Commission Act 2001 s 59
Compensation (Commonwealth Government Employees) Act 1971
Coroners Act 1985
Corporations Act 2001 s 9(1); s 761A; s 600K; s 666A(1); s 911A(1); s 912A; s 913B; s 952E
Corporations Amendment (Asia Region Funds Passport) Act 2018
Corporations Amendment (Future of Financial Advice) Act 2012
Corporations Amendment (Future of Financial Advice) Bill 2019
Corporations Amendment Regulation 2013 (No. 3)
Corporations Amendment (Professional Standards of Financial Advisers) Act 2017
Corporations Regulations 2001 r 7.8.12A; 7.8.14B
Criminal Code Act 1947 (Tas)
Crimes (Serious Sex Offenders) Act 2006
Financial Complaints Authority Act 2018
Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 s 3
Insolvency Law Reform Act 2016
Insolvency Practice Rules (Corporations) Rules 2016
Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian
Trade Practices Act 1974

Secondary materials
Explanatory Memorandum to the Corporations Amendment (Future of Financial Advice) Bill 2019
Explanatory Memorandum to the Financial Services Reform Bill 2001
Hansard, House of Representatives, 5 April 2001
Hansard, House of Representatives, 28 November 2019
Insolvency Practice Schedule (Corporations)

Cases
Anderson v Blashki [1993] VicRp60; [1993] 2 VR 89
Attorney-General for the State of New South Wales v Winters [2007] NSWSC 1071
Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137
Australian Securities Commission v Nomura International PLC [1998] FCA 1570; (1998) 29 ACSR 473
Australian Securities and Investments Commission v Franklin (liquidator), in the matter of Walton Constructions Pty Ltd [2014] FCAFC 85; (2014) 223 FCR 204; 101 ACSR 87
Australian Securities and Investments Commission v McDermott, in the matter of Conalpin Pty Ltd [2016] FCA 1186
Australian Competition and Consumer Commission v Metcash Trading Limited [2011] FCAFC 151; 198 FCR 297; 284 ALR 662

Banovich v Repatriation Commission (1986) 69 ALR 395

Boucaut Bay Co Ltd v The Commonwealth [1927] HCA 59; (1927) 40 CLR 98
Boughey v The Queen [1986] HCA 29; (1986) 161 CLR 10; 65 ALR 609; 60 ALJR 422
Bovis Lend Lease v Wily [2003] NSWSC 467
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Bushell v Repatriation Commission [1992] HCA 47; (1992) 175 CLR 408; 109 ALR 30; 29 ALD 1;16 AAR 1
Civil Aviation Safety Authority v Boardman [2006] FCA 460
Commonwealth v Fernando [2012] FCAFC 18; (2012) 200 FCR 1; 287 ALR 267; 126 ALD 10
Comptroller-General of Customs v Akai Pty Ltd (1994) 50 FCR 511; 20 AAR 10
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409
Esber v The Commonwealth [1992] HCA 20; (1992) 174 CLR 430; 106 ALR 577; 66 ALJR 373; 15 AAR 249
Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442
Freeman v Secretary, Department of Social Services (1988) 19 FCR 342; 9 AAR 255
Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99; 228 FLR 164
Hausmann v Smith [2006] NSWSC 682; (2006) 24 ACLC 688
Hospital Benefit Fund of WA Inc v Minister for Health, Housing and Community Services (1992) 39 FCR 225; 16 AAR 566; 28 ALD 50
Jebb v Repatriation Commission (1988) 80 ALR 329; 8 AAR 285
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Lend Lease Project Management & Construction (Australia) Pty Ltd v Kellogg Brown and Root Pty Ltd [2013] NSWSC 1142
Lucas v Repatriation Commission (1986) 69 ALR 415
McDonald v Director-General of Social Services [1984] FCA 57; (1984) 1 FCR 354;
6 ALD 6
Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85; (1980) 44 FLR 41; 31 ALR 666; 4 ALD 139
Nevistic v Minister for Immigration and Ethnic Affairs (1981) 51 FLR 325
Poignand v NZI Securities Australia Ltd [1992] FCA 369; (1992) 37 FCR 363; 109 ALR 213 (1992) 37 FCR 363
Power v Hamond [2006] VSCA 25
Re Clemente Group Holdings Pty Ltd v Australian Securities and Investments Commission [2016] AATA 758
Re Contract Corporation (Gooch’s Case) (1871) LR 7 Ch App 207
Re Easton and Repatriation Commission (1987) 12 ALD 777; 6 AAR 558
Re Global Financial Markets Pty Ltd and Australian Securities and Investments Commission [2017] AATA 1397
R v Mitchell & Phillips [1999] SADC 88
Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 201
Re Oasis Flight Training Pty Ltd and Civil Aviation Safety Authority [2013] AATA 600
Re One RE Services Limited and Australian Securities and Investments Commission 2012] AATA 294
R v Perre (1986) 41 SASR 105
Re Tiknaz and Director-General of Social Services (1981) 4 ALN N44
Secretary, Department of Social Security v Ekis (1998) 85 FCR 382; 52 ALD 246; 28 AAR 36
Shi v Migration Agents’ Registration Authority [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147
Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union [1979] FCA 85; (1979) 42 FLR 331; 27 ALR 367
The Secretary to the Department of Health and Community Services and Ors v Gurvich [1995] VicRp 44; [1995] 2 VR 69
W A Pines Pty Ltd v Bannerman [1980] FCA 79; (1980) 41 FLR 175; 30 ALR 559
Workcover Authority of NSW (Inspector Ankucic) v McDonald's Australia Limited and anor matter [2000] NSWIRComm 1123

REASONS FOR DECISION

Deputy President SA Forgie

1.Unless exempted by s 911A of the Corporations Act 2001 (Corporations Act), a person who carries on a financial services business in the jurisdiction must hold an Australian Financial Services Licence (AFSL).[1]  Until 30 June 2016, accountants providing financial product advice about acquiring or disposing of an interest in a self-managed superannuation fund (SMSF) were not required to hold an AFSL.  From 1 July 2016, the exemption was removed but accountants could apply for an AFSL to provide a limited range of financial services relevant to SMSFs.[2]  On 30 March 2016, Mr McDermott applied to the Australian Securities and Investment Commission (ASIC) for a limited AFSL.[3]  A delegate of ASIC refused Mr McDermott’s application on 9 November 2017.[4] At the heart of the reasons for refusal was ASIC’s concern that Mr McDermott would not meet the requirement in s 913B(1)(b) of the Corporations Act i.e, that it had “… no reason to believe that the applicant is likely to contravene the obligations that will apply under section 912A if the licence is granted”. 

[1] Corporations Act; s 911A(1)

[2] Corporations Act; s Corporations Regulation 2001; rr 7.8.12A and 7.8.14B

[3] T documents; T3 at 22-33 and T4.1 at 34-36

[4] T documents; T3 at 3-21

2.Since ASIC made its decision, the Corporations Act has been amended by the Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 (FSR Act 2020) with effect from 18 February 2020.  Among the amendments made by the FSR Act were those made by Schedule 4 to Part 7.6 relating to AFSLs.[5] Section 913B(1)(b) was not amended. The application or otherwise of the amendments made by the FSR Act 2020 is relevant in that they have varied the obligations imposed on the holder of an AFSL holder. I considered the issue of the applicability of the amendments made by the FSR Act at the outset lest I had to go back to the parties to make submissions on whether I had to consider the issues raised by s 913B(1)(b) in the context of the Corporations Act both before and after its amendment. As the answer seems straightforward and there had been no follow-up submissions on the point by the parties, I did not go back to them. I decided that the amendments made by the FSR Act do apply in a situation such as this where the Tribunal is reviewing a decision made by ASIC to refuse an application for an AFSL.

[5] FSR Act; s 3

3.I do not need to consider that matter further, though, for s 913B(1)(b) was not amended by the FSR Act and I have no need to consider those provisions that were. I have decided that I am not satisfied that I have no reason to believe that Mr McDermott is likely to contravene the obligations that will apply under section 912A if he were granted an AFSL. Therefore, he does not satisfy the requirement in s 913B(1)(b) of the Corporations Act and I have affirmed the decision made by a delegate of ASIC on 9 November 2017 to refuse his application for an AFSL.

BACKGROUND

4.In this section of my reasons, I set out the findings I have made on facts that were not in dispute between the parties or that were set out in the judgment of Moshinsky J in Australian Securities and Investments Commission v McDermott, in the matter of Conalpin Pty Ltd (in liq).[6] 

[6] [2016] FCA 1186

Mr McDermott

5.Mr McDermott was awarded a Bachelor of Commerce from the University of Melbourne in 1983 and a Master of Tax by the same university on 6 December 2016.[7] He is a member of the Chartered Accountants Australia & New Zealand (CAANZ) and of the Australian Restructuring Insolvency Practitioners Association of Australia (ARITA) as well as a registered tax agent. Mr McDermott first began to work with insolvent administrations in 1984. In 1994, he was registered as a liquidator under s 1282 of the Corporations Act and has continued his registration.

[7] Mr McDermott completed Tax of Business and Investment Income, Corporate Tax A, Taxation of Small and Medium Enterprises, Tax Treaties, Corporate Insolvency and Reconstruction, Taxation of Superannuation, Taxation of Trusts and Goods and services Tax Principles: Exhibit A.

6.On 7 December 2017, Mr McDermott fulfilled the requirements of a FNS50615 Diploma of Financial Planning undertaken with Kaplan Education Pty Ltd trading as Kaplan Professional.  The Diploma is recognised within the Australian Qualifications Framework.  Mr McDermott satisfied the following units of competence:

Unit(s) of Competence
FNSAICZ503	Provide advice in planning	Competent
FNSFPL501	Comply with financial planning practice ethical and operational guidelines and regulations	Competent
FNS FPL502	Conduct financial planning analysis and research	Competent
FNS FPL503	Develop and prepare financial plan	Competent
FNS FPL504	Implement financial plan	Competent
FNS FPL505	Review financial plans and provide ongoing service	Competent
FNS FPL506	Determine client financial requirements and expectations	Competent
FNSINC401	Apply principles of professional practice to work in the financial services industry	Competent
BSBITU402	Develop and use complex spreadsheets	Competent
FNSASIC301	Establish client relationship and analyse needs	Competent
FNSASIC302	Develop, present and negotiate client solutions	Competent
FNSIAD301	Provide general advice on financial products and services	Competent
FNSASICX503	Provide advice in life insurance	Competent
FNSIAD501	Provide appropriate services, advice and products to clients	Credit Transfer
FNSINC501	Conduct product research to support recommendations	Credit Transfer
FNSCUS505	Determine client requirements and expectations	Credit Transfer
FNS SCUS506	Record and implement client instructions	Credit Transfer
FNSAICU503	Provide advice in superannuation	Credit Transfer
FNSASIC305	Provide Tier 2 personal advice in general insurance	Competent

Application for limited AFSL

7.Until 30 June 2016, Mr McDermott provided financial services without holding a licence.  He did so under r 7.1.29 when read with r 7.1.29A of the Corporations Regulations 2001 (Corporations Regulations), which remained in force until that date.  Regulation 7.1.29A was repealed with effect from 1 July 2016.[8]

[8] Corporations Amendment Regulation 2013 (No. 3); No. 101 of 2013; r 4, Schedule 2, Item 1 and r 4 for commencement

8.The AFSL, for which Mr McDermott applied on 30 March 2016, would allow him, in relation to retail clients, to provide “limited financial services” with the following authorisations:

(a)provide financial product advice for superannuation, limited to self-managed superannuation funds and advice in relation to a person’s existing holding in a superannuation product;

(b)to deal in a financial product by arranging for another person to issue, apply for, acquire, vary or dispose of a financial product in respect of superannuation, limited to self-managed superannuation funds;

(c)to provide class of financial product advice for superannuation.

Federal Court proceedings

9.A few months before Mr McDermott lodged his application for an AFSL, ASIC had commenced proceedings under s 447E, 449B, 449D, 530 and 536 of the Corporations Act on 15 December 2015 (Proceedings).[9]  At the time,[10] s 447E(1) provided:

[9] Federal Court proceedings VID 926 of 2015

[10] Together with ss 449D and 449E, ss 447E and 536 were repealed by the Insolvency Law Reform Act 2016 with effect from 1 March 2017 but the provisions of the Corporations Act as they applied before that date underpinned the judgment of Moshinsky J in the Proceedings.

“Where the Court is satisfied that the administrator of a company under

administration, or of a deed of company arrangement:

(a)has managed, or is managing, the company’s business, property or affairs in a way that is prejudicial to the interests of some or all of the company’s creditors or members; or

(b)has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests;

the Court may make such order as it thinks just.”

The Court might only make an order on an application by ASIC or by a creditor or member of the company.

10. Section 536(1) provided:

“Where:

(a)  it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:

(i)        a requirement of the Court; or

(ii)       a requirement of this Act, of the regulations or of the rules; or

(b)  a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;

the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.”

11.Section 449B related to the removal of an administrator and s 449D to the Court’s power, on an application by ASIC or by an officer, member or creditor of the company, to appoint another as an administrator of a deed of company arrangement where an administrator becomes prohibited from acting as such. Section 530 relates to the functions and powers of liquidators where two or more have been appointed.

12.Citing Hall v Poolman,[11] His Honour described s 536 as granting the Court “a broadly expressed supervisory jurisdiction over the conduct of persons in control of the affairs of a corporation, in circumstances where normal market forces and the exercise by shareholders of their rights to control are attenuated or non-existent.”[12] While the scope and operation of the Court’s power under s 536 is well established, the position in relation to s 447E is less clear, Moshinsky J said. The power to make inquiry as to the conduct of an administrator or deed administrator is not dependent upon prejudicial, or potentially prejudicial, conduct having been demonstrated. Conduct of that sort is a precondition to the making of an order under s 447E(1) but not on an application under s 447E(3) by ASIC, a creditor or member of the company. Both require the Court to make an inquiry and then to take such action as it thinks fit in the case of s 536 and to make such order as it thinks fit in the case of s 477E.

[11] [2009] NSWCA 64; (2009) 75 NSWLR 99; 228 FLR 164 at [53]; 119; 183; Spigelman CJ, Hodgson JA and Austin J

[12] [2016] FCA 1186 at [11]

13.The Proceedings commenced an application made by ASIC to the Court and supported by an affidavit by Ms Spinks sworn on 15 December 2015.  They concerned Mr McDermott’s performance of his duties in relation to:

(1)the voluntary liquidation of four companies listed in Schedule A to ASIC’s originating process and in which Mr McDermott was the registered liquidator;[13]

[13] Conalpin Pty Ltd (Strike Off), Dolmear Pty Ltd (Strike Off), Rapid Glass Solutions Pty Ltd and Total Elevators Service Pty Ltd

(2)the voluntary administration and voluntary liquidation of nine companies listed in Schedule B to the originating process and in which Mr McDermott was the voluntary administrator and registered liquidator;[14]

[14] Interactive Projects (VIC) Pty Ltd (Deregistered), Altaus Pty Ltd (Deregistered), ACN 105 438 926 Pty Ltd previously Speedfloor Australia Pty Ltd (Deregistered), Hart Empire Pty Ltd (Deregistered), Machunt Pty Ltd (Deregistered), Megavend Pty Ltd (Deregistered), Raft Technologies Pty Ltd (Deregistered), Northview Custom Build Pty Ltd (DOCA ceased) and Pixel Property One Pty Ltd (DOCA ceased)

(3)voluntary administration and deed of company arrangement (DOCA) of seven companies listed in Schedule C to the originating process and in which Mr McDermott was the voluntary administrator and deed administrator;[15] and

[15] Trackerjack Pty Ltd, Tegman Pty Ltd (Strike Off), Limos Online Australia Pty Ltd, Rizzo Constructions Pty Ltd, Hooked-On Constructions Pty Ltd (DOCA ceased), Rock Flat Valley Pty Ltd (DOCA ceased) and Procus West Pty Ltd (DOCA ceased)

(4)voluntary administration, DOCA and voluntary liquidation of six companies listed in Schedule D to the originating process and in which Mr McDermott was the voluntary administrator and deed administrator.[16]

[16] Fontana Property Group Pty Ltd, TSM Selection Pty Ltd, Dancol Constructions Pty Ltd, Stoneleighton Developments Pty Ltd, New Point Properties Pty Ltd and Lefkas Builders Pty Ltd (Deregistered)

14.The facts agreed between the parties in relation to these concerns were set out in a Statement of Agreed Facts prepared by the parties and comprising 174 paragraphs (SAF).  The SAF was appended to Moshinsky J’s reasons for judgment and formed part of them.[17]  I will set out the headings with a brief reference to relevant issues at this point:

[17] [2016] FCA 1186 at [40]

(1)Mr McDermott’s professional background

In his practice as a registered liquidator and as a member of two professional bodies, Mr McDermott was required to comply with:

(a)Professional standards APES110 Code of Ethics for Professional Accountants and APES 330 Insolvency Services issued by CAANZ; and

(b)the Code of Professional Practice issued by ARITA.

(2)Summary of ASIC’s concerns

Mr McDermott’s conduct of concern to ASIC was divided into the four broad categories identified summarised by Moshinsky J in the body of his judgment in the Proceedings.  His Honour made it clear that ASIC had not suggested that Mr McDermott’s conduct in any of these four categories had been dishonest:[18]

[18] [2016] FCA 1186 at [39]

“(a)     First, Mr McDermott’s relationship with his appointer or referrer influenced his conduct in external administrations giving rise to a concern that Mr McDermott failed to act independently, free of actual, apparent or potential conflicts of interest or with the appropriate degree of care and diligence required of a registered liquidator.  ASIC observed this conduct in five external administrations, identified in [10] of the Statement of Agreed Facts.

(b) Second, Mr McDermott accepted appointments in external administrations in circumstances where, due to a prior or an existing appointment to a related entity, he was in a position of actual or potential conflict of interest, giving rise to a concern that he failed to act with the appropriate degree of care and diligence required of a registered liquidator. ASIC observed this conduct in three external administrations, identified in [11] of the Statement of Agreed Facts.

(c) Third, Mr McDermott failed to lodge with ASIC a report of suspected offences by officers or former officers of companies to which he was appointed, either in a timely manner or at all. ASIC observed this conduct in four external administrations, identified in [12] of the Statement of Agreed Facts.

(d) Fourth, Mr McDermott failed to properly inform creditors of the basis for remuneration he was claiming and drew down that remuneration without properly informed creditor approval or, alternatively, Court approval. Further, despite being aware of the inadequacy of such approvals as had been obtained, Mr McDermott failed to repay the remuneration which he had drawn down. ASIC observed this conduct in 21 external administrations and the conduct is described at [145]-[161] and [171]-[174] of the Statement of Agreed Facts.”[19]

[19] [2016] FCA 1186 at [38]

15.His Honour said that the parties had prepared the SAF to provide the factual basis of consent orders that they asked him to make.  He said of them:

“… I am satisfied that the agreed facts are sufficient for the Court to determine the appropriate relief to grant in the proceeding, and provide a sound and proper basis upon which to determine whether to hold an inquiry into the defendant’s relevant conduct and for the conduct of that inquiry and for the making of orders consequent upon that inquiry: see Australian Securities and Investments Commission v Newcrest Mining Ltd (2014) 101 ACSR 46 at [10] per Middleton J and the cases there cited.”[20]

[20] [2016] FCA 1186 at [6]

16.      Later in his reasons, Moshinsky J made particular reference to [175] of the SAF:

“… I note that in [175] of the Statement of Agreed Facts, Mr McDermott admits that his conduct described in the statement (in particular, but not limited to, the concerns regarding independence) constitutes a ‘serious failure by him to faithfully perform his duties and observe the requirements of the [Corporations Act], the regulations or the rules’.  That paragraph also states that, having reflected on the matters raised by ASIC in this proceeding, he better understands the importance of maintaining high standards of integrity and professionalism in all his activities as a registered liquidator (including as voluntary administrator and deed administrator) and accepts that his failure to do so as set out in the Statement of Agreed Facts undermines public confidence in the office of registered liquidator.”[21]

[21] [2016] FCA 1186 at [40]

17.He returned to this a little later when referring to the power of the Companies Auditors and Liquidators Disciplinary Board (CALDB)[22] under s 1292(2)(d) of the Corporations Act to cancel or suspend the registration of a liquidator.

[22] The name of the CALDB was later changed to the Companies Auditors Disciplinary Board (CADB) with effect from 1 March 2017: Insolvency Law Reform Act 2016; Act No. 11 of 2016; s 3, Schedule 2; Item 63 and s 2(1); Item 3

“44. The jurisdiction created by s 1292 of the Corporations Act is protective of the public and includes an element of general deterrence: see Re Young and Companies Auditors and Liquidators Disciplinary Board (2000) 34 ACSR 425 at [79]-[80] per McMahon DP.

45The Court too has recognised that withdrawing from the liquidator the entitlement to accept new appointments operates directly to protect the public from the work of that person and generally by deterring other liquidators from acting in a similar fashion: see Dunner at [218] per Middleton J.

46The parties submit, and I accept, that, while Mr McDermott’s conduct was not dishonest, he failed to carry out and perform adequately and properly his duties as liquidator, and also his duties and functions as administrator and deed administrator; and that each aspect of his conduct is serious and occurred across multiple appointments.

47The parties submit, and I accept, that, having regard to the conduct set out in the Statement of Agreed Facts, the Court should indicate its disapproval by nominating three years as the period during which Mr McDermott is prohibited from accepting new appointments (except for appointments as liquidator in a members’ voluntary winding up of proprietary companies).  The parties submit, and I accept, that the evidence establishes a basis for a period of prohibition, in particular having regard to the following conduct and circumstances:

(a)Mr McDermott accepted three appointments (Conalpin Pty Ltd, Dolmear Pty Ltd and Total Elevators Service Pty Ltd) when a clear conflict of interest existed;

(b)in relation to the Peterson family dispute matters (Conalpin Pty Ltd and Dolmear Pty Ltd), Mr McDermott:

(i)accepted legal advice that he had no conflict when he should have known the lawyer providing the legal advice was also conflicted;

(ii)did not resign from his appointment in the face of objections from creditors who asserted he had a conflict of interest;

(c)in his affidavit material filed in this proceeding, Mr McDermott failed to acknowledge the existence of the actual conflict in his appointments, preferring to concede only the ‘perception of conflict’;

(d)the systemic and repeated deficiencies in Mr McDermott’s remuneration reports;

(e)Mr McDermott drew his remuneration on the basis of deficient remuneration reports and did not seek Court approval for (and did not repay) the funds until almost two years after they were drawn;

(f)Mr McDermott failed to implement the checklists and procedures recommended to him during various training courses that he attended;

(g)Mr McDermott failed to complete an ongoing practice review conducted by a peer reviewer;

(h)at its lowest, the evidence indicates a systematic failure of systems and procedures, and, at its highest, it indicates a lack of understanding of, and in some instances a disregard for, the duties and responsibilities of a liquidator.

48It is appropriate that Mr McDermott be prohibited from accepting new appointments for a not insignificant period, undertake necessary training, implement appropriate practices and procedures and comply with a peer review regime as provided in the consent orders, in order to reflect the seriousness of the conduct, both by reference to protection of the public from further conduct by Mr McDermott, and for general deterrence.   In my view, the three year period of prohibition from accepting new appointments proposed by the parties is appropriate.”[23]

[23] [2016] FCA 1186 at [44]-[48]

18.Moshinsky J referred to Mr McDermott’s attending education seminars and engagement of a peer reviewer:

“Further education and peer review

55Mr McDermott has previously attended continuing education seminars and engaged a peer reviewer for his insolvency practice. However, ASIC is concerned that he failed to apply the material he learned in the seminars and from the peer review.  The details of his failure to apply the new material are set out in the Statement of Agreed Facts at [164]-[167].

56For this reason, the Minutes of Proposed Consent Orders provide that Mr McDermott is prohibited from accepting new appointments for at least three years and until he has:

(a)successfully completed the year-long ARITA Advanced Certification course; and

(b)obtained a peer review of his practice and addressed any concerns raised in the review to the reviewer’s reasonable satisfaction.

57As recorded in the Minutes of Proposed Consent Orders, Mr McDermott will also give undertakings to the Court that he will endeavour to complete the ARITA course and the peer review.

58I am satisfied that it is appropriate to make the consent orders and accept the undertakings relating to further education and peer review.”[24]

[24] [2016] FCA 1186 at [55]-[58]

19.His Honour made orders by consent following upon Mr McDermott’s undertaking, through his counsel that:

“A. The defendant will arrange a peer review of 10 of the administrations referred to in Part 1 and Part 2 of Schedule 2 to this order as follows:

(i)the 10 administrations to be reviewed will be selected by ASIC and notified to the defendant in writing before the period referred to in (ii) below;

(ii)the review will be undertaken in no less than 6 and no more than 12 months after the date of this order;

(iii)the review will be undertaken by John Richard Morrow or such other registered liquidator or liquidators with experience in court ordered and creditors’ voluntary liquidations and voluntary administrations who is approved by ASIC;

(iv)the reviewer will be asked to provide a written report (including a section identifying any matters of concern) to ASIC and the defendant;

(v)upon receipt of the written report, the defendant will endeavour to address any matters of concern raised in the reviewer’s written report;

(vi)if the reviewer has not raised in his written report any matters of concern or if, having raised any matters of concern, the defendant has addressed the matters of concern to the reviewer’s reasonable satisfaction, the reviewer will forthwith provide to the defendant and ASIC a letter confirming that reviewer is so satisfied (Letter of Satisfaction); and

(vii)the cost of the review will be borne by the defendant.

B.The defendant will endeavour to complete successfully the ARITA Advanced Certification Course.

C.If the defendant has not within three months of the date of this order convened a meeting of any of the companies in Part 3 of Schedule 2 to this order as required by section 509 of the Corporations Act 2001 (Cth) (Act), the defendant will within 7 days thereafter make application to the court pursuant to the liberty to apply reserved below to cause John Stuart Potts or such other registered liquidator approved by ASIC, to be appointed as joint and several liquidator with the defendant of that company or those companies.”

20.      The orders made by consent were:

“1.       Pursuant to section 536 of the Act, there be an inquiry by the Court into the conduct of the defendant as registered liquidator, by inquiring into the conduct of the defendant as liquidator, voluntary administrator or administrator of deed of company arrangement (as the case may be) of the companies listed in Schedule 1 to this order, which inquiry is taken to have occurred by the filing by the parties of affidavits and a statement of agreed facts and by the making of submissions in this proceeding.

2.Subject to order 3 below, pursuant to sections 447E and 536 of the Act, the defendant be prohibited from accepting new appointments as a controller, liquidator or administrator (all within the meaning of the Act) of a company until the last to occur of:

(i)the third anniversary of this order;

(ii)the provision of the Letter of Satisfaction as referred to in paragraph A(vi) of the defendant’s undertakings set out above; and

(iii)the successful completion by the defendant of the ARITA Advanced Certification course referred to in paragraph B of the defendant’s undertakings set out above.

3.Notwithstanding order 2 above, the defendant may continue to accept appointments as liquidator for the purposes of a members’ voluntary liquidation of a proprietary company (within the meaning of the Act). For the avoidance of doubt, if at any time a members’ voluntary liquidation in which the defendant is acting becomes a creditors’ voluntary liquidation during the period set by order 2 above, the defendant must forthwith resign from that liquidation.

4.On the last to occur of the events referred to in order 2 of this order, the defendant may accept appointments as controller, liquidator or administrator (all within the meaning of the Act) of a company without further court order.

5.Pursuant to section 503 of the Act, Ross John McDermott be and is hereby removed as liquidator of each of the companies referred to in Part 1 of Schedule 2 to this order and John Stuart Potts and Ross John McDermott (whose written consents to appointment have been placed on the court file) be and are hereby appointed jointly and severally as liquidators of each of the companies referred to in Part 1 of Schedule 2 to this order.

6.Pursuant to section 503 of the Act, Ross John McDermott be and is hereby removed as liquidator of Total Elevators Service Pty Ltd (ACN 121 507 426) and Fontana Property Group Pty Ltd (ACN 102 756 178) and John Stuart Potts (whose written consent to appointment has been placed on the court file) be and is hereby appointed as liquidator of Total Elevators Service Pty Ltd (ACN 121 507 426) and Fontana Property Group Pty Ltd (ACN 102 756 178).

7.Pursuant to section 447A of the Act, Part 5.3A of the Act is to operate in relation to the company referred to in Part 2 of Schedule 2 to this order as if it empowered the Court to appoint an additional administrator of the deed of company arrangement of the company to act as administrator jointly and severally with the incumbent administrator.

8.Pursuant to Part 5.3A of the Act as it applies by virtue of order 7 above, John Stuart Potts (whose written consent to appointment has been placed on the court file) be and is hereby appointed jointly and severally with Ross John McDermott as deed administrator of the company referred to in Part 2 of Schedule 2 to this order.

9.The defendant pay ASIC’s costs of the proceeding fixed in the amount of $10,000, to be paid within 180 days of the date of this order.

10.The proceeding is otherwise dismissed.”

21.On 24 April 2018, Mr Richard Morrow FCA RITF advised that, in accordance with [A(vi)] of his undertaking, Mr McDermott had addressed the matters of concern to his, Mr Morrow’s reasonable satisfaction.  Mr Morrow wrote his letter in satisfaction of [2(ii)] of his Honour’s order.[25]

[25] Exhibit A: Mr McDermott’s witness statement dated 4 June 2018; Exhibit RJM-03

LEGISLATIVE FRAMEWORK

22.At all relevant times, a “financial services business”, which a person may not carry on without an AFSL, has been “… a business of providing financial services.”[26]  The circumstances in which a person provides a “financial service” is the subject of Division 4 of Chapter 7.[27]  In general terms and subject to regulations made under s 766A(2)(b):

[26] Corporations Act; ss 9 and 761A

[27] Corporations Act; ss 9(1), 761A and 666A(1)

“For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:

(a)       provide financial product advice (see section 766B); or

(b)       deal in a financial product (see section 766C); or

(c)       make a market for a financial product (see section 766D); or

(d)       operate a registered scheme; or

(e)       provide a custodial or depository service (see section 766E); or

(ea)     provide a crowd-funding service (see section 766F); or

(f)engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.”

The particular service or advice is explained further in other provisions of Part 7.1.

23.Section 913A sets out how a person may obtain an AFSL. He or she may apply for an AFSL by lodging an application with ASIC together with any information and documents required by regulations made for the purposes of s 913A.

24.Section 913B regulates when ASIC may grant a licence.  It has since been amended and I will return to that.  For the moment, I will set it out at the time Mr McDermott lodged his application and when ASIC made its decision for the focus of the hearing was upon s 913B(1)(b).  In order to provide context, I will set out the whole of s 913B(1):

“ASIC must grant an applicant an Australian financial services licence if (and must not grant such a licence unless):

(a)       the application was made in accordance with paragraph 913A; and

(b)ASIC has no reason to believe that the applicant will not comply with the obligations that will apply under section 912A if the licence is granted; and

(c)the requirement in whichever of subsection (2) or (3) of this section applies is satisfied; and

(ca)the applicant has provided ASIC with any additional information requested by ASIC in relation to the matters that, under this section, can be taken into account in deciding whether to grant the licences; and

(d)the applicant meets any other requirements prescribed by regulations made for the purposes of this paragraph.

Note 1:ASIC must not grant an Australian financial services licence to a person contrary to a banning order or disqualification order (see Division 8).

Note 2:There are limitations on ASIC granting an individual an Australian financial services licence that covers the provision of certain personal advice if the individual does not meet the education and training standards in subsections 921B(2) to (4) (see section 921C).”

25.Section 913B(5) provided, and continues to provide:

“However, ASIC may only refuse to grant a licence after giving the applicant an opportunity:

(a)to appear, or be represented, at a hearing before ASIC that takes place in private; and

(b)to make submissions to ASIC in relation to the matter.”

26.A person who holds an AFSL is a “financial services licensee”.[28] His or her general obligations are set out in s 912A. Since Mr McDermott made his application for an AFSL in 2016, that section has been amended on three occasions. All of the amendments were in effect before I heard the matter and two of them before ASIC made its decisions on his application. In setting out s 912A as now in force, I have shown the amendments in bold with references in the footnotes to the amending legislation and its date of effect. Section 912A(1) provides:

[28] Corporations Act; ss 9 and 761A

“A financial services licensee must:

(a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and

(aa)have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative; and

(b)comply with the conditions on the licence; and

(c)comply with the financial services law; and

(ca)take reasonable steps to ensure that its representative comply with the financial services laws; and

(cb)if the licensee is the operator of an Australian passport fund, or a person with responsibilities in relation to an Australian passport fund, comply with the law of each host economy for the fund; and[29]

[29] Corporations Amendment (Asia Region Funds Passport) Act 2018; Act No. 61 of 2018; s 3, Schedule 2, Item 226 with effect from 18 September 2018; s 2(1), Item 2

(d)subject to subsection (4) – have available adequate resources (including financial, technological and human resources) to provide financial services covered by the licence and to carry out supervisory arrangements; and

(e)maintain the competence to provide those financial services; and

(f)ensure that its representatives are adequately trained[30] (including by complying with section 921D), and are competent, to provide those financial services; and

[30] Corporations Amendment (Professional Standards of Financial Advisers) Act 2017; Act No. 7 of 2017; s 3, Schedule 1, Item 2 with effect from 15 March 2017: s 2(1); Item 1

(g)if those financial services are provided to persons as retail clients:

(i)have a dispute resolution system complying with subsection (2);

(ii)give ASIC the information specified in any instrument under subsection (2A); and[31]

[31] Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018; Act No. 13 of 2018; s 3, Schedule 2, Item 2 with effect from 6 March 2018: s 2(1); Item 7

(h)subject to subsection (5) – have adequate risk management systems; and

(j)comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph.”

27.The parties proceeded on the basis that only s 912A(1)(b) was in issue. As Mr Galvin QC, senior counsel for Mr McDermott, submitted, there had never been a suggestion that Mr McDermott had not satisfied the other paragraphs. It followed that there was no attention paid to the amendments made to s 912A(1) since Mr McDermott made his application. I will touch briefly on them to satisfy myself that this is the appropriate course to take.

28.None of the three amending Acts included transitional provisions relating to the obligations of those who were already financial licensees or applicants for an AFSL. That takes me to s 7 of the Acts Interpretation Act 1901 (AI Act). Section 7(2) provides:

“No effect on previous operation of Act or part

(2)If an Act, or an instrument under an Act, repeals or amends an Act (the affected Act) or a part of an Act, then the repeal or amendment does not:

(a)revive anything not in force or existing at the time at which the repeal or amendment takes effect; or

(b)affect the previous operation of the affected Act or part (including any amendment made by the affected Act or part), or anything duly done or suffered under the affected Act or part; or

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under the affected Act or part; or

(d)affect any penalty, forfeiture or punishment incurred in respect of any offence committed against the affected Act or part; or

(e)affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment.

Any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed, as if the affected Act or part had not been repealed or amended.

Note:   …”

29.Section 7 was inserted into the AI Act by the Acts Interpretation Amendment Act 2011 (AIA Act).[32] It repealed s 8 but is in substantively the same terms as s 8. The only difference of consequence is that its opening words do not begin with the qualification that s 7 applies “unless the contrary intention appears”.  It is not a consequence of substance for s 2 of the AI Act now provides that it applies to all Acts but that its application “is subject to a contrary intention”.

[32] AIA Act; s 3; Schedule 1, item 13 with effect from 27 December 2011; s 2(1), Item 2

30.Section 8 was considered by the High Court in Esber v The Commonwealth[33] (Esber) in the context of the transitional provisions in Part X of what was then the Commonwealth Employees’ Rehabilitation and Compensation Act 1988 and is now the Safety, Rehabilitation and Compensation Act 1988 (SRC Act).  In summary and putting aside injury, loss or damage suffered after the commencement of the SRC Act, subject to Part X, a person is entitled to compensation under the SRC Act in respect of an injury, loss or damage suffered before its commencement if compensation would have been payable under the legislation previously in force and regulating payment.[34]

[33] [1992] HCA 20; (1992) 174 CLR 430; 106 ALR 577; 66 ALJR 373; 15 AAR 249

[34] They were: Commonwealth Workmen’s Compensation Act 1912; the Commonwealth Employees’ Compensation Act 1930 and the Compensation (Commonwealth Government Employees) Act 1971.

31.Without regard to s 8 of the AI Act, the majority of the High Court in Esber concluded that Mr Esber’s entitlement to compensation should be considered under the earlier legislation applying when he sustained his injury and under which he was entitled to compensation i.e. under the Compensation (Commonwealth Government Employees) Act 1971 (1971 Act).  Having regard to s 8, the majority noted that Mr Esber had already made his application to the Tribunal when the 1971 Act was repealed.  The majority said:

“… [T]he appellant had, at the time of the repeal of the 1971 Act, a right to have his application to the Tribunal determined pursuant to Part V of the 1971 Act.  It may not be possible to say that a person in the position of the appellant had a right to a favourable determination from the Tribunal.  The Tribunal was required to stand in the shoes of the decision-maker (the delegate) and arrive at its own decision …

… [H]e had a right to have his claim for redemption determined in his favour if the delegate had wrongly refused his claim.  To borrow a sentence from the judgment of Hope J.A. in N.S.W. Aboriginal Land Council v. The Minister … [(1988) 14 NSWLR 685, at p 694”:

"The right might be said to be a conditional one, namely, conditional upon the relevant facts being established, but the right was nonetheless a right because it was conditional."

Once the appellant lodged an application to the Tribunal to review the delegate's decision, he had a right to have the decision of the delegate reconsidered and determined by the Tribunal.  It was not merely ‘a power to take advantage of an enactment’ … Nor was it a mere matter of procedure …; it was a substantive right … Section 8 of the Acts Interpretation Act protects anything that may truly be described as a right, ‘although that right might fairly be called inchoate or contingent’ … This was such a right. It was a right in existence at the time the 1971 Act was repealed. That being so, and in the absence of a contrary intention, the right was protected by s.8 of the Acts Interpretation Act and was not affected by the repeal of the 1971 Act.”[35]

[35] [1992] HCA 20; (1992) 174 CLR 430; 106 ALR 577; 66 ALJR 373; 15 AAR 249 at 440-441; 583; 377; 255 (citations omitted)

32.There is no difference between this case and that of Esber. Mr McDermott had already made his application for an AFSL at the time that the amendments were made. Subject to any legislative change, he accrued a right to have his application determined upon the relevant facts at the time he lodged it. There is nothing in the transitional provisions that alters that conclusion. There is nothing inherent in s 912A that would alter it for, if it were otherwise, the obligations of those who were already financial service licensees would have been changed retrospectively. More importantly, there was no amendment of s 913B at the relevant times to suggest that s 913B(1)(b) was to apply to obligations applying from time to time under s 912A. Therefore, regard could properly had to s 912A(1)(b) as enacted at the time Mr McDermott made his application.

INTERPRETATION OF SECTION 913B(1)(b)

33.      The parties did not agree on the proper interpretation of s 913B(1)(b). 

Outline of submissions

34.On behalf of Mr McDermott, Mr Galvin QC with Mr Davaris of counsel submitted that the relevant test is whether he is “likely” to contravene the obligations as a licensee rather than whether he “will” do so. Parliament is concerned with ensuring that ASIC can more appropriately account for the likelihood or probability of future contravention. Any decision taken by ASIC must be reasonable and based only on relevant considerations in accordance with procedural fairness and the rules of natural justice. Reference was made to s 59(2)(c) of the Australian Securities and Investments Commission Act 2001 (ASIC Act) and to the judgment of Deane J, with whom Evatt J agreed, in Minister for Immigration and Ethnic Affairs v Pochi.[36] ASIC is entitled to take into account any information, including the SAF, relevant to the question whether Mr McDermott is likely to contravene the obligations under s 912A of the Act including:

[36] [1980] FCA 85; (1980) 44 FLR 41; 31 ALR 666; 4 ALD 139; Evatt and Deane JJ; Smithers J dissenting

(1)the nature and seriousness of any misconduct by Mr McDermott;

(2)the internal controls on Mr McDermott;

(3)Mr McDermott’s previous record;

(4)any of Mr McDermott’s conduct that shows deliberation and planning in wilfully disregarding the law;

(5)the extent of compliance by Mr McDermott with analogous obligations in another regime; and

(6)any other conduct of Mr McDermott that might lead ASIC to conclude, on reasonable grounds, that he is not likely to comply.

35.Counsel referred to the judgment of Lockhart J, with whom Bowen CJ agreed, in W A Pines Pty Ltd v Bannerman,[37] regarding the interpretation of the expression “reason to believe”. In light of that judgment, they submitted that s 913B(1)(b) requires the decision-maker to form a belief, based on reasonable grounds, as to the likelihood or probability of an applicant’s contravening the obligations under s 912A of the Corporations Act. The words “no reason to believe” are to be read as limiting rather than empowering the decision-maker’s powers under s 913B.

[37] [1980] FCA 79; (1980) 41 FLR 175; 30 ALR 559; Bowen CJ, Brennan and Lockhart JJ

36.Any decision made under s 913B(1)(b) must be based upon logically probative material and not upon mere suspicion or speculation.  Referring to Briginshaw v Briginshaw[38] (Briginshaw), Commonwealth v Fernando,[39] Anderson v Blashki[40] and The Secretary to the Department of Health and Community Services and Ors v Gurvich[41] (Gurvich), counsel for Mr McDermott submitted that any decision must have regard to the seriousness and gravity of the consequences flowing from the decision.  A positive finding that there is a likelihood of Mr McDermott’s breaking the law would go to the very heart of his professional reputation.

[38] [1938] HCA 34; (1938) 60 CLR 336; Latham CJ, Rich, Starke, Dixon and McTiernan JJ

[39] [2012] FCAFC 18; (2012) 200 FCR 1; 287 ALR 267; 126 ALD 10; Gray, Rares and Tracey JJ

[40] [1993] VicRp60; [1993] 2 VR 89; Gobbo J

[41] [1995] VicRp 44; [1995] 2 VR 69; Southwell J

37.Mr Galvin submitted that this approach places a burden of proof upon an applicant for an AFSL.  That is inappropriate and ignores the principles to be drawn from cases such as W A Pines Pty Ltd v Bannerman. It is also inconsistent with the approach taken in enacting the amendment to s 913B(1)(b) by the Corporations Amendment (Future of Financial Advice) Act 2012 (CAFFA Act)[42].  The approach is clear in paragraphs [2.1]–[2.27] of the Explanatory Memorandum to the Corporations Amendment (Future of Financial Advice) Bill 2019.

[42] CAFFA Act; s 3, Schedule 1, Item 2

38.Mr Galvin also drew a distinction between the test in s 913B(1)(b) that there is no reason to believe that an applicant for an AFSL “is likely to contravene the obligations” (emphasis added) under s 912A and a test that he may not comply. He referred to the judgment of Mason, Wilson and Deane JJ in Boughey v The Queen,[43] Attorney-General for the State of New South Wales v Winters[44] (Winters) and Australian Securities Commission v Nomura International PLC[45] (Nomura).  In summary, Mr Galvin relied upon them to support the propositions that “likely” does not encompass a mere possibility and means “more probable than not”.

[43] [1986] HCA 29; (1986) 161 CLR 10; 65 ALR 609; Gibbs CJ, Mason, Wilson and Deane JJ; Brennan J dissenting

[44] [2007] NSWSC 1071; McClellan CJ at CL

[45] [1998] FCA 1570; (1998) 29 ACSR 473; Sackville J

39.On behalf of ASIC, Mr Liondas of counsel submitted that s 913B(1)(b) requires that ASIC is positively satisfied that it has “no reason to believe” that Mr McDermott is likely to contravene relevant obligations.  He referred to a passage from Senior Member Redfern in Re One RE Services Limited and Australian Securities and Investments Commission[46] (One RE) and relied on the proposition put at [70] that s 913B(1)(b) has the practical effect of shifting an onus to an applicant for an AFSL to establish, to ASIC’s reasonable satisfaction, that it will comply with the obligations under s 912A. In doing so, he noted s 913B(1)(b) has since been amended so that the test is no longer that ASIC has “no reason to believe” that an applicant “will not comply” with the obligations applying under s 912A to, as it is now, it has no reason to believe that the applicant “is likely to contravene” the obligations under s 912A. Mr Liondas also made submissions about particular obligations under s 912A, to which I will return.

[46] [2012] AATA 294 at [54]-[56] and [70] and see also Re Clemente Group Holdings Pty Ltd v Australian Securities and Investments Commission [2016] AATA 758 at [8]-[10], Senior Member Toohey, and Re Global Financial Markets Pty Ltd and Australian Securities and Investments Commission [2017] AATA 1397 at [132]; Deputy President Bean and Senior Member Britten-Jones

40.Mr Galvin also referred to the judgment of Robertson J in Australian Securities and Investments Commission v Franklin (liquidator), in the matter of Walton Constructions Pty Ltd:[47]

[47] [2014] FCAFC 85; (2014) 223 FCR 204; 101 ACSR 87; Jessup, Robertson and White JJ

“I should add that I do not regard the Insolvency Practitioners Association of Australia’s guide entitled Code of Professional Practice for Insolvency Practitioners, on which ASIC relied, as extrinsic material appropriate or permitted to be taken into account in construing ss 60 and 436DA of the Corporations Act. To my mind, the general law would not permit that guide to be taken into account in construing those provisions and that guide is outside the scope of s 15AB of the Acts Interpretation Act 1901 (Cth). For example, the relevant parts of that guide were not reproduced or referred to in the explanatory memorandum to the Corporations Amendment (Insolvency) Bill.”[48]

[48] [2014] FCAFC 85; (2014) 223 FCR 204; 101 ACSR 87 at [38]; 214; 96 per Robertson J

Consideration

41.Section 913B(1)(b) is now framed in terms of ASIC’s having “no reason to believe that the applicant is likely to contravene the obligations that will apply under section 912A if the licence is granted”.  Although the provision must be interpreted as a whole,[49] I will first consider authorities directed to its two primary constituent parts before returning to consider it as a whole. 

[49] I note the general view that: “.. Interpreting a composite phraseby dissecting it into its component wordsand seeking a meaning for each has, however, long been identified as an inappropriate method of construing such a phrase ...”: Secretary, Department of Social Security v Ekis (1998) 85 FCR 382; 52 ALD 246; 28 AAR 36 at 385; 249; 39 per Drummond J

A.       The test: “no reason to believe …”

42.I have been referred to three cases in which this provision has been considered.  The first is One RE, the distinction was drawn between the criterion for cancelling AFSLs and making banning orders preventing a person from providing financial services and that for applying for an AFSL.  In the case of a banning order, for example, s 920A(1)(ba) provides that ASIC may make such an order by giving written notice if “ASIC has reason to believe that the person is likely to contravene their obligations under section 912A”.  The Tribunal said:

“… The decision-maker must form a positive view about whether there is ‘reason to believe’ the person or entity ‘will not comply’.  If that view cannot be formed to the reasonable satisfaction of the decision-maker, the licence will not be cancelled or the person will not be banned, as the case may be.”[50]

[50] [2012] AATA 294 at [55]

43.When considering the criterion in s 921A(1)(b) in the context of a licence application, the Tribunal said:

“When considering a licence application, the decision-maker must form a view about whether there is ‘no reason to believe’ the person or entity ‘will not comply’.  The test is more difficult to establish for an applicant seeking the right to be licensed as it is clear from the words of the section that the applicant must establish the negative to the reasonable satisfaction of the decision-maker.  ASIC submitted that ‘the onus is on the applicant to satisfy the Tribunal that its compliance and risk management arrangements are adequate for the Tribunal to conclude that the applicant would meet the compliance and risk management obligations of a licensee’.”[51]

[51] [2012] AATA 294 at [56]

44.The common element in both criteria is “reason to believe” even though in cancellation and banning order matters there must be reason to believe and in licensing matters no reason to believe a specified matter.  The expression “reason to believe” has been considered by the High Court in Boucaut Bay Co Ltd v The Commonwealth[52] (Boucaut Bay).  Boucaut Bay Co Ltd had entered an agreement with the Commonwealth whereby it would provide and maintain an efficient coastal shipping service in the Northern Territory in the terms agreed upon with the Commonwealth.  Clause 15 of the contract provided that "If at any time the Minister shall have reason to believe that this agreement is not being carried out by the contractor in accordance with the terms and true intent and meaning of this agreement then and in any of the said cases the Minister may by one calendar month’s notice in writing to the contractor determine this agreement". 

[52] [1927] HCA 59; (1927) 40 CLR 98; Starke J; on appeal Isaacs ACJ, Gavan Duffy, Powers and Rich JJ

45.Boucaut Pty Ltd had submitted that the Minister's power to determine the agreement was dependent upon there being some reason justifying a belief that the agreement was not being carried out in accordance with the terms and true intent and meaning of the agreement.  The practical consequence of that argument would be that the Court had to determine for itself whether facts exist which would reasonably lead to the belief that the agreement was not being so carried out.  

46.Starke J did not accept this argument saying:

“… This view of the clause I cannot adopt.  In my opinion, the belief of the Minister is ‘the sole condition of his authority’; ‘he is the sole judge of the sufficiency of the materials on which he forms it’ (Lloyd v. Wallach …).  If a man is to form a belief and his belief is to govern, he must form it himself on such reasons and grounds as seem good to him (Allcroft v. Lord Bishop of London …).  He must not act dishonestly, capriciously or arbitrarily: that would be contrary to the implication of the agreement and so establish a want of the belief stipulated for as a condition of the exercise of the power of determination.  So long, however, as the Minister acts upon circumstances appearing to him to bear upon the case and giving him a rational ground for the belief entertained, then, in my opinion, the Courts of law cannot and ought not to interfere with his discretion.” [53]

[53] [1927] HCA 59; (1927) 40 CLR 98 at 102

47.      His Honour also noted that:

“…  The contractor had no fair or sufficient notice of the extent of the grounds upon which the Minister proceeded and no opportunity of answering them, if the Minister was bound to give any such notice.  In my opinion, however, the Minister was not, in point of law, bound to give any such notice.  Again the question turns upon

the true meaning of clause 15.  If the clause places the Minister in a judicial or quasi-judicial position then no doubt the rule Audi alteram partem applies (Wood v. Wood (1) [(1874) LR 9 Ex 190]) ; if, however, the clause gives the Minister absolute power to determine the agreement without anything in the nature of a judicial inquiry, the rule has no application.  Whether the authority is judicial or absolute must turn upon the terms of the particular agreement.  Gillen v. Laffer (2 [(1925) 37 CLR 210]), by which I am bound, is an illustration of the former class; this case, in my opinion, belongs to the latter.  The Minister is empowered to act on his own belief or opinion uncontrolled by the Courts, if that belief is honestly entertained.  It is, in truth, a power given for the protection of the Commonwealth and as a convenient and decisive test of non-performance of the agreement.  No words are introduced as in Gillen v. Laffer suggesting evidence or any quasi-judicial inquiry, and there is nothing in the agreement suggesting an obligation upon the Minister ‘to act as a tribunal, or to state the grounds on which he decides for himself’ …”[54]

[54] [1927] HCA 59; (1927) 40 CLR 98 at 104. Appeal to Full Court (Isaacs ACJ, Gavan Duffy, Powers and Rich JJ) dismissed: (1927) 40 CLR 98

48.      On appeal, Isaacs ACJ, with whom Gavan Duffy, Powers and Rich JJ agreed, said:

“… In my opinion, if at any time the Minister in the natural and ordinary course of his official duties acted on information of his trusted officers and formed a belief in the general terms mentioned in the latter part of the first paragraph of clause 15 that the contract was not being fairly carried out, he had power to terminate the contract without the formality of an inquiry.  The one condition of his action is that he had reason to believe, and that implies actual belief. …”[55]

[55] [1927] HCA 59; (1927) 40 CLR 98 at 106

49.The expression “reason to believe” was considered by Lockhart J in WA Pines Pty Ltd v Bannerman.[56] The context was that of s 155 of the Trade Practices Act 1974, which gave certain persons the power to require another to provide information if those persons had “reason to believe that a person is capable of furnishing information”.  His Honour reviewed the authorities since Boucaut Bay Co Ltd v The Commonwealth and said:

[56] (1980) 41 FLR 175; 30 ALR 559

“The phrase ‘has reasonable cause to believe’ was considered by the House of Lords in Liversidge v. Sir John Anderson [1941] UKHL 1; 1942 A.C. 206. That case related to a claim for damages for false imprisonment which was brought about by an order made by the Home Secretary under the Defence (General) Regulations 1939 (Reg. 18B) of the United Kingdom.  It involved a question as to the meaning of the words ‘if the Secretary of State has reasonable cause to believe any person to be of hostile origin or associations’.  The majority of the House held that those words in their context meant simply that the Secretary of State had honestly to suppose that he had reasonable cause to believe the requisite matter.  Provided he acted in good faith he was the only judge of the conditions of his own jurisdiction.

In Nakkuda Ali v. M.F. De S. Jayaratne 1951 A.C. 66 Lord Radcliffe, who wrote the opinion of the Board, said that Liversidge v. Anderson should be regarded as an authority for the meaning of that phrase in that particular regulation alone. His Lordship said at p. 77: -

‘Their Lordships therefore treat the words in regulation 62 ‘(i.e. of the Defence (Control of Textiles) Regulations 1945) ‘“where the Controller has reasonable grounds to believe that any dealer is unfit to be allowed to continue as a dealer” as imposing a condition that there must in fact exist such reasonable grounds, known to the Controller, before he can validly exercise the power of cancellation.’

In Inland Revenue Commission v. Rossminster Limited 1980 1 All E.R. 80 Lord Diplock considered the power of an officer of the Board of Inland Revenue to seize and remove the things that he found on premises which the warrant authorised him to enter and search; but where the source of the power limited the power of seizure and removal to things ‘which he has reasonable cause to believe may be required as evidence for the purpose of proceedings’ for an offence involving a tax fraud. His Lordship said at p. 92: -

‘These words appearing in a Statute do not make conclusive the officer's own honest opinion that he has reasonable cause for the prescribed belief.  The grounds on which the officer acted must be sufficient to induce in a reasonable person the required belief before he can validly seize and remove anything under the sub-section.’

His Lordship went on to say: -

‘For my part I think the time has come to acknowledge openly that the majority of this House is Liversidge v. Anderson were expediently and, at that time, perhaps, excusably, wrong and the dissenting speech of Lord Atkin was right’.

In my opinion, the words ‘has reason to believe’ in sub-s.155 (1) imply actual belief: see Boucaut Bay Co. Limited (In Liquidation) v. The Commonwealth (supra) per Isaacs A.C.J. at p. 106; but do not make conclusive the Commission’s (also the Chairman’s or Deputy Chairman’s) own opinion that it has reason for the requisite belief.  Words such as these are found frequently in legislation or regulations conferring powers on Ministers of the Crown or public servants.  They must be read as limiting otherwise arbitrary powers.  If they are to be read as empowering the person in whom the power is vested, to determine conclusively whether the limitation has been satisfied, the value of the intended limitation is nugatory.

Plainly, the power must not be exercised dishonestly or in bad faith (see Boucaut Bay Co. Limited (In Liquidation) v. The Commonwealth (supra) per Starke J. at p. 101); but if that were the sole restraint upon the exercise of the power it would apply only in a very small number of cases, leaving the power arbitrary and unfettered in the great majority of cases.

In my opinion the words in s. 155 ‘has reason to believe . . .’ mean that the Commission must believe that a person is capable of furnishing information, producing documents or giving evidence; and there must be reasonable grounds or cause for that belief, before the powers conferred by sub-s.155 (1) may be exercised.”[57]

[57] (1980) 41 FLR 175; 30 ALR 559 at 185-186; 570-572

50.In Power v Hamond,[58] Chernov JA, with whom Maxwell P and Ormiston JA agreed on this aspect, cited Lockhart J’s judgment and then continued:

[58] [2006] VSCA 25

“… It is now settled law that the question whether there is ‘reason to believe’ a specific matter in a context such as the present is to be determined by the person concerned on an objective basis and that the correctness of the conclusion may be tested in court.  Thus, for example, it was said in George v. Rockett that ‘[w]hen a statute prescribes that there must be ‘reasonable grounds’ for a state of mind - including suspicion and belief - it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person.’  Consequently, in order to have launched the impugned investigation lawfully the Ombudsman had to conclude, on an objective basis, that Power's failure to obtain insurance might amount to misconduct or unsatisfactory conduct.  The question, therefore, is whether, in all the circumstances, a reasonable Ombudsman would have so concluded.

It is not necessary in order to satisfy the requirement that there be ‘reason to believe’ that a prima facie case be made out against the person the subject of the investigation. … Moreover, in assessing whether the above requirement has been made out, the investigative nature of the powers must be borne in mind.  Nevertheless, the belief must rest on objective facts that would induce the relevant state of mind in a reasonable person.  I consider that, given the observations of Cummins, J. to which I have referred earlier,… and having regard to the material before the Court, no reasonable person in the Ombudsman’s position would have concluded that there was reason to believe that by continuing to practise without an operative practising certificate due to a bona fide failure to obtain indemnity insurance, Power might be found guilty by the Tribunal of misconduct or unsatisfactory conduct.  Put another way, it was not open to the Ombudsman to form that view.”[59]

[59] [2006] VSCA 25 at [105]-[106]

51.In summary, these authorities establish that a decision-maker will have a “reason to believe” the existence of a certain fact or state of affairs if two factors are satisfied.  First, the decision-maker must, in fact, hold that belief.   Second, the decision-maker must do so on the basis of evidentiary material that would be sufficient to induce that state of mind in a reasonable person.  Extrapolation of the same principles to the requirement that a decision-maker has “no reason to believe” the existence of a certain fact or state of affairs leads to a similar outcome.  Two factors must be established.  First, the decision-maker must have come to the view that there is no reason to believe the existence of the certain fact or state of affairs. 

52.I note that the Tribunal in One RE considered a submission that there was no evidence that One RE would not comply with s 912A of the Corporations Act. It went on to conclude that this was not the test. I agree with that conclusion for the relevant test at the time was whether ASIC has no reason to believe that the applicant for an AFSL will not comply with the obligations under s 912A. Where I part company with the Tribunal in One RE is in its further conclusion that:

“… While the expression ‘reason to believe’ poses a ‘relatively low threshold’, the requirement that there be ‘no reason to believe’ sets a benchmark that has the practical effect of shifting the onus to an applicant for an AFSL to establish, to the reasonable satisfaction of the decision-maker, that it will comply with the obligations under s 912A. If there is any doubt based on the objective facts, the decision-maker will not be able to form such a view.”[60]

[60] [2012] AATA 294 at [70]

B.       The test: “… the applicant is likely to contravene the obligations …”

53.Each of the three cases relied upon by the parties in the interpretation of the word “likely” as it is used in s 913B(1)(b) and as it was drafted in 2016 referred to the case of Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union[61] (Tillmanns Butcheries)  In that case, the Full Court of the Federal Court was required to determine whether certain conduct had, under the Trade Practices Act 1974 (TP Act), the likely effect of causing substantial loss or damage.  Deane J said:

[61] [1979] FCA 85; (1979) 42 FLR 331; 27 ALR 367; Bowen CJ, Evatt and Deane JJ

“The conclusion which I have reached is that, in the context of s 45D(1), the preferable view is that the word ‘likely’ is not synonymous with “more likely than not” and that if relevant conduct is engaged in for the purposes of causing loss or damage to the business of the relevant corporation, it will suffice, for the purposes of the sub-section, if that conduct is, in the circumstances, such that there is a real chance or possibility that it will, if pursued, cause such loss or damage.”[62]

[62] [1979] FCA 85; (1979) 42 FLR 331; 27 ALR 367 at 382; 347 per Deane J

54.The Tillmanns Butcheries case was referred to by the High Court of Australia in

Boughey v The Queen.  That case turned on the meaning of the expression “likely to cause death” in ss 157(1)(b) and 157(1)(c) of the Criminal Code Act 1947 (Tas).  Did Mr Boughey cause the victim bodily harm which he knew was likely to cause her death in the circumstances?  Gibbs CJ said:

“          It is trite to say that the meaning of a word will be influenced by the context in which it appears. In my opinion the word ‘likely’ in ss. 156 and 157 of the Criminal Code Act means ‘probable’ and not ‘possible’. That is its natural meaning.”[63]

[63] [1986] HCA 29; (1986) 161 CLR 10; 65 ALR 609 at 14; 611; 423

55.When referring to Tillmanns Butcheries, Mason, Wilson and Deane JJ said that the meaning of the words “probable” and “likely” are liable to vary according to the context in which they are used.[64]  The context provided by the Tasmanian criminal Code was that of an expression of the elements of an offence in terms that could be comprehended by the citizen obliged to observe the law and, where a charge had been laid, by a jury empanelled in its enforcement.  The plurality continued:

[64] [1986] HCA 29; (1986) 161 CLR 10; 65 ALR 609 at 21; 616-617; 426

“… History would indicate that the codifier will never achieve the clarity and completeness which would obviate any need for subsequent interpretation or commentary … The courts should, however, be wary of the danger of frustrating that basic purpose of codification of the criminal law by unnecessarily submerging the ordinary meaning of a commonly used word in a circumfluence of synonym, gloss and explanation which is more likely to cause than to resolve ambiguity and difficulty.  To bury the word ‘likely’ in s 157(1) of the Code beneath the gloss of ‘more likely than not’ and the explanation of ‘a more than 50 per cent’ or an ‘odds on’ chance would be to succumb to that danger.  It would also, in our view, be to attribute to the word ‘likely’ a requirement of a specific degree of mathematical probability which the word does not convey either as a matter or ordinary language or in its context in s 157(1) of the Code.”[65]

[65] [1986] HCA 29; (1986) 161 CLR 10; 65 ALR 609 at 21-22; 617; 426

56.Sitting in the Federal Court, Gummow J said in Poignand v NZI Securities Australia Ltd[66] in the context of the TP Act:

[66] [1992] FCA 369; (1992) 37 FCR 363; 109 ALR 213 (1992) 37 FCR 363 said, at 371

“… The phrase ‘likely to’ is susceptible of various meanings, and takes its colour from the statutory context.  It may indicate a degree of contingency falling short of probability.…”

57.Mr Galvin drew particular attention to the case of Nomura, which was focused on whether Nomura International PLC had contravened s 998(1) of the Corporations Act. Section 998(1) applied where conduct is likely to create a false appearance of active trading in a number of securities within an identifiable class of securities, notwithstanding that at the time of the conduct, it is not possible to identify precisely which securities within the class are the subject of the false or misleading appearance. After referring to Tillmanns Butcheries, Sackville J decided that the word “likely” is used in s 998(1) in the sense if “more probable than not”. 

58.His Honour rejected ASIC’s submission that it was used in the sense of “a real and not remote chance”.  In doing so, he showed how the form or the words chosen by Parliament is important in the understanding of the word “likely”.  He said:

“… For example, Deane J in Tillmanns, at 347, thought it significant that s 45D(1) proscribed conduct that ‘would have or be likely to have’ a particular effect … If, in that context, ‘likely’ meant more probable than not, the words ‘be likely to have’ would have had no work to do. Section 998(1) is couched in different terms. 

The context in which ‘likely’ is used in s 998(1) also tends to support Nomura's contention. A trader commits an offence if he or she creates or does anything intended or likely to create a false or misleading appearance in a relevant respect. The first two alternatives apply if the alleged contravener actually creates the false or misleading appearance or intends to create such an appearance.  The ASIC submitted, I think correctly, that the third alternative (conduct ‘likely to create’ the misleading appearance) introduces an objective test into the sub-section.  Yet, if ‘likely’ means a ‘real chance, a trader who neither creates nor intends to create a ‘misleading appearance, commits a criminal offence if his or her conduct merely creates a real chance of a misleading appearance.  In my opinion, the language of the sub-section creates an ambiguity which should be resolved in favour of an alleged contravener.  The narrower construction of ‘likely’ does no violence to the object of the legislation, as expounded in North v Marra.”[67]

[67] [1998] FCA 1570; (1998) 29 ACSR 473 at 561

59.The importance of the language is illustrated by the case of Winters. The Attorney-General of New South Wales had applied for an order under s 17(1)(b) of the Crimes (Serious Sex Offenders) Act 2006 (CSSO Act) that Mr Winters be detained in a correctional centre of a period of five years or, alternatively, that he be subject to extended supervision for a period of five years. Section 17(1)(b) provided that:

“An extended supervision order may be made if and only if the Supreme Court is satisfied to a high degree of probability that the offender is likely to commit a further serious sex offence if he or she is not kept under supervision.”

60. After canvassing previous authorities, McLellan CJ at CL analysed s 17(1)(b):

“          Legislation which provides for the incarceration of an individual because of a concern that they may commit an offence in the future is at least unusual.  It is at odds with the assumption that the penalty imposed by a sentencing judge, within the parameters of the legislation which provides for the offence, will adequately punish and also provide appropriately for the offender’s rehabilitation.  The evidence before me, which I discuss below, unequivocally indicates that for any person classified as a ‘serious sex offender’, even with treatment said to be of ‘world’s best practice’ and whether or not subject to supervision, is at risk of reoffending when released. Whatever the level of that risk may actually be, and this may be debated, it is a real and not fanciful risk.  Accordingly, if the meaning of ‘likely’ preferred by the majority in Boughey and contended for by the Attorney General was adopted for the present legislation the consequence would be that, even if treated, any person who has been previously convicted of a serious sex offence would always come within the jurisdictional test provided in s 17(2) and s 17(3).  There would always remain the real chance that they will reoffend.

If the legislation was to be applied in this manner the Court would not be called upon to make a decision as to the likelihood of an offender reoffending.  Every relevant offender would be likely to reoffend.  This could not have been intended by the Parliament.

Remuneration may then only be redrawn on approval being obtained.”

114.Mr McDermott sought and obtained resolutions approving his remuneration and drew down remuneration notwithstanding the deficiencies in the remuneration reports.  The SAF stated that:

“When Mr McDermott drew down that remuneration he would have known, that:

(a)deficient remuneration reports had been distributed to the creditors or committees of inspection ahead of the resolutions approving those fees;

(b)at the time that Mr McDermott sought and obtained those resolutions the creditors or committee of inspection had insufficient information to make an informed assessment as to whether the proposed remuneration was reasonable; and

(c)in any event:

(i)in the administrations and deed administrations in which he had drawn that remuneration he had not yet satisfied the requirement of s 449E(7) of the Act to provide reports to creditors or the committee of inspection setting out the matters specified in that provision prior to the determination of his remuneration under s 449E(1) (in the case of administrations) or s 449E(1A) (in the case of deed administrations) by way of the relevant resolutions;

(ii)in the liquidations in which he had drawn that remuneration he had not yet satisfied the requirements of s 499(6) of the Act to provide reports to creditors or the committee of inspection setting out the matters specified in that provision prior to the fixing of his remuneration under s 499(3) of the Act by way of the relevant resolutions.”

115.Mr McDermott would have known those facts from approximately November 2012.  They would have been brought to his attention again in March 2013 by ASIC.  Despite his knowledge, Mr McDermott did not repay his remuneration contrary to his obligations under the IPA Code.  He applied to the Supreme Court for approval.  On 25 July 2014, Gardiner AJ of the Supreme Court of Victoria ordered:

“1. Pursuant to section 447A of … the Act, compliance with section 449E(7)(a) of the Act be dispensed with in respect of the remuneration reports sent by plaintiff to creditors of companies listed in the schedule during the periods of time which the companies were under voluntary administration or a deed of company arrangement was in place.

2.Pursuant to section 447D of the Act, the resolutions, passed by creditors in the course of the administration Pursuant to section 447D of the Act, the resolutions, passed by creditors in the course of the administrations and deed administrations, as the case may be, of the companies listed in the schedule to this order in respect of the plaintiff’s remuneration as administrator or deed administrator, were validly passed as required by the Act, notwithstanding that the plaintiff may not have complied with the requirements of section 449E(7)(a) of the Act.”

116.What is of concern to me in Mr McDermott’s affidavit sworn in 2016 is his statement, without acknowledgement of any deficiencies or acknowledgement that he had not repaid the remuneration pending the resolution of his application to the Supreme Court, that his remuneration “has been dealt with already by the Supreme Court”.  He acknowledges deficiencies in the SAF but his affidavit reveals that he did not understand that the Supreme Court order did not erase the fact that he had not acted consistently with his duties.  Moshinsky J himself drew attention to a similar situation in which, as he said at [47(f)] of his judgment, “… Mr McDermott failed to acknowledge the existence of the actual conflict in his appointments, preferring to concede only the ‘perception of conflict’”.

117.Under the AFSL exemption that was previously in place for accountants, Mr McDermott was permitted to provide financial advice without being required to comply with the obligations in s 912A of the Corporations Act. They are obligations that require a person not only to act efficiently, honestly and fairly but to comply with eleven other obligations. Compliance is not simply a matter of doing what one is told when found wanting by a regulatory body or by a Court. It is a matter of doing what one is told when a regulatory body or a Court is not looking at what it is that is being done. It is a matter of knowing the rules, recognising when they apply and following them. It is a matter of behaving with integrity. The pattern of behaviour that Mr McDermott displayed in relation to a considerable number of companies and that is addressed in the judgment of Moshinsky J and to which I have referred is not put it aside by his following the orders that the Judge made. Compliance with the orders was required if he did not wish to face contempt of court proceedings or, perhaps, further proceedings to cancel his registration as a liquidator.

118.Compliance does not illustrate that Mr McDermott has addressed his understanding of his duties as a liquidator, administrator or DOCA administrator in the longer term. The regulatory regime of an AFSL holder is different again. Given his systematic failures in relation to his other professional roles, I am not satisfied that there is no reason to believe that Mr McDermott is likely to contravene the obligations that would apply under s 912A if an AFSL were to be granted. Therefore, he has not satisfied s 913B(1)(b) of the Corporations Act and an AFSL must not be granted to him.

TRANSITIONAL PROVISIONS

119.Since I heard this matter, the Corporations Act has been amended by the Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 with effect from 18 February 2020.  Among the amendments made by the FSR Act were those made by Schedule 4 to Part 7.6 relating to AFSLs.[121] Section 913A was not amended and has provided at all relevant times:

[121] FSR Act; s 3, Schedule 1; Item 2

“A person may apply for an Australian financial services licence by lodging an application with ASIC that:

(a)includes the information required by regulations made for the purposes of this paragraph; and

(b)is accompanied by the documents (if any) required by regulations made for the purposes of this paragraph.

Note:For fees in respect of lodging applications, see Part 9.10.”

120.Section 913B regulates when ASIC may grant an AFSL to a person who has applied under s 913A. Schedule 3 to the FSR Act amended s 913B. One amendment was to impose a requirement that a fit and proper person test is satisfied by an applicant for an AFSL in place of the previous requirement that there was no reason to believe that the applicant was not of good fame or character.[122]  In part, that was achieved by repealing ss 913B(1)(c) and (ca) and substituting a new s 913B(c).  At the same time, the fit and proper person test was added by adding s 913BA and the matters to which ASIC must have regard added in s 913BB.[123] 

[122] FSR Act; s 3, Schedule 3, Item 4

[123] FSR Act; s 3, Schedule 3, Item 7

121.These amendments, which were made by Part 1 of Schedule 3 to the FSR Act, commenced on 18 February 2020.[124] How they affected the holders of existing AFSLs and those who had applied for an AFSL under s 913A but whose application had not yet been granted or refused at the commencement day being 18 February 2018 were the subject of the transitional provisions in Part 10.39 added to the Corporations Act by the FSR Act.[125] Sections 1663 and 1665 are included in Part 10.39.  Section 1663 defines the term “amending Part” to mean Part 1 of Schedule 3 to the FSR Act.  It also defines the “commencement day” to mean the day the amending Part commences.  Section 1665 goes on to provide:

[124] FSR Act; s 2(1); Item 1

[125] FSR Act; s 3, Schedule 3, Item 32 inserting Part 10.39

“Application—applications made before commencement

(1) The following applications made before the commencement day, and not yet granted or refused at the start of the commencement day, are to be dealt with, on and after the commencement day, in accordance with this Act as amended by the amending Part:

(a) an application under section 913A for an Australian financial services licence;

(b) an application under paragraph 914A(2)(b) for conditions on an Australian financial services licence to be imposed, varied or revoked.

(2) A request for information under paragraph 913B(1)(ca) that was made before the commencement day and that has not, at the start of the commencement day, been complied with is taken, on and after the commencement day, to be a request for information under paragraph 913B(3)(a) as amended by the amending Part.”

122.It could be argued that the amendments made by the FSR Act do not apply to Mr McDermott’s application under s 913A because ASIC had already made a decision to refuse his application before the commencement day. That argument relies on the proposition that the fact of ASIC’s having made a decision remains so despite Mr McDermott’s subsequent application to the Tribunal for review of its decision. Against that, it could be argued that the effect of Mr McDermott’s application to require the Tribunal to consider his application without regard to ASIC’s decision so that the application cannot be said to have been either accepted or rejected as at 18 February 2020.

123.Resolution of the two arguments depends on a consideration of the transitional provisions enacted by Parliament and the principles established by the cases that culminated in the High Court’s judgments in Shi v Migration Agents’ Registration Authority[126] (Shi). On its face, s 1665(1)(a) could be said to favour the former argument. It is simply referring to applications under s 913A that have neither been accepted nor refused. There is no room to read in to the provision a qualification that those applications in respect of which an applicant seeks review of ASIC’s decision to refuse are to be regarded as applications that have not been refused.

[126] [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147; Kirby, Hayne, Heydon and Crennan JJ; Kiefel J dissenting

124.Turning to Shi, it was not a case concerned with the changes in the law between the date of the decision-maker’s decision and the Tribunal’s review but with changes in the evidentiary basis and Mr Shi’s circumstances between the date of the decision-maker’s decision and the date of the Tribunal’s review.[127]  Despite that, the High Court’s judgments do throw light on both the Tribunal’s task in undertaking a review and what it is that it is reviewing. 

[127] The case before the High Court concerned a decision that MARA had made under the Migration Act 1958 (Migration Act) to cancel Mr Shi’s registration as a migration agent. Acting under ss 303(1) and 304A of the Migration Act, the Tribunal had decided to set aside MARA’s decision. In its place, the Tribunal substituted a decision cautioning the agent but, provided certain conditions were satisfied, setting that caution aside. In doing so, the Tribunal had regard to matters occurring after the date of the cancellation. MARA argued that it was limited to those facts and circumstances existing at the time of its decision. The High Court decided, however, that the Tribunal was required to have regard to those facts and circumstances existing at the time it makes its decision.

125.The majority had regard to s 43(1) of the AAT Act giving the Tribunal the powers and discretions of the decision-maker when reviewing the decision and to the description by Davies J of the Tribunal’s role being to determine whether “… the decision was the correct or preferable one on the material before …”[128] the Tribunal.  As Kirby J said:

[128] Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60 at 589; 68 cited with approval in Shi v Migration Agents’ Registration Authority [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 103 ALD 467; 82 ALJR 1147; 48 AAR 345 at [43]-[44]; 300; 398; 477; 1156; 356-357 per Kirby J.

“… ultimately, it was for the tribunal to reach its own decision upon the relevant material including any new, fresh, additional or different material that had been received by the tribunal as relevant to its decision.  In effect, this was no more than a consequence of the tribunal’s obligation to conduct a true merits review.”[129]

[129] [2008] HCA (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at 299; 399; 356; 476; 1155

It was also, in his Honour’s view, a consequence of the general obligation placed upon administrative decision-makers to have regard to the best and most current information available.[130]

[130] [2008] HCA (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at 300; 400; 357; 477; 1156

126.Kirby J also had regard to the nature of the decision as did the other members of the High Court.  He emphasised the need to identify the precise nature and incidents of the decision that is the subject of the review and continued:

“… [T]he fact that the review contemplated by s 43 of the AAT Act is one addressed to a ‘decision’, inferentially arising under a different federal enactment, makes it necessary in each case to identify the precise nature and incidents of the decision that is the subject of the review.

Sometimes, it may be inherent in the nature of a particular decision that review of that decision is confined to identified past events.  If, for example, under federal legislation, a pension is payable at fortnightly rests, by reference to particular qualifications that may themselves alter over time, a ‘review’ of an administrative ‘decision’ to grant or refuse such a pension, by reference to statutory qualifications, may necessarily be limited to the facts at the particular time of the decision.”[131]

[131] [2008] HCA (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at 300; 400; 357; 477; 1156

127.Kirby J approved the approach taken in Jebb as the general approach deriving in particular from the statutory function of substituting one administrative decision for another:

“          That issue was raised in Jebb v Repatriation Commission[132], another decision of Davies J, but this time in the Federal Court of Australia, deciding an ‘appeal’ from a decision of the Tribunal on a suggested error of law.  In that case, Davies J found that the Tribunal had fallen into error in considering the applicant’s entitlement to certain benefits exclusively by reference to the state of the evidence at a particular time in the past.  In the relevant statutory context, there was no warrant for doing so.  His Honour said[133]:

[132] (1988) 80 ALR 329; cf Banovich v Repatriation Commission (1986) 69 ALR 395

[133] (1988) 80 ALR 329 at 333-334

‘[T]he general approach of the [T]ribunal has been to regard the administrative decision making process as a continuum and to look upon the [T]ribunal’s function as a part of that continuum so that, within the limits of a reconsideration of the decision under review, the [T]ribunal considers the applicant’s entitlement from the date of application, or other proper commencing date, to the date of the [T]ribunal’s decision.  That function was enunciated in Re Tiknaz and Director-General of Social Services[134].  The approach there taken has since been generally adopted.  In the repatriation jurisdiction, it was applied after Banovich^[[135]^] in Re Easton and Repatriation Commission[136], where … the [T]ribunal … said^[[137]^]:

[134] (1981) 4 ALN N44

[135] (1986) 69 ALR 395

[136] (1987) 6 AAR 558

[137] (1987) 6 AAR 558 at 561 referring to Lucas v Repatriation Commission (1986) 69 ALR 415. See also Fletcher v Commissioner of Taxation (1988) 19 FCR 442 at 453.

‘The ambit of a review by the [Tribunal] is necessarily influenced by the ambit of the steps and proceedings that have taken place prior to its review, for the function of the [Tribunal] is to review a decision.  But provided that the matter is within the ambit of its jurisdiction as a review authority, the general practice of the [T]ribunal is to take account of events that have occurred up to the date of the decision.  Indeed, s 43(1) of the [AAT Act so implies].”’

There is thus a general approach deriving in particular from the statutory function of substituting one administrative decision for another.  Nevertheless, the particular nature of the ‘decision’ in question may sometimes, exceptionally, confine the tribunal's attention to the state of the evidence as at a particular time[138].”[139] 

[138] See also reasons of Hayne and Heydon JJ at [99].

[139] [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at [45]-[46]; 301; 401; 357; 478; 1157

128.     Kirby J then applied these principles to the review of MARA’s decision:

“          The nature and incidents of the decision under review in the present case do not support a contention that the review was limited to the particular time in the past when the decision was made by the Authority. The present was not a case where, of its nature, a decision was made falling to be determined by reference to the state of evidence at a particular time. Both the language of s 303 of the Migration Act and its purpose suggest otherwise.

Section 303 of the Migration Act directs the Authority’s attention, amongst other things, to whether an agent ‘becomes bankrupt’; whether he or she ‘is not a person of integrity’ or ‘otherwise not a fit and proper person’; and whether ‘an individual related by employment to the agent is not a person of integrity’.  Each of these grounds is expressed in the present tense.  Necessarily, the circumstances to which each is addressed could be altered by supervening events.  Thus, the language in s 303 of the Migration Act clearly contemplates the possibility that circumstances may change between an initial decision of the Authority and a subsequent decision of the Tribunal, performing the ‘review’ which s 306 of the Migration Act contemplates and for which s 43 of the AAT Act provides ....

Circumstantial changes may sometimes be adverse to an applicant before the Tribunal.  Given the Tribunal’s powers in certain circumstances to make a decision ‘in substitution for’ a decision of the Tribunal which has been set aside upon review, it would be remarkable if the substituted decision could not take into account evidence of relevant, and even critical, supervening events.  Such events might include the intervention of bankruptcy, or a criminal conviction for an offence of dishonesty of significance for the continued registration of the agent under the Migration Act.

This reasoning is further strengthened by an appreciation that the fundamental object of the exercise of the Authority’s power to cancel or suspend the registration of an agent under the Migration Act is the protection of the section of the public that deals with migration agents. It is not, as such, the punishment of agents …. This object is best achieved by the Tribunal making its decision upon the most up to date material available to it at the time of its own decision.  It would be impeded if the Tribunal were confined to the facts and circumstances subsisting at the time of the Authority’s original decision weeks, months or even years in the past.

Moreover, to the extent that the essential function of the Tribunal is to provide a review ‘on the merits’, conducting such a review on the basis of the most up to date evidence available is conformable with the basic objectives of the AAT Act.  In this particular context, the contrary approach, urged by the Authority, would be likely to attract the very criticisms addressed to the law predating that Act in the report of the Commonwealth Administrative Review Committee ….”[140]

[140] [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at [47]-[51]; 301-305; 401-402; 357-358; 478-479; 1157 citations omitted

129.Hayne and Heydon JJ took the same approach as Kirby J saying:

“          Nothing in the provisions of the Migration Act fixed a particular time as the point at which a migration agent’s fitness to provide immigration assistance was to be assessed.  Unlike some legislation providing for pension entitlements,^[[141]^] in which the critical statutory question is whether a criterion was met or not met at a particular date, such as the date of cancellation of entitlements, the provisions of s 303 of the Migration Act contained no temporal element.  It follows that when the Tribunal reviews a decision made under s 303, the question which the Tribunal must consider (is the Tribunal satisfied that the person concerned is not a fit and proper person to give immigration assistance?) is a question which invites attention to the state of affairs as they exist at the time the Tribunal makes its decision. …”[142]

[141] See, eg, Freeman v Secretary, Department of Social Services (1988) 19 FCR 342; 9 AAR 255

[142] [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at [101]; 315; 413; 369-370; 490; 1165

130.Kiefel J, with whom Crennan J agreed on this point, came to the same conclusion regarding the Tribunal’s ability to have regard to evidence of conduct subsequent to MARA’s decision. It could have regard to it in so far as it concerned the question under s 303(1)(f) as to Mr Shi’s integrity and fitness to continue as a registered migration agent.[143]  Her Honour’s path to that conclusion is a little different at the outset but converges with it a little later.  Like the majority, Kiefel J placed some emphasis on s 43(1) of the AAT Act.  She began with the principles established by the Full Court of the Federal Court in Drake v Minister for Immigration and Ethnic Affairs[144] saying:

[143] Kiefel J dissented on the second issue i.e. whether the Tribunal had power to issue a caution to the migration agent.

[144] (1979) 46 FLR 409

“          The reasons of the members of the Full Court of the Federal Court in Drake v Minister for Immigration and Ethnic Affairs confirm what is apparent from s 43(1), that the Tribunal reaches its conclusion, as to what is the correct decision, by conducting its own, independent, assessment and determination of the matters necessary to be addressed.[145]  To the contrary of the argument put by the respondent on this appeal, that the Tribunal’s exercise of power is dependent upon the existence of error in the original decision, Smithers J denied that the Tribunal was limited to something of a supervisory role.  As his Honour said, the Tribunal is authorised and required to review the actual decision, not the reasons for it.[146]  In considering what is the right decision, the Tribunal must address the same question as the original decision-maker was required to address.[147]  Identifying the question raised by the statute for decision will usually determine the facts which may be taken into account in connection with the decision.  The issue is then one of relevance, determined by reference to the elements in the question, or questions, necessary to be addressed in reaching a decision.  It is not to be confused with the Tribunal’s general procedural powers to obtain evidence.  The issue is whether evidence, so obtained, may be taken into account with respect to the specific decision which is the subject of review. 

[145] Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 40 at 421-422 per

[146] Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 at 429-430.

[147] Hospital Benefit Fund of WA Inc v Minister for Health, Housing and Community Services (1992) 39 FCR 225 at 234; 16 AAR 566; 28 ALD 50 at 234; 575; 59; Wilcox, Burchett and French JJ

Where the decision to be made contains no temporal element, evidence of matters occurring after the original decision may be taken into account by the Tribunal in the process of informing itself.  Cases which state that the Tribunal is not limited to the evidence before the original decision-maker, or available to that person, are to be understood in this light.[148]  It is otherwise where the review to be conducted by the Tribunal is limited to deciding the question by reference to a particular point in time.[149]

[148] See, e.g., Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 at 419 per Bowen CJ and Deane J; Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 at 453; Jebb v Repatriation Commission (1988) 8 AAR 285 at 289-290; Hospital Benefit Fund of WA Inc v Minister for Health, Housing and Community Services (1992) 39 FCR 225 at 234; 16 AAR 566 at 575; Comptroller-General of Customs v Akai Pty Ltd (1994) 50 FCR 511; 20 AAR 10 at 521; 20-21.

[149] Comptroller-General of Customs v Akai Pty Ltd (1994) 50 FCR 511; 20 AAR 10 at 521; 20-21.

In Freeman, Davies J identified the importance of the nature of the decision under review, in determining what facts the Tribunal might take into account.[150]  A decision had been made to cancel Mrs Freeman’s widow’s pension.  The definition of ‘widow’, in the Act providing for the pension, did not include a widow who was living with a man, as his de facto wife.  That circumstance applied to Mrs Freeman at the time of the decision.  That was sufficient to disentitle her from receipt of a pension.  The statutory scheme was such that a pension, once cancelled on this ground, could only be reinstated on a further claim being made.[151]  Subsequent to the cancellation decision Mrs Freeman’s circumstances changed, such that she again qualified for the pension.  His Honour held the Tribunal to have been correct to limit its consideration to the circumstances existing at the time the decision to cancel was made.  The Tribunal was entitled to take into account all the facts placed before it, but the issue was whether the decision it was reviewing, to cancel the pension, was the correct or preferable decision when it was made.  It was not whether Mrs Freeman had an entitlement to a widow’s pension at the date of the Tribunal’s decision.[152]

[150] Freeman v Secretary, Department of Social Security (1988) 19 FCR 342 at 345; 9 AAR 255 at 258.

[151] As Davies J observed: Freeman v Secretary, Department of Social Security (1988) 19 FCR 342; 9 AAR 255 at 345; 258.

[152] Freeman v Secretary, Department of Social Security (1988) 19 FCR 342; 9 AAR 255 at 344; 258.

The situation in Freeman was distinguished by Davies J from cases where the matter to be determined is a person’s entitlement to a pension.[153]  Where that was the decision to be reviewed the Tribunal might not be limited to facts existing at a particular time, since the entitlement might be a continuing one.  His Honour did not suggest, by this comparison, that the ambit of the decision to be reviewed was to be determined by a general description of what the decision concerned – a grant or a cancellation of an entitlement.  In each case what is entailed in a decision is to be ascertained by reference to the statute providing for it.

[153] Freeman v Secretary, Department of Social Security (1988) 19 FCR 342; 9 AAR 255 at 345; 258.

The question which here arose for the Authority under s 303(1), which it answered, was whether it should exercise its powers, under paras (a) to (c) of the sub-section, because the grounds in paras (h) and (f) were established, in particular because the appellant had breached the Code of Conduct.  That part of the decision which comprises the finding, that the ground in para (h) had been made out, was referable to conduct which had occurred to a point in time.  That is the nature of the finding required by the provision.  It follows that the Tribunal was restricted to a consideration of events to that point and not those occurring later, in determining for itself whether there had been non-compliance with the Code.  The appellant accepted as much in his submissions.

There is another restriction which operates with respect to the evidence the Tribunal may consider as to this ground.  The effect of the restriction appears to have been assumed in argument.  The Tribunal does not acquire all the powers of the Authority, but only those necessary to review the decision made by it.[154]  The Authority’s decision concerned particular conduct of the appellant, which it had investigated.  The Tribunal does not have all the Authority’s disciplinary powers, and does not have its investigatory powers for the purposes given by the Migration Act.  The question for the Tribunal is not whether there has been a breach by the appellant of the Code in any respect, but whether those identified by the Authority are established.  It may use its own evidence-gathering powers to further inform itself about those matters, but those powers do not translate to general investigatory powers and cannot be used to ascertain other, inculpatory, conduct.”[155]

[154] Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 at 452.

[155] [2008] HCA 31; (2008) 235 CLR 286; 248 ALR 390; 48 AAR 345; 103 ALD 467; 82 ALJR 1147 at [141]-[147]; 328; 424; 379-381; 501; 1173

131.It seems to me that the following principles can be drawn from these judgments:

(1)The application of the general principles is subject to the particular legislative context in which the decision under review was made and in which it is being reviewed.

(2)The decision that the Tribunal must review is determined by reference to the statutory provisions conferring jurisdiction on it:

(a)For example, the decision reviewed by the Tribunal may be only one of the decisions that the original decision-maker is required to make in resolving an application made to it.

(3)The Tribunal will address the same issues or questions as those addressed by the original decision-maker:

(a)It does not address the same decision and so does not characterise the decision as, for example, a cancellation decision or an entitlement decision and address those same issues or questions in light of that characterisation.[156] 

[156] In this, the High Court has moved from the way in which the Tribunal’s task was identified by reference to the decision made by the original decision-maker in Freeman v Secretary, Department of Social Security [1988] FCA 294; (1988) 19 FCR 342; 87 ALR 506; 15 ALD 671; 9 AAR 255 (Davies J); Re Tiknaz and Director-General of Social Services (1981) 4 ALN N44 (Davies J, President, Senior Member Ballard and Dr Garlick, Member); Jebb v Repatriation Commission [1988] FCA 105; (1988) 80 ALR 329; 8 AAR 285 (Davies J); Re Easton and Repatriation Commission (1987) 12 ALD 777; 6 AAR 558 (Davies J)

(4)Unless there is a temporal element in the legislation requiring a contrary conclusion, the Tribunal will review a decision as at the date it conducts that review and reaches its own decision.

(5)The Tribunal may have regard to evidence on issues and matters up to the date of its decision on review; and

(6)The task of the Tribunal:

(a)is to reach a decision that is the correct or preferable decision i.e. the decision that is correct according to the law and on the evidence and, where more than one decision meets that description, the decision that is preferable having regard to the limits imposed by the legislation under which the decision is made and the facts of the case; and

(b)is not to decide whether the decision under review is itself the correct or preferable decision.

132.Applying these principles to the amendments made by the FSR Act to the review of a decision refusing an AFSL applied for under s 913A of the Corporations Act, it seems to me that in the context of this case, two of the principles assume particular importance. The first is that established by the Full Court in Hospital Benefit Fund of WA Inc v Minister for Health, Housing and Community Services and approved by the High Court.  It is that the Tribunal must address the same question that the original decision-maker was required to address.  In this case, that question is whether Mr McDermott should have been granted or refused an AFSL.  The answer depended on whether he met the qualifications for an AFSL.

133.The second principle of particular importance is that administrative decision-making, including merits review of administrative decision-making is a continuum.  This principle was considered by Davies J in Jebb v Repatriation Commission[157] when he said, as quoted by Kirby J in Shi:[158]

[157] [1988] FCA 105; (1988) 80 ALR 329; 8 AAR 285

[158] See [125] above

“[T]he general approach of the [T]ribunal has been to regard the administrative decision making process as a continuum and to look upon the [T]ribunal’s function as a part of that continuum so that, within the limits of a reconsideration of the decision under review, the [T]ribunal considers the applicant’s entitlement from the date of application, or other proper commencing date, to the date of the [T]ribunal’s decision.  …”[159]

[159] [1988] FCA 105; (1988) 80 ALR 329; 8 AAR 285 at 109; 333; 289

134.There are two interwoven strands in the continuum in which the Tribunal must address the same question that the original decision-maker was required to address.  One is the evidentiary strand that is the main focus of the consideration in Shi.  The other is the legal framework in which the Tribunal conducts the review.  It is Parliament that determines the legal framework and whether there are changes to it during the course of the continuum.  That is a matter of statutory interpretation.

135.Parliament has done this in s 1665 but its application is not patently clear in the context of the merits review of a decision refusing an application under s 913A. That is to be contrasted with the amendments made to provisions relating to existing holders of AFSLs. Section 1664(1) was quite clear when it provided:

“Subject to this section, the amendments made by the amending Part apply on and after the commencement day to a financial services licensee whose licence was granted before, on or after the commencement day.”

There could be no doubt that not only ASIC but also the Tribunal had to have regard to the relevant provisions of the Corporations Act as amended by the FSR Act.

136.Given the uncertainty of s 1665 and consistently with to s 15AB(1)(b)(i) of the Acts Interpretation Act 1901 (AI Act),[160] I have turned to the Explanatory Memorandum and the Second Reading Speech relating to the Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Bill 2019 (FSR Bill).  The Second Reading Speech was delivered on 28 November 2019 by the Treasurer, the Hon Josh Frydenberg MP.  He noted at the outset that:

[160] Section 15AB(1)(b)(i) provides: “Subject to subsection (3), in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material:

“The Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Bill 2019 forms part of the government’s comprehensive response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which is set out in the Financial Services Royal Commission Implementation Roadmap released on 19 August 2019.

Since the release of the royal commission final report, the government has implemented 16 of the commitments it outlined in its response. …”[161]

[161] Hansard, House of Representatives, 28 November 2019; 6344-6345

137.     One of the specific purposes of the Bill was to strengthen ASIC's licensing powers.[162]       Later in his Second Reading Speech, the Treasurer developed that purpose:

[162] Hansard, House of Representatives, 28 November 2019; 6344-6345

“Strengthening ASIC's licensing powers will ensure that credit and financial service licensees, and the people who control them, are fit and proper to be carrying on a financial services business.  Ensuring that controllers such as significant shareholders are fit and proper is essential in deciding whether a licence should be granted or retained.”[163]

[163] Hansard, House of Representatives, 28 November 2019; 6345

138.The Explanatory Memorandum said of the insertion of s 1665 in the Corporations Act:

“AFS licence applications made before commencement

4.175     The amendments apply to AFS licence applications made, but not granted, before commencement.  That is, an applicant will be required to provide further information in order to satisfy the new tests that apply from commencement.

4.176     ASIC will work with existing applicants during the transition period to ensure that the applicant is clear on the information that must be provided.”

139.The Second Reading Speech points to the government’s moving to implement the commitments it had made in response to the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.  Both the Explanatory Memorandum both point towards Parliament’s intention that the amendments made by the FSR Act to the licensing requirements are intended to apply to those licence applications made but not granted before commencement day on 18 February 2020.  That conclusion is consistent with an intention that s 1665 is intended to be read as applying not only to ASIC’s original decision when considering an application that had been made, but not resolved, before 18 February 2020 but to the review of a decision not granting – and so refusing – an application.

DECISION

140.For the reasons I have given, I affirm the decision made by a delegate of ASIC on 9 November 2017 to refuse Mr McDermott’s application dated 30 March 2016 for an AFSL.

I certify that the preceding one hundred and forty [140] paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie.

................[sgd].................................................

Associate
Dated: 27 August 2020

Date of hearing:

1 November 2018

Counsel for the Applicant:

Solicitor for the Applicant:

Counsel for the Respondent:

Mr Michael Galvin QC
with Mr James Davaris

Mr Paolo Tatti
WMB Lawyers

Mr Paul Liondas

Solicitor for the Respondent:

Ms Elizabeth Lee
Australian Securities and Investments Commission

Bowen CJ and Deane J; at 429-430 per Smithers J; and see Nevistic v Minister for Immigration and Ethnic Affairs (1981) 51 FLR 325 at 336 per Deane J.

(a)        …
(b)        to determine the meaning of the provision when:

(i)         the provision is ambiguous or obscure;

(ii)        …”