Michael Osborne v Australian Securities & Investments Commission
[2000] AATA 917
•20 October, 2000
CATCHWORDS – DEALERS LICENCE – access to security deposit held by ASIC – whether applicant suffered pecuniary loss due to failure of dealer to carry on business under its dealers licence adequately and properly – decision affirmed.
Corporations Law – ss 9, 18, 19, 20, 21, 51, 92, 780, 782, 786, 825, 826, 1022, 1084,
Corporations Regulations – r 7.3.04, 7.12.12,
Income Tax Assessment Act 1936 – ss 6, 51
Capricorn Financial Planners Pty Ltd v ASIC (1999) 17 ACLC 855; (1999) 31 ACSR 46
Ferguson v Federal Commissioner of Taxation (1979) 79 ATC 4,261; (1979) 37 FLR 310; (1979) 26 ALR 307; (1979) 9 ATR 873
Hyde v Sullivan and Others [1956] S.R. (NSW) 113
Schwerdt v Australian Securities Commission (1997) 15 ACLC 1,245
DECISIONS AND REASONS FOR DECISIONS [2000] AATA 917
ADMINISTRATIVE APPEALS TRIBUNAL )
) Q1999/527
GENERAL ADMINISTRATIVE DIVISION )
Re MICHAEL OSBORNE
Applicant
AndAUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal Miss S A Forgie (Deputy President)
Date 20 October, 2000
Place Brisbane
DecisionThe Tribunal affirms the decision of the respondent dated 12 April, 1999.
S A FORGIE
Deputy President
REASONS FOR DECISION
On 11 May, 1999 the applicant, Mr Michael Osborne, applied for review of a decision of the Australian Securities and Investment Commission ("the Commission") which was dated 12 April, 1999 and which affirmed its earlier determination dated 1 March, 1999. That decision refused to meet the claim made by Guanaba Nominees Pty Ltd ("Guanaba Nominees") upon the security deposit of Thoroughbred Racing Syndicates Pty Ltd ("Thoroughbred Racing Syndicates"). Since 27 November, 1997, Thoroughbred Racing Syndicates has been known as Racing Syndicates Pty Ltd.
At the hearing, Mr Osborne, who is the sole director and shareholder of Guanaba Nominees, represented himself. The Commission was represented by its advocate, Ms Binstead. The documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") were admitted in evidence. Also admitted were a copy of the Class Order relating to horse racing schemes (CO 91/242 as amended by CO 92/327) and a copy of the Dealers Licence granted to Thoroughbred Racing Syndicates on 12 June, 1996. During the hearing, regard was had to a bundle of documents submitted by Mr Osborne and to literature prepared by the Queensland Principal Club ("QPC") in relation to the syndication of a race horse.
THE ISSUE
The issue in this case is whether a security lodged with the Commission in relation to a licence held in relation to Thoroughbred Racing Syndicate's dealers licence should be applied to compensate Guanaba Nominees. As there is no question that Guanaba Nominees has suffered a pecuniary loss, that issue requires consideration of two subordinate issues. The first is whether that pecuniary loss is due to the failure of Thoroughbred Racing Syndicates to carry on business under its dealers licence. If that is so, the second issue is whether Thoroughbred Racing Syndicates' failure is to carry on its business under its dealers licence adequately and properly.
LEGISLATIVE BACKGROUND
Part 7.3 of Chapter 7 of the Corporations Law is concerned with participants in the securities industry. Section 780 provides that a person must not carry on, among others, a securities business unless the person holds a dealers licence or is an exempt dealer. A "securities business" is a "… business of dealing in securities" (ss. 9 and 93(1)). At the time that Guanaba Nominees lent the money at the heart of these proceedings, "securities" was defined to include, among others, "prescribed interests" (ss. 9 and 92(1)). Subject to certain exemptions that are not relevant in this case, s. 9(a) provided that the meanings of the expression "prescribed interest" included "a participation interest". Again subject to certain exceptions that do not apply in this case, a "participation interest" was defined to mean:
"… any right to participate, or any interest:
(a)in any profits, assets or realisation of any financial or business undertaking or scheme whether in Australia or elsewhere;
(b)in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or
(c)in any investment contract;
whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset, …"
On 1 July, 1998 and so shortly before Mr Osborne first wrote to the Commission seeking to claim upon the security deposit, s. 92(1) was amended. It no longer referred to "prescribed interests" or to "participation interests" but to "interests in a managed investment scheme". Subject to certain exceptions that are not relevant, a "managed investment scheme" is defined to mean:
"(a) a scheme that has the following features:
(i)people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not)
(ii)any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders)
…".
For the purposes of this case, the amendments make no material difference.
Where a body corporate makes an application for a dealers licence under s. 782, the Commission must issue a licence if it meets the criteria set out in s. 784. That dealers licence may be issued subject to any conditions and restrictions as are prescribed and, subject to s. 837, those that the Commission may impose when granting the licence or at any time it is in force (s. 786(1)). Among the conditions that may be imposed is:
"a condition requiring the holder of a dealers licence … to lodge and maintain with the Commission a security approved by the Commission for such amount not exceeding the prescribed amount as is, from time to time, determined by the Commission in relation to the holder of that licence;" (s. 786(2)(d)).
Where a security is lodged with the Commission in accordance with a condition in a dealers licence, s. 786(9) provides that "… the security may be applied by the Commission in such circumstances, for such purposes and in such manner as is prescribed." That brings me to r. 7.3.04 of the Corporations Regulations which sets out the circumstances and purposes for which the security may be applied. Regulation 7.3.04(1) provides that:
"… For the purposes of subsection 786(9) of the Corporations Law, a security lodged with the Commission in relation to a licence may be applied by the Commission in accordance with this regulation to compensate a person who has suffered pecuniary loss due to the failure of the licensee, or an agent or employee of the licensee, to carry on business under the licence adequately and properly."
The regulation also makes provision for the manner in which a claim is to be made and determined. Regulation 7.3.04(6) provides for the manner in which the amount of the pecuniary loss that a person may claim:
"… For the purposes of this regulation, the amount of pecuniary loss that a person may claim is the amount worked out using the formula:
loss + costs – other entitlements
where:
'loss' means the pecuniary loss suffered by the person;
'costs' means the total of the amounts that the Commission thinks are:
(a)the reasonable costs of; and
(b)disbursements of a reasonable amount that are incidental to;
making and proving the claim;
'other entitlements' means the amount or value of all moneys and other benefits paid or payable to the person by a person other than the Commission in reduction of the pecuniary loss. …"
The Corporations Law imposes certain obligations upon the holder of a dealers licence but they are not relevant to consider in this case. The Commission may revoke a dealers licence held by a body corporate in the circumstances set out in ss. 825 and 826. Of relevance in this case is s. 825(a) which provides that the Commission may revoke a licence held by a body corporate if the body ceases to carry on business.
Part 7.12 of Chapter 7 of the Corporations Law is concerned with offering securities for subscription or purchase. Division 2 sets out the requirements in relation to prospectuses, Division 3 is concerned with restrictions on the allotment and variation of contracts, Division 4 regulates debentures, Division 5 regulates prescribed interests and Division 6 restricts hawking securities. Section 1084(2) provides that, in relation to Divisions 2, 3, 4, 5 and 6, the Commission may, by writing, exempt a particular person or persons or a particular class of persons from compliance with all or any of their provisions and those of any regulations made for the purposes of those Divisions. The exemption may be unconditional or subject to conditions. Section 1084(6) provides that those Divisions and regulations may be modified in relation to such persons.
BACKGROUND
There was no disagreement between the parties as to the facts in this case but, rather, as to the legal consequences of those facts. With that in mind, and based on the evidence in the documents, I have made a number of findings of fact that I will now set out.
On certain conditions, Class Order CO 91/242 as amended by CO 92/327 exempts each person listed in Schedule A ("the promoter") in the cases referred to in Schedule B from compliance with Divisions 2, 3 and 5 of Part 7.12 of the Corporations Law (other than s. 1022) and regulations made for the purposes of those Divisions (other than r. 7.12.12). Schedule A lists any person who is registered by a lead regulator as the promoter of a scheme of the kind prescribed in Schedule B and who holds a dealers licence which was granted by the Commission under Part 7.3 of the Corporations Law and which was subject to conditions and restrictions for the purpose of allowing the promotion of horse racing syndicates.
The type of scheme described in Schedule B is:
"The issue, offer for subscription or purchase, and issue of invitations to subscribe for or buy any prescribed interest being a right to participate, or an interest, in a scheme:
(i)the principal purpose of which is the racing of a horse or horses ('the scheme horses') named and (prior to any offer or invitation in relation to the scheme) described in a disclosure statement which complies with Condition 2 of this exemption;
(ii)in respect of which there are at no time more than 20 participants;
(iii)in respect of which the total amount sought by way of subscriptions from participants does not exceed $250,000.00;
(iv)in respect of which the disclosure statement which complies with Condition 2 of this exemption in respect of the scheme contains an undertaking by the Promoter that the Promoter will:
(a)within 45 days of the scheme being fully subscribed, register the scheme with the Lead Regulator; and
(b)prior to registration of the scheme with the Lead Regulator, ensure that the participants in the scheme either have unencumbered title to the whole of the scheme horses or lease the whole of the scheme horses pursuant to a finance lease agreement in a standard form;
(v)which is subject to terms to the effect of those described in Schedule C ('the Terms') and which contains provision that the Terms may not be excluded, modified or varied without the written agreement of all participants in the scheme;
(vi)in respect of which a disclosure statement is approved by a lead regulator on or after the date of this instrument," (Exhibit 2)
The "lead regulator" means any one of the clubs, councils, authorities, associations or boards listed in the Class Order. Among those is the Queensland Principal Club ("QPC") that registered Thoroughbred Racing Syndicates as the promoter of a scheme of a type described in Schedule B of the Class Order.
The QPC has issued documents setting out the steps in offering a horse racing syndicate. As part of the application to be placed on the register of approved promoters, the applicant agreed to be bound by three conditions. One of those conditions was that the "licence" (i.e. entry on the register) might be revoked at any time by the QPC without giving any reason for that revocation.
The QPC has also produced a document setting out the steps to be followed in offering a horse racing syndicate after the promoter has met its requirements for registration on its register of promoters for horse racing syndications. Either before or after receiving a dealers licence while in the course of applying for a dealers licence, the promoter will purchase the horse or horses for the purpose of syndication. The total syndicated value of the scheme horse or horses must not exceed $250,000.00. The promoter must lodge a statement with the QPC stating whether it would manage the scheme itself or, if not, that a participant in the scheme will be required to manage it in accordance with the terms of any agreement governing the scheme approved by the QPC. The promoter must obtain the QPC's approval for all documentation including the disclosure statements setting out full details of the scheme including the promoter, the horse, its purchase price, the trainer, the estimate of past and ongoing expenses and any encumbrances on the horse. In a form approved by the QPC, the promoter may advertise for prospective syndicate members. The number of members must not exceed 20 persons. Prior to the registration of the scheme with the QPC, all members of the scheme must either have an approved unencumbered title to the whole of the scheme horse(s) or lease the scheme horse(s) pursuant to a finance lease agreement in a standard form. The promoter must register the scheme with the lead regulator within 45 days of its being fully subscribed. If it is not fully subscribed within 6 months of the date on which the QPC approved the disclosure statement, the promoter must, within 10 days, repay all subscriptions with any interest.
On 12 June, 1996, Thoroughbred Racing Syndicates was granted a restricted (Horse Racing Schemes) dealers licence (Exhibit 3). Under that licence, it was not able to carry on a securities business, hold itself out as carrying on a securities business, carry on an investment advice business or hold itself out as an investment adviser other than in respect of schemes of the kind described in Schedule B of the exemption granted by the Commission pursuant to s. 1084(2). Among the conditions on which the dealers licence was issued was that Thoroughbred Racing Syndicates maintain with the Commission a security approved by the Commission for the amount of $10,000.00. Under the hand of one of its directors, Mr Paul Hogan, Thoroughbred Racing Syndicates had executed a performance bond issued by the National Australia Bank as to that security on 11 June, 1996 (T documents, pages 23-25).
Mr Osborne had known Mr Skinner, who was with Thoroughbred Racing Syndicates, since 1993. Mr Skinner is his niece's partner and he was aware that Mr Skinner dealt in securities. On five occasions, Mr Osborne had given Mr Skinner money to lend to five corporate clients whom, he said, required small, short term loans as bridging finance. Each of the loans failed.
When approached about lending money to Thoroughbred Racing Syndicates, Mr Osborne asked Mr Skinner for his assurance that he had no direct involvement with it. Mr Osborne understood Mr Skinner to give him that assurance but Mr Skinner had stated in a proposal to Mr Marek Cygan that he was a shareholder in the company (T documents, pages 49-50).
On 18 August, 1997, Thoroughbred Racing Syndicates applied in writing to Guanaba Nominees for an unsecured loan of $8,000.00. The loan was to be repaid on or about 23 September, 1997 in the sum of $9,600.00. Mr Skinner sent a facsimile message to Mr Osborne of Guanaba Nominees regarding Thoroughbred Racing Syndicates. It asked him to deposit a bank cheque in a named account. The note also stated that Mr Skinner held "… papers to the thoroughbreds which have been sold for a total of $60,000.00 from TRS…" (T documents, page 10). Mr Skinner also said that he "… had inspected the horses and they are free and unencumbered." (T documents, page 10) He asked Mr Osborne to sign the attached authority and to return it to him. The authority was printed on Banko Pacific letterhead, which was Mr Skinner's business name. It was directed to the National Australia Bank by Thoroughbred Racing Syndicates and authorised the bank to pay Guanaba Nominees immediately upon "Settlement of Sale funds due on or about 23 September 1997." (T documents, page 11) The authority was signed by Mr Osborne and purported to be signed by Mr Hogan. Mr Skinner witnessed both signatures. On 19 August, 1997, Mr Osborne deposited a cheque for $8,000.00 in the named account held by Thoroughbred Racing Syndicates. That same day, he advised Mr Skinner of the payment.
When Thoroughbred Racing Syndicates was unable to repay the loan to Guanaba Nominees by 2 October, 1997, Mr Skinner told Mr Osborne that Mr Hogan was having temporary difficulties in obtaining funds from his completed thoroughbred horse sales. At that time, Mr Hogan was a director of the company and remained so until 4 October, 1987 (T documents, page 18). Mr Skinner asked that the term of the loan be extended until 3 December, 1997 when he would repay a total of $10,000.00 as the principal and interest. Mr Skinner sent another disbursement authority to Guanaba Nominees. It was again on the letterhead of Banko Pacific and in similar terms to the earlier authority. It was for the sum of $10,000.00 (T documents, pages 14). Again, it was purported to be signed by Mr Hogan on behalf of Thoroughbred Racing Syndicates. Mr Skinner witnessed both that signature and that of Mr Osborne.
A condition of Thoroughbred Racing Syndicate's dealers licence was that it be registered as a promoter of Schemes with a lead regulator unconditionally or subject only to the condition that the licence be granted. On 20 January, 1998, the Queensland Principal Club advised the Commission that Thoroughbred Racing Syndicates was no longer on its register of approved promoters of horse racing syndicates. The Queensland Principal Club had revoked it on the basis that Thoroughbred Racing Syndicates had failed to keep syndicate records up to date and to pay the promoter's fee of $60.00.
Guanaba Nominees was not paid its loan by the due date or at all. On 16 July, 1998, Mr Osborne wrote a letter to the Commission in support of a claim by Guanaba Nominees for payment of the sum from the security deposit held by the Commission.
Thoroughbred Racing Syndicates was deregistered by the Commission on 8 February, 1999 (T documents, page 17).
CONSIDERATION
The first issue to consider is whether Guanaba Nominee's pecuniary loss is due to the failure of Thoroughbred Racing Syndicates to carry on business under its dealers licence within the meaning of r. 7.3.04 of the Corporations Regulations. That raises an initial question as to what is meant by "carry on business".
Division 3 of Part 1.2 of the Corporations Law prescribes certain circumstances in which a person is regarded as carrying on business. Sections 18, 19 and 20 define related terms in terms of "carrying on business" or "business". Subject to certain exceptions, s. 21 provides that a body corporate "carries on business in Australia …" if it has a place of business in Australia, it establishes or uses a share transfer office or a share registration office in Australia or it administers, manages or deals with property in Australia (s. 21(2)).
In the context of this case, there was no dispute between the parties that Thoroughbred Racing Syndicates carried on business. The issue, however, is whether it carried on business under its dealers licence. Section 19 provides that "A reference to a business of a particular kind includes a reference to a business of that kind that is part of, or is carried on in conjunction with, any other business." Whether it is carrying on solely a business under its dealers licence or whether it is doing so as part of, or in conjunction with, any other business, still leaves open the question of what is meant by the expression "carrying on business".
That expression has been considered in various contexts. In Hyde v Sullivan and Others [1956] S.R. (NSW) 113 (Street CJ, Roper CJ in Eq. and Herron J) it was said in the context of s. 3 of the Money-Lenders and Infants Loans Act 1941 that:
"Speaking generally, the phrase 'to carry on business' means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit, and implicit in this idea are the features of continuity and system." (page 119)
The second limb of the sub-section 51(1) of the Income Tax Assessment Act 1936 required consideration of the expression "carrying on business". In Ferguson v Federal Commissioner of Taxation (1979) 79 ATC 4,261, Bowen CJ and Franki J set out the definition of "business" in sub-section 6(1) of the Income Tax Assessment Act 1936. It is that
"'business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee;"
Their Honours then summarised the effect of the authorities at the time:
"... This does not afford much assistance in the present case. There are many elements to be considered. The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profit-making in a particular income year does not appear to be essential. Certainly it may be held a person is carrying on business notwithstanding his profit is small or even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin and even isolated activities may in the circumstances be held to be the commencement of carrying on business. Again, organization of activities in a business-like manner, the keeping of books, records and the use of system may all serve to indicate that a business is being carried on. The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business, even though his operations are fairly substantial. See generally, Trautwein v. F.C. of T. (No. 2) (1936) 56 CLR 196; Tweddle v. F.C. of T. (1942) 7 ATD 186; Fairway Estates Pty Ltd v. F.C. of T. 70 ATC 4061; (1970) 123 CLR 153; Thomas v. F.C. of T. 72 ATC 4094; (1972) 46
ALJR 397 especially at pp. 4098-4100; 399-401 in all of which cases it was held the taxpayer was carrying on business; and Martin v. F.C. of T. (1953) 90 CLR 470 in which it was held the taxpayer was not carrying on business." (pages 4,264-4,265)
Fisher J in Ferguson specifically considered whether the fact that Mr Ferguson had intended to carry on a business of cattle raising or of primary production on his own land precluded a finding that he was also carrying on business at an earlier stage when he was building up a herd on leased land. He said:
"... A person may conduct a business, albeit of a limited nature, the activities of which business are preparatory to or in preparation for the conduct of another business on a larger scale. The question is whether the more limited activities at the earlier stage, standing alone, constitute a business." (page 4,269)
In Schwerdt v Australian Securities Commission (1997) 25 AAR 461, Deputy President Burns considered the meaning of the expression "to carry on business under the licence" within the meaning of r. 7.3.04 of the Corporations Regulations:
"The phrase 'business under the licence' in r. 7.3.04(1) includes all the activities required of a licensee in order to satisfy the licence. These activities include, but are not necessarily limited to, marketing the syndicate, selling the shares in the syndicate, forming the syndicate and complying with the reporting requirements under the licence and the exemption. Not included are all the tasks that properly fall to the syndicate manager – that is, the person responsible for the day to day operation of the syndicate once it is formed." (page 473)
The provisions of r. 7.3.04 of the Corporations Law were also considered by Burchett J in Capricorn Financial Planners Pty Ltd v Australian Securities and Investments Commission and Anor (1999) 17 ACLC 855. The facts were set out in the headnote to the report:
"Capricorn Financial Planners held an unrestricted dealers licence and provided financial planning and investment advisory services. Mr White was a representative of Capricorn and had been granted a proper authority under sec 806(b) of the Law. After he became a representative of Capricorn, Mr White advised an investor to make investments that proved to be unsuccessful (the investments were in companies associated with Mr White). The investments were not on Capricorn's list of approved products, and Capricorn was unaware of the transactions and received no commission or other financial benefit. When the transactions came to Capricorn's attention, it terminated Mr White's proper authority.
The investor sought redress from the Commission. The Commission compensated the investor from Capricorn's security deposit lodged pursuant to sec 786(9) of the Law. Capricorn asked the AAT to review the Commission's decision. The AAT affirmed the Commission's decision. Capricorn appealed claiming that the AAT erred in law. Capricorn argued that the business being carried on by Mr White was not Capricorn's business; and that a mere connection between Mr White and Capricorn was not sufficient to constitute him an agent." (page 855)
There were three bases upon which Burchett J found that the Tribunal had correctly affirmed the Commission's decision to compensate the investor from Capricorn's security deposit. The first was stated as follows:
"9. As I have shown, a literal construction of regulation 7.3.04(1) would make it applicable to cases such as the present on the straightforward basis that it embraces a situation where a loss is due to the failure of an agent of the licensee to carry on business under the licence adequately and properly. To divert a customer from the making of an appropriate investment to the making of an ill-advised one, outside the range of investments approved by Capricorn, and in disregard of a conflict of interest, plainly involved such a failure. …" (page 858)
On the assumption that Capricorn was correct in maintaining that there needed to be a direct relationship between the particular transaction and its business, the second basis of Burchett J was:
"… By s 94(3), Mr White was acting as a securities representative of Capricorn when he acted 'in connection with [the] securities business', while being a securities representative, and 'as … agent of' Capricorn. That his activity fell within the words 'in connection with [the] securities business' is confirmed by the judgment of Gibbs CJ (with whom Wilson and Dawson JJ agreed) in Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371 at 376. Gibbs CJ referred to s 97 of the Securities Industry Act 1975 which made provision in respect of persons who had suffered loss by reason, among other things, of fraudulent misuse of securities received by an employee of a firm 'in the course of or in connection with the firm's business of dealing in securities'. Gibbs CJ considered this condition satisfied in the particular case. He said:
'The money was received in connexion with the firm's business of dealing in securities. The connexion lay in the fact that Dr. Daly went to the firm for the purpose of investing in securities and was instead persuaded to advance the money to the firm.'
It is plain that this reasoning is applicable here. …" (page 858)
The third basis upon which Burchett J found there to be no error in the Tribunal's decision related to Mr White's being an agent of Capricorn. His Honour continued:
"10. The leading case is Lloyd v Grace, Smith & Co [1912] AC 716. There, a client sought advice from a firm of solicitors with a view to the augmentation of the return she was getting from some houses she owned. The managing clerk with whom she dealt persuaded her to bring in the deeds and to sign some documents, the nature of which she did not understand, which were in fact a transfer of a mortgage and a conveyance. Thereby, he defrauded her for his own benefit. Lord Macnaghten said (at 731):
'[I]n the opinion of the Court a principal must be liable for the fraud of his agent committed in the course of his agent's employment and not beyond the scope of his agency, whether the fraud be committed for the principal's benefit or not.'
His Lordship refuted (at 733) the argument that the business in which the agent was engaged could not be the defrauding of clients, by quoting some word of Willes J:
'In all these cases it may be said, as it was said here, that the master had not authorized the act. It is true he has not authorized the particular act, but he has put the agent in his place to do that class of acts, and he must be answerable for the manner in which that agent has conducted himself in doing the business which it was the act of his master to place him in.'
The application of this proposition to the present case is obvious; for the giving of advice about loans to companies was certainly within the class of acts that formed part of the business of Capricorn, as a dealer in securities. Lord Macnaghten made it clear (at 736) that the expressions 'acting within his authority,' ' acting in the course of his employment,' and 'acting within the scope of his agency' are expression which 'must be construed liberally'. In this, his Lordship was supported by Lord Shaw of Dunfermline, who said (at 740):
'But when the authority does ostensibly include within its scope transactions of a particular character, then quoad a third party dealing in good faith with such an agent, the apparent authority is, as is well settled, equivalent to a real authority and binds the principal.'" (pages 858-859)
Once an agent is acting within the scope of his or her ostensible or apparent authority, it matters not that he or she acts dishonestly for his or her own benefit. Burchett J said:
"12. The principal's liability was explained by Lord Denning MR, in Morris v C.W. Martin & Sons Ltd [1966] 1 QB 716 at 727, as depending on the scope of the agent's apparent authority. Referring to Lloyd v Grace, Smith & Co, his Lordship said:
'When [the clerk] accepted [Mrs Lloyd's] instructions, he intended to misappropriate the deeds for his own benefit, and he did so. His principals were held liable. The essence of that case … was that the clerk was acting within his apparent authority in receiving the deeds and thus his principals had them in their charge. … In consequence of this apparent authority, the firm of solicitors were clearly under a duty to deal honestly and faithfully with Mrs Lloyd's property: and they could not escape that duty by delegating it to their agent. They were responsible for the way he conducted himself therein, even though he did it dishonestly for his own benefit.' (Emphasis original.)
Once an agent comes into a transaction in the ordinary course of his principal's business, as Diplock LJ (at 733) and Salmon LJ (at 739-740) made clear, even outright theft may be ineffectual to deny that he was acting in the course of his agency. See also Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503-504, per Diplock LJ; Clayton Robard Management Ltd v Siu (1988) 6 ACLC 57." (pages 859-860)
In this case, there is no evidence that Mr Skinner was an employee of Thoroughbred Racing Syndicates or that he held an office in the company. That leaves open the question whether or not Mr Skinner was an agent of Thoroughbred Racing Syndicates. If he was not its agent, Guanaba Nominees has no claim against the security held by the Commission for his actions could not be said to have been on behalf of Thoroughbred Racing Syndicates in any sense. In particular, they could not be said to be on behalf of it in carrying on its business under the dealers licence.
If Mr Skinner was its agent and if he had authority, whether actual or ostensible, the question becomes whether his actions were such that they were within the class of actions that formed part of the business of Thoroughbred Racing Syndicates as a dealer in securities. That is, whether his actions can be construed as its carrying on its business under its dealers licence. That is a much narrower question than whether his actions can be construed as Thoroughbred Racing Syndicates' carrying on business.
Various activities might be construed as part of the business of a promoter of a horse racing syndicate. They might include, for example, the purchase of a horse or horses, payment of agistment expenses, payment of administrative expenses and payment of the preparation of the disclosure statements and advertisements. Not all of the actions that are part of conducting a business as a horse racing syndicate amount to carrying on a business under a dealers licence. As a dealers licence is required for carrying on a securities business, it is only those actions that relate to the business of dealing in securities that can be said to be carrying on business under a dealers licence. The securities are the intangible, as it were, interests in the scheme. They are not the tangible asset in which the participants or members of the syndicate have an interest. It follows that the business of dealing in securities in the context of this case is the business of dealing in the interests in the horse racing syndicate. It is not, for example, the business of maintaining the horse and training it or of managing the scheme. Those activities may be part of the promoter's business but that is a different business from that of dealing in securities even though the two businesses may be part of an overall business enterprise operated by a promoter.
In this case, there is no evidence that Mr Skinner sought the money for any purpose connected with Thoroughbred Racing Syndicates' activities in dealing with interests in a horse racing syndicate. There is no evidence that the money was given in relation to dealing with an interest in a horse racing syndicate. It was a loan and the fact that Mr Skinner gave an undertaking to Mr Osborne to repay Guanaba Nominees on the sale of its horses does not change a loan into an interest of any type in a syndicate or as money to acquire such an interest. The only relevance of the sale of the horses was in fixing the time at which Guanaba Nominees would be repaid. Consequently, it cannot be said that Mr Skinner's actions in relation to the loan by Guanaba Nominees relate to the business of dealing in securities and so cannot be said to relate to the Thoroughbred Racing Syndicates' carrying on business under its dealers licence. Therefore, although there is no question that Guanaba Nominees suffered pecuniary loss as a result of its lending money, it cannot be said that it suffered loss due to the Thoroughbred Racing Syndicates' carrying on business under its dealers licence let alone due to its failure to do so adequately and properly.
This case is distinguishable from both Schwerdt and Australian Securities Commission and Capricorn Financial Planners Pty Ltd v ASIC for in each case, the activities were concerned with dealing with securities be they interests in a racing syndicate or shares in a company. Consequently, they were concerned with activities that formed part of a business conducted under a dealers licence and not part of a wider business that was not conducted under such a licence.
For the reasons I have given, I affirm the decision of the respondent dated 12 April, 1999.
I certify that the forty three preceding paragraphs are a true copy of the reasons for the decision herein of Miss S A Forgie (Deputy President)
Signed: ..............................................
M Martinez AssociateDate of Hearing 9 November, 1999
Date of Decision 20 October 2000
Applicant In Person
Solicitor for the Respondent Ms D Binstead
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