PYVM and Australian Securities and Investment Commission
[2008] AATA 788
•4 September 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR INTERLOCUTORY DECISION [2008] AATA 788
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/3783
GENERAL ADMINISTRATIVE DIVISION )
Re PYVM Applicant
And
Australian Securities & Investment Commission
Respondent
DECISION
Tribunal Ms A F Cunningham (Senior Member) Date4 September 2008
PlaceHobart
Decision The Tribunal makes the following orders:
Until further order:
1. The applicant be described by the letters PYVM for the purpose of these proceedings.
2. That publication of the name of the applicant and of any material tending to identify him be restricted to members and staff of the Tribunal, the parties and their representatives and professional advisers, witnesses and potential witnesses and staff of Auscript.
3. That publication of evidence given before the Tribunal and of matters contained in documents lodged with the Tribunal be restricted to members and staff of the Tribunal, the parties and their representatives and professional advisers, witnesses and potential witnesses and staff of Auscript.
4. That all hearings be held in private.
[Sgd Ms A F Cunningham]
Senior Member
CATCHWORDS
ASIC Banning Order - financial services industry - confidentiality orders
Corporations Act 2001, ss.920A(1)(c),(f), E, 952C(1)
Financial Securities and Investment Commission Act 2001, ss.64(1)(b), (3)
Administrative Appeals Tribunal Act 1975, s.35(1), (2), (3)
Superannuation Industry (Supervision) Act 1993 (Cth), s.344(11)
Federal Court of Australia Act 1976, s.50
Re An Applicant and APRA [2005] AATA 1294
Howarth and ASIC [2008] AATA 278
Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 33
Australian Broadcasting Commission v Parish (1980) 29 ALR 228
Applicant Y v Australian Prudential Regulation Authority (2005) FCAFC 222
PTLZ (2007/5837) and VLDP (2007/5838) and Australian Securities and Investments Commission [2008] AATA 106
Minister for Immigration and Multicultural and Indigenous Affairs v X (2005) FCAFC 217
XTWK and Australian Securities and Investment Commission [2007] AATA 1890
REASONS FOR INTERLOCUTORY DECISION
4 September 2008 Ms A F Cunningham (Senior Member) 1. By decision dated 12 August 2008, the Australian Securities and Investment Commission (ASIC) imposed a banning order against PYVM for a period of 18 months. The effect of the order which was made pursuant to the provisions of section 920A of the Corporations Act 2001 (the Corporations Act) is that PYVM is prohibited from providing financial services during that period.
2. ASIC's decision was made on the basis that PYVM had been convicted in the Magistrates Court at Hobart of an offence relating to the giving of false or misleading information contrary to section 64(1)(b) of the Financial Securities and Investment Commission Act 2001 (the ASIC Act). The Delegate of ASIC determined that the offence constituted "fraud" within the meaning of section 920A(1)(c) of the Corporations Act which enlivened ASIC's power to impose a banning order.
3. PYVM has lodged an application for review of ASIC's decision and interlocutory orders seeking a stay of the operation of the decision pending the determination of the application for review and a confidentiality order pursuant to section 35 of the Administrative Appeals Tribunal Act 1975 (the AAT Act).
4. The interlocutory applications were listed before the Tribunal on 26 August 2008. On the preceding day the Tribunal made an interim order suppressing the publication of the applicant's name pending the determination of the Section 35 application.
5. Oral and written submissions were made by counsel with respect to the Section 35 application. The Tribunal also received an affidavit from PYVM. All applications including the application for review are opposed by ASIC. These are the reasons for the Tribunal's decision with respect to the Section 35 application.
6. The orders sought on behalf of the application pursuant to section 35 of the AAT Act are that:
(i) the applicant be described by a pseudonym for the purpose of the proceedings;
(ii) that publication of the applicant's name and any material tending to identify him be restricted to members and staff of the Tribunal, the parties and their representatives and professional advisers and staff of Auscript;
(iii) that publication of evidence given before the Tribunal and of matters contained in documents lodged with the Tribunal be similarly restricted;
(iv) that all hearings be held in private.
An order is also sought preventing the publication of any media release by ASIC or public disclosure of its decision pending the determination of the application for review.
7. The relevant provisions of section 35 are as follows:
"Public hearing
(1) Subject to this section, the hearing of a proceeding before the Tribunal shall be in public.
(1A) If, at a time a hearing is in public, a person participates in the hearing by a means allowed under section 35A, the Tribunal is to take such steps as are reasonably necessary to ensure that the public nature of the hearing is preserved.
Private hearing etc.
(2) Where the Tribunal is satisfied that it is desirable to do so by reason of the confidential nature of any evidence or matter or for any other reason, the Tribunal may, by order:
(a) direct that a hearing or part of a hearing shall take place in private and give directions as to the persons who may be present; and
(aa) give directions prohibiting or restricting the publication of the names and addresses of witnesses appearing before the Tribunal; and
(b) give directions prohibiting or restricting the publication of evidence given before the Tribunal, whether in public or in private, or of matters contained in documents lodged with the Tribunal or received in evidence by the Tribunal; and
(c) give directions prohibiting or restricting the disclosure to some or all of the parties to a proceeding of evidence given before the Tribunal, or of the contents of a document lodged with the Tribunal or received in evidence by the Tribunal, in relation to the proceeding.
(3) In considering:
(a) whether the hearing of a proceeding should be held in private; or
(b) whether publication, or disclosure to some or all of the parties, of evidence given before the Tribunal, or of a matter contained in a document lodged with the Tribunal or received in evidence by the Tribunal, should be prohibited or restricted;
the Tribunal shall take as the basis of its consideration the principle that it is desirable that hearings of proceedings before the Tribunal should be held in public and that evidence given before the Tribunal and the contents of documents lodged with the Tribunal or received in evidence by the Tribunal should be made available to the public and to all the parties, but shall pay due regard to any reasons given to the Tribunal why the hearing should be held in private or why publication or disclosure of the evidence or the matter contained in the document should be prohibited or restricted".
8. In the decision, Re An Applicant and APRA [2005] AATA 1294, Deputy President Forgie undertook a comprehensive review of the principles and case law at that time relevant to the exercise of the Tribunal's exercise of its powers pursuant to section 35(2). Of relevance in that case was section 344(11) of the Superannuation Industry (Supervision) Act 1993 (Cth) (the Superannuation Act) required that the hearing of a proceeding relating to a reviewable decision is to take place in private and afforded the AAT power to make related directions. There are no similar provisions in the Corporations Act with respect to the confidentiality of the appeal proceedings. Prima facie the proceedings by virtue of the provisions of sub-section 35(1) are to be held in public.
9. Sub-section 35(3) requires the Tribunal in considering whether the hearing of a proceeding should be held in private and/or whether publication or disclosure should be prohibited or restricted, to acknowledge the principal that it is desirable that hearings be held in public and that evidence and the contents of documents should be made available to the public and/or parties. The sub-section goes on to state that due regard should be had as to the reasons why the hearing should be held in private and/or why publication or disclosure should be prohibited or restricted.
10. The reasons advanced on behalf of the applicant essentially relate to the risk that he would be significantly prejudiced by the risk to his reputation as a financial adviser and the potential negative impact upon his business. In paragraph 15 of his affidavit the applicant states:
"My business relies heavily upon clients confidence and trust in my advice and an important component of my business is customer relations. If clients were to learn that I had been banned, it is likely that a considerable number would obtain financial services from other advisers. Even in the event that the banning order was successfully appealed, I do not expect that those clients who have left my practice would return. If that would occur the profitability of the business would be significantly threatened".
11. Mr Barclay submitted that there is a strong likelihood of a successful appeal against ASIC's decision as it was essentially based on an incorrect interpretation of the word "fraud" as used in section 920A of the Act. The Delegate had decided not to adopt the reasoning of Deputy President Forgie in the decision, Howarth and ASIC [2008] AATA 278 in which DP Forgie found that two essential elements constitute the offence of fraud, firstly the deception or intention to deceive, and secondly, either the loss or potential loss of property or an advantage.
12. The Delegate disagreed with the Deputy President's reasoning in Howarth and ASIC and noted that the decision had not to date been the subject of consideration by a court.
13. Mr Barclay argued that the decision has not been overturned and should be followed and submitted that on the basis of the Tribunal's interpretation, there is a prima facie strong case for ASIC's decision to be overturned on appeal. Mr Barclay contended that the Delegate had incorrectly relied on the use and interpretation of the term "serious fraud" as used in the Act in arriving at his decision to find that PYVM had been convicted of "fraud" as the term appears in section 920A(1)(c) of the Act such as to justify a banning order.
14. One of the objectives of a banning order and its subsequent notification and publication pursuant to the provisions of section 920E of the Act is the protection of the public.
15. The requirement that a hearing takes place in public affords an opportunity for public scrutiny and some measure of confidence in the overall hearing process. A decision to depart from the principle of a public hearing should be exercised with caution and only where there is sufficient justification. As Brennan J said in Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 33 at 55-6:
“… the powers conferred upon this Tribunal by s 35(2) are not intended to lie dormant – they are there to be exercised, albeit sparingly. The purpose of their exercise is to secure to the Tribunal the availability of as much relevant information as possible, without violating the confidentiality which a party, a witness or the public is properly entitled to preserve (though a proper entitlement to confidentiality is not lightly established). A Court may be constrained to violate that confidentiality in order to conduct its proceedings in public; but the Tribunal’s powers are intended to facilitate the flow of relevant information to it, and if the exclusion of the public or even of a party is essential to preserve the proper confidentiality of the information needed to determine the application, that is a price which has to be paid, however reluctantly".
16. The courts have referred to the achievement of a balance between the desirability of a public hearing and the potential prejudice to the administration of justice in the event of a successful appeal which is rendered nugatory in circumstances where the appellant has suffered irreparable damage to reputation and/or business interests. Deane J in Australian Broadcasting Commission v Parish (1980) 29 ALR 228 said at 253 with respect to the power afforded under section 50 of the Federal Court Act:
“The provisions of s 50 neither require nor warrant the Court’s abandoning, as its prima facie approach, the ordinary common law rule that justice should be administered in public and that there should be public access to the evidence placed before the Court in public hearing. What the section … recognizes is that there are occasions where the administration or interests of justice will make it desirable that there be a departure from the ordinary principle of the public administration of justice in open Court.”
17. The Full Court in dismissing an appeal under section 50 said in Applicant Y v Australian Prudential Regulation Authority (2005) FCAFC 222 at paragraph 16:
“… there would be a real prejudice to the administration of justice if the appellants succeeded in their appeals and established that APRA has no power to disqualify X and Y, but suffered irreparable damage from the publication of the Reasons and the disclosure of the adverse findings of …”
18. Commenting on this decision DP Forgie said at page 53 in PTLZ (2007/5837) and VLDP (2007/5838) v Australian Securities and Investments Commission [2008] AATA 106 at paragraph 111:
"In doing so, the Full Court considered the principle of open justice saying that it was one of the matters that must be placed in the scales in deciding whether to exercise the discretion under s 50. Other matters relate to any prejudice to the administration of justice".
19. Orders had previously been made by DP Forgie under section 35(2) of the AAT Act which were continued pending the outcome of the applications for review. In her determination of the application for a stay, DP Forgie considered that the interests of the public were outweighed on this occasion by those of the applicants. She noted that if a stay was not granted and the applicants were successful, they would not have a viable business to which to return. This would compromise the effectiveness of the hearing in her view. DP Forgie took account of the ongoing work being undertaken to address the issues raised by the decisions under review and considered"
"... that the potential to the interests of those who are clients and of those who may become of VLDP is outweighed by the damage that it is likely to be suffered by VLDP and PTLZ in the short term by publication of the notices in the Gazette and in a Press Release while their substantive applications for review in the Tribunal are awaiting resolution". (paragraph 128).
20. For the same reasons DP Forgie determined that the proceedings should be conducted in private and not be subject to public scrutiny in the short term. Deputy President Forgie went on to state that this did not mean that the proceedings would necessarily remain confidential at all times.
21. The circumstances that gave rise to the conviction of PYVM in the Magistrates Court for the offence of giving false or misleading information contrary to section 64(1)(b) of the ASIC Act, were briefly referred to in the Delegate's decision of 12 August 2008. The conviction was not appealed by PYVM nor did Mr Barclay take issue with the delegate's findings of the background facts. The delegate commented that in his reasons for conviction, the Magistrate had made it clear that it was his view that PYVM had knowingly contravened section 64(1)(b). Further, he commented that PYVM had not availed himself of the defence provided in section 64(3) that he had believed on reasonable grounds that the information was true and not misleading.
22. In his decision Deputy Chief Magistrate Michael R Hill said:
"In my view the only reasonable hypothesis open on the evidence is that the Defendant failed to comply with his obligations to supply Mr C W with these documents, manufactured file notes to give the impression that he had, and that his evidence concerning the signature on the document authority to Proceed is false. I consider the Defendant's evidence of how the document was signed on the back of a satchel or file including Mr C W being under "pressure" at the time to be an attempt to explain the dubious signature on the document".
23. The Magistrate imposed a penalty by recording a conviction and placing PYVM on a recognisance of $5,000.00 to be of good behaviour for two years. The maximum penalty for the offence is a term of imprisonment for two years.
24. PYVM was also charged in the Magistrates Court with four counts of failure to give a statement of advice contrary to section 952C(1) of the Act. The failure was with respect to a requirement to give statements of advice to four clients within a specified timeframe. PYVM pleaded guilty to the charges and was discharged without conviction upon a $1,000.00 security. It had been accepted by the prosecution that the contraventions were technical and had been brought under the section that created a strict liability offence rather than the provision which required proof of a false element. The Magistrate accordingly accepted that the contraventions occurred as a result of human error rather than as a result of a deliberate course of conduct by PYVM.
25. The ASIC Delegate concluded in his decision that as PYVM is now cognisant of his obligations concerning statements of advice, it is unlikely that he would repeat such conduct. He accordingly determined that there was no basis to impose a ban under section 920A(1)(f) of the Act with respect to those offences.
26. It was submitted by Mr Barclay that the basis of the banning order concerned PYVM's conduct in his dealings with ASIC rather than members of the public. The offence was that PYVM had given false and misleading information to ASIC during their investigation as to the validity of a client's signed authority. Mr Barclay contended that there is no risk to the public in general and that the banning order had been imposed for reasons of deterrence, both personal and general, rather than to protect the public at large.
27. At paragraphs 66 and 67 of the Delegate's decision he said:
"The Learned Magistrate found that PYVM gave false or misleading information to ASIC because he failed to provide a statement of advice to Mr C W when required to do so, that he manufactured file notes to give the impression that he had and that when questioned by ASIC he attempted to conceal these matters and the dubious nature of the signature on the authority to proceed document
Such conduct undermines, in a fundamental way, the legislative scheme for regulating the provision of financial services and constitutes very serious conduct by a representative of a financial services provider, conduct which goes beyond just the giving of false or misleading information to ASIC".
28. As the Delegate noted at paragraph 63:
"ASIC is required to promote the confident and informed participation of investors and consumers in the financial system and to enforce the Act (see section 1(2) of the ASIC Act) and is given investigative powers in aid of these objects".
29. ASIC is also required by virtue of the provisions of section 920E to publish notice of a banning order. However in this case ASIC has decided not to publish its decision pending the outcome of PYVM's application for a stay. Whilst Mr Abbott was not prepared to give an undertaking on behalf of ASIC that the order would not be published, he stated that this is ASIC's intention and that prior notice would be given of any subsequent decision to publish. The Tribunal concludes from ASIC's actions at this stage that it does not see a public interest imperative to publish notice of the banning order.
30. PYVM informed the Tribunal in his affidavit that he is currently subject to a licence revocation. The revocation was imposed on 13 June 2008 by FSP who issues PYVM's financial planning practice licence. A copy of the notice of revocation issued by the Chief Executive Officer following a visit to the offices operated by PYVM was annexed to the affidavit. The notification advised that PYVM's authority to act as an authorised representative of FSP is revoked effective Friday 20 June 2008 and that revocation would be reviewed within 60 days "subject to any process changes implemented in your office". The notice advised that the revocation of authority means that PYVM would not be able to provide advice (either personal or general in nature) to any new or existing clients.
31. In his affidavit, PYVM states that an appointment has been made for 2 September 2008 for a responsible officer of FSP to conduct a review of his practice with a view to ensuring that appropriate systems are in place. It is PYVM's understanding that once an audit of his practice has been satisfactorily undertaken, his licence suspension would be revoked. PYVM stated that he is not aware of any other complaints made by clients concerning any advice that he had given them. To date PYVM has not advised his clients of the revocation of his licence or the banning order.
32. PYVM believes that publication of ASIC's decision will have a significant negative impact upon his business which relies heavily on client confidence and trust. If clients were to learn of the ban, PYVM believes that a considerable number would obtain financial services from other advisers. In the event of a successful appeal, PYVM does not expect that these clients would return to his practice. The profitability of his business would be consequently threatened. PYVM stated that the career of other employees could also potentially be affected.
33. The Tribunal accepts the risk to PYVM's reputation and the potential threat to his business and the livelihood of employees as a result of publication of ASIC's decision, the public notification of these proceedings and a public hearing. The Tribunal further accepts that in the event of a successful appeal of ASIC's banning order, any loss or damage to PYVM's reputation, business and the livelihood of his employees may not be able to readily repaired or reinstated. These concerns however, must be balanced against the underlying principle that proceedings before the Tribunal shall be in public, ASIC's statutory duty to inform the public of a banning order and the publics general right to be informed.
34. The proceedings in the Magistrates Court and the Magistrates decision to impose a penalty took place in public. No doubt PYVM has already suffered some distress and embarrassment as a result of these proceedings. Personal hurt and embarrassment would not alone justify the imposition of a confidentiality order. Whilst recognising that there had already been substantial publication of the respondent's identity which would generally lead to a refusal of an order prohibiting publication, this fact did not preclude the Court from subsequently imposing a suppression order in Minister for Immigration and Multicultural and Indigenous Affairs v X (2005) FCAFC 217. The Court was considering an application pursuant to section 50 of the Federal Court of Australia Act 1976 (Cth) which provides that the Court may make an order:
"... as appears to the court to be necessary in order to prevent prejudice to the administration of justice or the security of the Commonwealth".
35. Under section 35 of the AAT Act, the Tribunal needs to be satisfied that it is "desirable" to make an order by the reason of the confidential nature of any evidence or matter or for any other reason.
36. The term, 'the administration of justice' appearing in section 50 of the Federal Court Act invokes considerations as to the impact upon a party in the event of a successful appeal. At this stage of the proceedings the Tribunal is not able to assess the prospects of a successful appeal except to note that the appeal has merit and appears to be based on a fairly technical and legalistic argument as to the meaning of the word "fraud" where it appears in section 920A of the Act.
37. The circumstances that gave rise to the banning order imposed by ASIC essentially related to one client who it would appear has not been unduly affected by PYVM's actions and still remains a client. The Delegate decided that the other offences relating to the failure to give statements for individual clients did not justify the imposition of the banning order.
38. The Tribunal considered the applicant's co-operation with ASIC's inquiry a relevant fact in its decision in XTWK and Australian Securities and Investment Commission [2007] AATA 1890. It is alleged in the present case the charges arose out of PYVM's failure to co-operate with ASIC's inquiry and indeed deceptive and misleading conduct in responses given to ASIC officers. However as the Tribunal found in the XTWK decision in considering whether a stay ought to be granted:
"... the risk to the confidence and integrity of the financial services market is slight. There is no evidence before me to suggest that the public at large or the financial markets will be imperilled if a stay was granted". (p.38)
39. The question remains as to whether the imposition of a confidentiality order pursuant to section 35 would place either the public at large or PYVM's existing clients at any greater risk than that which currently exists. On the available information, the Tribunal does not accept that it would. The conviction in the Magistrates Court and the revocation of PYVM's licence are not the subject of these proceedings and are not affected by the confidentiality order. The Tribunal proposes to make orders pursuant to section 35 with respect to this decision and the hearing of the application for a stay at which time the orders will be reviewed.
40. The hearing of PYVM's application for a stay is listed on 18 September 2008. ASIC has indicated that it has no intention of publishing a notice of its decision pursuant to section 920E of the Act pending the hearing of the application for stay. The Tribunal is not persuaded that it either has jurisdiction to extend the section 35 order to ASIC's statutory obligation under section 920E or that it is desirable to do so given ASIC's indication not to publish the decision without giving adequate notice to PYVM. This issue will be reviewed in the course of the stay proceedings.
41. The Tribunal accordingly makes the following orders:
Until further order:
1. The applicant be described by the letters PYVM for the purpose of these proceedings.
2. That publication of the name of the applicant and of any material tending to identify him be restricted to members and staff of the Tribunal, the parties and their representatives and professional advisers and staff of Auscript.
3. That publication of evidence given before the Tribunal and of matters contained in documents lodged with the Tribunal be restricted to members and staff of the Tribunal, the parties and their representatives and professional advisers and staff of Auscript.
4. That all hearings be held in private.
I certify that the 41 preceding paragraphs are a true copy of the reasons for the interlocutory decision herein of Ms A F Cunningham (Senior Member)
Signed: R Hunt (Administrative Assistant)
Date/s of Hearing 28 August 2008
Date of Decision 4 September 2008
Counsel for the Applicant Mr David Barclay
Solicitor for the Applicant Mr Brett Cassidy
Counsel for the Respondent Mr Andrew Abbott
Solicitor for the Respondent Mr Martin Taylor
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