Re Howarth and Australian Securities and Investments Commission - [2008] AATA 278

CATCHWORDS – CORPORATIONS – banning order – whether the power to make a banning order mandatory or discretionary – the meaning of “fraud” – whether applicant has been convicted of fraud – weight to be accorded facts found and remarks made in County Court – whether reason to believe that applicant will not comply with the financial services law – meaning of “reason to believe” – whether banning order should be imposed – consideration of an enforceable undertaking as an alternative to a banning order – length of banning order - decision affirmed.

Administrative Appeals Tribunal Act 1975 ss 37 and 43
Australian Securities and Investments Commission Act 2001 ss 11(1), 93AA
Corporations Act 2001 ss 9, 128, 184(2)(a), 206B(1)(b)(ii), 466, 481, 513D, 590, 592, 596, 601FB, 761A , 766A, 885C, 890A, 892C, 911A , 911B, 912A , 913A , 913B, 914A, 915B , 915C , 915F, 916A , 916B, 916D, 916F, 917A, 917B, 917C, 917F, 920A, 920B, 920C, 920D, 920E, 1041F, 1041G, 1041I, 1041M, 1071G and 1101E
Crimes Act 1914 (Cth) s 72
Crimes Act 1958 (Vic) ss 81(4) and 82
Financial Services Reform Act 2001

Alabarran v Members of the Companies Auditors and Liquidators Disciplinary Board (2007) 234 ALR 618
Alexandra Private Geriatric Hospital v Blewett (1984) 2 FCR 368; 56 ALR 265
Australian Securities and Investments Commission v Forge [2007] NSWSC 1489
Australian Securities and Investments Commission v Vizard (2005) 145 FCR 57; 219 ALR 714; 54 ACSR 394

Australian Securities Commission v Donovan (1998) 28 ACSR 583

Australian Securities Commission v Kippe (1996) 67 FCR 499; 137 ALR 423; 20 ACSR 679
Australian Securities Commission v Lord (1991) 33 FCR 144; 105 ALR 347; 6 ACSR 350
Boucaut Bay Co Ltd v The Commonwealth (1927) 40 CLR 98
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; 141 ALR 618
Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission and Others (2000) 203 CLR 194; 174 ALR 585
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297; 35 ALR 151
Cullen v Corporate Affairs Commission (1989) 7 ACLC 117
Director of Public Prosecutions v Kose [2006] VSCA 119
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Elliott v Australian Securities and Investments Commission (2004) 205 ALR 594; 48 ACSR 621
Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106

Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106

GAS v R; SJK v R (2004) 217 CLR 198; 78 ALJR 786; 206 ALR 116
Hardcastle v Commissioner of Police (1984) 53 ALR 593
Kamha v Australian Prudential Regulation Authority (2005) 88 ALD 620; [2005] FCAFC 248
Leach v R (2007) 232 ALR 325
Minister for Immigration and Ethnic Affairs v Pochi (1980) 4 ALD 139
New South Wales Bar Association v Evatt (1968) 117 CLR 177
New South Wales Bar Association v Hamman (1999) 217 ALR 553; [1999] NSWCA 404
Nicholas v Corporate Affairs Commission (1987) 5 ACLC 258
Pillai v Messiter [No.2] (1989) 16 NSWLR 197
Power v Hamond [2006] VSCA 25
R v Cuerrier (1998) 162 DLR (4^th) 513
R v Cushion (1997) 150 ALR 45
R v D’Orta-Ekenaike [1998] 2 VR 140; 99 A Crim R 454
R v Duong [1998] 4 VR 68; 99 A Crim R 218
R v Isaacs (1997) 41 NSWLR 374; 90 A Crim R 587
R v Storey [1998] 1 VR 359; 89 A Crim R 519
R v Tonks and Goss [1963] VR 121
Re Civica Investments Ltd [1983] BCLC 456
Re Dollas-Ford and Australian Securities and Investments Commission (2006) 91 ALD 747; [2006] AATA 704
Re Donald and Australian Securities and Investments Commission (2001) 38 ACSR 10; [2001] AATA 366
Re HIH Insurance Ltd (in prov liq) (2002) 42 ACSR 80
Re Mann and Capital Territory Health Commission (No. 2) (1983) 5 ALN N261
Re One.Tel Ltd (in liq); Australian Securities and Investment Commission v Rich (2003) 44 ACSR 682
Re Radge, Dagg and Harvey and Commissioner of Taxation (2007) 95 ALD 711
Re Tasmanian Spastics Association; ASC v Nandan (1997) 23 ACSR 743
Re Wertheim and Department of Health (1984) 7 ALD 121
Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129; 209 ALR 271; 78 ALJR 1354
Smith v Repatriation Commission (1987) 74 ALR 537
Story v National Companies and Securities Commission (1988) 6 ACLC 560
TCN Channel Nine Pty Ltd v Australian Mutual Provident Society (1982) 42 ALR 496
The Queen v Vasic (2005) 11 VR 380
Visnic v Australian Securities and Investments Commission (2007) 234 ALR 413
WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175; 30 ALR 559
Wacando v The Commonwealth (1981) 148 CLR 1; 37 ALR 317
Ward v Williams (1955) 92 CLR 496

DECISION AND REASONS FOR DECISION [2008] AATA 278

ADMINISTRATIVE APPEALS TRIBUNAL )

) V 2006/547
GENERAL ADMINISTRATIVE DIVISION )
Re:DUNCAN HOWARTH
Applicant

And:AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent

DECISION

Tribunal: Deputy President S A Forgie
Dr Gordon Hughes, Member

Date: 8 April 2008
Place: Melbourne

Decision:The Tribunal affirms the decision of the respondent dated 30 May 2006.

SA Forgie

Deputy President
REASONS FOR DECISION

On 30 May 2006, a delegate of the Australian Securities and Investments Commission (ASIC) made a banning order against Mr Duncan Ernest Howarth under s 920A of the Corporations Act 2001 (Corporations Act). That banning order prohibited him from providing any financial services from 31 May 2006.[1] Mr Howarth had been convicted of four counts of obtaining financial advantage by deception contrary to s 82 of the Crimes Act 1958 (Vic) and one count of use position (as a director of a Company) dishonestly with the intention of gaining an advantage contrary to s 184(2)(a) of the Corporations Act. We have affirmed the decision.

BACKGROUND

[1] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (Exhibit 1) at 8 and see also 21-28

For the purposes of the hearing, Mr Howarth and ASIC agreed that the document entitled “Summary of Facts” accurately reflects the facts in this matter.[2] As the proposition was put in Mr Howarth’s Statement of Facts and Contentions:
“The applicant for the purposes of the hearing, admits the facts as contained in the summary of facts in the County Court of Victoria criminal proceeding.”[3]

That Summary of Facts was prepared by the office of the Director of Public Prosecutions for the purpose of the charges laid against Mr Howarth. Having regard to that document and to the evidence given at the hearing, we make the findings of fact set out in the paragraphs in this section our reasons.

[2] Statement of Facts and Contentions of Mr Howarth at (C) and of ASIC at B[12]-[13] and transcript at 5 and noted again at 45.

[3] Transcript at 45

Establishing and carrying on the businesses of PFS and PIS

In 1998, Mr Howarth and a partner established an insurance brokerage. To that end, they incorporated a company called Presidential Insurance Brokers Pty Ltd (PIB). It was incorporated on 20 August 1998 and, at the relevant time, operated its business from offices in Ringwood. Initially, Mr Howarth was appointed as a director and the secretary of PIB but, after 7 October 1999, became its sole director and secretary when he and his partner went their separate ways. Its name has changed from PIB to Presidential Financial Services Pty Ltd (PFS).

The shares in PFS are equally divided between Mr Howarth and JJG Investments Pty Ltd (JJG). That company was incorporated on 29 January 1999 and acts as trustee for the Howarth family trust. In the first year of its existence, Mr Howarth was the sole director and secretary of JJG but he ceased to hold those positions on 1 July 2000 when his wife, Mrs Jillian Robyn Howarth was appointed to each of them. Mrs Howarth owns all of the shares in that company.

Presidential Insurance Services Pty Ltd (PIS) was incorporated on 11 June 2003 and, at all relevant times, operated its business from the same offices in Ringwood. Mr Howarth was appointed its sole director and secretary. The ASIC records do not record the shareholdings in PIS.

PIB (and later PFS) and PIS were variously licensed to carry on business as a general insurance broker and also as a multi-agent for life insurance. In view of the changes to the licensing requirements introduced by the Financial Services Reform Act 2001 with effect from 11 March 2002, Mr Howarth decided that he would become an Authorised Representative (AR) rather than continue as a small suburban insurance broker. On 1 November 2003, Mr Howarth was appointed as an AR of Mawson Securities Pty Ltd (Mawson). Under their authorised representative agreement, PFS is authorised to carry on a financial service business to provide basic financial product advice for deposit and payment products. He remained Mawson’s AR until 2 June 2006. From 11 November 2003 until 12 January 2006, Mr Howarth was an AR of National Adviser Services Pty Ltd (NAS). Under their agreement, PIS was authorised to carry on a financial services business to provide financial product advice for general insurance products to retail and wholesale clients.

Facilitating premium funding

Mr Howarth offered a service whereby he assisted clients in arranging short term loans for the purpose of their paying their insurance premiums. Loans for that purpose are known as “premium funding”. All that PFS’s clients had to do was to complete a one page application form and repay the loan, together with interest, over the term of the loan. That term was generally ten months.

In order to arrange premium funding, Mr Howarth would first contact Premier Funding Services Pty Ltd (Premier Funding). Premier Funding is a finance company specialising in the provision of short term loans for the purpose of financing domestic insurance premiums. It also acts as an intermediary between insurance brokers seeking funding on behalf of their commercial clients and other premium funding firms. Those premium funding firms with which it deals include, but are not limited to, Centrepoint and BMW Finance. Mr Howarth had used Premier Funding as an intermediary to arrange premium funding for his clients with either Centrepoint Funding Ltd (Centrepoint) or with BMW Australia Finance Ltd (BMW Finance) from July 2001 and continued to do so until September 2005.

Mr Howarth would contact Premier Funding by telephone or email for a quotation after advising of the premium amount required, the name and other details of the client requiring the premium funding, details regarding the insurance sought and the commission rate. A staff member of Premier Funding would send these details to either Centrepoint or BMW Finance in order to obtain the loan application documents. Once it had received that documentation, it would send it on to PFS.[4]
[4] Statement of Mr Bernard Michael Dunn, Manager and a director of Premier Funding, Exhibit 1 at 330-331, [4]-[13]

Mr Howarth then arranged for the documentation to be completed and signed by PFS’s client. It showed the loan amount, credit charges and the amount and number of repayments required. The client was required to nominate a bank account from which monthly instalments could be deducted by direct debit.[5] In addition, both Centrepoint and BMW Finance required evidence that an insurance policy existed as they used them as security against the loan.[6] In the absence of an insurance policy, no funding would have been approved.[7] Both Centrepoint and BMW Finance relied on the loan application completed and signed by PFS’s client. They also relied on a copy of a tax invoice from PFS showing the client’s insurance details as evidence of the premium payable for the insurance policy.[8] The amount of the loan that each client applied for comprised the amount shown on the tax invoice as the premium payable and an amount charged by PFS as fees and charges.
[5] Statement of Mr Bernard Michael Dunn, Manager and a director of Premier Funding, Exhibit 1 at 332, [14]-[15]
[6] Statement of Mr Bernard Michael Dunn, Manager and director of Premier Funding, Exhibit 1 at 333, [17]
[7] Statement of Mr Robert Dodd, director of Centrepoint, Exhibit 1 at 70, [13] and Mr Matthew James Newman, Account Executive, Insurance Premium Finance, of BMW Finance, Exhibit 1 at 308, [13].
[8] Statement of Mr Robert Dodd, Director of Centrepoint, Exhibit 1 at 69-70, [11]-[12] and Mr Matthew James Newman, Account Executive, Insurance Premium Finance, of BMW Finance, Exhibit 1 at 307-308, [11]-[12].

Once its client had signed and returned the application form, PFS would send a copy of the application and the tax invoice to Premier Funding by facsimile and arrange for the original to be sent by mail or to be hand delivered.

Facilitation of 22 short term loans from Centrepoint and BMW Funding

Between 1 May 2004 and 30 June 2005, Mr Howarth arranged 19 short term loans on behalf of PFS’s clients. In all, the loans applied for and approved totalled $1,415,568.90. Sixteen were made to and approved by Centrepoint for a total of $1,058,449.75 and another three were made to and approved by BMW Finance for a total of $357,119.15. In respect of each of the 19 applications, Mr Howarth sent documentation in the form in which it was required by Centrepoint and by BMW Funding. All but three of the applications were accompanied by a document that either purported to be an insurance policy from CGU Insurance Ltd (CGU) and was not or, if it was such a policy, showed a premium that was higher than the actual premium payable. The same was true for the two documents forwarded as policies from Zurich Australian Insurance Limited (Zurich) and the one document forwarded as a policy from Suncorp Metway Insurance Limited.

Mr Howarth also applied for three short term loans for his own benefit. One was in the name of PFS for an amount of $10,682.30 and two in the name of JJG for a total of $16,723.25. Each of the three applications was accompanied by a PFS tax invoice referring to a policy that was said to be in the name of JJG but that did not exist. The money lent by Centrepoint as a result of the three applications was deposited in PFS’s bank account. It was withdrawn from that account to pay amounts owed to the Australian Taxation Office (ATO).

Both Premier Funding and PFS received commissions from Centrepoint and BMW Funding in respect of the business that they referred. Commission was paid on a contract by contract basis. Centrepoint and BMW Finance sent the commissions to Premier Funding at a rate between 1% and 2.5% of the premium together with Goods and Services Tax (GST). The commission rate payable to PFS varied between 1% and 2.5%. Both Centrepoint and BMW Funding paid any commissions to Premier Funding. Premier Funding would retain that payable to it and forward that payable to PFS to it by electronic funds transfer. [9]
[9] Statement of Mr Bernard Michael Dunn, Manager and director of Premier Funding, Exhibit 1 at 334, [21]-[22]

In relation to all 22 loan applications, Centrepoint and BMW Finance paid a total of $1,442,974.45 via electronic funds transfer into a bank account in the name of PFS. From that money, PFS forwarded a total of $1,383,000 to its clients. It retained the sum of $32,568.90 for fees and charges in respect of the 19 loan applications it submitted on behalf of its clients and a further $27,405.55 that it had applied for as loans in the name of JJG. The two amounts totalled $59,974.45.[10]
[10] Exhibit A10, Summary of Facts at [22]

Centrepoint and BMW Funding also paid a total amount of $50,923.66 to Premier Funding by way of commission. Premier Funding forwarded $37,301.15 of that sum to PFS as the commission it had earned in referring the 19 premium funding loan applications.

Neither Mawson nor NAS received any notification from PFS, PIB or Mr Howarth about the premium funding loan applications detailed in these reasons.

The charges

The charges, to which Mr Howarth pleaded guilty at the committal mention at the Melbourne Magistrates’ Court on 10 October 2006 and again in the County Court, were:

Count	Charge
Counts 1-4	Obtain financial advantage by deception contrary to s 82 of the Crimes Act 1958 (Vic)
Count 5	Use position (as a director of a Company) dishonestly with the intention of gaining an advantage contrary to s 184(2)(a) of the Corporations Act

Count 1 referred to loan money obtained from Centrepoint and Count 3 to that obtained from BMW Finance. Together, they referred to a total sum of $59,974.45, which was paid to PFS either as fees and charges in respect of 19 of the loan applications ($32,568.90) or as the amounts paid as a result of JJG’s two loan applications and PFS’s one loan application ($27,405.55). Counts 2 and 4 related to the sum of $37,301.15 paid to PFS as commission in respect of the 19 loan applications that did not relate to JJG or to PFS.

Sentencing remarks of Judge Shelton

In sentencing Mr Howarth for each of the four counts, Judge Shelton of the County Court first noted that the maximum penalty for an offence contrary to s 82 of the Crimes Act 1958 (Vic) is 10 years’ imprisonment or a fine of 1,200 penalty units or both. For an offence contrary to s 184(2)(a) of the Corporations Act, which was the subject of the fifth count, the maximum penalty is a fine of 2,000 penalty points or imprisonment for five years or both.

As to the circumstances leading to Mr Howarth’s being charged, Judge Shelton said:
“The circumstances leading to your being charged with the offences to which you have pleaded guilty are comprehensively set out in a helpful document entitled ‘Summary of Facts’ which the prosecutor … read into the transcript. I annexe a copy of that document to, and incorporate it in, these sentencing remarks.
I make the following further comments on the circumstances of your offending: The loans made were not secured as the lenders, Centrepoint Funding Ltd and BM Value Australia Finance Ltd [sic], were led to believe that they were. Fortunately, the lenders were repaid the loans in full by your clients and, in three cases, your companies. In respect of the loans the lenders paid commission to Premier Funding Services Pty Ltd of $50,923.66, of which your two companies received $37,301.15. Payment of this commission was a normal business expense for the lenders in lending funds, and I do not regard it as a loss to the lenders. It may have been otherwise if a borrower had defaulted.
Further, your companies received $32,301.15 by way of fees and charges levied. Again, these would have been payable by the borrowers, in any event, had the loans been properly obtained. Still, there was a financial benefit received by your companies.
Your offending was protracted over a period of 12 months and involved 22 transactions. False documentation was prepared in respect of each transaction. Unusually, in the case of such offending, there was no misappropriation of funds.”[11]
[11] Exhibit A, A11 at [2]-[5]

Judge Shelton then turned to Mr Howarth’s personal circumstances and the effect of his actions on his professional and business activities. He said to Mr Howarth:
“… You are aged 48. You went to year 12 level at school, and then commenced work with National Australia Bank; and since then you have been working regularly in the finance and insurance fields until last year. In 1998 you commenced your own insurance brokering business which, from all accounts, was quite successful. You hold diplomas in financial services.
As a result of your offending, ASIC on 31 May 2006 permanently banned you from providing financial services which covers insurance services. I understand that this determination by ASIC is presently under appeal to the Commonwealth Administrative Appeals Tribunal. In any event, even if the ban is for a limited number of years, the effect has been severe in that you are banned from carrying on from business in an area where it appears you have considerable experience and ability. You were forced to sell your business as a result of the ASIC ban last year, and obtained a sale price of $260,000.
You married in 1981 and have three children aged 24, 21 and 13.
…
… I take into account, to your credit, that between 1977 and 2000 you were in the Army Reserve, and since 2001 you have been heavily involved with Army Cadets, and since the middle of 2006 have had the title of Captain, Officer in Command of a cadet unit.”[12]
[12] Exhibit A, A11 at [6]-[12]

With regard to Mr Howarth’s response to ASIC’s investigations and the subsequent charges, Judge Shelton said:
“On the second interview by ASIC investigators on 18 January 2006 you made substantial admissions. You indicated a guilty plea at the earliest possible time. In the circumstances, and given comments made by you in that second record of interview, I accept your plea of guilty as showing remorse on your part, as well as saving the cost and inconvenience of a trial.”[13]

His Honour went on to refer to a number of Mr Howarth’s clients who had given references although he was not sure whether those clients had been aware that Mr Howarth was facing criminal charges as well as the banning order. Another referee had also given a positive reference as had a former client, who was called to give evidence and who had found Mr Howarth to be very competent in arranging the insurance of his businesses. That witness would engage Mr Howarth again if the opportunity were to arise.

[13] Exhibit A, A11 at [10]

Having recited these matters, Judge Shelton said:
“I feel I can be confident in saying that you are unlikely to re-offend.”[14]
[14] Exhibit A, A11 at [13]

In sentencing Mr Howarth, Judge Shelton referred to the principles of general deterrence:
“In sentencing you – that is, to deter others from offending in a similar fashion to you – is an important sentencing consideration. See for example Q v. Darren Kingsley Brown [2002] VSCA 99 at paragraph 52 by O’Bryan, J. I also noted the comments of Eames, J. in DPP v. Page VSCA [2006] 224 at paragraph 37.
The Courts have made many statements about the seriousness of white collar crime.
Then cases supporting that proposition are quoted. Then Eames J. continues:
As noted in Bulfin, it is a feature of such offending that the offenders are likely to have no prior convictions, to have good character references, to have good prospects of rehabilitation. ---- For such offences these personal mitigatory factors must be given less weight than the factor of general deterrence.”[15]
[15] Exhibit A, A11 at [14]

Having regard to all of these matters including the submissions and the principles in Director of Public Prosecutions v Kose [2006] VSCA 119, Judge Shelton imposed terms of imprisonment in respect of each count but suspended them. In relation to the four counts relating to the State offences, he imposed nine months’ imprisonment on Count 1, three months on each of Counts 2 and 4 and six months on Count 3. In respect of the Commonwealth offence that was the subject of Count 5, Judge Shelton imposed a sentence of three months’ imprisonment.

The sentences were partially cumulative:
“To reflect the totality of your criminality and given the sentence I shall shortly impose upon the Commonwealth offence, Count 5, I direct that three months of the sentence imposed on Count 3 be served cumulatively upon the sentence imposed upon Count 1 and that otherwise the sentences be served concurrently with these sentences and with each other. That results in a total effective sentence of 12 months’ imprisonment. I wholly suspend that sentence for a period of two years.”[16]

With regard to Count 5, Judge Shelton directed that Mr Howarth be released forthwith upon his giving a recognizance to be of good behaviour for a period of two years.[17]

LEGISLATIVE BACKGROUND

[16] Exhibit A, A11 at [20]

[17] Exhibit A, A11 at [23]

Requirement to hold an AFSL if providing a financial service

Chapter 7 of the Corporations Act is concerned with the regulation of financial services and markets. A “financial service” is not defined as such. Rather,
s 766A describes six circumstances in which a person “provides a financial service”. They occur if the person:
“(a) provide[s] financial product advice (see section 766B); or
(b)deal[s] in a financial product (see section 766C); or
(c)make[s] a market for a financial product (see section 766D); or
(d)operate[s] a registered scheme; or
(e)provide[s] a custodial or depository service (see section 766E); or
(f)engage[s] in conduct of a kind prescribed by regulations made for the purposes of this paragraph.”[18]

A person is not taken to provide a financial service if that person’s conduct is done in the course of work ordinarily done by clerks.[19] Part 7.1 develops the circumstances in which a person provides a financial service.

[18] s 766A(1). Regulations may be made to narrow or extend the circumstances in which a person is taken or not taken to provide a financial service. They may also extend the range of persons taken to provide a financial service to those who facilitate the provision of a financial service in certain circumstances: s 766A(2).

[19] s 766A(3)

Subject to s 911A, a person who carries on a “financial services business in this jurisdiction” must hold an Australian Financial Services Licence (AFSL) covering the provision of the financial services.[20] A “financial services business” is a business of providing financial services.[21] There are exemptions to the requirement to be licensed[22] and regulation of the circumstances in which a person may provide a financial service on behalf of another person who carries on a financial services business.[23] The exemption relevant in this case applies if the financial service is provided as a representative of a person who carries on a financial services business and who holds an AFSL covering the provision of the service in issue.[24] Those who are licensed to provide financial services must comply with the obligations set out in Division 3 of Part 7.6. The general obligations are set out in s 912A of the Corporations Act.
[20] s 911A(1) Section 911D prescribes when a financial services business is taken to be carried on in this jurisdiction.
[21] s 761A
[22] s 911A(2)-(5)
[23] s 911B
[24] s 911A(2)(a)

When will an AFSL be granted?

The manner in which a person applies for a licence is set out in s 913A of Division 4 of Part 7.6. Section 913B(1) provides that:
“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 section 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 matters that, under this section, can be taken into account in deciding whether to grant the licence; and
(d)the applicant meets any other requirements prescribed by regulations made for the purposes of this paragraph.”

ASIC may impose conditions on any AFSL it issues.[25]

[25] s 914A

What are the obligations of the holder of an AFSL?

As I have said, the general obligations of the holder of an AFSL are set out in s 912A of the Corporations Act. Section 912A(1) provides that:
“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 laws; and
(ca) take reasonable steps to ensure that its representatives comply with the financial services laws; and
(d)unless the licensee is a body regulated by APRA--have available adequate resources (including financial, technological and human resources) to provide the 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, and are competent, to provide those financial services; and
(g)if those financial services are provided to persons as retail clients--have a dispute resolution system complying with subsection (2); and
(h) unless the licensee is a body regulated by APRA--have adequate risk management systems; and
(j)comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph.”

A “financial services law” refers to a provision of Chapters 5C, 6, 6A, 6B, 6C and 6D as well as of Chapter 7. It also refers to a provision of Chapter 9 as it applies to a provision referred to in one of those seven Chapters, a provision of Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001 (ASIC Act) and any other Commonwealth, State or Territory legislation covering conduct relating to the provision of financial services.[26]
[26] s 761A

When can an AFSL be varied, cancelled or suspended?

Division 4 of Part 7.6 is also concerned with the suspension and cancellation of licences. Where an AFSL is held by a natural person, s 915B provides that:
“ASIC may suspend or cancel and Australian financial services licence held by a natural person, by giving written notice to the person, if the person:
(a)ceases to carry on the financial services business; or
(b)becomes an insolvent under administration; or
(c)is convicted of serious fraud; or
(d)becomes incapable of managing their affairs because of mental or physical incapacity; or
(e)lodges with ASIC an application for ASIC to do so, which is accompanied by the documents, if any, required by regulations made for the purposes of this paragraph.”

There is no requirement in s 915B that ASIC give the person any notice of the suspension or cancellation. Section 915C provides for other circumstances in which ASIC may cancel or suspend an AFSL after giving the licensee an opportunity to appear, or be represented, at a private hearing before ASIC and to make submissions to ASIC on the matter.[27] Those circumstances occur if:
[27] s 915C(4)
“(a) the licensee has not complied with their obligations under section 912A;
(aa)ASIC has reason to believe that the licensee will not comply with their obligations under section 912A;
(b)ASIC is no longer satisfied of the matter in whichever of subsection 913B(2) or (3) applied at the time the licence was granted (about whether the licensee, or the licensee’s representatives, are of good fame and character);
(c)a banning order or disqualification order under Division 8 is made against a representative of the licensee and ASIC considers that the representative’s involvement in the provision of the licensee’s financial services will significantly impair the licensee’s ability to meet its obligations under this Chapter.”[28]
“(a) the application for the licence was false or misleading in a material particular or materially misleading; or
(b)there was an omission of a material matter from the application.”[29]

The cancellation or suspension takes effect when written notice of it is given to the licensee.[30]

[28] s 915C(1)

[29] s 915C(2)

[30] s 915F

What is, and what are the responsibilities of, an authorised representative?

An “‘authorised representative’ of a financial services licensee means a person authorised in accordance with section 916A or 916B to provide a financial service or financial services on behalf of the licensee.”[31] Section 916A(1) provides that a financial services licensee may give a person a written notice authorising the person to provide a specified financial service or financial services on behalf of that licensee. It is an authorisation given for the purposes of Chapter 7 of the Corporations Act.[32] Any authorisation to provide a financial service that is not covered by the AFSL of the licence holder or that is contrary to a banning order or disqualification under Division 8 of Part 7.6 is void.[33] The holder of an AFSL cannot be the AR of another holder of an AFSL.[34]
[31] s 761A
[32] s 916A(1)
[33] s 916A(3)
[34] s 916D(1)

The holder of an AFSL who authorises an individual as an AR must tell ASIC of the authorisation within 15 business days.[35] Division 6 of Part 7.6 provides for the liability of financial services licensees for representatives. That Division applies to the conduct of any representative of a financial services licensee that relates to the provision of a financial service on which a third person could reasonably be expected to rely and on which that person in fact relies in good faith.[36]

[35] s 916F

[36] s 917A(1)

Section 917B provides that:
“If the representative is the representative of only one financial services licensee, the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative’s conduct is within authority.”

Section 917C makes particular provision where a person is an AR of more than holder financial services licensee. If the licensee is responsible for the conduct of the AR under Division 6, the client has the same remedies against the licensee as the client has against the AR.[37]

[37] s 917F(1)

What is a banning order and what is its effect?

Depending upon its terms, a banning order is a written order prohibiting a person either from providing any financial services or from providing financial services in specified circumstances or capacities.[38] The order may prohibit the person against whom it is made from providing a financial service:
“(a) permanently; or
(b)for a specified period, unless ASIC has reason to believe that the person is not of good fame or character.”[39]

A banning order takes effect, or a variation or cancellation of it, takes effect when it is given to the person against whom it is made.[40]

[38] s 920B(1)

[39] s 920B(2)

[40] s 920E(1)

The application of a banning order may be modified in certain circumstances. It may allow the banned person to do specified acts or specified acts in specified circumstances even though its terms otherwise prohibit that person from doing those acts or doing them in those circumstances. The modification of the application of the banning order may be made subject to specified conditions. That is the effect of s 920B(3).

ASIC cannot grant an AFSL to a person against whom a banning order has been made if to do so would be contrary to that banning order.[41] A person contravenes s 920C if the person engages in conduct that breaches a banning order.[42]
[41] s 920C(1)
[42] s 920C(2)

Should there be a change in any of the circumstances on which ASIC made a banning order, it may vary or cancel it.[43] ASIC may do that on its own initiative or the person against whom the banning order was made may make an application in accordance with any regulations.[44]

[43] s 920D(1)

[44] s 920D(2)

When may ASIC make a banning order?

ASIC may only make a banning order after giving the person an opportunity to appear, or be represented, at a private hearing before ASIC and to make submissions to ASIC on the matter.[45] The circumstances in which ASIC may make a banning order occur if:
[45] s 920A(2)
“(a)     ASIC suspends or cancels an Australian financial services licence held by the person; or
(b)the person has not complied with their obligations under section 912A; or
(ba)ASIC has reason to believe that the person will not comply with their obligations under section 912A; or
(bb)the person becomes insolvent under administration; or
(c)       the person is convicted of fraud; or
(d)       (Repealed)
(e)       the person has not complied with a financial services law; or
(f)ASIC has reason to believe that the person will not comply with a financial services law.”[46]

The expression “financial services law” has the same meaning as it does in relation to s 912A(1).[47]

[46] s 920A(1)

[47] See [32] above

Enforceable undertaking

Section 93AA of the ASIC Act is concerned with written undertakings. It provides that:
“(1) ASIC may accept a written undertaking given by a person in connection with a matter in relation to which ASIC has a function or power under this Act.
(2)The person may withdraw or vary the undertaking at any time, but only with the consent of ASIC.
(3)If ASIC considers that the person who gave the undertaking has breached any of its terms, ASIC may apply to the Court for an order under subsection (4).
(4)If the Court is satisfied that the person has breached a term of the undertaking, the Court may make all or any of the following orders:
(a)an order directing the person to comply with that term of the undertaking;
(b)an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;
(c)any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach;
(d)any other order that the Court considers appropriate.”

THE EVIDENCE

Professional experience in the financial services industry

While he was an AR for Mawson and NAS, Mr Howarth said, he was subject to compliance reviews every 12 months. He always met them and, in relation to general insurance, was asked to address a conference regarding the way in which he ran his business. The compliance reviews included a review of the way in which he managed his accounts. At the compliance review conducted by Inspector Compliance Pty Ltd (Inspector Compliance) for Mawson on 22 March 2006, Mr Howarth said that he received a high compliance rating for all aspects of his financial advisory business with the exception of the 22 files involved in the premium funding loan applications.[48] The report contained the following general comments:
“Overall displayed a high standard of compliance with regard to operational activities and advice provided to clients with the exception of the issues surrounding the pending ASIC investigation. Advice was provided to clients in a timely manner and based on current client information. Advice was also provided in accordance with client’s goals and objectives.”[49]
[48] Exhibit A, A9 at [12]
[49] Exhibit A, A9 at [12] at DH-1, overall summary

When life insurance was concerned, all moneys were payable to the relevant life insurance company and he had responsibility only for the paperwork. When Mr Howarth ran his own brokerage firm under its own licence, he maintained a trust account through which moneys passed from the client to the underwriters. As an AR, the moneys were paid into NAS’s trust account. Mr Howarth remained responsible for some cash that he would pay into NAS’s trust account. There has never been any suggestion of any shortfall in the accounts or of any misappropriation of clients’ funds.

Mr Howarth said that he had not worked in the investment field. In so far as life insurance was concerned, Mawson had an approved product list and he, as an AR, could not offer products that were not on that list.

At the time that he arranged the premium funding loans, PFS had approximately 900 files relating to a number of clients fewer than 900. Only 1% of these files were involved in the premium funding loan applications.[50]
[50] Exhibit A9 at [10]

Compliance reviews

Mr Howarth said that he had met his solicitor, Mr Xenidis, through Inspector Compliance as Mr Xenidis would attend the professional development sessions organised by Mawson. He was aware that Mr Xenidis was a director of Inspector Compliance. Mr Howarth put forward the report of Inspector Compliance to show ASIC the type of business that he was running. It was an expert opinion that he was conducting his business in a proper way apart from the matters relating to premium funding. Mr Howarth was asked:
“… And can I ask whether you see any conflict in having the person who represents you as your representative also being the person who gives you expert evidence assistance?”[51]

Mr Howarth responded that it was “… not a matter for me to answer. That’s for the tribunal or – to answer that question.”[52]

[51] Transcript at 54-55

[52] Transcript at 55

Mr Howarth’s attention was drawn to several passages from Inspector Compliance’s report:
“… The areas covered in the review include those considered when providing expert evidence as to standards expected from participants within the financial services industry.
The Compliance Report is typically based on a sample of randomly selected files which may not be a true cross section of the Representative’s client base. …
The Compliance Report is not to be used as a basis for making representations as to quality of service or advice to any third party and no third party ought to rely on this Compliance Report for such purposes.”[53]
[53] Exhibit 1 at 11

Mr Howarth did not think that the last statement diminished the weight that could be given to the Compliance Report and agreed that the files selected by Inspector Compliance might not reflect a true cross-section of the client base.

Mr Howarth agreed that the Compliance Report did not assign a compliance rating to him in its overall summary. It showed that the files of three clients had been reviewed.[54] Each file related to life insurance as that was of concern to Mawson.
[54] Exhibit 1 at 12

Arranging premium funding

Mr Howarth said that, in some States, insurance premiums could not be paid in instalments. As some clients could not pay them in a lump sum, he would arrange premium funding for them. He would receive the funds and then send them to the client. It was common practice in the insurance sector, Mr Howarth said, and he explained that:
“… Not long after I got into the business, I was introduced that, you know, if you need to help people out, you can just do a premium funding loan. As long as the loan is repaid, there’s no questions asked.”[55]

He understands from the fact that he was introduced to the practice by other brokers that it is a common practice in the insurance industry.

[55] Transcript at 16

In the interview with Mr Malinaric on 9 May 2006, Mr Howarth had explained :
“How I came across it was many years ago when I first started in the industry we needed to purchase a computer and didn’t have the cash flow at the time because it was a new start-up business and actually an experienced broker put me on to the – how to do it and so there’s a way of getting money by doing it this way, so I was shown it by somebody else in the industry.”[56]

Mr Howarth said to Mr Malinaric that:

“… The majority of the money was used for WorkCare funding, so the mechanism I was using for the WorkCare funding was flawed because 10-odd years you could borrow money – you couldn’t premium fund WorkCare. Today you can and I’d never changed my procedures. So the majority of the money was used for WorkCare funding.
MR MALINARIC: But not all of it.
MR HOWARTH: No, there was some in there that – some people – some clients took advantage of the system. So they were using it for other purposes, but most of it was WorkCare, the majority of the funds were WorkCare, some of the loans weren’t, the smaller loans, but they were directors of the company that legitimately were using it for WorkCare and so --- “[57]

[56] Exhibit 1 at 975-976

[57] Exhibit 1 at 976

When speaking at the earlier interview with Mr Flynn of ASIC about what Centrepoint and BMW Finance thought that they were financing, Mr Howarth said:
“Well, as far as I’m concerned it was for insurance purposes. It wasn’t actually for the policies, the policies that they thought they were getting covered against, yes.
MR FLYNN: Yes, do you think they may have been a bit deceived?
MR HOWARTH: Well, when I think about it, in July last year when this came up and I, you know, it was all brought up, then when I started to think about it, yes they probably, you know, they were but Centrepoint said at the time they still would have lent the money to the client on the WorkCare, so it was just a matter of the procedures I was using were out of date and I should have changed them some years earlier.
…
MR HOWARTH: That’s a mistake I made. I’ve continued on with a wrong process, doing it wrong, and I stated back in those documents I’ve given you, I made a statement right at the beginning where I stated that these invoices I provided were incorrect, that they were dummy or false or whatever term you want to use.”[58]
[58] Exhibit 1 at 936

In cross-examination, Mr Howarth said that he thought at the time that this was an adequate explanation for his conduct. Mr Robert Dodd, who is a director of Centrepoint, had drawn his attention to the fact that Centrepoint lent money for work care whereas some years earlier premium funding firms had not. He had not updated the template on his computer and he should have updated his procedures.[59]
[59] Transcript, 41

As far as Mr Howarth is aware, there has been no change to premium funding procedures. In cross-examination, the following exchange occurred between Mr Howarth and Mr Knowles:
“And might it be that the reason why it’s been thought unnecessary to change the procedures, is that people would assume that others would abide by – would not be falsifying documents in such applications? --- I can’t answer that question. I’m not the executive of the premium funding companies.”[60]
[60] Transcript at 33

As to the way in which he would place the business, Mr Howarth said:
“The client always requested the amount of the funding they required. I would obtain quotes and I would send the contracts through to the client. The client would sign the contracts and send them back to me and they would be onforwarded to the premium funding. So I never signed any contracts, except for I think there’s two loans there that belong to companies of which I had an association with.”[61]
[61] Transcript at 18-19 and see also transcript at 20 when Mr Howarth repeated that he had not signed any contracts on behalf of a client.

All the moneys were repaid by the clients directly to the company funding the loan by direct debit. Mr Howarth had nothing to do with the clients’ repayments of the loans.

When comparing his work as an AR for Mawson with premium funding, Mr Howarth said that premium funding was not regulated:
“… as far as I could see. Premium funding – there didn’t appear to be any rules, as long as people paid the money back, the funders didn’t seem to take – I mean, it was, you know, a one-page contract for the amount of money. It was just – it was unbelievable. Like – because I came out of the banking industry, so it absolutely floored me that you could get this sort of money with such little paperwork.
And so you are more than capable to abide by regulations imposed on you by a financial services licensee? --- Most definitely.”[62]
[62] Transcript at 18

In cross-examination, Mr Howarth was taken through a tax invoice that he prepared and sent to Centrepoint. It showed amounts for base premium, fire levy, GST, stamp duty and broker fee totalling $71,465.50.[63] The tax invoice bore a number and a date as well as the details of the Reflections Group (i.e. Reflections Group Services Pty Ltd), to which it was addressed, and the details of a policy said to be with Zurich. Mr Howarth said that all of the details shown on the tax invoice were false. In this case, there was no insurer, no policy and no policy number. In other cases, there was a policy and he would show the correct policy number but the amount of the premium would not be correct. In the case of the tax invoice showing a figure of $71,465.50, the amounts shown for base premium, fire levy, GST, stamp duty and broker fee were all made up. There were only two components to the loan amount: the amount that went to the client and the amount that went to him as a fee or charge.[64]
[63] Exhibit 1 at 350
[64] Transcript at 28-29

With regard to the three loans arranged for JJG, Mr Howarth said that the properties given as the risks insured existed but had nothing to do with him or with JJG.

In an exchange with Mr Grant during the interview on 18 January 2006, Mr Howarth denied that he had known that his clients used the loans for purposes other than the payment of their insurance premiums. Had he known that was happening, he would not have had anything to do with it.[65] At the hearing, he continued to deny that he had known that the loans were used for a multitude of purposes. His attention was drawn to the description of the use of the loans given in the DPP’s Summary of Facts. The two in relation to JJG were shown as “Payment to ATO” as was another to PFS. Mr Howarth said that the loans made to JJG were used to pay the tax bill of “probably PFS, I would imagine.”[66] Seven were shown as “RGS Worker’s [sic] Compensation Premium”.[67] They were shown against all entries in relation to the Reflections Group. Two of the entries concerned a racehorse; either its purchase or its being serviced. Four were shown as “Injection of working capital” and another four for the repayment of personal debt. The final payment was to “ payout former shareholder of QHS.”[68]
[65] Exhibit 1 at 938
[66] Transcript at 36
[67] Exhibit A, A10 at [21]
[68] Exhibit A, A10 at [21]

In cross-examination, the following exchange took place between Mr Knowles and Mr Howarth regarding the loans made to entities other than the Reflections Group:
“And none of the others relate to workers [sic] compensation – is that right – none of them? Is that right from the table? --- Well, that’s what the prosecution put forward. I never agreed with that. I just said that – I agreed with the loans and all that, but I never agreed with that. When it came to court, it was a simple matter of my barrister saying to me, ‘Well’, he said, you know, ‘you’re admitting to the loans. What they were used for at the end of the day, we’re not going to argue that here because we’re pleading guilty.’ So what’s the point of arguing against it if I’m pleading guilty, and I had already pleaded guilty before this – before this was presented for those loans.
So, are you saying that in relation to these other amounts, you were told incorrectly – and put aside your own companies, we’ll get to that? --- Yes.
In relation to these other amounts you were told falsely by the people applying for the money that it was for a workers compensation premium. Is that what you’re saying? --- That’s correct.
So, in all of these cases you’re saying that? --- What I’m saying is that when I was asked to provide the loan by the clients, my understanding is it was for work care.
What? Were you told that? --- Well, in some cases I didn’t ask. It was just because it was something that I was doing.
So you wouldn’t know, because they didn’t tell you? --- Possibly.
And you didn’t ask. You couldn’t know what the money was going to be used for, could you? --- Well, I can’t answer that question, can I? I man, I didn’t --- Well, you couldn’t.
… --- Well, you know, as far as I was concerned they were for work care, and if the client just asked for the money, I didn’t always confirm that they had a work care bill, which was obviously in hindsight ---“.[69]
[69] Transcript at 35-36

Mr Howarth acknowledged that he had not told Mr Grant of the purposes for which JJG and PFS had used the amounts they received. Those loans had not come to mind at the time that he was answering the questions as he was answering in regard to his clients’ loans and not his own. He continued to deny that he knew that other loans had been obtained in order to repay debts.[70] His attention was drawn to a further exchange between him and Mr Grant when Mr Grant asked him why Mr David Bailey, an employee of the Reflections Group, would be wanting loans of $20,000 each time. Mr Howarth told him that it “… was something to do with owing money to Jeff and it was the only way he could get the money back or something.”[71] “Jeff” is Mr Jeffrey Crewes of Crewes Holdings Pty Ltd, which is part of the Reflections Group, and of the loan, Mr Howarth said:
“… it was organised by Jeff, so I didn’t actually speak to David as such, except to confirm that it was going to come from – that he was wanting the funds but I didn’t actually ask him what was going on.
MR GRANT: Okay. So would it be fair to say that those funds, 20 and 20,000, were not for workers comp?
MR HOWARTH: Yes.”[72]
[70] Transcript at 36-37
[71] Exhibit 1 at 955
[72] Exhibit 1 at 955

At the hearing, Mr Howarth acknowledged that he had consistently described the loans as being, at least initially, as being all for workers’ compensation premiums.[73] He then acknowledged that five of them were not. They were those for PFS, JJG and Mr Bailey. Putting aside PFS and JJG and those made to the Reflections Group, all the other loans were obtained for persons associated with the Reflections Group. The conversation that he had with those people was: “‘Yes, I can organise work care funding,’ and obviously, in the case of David Bailey, they’ve used me for getting a loan.”[74]
[73] Transcript at 39
[74] Transcript at 39

Mr Howarth said in the course of giving evidence that he did not always ask for the name of the insurer with whom his clients were dealing. In the last few years, he had not asked them for the insurer’s notice advising the amount of the premium payable.

The purpose for which premium funding obtained

In the DPP’s Summary of Facts, there appears the following statement:
“PFS clients have indicated that funds received in respect of short term loans were used for various business/personal purposes, including payment of Worker’s Compensation premiums, settling outstanding personal/business debts, purchase of racehorses and the injection of working capital. Some clients have indicated that they told the Accused what the funds were going to be used for, i.e. for purposes other than paying insurance premiums.”[75]
[75] Exhibit A, A10 at [31]

The Summary of Facts also recorded Mr Howarth’s statement that, as far as he was aware, the loans were used to pay worker’s compensation premiums. He denied being aware that, in some instances, the funds were used for other purposes although he admitted that he used those he obtained for JJG to pay taxation liabilities.[76]
[76] Exhibit A, A10 at [36]

Prejudice resulting from 22 premium funding arrangements

When asked in cross-examination whether any person had experienced any hardship due to his actions in arranging the premium funding as he had, Mr Howarth replied:
“No. In fact, yes, they have because, since I’ve not had the – I don’t do – I haven’t been able to do it any more, they’ve – some of them have had – you know, have found it difficult to get funding for WorkCare. So, in that respect, they’ve had – they’ve had some hardship.”[77]
[77] Transcript at 17

All the loans were repaid by the clients and nobody incurred any financial loss. Mr Howarth explained that “The client asked for the loans – for their payments, and they paid for it themselves, so … they were very happy with the service.”[78] There was no dissatisfaction with the service he provided.[79] There was never any intention that they would not repay the loans. They needed the money to pay their WorkCare premiums and they did not have the cashflow to pay them in one lump sum. The loans that he obtained for JJG were used to pay his taxation liabilities and were repaid through monthly repayments.[80]
[78] Transcript at 17
[79] Transcript at 18
[80] Transcript at 19

During cross-examination, Mr Howarth agreed with Mr Knowles that the rationale for his giving Centrepoint or BMW Finance a tax invoice was to provide evidence that there was an insurance policy. The reason the two premium funders wanted that evidence was because the insurance policy was the security for the repayment of the amounts they lent. It was security because, if the borrowers were to default on their loans, the premium funders could cancel the policies and obtain a refund of the premiums paid. Therefore, if there is no policy, there is no security although Mr Howarth pointed out that, in some cases, premium funders lent against policies that were non-cancellable.

The subject of repaying the loans was also addressed during cross-examination. Mr Howarth’s attention was drawn to the following exchange he had with Mr Grant, an ASIC officer. Mr Grant had asked him, in effect, whether he had any concern that Centrepoint might not have had any way of recovering its money in the absence of a policy:
“MR HOWARTH: I relied on the fact that I’d been doing this for quite some time and that the money that the Reflections Group turns over is – it’s all paid out of trust account funds because they – most of their money comes from shopping centres and they’re contracts that are signed for three years. In most cases they’ve got three-year contracts for each shopping centre. So therefore the income that they had was virtually guaranteed, unless something dramatically went wrong, and if they were to lose only one shopping centre they clean – I don’t know – 70, 80 or how many shopping centres they’ve got today.
…
MR GRANT: Would it not be a case of having to rely upon the individuals at Reflections Group to be honest enough to say, ‘We must make this payment because it’s our requirement,’ rather than guaranteed money? I mean, a lot of people that have lots of money have still got to pay the bills. Is that something you ever thought of; that what if Centrepoint people think – what if Reflections Group say, ‘No, we’re not going to pay this month. We’ve got a lot of bills to pay.’
MR HOWARTH: I’d never thought of that. That was – I mean, they’ve never missed a beat. So ---
MR GRANT: No, they haven’t missed, but in the instances where they may have – other instances where other individuals may put that as a second option and pay that money somewhere else, which would leave Centrepoint pretty much high and dry. What I am saying is, but for the goodwill of the client, the money was paid. Had it been someone of less repute in a similar situation, the chances of money not being paid, therefore Centrepoint having nowhere to go to recover their funds.
MR HOWARTH: So are you – I’m not – asking me am I – was that a concern of mine, or was that ---
MR GRANT: Yes, At the time.
MR HOWARTH: I’ve never thought about it.
MR GRANT: Okay. Okay. So what you’re saying is that you have consciously misled Centrepoint to believe that there was an insurance policy in place for each of the 22 – 21 applications that they could fall back on, when you knew that there weren’t such policies to fall back on?
MR HOWARTH: I haven’t – I wouldn’t say that I consciously did that. When I set it up originally, these are money that was used for WorkCare premiums that had to be paid. The client had to pay their WorkCare across three states.
…
MR HOWARTH: And that was helping out the client with their cash flow in respect of their WorkCare. Instead of having to come up with huge sums of money to pay for WorkCare, they were spreading out the payments over a period of months. So, you know, I’d never thought any more of it than that. It’s just a way of funding their WorkCare.”[81]

Mr Howarth confirmed that this passage reflected his thinking at the time he procured the loans for his clients.[82]

[81] Exhibit 1 at 933-934

[82] Transcript at 31

Mr Howarth agreed with Mr Knowles that he received fees and commission on each of the 22 transactions that were the subject of the convictions as well as those transactions of that nature occurring in earlier years. Mr Howarth agreed with Mr Flynn in the interview on 18 January 2006 that the amount that he included on the top of the amount required by his client was something he “sort of made up”:[83]
“… I had a rough idea, if it was going to be over 100 [$100,000] I would charge two and a bit thousand, if it was between 50 and 100 it was, sort of, in between. If it was below that it would be a lower amount again. So just sort of an estimate.”[84]

As to the way in which he could justify the amount that he charged, Mr Howarth said that if his clients wanted the money, then that was the charge. It all stemmed back to the early days when his clients could not get funding for WorkCare. The amount was disclosed to them.

[83] Exhibit 1 at 945

[84] Exhibit 1 at 946

Mr Adrian Forsyth, the director of Capital Projects (Queensland) Pty Ltd (Capital Projects), said that he met Mr Howarth through Mr Crewes, who had told him that he knew somebody who was able to arrange short term business finance.[85] They met over the telephone through Mr Crewes, who told Mr Howarth that he, Mr Forsyth, would be able to repay a loan of $60,000. Mr Forsyth said in his statement that he had explained to Mr Howarth that he required that amount but, to the best of his recollection, did not explain why he needed it. Mr Howarth asked him for the name in which he wanted to borrow the funds and Mr Forsyth told him to use the name of Capital Projects. Mr Howarth did not explain the terms of the loan or the interest that was payable other than to say that it would be repayable in ten monthly instalments. He told him, Mr Forsyth, that he would send him a form to sign. The form that was sent to him showed Capital Projects as the applicant, the details of the loan amount, the credit charges and details of the amount and number of the repayments from Capital Projects’ bank account. The total amount shown on the application form was $61,724.50 together with a credit charge of $4,542.92. It was repayable in ten monthly instalments of $6,626.74 commencing on 5 May 2005. Capital Projects received a direct debit of $60,000 on 20 May 2005.[86]
[85] Exhibit 1 at 168, [4]
[86] Exhibit 1 at 169-170

Mr Forsyth has been shown a tax invoice dated 9 May 2005 from PFS and addressed to Capital Projects for an amount of $61,724.50. He noted that the tax invoice relates to an Industrial Special Risks insurance policy for Capital Projects with CGU for the period 5 May 2005 to 5 May 2006. The amount of the premium payable was $61,724.50. Mr Forsyth said in his statement that he had not seen the document before being shown it by ASIC officers.[87] To the best of his knowledge, at no stage did Capital Projects hold or apply for an Industrial Special Risks Policy with CGU either through Mr Howarth or PFS. All repayments had been made to Centrepoint as they fell due but Mr Forsyth said:
“Had I been aware at the time of organising the loan through Duncan that Duncan was using what appears to be false documentation to secure the loan, I would not have proceeded with the application through Duncan.”[88]
[87] Exhibit 1 at 170, [16]
[88] Exhibit 1 at 171, [19]

Mr Howarth answered “no” to the suggestion that other clients might share Mr Forsyth’s view. When asked whether he thought that they might be happy to have false documentation put in support of a loan application, he replied:
“I can’t answer how they feel. I’m not them.”[89]
[89] Transcript at 58

In re-examination, Mr Howarth said that the signature on the bottom of the application to Centrepoint by Capital Projects for finance was not his. He believed it to be that of Mr Forsyth.[90] The figure of $61,724.50 matched that on the tax invoice, which would never have been sent to Mr Forsyth although it was sent to Centrepoint.
[90] Exhibit 1 at 59

The document began with the words “An offer to borrow is made by the Insured/s named below for an advance to finance insurance premiums …”.[91] In re-examination, Mr Howarth’s attention was drawn to this statement and he said that he was not aware that the loan was to be used for any purpose other than to finance insurance premiums.[92]
[91] Exhibit 1 at 173
[92] Exhibit 1 at 60

His attention was not drawn to what followed. That included details of Capital Projects. Details of the loan as set out in [74] above followed a printed statement: “Details of Insurance Premiums to be Funded and Calculation of Monthly Instalments (Please attach copy of the Insurance schedule with this Offer)”.[93] Before the signature block is a statement:
“By signing this Offer, the Offeror’s declare that they have received and understood the terms of the Facility set out in this Offer. The Offeror/s declare and warrant to Centrepoint that the credit to be provided by Centrepoint is to be applied wholly or predominantly for business or investment purposes (or for both purposes).
IMPORTANT You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code.”[94]
[93] Exhibit 1 at 173
[94] Exhibit 1 at 39

Conversations with Mr Dodd of Centrepoint and Mr Dunn of Premier Funding

The material in this and the following paragraph is taken from the Summary of Facts prepared by the DPP and with which Mr Howarth agreed. In mid June 2005, Mr Robert Dodd, who is a director of Centrepoint, asked Mr Howarth, through Premium Funding, to supply a sample of the supporting documentation that had been referred to in PFS’s tax invoice as “attached schedules” but that had not in fact been attached. On 24 June 2005, Mr Dodd received six samples of the schedules sent by PFS. Each related to CGU policies but, on contacting CGU about the policy shown on one of the tax invoices, Mr Dodd was advised that the policy number shown on one tax invoice did not exist.

When, on 28 June 2005, Mr Dodd and Mr Bernard Dunn of Premier Funding approached Mr Howarth, the following conversations occurred. Mr Howarth is reported as saying that:
“… he had been dealing with Unauthorised Foreign Insurers and did not think Centrepoint would accept the business, so he used false CGU invoice details. Dodd then asked … [Mr Howarth] to provide the name of the insurance broker used to place the insurance and … [Mr Howarth] indicated that he would not do so until he had spoken with the broker. At the meeting, Dodd also asked … [Mr Howarth] about the loans to JJG and … [Mr Howarth] admitted there was no insurance cover involved and that the funds obtained were for his own personal use for the payment of a debt to the ATO.
The following day, … [Mr Howarth] contacted Mr Dodd and said he wished to clarify what he had said at the meeting. He advised that the premium funding he had arranged for his clients related to worker’s compensation policies and he did not think that Centrepoint would have provided funding for these policies without financial information being supplied. … [Mr Howarth] also sent Dodd an e-mail on that day (29 June 2005) in which he indicated that a number of the loans were for the purpose of payment of worker’s compensation premiums for Reflections Group Services Pty Ltd. … [Mr Howarth] also indicated to Dodd that he would arrange for the balance of the outstanding loans to be paid.”[95]

On 1 August 2005, Mr Dodd reported the matter to ASIC.

[95] Exhibit A, A10 at [28]

In giving evidence, Mr Howarth said that he understood that Mr Dodd had selected his loan applications for examination because they were higher than the average. He and Mr Xenidis had the following exchange:
“Were you nervous when you were approached? --- Yes, because it was out of the blue. It was said to me that he would be in the area and he just wanted to meet me. So when they came to the office I wasn’t – he sort of – I was put on the spot and I just didn’t know what to – I didn’t know how to answer.
…
So when you were confronted, you were taken aback. Is that right? --- That’s right. I didn’t know – I didn’t know what to say because I didn’t want to – my concern was for the clients, for them to be involved in anything, so I didn’t really know how to answer. I had to make something up on the spot.
Did you intend to deceive Mr Dodds as to your response? --- Are you – before he came or when he was there?
Before he came? --- Before he came, no, because I though[t] he was just coming to meet me as a normal business meeting, to meet, you know, a person who was using their services. So no, I had no intent at the time to deceive him. I didn’t know the purpose of his visit.”[96]
[96] Transcript at 19-20

When asked in cross-examination why he had not told Mr Dodd the truth, Mr Howarth repeated his concern for his clients and did not agree with Mr Knowles’ proposition that he did not want to get himself into trouble.[97]
[97] Transcript at 30

Also during cross-examination, there was an exchange between Mr Knowles and Mr Howarth regarding the six sample schedules that he had prepared in response to Mr Dodd’s request. During the ASIC interview, Mr Howarth had said that he had been only slightly concerned when he had been asked for them. He continued:
“… at that stage, I still thought, well, these loans are being repaid, there’s no problems with the repayments, and I thought it was just an audit process. They just wanted to, you know, do audit, so at that stage, no, I wasn’t thinking anything at that particular point in time.”[98]
[98] Exhibit 1 at 966

Mr Howarth confirmed that this reflected his thinking at the time. He would give the false schedules to Mr Dodd and that would be an end of the matter. His practice of providing false tax invoices would not be discovered by Centrepoint. At that stage, he would have continued to engage in that practice. But for being discovered, he would have continued to engage in that conduct.[99]
[99] Transcript at 33

Interviews with ASIC officers

Mr Howarth said that he had proffered “No comment” answers at his first interview with ASIC’s officers. By the time of the second interview, he had spoken with his legal advisers and answered all questions asked of him. In giving evidence, Mr Howarth also said that he assisted ASIC’s officers and did not conceal or destroy any evidence in so far as he was aware. His responses of “No comment” in the first interview had resulted from legal advice that he had been given.[100] He decided to make a frank admission of the facts at the second interview. But for his legal representative’s advice to the contrary, he would have done that in the first interview.
[100] Transcript at 17-18 and 23

Mr Howarth’s view of his conduct

In his affidavit sworn on 29 June 2006, Mr Howarth said:
“I understand that ASIC had concerns about my honesty and integrity in providing financial services but I submit that only a small percentage of my overall client base were involved in the premium funding loans and as such it was an isolated incident of my overall financial services practice.”[101]

In cross-examination, Mr Howarth confirmed his view that the premium funding activities were isolated.[102] They involved 22 instances in a period when he sent out something between 800 and 900 invoices a year.[103]

[101] Exhibit 1 at 7, [18]

[102] See also letter dated 19 May 2006 from Mr Xenidis to ASIC: Exhibit 1 at 982

[103] Transcript at 43-44

Mr Howarth’s attention was drawn to his statement to Mr Grant on 18 January 2006 that premium funding for the Reflections Group had started back in 1993 or 1994. Premium funding of the sort in relation to which he was convicted had been going on for some 12 years. He would not have organised 22 of them in each of those years as there would have been far fewer. Some of the companies had only been introduced to him in the previous one or two years. In relation to premium funding to pay his own tax bills, he had not sought it every year but “There might be the odd one here and there ---“.[104]
[104] Transcript at 44

When asked by ASIC’s officers whether he thought what he had done was wrong, Mr Howarth told them that “… with hindsight, what he did was wrong and that he shouldn’t have been doing it.”[105] In giving evidence whether he regretted what he had done, Mr Howarth replied: “Today I do, yes, of course. … Definitely. I’ve regretted it from the time that ASIC knocked at the door.”[106] Later, he said that he showed his remorse to the court when he pleaded guilty to the charges.[107] As to his awareness that his behaviour had been illegal, Mr Howarth had the following exchange with his solicitor, Mr Xenidis:
“Were you aware that this was illegal? --- I wasn’t aware that it was illegal. I was aware that it was probably on the grey – on the grey edges of what was being done.
But was it illegal? --- Well, obviously, now, I realise it is illegal, yes.
But you didn’t have that understanding at that time? --- No.
Would you continue operating in such a manner? --- No, of course not.
In any other capacity? --- Well, apart from the premium funding, I’ve never done anything else wrong.”[108]
[105] Exhibit A, A10 at [38]
[106] Transcript at 17
[107] Transcript at 17
[108] Transcript at 17

Mr Howarth said that he approached the largest client, the Reflections Group, and offered to repay it the commission and fees that he had charged.

In cross-examination, Mr Howarth was asked by Mr Knowles whether his conduct had been dishonest. He replied:
“When I look back now, yes. The provision of false invoices – correct.”[109]
[109] Transcript at 25

In re-examination, Mr Howarth said that his conduct had been dishonest. He would not repeat it “… because I’ve lost enough money now and reputation.”[110]
[110] Exhibit 1 at 62

We also asked Mr Howarth about his view of his conduct and the following is part of the exchange:
“THE D. PRESIDENT: And what is it that you think you did wrongly? --- There’s no doubt that I presented false invoices for the obtaining of the loans.
And do you think that’s a bad thing to do? --- I believe that I should be punished for what I’ve done. I just feel that the penalties are far too harsh for what I’ve done.
And why is that? --- Well, I falsified the documents to get those loans, but the loans were asked for by the clients; they did sign the documents; they were aware of the amount of money. They received the money, and they paid back the money themselves, so there was no money misappropriated in any way, and I fell that a life ban is far – is very excessive, when I loot at what – other people have stolen money, put it in their pocket, if I had stolen the money myself by taking the money off the clients, I would – I would have accepted a life ban for that.
And do you think the lender was misled as well? --- Yes, in the false invoices. Yes.
And if someone has falsified documents in relation to one area, should there be any concern about whether the person falsifies them in another area of the conduct of a business? --- I can understand why people look at that question, and that’s why we presented some audit reports, to show that, apart from these premium funding clients, my business was always conducted in a very efficient and honest method. And also, from the letters from the clients, to show that they would be willing to deal with me again, even though they know that I’ve been banned.”[111]
[111] Transcript at 65

Mr Howarth has indicated that he is more than happy to undertake a course on ethics but he has only been able to find one. That course is conducted by the Financial Planning Association.

Current work

Mr Howarth said that he works in his son’s café where he handles cash every day. There has never been any deficiency in the cash.[112]
[112] Transcript at 20

Character witnesses

Six written character references were admitted in evidence on behalf of Mr Howarth. Five made no reference to the charges Mr Howarth faced or his subsequent convictions. Three of the five were from small family businesses and the fourth appears to be so. The fifth is from the Reflections Group Pty Ltd, which employs over 3,000 people. One of the three was signed by Dr Victor Tadros as the Managing Director of a small family business. He wrote:
“I have known Duncan for the last 12 years through business dealings and his father. He has always impressed me to be very helpful, honest, and try his best for everyone.
Duncan is of the highest integrity in all aspects of his business.
I highly recommend him to various business associates, and the feedback has

always been very impressive.
I have no hesitation, he will be successful in future business.”[113]

[113] Exhibit A, A3

In cross-examination, Mr Howarth agreed that each of these letters predated his convictions.[114] He said that he had told the authors of them that he was under investigation by ASIC for arranging premium funding loans but that he had not told them what the premium funding loans were for.[115] Mr Howarth has never arranged premium loan funding for these authors for any purpose other than paying their premiums. In re-examination, Mr Howarth said that he had told the authors of each of the letters about the banning order.
[114] Transcript at 50
[115] Transcript at 50

Mr James C Patterson is himself an AR of a Aurora Financial Services, which is part of the Mawson group, and continues to practise in the insurance industry. He is a Justice of the Peace and a former City Mayor and Councillor. He stated in his letter that he understood that the charges against Mr Howarth related to dishonesty. His letter to the County Court continued:
“I have known the Defendant both professionally and personally for over 10 years and these offences are entirely out of character. Duncan is a very loyal friend and law abiding person yet I can understand that he would have been trying to help his clients in difficult financial circumstances finding a way to pay their compulsory insurances.
I believe the fact that he was paid commissions by the finance companies involved would not have motivated him.
In the circumstances I believe that the Lifetime ban was excessive and more than enough punishment to fit the crime.
I would urge you to be lenient in considering any further penalty on him.”[116]
[116] Exhibit A, A2

Mr Patterson gave evidence at the hearing. He said that he had known Mr Howarth for a long time as they work in the same group associated with Mawson. His involvement in the finance industry has, since 1990, been as either a financial planner or as a life broker. They would see each other at conferences and professional development days but were not friends. Mr Patterson said that he was aware that the charges related to fraud but did not know the detail of them. In general terms, he knew that they related to the alleged misuse of premium funding. He understood that the charges had arisen because Mr Howarth had been “… stupid enough … to continue a practice that I was aware that took place …in the industry to – well, say, since the industry became very regulated …. Mr Patterson said that he had never engaged in the practice but understood its history:
“… Premium Funding really was something that evolved, because workers compensation premiums and other insurance premiums became extremely high, and clients had a great deal of difficulty in paying that, so, whilst many of the insurance companies in fact gave a lot of latitude in payment - they give some sort of terms - eventually it tightened up, and there was an opportunity, I guess, that the companies coming in - financial companies coming in and offering funding on the basis that they would advance the premiums, and they would have a guarantee that if the policy folded the refunds would come back to them, and so it was a method of it being able to help a client pay his premiums. And I understand that later they actually paid you commission to - brokers who used premium funding. It certainly wasn’t the case in the earlier days when I was aware of it.”[117]
[117] Transcript at 68

As he understood matters, Mr Howarth had issued dummy invoices in order to allow clients to fund their workers’ compensation premiums. Mr Howarth told him that he had been doing that for a number of years. He could not recall Mr Howarth’s saying that the loans were being used for purposes other than to fund workers’ compensation premiums.

Mr Amin Badawi was also called to give evidence on behalf of Mr Howarth. Mr Howarth had worked for him for two years and, since then, has engaged Mr Howarth as his insurance broker. Mr Badawi said that he was aware that Mr Howarth had received a banning order but did not know the reasons for it. He was also aware that Mr Howarth had been convicted of charges in relation to dishonestly obtaining a financial advantage. Mr Badawi’s view of Mr Howarth was:
“As an employee he was very sincere man. He conducted himself thoroughly as we, according to the Act. I never seen any breach or any misconduct of his behalf during his employment and when he left after two years in my employment, voluntarily, he found another career for himself as an insurance broker. I continue with him. I found him to be very honest, sincere, conduct himself professionally. I have to say, I trust him very much. Time comes for renewal of my insurance, either – I’m investor as well as licensed estate agent, I’ve got a few properties and a few businesses. He was handling all the insurance for those. He usually come to me when insurance due and say, Duncan – I give him the cheque book. He writes the cheque and I sign it. I never found him to be dishonest or any difference.”[118]
[118] Transcript at 71

Somewhat in contrast to these passages, when White J came to consider whether an enforceable undertaking should be accepted in lieu of a disqualification order, White J said:
“ The proffered undertaking is in narrower terms than a banning order. A banning order would prohibit Mr Forge from managing a corporation. That expression is defined by s 91A of the Corporations Law. It extends to the person being in any way (whether directly or indirectly) concerned in or taking part in the management of a corporation. However, I understood that the proffered undertakings were intended to extend to managing a corporation in this sense, as well as being a director of a corporation. It was submitted for Mr Forge that the proffered undertaking would fully protect the public. Indeed, unless a disqualification order were made for life, it was said that the public would have greater protection by the acceptance of such an undertaking than it would if a disqualification order were made. That is because the undertaking is proffered as a perpetual undertaking.
I do not accept this submission. A disqualification order is protective of the public for the period of disqualification against misconduct by the person disqualified. However, that is not its only purpose. The object of general deterrence is also of great importance. That object is served by the public disapproval of the impugned conduct being marked not only by a declaration that the conduct has contravened the Act, but by an order for disqualification of the contravener from managing a corporation either for a fixed period or for life. The shame or embarrassment which accompanies such an order is not designed as punishment, although it might have that effect, but serves as a general deterrent to others who might be tempted to breach their duties as directors or officers of a company. In my view, the objective of general deterrence would not be sufficiently served by the acceptance of the proffered undertaking.[204]
[204] [2007] NSWSC 1489 at [102]-[103]

This passage clearly excludes punishment as a factor in the imposition of a banning order even though it notes that punishment may be an effect of its imposition. White J had referred to McHugh J’ judgment but appears not to have read it in the way that led him to reach the conclusion reached by Finkelstein J in Australian Securities and Investments Commission v Vizard.

The conclusion reached by White J is also consistent with earlier authorities. We refer, for example, to Story v National Companies and Securities Commission,[205] in which Young J (in Eq) considered s 60 of the Securities Industry (New South Wales) Code. That section provided that the then National Corporations and Securities Commission (NCSC) could revoke the licence held by a dealer in certain circumstances. One of those circumstances arose where the NCSC had reason to believe that the dealer had not performed the duties of the holder of such a licence. One of the grounds on which the NCSC could revoke a licence was that the person was not performing his or her duties efficiently, honestly and fairly.
[205] (1988) 6 ACLC 560

Among other matters, Young J considered whether the dealer’s licence should have been revoked. In doing so, he said that a finding that a dealer had been inefficient was not necessarily sufficient to justify a conclusion that his or her licence should be revoked. He considered what matters should be taken into account when he said:
“On the matter as to whether revocation should follow an opinion of inefficiency, various matters have to be weighed. One of these is the public interest that people should be permitted to follow a trade or profession which they are qualified to follow. Another is that the public expect those who fall short of minimum standards to be removed from the profession, at least until such time as the regulatory body can be assured that they are able to perform their functions efficiently. A third consideration is that the step of revocation is purely for the public benefit and is not punitive.”[206]
[206] (1988) 6 ACLC 560 at 581

Although not part of the ratio decidendi of the case, the Full Court of the Federal Court maintained that theme in Australian Securities Commission v Kippe and Another.[207] They said in relation to a banning order made under s 829 of the Corporations Law as in force at the time against a dealer’s representative:
“The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventive in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein.”[208]

A similar them are found in the judgment of Emmett, Allsop and Graham JJ in Kamha v Australian Prudential Regulation Authority[209] when they said:

“73 While punishment of a criminal offence is the exercise of judicial power, the imposition of disciplinary penalties does not necessarily entail the exercise of judicial power (Police Service Board v Morris & Martin [1985] HCA 9; (1985) 156 CLR 397 at 403 and 407). Disciplinary jurisdiction is significantly protective and does not involve a punitive element in the nature of the punishment of a criminal offence. Jurisdiction in disciplinary matters is exercised to protect the public, not to punish the person disciplined. The object of protection of the public also includes deterring others who might be tempted to fall short of the relevant standards of conduct.”[210]

[207] (1996) 67 FCR 499; 137 ALR 423, Von Doussa, Cooper and Tamberlin JJ

[208] (1996) 67 FCR 499; 137 ALR 423 at 508; 431

[209] [2005] FCAFC 248

[210] [2005] FCAFC 248 at [73]

This approach is consistent with the approach taken by superior courts in relation to statutory powers to regulate other professional, business and other activities that affect members of the public. The judgement of the New South Wales Court of Appeal in New South Wales Bar Association v Hamman[211] provides an example. The court considered disciplinary proceedings against a legal practitioner and said:
“… Disciplinary proceedings against a legal practitioner are concerned with the protection of the public (Wentworth v New South Wales Bar Association (1992) 176 CLR 239 at 250-251). The object is not to punish the practitioner but to protect the public and to maintain proper standards in the legal profession. …”[212]
[211] (1999) 217 ALR 553; [1999] NSWCA 404 per Mason P, Priestley JA and Davies AJA, 29 October 1999
[212] (1999) 217 ALR 553 ; [1999] NSWCA 404 at 556; [21]

Authorities such as New South Wales Bar Association v Evatt[213] and Hardcastle v Commissioner of Police[214] acknowledge that, in achieving the objects of public protection and the maintenance of proper professional standards, an order made in disciplinary proceedings may involve great deprivation for the person who is the subject of that order. Despite that, the object of the order is not to punish or to extract retribution.
[213] (1968) 117 CLR 177 per Barwick CJ, Kitto, Taylor, Menzies and Owen JJ
[214] (1984) 53 ALR 593 per Bowen CJ, Gallop and Lockhart JJ

Intentionally committing a wrong-doing is not the only reason to cancel or suspend a person’s right to engage in his or her chosen profession. As

Kirby P said in Pillai v Messiter [No.2]:[215]

“… The public needs to be protected from delinquents and wrong-doers within professions. It also needs to be protected from seriously incompetent professional people who are ignorant of basic rules or indifferent as to rudimentary professional requirements. Such people should be removed from the register or from the relevant roll of practitioners, at least until they can demonstrate that their disqualifying imperfections have been removed. …”.[216]

[215] (1989) 16 NSWLR 197

[216] (1989) 16 NSWLR 197 at 201

The weight of authority in the Federal and Supreme Courts to whose judgments we have referred seems to be to the effect that a disqualification order, and so a banning order, is made on the basis of what will protect the public. It is not made on the basis of what will punish the person concerned even though punishment or the imposition of a penalty may be the practical outcome of the making of an order. Deterrence is also a relevant concern. Deterrence may relate both to the person concerned and to others engaged or potentially engaged in the finance. If imposed, it is relevant in the case of the individual in that it protects the public from that person’s being involved in the industry. Whether imposed or not, the possibility that an order might be made is itself a deterrent both to an individual and to all of those engaged in that industry. As was said in Re Donald and Australian Securities and Investments Commission,[217] the Tribunal said:
“116. The imposition of a banning order against a dealers representative certainly achieves, in respect of at least one member of that profession, the second aspect of public protection for the period in respect of which it is imposed. That is, it ensures that the public can be certain that a particular person, who has been found to have breached a statutory standard applicable to him or her, is no longer entrusted with dealing in shares. At the same time, it informs both other dealers representatives and members of the general public that the behaviour is neither acceptable nor tolerated.
117. Whether it achieves the first aspect of public protection is more debateable. A period of prohibition may, rather like a retreat or a period of contemplation, lead a person to reflect upon his or her behaviour and to come to an understanding of why that behaviour has been regarded as inappropriate by others and, if it is necessary to do so, to take steps to improve his or her knowledge of what is an appropriate manner of behaviour. On the other hand, a period of prohibition may not result in such reflection or lead to a person’s coming to any greater understanding than he or she had when it was imposed.”[218]
[217] (2001) 38 ACSR 10; [2001] AATA 366, per Deputy President Forgie and Mr McLean and Mr Elsum AM, Members
[218] (2001) 38 ACSR 10; [2001] AATA 366 at 36-37; [116]-[117]

What weight should be accorded facts found and remarks made in the County Court?

While giving evidence, Mr Howarth was asked about the purposes for which his clients were to use the loans he arranged for them. Those purposes had been included in the Summary of Facts submitted to the County Court and he had admitted them for the purposes of the hearing. Mr Howarth sought to distance himself from that admission during the hearing in relation to the purposes for which the loans were obtained. At the same time, reference was made to the passage from Judge Shelton’s sentencing remarks that he could feel confident in saying that Mr Howarth was unlikely to re-offend. We will return to both of these matters but, for the moment, will look at the general principles that will be relevant when we do so.

As Mr Howarth pleaded guilty to the offences of which he was convicted, we note that a:
“… plea of guilty amounts to a formal confession of the existence of every ingredient necessary to constitute the offence: see De Kruiff v Smith [1971] VR 761 at 765; R v Henry [1917] VLR 525 at 526.”[219]
[219] R v D’Orta-Ekenaike [1998] 2 VR 140; 99 A Crim R 454 (Court of Appeal) at 146-147; 462 per Winneke J

The role of the judge in sentencing a convicted person is the same whether or not conviction follows a plea of guilty or trial by jury:
“1. Where, following a trial by jury, a person has been convicted of a criminal offence, the power and responsibility of determining the punishment to be inflicted upon the offender rest with the judge, and not with the jury …
2.Subject to certain constraints, it is the duty of the judge to determine the facts relevant to sentencing. Some of these facts will have emerged in evidence at the trial; others may only emerge in the course of the sentencing proceedings. The fixing of an appropriate sentence ordinarily involves an exercise of judicial discretion, and it is for the judge to find the facts which are material to that exercise of discretion …
3.The primary constraint upon the power and duty of decision-making referred to above is that the view of the facts adopted by the judge for purposes of sentencing must be consistent with the verdict of the jury. This may produce the result that, in a particular case, the view of the facts which the judge is obliged to take is different from the view which the judge would have taken if unconstrained by the verdict …[This] is an inevitable consequence of the division of functions inherent in trial by jury.
4.A second constraint is that findings of fact made against an offender by a sentencing judge must be arrived at beyond reasonable doubt.
5.There is no general requirement that a sentencing judge must sentence an offender upon the basis of the view of the facts, consistent with the verdict, which is most favourable to the offender … However, the practical effect of 4 above, in a given case, may be that, because the judge is required to resolve any reasonable doubt in favour of the accused, the judge will be obliged, for that reason, to sentence upon a view of the facts which is most favourable to the offender. When that occurs, it will be because of the application of the principle referred to in 4 to the facts of the particular case, and not because of some principle requiring sentencing on the basis of leniency …”.[220]
[220] R v Isaacs (1997) 41 NSWLR 374; 90 A Crim R 587 (CCA) at 377-8; 591-2 per Gleeson CJ, Mason P, Hunt CJ at CL Simpson and Hidden JJ

A five member Court of Appeal in Victoria has set out the standard of proof that must be applied by a sentencing judge:
“[T]he judge may not take facts into account in a way that is adverse to the interests of the accused unless those facts have been established beyond reasonable doubt. On the other hand, if there are circumstances which the judge proposes to take into account in favour of the accused, it is enough if those circumstances are proved on the balance of probabilities.”[221]
[221] R v Storey [1998] 1 VR 359; 89 A Crim R 519 at 369; 530

In Re Ngu and Minister for Immigration and Citizenship[222] one of us summarised the outcome of the application of these principles when sentencing follows a guilty plea:
“Where sentencing follows a guilty plea, the findings beyond the elements of the offence must be made on the basis either of an agreed statement of facts or on evidence given to the court.[223] Any facts beyond those elements must either be proved by evidence or be admitted by agreement between the prosecutor and the defence.[224] Where facts have been agreed, a judge may only depart from those facts, or from facts inferred from those facts, if the parties are given sufficient notice to consider whether to challenge that departure and, if appropriate, to withdraw the plea.[225]”[226]
[222] [2007] AATA 1047
[223] GAS v R ; SJK v R (2004) 217 CLR 198; 78 ALJR 786; 206 ALR 116 at 211; 793-4; 126 at per Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ. Where a person has pleaded guilty to an offence, the elements of that offence are necessarily admitted. There is no need to lead any evidence in relation to them.
[224] GAS v R; SJK v R (2004) 217 CLR 198; 78 ALJR 786; 206 ALR 116 at 210-211; 793-4; 125-6; [28]-[31]
[225] R v Duong [1998] 4 VR 68; 99 A Crim R 218 (CA) at 77; 228 per Kenny JA
[226] [2007] AATA 1047 at [81]

In that same case, consideration was also given to the way in which regard is had to these principles when considering conflicting evidence given in the course of proceedings concerned with the merits review of an administrative decision. It was said:
82. In light of these authorities in the criminal jurisdiction, how should I regard Mr Ngu’s view of events when reviewing an administrative decision? This question has been the subject of consideration in several cases. These include Minister for Immigration and Multicultural Affairs v SRT,[227] Minister for Immigration and Multicultural Affairs v Daniele,[228] Minister for Immigration and Multicultural Affairs v Gungor,[229] Ridley v Secretary, Department of Social Security[230] and Saffron v Commissioner of Taxation (Cth) (No 2).[231]
[227] (1999) 91 FCR 234; 56 ALD 349 (Branson, Lindgren and Emmett JJ)
[228] (1981) 61 FLR 354; 39 ALR 649 (Fisher, Davies and Lockhart JJ)
[229] (1982) 63 FLR 441; 42 ALR 209 (Fox, Fisher and Sheppard JJ)
[230] (1993) 42 FCR 276; 113 ALR 655 (Spender, Gummow and Lee JJ)
[231] (1991) 30 FCR 578; 102 ALR 19 (Davies, Lockhart and Beaumont JJ)

83. These cases were reviewed by Branson J in Minister for Immigration and Multicultural Affairs v Ali.[232] Her Honour recognised that some legislative provisions operate by reference to the fact that a person has been convicted of a criminal offence. Section 200 of the Migration Act is such a section for it permits the Minister to deport persons to whom Division 9 of Part 2 of the Act applies. Such a person is a person who, as well as meeting other criteria, has been convicted of a criminal offence and sentenced to a period of imprisonment of not less than one year. In those circumstances, Branson J concluded:
[232] (2000) 106 FCR 313; 62 ALR 673
‘… the administrative decision-maker is entitled to receive evidence of a conviction and sentence and to treat it as probative of the factual matters upon which the conviction and sentence were necessarily based ([General Medical Council v] Spackman [[1943] AC 627]), Daniele, Gungor and SRT).’[233]
[233] (2000) 106 FCR 313; 62 ALR 673 at 325; 684

By way of contrast, where a legislative provision does not operate by reference to the fact of a conviction and a conviction is merely one aspect of the evidence in the case, proof of the conviction is not regarded as proof of the essential facts upon which that conviction was based. As Davies J said in Saffron v Commissioner of Taxation (Cth) (No 2):
“A conviction is a decision in rem which establishes, while it stands, that the person convicted has been convicted of certain crime. If the person has been convicted of a felony, it establishes that the person is a felon. Such a matter is one which the convicted person may challenge only by seeking to set aside the conviction. In the taxation appeals, the taxpayer may not challenge the fact that he has been convicted of conspiracy to defraud the Commonwealth. But of course the taxpayer does not seek to do so and the fact of conviction itself is irrelevant. As is stated by G S Bower and A K Turner, The Doctrine of Res Judicata 2^nd ed, 1969, p 215, a conviction is conclusive merely of that which it establishes, namely, the fact of conviction for the offence, but not of the facts lying behind that conviction.
… where a conviction is the foundation for the exercise of a power, no challenge can be made to the fact of the conviction or to the essential facts on which it was based. But by making clear the circumstance in which no such challenge may be made, the cases establish that, where the exercise of the power is not founded on a criminal conviction, then even if the conviction be relevant, a challenge may be made to the essential facts on which it was based. In Australia, an example is the decision of the High Court of Australia in Ziems v Prothonotary of Supreme Court (NSW) (1957) 97 CLR 279.”[234]

84. Even though it is regarded in these circumstances as part of the evidence and not determinative of the grounds on which the conviction was based, caution should be exercised in considering whether to reach a conclusion that runs counter to those grounds. Branson J set out the policy considerations that underpin that caution when she said in Minister for Immigration and Multicultural Affairs v Ali:

‘… although there is no absolute rule that the Tribunal may not consider material which challenges the grounds on which a prior conviction was based (Ridley at FCR 281-282; ALD 731-732; ALR 662), policy considerations suggest that the legislature intended that the Act, to the extent that it is concerned with the control in the public interest of the presence of non-citizens in Australia who have been convicted of criminal offences, should be administered in a way which:
(a) recognises that the criminal justice system is pre-eminently suited to the determination of the guilt of persons charged with criminal offences (see Gungor per Fox J at FCR 445-446; ALD 578; ALR 212-13); and
(b) limits inconsistency between decisions of the criminal courts and those of tribunals (see Gungor per Sheppard J at FCR 469; ALD 597; ALR 234).’[235]”[236]

[234] (1991) 30 FCR 578; 102 ALR 19 at 581-582; 21-22

[235] (2000) 106 FCR 313; 62 ALD 673 at 325; 684

[236] [2007] AATA 1047 at [82]-[84]

Is it appropriate to make a banning order against Mr Howarth?

Having regard to the purpose of a banning order against a background of all of the evidence and the possibility of requiring Mr Howarth to give an enforceable undertaking, we have decided that we should make a banning order against Mr Howarth for the protection of the public. In reaching that conclusion, we have also had regard to his willingness to give an enforceable undertaking.

In this case, there are three major areas of Mr Howarth’s behaviour that have caused us grave concern. The first relates to the premium funding loans. On the basis of his own evidence, we find that he has proffered documents to Centrepoint and to BMW Finance knowing that the information that they contained was false. He knew that it was false either in the sense that the amounts shown as the premiums for the policies for which funding was sought had been inflated beyond the true premiums or in the sense that the policies did not exist at all and no premiums were payable at all. Mr Howarth claimed that he did not know that the loans sought would be used for purposes other than the payment of insurance premiums and in fact understood that they would be used to pay workers’ compensation premiums. We do not accept his evidence in that regard. It is contrary to that of Mr Forsyth whose recollection is that Mr Howarth did not ask him for what purpose he wanted a loan. It is contrary to the use that his own family company, JJG, made of the money and he not only knew of that use but was instrumental in using the loans to pay taxation. It is contrary to his admission that, where there was a genuine policy, he inflated the premium payable. If the amount has been inflated, the loan will be more than is required to pay the premium and the balance must logically be for another purpose.

The second major area of Mr Howarth’s behaviour to cause us concern is that of his preparedness to attempt to distance himself from what he has done. He has given explanations for his behaviour or, perhaps, attributed his behaviour to four factors. One is his attempt to explain his actions by reference to his not having updated the template on his computer to take account of changes to premium funding. It is difficult to understand how any failure to update a template can explain Mr Howarth’s knowingly preparing tax invoices containing false information and deliberately submitting them to Centrepoint and BMW Finance with the purpose of obtaining loans for companies associated with him and his family in three instances and for others in 19 other instances.

Another example of Mr Howarth’s attempting to distance himself from what he has done is to be found in his attitude to his attempt to distance himself from the statement in the Summary of Facts given to the County Court as to the purposes for which his clients had used the loans. A finding as to those purposes was not an essential element of those convictions that, under s 920A(1)(c), support our power to impose a banning order. Therefore, any finding by the County Court on that aspect does not bind us and we do not see it or Mr Howarth’s admissions in that court in that light. What we do see, though, is Mr Howarth’s failure, at best, to understand the significance of his agreeing to the Summary of Facts. In the County Court he made a comment to the effect that¸ as he was pleading guilty, it did not matter whether his clients had used the money for one purpose or another. His comment is correct but, what causes us concern is that he is prepared not only to agree to the contents of a document in the County Court and then again in this Tribunal without qualification and then to walk away from aspects of it.

A second feature of Mr Howarth’s attempt to distance himself from what he has done is to lay blame at the doors of his clients while purporting to protect them. His purported protection, we find, led to his lying to Mr Dodd about the loan applications. His distancing himself, we find, led Mr Howarth to agree initially with a proposition that his clients had given him false information regarding the purpose for which the loans were obtained before moderating that statement that it was his understanding that they were to pay premiums for workers’ compensation insurance. He then moved to acknowledging that he had not asked his clients about the purpose for obtaining a loan in some instances and then to not having asked them. Mr Howarth has also attempted to lay the blame at the doors of Centrepoint and of BMW Finance by suggesting that their forms and practices enabled him to take advantage of them to do what he did.

Even though we consider them unsuccessful, Mr Howarth’s attempts to lay the blame at the doors of others should be seen in conjunction with what we also find to be his minimisation of what he has done. Minimisation is the third factor. We find that he has minimised his conduct and its consequences by referring to the fact that all of the loans have been repaid to Centrepoint and to BMW Finance and that his clients have been happy with the service he provided in obtaining loans for them. His focus was entirely upon the financial loss or, more importantly, on the lack of any financial loss to any of the lenders or borrowers. We have considered his evidence with care but have concluded that Mr Howarth has very little understanding of the risk to which he exposed Centrepoint and BMW Finance. On the basis of his own evidence, we find that was not a risk to which he turned his mind when he was submitting the false documentation. It is not a risk to which he appeared to have turned his mind before the interviews with the ASIC officers. At the hearing, Mr Howarth continued to see his actions in terms of helping his clients and their intentions to repay the loans rather than extending his sights to the potential risk to which he exposed Centrepoint and BMW Finance.

Having regard to all of the evidence, we are not satisfied that Mr Howarth has an appropriate understanding of what is required of him as an AR in the financial services industry. It is all very well to say that loans were obtained and repaid without loss to Centrepoint or to BMW Finance. The three features that we have identified in Mr Howarth’s behaviour lead us to believe that he does not have either the knowledge or, perhaps more importantly, the innate instinct to know what is the proper way in which to behave in relation to others. He does not understand the risks that must be weighed up by a lender when considering whether to make a loan. In the context of premium lending, we find that he either does not understand that a premium lender requires a policy to secure the loan or he, consciously or sub-consciously, thinks that he, rather than the lender, is best placed to assess the risk. His assessment has clearly proved correct in that none of his clients defaulted on the loans but his evidence on that point indicates quite clearly that he did not understand the position of the lender.

Even in relation to his character witnesses, Mr Howarth has not shown the forthrightness that could be expected of a person who has a sense of what other people need to know about in order to make decisions. Take Mr Badawi as an example. While he did not press Mr Howarth for an explanation of his behaviour that led to the banning order and the convictions, it would be thought that a person who did have a sense of what other people needed to know would have told Mr Badawi of the falsification of the documents. The same can be said of Mr Howarth’s disclosures to Mr Patterson. Mr Patterson could not recall that Mr Howarth had told him that he had obtained the loans for purposes other than those of funding premium payments. Having considered the whole of the evidence, we are satisfied that Mr Patterson’s memory would be more likely to be correct than not and that Mr Howarth did not tell him. In not telling him, Mr Howarth left Mr Patterson in a position to give character evidence on a basis that did not fully inform of the nature of the behaviour that is at the heart of these proceedings.

In view of our findings, we have concluded that the protection of the public requires that we make a banning order. We do not see this as having any element of punishment of Mr Howarth for what he has done in relation to the 22 matters at the heart of the five convictions. In reaching that conclusion, we have considered the submission by Mr Xenidis that Mr Howarth should be required to give an enforceable undertaking rather than our making a banning order. As s 11(1) of the ASIC Act provides that ASIC has the functions and powers conferred on it by or under that Act or the Corporations Act and as it has a power to make a banning order under s 920A of the Corporations Act, it must be regarded as having power to accept an enforceable undertaking. That is the effect of s 93AA(1) of the ASIC Act.

Section 93AA does not expressly set out any matters that must be taken into account when considering whether or not to accept an enforceable undertaking. It seems to us, however, that the matters to which regard must be had are implicit in s 93AA(1). Those matters will be the matters in connection with which the enforceable undertaking is given and in relation to which ASIC has a function or power. Therefore, in this case, the matter is Mr Howarth’s falsification of the tax invoices leading to his committing and being convicted of fraud. That is a matter in relation to which ASIC has a power to make a banning order. That means that the matters to be taken into account when considering whether or not to accept an enforceable undertaking are those matters relevant to the making of a banning order i.e. protection of the public.

We do not consider that an enforceable undertaking in any form would satisfy the need to protect the public. The form in which it was put forward on Mr Howarth’s behalf, it would leave him unsupervised for much of the period. It would subject him to two audits each year but he would be unsupervised in between them. Mr Howarth would not be required to undergo any form of training or professional development when, in our view, he clearly requires further education in how to conduct himself ethically and in the risks and liabilities that arise from the contracts that he is brokering on behalf of others. Instead, the effect of the draft enforceable undertaking would be that a consultant would decide what he needs. In view of the findings we have made, this provides far too little protection to the public. In our view, the only way in which the public can be protected is for Mr Howarth to be removed from the industry by virtue of a banning order.

For what period should the banning order be imposed?

Our consideration of this question begins with our understanding of
[237] s 920B(2)(b)
s 920B(2). In broad terms, it permits a banning order to be made either permanently or for a specified time. A banning order cannot be made for a specified period, though, if “… ASIC has reason to believe that the person is not of good fame or character.”[237] That does not mean that ASIC must make a permanent banning order if it has reason to believe that the person is not of good fame or character. It simply means that it may not make a banning order for a specified time. If it makes a banning order, it must be permanent but, as the making of a banning order is discretionary in our view, it may decide not to make a banning order at all.

Section 920B(2) does not mean that there must first be a finding that a person is not of good fame or character being before a permanent banning order can be made. It is clear from the face of it that a permanent banning order can be made without such a finding. In view of that and in view of our conclusion that Mr Howarth should be the subject of a permanent banning order, we do not propose to consider what s 920B(2)(b) means when it refers to a person who “is not of good fame or character”. We propose instead to explain why the banning order made against Mr Howarth should be permanent rather than for a specified period.

Mr Xenidis drew our attention to various lengths of banning orders that ASIC had imposed in various circumstances. That was considered to have some relevance in cases such as Cullen v Corporate Affairs Commission (NSW) and
Re Civica Investments Ltd where the maximum period of disqualification that could be imposed was a five year period. The fact that Parliament imposes a maximum period immediately raises the possibility of determining periods by reference to notions of culpability or perhaps punishment. If protection were the only element to be considered or at least an element of significance, it would be expected that Parliament would leave the period open ended to cater for the case in which the public needs protection for a longer period or permanently. That is what Parliament has done in
s 920B(2). It has left the period to be determined by ASIC and so by this Tribunal. That might well be relevant if we were engaged in a punitive exercise. For the reasons that we have given above, we consider that we are not engaged in that exercise but in an exercise intended to protect the public. It is an exercise that protects the public from being able to engage the services of a person who does not, as we have found, a proper sense of what is the proper thing to do in the one area of activity that we have examined in detail and that . It protects the public while and until he gains that understanding.

In our view, Mr Howarth has yet to gain an insight into what he has done that has led to his current circumstances. That is most unfortunate for we also conclude on the evidence that he is at heart a good man, who makes a considerable contribution to the community through his work with Army Cadets. He is a good friend to those who know him and a good man to his family. Indeed, it is probably these fine qualities that have, together with his lack of understanding of, or perhaps regard for, those who are more at arm’s length from him and those he cares for, led in part to his undoing. He has placed his friends and clients above his duties as an AR brokering a contract with premium lenders. He has placed his own needs to obtain funds to pay JJG’s taxation liabilities above those duties. In doing so, he has falsified documents on which Centrepoint and BMW relied to assess their risks and to make their decisions. So much in our professional and business lives depends on trusting that what is stated is in fact so. So much depends on not taking advantage of others. The confidence of those in the financial services industry depends on it and the public is entitled to expect a financial services industry that operates on an ethical basis.

Mr Howarth has yet to understand that. Until he does so, he should not be permitted to work in the financial services industry. That does not mean that he is not able to rehabilitate himself and demonstrate that he is now a person who should not be the subject of a banning order. He can apply for a variation or cancellation of the banning order in due course under s 920D but, in the meantime, we consider that he should be the subject of a permanent banning order.

For these reasons, we affirm the decision of the respondent dated 30 May 2006.

I certify that the two hundred and three preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,

Signed: .......................................................................

Jayne Haydon Associate

Date of Hearing  2 August 2007
Date of Decision  8 April 2008
Solicitor for the Applicant            Mr J. Xenidis
Legal Financial Services Pty Ltd

Counsel for the Respondent Mr R. Knowles