RKTF and Australian Securities & Investments Commission

[2019] AATA 4546

RKTF and Australian Securities & Investments Commission [2019] AATA 4546 (23 October 2019)

Division: Taxation and Commercial Division

File Number:            2019/4633

Re:RKTF  

APPLICANT

Australian Securities & Investments CommissionAnd  

RESPONDENT

DECISION

Tribunal: Deputy President I Molloy

Date:23 October 2019

Place:Brisbane

The application for a stay under s 41 of the Administrative Appeals Tribunal Act 1975, and the application for a confidentiality order under s 35 of the Administrative Appeals Tribunal Act 1975, are each refused.

The interim confidentiality order granted on 2 October 2019 is discharged.

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

Deputy President I Molloy

Catchwords

TAXATION AND COMMERCIAL - application for stay of decision under review – banning order under s 920A of the Corporations Act 2001 (Cth) – implementation and operation of the decision – stay of publication – publication in Government Gazette and entry in register – informal media release – principles for grant of stay - consent stay order in operation – consideration of the applicant’s prospects of success – the consequences to the applicant – the public interest – balance struck by legislature – application for a confidentiality order – norm set by legislature – whether reason to depart from the norm - application for stay of the decision under review refused – application for a confidentiality order refused.

Legislation

Administrative Appeals Tribunal Act 1975
Corporations Act2001

Cases

Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130
Australian Securities and Investments Commission v PTLZ [2008] FCAFC 164
Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409
Frugtniet v Australian Securities and Investments Commission [2019] HCA 16
Re Pochi and Minister for Immigration and Ethnic Affairs  (1979) 36 FLR 482
Re Scott and Australian Securities and Investment Commission (2009) 51 AAR 114
Shi v Migration Agents Registration Authority (2008) 235 CLR 286

REASONS FOR DECISION

Deputy President I Molloy

23 October 2019

1. The Applicant has worked as a financial adviser for over 17 years, primarily advising in respect of personal insurance products.

2. He has applied for review of a decision of a delegate of the Respondent, Australian Securities & Investments Commission (“ASIC”), made on 29 July 2019 under s 920A of the Corporations Act2001 (“the Corporations Act”). Pursuant to the decision he is banned from providing financial services for three years (“the banning order”).

3. The application for review was lodged on 31 July 2019. On the same date the Applicant sought a stay of the decision pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”), and orders that the Tribunal proceeding take place in private and a prohibition of disclosure of the decision under review, or his identity or information lodged with or given to the Tribunal, under s 35 of the AAT Act.

4. The purpose of the stay application is to prevent the publication of ASIC’s decision. The Applicant is seeking a stay accompanied by an undertaking from him not to provide financial services pending the outcome of the review. Following a request from the Applicant, on 31 July 2019, ASIC agreed not to publish notice of its decision until the stay application was determined.

5. On 2 October 2019 an interim order was granted under s 35 of the AAT Act so as not to render this application under that provision nugatory.

6. The considerations applicable to each application are not the same, although there is obviously some overlap[1].

   [1]See Australian Securities and Investments Commission v PTLZ [2008] FCAFC 164, [36]-[40] per North and Downes JJ.

   Stay of the decision under review pursuant to s 41(2) of the AAT Act

7. The starting point is s 41(1) of the AAT Act which provides that, subject to the section, the making of an application to the Tribunal for a review does not affect the operation of the decision under review or prevent the taking of action to implement the decision.

8. As part and parcel of the operation and implementation of its decision, ASIC has a duty to publish its decision in the Government Gazette pursuant to s 920E of the Corporations Act, and to record the decision in any registers established under s 922A[2] of that legislation.

   [2]Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130 (“ASIC v AAT”), [70] per Downes and Jagot JJ.

9. As well as mandated publication, informal publication by ASIC of its decision by media release may also be regarded as an aspect of the operation or implementation of a banning order.[3] The Applicant seeks a stay extending to any such media release.  

   [3]Ibid, [81].

10. Section 41(2) of the Act provides:

    (2)The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.

11. The making of an order under s 41(2) is contingent on the Tribunal having formed the view that the making of an order is desirable taking into account the interests of any persons who may be affected by the review. The person most obviously affected is the Applicant who relies on his affidavit sworn on 11 October 2019.

12. The Applicant has been practising as a financial adviser since 2001. He is a member of the Association of Financial Advisers. He deposes that if the banning order is upheld his membership will be cancelled.

13. On 6 July 2005 he established his own corporate advisory business. He is currently its sole shareholder. Since 1 July 2019 his business has operated in conjunction with another corporate financial advisor under a single trading name, with each corporate entity continuing to provide financial services to their respective clients.

14. Since the banning order the Applicant has been providing what are described as business development and administrative-type duties for the merged businesses.

15. The Applicant has not previously been the subject of any complaint, demand or claim in relation to the provision of financial services, or of any allegation of misconduct, or other ASIC investigation or action.

16. The Applicant says that if the stay is not granted, and in particular the making of the banning order is published by ASIC, the effects will be catastrophic. He expects his referral network, important to his business, will dry up. The banning order will soon become general knowledge through his particular client base.

17. He expects that existing clients would seek to have insurance policies he has recommended to them reviewed by other financial advisers. He describes “a death sentence to any career as a financial adviser, or in the financial services industry.”

18. He expects there will be adverse consequences to his clients. He thinks that the stigma of his banning order will encourage them to change policies where there is no benefit to doing so, which will leave them worse off. He also describes the flow-on effect knowledge of the banning order will have on his wife’s business in an associated field. 

19. The Applicant describes what he says will be the likely consequences to his business if the banning order is published. They include loss of future new business, the operation of “clawback” provisions concerning commissions paid by insurers, loss of ongoing commissions, and loss of goodwill.

20. ASIC claims that the risk of harm to the Applicant is significantly overstated by him. It describes the Applicant’s evidence as based on little more than speculation, hearsay and assumption.

21. ASIC points out that since July 2019 he has not been providing financial services to existing or prospective clients – a fact already known to some or all of them. Amongst other things it refers to the Applicant’s clients as relatively sophisticated and knowledgeable, readily able to understand that there is a challenge to the banning order.

22. I think the Applicant has painted the bleakest possible picture of what could occur – referring to what he describes as severe and irreparable damage. I am not satisfied that his assessment of these matters is altogether realistic or justified including, for example, his description of the effect knowledge of the banning order will or may have on his wife’s business.

23. I also consider the Applicant for the most part has a relatively sophisticated client base, capable of understanding his explanation of what has occurred, and appreciating he has sought a review.

24. Having said that I accept that knowledge of the banning order, amongst clients, potential clients, and others in the industry, is likely to cause the Applicant some reputational damage and financial loss. The interests of the Applicant, his family, associates or employees, however, are only one class of interests which will or might be affected by publication of a banning order.

25. It is necessary also to consider the balance struck by parliament under the Corporations Act. The process which may result in a banning order is conducted in private. Only if ASIC makes a banning order is there a requirement for publication. That is an important consideration.

26. The balance which the legislature has established has been described by the Full Court of the Federal Court in ASIC v AAT as a fundamental element in the weighing of the competing considerations. It is not a neutral factor in the process of forming an opinion under s 41(2). The context set by the Corporations Act, the importance of the availability of information to the market generally, and to existing and potential customers of the Applicant, have been described as important if not critical considerations.[4]

    [4]Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130, [56] per Downes and Jagot JJ.

27. At paragraph [55], the Federal Court said:

    “Once that order is granted the need for secrecy by the imposition of a further stay of publication will not usually arise.  The occasion for such a further order will be rare.”

28. At paragraph [76] the Federal Court also said:

    “It is difficult to accept that harm (even serious harm) to the recipient’s reputation resulting from public awareness of the banning order will be a sufficiently cogent reason to justify the grant of a stay in most cases.  This is because the risk of harm of this type is inherent in the nature of a banning order.”

29. The discretion to grant a stay was discussed by Downes J in Re Scott and Australian Securities and Investment Commission (“Scott”)[5], a case relied on by both parties. At paragraph [4], his Honour identified six factors which are or could be relevant on such an application: the applicant’s prospects of success on the application for review; the consequences to the applicant if the stay is not granted; the public interest; the consequences to the respondent in carrying out its functions; whether the review would be rendered nugatory if the stay were not granted; and, any other relevant matters, including the likely time to the hearing of the review.

    [5](2009) 51 AAR 114.

30. I have already referred to the claimed consequences to the Applicant, and to the public interest. On behalf of the Applicant it was submitted that he had strong prospects of success. A number of criticisms were made of the delegate’s decision or the manner in which it was reached.

31. It was pointed out that the Applicant’s clients were not interviewed, ASIC’s investigation apparently did not result from any complaint, the hearing was of relatively short duration, and the delegate did not deal with all the allegations which had been raised. None of these matters necessarily speaks of error or, at least, any particular likelihood of a different outcome on a merits review. 

32. I have, of course, read the reasons for the decision under review. On an application of this nature is not possible to do more than make a provisional assessment of the prospects of success.

33. I also take into account that ASIC, before the Tribunal, will rely on most if not all of the other matters which were alleged against the Applicant, but not dealt with in the delegate’s reasons.[6]  I accept ASIC’s submission that the Applicant is not bound to fail or to succeed. The prospects, so far as I can assess them, do not favour either party over the other.  

    [6]See Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409; Shi v Migration Agents Registration Authority (2008) 235 CLR 286, [142]; and Frugtniet v Australian Securities and Investments Commission [2019] HCA 16, [15].

34. I have taken into account the other matters referred to in Scott and I have taken into account all that has been said on behalf of the Applicant. I also take into account what was said in ASIC v AAT. 

35. I am not satisfied that there are cogent reasons, or that this is one of those rare cases, which should lead to a stay, including a stay of the limited nature sought by the Applicant or subject to the undertaking he has offered.

    Confidentiality order pursuant to s 35(2)-(4) of the AAT Act

36. Section 35(1) of the AAT Act provides that subject to this section, the hearing of a proceeding before the Tribunal must be in public. Subsections 35(2), (3) and (4) allow for what are commonly called confidentiality orders.

37. The Applicant applies for orders that the hearing take place in private, and that the publication or other disclosure of the decision under review, or information tending to identify the Applicant or which has been lodged with or otherwise given to the Tribunal, be prohibited until the expiry of 28 days after the proceeding has been determined (including the provision of reasons).

38. Section 35(5) of the AAT Act provides:

    (5)In considering whether to give directions under subsection (2), (3) or (4), the Tribunal is to take as the basis of its consideration the principle that it is desirable:

    (a)that hearings of proceedings before the Tribunal should be held in public; and

    (b)that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and

    (c)that the contents of documents lodged with the Tribunal should be made available to all the parties.

    However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.

39. In ASIC v AAT[7] the Federal Court said that, although s 35(1) is subject to the balance of the section, it establishes a norm. The norm is that the proceeding before the Tribunal shall be in public. This norm is reinforced by the requirements of s 35(5) which expressly confirm the principle that it is desirable that hearings be held in public.

    [7](2009) 181 FCR 130, [74] per Downes & Jagot JJ. See also Australian Securities and Investments Commission v PTLZ [2008] FCAFC 164, [4]-[7] per Black CJ and [42] per North & Downes JJ.

40. Accordingly, when deciding whether it is satisfied that it is desirable to exercise the powers under subsections 35(2), (3) or (4), the Tribunal is required to form a state of satisfaction which recognises the existence of the norm and the values it is intended to protect. The Federal Court said this, no doubt, was why Brennan J in Re Pochi and Minister for Immigration and Ethnic Affairs[8] described the power to depart from this norm as one to be exercised “sparingly”.

    [8](1979) 36 FLR 482, 510.

41. I have taken into account the matters referred to above and the Applicant’s submissions in favour of making an order under section 35(2), (3) or (4) of the AAT Act. I am not satisfied that this is a case which justifies departure from what has been described as the norm. Accordingly, a confidentiality order should be refused.

    ORDERS

42. The application for a stay under s 41 of the AAT Act, and the application for a confidentiality order under s 35 of the AAT Act, are each refused.

43. The interim confidentiality order granted on 2 October 2019 is discharged.

44.     I certify that the preceding 43 (forty three) paragraphs are a true copy of the reasons for the decision herein of Deputy President I Molloy

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

Associate

Dated: 23 October 2019

Dates of hearing:	17 October 2019
Counsel for the Applicant:	Mr M Peckham
Solicitors for the Applicant:	K&L Gates
Counsel for the Respondent:	Mr M T Brady QC