Sahai and Australian Securities and Investments Commission
[2021] AATA 3041
•24 August 2021
Sahai and Australian Securities and Investments Commission [2021] AATA 3041 (24 August 2021)
Division: Taxation and Commercial
File Number(s): 2021/0628
Re:Chandar Sahai
APPLICANT
And Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:24 August 2021
Place:Sydney
The decision under review is affirmed.
............................SGD................................
Bernard J McCabe, Deputy President
Catchwords
Banning order under the National Consumer Credit Protection Act 2009 (Cth) – whether discretion to impose a banning order is enlivened under s 80(1) – whether the applicant was involved in another’s contravention of a banning order – whether the applicant is likely to contravene credit legislation in the future – whether the applicant is a fit and proper person in the context of the legislation – whether there is reason to believe that the applicant is not adequately trained or competent in the context of the legislation – grounds so made out – discretion to impose a banning order is enlivened - whether a seven-year banning order is appropriate and proportionate – the length of such a banning order is correct – decision under review affirmed.
Legislation
Corporations Act 2001 (Cth)
National Consumer Credit Protection Act 2009 (Cth)
Cases
Australian Competition and Consumer Commission v Productivity Partners Pty Ltd [2021] FCA 737
Davies v Australian Securities Commission (1995) 59 FCR 221
Hughes and Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127
Sahay and Australian Securities and Investments Commission [2016] AATA 853.
Yorke v Lucas (1985) 158 CLR 661
Young Investments Group Pty Ltd v Mann [2012] FCAFC 107
Secondary Materials
ASIC’s Regulatory Guide 218, “Licensing: Administrative action against persons engaging in credit activities”
REASONS FOR DECISION
This case is about a mortgage broker who was banned from engaging in credit activities in 2021 after the Australian Securities and Investments Commission (ASIC) concluded he was knowingly concerned in his brother’s contravention of a permanent banning order that had been imposed in 2015. The applicant in these proceedings, Mr Chandar Sahai, was banned for seven years. He wants the Tribunal to review that decision. He says he did not know his brother was contravening the terms of the banning order imposed in 2015. He also disputes several other findings ASIC made against him. He says those findings cannot stand if the Tribunal accepts his argument that he was not knowingly concerned in his brother’s breach.
I have decided the decision under review must be affirmed. I explain my reasons below.
The legislative provisions
Part 2.4 of the National Consumer Credit Protection Act 2009 (Cth) (the Credit Act) sets out the provisions which empower ASIC to ban or disqualify individuals from engaging in credit activities. ASIC’s power to make banning orders is contained in s 80. Section 81 sets out the scope of the orders that may be made in a particular case. Section 82 makes it an offence to engage in credit activities contrary to a banning order.
Section 80(1) sets out the grounds on which ASIC may make a banning order. In this case, ASIC’s delegate found the following grounds were made out:
(a)The applicant was involved in another person’s contravention of a provision of the credit legislation (the ground referred to in s 80(1)(d)(ii));
(b)ASIC has reason to believe the person is likely to contravene credit legislation in the future (the ground referred to in s 80(1)(e)(i));
(c)ASIC has reason to believe the person is not a fit and proper person to:
(i)engage in one or more credit activities; or
(ii)perform one or more functions as a corporate officer of another entity engaging in credit activities; or
(iii)control another person who engages in credit activities (the ground referred to in s 80(1)(f)); and
(d)ASIC has reason to believe the person is not adequately trained, or is not competent, to do the same things referred to in the ground set out above.
In order to decide the outcome of this case, I must first make findings and determine whether one or more grounds in s 80(1) are made out. If I am satisfied the discretion to ban is enlivened, I must then decide whether to make a banning order, and (if it is to be made) the scope and duration of the ban.
The background
Mr Chandar Sahai carried on business as a mortgage broker through his company, Cecure Savings Brokers Pty Ltd. At the time of the banning decision, Cecure was an authorised credit representative of a mortgage aggregator. The applicant had been in business since 2012. I was told he had a good record and there were no issues arising out of his conduct prior to the events in question in this case.
Mr Sahai’s brother Shiv had a mortgage broking business of his own. Shiv got into trouble with ASIC in 2015 over his business practices, and was permanently banned from providing credit services as a result. The Tribunal’s decision on review of that banning order confirmed Shiv was banned after he pleaded guilty to charges that he had falsified documents provided to lenders: see Sahay and Australian Securities and Investments Commission [2016] AATA 853.
The applicant said he was not involved with his brother’s business following the banning order and conviction in 2015. Indeed, the applicant recalled a conversation in his statement that he had with a business development manager at Aussie Home Loans – one of the institutions he dealt with - about Shiv around the time of the ban. The applicant recalled he was advised to “keep my distance” from Shiv: exhibit one at [24]. The applicant said he took that advice at the time. As it stood, his business was separate from anything Shiv was doing.
In his statement, the applicant said he was aware Shiv had trained his daughter, Astna, to be a mortgage broker. She had established her own mortgage broking business called Absolute Finance Pty Ltd. The applicant said he became aware in 2015 or 2016 that Shiv was working in that business “in some form of administrative capacity”: exhibit one at [27].
In 2018, notwithstanding the advice he received about keeping his distance from Shiv, the applicant says he had a conversation with Astna and Shiv at Astna’s home. The applicant recalled in his statement (at [31]) that Astna said words to the following effect:
We’ve got issues with ASIC and all that. Dad has been doing applications, which he cannot be doing. We have some clients in pipeline. Can you have the loan applications for these completed?
The applicant said he agreed to help out the family by completing the applications that were ‘in the pipeline’ for the clients in question. He also agreed to share the commissions on those applications with Absolute: at [32]. He recalled Astna asked him to contact Absolute’s clients directly: at [33].
When he was asked in cross-examination about the difficulties Absolute was experiencing with ASIC, the applicant wavered in his evidence. At one stage, he indicated the difficulties were with the aggregator which had refused Absolute access to its software. Without access to the proprietary software used to process and assess loan applications, Absolute was unable to write any business: transcript at pp 47-8. But the applicant acknowledged those difficulties with the aggregator were ultimately the product of ASIC’s interest and his statement makes clear he was aware ASIC’s interest was on account of Shiv’s activities in the Absolute business. I will return to the state of the applicant’s knowledge in due course.
The applicant’s interaction with the clients of Absolute Finance
The applicant said in his statement that he spoke with each of the six clients of Absolute. He insisted he “provided them with all necessary advice and assistance in relation to the writing of their loan”: at [37]. He said the clients were all aware he was acting as the broker who wrote the loan, and he insisted he satisfied himself the loans were appropriate to the borrower’s circumstances in each case: at [38]-[39]. When asked in cross-examination to recall some of the meetings with clients, he was unable to recount the details. He agreed he would take detailed notes of the initial meetings, at least, although subsequent interactions were not necessarily documented: transcript at p 38. Those notes were not produced at the hearing.
Counsel for ASIC, Ms Patterson, questioned the applicant about email correspondence and other documentation connected with Absolute’s clients that the applicant had agreed to ‘take over’.
The first set of documents is found in the s 37 documents at pp 580-581. The documents consisted of an email from Absolute featuring Astna’s signature block that included an application form signed by a client together with supporting documents (including financial information and documents required for identification purposes, like a copy of the applicant’s driver’s licence). The body of the email included some observations about the borrower under the heading “Notes to go in the summary”. The other document (at pp 581 ff) was the summary of the application prepared and lodged by the applicant. The summary form included a ‘comments’ section. The applicant appears to have cut and paste the observations in the email from Astna’s account into the comments section in the application summary form. These documents do not suggest on their face that the applicant dealt directly with the client and independently satisfied himself of the matters he passed on in the summary. It looks like the applicant was cutting and pasting information provided by Absolute. Yet the applicant insists he did speak with the client directly.
A similar pattern of interaction was evident in relation to an application lodged with Westpac on behalf of a different client. The relevant documents are reproduced in the s 37 documents at pp 630 ff. The email from Astna’s account includes what appears to be detailed instructions that are effectively reproduced in the applicant’s correspondence with Westpac. The fax from the applicant to Westpac which contains the instructions was sent the same day. A few days later, an email was sent from Astna’s account to the applicant informing of a change that needed to be made to the loan application: at p 635. It included the observation “servicing is evident”. That same day, the applicant communicated the change to Westpac in a fax. The fax included the assurance that ‘Servicing and funds to complete purchase is evident”.
The applicant insisted he had obtained or at least confirmed the details in question in conversations with the client. He did not provide contemporaneous notes to that effect. When he was asked why he needed to receive instructions from Absolute if he was dealing directly with the client, he suggested he felt obliged to keep Absolute ‘in the loop’ because it was their client: transcript at p 72. That explanation is puzzling, because it is not as if the applicant was copying Astna’s account on his communications with the client; the emails from Astna’s account read like instructions from Absolute that it had prepared after consulting the client. The exchange rather suggests the applicant was acting at the behest of Absolute.
The same concerns arise in relation to another borrower referred to in documents reproduced at pp 660 ff of the s 37 documents. Those documents feature emails from Astna’s account sent to the applicant providing information and supporting documents about the loan application. The applicant was included in email chains that passed on information from the client. A fair reading of the emails suggests Absolute was the conduit to the client. When the loan was provisionally approved, the applicant forwarded the letter of offer to Absolute. It is unclear whether he also sent the letter directly to the client or communicated its contents; the applicant said he did but there is no record of him doing so. The correspondence before me suggests the communications with the client were carried on through Absolute.
That pattern of communication was evident in the correspondence in relation to another client set out in the s 37 documents at pp 58 ff. The email chain includes a note from the applicant to Absolute enclosing advice from the lender that the loan was approved. That email was forwarded to the client from Astna’s account. Yet another example of the applicant forwarding requests for information to Absolute can be found in the s 37 documents at p 599. That correspondence suggests on its face that Absolute rather than the applicant took responsibility for dealing with the client.
The applicant admitted in cross-examination that he did occasionally receive requests for information from the lender which he passed onto Absolute in the expectation Absolute would deal with the client and obtain the information. But he continued to insist that he typically communicated with the client independently. He did not produce any records of those contacts.
I will not refer to all of the exchanges involving the applicant, lenders, Absolute and the clients. Suffice to say the pattern of correspondence in each of those interactions suggests the applicant relied on Absolute to communicate with clients and undertake important tasks in connection with the preparation of loan applications. Whether or not the applicant also dealt directly with clients on occasion, there is ample evidence in the documents that he regarded Absolute as a conduit for dealing with those individuals in relation to their credit needs.
I should refer to several other email chains which are revealing for different purposes. Most of the communications with Absolute emanated from or were addressed to Astna’s email account. The emails from that account usually featured her signature block, but that was not universally true. In the first of these exchanges, a lender had written to the applicant saying it required additional information from the borrower: s 37 documents at p 715. The letter was forwarded without comment to Astna’s account. The next day, the information from the client was forwarded to Absolute. That email was addressed to ‘Shiv’. The email bearing Shiv’s name with the information attached was forwarded to the applicant, by Astna, who supplied it to the lender. Ms Patterson asked the applicant in cross-examination about whether he recalled seeing the reference to Shiv in the chain of correspondence. He said he did not recall reading the entire chain of correspondence and either did not notice the reference to Shiv or did not infer anything from the fact he was involved in the communications: transcript at pp 48-50
There is a second email chain forwarded to the applicant and reproduced in the s 37 documents at p 620 which includes a note from a client addressed to Shiv. The note says the client was attaching documents that “you” (ie Shiv) had asked for – which tends to confirm (a) Shiv was the one in communication with that client, not the applicant; and (b) Shiv’s involvement in dealings with that client was brought to the applicant’s attention. There are other emails which suggest Shiv was playing an active role in dealing with clients and assembling applications forwarded to the applicant. Examples are reproduced in the s 37 documents at pp 544 and 651.
When pressed in cross-examination on what he knew of Shiv’s role given all the evidence that Shiv was involved in dealing with clients as part of Absolute’s business, the applicant admitted he knew Shiv was playing a role but he was unaware of the extent or nature of that role: transcript at pp 49-50. The applicant nonetheless insisted he was still necessarily dealing independently with the clients given Absolute was unable to access the aggregator’s software. That evidence does not answer the central thrust of ASIC’s claim that the applicant continued dealing with Absolute in circumstances where it was obvious to him (a) important work in relation to those loan applications was being done by Absolute, and (b) some of that work was being done by Shiv.
Assessing the state of the applicant’s knowledge
It is important to make findings about precisely what the applicant knew because ASIC alleges the applicant was involved in Shiv’s contravention of the credit legislation. Being involved in another person’s contravention is one of the grounds on which ASIC may make a banning order under s 80 of the Credit Act. The expression ‘involved in a contravention’ is defined in s 5 to include, relevantly for present purposes, where the first person (ie the applicant) ‘…is knowingly concerned in or party to the contravention’. That concept is derived from a similar provision found in the former Trade Practices Act 1974 which was considered by the High Court in Yorke v Lucas (1985) 158 CLR 661. In that case, Mason ACJ and Wilson, Deane and Dawson JJ emphasised an individual was only knowingly concerned within the meaning of the statute “if he has knowledge of the essential facts constituting the contravention”: at [16]. Mr Wheeldon, counsel for the applicant, also referred me to the decision of the Full Federal Court in Young Investments Group Pty Ltd v Mann [2012] FCAFC 107 where the Court emphasised (at [11]) that an individual must have actual knowledge of the essential facts constituting the breach. Constructive or imputed notice of a problem that should have put the individual on inquiry is not enough. The Court suggested a finding of ‘wilful blindness’ might be insufficient.
The concept of wilful blindness was discussed in some detail during oral argument. Ms Patterson referred me to the recent decision of the Federal Court in Australian Competition and Consumer Commission v Productivity Partners Pty Ltd [2021] FCA 737 which includes a useful summary of the relevant authorities. Stewart J explained (at [100]):
Actual knowledge may be inferred from “a combination of suspicious circumstances and a failure to make an inquiry” – which is sometimes referred to as “wilful blindness”, but “knowledge must be the only rational inference available”: Pereira v Director of Public Prosecutions [1988] HCA 57; 82 ALR 217 at 220 per Mason CJ, Dean, Dawson, Toohey and Gaudron JJ. It has also been said that “actual knowledge may be inferred from ignorance dishonestly and deliberately maintained or wilful blindness”: Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; 377 ALR 234 at [321] per Lee J.
In other words, the Tribunal must be satisfied through direct evidence that the applicant did know of the relevant facts, or be satisfied by inference from evidence that the applicant must have actually known those things. Evidence that the applicant behaved so as to maintain plausible deniability of certain matters might suggest the applicant is all too aware of the facts in question. But actual knowledge remains the requirement.
Stewart J also pointed out it is not necessary that the person knew the matters in question amounted to a contravention: at [99]. As Mr Wheeldon properly conceded in his submissions in this case, an applicant cannot plead ignorance of the law. Mr Wheeldon said his client was ignorant of the facts, and that was enough to confirm he was not ‘involved in the contravention’ in the sense intended in the legislation.
So what did the applicant actually know about the facts amounting to Shiv’s contravention? The applicant said he was never shown the terms of the banning order that was imposed on Shiv. He claimed he was unaware of the precise terms of the order. That much can be accepted: there is no evidence to contradict the applicant’s claim and it is not inherently unlikely. The applicant also said in his statement – and repeated in his oral evidence – that he was not aware of the precise nature of Shiv’s role at Absolute when the applicant was dealing with Absolute’s clients. Ms Patterson asked the applicant on a number of occasions whether he thought it was possible that some of the emails he received from Astna’s email account might have been authored by Shiv. The applicant conceded it was possible, but insisted he did not know one way or the other: transcript pp 30 and 34 He said that, as far as he knew, Shiv played a purely ‘administrative’ role at Absolute and the applicant said he had no reason to understand that was an issue under the banning orders.
During cross-examination, Ms Patterson was able to establish what the applicant understood was involved in being a mortgage broker. The following exchange ensued (transcript at pp 23-24):
Q: Now I just want to ask you some questions about what’s involved in being a 20 mortgage broker, okay?---M’mm.
Q: Now part of being a mortgage can involve meeting with clients to find out information about them, correct?---Yes.
Q: And some of the – you might need to find out information about their financial situation, correct?---Yes.
Q: So find out information about their occupation, yes?---Yes.
Q: And their income?---M’mm.
Q: And their assets and their liabilities?---Yes.
Q: A mortgage broker would also need to find out from the client what type of 35 loan they’re looking for, correct?---Yes.
Q; That might be, you know, for example, whether they’re looking for a home to live in or an investment property?---Yes.
Q: And it might be whether they’re looking for a loan to assist with constructing a house, correct?---Yes.
Q: And it’s right isn’t it that the role of a mortgage broker also involves providing information to a client, sort of recommending what loan they 45 should apply for, correct?---Yes.
Q: Because it might be that the mortgage broker will be able to provide information about which lender to apply to, correct?---Yes.Q: And it would also include information about the, you know, whether they should apply for an interest only loan or a principal and interest loan, 5 correct?---Yes.
Q: And the role of a mortgage broker also involves assisting the client to complete a loan application, correct?---Yes. Q:
Q: For clients to apply for a loan, that will often include needing to gather together evidence that lenders require to support the loan application doesn’t it?---Yes.
Q: The mortgage broker will often assist the client to know what information – what evidence they might need to gather together for the lender, correct?---Yes.
Q: Because it might be that they need to gather together pay slips or tax returns, correct?---Yes.
Q: And it’s also part of a mortgage broker’s role to give consideration to whether the client will be able to service the loan that they want to apply for, isn’t it?---Yes.
Q: That involves whether or not they have enough income to be able to cover the repayments, correct?---Yes.
Q: It’s right, isn’t it, that sometimes the mortgage broker will - when a loan application is submitted to the lender, the mortgage broker might often 30 include with the application some notes to the lender, sort of, describing the nature of the client, and you know, notes in support of the client’s application? Is that correct?---Yes.
Q: Then also, once a loan application has been submitted, sometimes the lender 35 will come back, before they approve the loan, with some additional questions or things that the client needs to get together, correct?---Yes.
Q: An example could be that the lender might come back and say, “Look, it’s conditionally approved, but subject to the client providing us with additional 40 documents about pay.” Is that correct?---Yes.
Q: The mortgage broker’s role can be to then go back to the client and say, “Here’s the response from the lender. Here’s what else you need to do to keep the loan application going.”, correct?---Yes.
ASIC’s statement of facts, issues and contentions points out a person engages in credit activities – the activities regulated under the Credit Act - when (relevantly) he or she provides a credit service. Section 7 says a person provides a credit service if the person provides credit assistance to a consumer or acts as an intermediary. Section 8 goes on to set out the various circumstances in which one might provide credit assistance, while s 9 defines how one can be said to act as an intermediary. Suffice to say the applicant’s understanding of the role of a mortgage broker fits squarely within the definition of a credit service. The various activities of a mortgage broker either amounted to providing credit assistance, or they amounted to acting as an intermediary.
Ms Patterson also asked the applicant about his understanding of what Shiv was doing at Absolute in light of the emails and other documents the applicant had seen at the time. The applicant insisted he understood Shiv was doing ‘administrative’ work. The exchange with Ms Patterson continued as follows (transcript at p 34):
Q: When you say administrative work, tell the tribunal what you mean?---Well, getting documents from the client or talking to clients. I don’t know to what extent.
Q: So you understood that Shiv might have been talking to clients but you didn’t know about what?---Yes, I don’t know.
Q: You understood he might be liaising with clients to gather documents?---Yes.
Q: But you knew he was not allowed to work as a mortgage broker?---Yes.
Q: I see. You know that being a mortgage broker can involve assisting a client to complete their application don’t you?---Yes.
Q: So you understood Shiv wasn’t supposed to be assisting client’s complete applications, didn’t you?---Yes.
The documentary evidence that I have discussed makes clear Shiv was engaged in credit activities at the relevant time within the meaning of the Credit Act. The email exchanges demonstrate Shiv was liaising with clients and assisting them to assemble documentation and respond to queries from lenders. His name was on some of those emails. I have also found the applicant was aware Shiv was doing those things because the applicant saw the emails, even if he was not aware of the precise extent of Shiv’s participation in the process, and even if he (wrongly) assumed that ‘administrative’ activities fell outside the definition of credit activities.
What of the fact the applicant had not been shown the text of the banning order that was made against Shiv? Once again, Ms Patterson established in cross-examination that even if the applicant was unaware of the specific terms of the banning order, he knew the banning order was made and that it operated to ban Shiv from engaging in the activities of a mortgage broker. That was much clear from the following exchange (transcript at p 25):
Q: You understood that he’d been banned by ASIC, didn’t you?---Yes.
Q: Yes. You’ve said that you understood that to mean he was no longer able to work as a mortgage broker, correct?---Yes.
Q: So it’s fair to say that you understood that he wasn’t able to do the kinds of things that mortgage brokers do, correct?---Yes.
Those answers are consistent with the applicant’s statement which recounted the conversation with Shiv and his daughter in 2018 at their home. He recalled Astna telling him about trouble with ASIC and advising (exhibit one at [31]): “Dad has been doing applications, which he cannot be doing.”
The applicant must have known Shiv was continuing to involve himself in the applications for finance that the applicant was handling as part of his unusual relationship with Absolute. Shiv’s name was mentioned in the emails that passed between the applicant and Absolute. The applicant said he assumed Shiv was playing an administrative role, but it is clear Shiv was engaging in credit activities as defined under the Credit Act. The fact the applicant did not appreciate the legal characterisation of the activities is irrelevant. He had actual knowledge of the essential facts constituting Shiv’s contravention. He knew Shiv was not allowed to act as a mortgage broker, and he also knew Shiv was continuing to do things that mortgage brokers did in connection with applications the applicant was handling.
I am satisfied the applicant was involved in a contravention of the credit legislation by another person. The ground referred to in s 80(1)(d)(ii) is made out. The discretion to ban the applicant under s 80 of the Credit Act has been enlivened.
The statutory declarations
Before I go on to deal with the other grounds, I should pause to consider the evidence that emerged at the hearing about the applicant’s handling of statutory declarations he was asked to witness by Absolute. The applicant was a registered justice of the peace and had undergone the requisite training. He only exercised the powers of his office as a justice of the peace in connection with applications for finance.
In this context, justices of the peace are typically called on to perform two functions. First, they witness and verify copies of documents, most commonly identity documents like a driver’s licence. Financial institutions are understandably concerned to ensure they establish the identity of the persons to whom they advance large sums of money. Second, a justice of the peace might be called on to witness an individual sign and swear a statutory declaration attesting to, for example, the purpose of a loan, or the fact parents are making money available as a gift that is applied towards a child’s deposit on a property. The involvement of a justice of the peace in these processes is an integrity measure. The measure assists the smooth operation of the credit markets where trust is a valuable commodity.
Ms Patterson asked the applicant about a number of emails from Absolute to the applicant that attached statutory declarations which were partially completed and signed. The emails asked the applicant to sign the declarations in each case as a witness as if the applicant had been present when the declarant affixed his or her signature to the document. On advice from his counsel, the applicant claimed privilege and elected not to answer the questions: transcript p 61ff.
I do not draw any inference from the applicant’s silence. The only evidence before me is the email in each case and the partially completed documents that I assume the applicant signed as a witness. The irresistible inference from that evidence is that the applicant was prepared to ignore the procedures required of a justice of the peace and sign documents as a witness without actually witnessing the signature or confirming the declarant’s identity or, where relevant, asking the declarant if the contents of the declaration were true and correct.
Neither party was able to confirm whether the applicant’s conduct amounted to a breach of the relevant legislation in New South Wales governing justices of the peace and declarations. There was some discussion about the likelihood that the applicant’s conduct amounted to misleading or deceptive conduct and perhaps false or misleading conduct under the relevant consumer protection laws. I do not need to reach a concluded view on that question. It is clear the applicant’s behaviour was, at a minimum, grossly improper.
I will return to discuss this conduct and its implications for the banning order below.
Other grounds for making a banning order
I have already found the applicant was knowingly involved with Shiv’s contravention of the Credit Act. But what of the other grounds?
Is there reason to believe the applicant is likely to contravene credit legislation – the ground referred to in s 80(1)(e)(i)?
Mr Wheeldon said the applicant was a well-credentialed and experienced mortgage broker who has never been in trouble before. ASIC did not suggest otherwise. Mr Wheeldon also pointed out the shortcomings in the applicant’s dealings with family members should be understood in that context: to the extent the applicant exercised poor judgment, it was because of the familial relationship. The applicant insisted he would not have entered into an arrangement like the one he had with Absolute but for the familial connection. Mr Wheeldon added there was no fraud or suggestion the applicant had a propensity for law-breaking, and none of the clients or financial institutions experienced loss or complained. The applicant also insisted during his evidence that the applicant had discharged his responsibilities with respect to the loan applications in such a way that the evidence of irregularities, such as it is, does not give a reason to believe the applicant is likely to contravene credit legislation in the future.
I disagree. While the applicant claimed he dealt directly with clients and fulfilled his responsibilities, there is ample evidence that he allowed individuals at Absolute – an organisation that he knew to be under a reputational and regulatory cloud – to act as a conduit to clients and to undertake activities on his behalf that he should have attended to himself. The familial relationship does not explain or excuse that relaxed approach to the performance of his obligations under the credit legislation. While there is no evidence of fraud or loss or complaints, that makes no practical difference to my assessment of the risk the applicant will fail to act in accordance with his obligations. When I also consider the startlingly casual approach to the performance of his duties as a justice of the peace, I am satisfied there is reason to believe the applicant is likely to breach provisions of the Credit Act in the future.
Is there reason to believe the applicant is not a fit and proper person to engage in the relevant activities – the ground referred to in s 80(1)(f)?
Section 80(2) of the Credit Act says I must have regard to the matters referred to in s 37B in the course of deciding whether an individual is a ‘fit and proper person’ within the meaning of s 80(1)(f). As it happens, none of the matters expressly articulated in that sub-section are relevant here although s 37B(2)(k) invites consideration of ‘any other matter ASIC considers relevant’. That brings us back to the expression ‘fit and proper person’, which is well-known in the law. It is commonly used in occupational regulation statutes. The meaning of the expression was discussed by the High Court in Hughes and Vale Pty Ltd v New SouthWales (No 2) (1955) 93 CLR 127. In that case, Dixon CJ and Webb and McTiernan JJ, quoting Sir Edward Coke, explained (at pp 156-157):
But their very purpose is to give the widest scope for judgment and indeed for rejection. ‘Fit’(or ‘idoneus’) with respect to an office is said to involve three things, honesty knowledge and ability: ‘honesty to execute it truly, without malice affection or partiality; knowledge to know what he ought duly to do; and ability as well in estate as in body, that he may intend and execute his office, when need is, diligently, and not for impotency or poverty neglect it’ — Coke.
The requirement that the person be fit and proper serves to underline the breadth of the inquiry. But the inquiry is always linked back to the particular role and the responsibilities and functions which it entails: see, for example, Davies v Australian Securities Commission (1995) 59 FCR 221, per Hill J at pp 232-233. In this context, I must be satisfied the applicant is a fit and proper person to engage in credit activities. That requires me to consider the nature of the work in light of the regulatory objectives.
People engaging in credit activities – mortgage brokers, for example – provide advice and assistance in relation to what are, for many people, major financial commitments that affect their lifestyle and well-being. Intermediaries like mortgage brokers assist ordinary people to navigate sophisticated markets and access credit products that are well-suited to them. While not fiduciaries, mortgage brokers still occupy positions that create certain obligations towards consumers. Those who engage in credit activities are required to understand and follow the rules and behave ethically in order to protect the public and (it might be inferred from the provisions of the Credit Act) to promote the efficient operation of credit markets.
The applicant insisted in his evidence he discharged his obligations as a mortgage broker in his dealings with individual clients. There is no evidence that anybody was harmed by any shortcoming in his approach. Mr Wheeldon also pointed out there is no suggestion of fraud. The applicant, at worst, had a blind-spot in relation to his family.
Ms Patterson pointed out the applicant’s failures extended over a significant period of time. He completed applications in circumstances where, at a minimum, he knew Shiv was playing a role in the application process even though he knew Shiv was in trouble with ASIC. I accept the applicant was not actively dishonest in doing so: it appeared from his evidence that he simply did not appreciate the extent of the problem he was creating for himself by dealing with Absolute in the way he did. His failings in that sense might bespeak naivety and a want of competence and insight rather than a moral failing. Ultimately, the naivety he demonstrated exposed the clients and financial institutions he dealt with to risks – risks he should have appreciated and which he had been expressly warned to avoid.
The evidence about the applicant’s failure to comply with his obligations as a justice of the peace also goes to his fitness. He either did not understand those obligations or he did not take them seriously, and he apparently thought nothing of making a misrepresentation to the financial institutions concerned. While I acknowledge the acts in question were not performed in the course of his role as a mortgage broker, the evident lack of commitment to process and rules reflects badly on his competence and integrity. He was also aware the declarations were being used in connection with applications for credit. He knew the importance the financial institutions attached to the integrity of these documents.
The evidence also establishes the applicant’s failings extended beyond the credit application process and his direct dealings with clients. He delegated inappropriately and trusted unwisely, and he exhibited a lax attitude towards processes and his legal obligations. Given the breadth of the definition of credit activities, there must be a serious question over the applicant’s ability to play any role in or around a mortgage broking business.
In the circumstances, I am satisfied this ground is made out. There is ample reason to believe the applicant is not a fit and proper person to:
(a)engage in credit activities;
(b)perform functions as an officer of an entity engaged in credit activities; or
(c)control anybody else engaged in credit activities.
Is there reason to believe the applicant is not adequately trained, or not competent – the ground referred to in s 80(1)(fa)?
There was no suggestion the applicant was not appropriately credentialed or trained. But ASIC says his involvement with Absolute suggested a want of competence in the circumstances.
I have already explained the applicant insisted he was not aware Shiv was breaching the terms of the banning order because the applicant was (a) unaware of the precise terms of that order, and (b) unsure of the extent of Shiv’s role at Absolute. I have explained why I rejected that argument. But even if I accepted the applicant was not knowingly concerned in Shiv’s contravention because the applicant did not have actual knowledge as required in s 80(1)(d), I would still find the ground in sub-section (1)(fa) was made out.
The applicant was put on notice that Shiv was behaving inappropriately under the terms of his banning order. That much is clear from Astna’s request (described in the applicant’s statement) for help in the first place. The applicant also knew Shiv remained involved in the business even after he (the applicant) agreed to help. The applicant’s failure to investigate and seek assurances from his niece about Shiv’s role bespeaks more than a simple lack of attention to detail or a want of curiosity. The applicant had been warned by the business development manager of a financial institution that he should steer clear of Shiv in a business context. His failure to engage with that risk and either manage or avoid it is troubling. The applicant was being careless with his own professional reputation, and with the interests of clients who were exposed to Shiv’s conduct. The fact he did not appreciate that risk (or perhaps did not care) is indicative of a want of competence. That want of competence potentially affects the applicant’s involvement in any aspect of a credit business.
The applicant’s conduct in relation to the statutory declarations underlines my concerns over his competence. Either he did not know or did not care about the obligations imposed on him as a justice of the peace. While those obligations are not directly related to his work as a mortgage broker, the declarations in question were lodged in connection with applications for credit so he should have appreciated the importance of complying with those processes. His lack of awareness of (or commitment to) those processes raises questions about his competence more generally, if not his integrity.
I am satisfied there is reason to believe the applicant is not competent to engage in credit activities or perform any of the functions of an officer of an entity engaging in credit business, nor is he competent to control another person engaged in credit activities.
Should the applicant be banned – and if so, for how long and to what extent?
Having concluded four grounds have been made out against the applicant, I must now consider whether the applicant should be banned. If he is to be banned, I must also reach a view on the appropriate length of the ban and its extent.
I should say at once I am satisfied a ban is the only appropriate response in light of the findings I have made. The applicant suggested, as an alternative, that he might undertake remedial training but that strikes me as inadequate, even if it were coupled with counselling or a suspension. The applicant’s problems did not arise out of gaps in his knowledge and training, and there is no reason to suppose further training will assist. Suspension or the imposition of conditions or other limits (perhaps by way of an enforceable undertaking) contemplated in the Credit Act would not be a sufficient response in the circumstances.
The fact the applicant’s conduct occurred in the context of a familial relationship does not suggest a ban is inappropriate. While the applicant says he was helping out his family, it was still a commercial relationship in which he agreed to share the fees derived from the clients. Even if he would not have struck the same arrangement with unrelated parties, there was still an arrangement from which he derived a benefit. His conduct must be denounced to serve as a general deterrent to others engaging in credit activities, but also to bring home to the applicant the problem with his conduct that he has so far stubbornly failed to acknowledge.
I am also satisfied it is appropriate that the ban extend to prevent the applicant from engaging in credit activities, including as an officer within the meaning of the Corporations Act 2001 (Cth), manager, employee, contractor or in some other capacity. The applicant’s failings suggest he should not have anything to do with a credit business during the term of the ban.
What of the duration? ASIC’s delegate imposed a seven-year ban. At the hearing before me, ASIC argued there might be a basis for lengthening the duration of the ban given the evidence that recently emerged about the applicant’s conduct as a justice of the peace. It follows the applicant was on notice that he might find himself in a worse position if he persisted with the review.
Mr Wheeldon pointed out the applicant’s niece, Astna, had been banned five years. The delegate’s decision was recorded in a press release issued by ASIC, but it was not otherwise published. Without having regard to the detailed findings and reasoning of the decision it is difficult to make a meaningful comparison with the applicant’s position. I acknowledge like cases should be treated alike, but there are many considerations which go into determining the regulatory response in a given case. It would be unsafe for me to make comparisons in the absence of further evidence about the factors affecting the delegate’s decision in that case.
I can readily accept the applicant is likely to suffer significant financial hardship and reputational damage if he is banned for a lengthy period. He is not a young man and it is unclear how quickly he could find alternative employment or commence a different career.
I also acknowledge there is no evidence of fraudulent intent, and nobody was directly harmed or experienced loss as a consequence of the applicant’s behaviour. But I must also be conscious of what other individuals engaging in credit activities would make of the applicant’s conduct – and what lesson they might take from the regulatory action taken against him in light of the findings I have made. The objective of general deterrence assumes particular importance in this case. ASIC’s banning powers would become less effective if stringent action were not also taken against individuals who assisted wrong-doers to evade or circumvent the consequences of a ban, even where that assistance amounted to a ready acquiescence rather than active facilitation. In such instances the protective objectives at the heart of the regulatory regime established in the Credit Act would be compromised.
The applicant’s conduct would be more serious if it were flagrant and intentional, as opposed to naïve, incompetent and lax. But it is still serious.
ASIC’s Regulatory Guide 218 titled “Licensing: Administrative action against persons engaging in credit activities” (RG218) includes a table setting out examples of conduct that might be thought to justify a ban of a particular duration. RG218 is useful because it promotes consistency, which is an important feature of administrative action. The delegate in this case concluded the applicant’s conduct fell squarely in the middle of the 3-10 year range. Ms Patterson suggested the additional evidence about the conduct with respect to the statutory declarations might indicate the applicant should be the subject of a ban at the higher end of that range.
The findings I have made about the applicant and his conduct fall in the middle of the range notwithstanding his clean record in the past. He was incompetent and irresponsible, albeit there is some hope he may yet appreciate where he went wrong. His behaviour also has the capacity to impact consumer confidence. He made false and misleading statements to financial institutions when he signed the statutory declarations without following the rules. There is limited evidence of his cooperating with ASIC.
There is a real need in this case for an administrative response that reinforces the importance of complying with ASIC’s banning orders. I am satisfied the seven-year ban that has been imposed will achieve that objective, and that a ban of that length is proportionate and appropriate. A ban for a longer duration might become disproportionate.
Conclusion
The decision under review is affirmed.
I certify that the preceding 72 (seventy -two) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
.................................SGD......................................
Associate
Dated: 24 August 2021
Date(s) of hearing: 12 - 14 July 2021 Counsel for the Applicant: Mr Chris Wheeldon Solicitors for the Applicant: J Sutton Associates Pty Ltd Counsel for the Respondent: Ms Stephanie Patterson Solicitors for the Respondent Self-represented
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