Smithson & Baye Pty Ltd and Australian Securities and Investments Commission

[2018] AATA 857

Smithson & Baye Pty Ltd and Australian Securities and Investments Commission [2018] AATA 857 (29 March 2018)

Division:TAXATION AND COMMERIAL DIVISION

File Number(s):      2015/4721

Re:Smithson & Baye Pty Ltd

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal:Deputy President I R Molloy

Date:29 March 2018

Place:Brisbane

The Tribunal affirms the decision under review.

.........................[Sgd]...............................................

Deputy President I R Molloy

Catchwords

ASIC – Contravention of National Consumer Credit Protection Act 2009 – Australian Securities and Investments Commission – purchase of properties – asset buying activities – top up loans – regulation of loans – loan agreements – breaches – suspension and cancelling of licence – not a fit and proper person – cancellation of Australian credit licence

Legislation

Administrative Appeals Tribunal Act 1975 (Cth)

National Consumer Credit Protection Act 2009 (Cth) ss 5, 6, 29, 47, 49, 51, 55, 88, 266, 290, 327 & Schedule 1 (National Credit Code)

National Consumer Credit Protection Bill 2009 (Cth) Second Reading Speech

National Consumer Credit Protection Bill 2009 (Cth) Explanatory Memorandum

Superannuation Industry (Supervision) Act 1993 (Cth) s 67A

Cases

Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321

Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589

Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150

Beckley v Consumer, Trader and Tenancy Tribunal [2009] NSWSC 703

Coakley and Australian Securities and Investments Commission [2008] AATA 247

Hughes & Vale Pty Ltd v New South Wales(No 2) (1955) 93 CLR 127

Jonsson v Arkway Pty Ltd & Anor [2003] NSWSC 815

Knowles v Victorian Mortgage Investments Limited & Anor [2011] VSC 611

Mango Media Pty Ltd v Comitogianni [2011] NSWSC 152

Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78

Secondary Materials

Australian Securities & Investments Commission Regulatory Guide 36 – Licensing: Financial Product advice and dealing, August 2013.

Australian Securities & Investments Commission Regulatory Guide 205 – Credit licensing: General conduct obligations, June 2010

Australian Securities & Investments Commission Regulatory Guide 206 – Credit licensing: Competence and training, December 2016

Australian Securities & Investments Commission Regulatory Guide 218 – Administrative action against persons engaging in credit activities, November 2010

Australian Securities & Investments Commission Information Sheet 104 – Record of lodgement of documents

Australian Securities & Investments Commission Information Sheet 151 – ASIC’s approach to enforcement

REASONS FOR DECISION

Deputy President I R Molloy

29 March 2018

1. On 11 August 2015, the respondent (“ASIC”) decided to cancel the Australian credit licence (“ACL” or “licence”) held by the applicant (“Smithson & Baye”).

2. The decision was made pursuant to the National Consumer Credit Protection Act 2009 (Cth) (“NCCP Act”) and included a statement of reasons (“the ASIC decision”).[1]

   [1] Exhibit 1, T-Documents, T2, pp. 34-35.

3. By application lodged on 8 September 2015, Smithson & Baye applied for a review of the ASIC decision pursuant to section 327 of the NCCP Act and the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”).[2]

   [2] Exhibit 1, T-Documents, T1, pp. 1-33.

4. The ASIC decision, as described by Smithson & Baye,[3] included findings to the following effect:

   (a)that Smithson & Baye had contravened section 47 of the NCCP Act in nine respects, being matters relevant to enlivening a discretion to suspend or cancel a licence pursuant to s 55(1)(a) of the NCCP Act;[4]

   (b)that ASIC had reason to believe Smithson & Baye was likely to contravene obligations under section 47 of the NCCP Act because of the nine section 47 contraventions, being matters relevant to the discretion to suspend or cancel a licence pursuant to section 55(1)(b) of the NCCP Act;[5] and

   (c)that ASIC had reason to believe that Smithson & Baye was not a fit and proper person to engage in credit activities because of the nine section 47 contraventions, being relevant to the discretion to suspend or cancel a licence pursuant to section 55(1)(c) of the NCCP Act.[6]

   [3] Applicant’s Statement of Facts, Issues & Contentions dated 24 December 2015 (“Applicant’s SFIC”), [5].

   [4] Exhibit 1, T-Documents, T2, pp.41-48, [29] - [75].

   [5] Ibid, pp. 48-49, [76] – [83].

   [6] Ibid, pp.49-51, [84] – [92].

5. Smithson & Baye contends that the ASIC decision should be set aside and substituted with a decision that the ACL should not be cancelled.

   BACKGROUND

6. Smithson & Baye was incorporated on 19 December 2012. It was granted an ACL on 19 July 2013. 

7. Ricardo Viana became the applicant’s sole director, secretary and shareholder on 6 January 2014. Mr Viana was the applicant’s principal witness. He provided several written statements,[7] and was cross-examined over several days.

   [7] Exhibits 3, 4 and 5.

8. Smithson & Baye’s business activities comprised of the management of a loan book (“loan book”). This proceeding relates to a number of loans included in that loan book.

9. The starting point seems to be with a company Heritage Financial Solutions Australia Pty Ltd (“Heritage”). Heritage, with related entities, no later than 2010, was soliciting persons to purchase real estate.

10. The properties for sale, generally at least, were house and land packages, principally in the Laidley area in Queensland. Heritage assisted purchasers to set up self-managed superannuation funds into which they rolled-over existing superannuation monies. The purpose was to use these monies in the purchase of the properties.

11. The purchasers, again generally, had to borrow monies for the purchases. These monies were usually borrowed from banks, who have been described as principal lenders. In some cases the rolled-over superannuation monies and the monies borrowed from the principal lenders were insufficient to complete the purchases.

12. In these cases the purchasers were referred to a company, Vegeta Pty Ltd (“Vegeta”), which provided what have been referred to as top-up loans. The top-up loans varied in amount but were generally in the order of ten thousand dollars to forty thousand dollars.

13. The top-up loans were made in a period which straddled the commencement date of the National Credit Code (“the Code”) being Schedule 1 of the NCCP Act. The Code came into effect on 1 July 2010. Loans which were made prior to that date are not in issue.

14. This proceeding stems from the Vegeta top-up loans made after the Code commenced. It is agreed between the parties that those loans were entered into between 26 July 2010 and 23 September 2012.

15. ASIC’s position is that these loans were and remained regulated loans under the Code. Smithson & Baye disputes this except in respect of four or five top-up loans.

16. Smithson & Baye acquired the loans in its loan book through transactions relating to Vegeta at the end of 2013.

17. Smithson & Baye has not, save for allegedly refinancing some of the Vegeta top-up loans, written any new loans since its incorporation.

    ISSUES

18. The issues include whether Smithson & Baye breached conditions contained in its ACL and/or the provisions of the NCCP Act, whether it is a fit and proper person to hold an ACL, and what is the correct and preferable decision particularly as it relates to the possible suspension or cancellation of the ACL.

19. Other questions, however, arise before reaching those issues. Without intending to be exhaustive, the other issues include:

    (a)how many of the top-up loans entered into by Vegeta after the commencement of the Code were assigned to Smithson & Baye;

    (b)how many of these loans, although entered into after 1 July 2010, fall outside the scope of the Code; and

    (c)the alleged refinancing of some or all of what have been described as the disputed loans.

    TRUSTEE QUESTION

20. In argument the parties referred to what was described as the Trustee Question. It raises the question whether some or all of the borrowers who obtained top-up loans from Vegeta after the commencement of the Code entered into their respective loan agreements as trustees.

21. The issues argued under this heading, however, go beyond that single question. I will come to those other issues in due course. Suffice to say, at this stage, that if any of these issues, including the narrow trustee question, is determined favourably for Smithson & Baye, then at least some of the Vegeta top-up loans assigned to Smithson & Baye fall outside the terms of the Code notwithstanding they were entered into after the commencement of the NCCP Act.

22. The starting point is section 5 of the Code which relevantly provides:

    (1) This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
    
    

    (a)the debtor is a natural person or a strata corporation; and

    (b)the credit is provided or intended to be provided wholly or predominantly:

    i.for personal, domestic or household purposes; or

    ii.to purchase, renovate or improve residential property for investment purposes; or

    iii.to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and

    (c)a charge is or may be made for providing the credit; and

    (d)the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.

23. Smithson & Baye submits that thirty-four of the loans assigned to it (described sometimes as “the disputed loans” although the actual number itself is disputed)[8] were originally entered into by Vegeta with natural persons in their capacity as bare trustees for the corporate trustees of their self-managed superannuation funds. In consequence, it submits, they fall outside the Code.

    [8] Applicant’s Statement of Facts, Issues and Contentions – The Trustee Question dated 7 October 2016, [5]. The applicant outlines there are thirty-three loans referred to in the Deed of Assignment as having the loan type “Corporate Trustee Refinance – SMSF”; and an additional loan to DN & KA Buckland. 

24. The first thing I would say is that I think Smithson & Baye’s argument is based on a false premise. I agree with ASIC’s submission that even if the “natural person borrowers” – again a term used in argument – did enter into the loan agreements as bare trustees on behalf of the corporate trustees of their self-managed superannuation funds, that alone does not take the loans outside the Code.

25. A trustee entering into an agreement is personally liable. This may be contrasted with most cases of an agent entering into an agreement on behalf of a principal. The Code does not create an exclusion in respect of credit contracts entered into by trustees. I do not accept that the description “natural persons” should be read so as to exclude natural persons who enter into a credit contract as a trustee for a corporate superannuation trustee.

26. In any event I do not consider the loans were entered into by the natural person borrowers as trustees for their respective corporate entities.

27. The loan agreements between the named borrowers and Vegeta do not record the borrowers as entering into the agreements as trustees. There is nothing on the face of the loan agreements to suggest that the persons who executed those agreements did so in any capacity other than their personal capacity.  

28. It is contended, however, by Smithson & Baye, that an objective assessment of the circumstances surrounding the execution of the loan agreements indicates that the intention of the parties was that those persons were borrowing as bare trustees for the corporate trustees of their self-managed superannuation funds.

29. Reference was made, in particular, to bare trust deeds. In some cases the reference was to existing deeds, in others to draft deeds, and in some cases to no document at all. In respect of the drafts, Smithson & Baye submits it can be inferred they were in fact duly executed. It also submits it can be inferred there were trust deeds in respect of each of the relevant borrowers. It submits in consequence that bare trust arrangements existed when these thirty-four natural person borrowers borrowed from Vegeta. These are not inferences I would draw.

30. In any case, I have considered all of Smithson & Baye’s submissions on this and the other extrinsic evidence. I do not accept them.

31. In the case cited by Smithson & Baye, Re Interwest Hotels Pty Ltd (in liq),[9] Eames J said that where it is asserted that a party contracted in an undisclosed trustee capacity, the task is “one of determining the mutual intention of the parties as evidenced by the terms employed, when assessed objectively against the surrounding circumstances”.

    [9] (1993) 12 ACSR 78, p. 119.

32. I accept ASIC’s submission, also in reliance on Re Interwest Hotels Pty Ltd (in liq),[10] that it is only if the loan document is incapable of giving an unambiguous answer to the question whether the named borrowers entered the agreement in other than their personal capacity, that reference to other sources may be contemplated so as to ascertain the parties’ intention.[11] I accept there is no ambiguity on the face of the loan documents.

    [10] (1993) 12 ACSR 78.

    [11] Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78, as per Eames J at p. 83.

33. ASIC goes further, however, and submits the evidence external to the loan agreements, even if it is considered, does not support Smithson & Baye’s contention that the named borrowers entered into the loan agreements as trustees. I also accept this submission.

34. The trust deeds (and the draft trust documents, even if they were executed) do not establish that the loan agreements were entered into by the named borrowers other than on their own behalf.

35. As ASIC points out, some of the same borrowers who entered into these loan agreements executed a range of documents, apparently in their personal capacity, without any reference to those documents being executed by them as trustees for the corporate trustee of their superannuation funds.

36. As I have said, looking beyond the loan agreements themselves, which on their face disclose that the named borrowers entered into them in their personal capacity, and considering all the facts and circumstances relied on by Smithson & Baye, I am not satisfied that the extrinsic evidence, assuming for the moment that it is appropriate to consider it, leads to any different conclusion.

37. I note also ASIC relies on section 13(1) of the Code which provides that where a party to a proceeding claims that a contract is regulated by the Code (as ASIC does here), that contract is presumed to be so regulated unless the contrary is established. The onus is on the lender to establish otherwise.[12]

    [12] Bahadori v Permanent Mortgages Pty Ltd [2008] NSWCA 150, [5] & [191]; Beckley v Consumer, Trader and Tenancy Tribunal [2009] NSWSC 703, [70]; Knowles v Victorian Mortgage Investments Limited & Anor [2011] VSC 611, as per Croft J at [47].

38. Smithson & Baye then submits that the natural persons, borrowing as it says as bare trustees, were not simply “mum and dad property investors”. It calls in aid the second reading speech for the NCCP Bill[13] to argue these were the type of persons the provisions of the Code were intended to protect.[14]

    [13] 2009 (Cth).

    [14] National Consumer Credit Protection Bill 2009 (Cth), Second Reading Speech.

39. Smithson & Baye characterises the borrowers under the Vegeta loans as other than the type of persons intended to be protected under the Code.  I do not think this argument has any merit.

40. The evidence of those borrowers who provided statements does not reveal them to be experienced or knowledgeable investors.[15] These witnesses were not cross-examined. Smithson & Baye did not adduce any evidence which leads me to believe that these or any of the other borrowers could be described as sophisticated investors. The transactions they entered into were not devised by them nor were the transactions particularly complex.

    [15] Exhibits 9, 10, 11 & 12.

41. Moreover I do not think that the Code calls for an investigation to ascertain, for example, the knowledge or experience of a borrower, or the complexity of the loan transaction, in the course of determining whether the Code applies.

42. Smithson & Baye acknowledges that the natural person borrowing might have been caught by the Code if the loans were used for “investment in residential real estate” within section 5 of the Code. It submits, however, that although the loans were used to assist with the purchase of residential real estate, the borrowers were not making an “investment” for the purpose of section 5 of the Code. This is for two reasons.

43. Firstly, Smithson & Baye submits that these borrowings are also required to comply with section 67A of the Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”). Section 67A of the SIS Act, as it points out, was inserted less than a year after the NCCP Act was enacted.

44. It is submitted, including by reference to the different wording of the provisions of the NCCP Act and SIS Act, that there was a legislative intention that asset-buying activity, of the nature described, should comply with section 67A of the SIS Act, and that such activity is not also to be governed by section 5 of the Code.

45. Secondly, Smithson & Baye submits that the bare trustees (if properly so-called) in borrowing from Vegeta did not borrow for investment purposes. Rather, it is submitted, it was the corporate trustees of the self-managed superannuation funds that held the relevant investment purpose, and they were not the borrowers from Vegeta. Reference was made to Mango Media Pty Ltd v Comitogianni[16] and Jonsson v Arkway Pty Ltd & Anor.[17]

    [16] [2011] NSWSC 152.

    [17] [2003] NSWSC 815.

46. I accept ASIC’s submission there is no conflict in the operation of section 67A of the SIS Act and the provisions of the Code. I do not discern any legislative intention that the requirement that an activity comply with section 67A of the SIS Act means that that activity would not be governed by section 5 of the Code.

47. As to Smithson & Baye’s argument concerning the purpose of the loans, ASIC submits that the disputed loans were entered into between Vegeta and the named borrowers to assist in the purchase of investment property by those persons, in order to build their superannuation savings within self-managed superannuation funds created for them.

48. I accept ASIC’s submission that the question is not whether the borrowers are, or are not, “making an investment” for the purpose of section 5 of the Code. The question, under section 5(1)(b)(ii) is whether the credit is provided, relevantly, to purchase, renovate or improve residential property for investment purposes. I am satisfied that was the purpose for which the credit was provided in each case.

49. The borrowings, as well as being used wholly or predominantly to assist in the purchase, renovation or improvement of residential property for investment purposes, were also used to augment retirement savings within the borrowers’ self-managed superannuation funds. I consider that was also a “personal” purpose within section 5(1)(b)(i) of the Code.

50. In consequence I reject Smithson & Baye’s submissions on what has been described as the trustee question including the related issues dealt with above.

51. Specifically, I reject Smithson & Baye’s contention that there were only four (or five) Vegeta loans that were originally entered into with natural persons for residential real estate investment (or personal) purposes on or after 1 July 2010, and therefore Code-regulated loans.

    REFINANCING OF LOANS

1. As I have said, Smithson & Baye’s loan book came into existence because of assignments to it of the loans previously owing to Vegeta. The Vegeta assignments occurred on 1 December 2013 pursuant (mainly, at least) to the terms of a deed of assignment which was expressed as assigning to Smithson & Baye the debts listed in the Table attached to the deed.

2. It is agreed between the parties that pursuant to the deed of assignment, ninety-three loans, listed in the Table, were assigned from Vegeta to the applicant. It appears to be agreed that a ninety-fourth loan in the list is a duplication.

3. Mr Viana gave evidence that in addition to the loans recorded in the Table to the deed, another three loans were assigned to Smithson & Baye by Vegeta, namely, loans to Mitchell Kevin Wilkins, David Noel and Karen Anne Buckland, and Jenny Hannelas. Smithson & Baye’s position is that these loans were erroneously omitted from the Table attached to the deed. Each party also raised the prospect that the actual schedule attached at the time of execution of the deed may have been different.

4. ASIC’s position is that while Smithson & Baye says that it has always treated these loans as having been assigned, it has produced no evidence of any actual assignment. ASIC therefore only agrees the ninety-three loans were assigned.

5. I agree with ASIC’s submission there is insufficient evidence of a formal assignment of these loans. On the other hand, as Smithson & Baye submits, the conduct of the parties, that is Smithson & Baye and the respective borrowers, points to the loans being assigned. I do not feel there is sufficient evidence to determine this matter which involves consideration of the conduct of third parties to the proceedings. Furthermore, I do not see the necessity to determine this issue.

6. Smithson & Baye’s position, as indicated, is that its loan book, as at 1 December 2013, the date of the Vegeta deed of assignment, or thereabouts, comprised of 96 loans.[18] It also contends that between 1 December 2013 and December 2015 there was a net reduction of twenty loans in its loan book because of loans being repaid or written off. 

   [18] Applicant’s Supplementary Statement of Facts, Issues & Contentions (“Applicant’s Supplementary SFIC”) dated 7 October 2016, [22].

7. As I understand it there is agreement that five of the assigned loans were Code-regulated. There was disagreement, however, concerning the total number of Code-regulated loans assigned to Smithson & Baye.

8. Apart from the five referred to, there were another thirty-four loans to natural persons which, according to Smithson & Baye were not subject to the Code, relying on one or more of the arguments referred to above under the sub-heading Trustee Question. I have rejected those arguments by Smithson & Baye.

9. That brings me to a submission on behalf of Smithson & Baye that thirty-one of these thirty-four loans[19] were, shortly after the Vegeta assignments, subject to refinance. Smithson & Baye contends that these loans, originally with natural person borrowers (as it contended in their capacity as trustees), came to an end.

   [19] The precise number in issue seems to vary, see, for example, Applicant’s SFIC at [13].

10. The submission is these loans were replaced by loans to “non-strata” corporate entity borrowers on materially identical terms. ASIC’s position is that no such refinancing occurred.

11. Smithson & Baye submits that the refinancing process commenced by way of “Refinance Letters” some of which were in evidence.[20] Smithson & Baye submitted that letters in substantially the same terms were issued to the associated corporate entities of each of the borrowers.

    [20] Exhibit 7, Statement of Philip Peck dated 15 April 2016; PEHP-1 Tabs 71, 72, 73 & 74.

12. There are two versions of the letters. There is no evidence that the same entity or person received both letters. Smithson & Baye contends the letters contained an offer to refinance capable of acceptance inter alia by conduct.

13. As to whether the letters contained an offer, Smithson & Baye referred to Carter on Contract:[21]

    The expression of willingness to contract on terms stated: what is alleged to be an offer must have been intended to give rise, on its acceptance, to legal relations.  Whether a statement is an offer depends on whether the person to whom it is addressed would reasonably interpret it as such.  A statement which is expressed as an acceptance may in the circumstances be merely an offer … an offer for the renewal of an insurance contract was to be construed in the way in which a reasonable person in the position of the insured would have interpreted it.

    [21] Carter on Contract - LexisNexis AU online edition extracted 8 April 2017, Chapter 3 – [03-001].

14. I have considered the terms of the letters. As to the first version, I find that on no reasonable construction could it be said to contain an offer to refinance. In my view no person to whom it was addressed would reasonably interpret it as such.

15. The second version of the refinance letters was, with slight variations, as follows:[22]

    [22] Exhibit 7, Statement of Philip Peck dated 15 April 2016; PEHP-1 Tab 72.

    Refinance and Transfer of your Loan and the related securities

    Wishing you had a warm and safe festive season. We would like to take this opportunity to advise you that Smithson & Baye Pty Limited (ACN 161 713 159), Australian Credit Licence number 433 534 (Smithson & Baye) has recently acquired the Vegeta Pty Limited ATF Smithson and Baye Mortgage Trust One (Vegeta) loan portfolio.

    We are sending you this letter to advise you that Smithson & Baye has reviewed your loan facility and taking into consideration the conduct of your loan, your corporate trustee borrower, your repayment history, the security address and your loan amount have approved the refinancing of your facility on exactly the same terms as your prior Loan Agreement (attached) with Vegeta Pty Limited (ACN 119 055 097) in the name of your corporate trustee. This makes it clearer in the position regarding your SMSF borrowing. Please sign and return the direct debit authority form and service agreement to us in the express post envelope provided within 30 days of the date of this letter.

    The refinance and transfer of your Loan and the Related Securities does not at all change or affect your repayment schedule, system of payment, rights or obligations under your loan. You are still required to continue making loan payments as they normally fall due. If you usually make loan payments using direct debit, we require you to sign the new direct debit authority form, and service agreement, which is enclosed with this letter.

    For your convenience and in order for you to get to know us a little more we have attached the following material for your perusal:

    ·Our Credit Guide;

    ·A copy of our credit Providers Licence;

    ·A link to our website align="left">·Your direct debit authority form and service agreement; and

    ·Your ‘Prior Loan Agreement’ outlining the terms and conditions of this loan.

    We look forward to providing our continued high level of service. More so, to ensure a smooth transition, Ms Maree Roberts has kindly offered to continue with us, during this transitionary period and will be in contact with you soon to ensure a smooth transition.

    If you have any questions, please do not hesitate to contact Maree Roberts on 1300 419 499.

16. My understanding of Smithson & Baye’s submission is these letters constitute offers to both the natural person borrowers and to their associated corporate entities. The offers were said to be to the effect that a new loan was to be created, and the “operative provisions” of that new loan were in substance identical to the previous loan. Under the new loan agreement Smithson & Baye would exercise rights against, and be subjected to obligations to, the associated corporate entity, instead of the natural person borrowers, and the associated corporate entity (not the natural persons) would exercise rights against and be subject to obligations to Smithson & Baye.

17. Smithson & Baye contends that the subsequent conduct by thirty-one of the natural person borrowers[23] and their associated corporate entities has evidenced an acceptance of the refinance offers contained in these letters.

    [23] Sometimes referred to as thirty-one borrowers.

18. The letters were not addressed to the natural person borrowers. It is difficult therefore, even apart from any other deficiencies, to say that they constituted offers to those persons. Moreover, I do not consider anyone who received such a letter, whether a current borrower or representative of one of the corporate entity, would reasonably consider it was an offer. 

19. I accept ASIC’s submissions that the text of these letters, described by ASIC as the “Notification and Purported Refinance Letters”, does not reveal anything that could reasonably be construed as amounting to an offer (to anyone) to enter into a new loan agreement. The letter appears to me to say that a change of borrower has already occurred. There is no request for consent to the new state of affairs.

20. Even if the letters could be said to contain an offer, then having regard to the evidence and the submissions, I reject the submission that there was anything, act and/or omission, by any of the borrowers or the corporate entities, which could be construed as acceptance.

21. I reject the submission that thirty-one (or any) of the disputed loans with natural persons were “refinanced” so as to substitute corporate entities as the borrowers. I therefore do not accept Smithson & Baye’s submission that the extent of its “credit activity” pursuant to the NCCP Act was four (or five) Code-regulated loans.

22. There is another aspect of the alleged refinancing to consider. ASIC contends that the Notification and Purported Refinance Letters were misleading. I think that is right.

23. The letters represented that the refinance and transfer of the current borrowers’ “Loan and the Related Securities” would not change or affect the borrowers’ repayment schedule, system of payment, rights or obligations under their loan. I accept ASIC’s submission that what the letters sought to achieve would have affected borrowers’ rights.

24. The new borrowers, the corporate entities, would have different rights from those enjoyed by the previous natural person borrowers. The refinancing, as intended, would have taken the loans outside the Code removing the protective rights under the Code. In my view the letters represented there would be no such change. I accept the letters were in this respect misleading.

25. I should say that although my description of the letters as misleading may suggest some legislative breach, in particular under the Australian Securities and Investment Commission Act 2001 (Cth), I have not considered the matter in that light and make no such finding.

26. Despite resolution of the Trustee Question and the Refinancing Issue, there remains a dispute or uncertainty about the exact number of loans, including Code-regulated loans, which were assigned to Smithson & Baye and therefore the number of loans in its loan book.[24]

    [24] Applicant’s Supplementary SFIC, [13]-[31], [43]-[46] & [58]-[64]; Respondent’s Statement of Facts, Issues and Contentions (“Respondent’s SFIC”) dated 15 April 2016, [93]-[95]; Respondent’s Supplementary Statement of Facts, Issues and Contentions (“Respondent’s Supplementary SFIC”) received 30 November 2016, [7]-[17].

27. The number of Code-regulated loans, in particular, attracted detailed submissions. However, I do not find it necessary to determine this issue. Whether the exact number of Code-regulated loans assigned by Vegeta to Smithson & Baye was forty-one (as contended by ASIC), or thirty-eight (or some such number as contended by Smithson & Baye), is of no real significance to my findings referred to below.

    SMITHSON & BAYE’S CREDIT ACTIVITIES

28. ASIC has raised two others matters said to arise subsequent to the ASIC decision and relevant to this review. The first is an allegation that Smithson & Baye continued to engage in credit activities, as that term is used in the NCPP Act, after the cancellation of its licence on 11 August 2015.

29. Under section 29(1) of the NCCP Act a person is prohibited from engaging in credit activity if that person does not hold a licence authorising such activity. Smithson & Baye has continued to receive payments in respect of twenty-seven of the disputed loans,[25] and at least one of the additional Code-regulated loans (being the loan to Mr and Mrs Buckland),[26] since 11 August 2015. The receipt of payments is “credit activity” for the purpose of section 29(1) and section 6 of the NCCP Act.

    [25]  Exhibit 7, Statement of Philip Peck dated 15 April 2016 [99(b)], PEHP-1 Tab 199.

    [26]  Ibid. 

30. Smithson & Baye rejects ASIC’s contention principally on the basis that it only held four Code-regulated loans, in respect of which it ceased collecting interest or repayments. The argument cannot be sustained in view of my findings above.

31. I am satisfied that Smithson & Baye has engaged in credit activity within the meaning of the Act whilst not being the holder of an ACL.

    JUNE 2016 LETTERS

32. The other issue arising subsequent to the ASIC decision concerns a letter sent by Smithson & Baye, dated 26 June 2016, to a number of borrowers with loans in the disputed category. 

33. The letters, sent during the currency of this proceeding, advised the borrowers that Smithson & Baye was “providing you the opportunity to extend and confirm your Self Managed Superannuation Loan Facility upon receipt of the below-mentioned documentation”. The documentation comprised copies of “the attached Trustee Capacity Confirmation Statement”; the borrower’s “Self Managed Superannuation Fund Trust Deed”; and the borrower’s Individual Bare Trust Deed.

34. The “Trustee Capacity Confirmation Statement” was addressed to the “trustee”. In short Smithson & Baye was seeking confirmation that the original Vegeta loans were entered into by the natural person borrowers as trustees, and that since December 2013 such loans were with the borrowers’ corporate entities. Whether it was intended or not, what was being sought was endorsement of the applicant’s position on aspects of its case previously referred to.

35. ASIC’s submits that Smithson & Baye omitted to notify the borrowers that the “Trustee Capacity Confirmation Statement” was being sought for the purpose of this proceeding, and perhaps more importantly, omitted to notify the borrowers that signing and providing the “Trustee Capacity Confirmation Statement” might cause detriment by the potential loss of the protective rights afforded them by the Code.

36. Smithson & Baye agrees that the letters did not notify the borrowers that the trustee confirmation statement was being sought for the purposes of this proceeding. It submits that was because that was not the purpose for which the letter was drafted. The letter, on Mr Viana’s evidence, it was submitted, was sent because of a request from a firm, Rawcliffe & Associates, to obtain documents to provide to the ATO.

37. I do not accept that at all. I take into account the timing and content of the letters. I take into account the circumstances of and the issues in this proceeding. I take into account all the evidence. I take particular account of Mr Viana’s evidence. I am sorry to say I do not find him to be a credible witness. Taking all the matters into account I am satisfied the purpose of the letters was as submitted by ASIC.

38. Smithson & Baye contends there was no representation in the letters as contended by ASIC and that the trustee capacity confirmation statement was not a condition of anything – the letter simply sought return of those documents without making them a condition of any particular course of action.

39. Smithson & Baye submits that ASIC’s submission that by seeking documents relevant to this proceeding from borrowers might somehow have deprived them of the protection of the Code should be rejected. Smithson & Baye contends that a signed statement, that does not form part of the contractual relationship between the parties, delivered at the request of one party without consideration, could not have the effect of the borrower losing protective rights under the Code.

40. I consider, as I have said, that the letters were motivated by a desire on the part of Smithson & Baye to obtain evidence to support its contention in this proceeding that a minimal number of loans in its loan book were Code-regulated. What was sought was an acknowledgement to that effect from the borrowers. What was sought created a risk at least that the borrowers would lose the protection of the Code.

    SECTION 47(1)(c) NCCP ACT, ACL CONDITION 4(a)

41. I turn now to the licensing issues and Smithson & Baye’s alleged breaches of the NCCP Act which were considered in the ASIC decision. Section 47(1)(c) of the NCCP Act requires a licensee to comply with the conditions of its licence.

42. Condition 4(a) of Smithson & Baye’s ACL stated:

    (4) The licensee must ensure that:

    (a) each responsible manager of the licensee undertakes at least 20 hours of continuing professional development in each calendar year in which they perform the role of responsible manager for the licensee

43. On 28 January 2014, Mr Viana became the responsible manager of the applicant. The relevant calendar year is 2014. On 12 March 2015, ASIC issued a notice requesting amongst other things Smithson & Baye’s “training registers” for the period 1 July 2010 to 12 March 2015.

44. On 26 March 2015, in response, Smithson & Baye produced documents headed Training Register[27] and Training Plan,[28] each of which was blank.

    [27] Exhibit 1, T-Documents, T24, pp. 145-147.

    [28] Exhibit 1, T-Documents, T25, pp.148-150.

45. On 30 June 2015, in response to a request by ASIC for details of compliance, Smithson & Baye submitted, among other things, that:[29]

    (a)the documents headed Training Register[30] and Training Plan[31] were template documents;

    (b)the documents were left intentionally blank and sent to ASIC as a preview of the compliance documentation that will be completed once ASIC’s then investigation was finalised and the licensee formally commenced operations;

    (c)Mr Viana has ensured he has met all his continuing professional development points in duality for his obligations as responsible manager under a credit licence and as a legal practitioner holding a practising certificate in Queensland; and

    (d)all responsible managers of the licensee have completed the requisite Continuing Professional Development Requirements which information can be supplied on request.

    [29] Exhibit 1, T-Documents, T38, [63] - [73] thereof.

    [30] Exhibit 1, T-Documents, T24, pp. 145-147.

    [31] Exhibit 1, T-Documents, T25, pp.148-150.

46. On about 24 July 2015, Smithson & Baye provided ASIC[32] with what were described as CPD folders.[33]  Each folder contained copies of an e-mail entitled The Finance Professional. They did not contain anything else.[34]  An email from Smithson & Baye (by its legal representative) stated in relation to these two folders that “two (2) folders have been express posted to you with all of the CPD material”.[35]

    [32] Exhibit 7, Statement of Philip Peck dated 15 April 2016 [ 82]; PEHP-1 Tab 89.

    [33] Exhibit 1, T-Documents, T42.

    [34] Exhibit 7, Statement of Philip Peck dated 15 April 2016 [85].

    [35] Ibid. [82]; PEHP-1 Tab 89.

47. Mr Viana has subsequently produced a two-page document headed “Completed Training – Finance and Mortgage Broking. For the period from 01/01/2014 – 31/12/2014”[36] which he says is the written record of the CPD activities undertaken by him within the relevant year.[37]

    [36] Exhibit 3, Statement of Ricardo Vicente Viana dated 24 December 2015 [26], RVV-1 pp. 31 & 32.

    [37] Ibid, [25]

48. In relation to the 2014 CPD Record, Mr Viana stated that “This table is updated as I completed CPD activities throughout the year”.[38] Mr Viana’s evidence was he maintains his annual CPD record contemporaneously throughout the year. As ASIC points out the 2014 CPD Record was therefore apparently available for Smithson & Baye to produce to ASIC in July 2015, and yet it was not produced.

    [38] Ibid.

1. The evidence of completion of the requisite CPD points is substantially dependent on Mr Viana’s evidence. His background, including as an admitted solicitor in Queensland, and as a former Dean of Law and Judge in El Salvador, was referred to.

2. I am sorry to say, as I have indicated earlier, I was not impressed with Mr Viana as a witness. On this and other issues he prevaricated. He was evasive. He refused to answer some questions in a responsive manner. His cross-examination also revealed that in many respects his CV, submitted in support of Smithson & Baye’s application to vary its licence to make Mr Viana its responsible person, was false. I am reluctant to accept his evidence alone on any issues of controversy. I am not satisfied that the 2014 CPD Record he produced accurately reflects the activities undertaken.

3. In all the circumstances, including my observation and assessment of Mr Viana, I am satisfied that he did not do what was required to attain the CPD points as required under the applicant’s ACL in the 2014 calendar year.

4. Consequently I accept ASIC’s contention that Smithson & Baye contravened section 47(1)(c) of the NCCP Act by failing to comply with condition 4(a) of the ACL for the 2014 calendar year.

   SECTION 47(1)(c) NCCP ACT, ACL CONDITION 4(c) OF ITS LICENCE

5. Condition 4(c) of the applicant’s ACL stated:

   (4) The licensee must ensure that:

   (c) a record of the continuing professional development activities undertaken by each responsible manager is maintained for each calendar year in which they perform the role of responsible manager for the licensee

6. Again the relevant calendar year is 2014. On 12 March 2015, ASIC issued the notice referred to above which, amongst other things, requested Smithson & Baye’s “training registers” for the period 1 July 2010 to 12 March 2015. Smithson & Baye produced the blank documents referred to above.

7. As I have said Mr Viana has now produced a two-page document headed “Completed Training – Finance and Mortgage Broking. For the period from 01/01/2014 – 31/12/2014”[39] which he says is the written record of the CPD activities undertaken by him within that year.[40]

   [39] Ibid, [26]; RVV-1 pp.31 to 32.

   [40] Ibid, [25]. 

8. Having seen and heard Mr Viana give evidence over several days, and based on my findings above, I do not in all the circumstances accept that the applicant complied with this condition of its licence in the calendar year 2014.

9. I am satisfied that the applicant contravened section 47(1)(c) of the NCCP Act by contravening condition 4(c) of its licence.

10. I should say that in making this and other findings concerning breaches of the ACL, or contraventions of the legislation, I am conscious of the gravity of such findings. Although the criminal standard of proof does not apply, I have taken into account the seriousness of the allegations and the possible consequences in deciding these matters. 

    SECTION 47(1)(c) NCCP ACT, ACL CONDITION 5

11. The ASIC decision erroneously refers to a condition 5 of the ACL requiring the applicant ensure that each responsible manager having responsibilities in relation to the provision of third-party home loan credit assistance has successfully completed a Certificate IV. As there is no such condition in Smithson & Baye’s licence there can be no such contravention. 

    SECTIONS 47(1)(d) NCCP ACT & 49(6), NOTICE COMPLIANCE

12. Section 47(1)(d) of the NCCP Act requires a licensee to comply with the credit legislation, which is defined to include the entirety of the Act. The issue here is whether Smithson & Baye contravened section 47(1)(d) by failing, pursuant to section 49(6) of the NCCP Act, to comply with notices issued by ASIC.

13. Pursuant to section 49(1) of the NCCP Act, ASIC may give a licensee a written notice directing it to lodge with ASIC a written statement containing specified information about the credit activities engaged in by it or its representatives. Pursuant to section 49(6) of the NCCP Act, the licensee must comply with that notice within the time specified.

14. On 26 March 2015 ASIC issued Smithson & Baye with a notice pursuant to section 49 directing it to lodge “a written statement containing the information about the credit activities engaged in by you and/or your representatives specified in the Schedule to the Notice”. The Schedule specified that Smithson & Baye was required to provide certain information in an Excel spreadsheet in relation to each loan Smithson & Baye “was involved in arranging during the Relevant Period [19 December 2012 to 26 March 2015], including loans to trustees of self-managed superannuation funds, self-managed superannuation funds, companies and natural persons (loans)”.

15. ASIC contends that on its proper reading, and given its context, the term “involved in arranging” captures the loans which had been acquired by Smithson & Baye from Vegeta. ASIC contends Smithson & Baye failed to provide this information in respect of the loans. Instead, on 2 April 2015, Smithson & Baye responded to the 26 March 2015 section 49 Notice by saying to the best of its knowledge and belief “no loans have been made for any of the information requested to be provided”.[41]

    [41] Exhibit 1, T-Documents, T13.

16. ASIC contends the applicant contravened section 47(1)(d) of the NCCP Act by failing, pursuant to section 49(6) of the NCCP Act, to comply with the 26 March 2015 section 49 Notice issued by ASIC, in respect of all the credit contracts acquired by Smithson & Baye from Vegeta.

17. Smithson & Baye contends that the notice was limited to loans which it (including by its employees, officers, contractors, agents or representatives), was “involved in arranging”. It submits that this description as properly understood did not apply to it in the circumstances.

18. It submits that the notice was limited to information about the “credit activities” engaged in by Smithson & Baye, and as that term is properly understood, it is limited to Code-regulated loans. In any event, it submits, ASIC could not seek information other than about “credit activities” (as so-defined) of Smithson & Baye by reason of section 49(1) the NCCP Act. Otherwise, it submits, ASIC would be exceeding its statutory powers.

19. The issue of what “credit activities” Smithson & Baye was involved in goes back, in part at least, to the number of Code-regulated loans. Smithson & Baye contended there were only four or five. I have already said I do not accept that contention. There were many more Code-regulated loans.

20. Smithson & Baye submits it was not “involved in arranging” any loans during the period the subject of the notice, that is, 19 December 2012 to 26 March 2015. Firstly, it submits it was not involved in arranging any of the four or five loans assigned from Vegeta which it acknowledged were Code-regulated. It points out that it has never “modified” any loan obligations on the part of those borrowers.

21. Moreover, Smithson & Baye submits it was not “involved in arranging” any of the loans assigned by Vegeta. It submits, amongst other things, that “arranging” means bringing into effect. The loans, it says, already existed. Consequently, Smithson & Baye contends there was no information to provide in respect of the 26 March 2015 notice because Smithson & Baye was not “involved in arranging” any loans during the relevant period.

22. Smithson & Baye refers to ASIC Regulatory Guide 36,[42] in the context of financial product advice, which states that “arranging” is a broad concept (under the Corporations Act 2001 (Cth)) and its scope has not been fully determined by the courts, and “arranging occurs when a person brings into effect the issue, variation, disposal or acquisition of, or application for, a financial product”.

    [42] Australian Securities & Investments Commission Regulatory Guide 36 – Licensing: Financial Product advice and dealing, August 2013.

23. In reliance upon this, amongst other matters, Smithson & Baye submits that it was not involved in arranging any Code-regulated loans because they were already arranged with Vegeta. It submits that the purported refinancing, if successful, brought into effect non-regulated loans, not Code-regulated loans.

24. It further contends that it properly responded to the notice, as previously mentioned, by stating in writing:[43]

    In response to the notice and the schedule of questions, we confirm that to the best of our knowledge and belief no loans have been made for any of the information requested to be provided.

    [43] Exhibit 1, T-Documents, T13.

25. I think Smithson & Baye has taken far too narrow a view of what it was being asked to provide. I think on any reasonable reading a reference to loans it was “involved in arranging” includes loans assigned to it whereby it was substituted as the lender, bringing into effect a new relationship of creditor and borrower.  I also think that the assignment to it of Code-regulated loans meant that Smithson & Baye was involved in credit activities.

26. I am satisfied that Smithson & Baye contravened section 47(1)(d) of the NCCP Act by failing, pursuant to s 49(6) of the NCCP Act, to comply with the 26 March 2015 notice issued by ASIC.

    SECTIONS 47(1)(d) & 290(1)(c) NCCP ACT, PRODUCTION OF BOOKS

27. As I have said, section 47(1)(d) of the NCCP Act requires that a licensee comply with the credit legislation including the Act itself. Section 290(1)(c) of the NCCP Act provides that a person must not intentionally or recklessly refuse or fail to comply with a requirement made under section 266 of the NCCP Act. Section 290(1)(c) does not apply to the extent that the person has a reasonable excuse by reason of s 290(4) of the NCCP Act.

28. Section 266 NCCP Act provides, relevantly, that ASIC may give to a person who engages in credit activity a written notice requiring the production to ASIC of specified books relating to a credit activity engaged in by a person, or the character or financial situation of, or a business carried on by, a person who engages or has engaged, in a credit activity.

29. On 7 April 2015, ASIC issued a section 266 Notice to the applicant which relevantly required Smithson & Baye to produce books:

    (a)in relation to credit provided under a credit contract within the meaning of the Code;

    (b)in relation to credit that it provided not under a credit contract within the meaning of the Code;

    (c)in relation to the assignment of loans to the applicant;

    (d)recording consideration provided for the assignment of loans to the applicant; and

    (e)correspondence engaged in by the applicant, its officers, agents, representatives, contactors, employees and/or anyone else on behalf of the applicant, with borrowers and/or third parties with whom a liability arises in connection with one or more loans provided by the applicant.

30. ASIC contends that Smithson & Baye did not provide the books sought in the 7 April 2015 Notice.  Instead:

    (a)on 28 April 2015 Smithson & Baye wrote to ASIC and requested that it communicate only with its legal representative, Mr Gray;

    (b)on 29 April 2015, ASIC wrote to Mr Gray, and among other things referred to the 7 April 2015 notice, noted that it had not had a response, and asked Smithson & Baye by 6 May 2015 to (1) produce all books described in the Schedule to the notice, and (2) if it has no books to produce, explain why it has no books to produce;[44]

    (c)on 6 May 2015, ASIC received an email from Mr Gray that stated, among other things, that the applicant had no books to produce in response to the 7 April 2015 section 266 Notice, except for two documents in relation to hardship relief. Mr Gray's email also stated, among other things:

    The loans were assigned according to a common set of documents, although not all were returned signed by the clients; and I will shortly be in a position to provide you with a copy of a set of those documents (and all of them if necessary, but not in the time frame given, sorry) and there is no variation in theme from the sample to be given;

    (d)neither Mr Gray nor any other representative of Smithson & Baye provided any documents to ASIC, signed.

    [44] Exhibit 1, T-Documents, T18, pp. 118-126.

31. Mr Viana asserts that the response was the result of legal advice. However, as ASIC points out, no such legal advice, if it was in writing, has been produced.

32. ASIC also submits that Mr Viana conceded in cross-examination he read the 7 April 2015 Notice. Mr Viana said that he thought the reply provided by Mr Gray complied with what was required. However, as ASIC points out, Mr Gray’s own wording does not bear that out. The answers he provided to the 7 April 2015 Notice commenced with the words “Be that as it may, your notice does need to be properly and pormptly [sic] responded to; and I am instructed to answer seriatum as follows:”. Further on, Mr Gray wrote that “I have called for the documents aforementioned to be forwarded to me urgently, so that I can make them available to you …”.

33. Smithson & Baye contends inter alia that any failure to comply with the 7 April 2015 Notice was an innocent error or oversight. It says at the time it was considering and responding to other ASIC correspondence. Smithson & Baye acknowledges that it failed to respond fully to the 7 April 2015 Notice, but says (a) its non-compliance was not intentional or reckless; and (b) accordingly, it was not in breach of section 290(1)(c) of the Act.[45]

    [45] Applicant’s SFIC [57].

34. In Australian Securities and Investments Commission v Mariner Corporation Limited,[46] Beach J said that recklessness required:

    At the least, …some awareness of the risk and indifference or “not caring” as to the risk or its consequences. Recklessness is an actual advertence to risk but a conscious disregard of or indifference to the risk. Contrastingly, negligence or carelessness is where there may be no advertence to or conscious awareness of the risk at all.

    [46] [2015] FCA 589.

35. In Coakley and Australian Securities and Investments Commission[47] the Tribunal noted that “The legal concept of recklessness usually entails the conscious disregard of a known risk...”.

    [47] [2008] AATA 247, [191].

36. I am satisfied that Smithson & Baye did not comply with the 7 April 2015 section 266 Notice. I have considered all the submissions advanced on behalf of each of the parties. I am not satisfied, however, that Smithson & Baye’s failure to produce the books in compliance with the 7 April Notice was intentional or reckless for the purposes of section 290(1)(c) of the NCCP Act.

    SECTIONS 47(1)(d) & 88(1)(a) NCCP ACT, FAILURE TO KEEP RECORDS

37. ASIC contends the applicant contravened section 47(1)(d) of the NCCP Act by failing, pursuant to section 88(1)(a) of the NCCP Act, to keep financial records that record and explain the transactions and financial position of its business of engaging in credit activities.

38. Section 88(1)(a) of the NCCP Act provides that a licensee must keep financial records that correctly record and explain the transactions and financial position of any business of engaging in credit activities carried on by it.

39. “Financial records” is defined in section 88(2) of the NCCP Act to include, relevantly:

    (a)invoices, receipts, orders for the payment of money, … cheques, promissory

    notes and vouchers; and

    (b)documents of prime entry.

40. I accept, as I think I have said, that Smithson & Baye engaged in credit activities, inter alia at the time of the 26 March 2015 section 49 Notice and the 7 April 2015 section 266 Notice, in respect of all Code-regulated credit contracts assigned to it from Vegeta.

41. I have also accepted that Smithson & Baye failed to produce the information and books required by the notices referred to in the preceding paragraph.

42. ASIC contends Smithson & Baye failed to keep financial records explaining the credit activities in which it was engaging, not limited to documents recording terms of all loans, mortgages and other security documents, direct debit requests, copies of the above letters to borrowers, and books evidencing authority to debit bank accounts for interest payments.

43. There is no dispute that the definition of “financial records” is inclusive and does not limit Smithson & Baye’s obligations in section 88(1) of the NCCP Act to keeping financial records that correctly record and explain the transactions and financial position of Smithson & Baye’s business of engaging in credit activities.[48]

    [48] Applicant’s Supplementary SFIC [145].

44. Smithson & Baye contends that, in compliance with section 88(1)(a) of the NCCP Act, it has kept source financial documents and accounting journals that correctly record and explain the transactions and financial position of its credit activity business, from which correct summary financial reports (for example, profit and loss and balance sheets) can be prepared.[49]

    [49] Applicant’s SFIC [66].

45. Smithson & Baye accepts that it does not hold originals or copies of the majority of loan agreements entered into between Vegeta and borrowers assigned to Smithson & Baye. It asserts that Vegeta provided sixty-one loan agreements to ASIC. Smithson & Baye submits that it does not have the originals or copies of some of the loan agreements between Vegeta and its borrowers (subsequently assigned to Smithson & Baye) “because Vegeta presumably did not have them to give.” Smithson & Baye submits that section 88 does not extend to the retention of agreements recording the contractual relationship between parties. I do not accept that.

46. Smithson & Baye submits “that it may have been entirely reasonable for Vegeta not to have kept copies of the documents it provided to ASIC – for example, Vegeta may have anticipated those originals would be quickly returned by ASIC.”[50] This, of course, is mostly speculation. In any event, it does not provide a satisfactory reason why Smithson & Baye did not procure and keep the originals or copies of these loan agreements. They are fundamental to the loans, recording and explaining the transactions.    

    [50] Ibid.

47. I am satisfied the applicant did fail to keep financial records that correctly recorded and explained the transactions and financial position of its business of engaging in credit activities carried on by it, in respect of the Code-regulated loan agreements assigned by Vegeta.

    SECTIONS 47(1)(d) & 51 NCCP ACT, ASIC REQUESTED ASSISTANCE

48. Section 51 of the NCCP Act provides that if ASIC, or a person authorised by ASIC, reasonably requests assistance from a licensee in relation to whether the licensee and its representatives are complying with the credit legislation, the licensee must give ASIC or the authorised person the requested assistance. On 17 April 2015, ASIC wrote to Smithson & Baye requesting that it provide ASIC with advice and/or explanations about a number of matters. The letter referred to the 26 March 2015 section 49 Notice and Smithson & Baye’s response and stated, among other things:

    By 23 April 2015, please

    1.        advise whether during the relevant period, Smithson & Baye, or its employees, contractors, agents or representatives, engaged in credit activity within the meaning of s6 of the National Credit Act.

    2.        if Smithson & Baye did engage in credit activity within the meaning of s6 of the National Credit Act, Smithson & Baye is requested to comply with the notice;

    3.         advise whether during the relevant period, Smithson & Baye, or its employees, contractors, agents or representatives, was a credit provider, performed the obligations, or exercised the rights, of a credit provider, was a mortgagee under a mortgage or performed the obligations or exercised the rights, of a mortgagee in relation to a mortgage or proposed mortgage where that activity does not constitute a credit activity within the meaning of s6 of the National Credit Act;

    4.        if Smithson & Baye did not engage in the conduct referred to in paragraph 1 but did engage in the activity referred to in paragraph 3, explain why Smithson & Baye considers that that activity was not credit activity within the meaning of s6 of the National Credit Act.

1. On 28 April 2015, ASIC received a letter from Mr Viana in his capacity as director of Viana Lawyers, acting for the applicant, that stated, among other things:

   As you know S&B was incorporated to take over existing facilities and preserve the status quo, only very few of which are argued to be regulated loans. No new loans have been created, because it was decided (and communicated to your office) that new business would not be undertaken until this matter was cleared up.

2. ASIC submits that its requests in the 17 April 2015 letter were reasonable in the circumstances; that Smithson & Baye’s 28 April 2015 response failed to provide the assistance requested; and Smithson & Baye did not otherwise provide ASIC with the assistance as requested.

3. Smithson & Baye submits the letter of 17 April 2015 was not a request for assistance, but was part of an on-going dialogue concerning the section 49 Notice. Smithson & Baye also submits that the assistance requested was provided, and accordingly there has been no breach of section 51 of the NCCP Act.

4. I am satisfied that the Smithson & Baye did fail to provide assistance in failing to respond adequately to the letter of 17 April 2015 and that this amounted to a breach of section 51 of the NCCP Act.

   SECTION 47(1) NCCP ACT, REASONABLE STEPS TO ENSURE REPRESENTATIVE’S COMPLIANCE

5. ASIC contends Smithson & Baye contravened section 47(1)(e) of the NCCP Act by failing to take reasonable steps to ensure that its representatives comply with the credit legislation. “Representative” is defined in section 5 of the NCCP Act to mean, relevantly, if the person is licensee, an employee or director of the licensee. Mr Viana was a representative.

6. There is something artificial in examining the steps Smithson & Baye took to ensure Mr Viana complied with the credit legislation when Mr Viana himself was the controlling mind of Smithson & Baye. Smithson & Baye, however, is a separate legal entity, and as the licence-holder must be looked at in that light.

7. In the course of the hearing it became clear that Mr Viana may not have been the only “representative” of Smithson & Baye. Maree Roberts was an employee of Smithson & Baye. She was shown to have taken a role in some of its dealings with borrowers in respect of their loans. In correspondence she was referred, on occasions, as “Account Manager, Smithson & Baye Pty Ltd”.

8. ASIC’s Regulatory Guide 206[51] sets out in section C thereof, ASIC’s expectations about training representatives, including that training policies and procedures and the implementation of those policies and procedures, as appropriate to the nature, scale and complexity of a credit licensee’s business.[52]

   [51] Exhibit 6, Statement of Timothy Wiedman dated 24 December 2015 [5(b)] & TCW-1 pp. 38 to 66; Australian Securities & Investments Commission Regulatory Guide 206 – Credit Licensing: Competence and training, December 2016.

   [52] Exhibit 6, Statement of Timothy Wiedman dated 24 December 2015 [5(b)] & TCW-1 pp. 38 to 66; Australian Securities & Investments Commission Regulatory Guide 206 – Credit Licensing: Competence and training, December 2016 at RG 206.72.

9. As I have said, on 26 March 2015, in response to the 12 March 2015 section 266 Notice, Smithson & Baye produced a number of what were said to be compliance and training records, each of which was blank, and a number of manuals, none of which contained reference to the applicant or Mr Viana.

10. On 7 May 2015 ASIC issued a notice of hearing[53] under section 55 of the NCCP Act which advised Smithson & Baye of a number of concerns ASIC held resulting from conduct between 1 February 2011 and 28 April 2015. That notice set out, at paragraphs [57] to [62], that ASIC was concerned that Smithson & Baye did not comply with its obligation under section 47(1)(e) and provided details of its concern.

    [53] Exhibit 1, T-Documents, T3.

11. On 30 June 2015 Smithson & Baye (by its legal representative) advised ASIC in written submissions,[54] that “In summary [Smithson & Baye] has always complied with section 47(1)(e) as it had no representatives for which it had to take reasonable steps to ensure compliance for, but at all times maintained the documentation for its representatives to be compliant once its credit business commenced”.

    [54] Exhibit 1, T-Documents, T38, [78]- [87].

12. On 16 July 2015, ASIC wrote to Smithson & Baye (by its legal representative)[55] and requested information in the form of an explanation of “why Mr Viana is not considered to be a representative for the purposes of section 47(1)(e) and section 5”.

    [55] Exhibit 1, T-Documents, T39.

13. On 22 July 2015, Smithson & Baye (by its legal representative, Mr Gray) wrote to ASIC[56] in which it quoted from the Explanatory Memorandum to the NCCP Bill,[57] and stated:

    The Explanatory Memorandum proposes that the notion of 'classes of persons' namely, 'representatives' referred to in … section 5 are only referred to, to the extent 'the class of persons' activities or duties place them in a position to comply with the credit legislation.

    Mr Viana’s activities are as nominated Responsible Manager, and he has at all times complied with the credit legislation in relation to this position. He has not yet been in the position of interfacing with consumers on matters of credit as a representative of the Licensee, because of the particular circumstances of this case, as explained in these and former submission.  No further loans, or variances to existing loans have been made, or advices given by him or the Licensee since the subject existing loans were taken over.

    [56] Exhibit 1, T-Documents, T40 [87].

    [57] National Consumer Credit Protection Bill 2009 (Cth) Explanatory Memorandum.

14. ASIC submits based on Smithson & Baye’s communications to ASIC of 26 March 2015, 30 June 2015 and 22 July 2015 that, for whatever reason, its position was that it did not need to comply with section 47(1)(e) of the NCCP Act from 1 July 2010 to 12 March 2015, and that it did not take any steps to ensure such compliance.

15. Smithson & Baye takes the position, in these proceedings, that Mr Viana was its representative and that compliance with section 47(1)(e) of the NCCP Act was required. It submits that its legal representative, in the response referred to above, was intending to refer to Viana Lawyers Pty Ltd and not to Smithson & Baye. It submits it cannot therefore be accepted that any statement was made on behalf of Smithson & Baye that it had no representatives for the purposes of section 47(1)(e) of the NCCP Act.

16. I am afraid I cannot accept that submission. I do not read the response from Smithson & Baye’s legal representative as anything other than a reference to Smithson & Baye. Furthermore, it supports the argument that Smithson & Baye did not take reasonable steps to ensure compliance with section 47(1)(e) of the NCCP Act.

17. Smithson & Baye goes on to submit that ASIC has failed to establish how its “correspondence” dated 26 March 2015, comprising blank compliance and training records, and a number of manuals that did not refer to Smithson & Baye or Mr Viana, carry the implication that Smithson & Baye considered it did not need to comply with section 47(1)(e). On the contrary, however, I think that document could and does support such an inference.

18. Smithson & Baye submits it is not appropriate simply to rely on template documents provided in response to the 12 March 2015 Notice to produce books to make serious findings of breach. That, however, is not the extent of the evidence on this issue.

19. Smithson & Baye submits it does not require extensive written documentation detailing systems and processes to ensure that its representative complies with the credit legislation. Reliance was placed on the terms of ASIC Information Sheet 104 which provides inter alia “In most cases your particular circumstances must be taken into account when determining how the law applies to you.” Reliance was also placed on ASIC’s Regulatory Guide 205[58] which states inter alia that ASIC cannot and should not “give prescriptive guidance on what you need to do to comply with [obligations under section 47(1) of the Act]”.[59]

    [58] Australian Securities & Investments Commission Regulatory Guide 205 – Credit licensing: General conduct obligations, June 2010.

    [59] Applicant’s SFIC [81(c)].

20. All of that may be accepted. However I reject Smithson & Baye’s submission that in fact it did take reasonable steps to ensure Mr Viana’s compliance.[60]

    [60] Ibid [81(d)-(i) & (k)-(n)].

21. Moreover Smithson & Baye submits ASIC has failed to frame or properly articulate its allegations concerning section 47(1)(e) of the NCCP Act. It submits that in the circumstances the allegations regarding section 47(1)(e) should not be considered. I do not accept those submissions.[61] 

    [61] See also ASIC’s Supp SFIC, paragraphs [130]-[132].

22. Based on the matters referred to above, I find that that Smithson & Baye failed to take reasonable steps to ensure that Mr Viana complied with the credit legislation, and it thereby contravened section 47(1)(e) of the NCCP Act.

23. I am not willing to make any such finding in respect of Maree Roberts. I am not satisfied on the evidence that she was a representative of the applicant or as to what steps (if any) were taken to ensure she complied with the credit legislation.

    SECTION 47(1)(f) NCCP ACT, FAILING TO MAINTAIN COMPETENCE

24. Section 47(1)(f) of the NCPP Act requires a licensee to maintain competence to engage in the credit activities authorised by its licence. This is obviously closely linked to the alleged breach of section 47(1)(e) of the NCCP Act.

25. ASIC says that pursuant to the 12 March 2015 section 266 Notice[62] ASIC required Smithson & Baye to produce certain books described therein, including, relevantly, “all books that were created, existed or made available for use [from 1 July 2010 to 12 March 2015], that record … any steps the Applicant took to maintain its competence to engage in the credit activities authorised by its licence”.

    [62] Exhibit 1, T-Documents, T23, pp. 137-144.

26. As previously stated, on 26 March 2015, in response to the 12 March 2015 Notice, Smithson & Baye produced a number of what were said to be compliance and training records, each of which was blank, and a number of manuals, none of which contained reference to either itself or Mr Viana.

27. On 30 June 2015 Smithson & Baye (by its legal representative) advised ASIC in written submissions that, among other things:

    (a)the applicant engaged external compliance experts “The Fold Legal” to provide compliance documentation to ensure documentary compliance. The documents provided were intentionally blank template documents for use in the licensee’s ongoing credit business, after finalisation of this investigation;

    (b)the “Conflicts of Interest Register”, “Consequence Manager Register”, the “Monthly Compliance Report”, “Annual Compliance Report”, “Risk Identification”; “Risk Register” and the “Risk Treatment Schedule Plan” were clearly blank as there was no requirement to complete any of the forms as the licensee did not act as an intermediary between a credit provider and a consumer for any borrowers after 28 June 2014.

28. ASIC contends (and I accept) that it can be inferred from the communications by or on behalf of Smithson & Baye of 26 March 2015 and 30 June 2015 that the documents referred to above were not used by Smithson & Baye from 1 July 2010 to 12 March 2015 in respect of its loan book, and Smithson & Baye did not use any other documents for the purpose of maintaining competence to engage in the credit activities authorised by its ACL.

29. Smithson & Baye substantially relies on its submissions in respect of the alleged breach of section 47(1)(e) of the NCCP Act. For substantially the same reasons as referred to in respect of that provision, I find there was a failure by Smithson & Baye to maintain the competence to engage in credit activities authorised by its licence. I do not accept Smithson & Baye’s submission that this allegation has not been properly framed or articulated.

    SECTION 47(1) NCCP ACT, COMPETENT REPRESENTATIVES

30. Section 47(1)(g) of the NCPP Act requires a licensee to ensure that its representatives are adequately trained, and competent, to engage in the credit activities authorised by a licence.

31. The credit activities authorised by the applicant’s ACL are set out in clause 1 and include:

    (a)carrying on a business of providing credit being credit the provision of which the National Credit Code applies to (cl 1(a)(i));

    (b)being a credit provider under a credit contract (cl 1(a)(ii)); and

    (c)performing the obligations or exercising the rights of a credit provider in relation to a credit contract… (cl 1(a)(iii)).

32. On 7 May 2015 ASIC issued a notice of hearing under section 55 of the NCCP Act to Smithson & Baye advising of a number of concerns including, in paragraphs [70] to [73], that Smithson & Baye did not comply with its obligation under section 47(1)(g) of the NCCP Act and provided details of its concerns.

33. On 30 June 2015 Smithson & Baye (by its legal representative) relevantly advised ASIC in written submissions that:

    (a)it did not have any representatives who required training, but that it “maintained the documentation for its representatives to be compliant once its credit business commenced”; and

    (b)in regards to the training of its responsible managers, the responsible manager “regularly undertakes his requirements for CPD points which clearly meets the training obligations given the nature scale ad [sic] complexity of the business.”

34. Smithson & Baye submitted, amongst other things, that the claim of contravention of section 47(1)(g) of the NCCP Act cannot be sustained where Mr Viana has in fact sufficient CPD points and has ensured a record is maintained, and he has significant skills and experience that can be applied to his role as a responsible person of Smithson & Baye.[63]

    [63] Applicant’s SFIC [86] & [87].

35. Unfortunately I have found that Mr Viana did not fulfil the CPD requirements in 2014.  In light of his evidence as to his CV he does not have all of the skills and experience as contended on his behalf.

36. I have taken into account all of the applicant’s submissions. I accept, and it is not disputed, that Mr Viana was a representative of Smithson & Baye for the purpose of section 47(1)(g) of the NCCP Act.

37. I find that Smithson & Baye breached this provision by failing to ensure Mr Viana was adequately trained and competent, to engage in the credit activities authorised by a licence. I think this would as a minimum require the applicant to ensure Mr Viana completed the minimum CPD hours in a calendar year.

38. Smithson & Baye submitted that this alleged breach, in light of the other allegations, was duplicitous and unfair. I take the view that the same or substantially the same conduct may constitute separate breaches of the Act. That is, however, something to be taken into account in the applicant’s favour if and when a decision is made in respect of suspension or cancellation of Smithson & Baye’s ACL.

    SECTION 47 NCCP ACT, LIKELIHOOD OF CONTRAVENING AN OBLIGATION

39. Section 55(1) of the NCCP Act provides for the circumstances in which ASIC (and now the Tribunal) may suspend or cancel a licence. Under section 55(1)(b) of the NCCP Act a licence may be suspended or cancelled if ASIC has reason to believe that the licensee is likely to contravene an obligation under section 47.

40. ASIC contends that Smithson & Baye is likely to contravene an obligation under section 47, by virtue of, inter alia, its conduct giving rise to its previous contraventions of the NCCP Act and its other conduct referred to.

41. ASIC points out that Smithson & Baye failed to respond (or adequately respond) to the 26 March 2015 Notice to produce books, the 7 April 2015 Notice to produce books, and the 17 April 2015 letter. ASIC submits these failures occurred in circumstances in which Smithson & Baye knew that its loan book contained in the order of thirty-eight Code-regulated loans, knew it was likely its loan book contained the said Code-regulated loans, or ought to have known its loan book contained such Code-regulated loans.

42. ASIC also relies on Smithson & Baye’s attempt to create “new loans” by the refinance letters and the misleading information contained in the second version of those letters. It points to Smithson & Baye’s self-interested behaviour in respect of these letters and its letters to borrowers in June 2016. ASIC also relies on Smithson & Baye’s engagement in credit activities after the cancellation of its licence in August 2015 contrary to section 29(1) of the NCPP Act.

43. Smithson & Baye submits it reasonably believed that its refinancing letters led to thirty-one new loans to corporate entities falling outside the Code. I do not accept that. Smithson & Baye no doubt intended and hoped that the letters had that effect. I do not accept that any such belief was reasonably held in light of my comments on those letters above.

44. Section 55(2) of the NCCP Act relevantly provides that for the purposes of subparagraph s55(1)(b), ASIC must, where the person is not a natural person, have regard to:

    (a)the matters set out in paragraphs 37(2)(a) to (f) in relation to the person;

    (b)whether ASIC has reason to believe that any of the persons referred to in paragraph 37(2)(h)(i) in relation to the person is not a fit and proper person to engage in credit activities; and

    (c)any other matter ASIC considers relevant.

45. I have had regard to these provisions. I am satisfied Smithson & Baye is likely to contravene an obligation under section 47 of the NCCP Act. I refer to the following matters highlighted by ASIC:

    (a)Smithson & Baye failed to provide information and books in response to the 26 March 2015 section 49 Notice and the 7 April 2015 section 266 Notice and the 17 April 2015 letter, knowing at least some of its loans were regulated by the NCCP Act and Code;

    (b)Smithson & Baye failed to provide ASIC with assistance referred to above in response to its reasonable request for assistance;

    (c)Smithson & Baye failed to ensure that Mr Viana completed up to 20 hours of CPD in the 2014 calendar year;

    (d)in the course of this proceeding Smithson & Baye acted in its own interests (and to the potential detriment of the borrowers) by seeking to obtain concessions and documents from borrowers to advance its case.

46. I am satisfied in all the circumstances there is reason to believe, for the purposes of section 55(1)(b) of the NCCP Act, that Smithson & Baye is likely, in future, to contravene an obligation under section 47.

    FIT AND PROPER PERSON TO ENGAGE IN CREDIT ACTIVITIES

47. Section 55(1)(c) of the NCCP Act provides that ASIC (now the Tribunal) may suspend or cancel an ACL if ASIC has reason to believe the licensee is not a fit and proper person to engage in credit activities.

48. ASIC contends that within the meaning, and for the purposes of section 55(1)(c) of the NCCP Act, Smithson & Baye is not a fit and proper person.

49. Section 55(2) of the NCCP Act relevantly provides that for the purposes of section 55(1)(c) of the NCCP Act, ASIC must, where the person is not a natural person, have regard to:

    (a)the matters set out in paragraphs 37(2)(a) to (f) in relation to the person;

    (b)whether ASIC has reason to believe that any of the persons referred to in s 37(2)(h)(i) in relation to the person is not a fit and proper person to engage in credit activities; and

    (c)any other matter ASIC considers relevant.

50. The effect of section 55(2)(b)(ii) of the NCCP Act is that in considering whether the licensee is not a fit and proper person to engage in credit activities, ASIC must consider:

    (a)whether Mr Viana, as its director, secretary and a senior manager, is a fit and proper person to engage in credit activities; and

    (b)any other matters ASIC considers relevant.

51. The meaning of the phrase “fit and proper person” was discussed by the High Court in Hughes & Vale Pty Ltd v New South Wales(No 2).[64] Amongst other things it was said that the word “fit”, in relation to an office, involves honesty, knowledge and ability. 

    [64] (1955) 93 CLR 127, at 156–157 as per Dixon CJ, McTiernan & Webb JJ.

1. Subsequently, in Australian Broadcasting Tribunal v Bond,[65] Toohey and Gaudron JJ said:

   The expression “fit and proper”, standing alone, carries no precise meaning.  It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. The concept of “fit and proper” cannot be entirely divorced from the conduct of the person who is or will be engaging in those activities. However, depending on the nature of the activities, the question may be whether improper conduct has occurred, whether it is likely to occur, whether it can be assumed that it will not occur, or whether the general community will have confidence that it will not occur. The list is not exhaustive but it does indicate that, in certain contexts, character (because it provides indication of likely future conduct) or reputation (because it provides indication of public perception as to likely future conduct) may be sufficient to ground a finding that a person is not fit and proper to undertake the activities in question.

   [65] (1990) 170 CLR 321, at 380.

2. ASIC relies on the breaches referred to above, including the failure to provide information and books in response to notices or requests; failure to provide assistance to ASIC; Mr Viana’s failure to fulfil the CPD requirements in 2014; and Smithson & Baye’s correspondence with borrowers directed to its own interest with the potential of classifying or reclassifying their loans as falling outside the protections of the Code. ASIC also points out that the applicant, since cancellation of it licence, has engaged in credit activity, in contravention of section 29(1) of the NCCP Act.

3. Reliance was also placed on Mr Viana’s apparent willingness to include false claims in his CV submitted to ASIC. Smithson & Baye objected to this evidence on the grounds of procedural fairness in that it had not been previously raised by ASIC. The objection was to the use of the evidence beyond a consideration of Mr Viana’s credit or competence.[66] It is not clear where that line is drawn.

   [66] Applicant’s Closing Submissions [10(a)].

4. The evidence was elicited in cross-examination of Mr Viana in circumstances in which Smithson & Baye had advanced his skills and experience in support of its case.[67] Mr Viana therefore exposed himself to cross-examination on these issues including the claims contained in his CV submitted to ASIC. The information was peculiarly within Mr Viana’s knowledge. ASIC did not produce or rely on any undisclosed documents.

   [67] Applicant’s Supplementary SFIC, [115].

5. I think I am entitled to take this evidence into account in determining whether Mr Viana is a fit and proper person to engage in credit activities, and consequently whether the applicant is fit and proper.  

6. Smithson & Baye concedes that the circumstances surrounding the 26 June 2016 letters can be taken into account in considering whether the applicant is a fit and proper person. I have dealt earlier with what Smithson & Baye submits were the circumstances. I have substantially rejected those submissions. My findings in respect of the true circumstances reflect poorly on Smithson & Baye’s integrity and judgment when dealing with borrowers.

7. Smithson & Baye submits it held a genuine and reasonable belief that it held only four Code-regulated loans. This was based primarily on the refinancing letters. The argument on the Trustee Question arose much later. I do not accept it was reasonable to hold the belief that the applicant held only four (or perhaps five) Code-regulated loans.

8. In all the circumstances, and having regard to all of the arguments, I find that the applicant is not a fit and proper person to engage in credit activities.

   DISCRETION TO CANCEL THE ACL

9. The power to cancel an ACL, which ASIC submits should be exercised in this case, is found in section 55 of the NCCP Act which provides:

   55  Suspension or cancellation after offering a hearing

   (1)  ASIC may suspend or cancel a licensee’s licence (subject to complying with subsection (4)) if:

   (a) the licensee has contravened an obligation under section 47 (which deals with general conduct obligations of licensees); or

   (b) ASIC has reason to believe that the licensee is likely to contravene an     obligation under that section; or

   (c) ASIC has reason to believe that the licensee is not a fit and proper person to engage in credit activities; or

   (d) the application for the licence:

   (i) was false in a material particular or materially misleading; or

   (ii) omitted a material matter.

10. Satisfaction on any one of the limbs of section 55(1) of the NCCP Act is sufficient to enliven the power to suspend or cancel an ACL. ASIC rightly submits that multiple limbs of section 55(1) are satisfied. The discretion arises under each of section 55(1)(a), (b) and (c) of the NCCP Act.

11. Under the ASIC decision Smithson & Baye’s ACL was cancelled. This is a fresh hearing. The question is ultimately what is the correct and preferable decision. 

12. Smithson & Baye contends that if it is found that section 55(1)(a), (b) or (c) of the NCCP Act is enlivened, the ACL should not be cancelled in the proper exercise of the discretion in section 55 of the NCCP Act. Smithson & Baye submits inter alia as follows:

    (a)the nature and extent of the alleged contraventions of section 47 of the NCCP Act (which also underpin the findings with respect to section 55(1)(b) and (c)) are not sufficiently serious to justify cancellation of the ACL;

    (b)a licence should be cancelled only if there is no reasonable prospect of the issues being resolved, and such a finding cannot be reasonably made in light of the nature of the allegations;

    (c)many of the alleged contraventions arise from an alleged failure to respond to ASIC notices issued over a period of around three weeks, which Smithson & Baye submits, for a variety of reasons, many of which have been previously referred to, have mitigating features;

    (d)this is not a case of Smithson & Baye acting in wilful and flagrant disregard of its obligations;

    (e)to the extent contraventions are established, they can be explained by way of innocent mistakes, in contrast to bad or reckless conduct justifying cancellation;

    (f)Smithson & Baye intends to continue to seek appropriate professional advice regarding its obligations and the obligations of Mr Viana;

    (g)Smithson & Baye’s extensive material filed in this proceeding and engagement of its lawyers in this matter evince that it takes its obligations very seriously and intends in the future to deploy its best endeavours and resources to comply with its obligations and to take appropriate advice;

    (h)by virtue of Mr Viana’s extensive legal education and experience, including as a Dean of Law and Judge in El Salvador, he has significant skills and experience that can be applied to his role as a responsible manager of Smithson & Baye, which tends against the serious decision of cancellation;

    (i)a decision to cancel would be contrary to, and seriously conflict with, ASIC’s Regulatory Guides and Information Sheets, which identify the factors that ASIC has determined it will consider when deciding what investigations it will undertake, and what enforcement action it will take, against the holder of an ACL, including as referred to below. None of those ASIC’s Regulatory Guides or Information Sheets were considered by ASIC in making its Decision;

    (j)by reason of the cancellation on 11 August 2015, Smithson & Baye has already in effect suffered a long and sufficient suspension;

    (k)the ASIC decision to cancel the ACL by reason of the alleged contraventions is in contrast to ASIC’s media releases in 2015 in relation to cancellations and suspensions of other licences, which generally involve allegations of the following kind:

    (i)false or misleading documents;

    (ii)liquidation or insolvency; and

    (iii)knowingly acting outside of credit limitations;

    which are very serious allegations of misconduct and pose a risk to consumers, the nature of which are not present in this matter;

    (l)ASIC’s media releases for 2015 do not disclose a comparable decision to the      ASIC decision; and

    (m)it is in the interests of the proper administration and application of the NCCP Act and use of the discretion in section 55 for the power to be exercised in a uniform and consistent way, and a decision to cancel the ACL would be contrary to that principle.

13. Smithson & Baye submits the factors ASIC will consider in taking enforcement action in respect of licensees as identified in ASIC’s various statements of policy. Smithson & Baye’s contentions in relation to those factors, are as follows:

    (a)the amount of detriment suffered as a result of misconduct and any loss suffered by consumers:

    (i)these are identified as factors and considerations for ASIC in deciding whether to take administrative action, in item 1 of Table 1 in ASIC’s Regulatory Guide 218 entitled “Licensing: Administrative action against persons engaging in credit activities”  (“Administrative action” includes suspending or cancelling an ACL);

    (ii)“consumers” are natural persons or strata corporations;

    (iii)in this matter:

    (A)      there has been no identified loss to any of Smithson & Baye’s consumers, being the natural person borrowers pursuant to its four Code-Regulated Loans;

    (B) there have been no complaints received from any such consumers by Smithson & Baye;

    (C)      the number of Code-Regulated Loans on Smithson & Baye’s book is so small that any possible loss that could be suffered by consumers (which loss, for completeness, is firmly denied) would be minimal;

    (D)      the principal and interest amounts applicable to the four NCCP Loans also indicates that any possible loss that could be suffered by consumers being minimal;

    (iv)given that there is no identified consumer loss, and that any possible loss would be minimal, Smithson & Baye says that neither a cancellation nor a suspension of its ACL is justified;

    (b)seriousness of the alleged misconduct including duration and number of alleged breaches:

    (i)these are identified as factors and considerations relevant to the administrative action that could be taken by ASIC;[68]

    [68] See Table 1 – “Nature and seriousness of the suspected misconduct”) of Australian Securities & Investments Commission Regulatory Guide 218 – Administrative action against persons engaging in credit activities, November 2010,

    (ii)Smithson & Baye says that there has been no misconduct;

    (iii)cancellation or suspension of the ACL is thereby not warranted;

    (c)whether the ACL-holder relied on any professional advice:

    (i)ASIC’s Regulatory Guide 218 is to the effect that, in determining whether to take administrative action against an ACL-holder, ASIC will consider whether an ACL-holder has relied on professional advice, including legal advice, “in determining whether to engage in the relevant conduct”;

    (ii)as pleaded earlier, Mr Gray of counsel was engaged and involved in communicating with ASIC on behalf of Smithson & Baye;

    (iii)in the premises, no adverse findings should be made against Smithson & Baye in relation to the notices;

    (d)the amount of any benefit gained:

    (i)ASIC identifies in Regulatory Guide 218  that one of its considerations in deciding whether to take administrative action is the “amount of any benefit gained”;

    (ii)in the present matter, there has been no improper or illicit benefit gained by Smithson & Baye (for example, where a credit licensee has earned secret profits or charged excessive fees or commissions);

    (iii)this supports a conclusion that cancellation of the ACL is not justified;

    (e)the nature of other actions taken by the ACL holder to ensure future compliance:

    (i)steps taken regarding future compliance is a general theme that can be drawn from the considerations for ASIC in deciding whether to take administrative action pursuant to ASIC’s Regulatory Guide 218;[69]

    [69] Table 1 under heading “Conduct after the misconduct occurs”.

    (ii)Smithson & Baye says, with respect to the present matter:

    (A) the documents produced in response to the 12 March 2015 Notice to Produce Books demonstrate that it is positioned to ensure compliance with the credit legislation and to maintain competence to engage in the credit activities authorised by its ACL;

    (B) Mr Viana gives evidence that he will obtain professional advice from McCullough Robertson as required, which will further assist Smithson & Baye in ensuring compliance with the credit legislation and in maintaining competence to engage in the credit activities authorised by its ACL;

    (iii)given the steps that have been and will be taken in relation to future compliance with credit legislation and to maintain competence, Smithson & Baye says cancellation of the ACL is not warranted;

    (f)internal controls (such as whether the ACL-holder has effective internal procedures to ensure compliance and whether there was compliance with those procedures):

    (i)these and similar factors are identified in Table 1 in ASIC’s Regulatory Guide 218;

    (ii)Smithson & Baye says it has effective internal controls for the reasons pleaded in this document;

    (g)protection of consumers or financial investors, and protection against actual or potential significant risks to consumers:

    (i)ASIC’s Regulatory Guide 218[70] and ASIC’s Information Sheet 151 entitled “ASIC’s approach to enforcement” which evidences an intention on the part of ASIC to suspend or cancel an ACL if that course is considered likely to enhance protection for consumers;

    (ii)no detriment to consumers has been identified or alleged; and

    (iii)in the present matter, there is no appreciable risk to consumers.

    [70] See in particular RG 218.51; RG 218.53; RG218.57 and RG218.58.

14. In particular, Smithson & Baye repeats its submission that if the Tribunal determines that Smithson & Baye has committed any contraventions of legislative requirements, or has failed, in certain respects, to conduct its business in a prudent manner (for example, by not maintaining complete records), such matters are not sufficient to justify cancellation of the ACL.

15. Smithson & Baye makes the following further points:

    (a)ASIC has not identified any instance of actual detriment suffered by any Smithson & Baye borrower as a result of any of ASIC’s complaints. 

    (b)ASIC has sought to use documents, obtained pursuant to information-gathering powers, for purposes alien to those contemplated by the notices requiring production of those documents; alleged a breach of statutory obligations where there was no factual basis for the allegation; and impermissibly sought to categorise specific conduct by Smithson & Baye as constituting multiple contraventions of the NCCP Act obligations. It would be an undesirable policy outcome for an ACL cancellation to be upheld where the cancellation decision was made and defended by ASIC using such tactics.

    (c)material obtained by Smithson & Baye in response to a “freedom of information request” made on 6 April 2016 (“the FOI material”) shows that Smithson & Baye may have been denied natural justice in the making of the ASIC decision.

    (d)the FOI material shows that the ASIC decision appears, for various reasons, not to have been made with an impartial mind.  The Tribunal should temper any weight it intends to place on the ASIC decision by having regard to the apparent partiality of that decision. 

16. As to the last of these submissions, I need only say this is not judicial review of, or an appeal in the usual sense from, the ASIC decision. It is a hearing de novo so that whether the ASIC decision was tainted by jurisdictional or any other error does not directly arise.

17. I consider Smithson & Baye has understated the nature and extent of the contraventions of section 47 of the NCCP Act. There were multiple contraventions some of which went directly to Smithson & Baye’s competence and/or reflected adversely on its willingness or ability to comply with its licensing or statutory obligations. Given the multiplicity of contraventions, and Smithson & Baye’s credit activities after its licence was cancelled, I am not at all satisfied that these matters have been or can be resolved.

18. It is true that some of the contraventions occurred over a short period of time. But others occurred over much longer periods. I have not found there were mitigating factors to a degree approaching anything near what Smithson & Baye contends. The contraventions are not simply failures to conduct business in a prudent manner (for example, by not maintaining complete records) although they obviously include matters of that nature. I do take into account, however, that in some cases the same or substantially the same conduct has given rise to more than one contravention. I have taken this into account in favour of Smithson & Baye treating multiple contraventions in these circumstances as a single act, omission, or course of conduct.

19. It was submitted that Smithson & Baye has obtained, and will continue to seek, appropriate professional advice regarding its obligations and those of Mr Viana. I take this into account. I have to say, however, that sending the letters dated 16 June 2016 during this proceeding detracts from this submission.

20. The submission concerning Mr Viana’s background and experience is undermined by the admissions in his evidence concerning what were described as embellishments in his CV submitted to ASIC. These falsehoods and my assessment of Mr Viana’s credibility as a witness were considerations in determining the applicant was not a fit and proper person to hold an ACL. There is no plan that I am aware of to replace Mr Viana as the responsible person if Smithson & Baye’s licence is restored.

21. I have taken into account the submissions concerning ASIC’s publications and media releases concerning, amongst other things, when it might be appropriate to suspend or cancel an ACL. Every case, however, must be considered on its own merits. I would just make the point, in respect of those submissions, that Smithson & Baye’s refinancing letters were misleading, and I have not accepted that its credit activities after the cancellation of its licence can be explained as based on a reasonable belief that it had only four or five Code-regulated loans.

22. It is true that there is no evidence that any consumer has actually suffered loss or detriment as a result of Smithson & Baye’s conduct. I also take into account that ASIC did not receive any complaints from any of the applicant’s borrowers (save what is contained in witness statements in this proceeding). I also take into account that Smithson & Baye did not obtain any financial benefit from the contraventions or other conduct complained of prior to the cancellation of its licence. It has however benefited from its credit activities subsequent to cancellation. I take into account that Smithson & Baye’s licence has been cancelled since about mid-2015. 

23. I also take into account such matters as the protection of the public, specific and general deterrence, and maintaining public confidence in persons licensed to engage in credit activities.

24. I have had regard to all of the submissions on behalf of Smithson & Baye as to why some decision other than cancellation of its ACL should be made. I have considered whether suspension, which has effectively been imposed to date, or some other decision would be correct and preferable.

25. After considering all these matters, in all the circumstances, I have concluded that ASIC’s decision cancelling Smithson & Baye’s ACL should be affirmed.

    CONCLUSION

26. The decision under review is affirmed.

I certify that the preceding 224 (two hundred and twenty four) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy

……………[Sgd] ………………………………
Associate

Dated: 29 March 2018

Dates of Hearing:  7 April 2017
  10 April 2017
  11 April 2017
  12 April 2017
  13 April 2017

Solicitor for the applicant:                  Mr Daniel MacKenzie
  McCullough Robertson Lawyers

Counsel for the applicant:                  Mr Nathan Shaw

Advocate for the respondent:             Mr Nicholas Goodstone
  Australian Securities & Investments Commission

Counsel for the respondent:              Mr Simon Cleary