Superannuation Warehouse Australia Pty Ltd and Australian Securities and Investments Commission
[2019] AATA 88
•31 January 2019
Superannuation Warehouse Australia Pty Ltd and Australian Securities and Investments Commission [2019] AATA 88 (31 January 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2016/3773
Re:Superannuation Warehouse Australia Pty Ltd
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President S A Forgie
Date:31 January 2019
Place:Melbourne
The Tribunal decides to affirm the decision of the respondent dated 17 June 2016 refusing to grant the applicant an Australian financial services licence.
............ [sgd].........................................................
Deputy President S A Forgie
Catchwords
PRACTICE AND PROCEDURE – application to re-open a hearing after decision reserved – principle of finality of litigation – consideration of procedural fairness – where no onus or burden of proof – duty to reach correct or preferable decision – application to have hearing re-opened granted
CORPORATIONS – application for Australian financial services licence – where applicant contravened provisions of the Australian Securities and Investments Act 2001 – where Responsible Manager and sole director found to be in breach of obligations – reason to believe applicant likely to contravene obligations that will apply under s 912A of the Corporations Act 2001 if licence granted – decision affirmed
Legislation
Acts Interpretation Act 1901
Administrative Appeals Tribunal Act 1975
Australian Securities and Investments Act 2001
Criminal Procedure Act 2009 (Vic)
Corporations Act 2001
Corporations Amendment (Financial Advice Measures) Act 2016
Corporations Amendment (Future of Financial Advice) Act 2012
Corporations Amendment (Further Future of Financial Advice Measures) Act 2012
Corporations Regulations 2001
Motor Car Traders Act 1986 (Vic)
Road Safety Act 1986 (Vic)
Safety, Rehabilitation and Compensation Act 1988
Superannuation Industry (Supervision) Act 1993
Superannuation Industry (Supervision) Regulations 1994
Tribunals Amalgamation Act 2015Cases
Australian Securities and Investments Commission v Superannuation Warehouse Australia Pty Ltd [2015] FCA 1167; (2015) 109 ACSR 199
Boucher v Australian Securities Commission (1996) 41 ALD 274; 20 ACSR 485;
14 ACLC 999
Boucher v Australian Securities Commission (1996) 71 FCR 122; 44 ALD 499; 22 ACSR 503; 15 ACLC 100
Bushell v Repatriation Commission [1992] HCA 47; (1992) 175 CLR 408
Carey v Freehills [2014] FCA 818
Carter v. Boehm 1 Smith L.C., 7th ed. (1876)
Clark v Ryan [1960] HCA 42; (1960) 103 CLR 486
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60;
46 FLR 409 at 599; 77; 429-430
Grant v Repatriation Commission 1999] FCA 1629; (1999) 57 ALD 1
Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121; 82 ALR 626; 7 ACLC 34; 14 ACLR 493
HG v The Queen [1999] HCA 2; (1999) 197 CLR 414; 160 ALR 554
Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22
Inspector-General in Bankruptcy v Bradshaw [2005] FCA 424; 144 FCR 64; 216 ALR 526
McDonald v Director-General of Social Security [1984] FCA 57; (1984) 1 FCR 354;
6 ALD 6
Menon v Minister for Immigration and Border Protection [2018] FCA 1497
Minister of Immigration and Multicultural Affairs v Bhardwaj [2002] HCA 11; (2002) 209 CLR 597; 187 ALR 117; 67 ALD 615;
R v Bonython (1984) 38 SASR 45
Re BQRW and Federal Commissioner of Taxation [2014] AATA 410; (2014) 63 AAR 503
Re Clemente Group Holdings Pty Ltd and Australian Securities and Investments Commission [2016] AATA 758
Re Confidential and Federal Commissioner of Taxation [2013] AATA 382; (2013) 61 AAR 293
Re Gallway and Australian Postal Corporation [2015] AATA 88
Re Masu Financial Management Pty Ltd and Australian Securities and Investments Commission [2017] AATA 97
Re One Re Services Limited and Australian Securities and Investments Commission [2012] AATA 294
Smith v New South Wales Bar Association [1992] HCA 36; (1992) 176 CLR 256; 108 ALR 55
WA Pines Pty Ltd v Bannerman [1980] FCA 79; (1980) 41 FLR 175; 30 ALR 559X v Minister for Immigration and Multicultural Affairs [2002] FCA 56; (2002) 116 FCR 319
Secondary Material
Chambers 21st Century Dictionary (1999, reprinted 2004)
REASONS FOR DECISION
Deputy President S A Forgie
On 30 April 2014, Superannuation Warehouse Australia Pty Ltd (ACN 141 409 449) (SWA) applied to the Australian Securities and Investments Commission (ASIC) for an Australian Financial Services Licence (AFSL) under which it would be authorised to provide limited financial services to retail and wholesale clients. After various communications between SWA and ASIC and a private hearing conducted by a delegate of ASIC, ASIC decided under s 913B of the Corporations Act 2001 (Corporations Act) to refuse to grant an AFSL to SWA. It made its decision on 17 June 2016. The basis of its decision was that it was not satisfied that it had no reason to believe that SWA was likely to contravene the obligations that would apply under s 912A if the AFSL were granted. I have decided to affirm ASIC’s decision refusing to grant SWA an AFSL.
BACKGROUND
Application for AFSL to provide limited financial services
When its application dated 30 April 2014[1] is read with its email to ASIC dated 15 May 2015 clarifying the financial products on which it wished to provide Class of Product Advice,[2] SWA sought an AFSL to enable it to provide limited financial services with the following authorisations:
[1] T documents; T6 at 147
[2] T documents; T15 at 224
(1)Provide financial product advice in relation to:
(a)Self-Managed Superannuation Fund;
(b)A person’s existing holding in a superannuation product;
(2)Arrange for a person to deal in a financial product by applying for, acquiring, varying or disposing of the following financial product:
(a)Self-Managed Superannuation Fund;
(3)Arrange for a person to deal in a financial product by issuing, applying for, acquiring, varying or disposing of the following financial product on behalf of another:
(a)Self-Managed Superannuation Fund;
(4)Provide Class of Product Advice on the following financial products:
(a)Basic Deposit Products; and
(b)Superannuation.
Mr Johann Heinrich Preller was nominated as SWA’s sole Responsible Manager in its application for an AFSL. SWA provided a Business Description (Proof A5) and Financial Resources Statements (Proof B5) in support of its application together with a Table of Organisational Expertise (Proof B1). Mr Preller provided documents relating to his own qualifications, assessment of those qualifications, police check, extract from the National Personal Insolvency Index showing that he was not recorded on it and documentation showing that he held a Certificate of Public Practice issued by the Institute of Chartered Accountants in Australia. In his Statement of Personal Information signed by him on 30 April 2014, Mr Preller answered “Yes” to Question 12, which asked him whether he had “… been engaged in the management of any companies/businesses that carry on a trade, business or profession for which a licence, registration or other authority is required by law?”. He then answered “No” Question 13, which asked him:
“Have you been engaged in the management of any companies/businesses that have been the subject of any investigations or proceedings that are current or pending and which may result in disciplinary action being taken in relation to any such authorisation?”[3]
[3] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (T documents); T8 at 175
Infringement Notice
Initially, on 3 June 2014, ASIC sent a letter to SWA offering it an AFSL. ASIC withdrew its offer on the following day when it realised that it had served an Infringement Notice on SWA on 10 April 2014. It had done so under s 12GXA of the Australian Securities and Investments Act 2001 (ASIC Act). Section 12XGA permits ASIC to issue an infringement notice to a person if it has reasonable grounds to believe that the person has contravened an infringement notice provision.[4] The Infringement Notice issued by ASIC had alleged that, on or around 23 January 2014, SWA had contravened s 12DB(1)(i) of the ASIC Act. That section provides:
“A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:
(a)-(h) …
(i)make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including an implied warranty under section 12ED); or
(j)…”
[4] ASIC Act; s 12XGA(1). An “infringement notice provision” is a provision of Subdivision C, D or GC (other than ss 12DA, 12DE, 12DG(1), 12DI or 12DM) of Division 2 of Part 2 of the ASIC Act.
An Infringement Notice must comply with s 12GXB of the ASIC Act. In doing so, it must stipulate the amount of a pecuniary penalty calculated by reference to s 12GXC. In the case of the Infringement Notice issued to SWA, ASIC imposed a pecuniary penalty of $10,200. Had SWA paid the amount of the pecuniary penalty, s 12XD(2) would have come into play. One consequence would have been that, merely because it had made the payment, SWA would not have been regarded as having contravened the infringement notice provision.[5] Furthermore, no criminal or civil proceedings could have been started against it in relation to its alleged contravention of the infringement notice provision or an offence constituted by the same conduct as that constituting the alleged contravention.[6]
[5] ASIC Act; 12GXD(2)(a)
[6] ASIC Act; s 12GXD(3)
It was also open to SWA under s 12GXG(3) to apply to ASIC to withdraw the Infringement Notice. On its behalf, Mr Preller made that application in a letter received by ASIC by email on 22 April 2014.[7] Mr Preller stated that the statements made on SWA’s websites were true, accurate and reliable where a self-managed superannuation fund (SMSF) was set up for a natural person. Establishment of an SMSF and establishment of a corporate trustee are two different functions. The establishment of an SMSF is free for a corporate trustee. Setup of an SMSF and its ongoing management were also distinguished by Mr Preller, who wrote:
“The qualification that a Fund can only be provided for clients who commit to management subscription is a component required for proper administration of superannuation funds and the discharge of our professional obligation. We would be in some serious difficulty, especially in the context of abuse and defective operation by clients if we implemented a super fund for free, with no ongoing arrangements for management.
Rather than get adjectival, I will limit to saying, to set up a free SMSF without a set management structure in place would be most inappropriate and arguably unprofessional. Given this is not an option, an acceptable option is as we do it.
As for a corporate trustee, I find it ironic that you contend a misstatement as to cost in circumstances where you will not perform your portion of the corporate trustee unless you are paid $444. Clearly there is no inaccuracy here. Your fee compels the addition of charges for corporate trustees.”[8]
[7] T documents; T19 at 272-273 and see also T20 at 274 where ASIC acknowledged having received Mr Preller’s correspondence by email on 22 April 2014.
[8] T documents; T19 at 272-273
ASIC declined to withdraw the Infringement Notice. As SWA did not pay the amount of the pecuniary penalty and as ASIC did not withdraw the Infringement Notice, SWA was liable to proceedings under Subdivision G of Division 2 of Part 2 of the ASIC Act i.e. under ss 12GA to 12GO).[9] In so far as it relates to an alleged contravention of s 12DB(1)(i), s 12GB(1)(a) provides that a person who contravenes a provision of Subdivision D, including s 12DB(1), is guilty of an offence punishable on conviction. In the case of a person who is a body corporate, the punishment is a fine not exceeding 10,000 penalty points.
[9] ASIC Act; s 12GXE
Federal Court proceedings
ASIC instituted proceedings in the Federal Court alleging that SWA was liable for conduct in contravention of ss 12DA(1),[10] 12DB(1)(a)[11] and 12DB(1)(i) of the ASIC Act. The conduct related to representations made by SWA of “Free SMSF Setup” on two websites it owned and operated[12] and that were made in the period from 22 January 2014 to 5 August 2014. It also related to representations made by SWA on those two websites in the period from 6 August 2014 to 8 May 2015 that “Free SMSF Setup” was only available to individual trustees. That was indicated by the placement of an asterisk to the words “Free SMSF Setup” so that they read “Free SMSF Setup*” in the header of each website. An asterisk at the footer of the home pages read “* Free SMSF Set up is when using Individual Trustees”. In the first paragraph of the application form pages of the websites a statement was made that:
“The free SMSF set up is for Individual Trustees when we set up the SMSF. If Trustees want to use a Corporate Trustee to be set up, we do charge $950 for Pty Ltd Company set up with ASIC. Note the SMSF set up with the ATO is always free. Most funds are set up using Individual Trustees. For the advantages of using a Corporate Trustee, see the page explaining the pros and cons of using a Corporate Trustee. …”[13]
[10] Section 12DA(1) provides that “A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.”
[11] Section 12DB(1)(a) provides that “A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services: (a) make a false or misleading representation that services are of a particular standard, quality, value or grade; …”.
[12] and Australian Securities and Investments Commission v Superannuation Warehouse Australia Pty Ltd [2015] FCA 1167; (2015) 109 ACSR 199 at [27]; 209. Following injunctions made by Beach J, all references to “Free SMSF Setup” were removed from the websites: [2015] FCA 1167; (2015) 109 ACSR 199 at [31]; 210
Once an SMSF had been established, SWA charged a fixed monthly administration services fee. It did so even when an SMSF was yet to hold assets or was not active. Beach J found that SWA had disclosed that “Free SMSF Setup” was available when a client went on to a monthly plan regarding administration fees. His Honour found that SWA had disclosed the linkage between the SMSF set up and monthly administration services “to some extent … But again this was not done in a clear and prominent way.”[14] His reference to “again” is a reference to his earlier finding that:
“… Information concerning the cost of SMSF setup with a corporate trustee was available on the websites, albeit not in a clear and prominent manner. But it was not highlighted that there was an additional cost for setup with a corporate trustee. Further, Mr Preller stated that SMSF setup with a corporate trustee involved direct contact between himself and the client, and that it was his practice to separately raise the additional cost of creating the corporate trustee. To some extent therefore, the cost of using a corporate trustee was disclosed before the SMSF was established. A client could then choose not to proceed if the cost was a concern. That is an ameliorating factor of course, but it does not deny that contraventions occurred.”[15]
[14] [2015] FCA 1167; (2015) 109 ACSR 199 at [78]; 217
[15] [2015] FCA 1167; (2015) 109 ACSR 199 at [76]; 217
At the hearing before Beach J, SWA admitted liability for all contraventions and the matter proceeded to an assessment of penalty on the basis of agreed facts. Among others, it was agreed that SWA was engaged in trade or commerce within Australia and, in particular, engaged in the business of providing services, including by online means, associated with the establishment and administration of SMSFs. Since its registration on 10 January 2010, Mr Preller has been SWA’s sole director and shareholder. At the outset, Mr Preller was SWA’s sole employee but, at the time of the Federal Court proceedings, there were eight employees comprising Mr Preller, other qualified accountants and support staff. At all material times, SWA provided SMSF set up with either a corporate or with an individual trustee, acted as fund administrator for SMSFs, acted as tax agent for SMSFs and appointed an auditor for SMSFs. Since its registration until the time of the hearing in the Federal Court, SWA had facilitated the registration of approximately 1,000 SMSFs. At the time of the hearing, SWA provided administration services for approximately 800 SMSFs and auditing services for approximately 650 SMSFs.
By consent, Beach J made a number of declarations. They included the following:
(1)In trade or commerce during the period from 22 January 2014 to 5 August 2014, SWA engaged in conduct in relation to financial services that was misleading or deceptive, in contravention of s 12DA(1) of the ASIC Act by publishing advertisements of “Free SMSF Setup” on the home and application form pages of its two websites when SWA charged a fee of $950 to set up an SMSF with a corporate trustee, did not permit its online application form to be submitted without first authorising SWA to be the fund administrator at a fixed monthly administration fee, SWA requested applicants to put in place a payment plan for monthly payments for administration services and SWA charged a fixed monthly fee for administration services.
(2)In trade or commerce during the period from 22 January 2014 to 5 August 2014 and in connection with the supply or possible supply of financial services and in connection with the promotion of the supply or use of financial services made a false or misleading representation:
(a)concerning the existence, exclusion, or effect of a condition or right, in contravention of s 12DB(1)(i) of the ASIC Act; and
(b)that the services were of a particular value, in contravention of s 12DB(1)(a) of the ASIC Act;
by publishing advertisements for “Free SMSF Setup” on the home and application form pages of its two websites.
(3)In trade or commerce during the period from 5 August 2014 to 8 May 2015, SWA engaged in conduct in relation to financial services that was misleading or deceptive, or likely to deceive or mislead in contravention of s 12DA(1) of the ASIC Act by publishing advertisements of “Free SMSF Setup” on the home and application form pages of its two websites.
(4)In trade or commerce during the period from 5 August 2014 to 8 May 2015, SWA and in connection with the supply or possible supply of financial services and connection with the promotion of the supply or use of financial services made a false or misleading representation:
(a)concerning the existence, exclusion, or effect of a condition or right, in contravention of s 12DB(1)(i) of the ASIC Act; and
(b)that the services were of a particular value, in contravention of s 12DB(1)(a) of the ASIC Act;
by publishing advertisements for “Free SMSF Setup” on the home and application form pages of its two websites.
In his reasons for judgment, Beach J also said:
“ I accept that Mr Preller is not a lawyer and that he did not have his website content reviewed by a lawyer beforehand. But he was responsible for the website content. Apparently, he now appreciates that more could have been done to ensure that the statement ‘free SMSF setup’ was properly and appropriately explained on the websites, and that the information on the websites could have been adequately linked together. I accept that it was not his intention to mislead prospective clients. As was pointed out, SWA was promoting a service where there was no long-term obligation for SMSF administration. The administration services were monthly and could have been ended at any time. Moreover, where a customer did not wish to continue or use SWA to provide administration services, and this was made known to SWA, it did not pursue monthly fees.”[16]
[16] [2015] FCA 1167; (2015) 109 ACSR 199 at [79]; 217
An injunction order was made by Beach J by consent of the parties that SWA would undertake corrective advertising. Also ordered by consent was that SWA would establish a Compliance, Education and Training Program (Compliance Program) in accordance with Annexure A to Beach J’s orders. I have set out the terms of Annexure A as Annexure A to these reasons. His Honour imposed a pecuniary penalty of $25,000.
Compliance Manual
A document entitled “Compliance Manual for Superannuation Warehouse Australia Pty Ltd” (Compliance Manual) is dated 31 December 2015. It is stated to be Version 1.0 and to have been created by Mr Preller on 30 December 2015 and to have been last reviewed by Ms Yvette Preller on 31 December 2015. Its preparation post-dates the date of the judgment handed down by Beach J on 30 October 2015.
Determination of Disciplinary Tribunal of Chartered Accountants Australia and New Zealand
Following publication of the Federal Court’s judgment, the Disciplinary Tribunal of Chartered Accountants Australia and New Zealand (DCAANZ Tribunal) considered three allegations made by the Professional Conduct Committee. The first was based on the conduct that was the subject of the four declarations made by Beach J and was to the effect that Mr Preller had failed to observe a proper standard of professional care, skill or competence in the course of carrying out his professional duties where he acted as director and shareholder of SWA. The second allegation was based on the same conduct and was to the effect that Mr Preller had been the subject of adverse findings in relation to his professional or business conduct or competence by the Federal Court. Mr Preller admitted both allegations.
The third allegation, which Mr Preller did not admit, was again based on the conduct that was the subject of the declarations made by Beach J. It was that he had committed acts, omissions or defaults which bring, or are likely to bring, discredit upon him, Chartered Accountants Australia and New Zealand (CANZ) and/or the profession of accountancy. The DCAANZ Tribunal found that allegation to have been established because the Federal Court had made a decision adverse to Mr Preller and he referred to his being a member of CANZ on the website of his practice being SWA. The DCAANZ Tribunal took into account the fine of $25,000 imposed by the Federal Court and that Mr Preller’s conduct had not led to any loss being incurred by SWA’s clients. It noted that he had not obtained legal advice in setting up SWA’s websites. When asked about the orders made by the Federal Court regarding education, Mr Preller told the DCAANZ Tribunal that “… the Federal Court had already mandated a compliance program and an independent consultant had reviewed that program.”[17] In view of all of these matters, the DCAANZ Tribunal decided that a reprimand was the appropriate sanction. Given the emphasis placed by the Federal Court on the implementation of a compliance program, the DCAANZ Tribunal requested that a Quality Review of Mr Preller’s practice be carried out as soon as possible. I do not have the results of any Quality Review that was conducted.
[17] Exhibit 1 at [4]
SMSF auditor audit
On 9 March 2017, Mr Preller was advised by the Australian Taxation Office (ATO) that he had been selected for an approved SMSF auditor audit. A field visit by ATO officers to SWA’s premises followed on 20 March 2017. While there, ATO officers downloaded data onto a USB drive and viewed that data at his business premises. Mr Preller had told them that he employed staff who did most of the work for the SMSF clients and he signed off on the audits. SWA’s own SMSF clients are audited by an external auditor. The ATO officers audited three SMSFs and found deficiencies, to which I will return. I will refer to those SMSFs as the “BSF”, the “LSF” and the “CSF”. Mr Preller provided further information regarding his professional indemnity insurance. The ATO officers advised him that the ATO would refer him to ASIC and outlined its concerns that there was a lack of evidence in the funds that it had audited about fund investments, potentially unidentified contraventions in two of the three funds, no evidence of trustee representation letters and an issue with his professional indemnity insurance.
These matters were outlined by the ATO first in a paper entitled “Intention to refer to ASIC position paper” (Position Paper). The audits of the three SFs were:
“7. For the … [LSF]:
a.the Statement of Financial Position included the following:
i.Loan to L… Property trust of $340,702 (asset) which was later explained as the value of property purchased under a limited recourse borrowing arrangement (LBA).
ii.Bank loans – NAB of $241,500 (liability) – Mr Preller informed us that the bank loan of $241,500 was a permitted borrowing in the form of a limited recourse borrowing arrangement (LRBA). However there was no paper work on file regarding the LRBA.
b.The 2015 SMSF independent auditor’s report (IAR) form used by Mr Preller was not the relevant version for the 2015 year. It appears that the auditor has used an IAR from a prior reporting period as it did not contain all of the relevant provisions.
8.For the … [CSF]:
a.the Westpac Business Cash Reserve bank account is in the name of the corporate trustee Castlevale Pty Ltd. It does not mention the name of the fund.
b.The 2015 IAR form used by Mr Preller was not the relevant version for the 2015 year. It appears that the auditor has used an IAR from a prior reporting period as it did not contain all of the relevant provisions. Missing provisions include sections 35AE and 105.
9.For the … [BSF]:
a. the compliance checklist did not include all the relevant provisions for the year under audit.
10.There was no audit plan provided for the funds.
11.The audit engagement letters for two of the funds were not signed by the trustees, and the copy of an engagement letter provided did not specify sections of the SISA and SISR relevant to the 2015 financial year.’[18]
[18] T documents; T52 at 746
Mr Preller responded to the paper in detail on 12 July 2017. The ATO prepared an ATO Final Position Paper – ATO Position Paper s 128P SISA – Referral to ASIC (Final Position Paper). The ATO set out the relevant facts that it had found and detailed those of Mr Preller’s submissions it had accepted. The manner in which the ATO found that the trustee of each of the three SMSFs had contravened the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the provisions each had contravened were set out in the Final Position Paper.[19]
[19] T documents; T53 at 760-770
On 31 July 2017, the ATO referred its concerns regarding Mr Preller’s audits to ASIC in accordance with s 128P of the SIS Act. It advised Mr Preller that the Commissioner of Taxation (Commissioner) had formed an opinion that he had failed to carry out or perform adequately and properly an audit of an SMSF and had contravened superannuation laws. Omitting the references to other paragraphs dealing with each of the contraventions, the ATO advised that the Commissioner had formed his opinion for the following reasons:
“3. Mr Preller failed to carry out or perform adequately and properly the duties and functions of an approved SMSF auditor by:
Failing to comply with Australian auditing and assurance standards
a. failed to identify a contravention of the SISA and/or the SISR …
b.did not have or provide sufficient documentation to support his audit opinion …
c did not have an audit plan to reduce audit risk …
d.did not provide a signed trustee representation letter for two of the funds …
e.did not have an engagement letter signed by the trustees and addressed specifically to the SMSF trustees, and the engagement letter provided did not contain the required sections of the SISA or SISR for two of the funds under review …
f.displayed a lack of knowledge of the SISA when he failed to provide the SMSF independent auditor’s report (IAR) in the approved form as required by section 35C of the SISA …
4.Mr Preller contravened the SISA when he:
a.failed to comply with Australian auditing and assurance standards as required under subparagraph 128F(c)(ii) and (iii)”[20]
[20] T documents; T52 at 745-746
ASIC wrote to Mr Preller on 10 August 2017 advising him that the ATO had referred information to it about his registration as an approved SMSF auditor. It enclosed the ATO’s letter to it together with the Final Position Paper. ASIC told Mr Preller that it had considered the information and shared the ATO’s concerns in relation to his obligations under s 128F of the SIS Act i.e. that he had failed to comply with applicable auditing standards requiring him to adequately plan, perform and document his audits so as to obtain sufficient appropriate audit evidence to support his audit opinions. As a consequence, ASIC advised him, he had failed to identify and report to the ATO a number of contraventions of the SIS Act by the SMSFs reviewed and failed to demonstrate a knowledge of the SIS Act required by a competent approved SMSF auditor. It invited Mr Preller to respond to matters by reference to those raised by the ATO in its Final Position Paper.
Mr Preller did so on 24 August 2017 and provided extensive material with his response. After considering that material, ASIC wrote to Mr Preller on 18 September 2017 advising him that it had found that he had:
“· failed to comply with the applicable auditing standards to obtain and document sufficient appropriate audit evidence in relation to:
○the … [LSF’s] compliance with borrowing rules in sections 67 and 67A of the Superannuation Industry (Supervision) Act 1993 (SIS Act);
○the … [BSF] by not obtaining sufficient appropriate audit evidence that the fund’s properties were recognised at market value as required by regulation 8.02B or that the fund’s properties complied with section 62 (sole purpose test) and section 109 (arms’ length rules) of the SIS Act;
·failed to adequately plan and perform the audit so as to identify a contravention of regulation 4.09A in relation to the … [CSF] by virtue of the fund’s bank account being held in the name of the corporate trustee only.
You have not met the minimum standards required of an SMSF auditor. …’[21]
[21] T documents; T58 at 790
ASIC then set out additional conditions that it was minded to impose on Mr Preller’s registration as an SMSF auditor. It advised Mr Preller that it would consider any submission he wished to make. Having done so, ASIC advised Mr Preller in a letter dated 12 October 2017 that it had imposed the following further conditions on his registration as an approved SMSF auditor under s 128D of the SIS Act:
“1. The approved SMSF auditor and audit staff must, at the approved SMSF auditor’s expense, undertake the following additional professional development (CPD) within six months of the condition being imposed, which is in addition to the CPD required under s 128F(a) of the SIS Act:
a)Successfully complete the following courses (or equivalent courses agreed to by ASIC):
1.CA ANZ on demand webinar session 3 from the auditor essentials series on ‘Materiality and audit evidence’ (1 hour);
2.CA ANZ on demand webinar session 5 from the audit leaders series on ‘Audit documentation’ (1 hour);
3.CA ANZ on demand webinar series ‘Audit of SMSFs – SIS compliance’ (6 hours); and
4.CA ANZ on demand webinar series ‘Audit of SMSFs – SIS compliance Series 2017’ (6 hours); and
5.CPA Australia online ‘Sufficient audit documentation’ (1 hour).
b)The approved SMSF auditor within one month of the condition being imposed must provide ASIC with a list of all audit staff.
c)The approved SMSF auditor must provide to ASIC within six months and one week of the condition being imposed, evidence of successful completion of the abovementioned courses by the SMSF auditor and audit staff.
2.The approved SMSF auditor must, within six months of the condition being imposed, complete and pass ASIC’s approved SMSF auditor competency exam (referred to in section 128C of the SIS Act).
3.The approved SMSF auditor must have five SMSF audits for the financial year ended 30 June 2017 reviewed by an ASIC approved independent reviewer.
a)By 22 January 2018 (or a date otherwise agreed by ASIC) the approved SMSF auditor must provide the name and contact details of an independent reviewer to ASIC to consider and approve.
b)By 31 January 2018 (or a date otherwise agreed by ASIC) the approved SMSF auditor must provide a list of all SMSFs that they are the appointed auditor for the financial year ended 30 June 2017. The list is to include information such as the net assets of the SMSF and dates the SMSF audit was commenced and completed. ASIC will then choose five SMSF audits that the approved SMSF auditor will submit for review by the independent reviewer.
c)The ASIC approved independent reviewer will provide a statement in writing to ASIC within 60 days of receiving the five SMSF audit files for review, detailing the scope of their review and whether in the approved independent reviewer’s opinion based on their review, the SMSF audits have been conducted in accordance with the applicable Australian Auditing Standards and the SIS Act. These reviews are to be conducted at the approved SMSF auditor’s expense.
4.Within one month of these further conditions being imposed, the approved SMSF auditor must provide:
a)a copy of the letter formally imposing these further conditions to the CA ANZ for them to be aware of the conditions for any future compliance monitoring activity in relation to the auditor, such as practice reviews, and
b)evidence to ASIC that the letter has been provided to the CA ANZ.”[22]
[22] T documents; T60 at 801-802
The letter went on to advise Mr Preller that the decision ASIC had made was a reviewable decision under s 10 of the SIS Act. Consequently, he had a right under s 344 of that Act to request ASIC to reconsider its decision. It advised him that he had 21 days within which to make his request and of the email address to which he could submit it. There is nothing in the material to suggest that Mr Preller requested review and the entry on ASIC’s Register of SMSF Auditors lists the conditions as set out in ASIC’s letter to Mr Preller of its decision.
LEGISLATIVE FRAMEWORK
Relevance of amendments of the Corporations Act since lodgement of application
Chapter 7 of the Corporations Act is concerned with financial services and markets. Shortly after the first hearing, the Corporations Act was amended by the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 (Corporations Amendment Act).[23] That legislation commenced on 15 March 2017.[24] The application of those amendments was set out in Part 2 of Schedule 1 to the Corporations Amendment Act, which provides for implementation between 1 January 2019 and 2024.
[23] Corporations Amendment Act; s 3 and Schedule 1, Part 1
[24] Corporations Amendment Act; s 2(1) and Item 1
Given the history of this matter, that raises the issue of whether I should have regard to the Corporations Act as enacted before 15 March 2017 or as it is now in force. Its earlier form was relevant when SWA lodged its application for an AFSL, when ASIC made its decision on that application and when the first hearing was held. By the time the hearing on the papers was scheduled, the Corporations Act applied as amended by the Corporations Amendment Act. The applicable legislation was not raised by either party as the focus was on the later evidentiary material.
Section 7(2)(c) of the Acts Interpretation Act 1901 (AI Act) provides that:
“If an Act, or an instrument under an Act, repeals or amends an Act (the affected Act) or a part of an Act, then the repeal or amendment does not:
(a)-(b) …
(c)affect any right, privilege, obligation or liability acquired, accrued or incurred under the affected Act or part; or
(d)-(e)…
…”
This provision must be read subject to the general provision set out in s 2(2) that:
“However, the application of this Act or a provision of this Act to an Act or a provision of an Act is subject to a contrary intention.”
From my reading of the amendments made by the Corporations Amendment Act, it seems to me that the amendments it made were intended to affect any existing rights that an applicant for an AFSL might have accrued but only from and after 1 January 2019. That comes about because, with effect from that date,[25] s 921C applies in relation to:
“(a) any Australian financial services licence granted on or after 1 January 2019 to a person who is not a relevant provider before that day; and
(b)any authorisation given on or after that day to a person who is not a relevant provider before that day.
Note:Section 921C provides that a person cannot be granted a licence, or be authorised, to provide certain financial advice unless the person meets certain conditions.”
Section 921C(1) applies to an applicant for an AFSL but only when that applicant is an individual. Given that SWA is a corporate applicant for an AFSL, s 921C(1) does not come into consideration.
[25] Corporations Amendment Act; s 1546C(1)
The Corporations Act was also amended by the Corporations Amendment (Crowd-sourced Funding) Act 2017 (CACF Act). It commenced on 28 March 2017[26] but the amendments with which I am concerned commenced on 28 September 2017.[27] The only section that is relevant in this case was amended by that legislation to include s 766A(1)(ea).[28] That amendment had the effect of providing that the provision of a crowd-funding service is the provision of a financial service. That is not relevant in this case.
[26] CACF Act; s 2(1), Item 1
[27] CACF Act; s 2(1), Item 2
[28] CACF Act; s 3; Schedule 1, Item 25
Section 912A was amended by the Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Act 2013 (SLA Act). It commenced on 26 June 2013 but the amendments to ss 912A(d), (g) and (h) and the addition of ss 912A(4), (5) and (6)[29] did not commence until 1 July 2015.[30] Those amendments were concerned with certain bodies regulated by the Australian Prudential Regulation Authority. SWA is not such a body and the amendments are not relevant.
[29] SLA Act; s 3, Schedule 1, Items 4, 5 and 6
[30] SLA Act; s 2(1), Item 3
As I have concluded that the amendments are not relevant to the issues that I must consider in this case, I have reproduced the provisions as they were in force when SWA lodged its application for an AFSL.
ASIC’s functions
ASIC has those functions that are conferred on it under the corporations legislation i.e. under the Australian Securities and Investments Act 2001 (ASIC Act) or the Corporations Act.[31] These are in addition to its functions to advise the Minister and to provide staff to various bodies.[32] In addition, ASIC has power to do whatever is necessary for, or in connection with, or reasonably incidental to, the performance of its functions.[33] In performing its functions and exercising its powers, ASIC must strive to:
“(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and
(b)promote the confident and informed participation of investors and consumers in the financial system; and
(d)-(g)…”[34]
[31] ASIC Act; s 11(1)
[32] ASIC Act; s 11(2) and (3)
[33] ASIC Act; s 11(4)
[34] ASIC Act; s 1(2) There is no s 1(2)(c).
Financial services and markets
Chapter 7 of the Corporations Act is concerned with financial services and markets. Its main object is to promote:
“(a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b)fairness, honesty and professionalism by those who provide financial services; and
(c)fair, orderly and transparent markets for financial products; and
(d)the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.”[35]
[35] Corporations Act; s 760A
A “financial service” has the meaning given by Division 4 of Part 7.1 of Chapter 7.[36] Division 4 does not define the expression directly. Rather, it sets out the circumstances in which a person provides a financial service. Beginning with s 766A(1), it provides:
“For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:
(a) provide financial product advice (see section 766B); or
(b) deal in a financial product (se section 766C); or
(c) make a market for a financial product (see section 766D); or
(d) operate a registered scheme; or
(e) provide a custodial or depository service (see section 766E); or
(f)engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.”
[36] Corporations Act; s 761A
Regulations made under the Corporations Act may set out:
“(a) the circumstances in which persons facilitating the provision of a financial service (for example, by publishing information) are taken also to provide that service; or
(b)the circumstances in which persons are taken to provide, or are taken not to provide, a financial service.”[37]
Exceptions are made for work ordinarily done by clerks or cashiers.[38]
[37] Corporations Act; s 766A(2)
[38] Corporations Act; s 766A(3)
Licensing of providers of financial services
Part 7.6 of the Corporations Act is concerned with the licensing of providers of financial services. A person who holds an AFSL is a “financial services licensee”.[39] Subject to s 911A, a person who carries on a financial services business in Australia must hold an AFSL covering the provision of the financial services. A “financial services business” is a “… business providing financial services.”[40] Section 911A(2) sets out those circumstances in which a person is exempt from the requirement to hold an AFSL.[41] None of those exemptions applies in this case.
[39] Corporations Act; ss 9 and 761A
[40] Corporations Act; s 761A
[41] The exemptions set out in s 911A(2) may be further qualified by ss 911A(3) to (5A) and, in the case of a person who provides financial services on behalf of a person who carries on a financial services business, by s 911B.
The regulations may exempt a person or class of persons, or a financial product or class of financial product from all or from specified provisions of Part 7.6. They may also provide that Part 7.6 applies as if specified provisions were omitted, modified or varied.[42]
[42] Corporations Act; s 926B(1)
Obtaining an Australian financial services licence
Section 913B(1) provides that:
“ASIC must grant an applicant an Australian financial services licence if (and must not grant such a licence unless):
(a)the application was made in accordance with section 913A; and
(b)ASIC has no reason to believe that the applicant is likely to contravene the obligations that will apply under section 912A if the licence is granted; and
(c)the requirement in whichever of subsection (2) or (3) of this section applies is satisfied; and
(ca)the applicant has provided ASIC with any additional information requested by ASIC in relation to matters that, under this section, can be taken into account in deciding whether to grant the licence; and
(d)the applicant meets any other requirements prescribed by regulations made for the purposes of this paragraph.
Note:ASIC must not grant an Australian financial services licence to a person contrary to a banning order or disqualification order (see Division 8).”
Section 912A, to which s 913B(1)(b) refers, sets out the obligations imposed on an AFSL licensee. It has been modified by r 7.6.01BA of the Corporations Regulations 2001 (Regulations) for the purposes of licensing those providing “limited financial services”. I will set out s 912A(1) as it is but with s 912A(1)(e) as modified by the Regulations and ss 912A(1)(ea) and (eb) as substituted shown in bold font. Section 912A(1) provides:
“A financial services licensee must:
(a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and
(aa)have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative; and
(b) comply with the conditions on the licence; and
(c) comply with the financial services laws; and
(ca)take reasonable steps to ensure that its representative comply with the financial services laws; and
(d)unless the licensee is a body regulated by APRA – have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and
(e)maintain the competence to provide those financial services; and
(e)for a licensee other than a limited licensee – maintain the competence to provide the financial services provided by the licence; and
(ea)for a limited licensee who is an individual – maintain knowledge of the financial services covered by the licence; and
(eb)for a limited licensee that is a corporation or partnership – ensure that each recognised accountant that supervises and has responsibility for the provision of financial services covered by the licence maintain knowledge of the financial services covered by the licence; and
(f)ensure that its representatives are adequately trained, and are competent, to provide those financial services; and
(g)if those financial services are provided to persons as retail clients – have a dispute resolution system complying with subsection (2); and
(h) unless the licensee is a body regulated by APRA – have adequate risk management systems; and
(j)comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph.”
Sections 912A(2) and (3) expand on the requirements of the dispute resolution system required by s 912A(1)(g). Regulation 7.6.01BA also provides that, for the purposes of s 926B(1)(c) of the Act, s 912A is to be read as if s 912A(4) were added. Section 912A(4) sets out a number of definitions. Among them is that of a “limited licensee”, which is defined to mean:
“… a financial services licensee that:
(a)is:
(i) a recognised accountant; or
(ii)a corporation that has one or more recognised accountants that supervise and have responsibility for the provision of financial services covered by its licence; or
(iii)a partnership that has one or more recognised accountants that supervise and have responsibility for the provision of financial services covered by its licence; and
(b)applied for the financial services licence between 1 July 2013 and 30 June 2016; and
(c)is only licensed to provide one or more limited financial services.”
The expression “limited financial services” is defined in s 912A(4) to include a number of financial services:
“(a) financial product advice on self-managed superannuation funds;
(b)financial product advice on superannuation products in relation to a person’s existing holding in a superannuation product but only to the extent required for:
(i)making a recommendation that the person establish a self-managed superannuation fund; or
(ii)providing advice to the person on contributions or pensions under a superannuation product;
(c)a class of product advice on the following:
(i)superannuation products;
(ii)securities;
(iii)simple managed investment schemes;
(iv)general insurance products;
(v)life risk insurance products;
(vi)basic deposit products;
(d)arrange to deal in an interest in a self-managed superannuation fund.”
Sections 913B(2) and (3), which are referred to in s 913B(1)(c), are concerned with good fame and character. If the applicant is a natural person, ASIC must have no reason to believe that the applicant is not of good fame or character.[43] As the applicant is not a single natural person, regard must be had to s 913B(3). In so far as it is relevant, it provides:
“If the applicant is not a single natural person, ASIC must be satisfied:
(a)that:
(i)if the applicant is a body corporate – there is no reason to believe that any of the applicant’s responsible officers are not of good fame or character; or
(ii)…
(b) if ASIC is not satisfied of the matter in paragraph (a) – that the applicant’s ability to provide the financial services covered by the licence would nevertheless not be significantly impaired.”
[43] Corporations Act; s 913B(2)
Section 913B(4) is relevant in considering whether there is reason to believe that a person is “not of good fame or character”.[44] It provides:
“In considering whether there is reason to believe that a person is not of good fame or character, ASIC must (subject to Part VIIC of the Crimes Act 1914) have regard to:
(a)any conviction of the person, within 10 years before the application was made, for an offence that involves dishonesty and is punishable by imprisonment for at least 3 months; and
(b)whether the person has held an Australian financial services licence that was suspended or cancelled; and
(c)whether a banning order or disqualification order under Division 8 has previously been made against the person; and
(d)any other matter ASIC considers relevant.
Note:Part VIIC of the Crimes Act 1914 includes provisions that, in certain circumstances, relieve persons from the requirement to disclose spent convictions and require persons aware of such convictions to disregard them.”
[44] I have included ss 913B(2) and (3) as they are framed in terms of there being “no reason to believe” matters as specified.
ASIC may only refuse to grant a licence after giving the applicant for that licence, an opportunity to appear, or be represented, at a hearing before it that takes place in private and to make submissions to it in relation to the matter.[45]
WHAT IS MEANT BY “NO REASON TO BELIEVE” APPLICANT LIKELY TO CONTRAVENE OBLIGATIONS?
[45] Corporations Act; s 913B(5)
Two previous authorities
Both Mr Rubenstein on behalf of Mr Preller and Ms Sharp on behalf of ASIC referred to the cases of One Re Services Limited and Australian Securities and Investments Commission[46] (One Re Services) and Re Clemente Group Holdings Pty Ltd and Australian Securities and Investments Commission.[47] One Re Services was decided against a background of a differently formulated s 913B(1)(b). I have set out the current formulation against the formulation in 2012 to show the differences:
[46] [2012] AATA 294; Senior Member Redfern as she then was
[47] [2016] AATA 758; Senior Member Toohey
Section 913B(1)(b) as enacted in 2012
(One Re Services)Section 913B(1)(b) as currently enacted
(Clemente)“ASIC has no reason to believe that the applicant will not comply with the obligations that will apply under section 912A if the licence is granted; …” (emphasis added)
“ASIC has no reason to believe that the applicant is likely to contravene the obligations that will apply under section 912A if the licence is granted; …” (emphasis added)
Neither One Re Services nor Clemente directly considered what it means to have “no reason to believe”. In Clemente, Senior Member Toohey noted the distinction between a decision banning or disqualifying a person from providing financial services and a decision whether to grant a licence to provide those financial services. In the former, s 920A(1)(ba) provides that, among other bases:
“ASIC may make a banning order against a person, by giving written notice to the person, if:
(a)-(b) …
(ba)ASIC has reason to believe that the person is likely to contravene their obligations under section 912A; or
(bb)-(h)…”
Senior Member Toohey noted that the distinction between the formulations of s 920A(1)(ba) and of s 913B(1)(b):
“… is an important one. In a licensing application, the Tribunal must be positively satisfied that it has ‘no reason to believe’ that the applicant will not comply with its obligations. In One Re Services Limited and Australian Securities and Investments Commission [2012] AATA 294, Senior Member Redfern observed at [56]:
The test is more difficult [than for banning or cancellation] to establish for an applicant seeking the right to be licensed as it is clear from the words of the section that the applicant must establish the negative to the reasonable satisfaction of the decision-maker.”[48]
[48] [2016] AATA 758 at [9]
The passage quoted from One Re Services[49] suggests that an applicant has a burden of proof. That suggestion is reinforced by a later passage in the reasons for decision when the Tribunal said:
“… While the expression ‘reason to believe’ poses a ‘relatively low threshold’, the requirement that there be ‘no reason to believe’ sets a benchmark that has the practical effect of shifting the onus to an applicant for an AFSL to establish, to the reasonable satisfaction of the decision-maker, that it will comply with the obligations under s 912A. If there is any doubt based on the objective facts, the decision-maker will not be able to form such a view.”[50]
[49] This passage is found at [2012] AATA 294 at [56] where the whole passage reads: “When considering a licence application, the decision-maker must form a view about whether there is ‘no reason to believe’ the person or entity ‘will not comply’. The test is more difficult to establish for an applicant seeking the right to be licensed as it is clear from the words of the section that the applicant must establish the negative to the reasonable satisfaction of the decision-maker. ASIC submitted that ‘the onus is on the applicant to satisfy the Tribunal that its compliance and risk management arrangements are adequate for the Tribunal to conclude that the applicant would meet the compliance and risk management obligations of a licensee’.”
[50] [2012] AATA 294 at [70]
Despite quoting from One Re Service, Senior Member Toohey did not adopt its view that a burden, practical or otherwise, is imposed on the applicant when considering whether she had no reason to believe that the applicant was likely to contravene the obligations applying under s 912A if granted an AFSL. She expressed her approach in Clemente in three different ways:
(1)“ There is no onus of proof in administrative proceedings: McDonald v Director-General of Social Security (1984) 1 FCR 354. However, an applicant will need to provide the Tribunal with sufficient information about its capacity to meet the general obligations of a licensee to enable the Tribunal to be ‘reasonably comfortable’, on the evidence, of its determination: see Felden and Australian Securities and Investments Commission [2003] AATA 301.”[51] (emphasis added)
(2)“ Given the number of companies in which Mr Batten was involved, and accepting his evidence that Mr Wang had made him a director of companies without his knowledge, I accept there was room for some confusion on his part about a particular company but that does not adequately explain the contradictions in his evidence. The fact remains that he did not resign his directorship of Invest Nexus as soon as he learned what Mr Wang had done, or that he was willing to act as director of companies on behalf of someone who was neither director nor shareholder.
Taking into account all of these matters, the Tribunal cannot have real confidence that Mr Batten will discharge his obligations in respect of the proposed business should a licence be granted.”[52] (emphasis added)
(3)“ It is submitted for the applicant that ASIC’s position relies on an unrealistic standard of impossible perfection. I do not accept that is so. The question is whether the Tribunal has no reason to believe that the applicant is likely to contravene the obligations that will apply under s 912A if the licence is granted. I am not reasonably satisfied that there is no such reason.”[53] (emphasis added)
[51] [2016] AATA 758 at [10]
[52] [2016] AATA 758 at [51]-[52]
[53] [2016] AATA 758 at [53]
I respectfully agree that no burden or onus of proof is imposed by s 912A. I do, however, have a little difficulty with the first two formulations – “reasonably comfortable” and having “real confidence” – regarding the standard of proof. My difficulty arises from the fact that they are not consistent with the generally accepted statements of the standard of proof in merits review matters. Reliance is placed on the case of Felden and Australian Securities and Investments Commission[54] (Felden) where it was said:
“ As Deputy President McMahon noted in Farley v Australian Securities Commission [1998] AATA 495, there is no onus of proof in an administrative enquiry and it is therefore not necessary to consider whether the Respondent has discharged any onus no matter what standard is adopted. The Tribunal is obliged to make an assessment at the conclusion of the proceedings on the basis of the evidence before it. Having regard to the gravity of the consequences, it is appropriate to adopt the standard of being reasonably comfortable, rather than to make findings on the balance of probabilities.”[55]
[54] [2003] AATA 301; (2003) 73 ALD 149; 45 ACSR 111; Mr Limbury, Member
[55] [2003] AATA 301; (2003) 73 ALD 149; 45 ACSR 111 at [14]; 153; 117
Apart from Farley v Australian Securities Commission (Farley), no authority is cited for this proposition and none was cited in Farley. It is a proposition that seems at odds with other authority. While the case of McDonald v Director-General of Social Security[56] (McDonald) referred to in Clemente established that an onus of proof does not lie in the Tribunal unless Parliament has made an enactment to the contrary, Jenkinson J touched on the Tribunal’s statement that it had to have a “settled expectation” of the likelihood of indefinite continuance of Ms McDonald’s incapacity. His Honour said:
“…The statement implies that in the absence of such a settled expectation the decision will be that there is not a permanent incapacity. The expression ‘settled expectation’ I understand, in its context, to be descriptive of the state of mind of the ‘decision-maker’. The expression seems to me to specify, as an attribute of the decision-maker’s belief, a degree of confidence in the correctness of the belief which may be suggested by the word ‘settled’. In my opinion no such a degree of confidence is required. The ‘actual persuasion’ of the occurrence of past act or event, which Dixon J. stated to be required if proof, in a civil curial proceeding, of the act or event were to be achieved, does not involve necessarily any greater confidence than a bare preponderance of probability may engender: see R. Eggleston: Evidence, Proof and Probability, Ch. 9. No different standard is applicable to a finding as to a future act or event, in my opinion; nor does an administrative ‘decision-maker’ apply any different standard unless special legislative direction be given.”[57]
[56] [1984] FCA 57; (1984) 1 FCR 354; 6 ALD 6; Woodward, Northrop and Jenkinson JJ
[57] [1984] FCA 57; (1984) 1 FCR 354; 6 ALD 6 at 368; 20-21
This conclusion was expressed in the context of ss 14 and 46(1) of the Social Security Act 1947. In summary, s 46 gave the Director-General of Social Security (Director-General) power to cancel or suspend a pension if the Director-General considered that it should be cancelled or suspended. Section 14 provided that the Director-General might review a determination, direction, decision or approval and might affirm, vary or annul it “Whenever it appears to the Direction-General that sufficient reason exists for reviewing …” it.[58] The formulation of s 14 is in the same genre as the formulation used in s 913B(1)(b) and it seems to me that the standard of proof should be the same i.e. the preponderance of probability or the balance of probabilities.
[58] Social Security Act 1947; s 14
The elements
Section 913B(1) requires me to consider an issue that effectively has two elements that are separate but that are, at the same time, inextricably linked. One is that ASIC, and so the Tribunal, “has no reason to believe” the other element i.e. “that the person is likely to contravene their obligations under section 912A”. Guidance regarding the first element is to be found in the authorities that have considered whether there is a “reason to believe”, rather than whether there is “no reason to believe”. The history of that and related expressions was traced by Lockhart J in WA Pines Pty Ltd v Bannerman.[59] He adopted the description of it as an “awkward phrase”[60] that had been construed in various ways. He concluded that the expression “has reason to believe” as used in s 155 of the Trade Practices Act 1974 (TPA):[61]
“… imply actual belief … but do not make conclusive the Commission’s (also the Chairman’s or Deputy Chairman’s) own opinion that it has reason for the requisite belief. Words such as these are found frequently in legislation or regulations conferring powers on Ministers of the Crown or public servants. They must be read as limiting otherwise arbitrary powers. If they are to be read as empowering the person in whom the power is vested, to determine conclusively whether the limitation has been satisfied, the value of the intended limitation is nugatory.
Plainly, the power must not be exercised dishonestly or in bad faith …; but if that were the sole restraint upon the exercise of the power it would apply only in a very small number of cases, leaving the power arbitrary and unfettered in the great majority of cases.
In my opinion the words in s. 155 ‘has reason to believe . . .’ mean that the Commission must believe that a person is capable of furnishing information, producing documents or giving evidence; and there must be reasonable grounds or cause for that belief, before the powers conferred by sub-s. 155 (1) may be exercised.”[62]
[59] [1980] FCA 79; (1980) 41 FLR 175; 30 ALR 559; Bowen CJ, Brennan and Lockhart JJ
[60] [1980] FCA 79; (1980) 41 FLR 175; 30 ALR 559 at 184; 568
[61] At that time, s 155(1) of the TPA read, in part, “Where the Commission, the Chairman or the Deputy Chairman has reason to believe that a person is capable of furnishing information, producing documents, or giving evidence relating to a matter that constitutes, or may constitute, a contravention of this Act, or is relevant to the making of a decision by the Commission under sub-section 93(3), a member of the Commission may, by notice in writing served on that person, require that person - …” to take certain action (emphasis added)
[62] [1980] FCA 79; (1980) 41 FLR 175; 30 ALR 559 at 186; 561 (citations omitted)
It seems to me that the related expression “no reason to believe” should be interpreted in the same way when it appears in s 913B(1)(b) of the Corporations Act. I must have no reason to believe that the applicant is likely to contravene the obligations that will apply under s 912A if the AFSL is granted and must have reasonable grounds or cause for my not having that belief. What amount to reasonable grounds will be influenced by what is the second, but integrated, element of s 913B(1)(b) i.e. the likely contravention of the obligations imposed by s 912A. I have set out that provision at [40] above.
The issue is whether ASIC, and so I, have no reason to believe that SWA is “likely to contravene” those obligations; not whether it “will” do so. The ordinary meaning of the word “likely” in this context is “probable”.[63] I have only the nature of the obligations imposed by s 912A and the evidence as to SWA’s past conduct on which to come to a view whether I have no reason to believe that SWA is likely to contravene the obligations.
[63] Chambers 21st Century Dictionary (1999, reprinted 2004) (Chambers)
THE POWER TO RE-OPEN THE HEARING
General principles
ASIC submitted that I should have regard to evidence that had not been available to it at the initial hearing and do so by way of re-opening the hearing but on the papers rather than a face-to-face hearing. The further evidence related to the audit of three SMSFs by the ATO and to ASIC’s response to the matters raised by the ATO. Mr Preller submitted that I should not. In essence, his submissions focused on the unfairness and unreasonableness of ASIC’s having adopted the ATO’s Final Position Paper and the considerable prejudice that he had suffered as a result. He submitted that the further material does not bear on whether Mr Preller or SWA is likely to contravene a financial services law in the future. ASIC refuted the suggestion that Mr Preller had been prejudiced and submitted that it is in the interests of justice to have regard to the further material.
ASIC referred to two cases in which the Tribunal has considered whether it has a discretion to re-open proceedings. The first is a decision by Deputy President Frost in Re BQRW and Federal Commissioner of Taxation[64] when he rejected a submission made on behalf of BQRW that the Tribunal has an unqualified obligation to re-open proceedings whenever a party asks it to do so. In doing so, he analysed the cases of Boucher v Australian Securities Commission[65] (Boucher) and X v Minister for Immigration and Multicultural Affairs[66] (X’s case) on which BQRW had relied.[67] Deputy President Frost concluded that, when read in their context, those cases do not support the proposition that there is an unqualified obligation to re-open a hearing. I agree with his analysis. As he said, both Boucher and Re X emphasised “… the requirement of administrative decision-makers to afford procedural fairness to those whose interests may be affected by their decisions.”[68] I would add to that a qualification that this should not be read as a requirement that the Tribunal seek out those persons whose interests may be affected at that late stage. When a matter has reached the stage of a hearing in the Tribunal, those, apart from the applicant and respondent, whose interests may be affected by its decision would normally have been identified at a much earlier stage. Examples arise in relation to decisions ranging from child care payments to fisheries management.
[64] [2014] AATA 410; (2014) 63 AAR 503
[65] [1996] FCA 1523; (1996) 41 ALD 274; 20 ACSR 485; 14 ACLC 999; Norhrop J affirmed by the Full Court in Boucher v Australian Securities Commission [1996] FCA 1915; (1996) 71 FCR 122; 44 ALD 499; 22 ACSR 503; 15 ACLC 100; Spender, Drummond and Merkel JJ
[66] [2002] FCA 56; (2002) 116 FCR 319; Gray, O’Loughlin and Moore JJ
[67] At [35]-[59]; 512-519
[68] [2014] AATA 410; (2014) 63 AAR 503 at [52]; 517
Although the Administrative Appeals Tribunal Act 1975 (AAT Act) does not expressly provide for a hearing to be re-opened after the Tribunal has reserved its decision, it seems to me that the power to do so is implicit in its provisions. It is implicit in the general statement that, subject only to the AAT Act and regulations made under it or any other enactment, its procedure is within its own discretion.[69] One of the provisions to which the discretion is necessarily subject is found in s 39(1) of the AAT Act when it provides that, subject to ss 35, 36 and 36B:[70]
“… the Tribunal shall ensure that every party to a proceeding before the Tribunal is given a reasonable opportunity to present his or her case and, in particular, to inspect any documents to which the Tribunal proposes to have regard in reaching a decision in the proceeding and to make submissions in relation to those documents.”
[69] AAT Act; s 33(1)(a)
[70] Section 35 is concerned with confidentiality in certain situations and ss 36 and 36B with public interest certificates issued by the Commonwealth and State Attorneys-General.
Section 39(1) is written in what may seem to be the adversarial language of the courts when it speaks of presenting a case. That leads me first to look at court proceedings before returning to those in the Tribunal. In many court proceedings, the scrutiny undertaken by the court will be confined by the pleadings i.e. the formal statements of parties of their respective claims and defences. Even when pleadings are not lodged, the matter will be determined by the court on the cases put by the parties. This is illustrated by the case of Inspector-General in Bankruptcy v Bradshaw[71] (Bradshaw) which concerned an action by the Commonwealth to recover a trustee’s bond and a surety’s bond following the trustee’s having breached his duties as a trustee under the Bankruptcy Act 1966 by misappropriating moneys from estates he administered. The trustee made full restitution but the Commonwealth applied to the Federal Court for orders that the trustee and surety each pay the full amount of the bonds they had entered being $100,000 to cover the costs of the investigation of the trustees’ conduct. In her judgment, Kenny J found that the liability of each arose immediately on the trustee’s breach and that the surety’s liability continued until it revoked its surety but was limited to quantifiable loss. Her Honour adjourned the matter to enable the Inspector-General in Bankruptcy to lead evidence of the Commonwealth’s loss.
[71] [2005] FCA 424; 144 FCR 64; 216 ALR 526; Kenny J
A further judgment by Kenny J in the matter dealt with affidavits that were subsequently lodged in relation to loss: Inspector-General in Bankruptcy v Bradshaw[72] (Bradshaw 2006). The affidavits revealed that, before the first hearing, the Commonwealth had specifically declined a request by the trustee and by the surety that it quantify its loss. The Commonwealth had done so on the basis that the costs it had incurred were irrelevant to its entitlement and that, in any event, those costs could not be quantified. The trustee and surety took the position that the Commonwealth could not resile from the position it had taken prior to the first hearing and now lodge further evidence quantifying its costs. These matters had also been touched on in the oral submissions made before the first hearing leading to the first judgment.[73]
[72] Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22; Kenny J
[73] [2006] FCA 22 at [5]
Justice Kenny considered the submissions made by the trustee, Mr Bradshaw, that the Commonwealth had closed its case on all issues and had made a clear and conscious decision not to adduce evidence on the quantification of loss. It was a not a case of oversight or misunderstanding. Furthermore, the Commonwealth was not entitled to recover time that it would have expended anyway. The surety submitted that the Commonwealth had made an election to conduct the case on the basis that the bond was, in effect, a good behaviour bond and forfeitable without proof of loss. In doing so, the Commonwealth had adopted a course that was inconsistent with, and antithetical to, a course permitting it to adduce evidence of loss. This was not a case of a mistake or misunderstanding on the part of counsel. A conscious tactical decision had been made and it would be inconsistent with the requirement for finality in litigation to allow a case of this sort to be re-opened when the tactic chosen did not result in success.
Kenny J accepted that the Commonwealth had taken a conscious decision at the first hearing not to quantify loss. Therefore, she was not faced with the situation of receiving evidence on an outstanding issue as she had thought when handing down her first judgment but with an application for leave to re-open the case. She summarised the main circumstances in which leave might be granted:
“ The authorities indicate that, broadly speaking, there are four recognised classes of case in which a court may grant leave to re-open, although these classes overlap and are not exhaustive. These four classes are (1) fresh evidence (Hughes v Hill [1937] SAStRp 43; [1937] SASR 285 at 287; Smith v New South Wales Bar Association [No 2] [1992] HCA 36; (1992) 108 ALR 55 at 61-2); (2) inadvertent error (Brown v Petranker (1991) 22 NSWLR 717 at 728 (application to recall a witness); Murray v Figge (1974) 4 ALR 612 at 614 (application to tender answers to interrogatories); Henning v Lynch [1974] 2 NSWLR 254 at 259 (application to re-open); (3) mistaken apprehension of the facts (Urban Transport Authority of NSW v NWEISER (1992) 28 NSWLR 471 (‘UTA’) at 478; and (4) mistaken apprehension of the law (UTA at 478). In every case the overriding principle to be applied is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open: see UTA at 478; also The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310 ("Silver Fox") at [22] and [25].”[74]
[74] [2006] FCA 22 at [24]
Her Honour did not seek to characterise the circumstances before her under any of the four categories she had identified. Indeed, it could be said that the case before her represented a fifth category. She looked to the history of the matter and identified relevant considerations falling into four very broad categories:
(1)Public interest and policy:
The fact that the matter involved public interest and policy as it arose from a serious breach of the trustee’s duties and led to the Commonwealth’s spending time and money in investigating his actions and, ultimately, prosecuting him.
(2)Costs order against party seeking leave to re-open matter may compensate other party:
If leave were granted to re-open the case, costs incurred by the trustee and surety could be met by a costs order in their favour but that must be weighed against the public interest in finality of litigation.
(3)Consequences of tactical decision:
Despite being aware before the first hearing that the trustee and surety would submit that it could not succeed unless it quantified its loss, the Commonwealth made a deliberate decision not to do so, led the trustee and surety to believe that was the basis on which it would proceed and opened and closed its case on that basis.
Had the Commonwealth provided some quantification of its loss, the trustee would presumably have conducted a different case.
(4)Finality of litigation
In the circumstances, the public interest in their being finality of litigation was not outweighed by any reparation that could be made to the trustee and the surety by making a costs order in their favour.
In the case before her, Kenny J refused the application to re-open the case.
In Carey v Freehills,[75] White J referred to the judgment of the High Court in Smith v New South Wales Bar Association,[76] in which the plurality had distinguished between a situation in which an application is made to re-open a case on the basis of new or additional evidence when judgment is yet to be delivered and a case in which it has been. Their Honours said:
“ It is again necessary to distinguish between the considerations which may bear on a decision to re-open and the processes involved in reconsideration once a case has been re-opened. If an application is made to re-open on the basis that new or additional evidence is available, it will be relevant, at that stage, to inquire why the evidence was not called at the hearing. If there was a deliberate decision not to call it, ordinarily, that will tell decisively against the application …. But assuming that hurdle has been passed, different considerations may apply depending on whether the case is simply one in which the hearing is complete, … or one in which reasons for judgment have been delivered … It is difficult to see why, in the former situation, the primary consideration should not be that of embarrassment or prejudice to the other side … In the latter situation the appeal rules relating to fresh evidence may provide a useful guide as to the manner in which the discretion to re-open should be exercised. But those considerations bearing on re-opening are not decisive of the question whether, a matter having been re-opened by reason of error, further evidence can be called.”[77]
[75] [2014] FCA 818
[76] [1992] HCA 36; (1992) 176 CLR 256; 108 ALR 55; Brennan, Deane, Dawson, Toohey and Gaudron JJ
[77] [1992] HCA 36; (1992) 176 CLR 256; 108 ALR 55 at [32]; 266-267; 61-62 per Brennan, Dawson, Toohey and Gaudron JJ
The second situation would not generally arise in the Tribunal for, having made a decision on an application for review, its powers would generally have been exhausted. An exception might arise if it were the case that the Tribunal’s decision had involved jurisdictional error and there had, in law, been no decision at all. This was a matter explored by the High Court in Minister of Immigration and Multicultural Affairs v Bhardwaj.[78] It did so in the context of the Migration Act 1958 and of a decision made by the then Immigration Review Tribunal on an issue it had previously decided. In making its first decision, the IRT had failed to follow the statutory provisions requiring that Mr Bhardwaj be notified of certain matters and have an opportunity to address them. Gaudron and Gummow JJ said:
“… [A] decision involving jurisdictional error has no legal foundation and is properly to be regarded, in law, as no decision at all. Once that is accepted, it follows that, if the duty of the decision-maker is to make a decision with respect to a person’s rights but, because of jurisdictional error, he or she proceeds to make what is, in law, no decision at all, then, in law, the duty to make a decision remains unperformed. Thus, not only is there no legal impediment under the general law to a decision-maker making such a decision but, as a matter of strict legal principle, he or she is required to do so …”[79]
[78] [2002] HCA 11; (2002) 209 CLR 597; 187 ALR 117; 67 ALD 615
[79] [2002] HCA 11; (2002) 209 CLR 597; 187 ALR 117; 67 ALD 615 at [53]; 616; 129-130; 628 per Gaudron and Gummow JJ. McHugh J agreed but with qualifications that are not relevant in this context.
Returning to Carey v Freehills, White J noted that the authorities indicate that courts should not readily allow a case to be re-opened once judgment has been reserved:
“… The public interest in finality of litigation and the associated requirement that parties present all their evidence and submissions at the one hearing provide the underlying rationale for that approach: Spotlight Pty Ltd v NCON Australia Ltd [2012] VSCA 232 at [17]-[18].”[80]
[80] [2014] FCA 818 at [12]
He then examined the particular circumstances of the matter before him. The evidence proposed to be led stated that the appellants would pay into court an amount as security. They had previously been ordered to pay that security as a condition of their pursuing an appeal and had not. Their appeal had been summarily dismissed partly because of their failure to deposit the security but the principal reason for its dismissal had been their defaults in prosecution of their appeal. That it dealt only with a secondary issue and not to the primary issue went to the utility of the order of dismissal being set aside. Furthermore, there was no evidence regarding the source of the funds to be paid as security and the respondent had been given no opportunity to investigate the capacity of the appellants to make good their promise to pay the amount of the security. Together with the interest in finality of litigation and the consequences for the appellants if their appeal remained dismissed, all of these matters were taken into account by White J in considering where the interests of justice lay. He concluded that he should not exercise the discretion to allow the appeal to be re-opened.
For the purposes of this case, the initial issue is not whether the behaviour in which Mr Preller engaged and which led to his being charged with offences under the MCT Act is necessarily relevant to the issues that ASIC must decide. The issue is whether the diversion program that Mr Preller consented to undertake, and did complete, is an “administrative, civil or enforcement action which was determined against …” him. He was asked whether there had been such action and he had stated that, to the best of his knowledge, the information in his application was complete and accurate and he had been reminded that it is an offence to provide false or misleading information to ASIC. If it is such an action, the next issue is whether he did, or could reasonably be expected to have realised that it was. If that is answered in the affirmative, it will then be necessary to consider the relevance of his answers to the issue raised by s 913B(1)(b) i.e. whether I have no reason to believe that the applicant is likely to contravene the obligations that will apply under section 912A if an AFSL is granted.
Before turning to those issues, I note that Mr Rubenstein has relied on the case of Re Masu Financial Management Pty Ltd and Australian Securities and Investments Commission[131] (Masu) for the proposition that it ought to carry some weight that the ASIC delegate has considered an issue and has made findings in respect of it and the Tribunal should not re-invent the wheel. I do not, however, understand Deputy President McCabe to be supporting such a proposition. He has set out the role of the Tribunal in reviewing decisions de novo and has also noted that, if the parties consider some findings made by the original decision-maker to be uncontentious, he would be likely to accept those findings provided they were not contradicted by the evidence.[132]
[131] [2017] AATA 97; Deputy President McCabe
[132] [2017] AATA 97 at [17]
I have no difficulty with his exposition in that regard. Deputy President McCabe has gone on to find that Mr Masu “did not seriously contest the findings of the delegate with respect to its past conduct”[133] and, in the circumstances, did not intend to revisit the findings of the delegate in that regard (emphasis added). What he meant by “seriously contest” in that context is not clear but I do not think that his statement can be read as intending to establish a broad principle beyond the context of the case to the effect that weight will be given to a delegate’s findings as a matter of course. A delegate’s findings and ultimate decision play a vital role in administrative decision-making but, in the absence of the parties’ consent, they do not relieve the Tribunal of having to make its own findings and come to its own decision when engaged in de novo review.
[133] [2017] AATA 97 at [18]
On the basis of his evidence, I find that Mr Preller was aware that he had been charged with a criminal offence under the MCT Act. He was also aware that he had agreed to undertake a diversion program and that he paid any profits into the Motor Car Traders Guarantee Fund. I do not have the terms of the precise diversion program entered by Mr Preller. Even without it, I can make some general conclusions. The effect of his entering it meant that the criminal proceedings did not proceed and he would not have a conviction as a result of his selling four or more motorcycles in three separate periods between 2008 and 2010. His undertaking a diversion program in those circumstances was a recognition by him of his past actions and that they were contrary to law. He consented to the diversion program as did the prosecutor and it was endorsed by the Magistrates’ Court.
The diversion program had its foundation in s 59 of the CP Act. It took the place of the criminal proceedings for its term and successful completion meant that the criminal proceedings were, for most purposes, effectively expunged. If it were not successfully completed, the criminal proceedings are resumed as a consequence of s 59(5) of the CP Act. It was an administrative action that took the place of the criminal proceedings so long as he complied with its terms, which he did. Mr Preller himself described the diversion program as being “administratively processed” and his signing “the necessary paperwork without appearing in Court.”[134]
[134] See Mr Preller’s affidavit, Exhibit B at [77] and [104] above
It follows that Mr Peller gave an incorrect answer to the question. Even if he did not think that he had been the subject of an administrative, civil or enforcement action, I find that he should have been reminded of the diversion program he had undertaken when he read the words in the brackets. I find that he did know that he had agreed, and so undertaken, not to engage in unlawful conduct being conduct to buy or sell more than four motor vehicles in a 12 month period without a licence under the MCT Act. He should have answered the question in the affirmative.
His not doing so is relevant because it either shows that that he is careless in reading and understanding questions and/or in answering those questions or that he is indifferent to whether he answers them accurately. In either case, it reflects on his approach to understanding what is required of him and in delivering what is required of him. What is required of him in the context of s 913B(1)(b) is SWA’s fulfilment of its obligations under s 912A should it be granted an AFSL.
Earlier refusal of an application for an AFSL
In support of SWA’s application for an AFSL, Mr Preller completed a Statement of Personal Information (SOPI) and did so as SWA’s nominated Responsible Manager. The SOPI began with a statement that:
“To obtain an AFS licence, an applicant must show that they have experience and expertise to ensure that the financial services to be covered by the AFS licence will be provided efficiently, honestly and fairly.
You have been nominated as a responsible manager for this application.
To demonstrate that you have the necessary experience, expertise and are of good fame and character, please respond to all of the following questions.
When signed, this Statement becomes (if a required proof) an attachment to the AFS licence application or the Change of details of an Australian financial services licence. These documents will be forwarded to the Australian Securities and Investments Commission (ASIC) by the licensee or proposed licensee.”[135]
[135] T documents; T26 at 431
In this case, ASIC focused on two questions asked of Mr Preller: Questions 1 and 12. Together with his answers, they read:
“1. Have you been refused the right, or been restricted in the right, to carry on any trade, business or profession for which a licence, registration or other authority is required by law?
□ Yes T No
…
12.Have you been engaged in the management of any companies/businesses that carry on a trade, business or profession for which a licence, a registration or other authority is required by law?
TYes □ No”[136]
If any question was answered in the affirmative, the Notes to the SOPI asked Mr Preller to provide a separate attachment including individual details. In relation to Questions 9 to 12, the Notes also asked him to provide specific information but none of the information specified was relevant to Question 12.
[136] T documents; T26 at 432
ASIC takes the position that Mr Preller should have provided an attachment setting out details of an application for an AFSL made by SWA in June 2011 that ASIC had refused. I have reservations about the proposition that question 1 related to SWA. The question is framed in terms of “you” and not in terms of any company or business in which Mr Preller had been engaged. He has not been refused any licence, registration or other authority required by law. In contrast, Question 12 asks about his engagement in the management of any companies or businesses that carry on a trade, business or profession for which a licence, registration or other authority is required by law. Mr Preller should have set out the names of such companies or businesses in an attachment. I have doubts, however, whether that question extends to whether any application for a necessary licence, registration or other authority has been refused. I do not think that reference can be made to question 1 in order to read such a requirement into Question 12. Question 1 is directed to the person nominated as the Responsible Manager being Mr Preller in this instance and Question 12 is directed to companies or businesses in whose management he has been involved. I understand that the SOPI is intended to show that those responsible for the management of an applicant for an AFSL have experience and expertise to ensure that the financial services to be covered by the AFSL will be provided efficiently, honestly and fairly but I do not think that very proper and appropriate intention can be used to extend questions beyond their clear compass.
SMSF auditor audit
I have summarised the events and outcomes of the SMSF auditor audit that Mr Preller underwent. This was a matter that the parties agreed would be considered on the papers. In light of that, I have taken the Applicant’s Supplementary Statement of Facts, Issues and Contentions as further evidentiary material. Mr Preller addressed two aspects. One relates to the processes that were followed by the ATO in preparing its Final Position Paper and to its containing errors and inaccuracies and being based on incomplete information or failing to take into account supporting documents. These are matters that Mr Preller should have pursued on review if he was dissatisfied with ASIC’s decision. ASIC has made its decision and I cannot set that decision aside when reviewing a completely different decision. What I can do is look to the matters that underpin that decision and consider whether they are relevant to the issues that I must address.
That brings me to the second aspect of the matters addressed by Mr Preller. He submitted that, even if the Tribunal were to find that he had not complied with the SIS Act or with relevant accounting standards with respect to the LSMSF, the BSMSF or the CSMSF, that did not make it more likely that he would contravene the SIS Act or relevant accounting standards in the future or that SWA was likely to contravene a financial services law in the future. His reasons for this were that he had accepted the further conditions that ASIC had placed on his registration and had taken steps to implement them.
In accordance with those conditions, he had undertaken and passed an auditor competency examination and undertaken an independent review of audits carried out during the 2017 year. Mr Preller described the conditions as onerous and extensive and impose independent third party scrutiny of Mr Preller’s future performance as an SMSF auditor. The conditions on his registration as an SMSF auditor make it less likely that SWA may contravene a financial services law in the future. Further professional development requirements and audit scrutiny will have a flow through effect to the wider services that SWA offers to its clients. It would provide further comfort that SWA has organisational capacity to deliver those services in accordance with its obligations under the Corporations Act and with financial services laws more broadly.
On the evidence that I have, there is nothing to suggest that Mr Preller has been in further breach of his obligations as an SMSF auditor since the audit was carried out and the conditions on his registration were imposed.
Consideration
On behalf of Mr Preller, it was submitted that I should have regard to the policy rationale underpinning the Future of Financial Advice reforms which were introduced as a Government response to the Parliamentary Joint Committee on Corporations and Financial Services' Inquiry into financial products and service (FOFA reforms). It found legislative expression in the Corporations Amendment (Future of Financial Advice) Act 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012, which commenced operation on 1 July 2012 but compliance with which was only mandatory from 1 July 2013. The amendment Acts related to the best interests duty, the ban on conflicted forms of remuneration, opt-in provisions requiring advice providers to renew their clients’ agreements regarding ongoing fees every two years and changes to ASIC’s licensing and banning powers. The legislation were supported by regulations and then by the Corporations Amendment (Financial Advice Measures) Act 2016.
Mr Preller relies on this suite of legislative change to support his submission that:
“… The introduction of the FOFA reforms was to broaden the ability of recognised accountants to provide advice on superannuation products and SMSFs. This was traditionally an area of work for accountants. The transitional process was intended to facilitate accountants who were providing these services to transition to the new regulatory regime. If SWA were denied a ‘limited’ AFSL it would be shut out from providing the services that it had been providing under the accountant’s exemption. This was clearly not the intention of the legislature.”[137]
[137] Applicant’s Statement of Facts, Issues and Contentions at [42]
The policy underlying a statutory regime is relevant when interpreting provisions that may be unclear and in determining the boundaries of any discretionary power that may be conferred by the legislation. In this case, s 913B(1)(b) is not unclear and nor does it confer a discretionary power. It tells me that ASIC, and so I, must grant an applicant an AFSL, and must not do so unless, it, and so I, have no reason to believe that the applicant is likely to contravene the obligations that apply under s 912A if the licence is granted.
In this case, I consider that, when I look at the course of Mr Preller’s actions and those of SWA in relation to matters associated with the provision of financial services, I have reason to believe that SWA is likely to contravene the obligations that apply under s 912A if the licence is granted. In coming to that conclusion, I have started from the point that SWA’s application for an AFSL was lodged on 30 April 2014. That was in the middle of the first period, being the period from 22 January 2014 to 5 August 2014, during which SWA was later found to have engaged in conduct in contravention of ss 12DA(1), 12DB(1)(a) and 12DB(1)(i) of the ASIC Act. Mr Preller and SWA have come to understand that SWA’s conduct in that period and in the following period from 6 August 2014 to 8 May 2015 contravened those provisions but only after foregoing the opportunity to resolve the matter administratively and having its actions scrutinised and found wanting by the Federal Court.
I am not wishing to criticise SWA’s choice to follow that course for it was always a course that was open to it. What I do raise, though, is Beach J’s finding that Mr Preller was responsible for the content and design of the website[138] and his finding that Mr Preller is not a lawyer and did not have his website reviewed by a lawyer beforehand. His Honour also accepted that it was not Mr Preller’s intention to mislead clients and noted that “… Apparently, he now appreciates that more could have been done …”[139] to avoid the misrepresentation on the website.
[138] [2015] FCA 1167; (2015) 109 ACSR 199 at [86]; 218
[139] [2015] FCA 1167; (2015) 109 ACSR 199 at [79]; 217
Mr Preller’s approach in that matter is consistent with his earlier approach in relation to answering the questions on his application for registration as an SMSF auditor regarding whether he had ever been the subject of administrative, civil or enforcement action which was determined against him or whether he had consented to not engaging in unlawful or improper conduct) in any country or given an undertaking to that effect. His answers to questions about the diversion program he had agreed to undertake rather than face a hearing and determination of the criminal charges against him under the MCT Act are consistent with his showing lack of care in how he responds. On the basis of his evidence, I find that he relied on what his lawyer had told him at the time he faced the charges and agreed to enter the diversion program. That is not to say that the advice he was given in the context of the criminal proceedings was not correct but it is to say that he did not seek advice or stop to think for himself about the nature of the diversion program and the question being asked of him.
Mr Preller’s approach leaves him open to making mistakes as Beach J found that he did in relation to SWA’s websites and as I have found that he did in answering the question on his application for registration as an SMSF auditor. I am aware that Mr Preller’s answer on his application for registration pre-dates the time periods with which Beach J was concerned. Those periods occurred in 2014 and the first half of 2015. The ATO’s audit focused on three SMSF’s that had been audited by Mr Preller in 2015. Mr Preller disputes the results of the audit and ASIC’s consequential action but he did not seek review of these matters. That means that he is left with a finding by ASIC that he had been in breach of ss 67, 67A, 62 and 109 of the SIS Act and r 8.02B of the Superannuation Industry (Supervision) Regulations 1994 and restrictions were imposed on his registration as a consequence.
It could be said that Mr Preller made his errors when auditing the three SMSFs in 2015 and that he has since taken action to comply with the orders made by Beach J and he has complied with ASIC’s conditions on his registration as an SMSF auditor. SWA’s compliance is intended to lead to a tightening of its processes and ensuring that SWA’s staff are properly trained so that financial services are provided without breach of the financial services law. As he is SWA’s Responsible Manager, he too is compliant.
With one qualification, there is merit in that proposition. That qualification lies in the way in which Mr Preller has prepared the Compliance Manual. He has prepared it to cover all situations in which SWA might be approved to provide financial services in the future. At one level, he is getting value for money but ASIC rightly points out that the Compliance Manual has to be read with qualifying material at hand and its implementation is dependent on the staff’s knowing that it has to be read that way.
Even if I put aside any concerns I have about the rather broad brush approach to the contents of the Compliance Manual, I remain concerned about Mr Preller’s continuing response to ASIC’s decision after it received the ATO’s Final Position Paper. At [11] of the Applicant’s Supplementary Statement of Facts, Issues and Contentions lodged on 16 February 2018, it was put on behalf of Mr Preller that ASIC’s process of putting the ATO’s Final Position Paper to Mr Preller had been unfair and it was not clear to him which of the ATO’s concerns were extant. He referred to what was said to be a breach of s 35C of the SIS Act in the Final Position Paper[140] but noted that the ATO had accepted his contention at [32(d)] that the audit report form to be used was not an APRA report form.
[140] T documents; T52 at 754, [33(e)]
It seems to me that Mr Preller’s example is misplaced. It is clear from reading the correspondence that ASIC considered the issues raised by the ATO and shared its concern. It has looked at the matters again after receiving Mr Preller’s responses and has focused only on breaches of ss 67, 67A, 62 and 109 of the SIS Act and rr 4.09A and 8.02B of the Superannuation Industry (Supervision) Regulations 1994. It has not looked at s 35C and that is clear from its letter of 18 September 2017. The basis for its conclusions is clear from a reading of the Final Position Paper with regard to those particular contraventions.
Mr Preller did not seek review of ASIC’s decision under the SIS Act. Whether he did so is entirely a matter for him but what concerns me is that he now states that he does not understand the basis of the decision. That leads me to conclude that he is not able to follow the line of reasoning through the various correspondence related to that matter. If it were only that matter, I might not have a concern but it is not the only matter. Despite being told of his review rights in ASIC’s letter of 18 September 2017, he did not exercise them but sought to re-agitate the issues in this matter when the time has passed for him to make an application to review ASIC’s decision. Mr Preller has also shown that he was unable to understand the question in his application for registration as an SMSF auditor regarding whether he had ever been the subject of administrative, civil or enforcement action which was determined against him. He had to go through a Federal Court hearing rather than accept that he had included misleading statements on SWA’s websites in contravention of s 12DA(1) of the ASIC Act.
Mr Preller’s lack of understanding of these matters gives me reason to believe that he will have difficulty in analysing obligations that are imposed on him by relevant legislation and that he will have difficulty in analysing factual material so that he can apply the legislative provisions to them. Given those difficulties, I have reason to believe that he is likely to contravene statutory obligations. As he is the Responsible Manager and the sole director of SWA, I also have reason to believe that SWA would be likely to contravene the obligations that would apply under s 912A if an AFSL were granted to it. Therefore, I find that the criterion in s 913B(1)(b) that I have no reason to believe that SWA is likely to contravene the obligations that would apply under s 912A if an AFSL were granted to it is not met. As a consequence, s 913B requires me to refuse to grant an AFSL to SWA.
DECISION
For these reasons, I affirm ASIC’s decision dated 17 June 2016 to refuse to grant an AFSL to SWA.
| I certify that the preceding 135 (one hundred and thirty five) paragraphs and Annexure A are a true copy of the reasons for the decision herein of Deputy President S A Forgie |
[sgd].......................................................................
Associate
Dated: 31 January 2019
| Heard: | 2 and 7 February 2017 and, on the papers, 29 June 2018 |
| Counsel for the Applicant: Solicitor for the Applicant:
| Mr Simon Rubenstein Mr Andrew Tiedt Ms Raelene Sharp |
| Solicitor for the Respondent: | Ms Ellen McInerny Australian Securities and Investments Commission |
Requirements for Compliance, Education and Training Program
Superannuation Warehouse Australia Pty Ltd (ACN 141 409 449) (SWA) will establish a Compliance, Education and Training Program (Compliance Program) that complies with each of the following requirements:
General
(a)SWA will pay all of its own costs associated with implementing the Compliance Program, including but not limited to the appointment of the Consultant (defined below at paragraph 3.1).
Appointments — Compliance Officer
(a)Within seven (7) days of the date of the Order of the Court dated 30 October 2015 (Court Order), SWA will appoint a director or senior manager of the business to be responsible for the development, implementation and maintenance of the Compliance Program (Compliance Officer).
(b)After the appointment of the Compliance Officer in accordance with paragraph 2.1, SWA must take all reasonable steps to ensure that, for the duration of the Court Order there is a director or senior manager with responsibility for ensuring that the Compliance Program is effectively established, maintained and administered in accordance with the Court Order.
Appointments - External Consultant
(a)Within seven (7) days of the date of the Court Order, SWA will engage a suitably qualified, independent external compliance consultant (Consultant) whose:
(i)terms of appointment are to be based on the matters set out at paragraphs 4 and 9 below; and
(ii)whose appointment and terms of appointment are to be approved by the plaintiff in writing, such approval not to be unreasonably withheld.
Initial review
(a)SWA will instruct the Consultant to conduct an initial review and risk assessment in accordance with 4.2.1 to 4.2.3 below (Initial Review) and prepare the report referred to in 4.4, to be completed within two (2) months of the Court Order or such further time as the Consultant requires, with any extension of time to be approved by the plaintiff, such approval not to be unreasonably withheld.
(b)The Initial Review must:
(i)identify areas where SWA is at risk of breaching Part 2 of Division 2 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) having regard to, amongst other things, ASIC Regulatory Guide 234 - Advertising financial products and services (including credit);
(ii)identify where there may be gaps in SWA’s existing policies, procedures and systems for managing these risks; and
(iii)provide recommendations for action having regard to the assessment.
(c)SWA will provide all reasonable assistance to the Consultant to enable the Consultant to complete the Initial Review.
(d)The Consultant will prepare a written report setting out:
(i)a description of the methodology, parameters and limitations applicable to the review, including evidence gathered and examined;
(ii)the findings of the review; and
(iii)recommendations made as a consequence of the Initial Review.
(e)SWA will provide a copy of the report prepared in accordance with paragraph 4.4 above to the plaintiff within three (3) days of receiving it from the Consultant.
Compliance Policy
(a)Within three (3) months of the date of the Court Order, SWA will issue a compliance policy (Compliance Policy) that:
(i)is written in plain language;
(ii)contains a statement of commitment to compliance with Part 2 of Division 2 of the ASIC Act;
(iii)contains a strategic outline of how commitment to ASIC Act compliance will be realised within SWA;
(iv)incorporates all recommendations made by the Consultant in the Initial Review;
(v)contains a requirement for all staff to report any Compliance Program related issues and ASIC Act compliance concerns to the Compliance Officer; and
(vi)contains a clear statement that SWA will take action internally against any persons who are knowingly or recklessly concerned in a contravention of the ASIC Act and will not indemnify them.
Complaints Handling System
(a)SWA will ensure that the Compliance Program includes an ASIC Act complaints handling system appropriate for the company's circumstances and that staff and clients are made aware of the complaints handling system.
Education & Training
(a)SWA will ensure that the Compliance Program provides for regular (at least once a year) and practical training for all directors, officers, employees and representatives of SWA.
(b)SWA must ensure that the training is designed and conducted by a suitably qualified compliance professional or legal practitioner with expertise in the ASIC Act (Compliance Trainer).
(c)SWA must provide to the Compliance Trainer, for the purposes of conducting the training, copies of:
(i)the Court Order;
(ii)the Compliance Policy;
(iii)the complaints handling system; and
(iv)all reports prepared by the Consultant as at the date the training is scheduled.
(d)SWA will ensure that the Compliance Program includes a requirement that awareness of the Compliance Policy, complaints handling system and ASIC Act compliance issues form part of the induction of all new directors, officers, employees and representatives of SWA.
Supply of the Compliance Program Documents to the Applicants
(a)Within three (3) months of the date of the Court Order, SWA will provide the plaintiff with copies of each document constituting the Compliance Program.
Compliance Reviews
(a)SWA will instruct the Consultant to conduct a further review of the Compliance Program (Compliance Review) to be carried out in accordance with paragraphs 9.2.1 to 9.2.5 below and prepare the Compliance Review Report (defined in paragraph 9.4 below) by 31 May 2016.
(b)The Compliance Review must:
(i)review the extent to which the Compliance Program includes all of the requirements detailed in paragraphs 2 to 8 above;
(ii)review the extent to which the Compliance Program adequately addresses the matters identified and recommendations made in the Initial Review or any subsequent review;
(iii)review the effectiveness of the ASIC Act training;
(iv)review the effectiveness of the complaints handling system; and
(v)make recommendations for rectifying any deficiencies in 9.2.1 to 9.2.4 above that the Consultant considers are reasonably necessary to ensure that SWA maintains and continues to implement the Compliance Program in accordance with the Court Order.
(c)SWA will provide all reasonable assistance to the Consultant to enable the Consultant to complete the Compliance Review.
(d)The Consultant will prepare a written report (Compliance Review Report) setting out:
(i)a description of the methodology, parameters and limitations applicable to the review, including evidence gathered and examined;
(ii)the findings of the review; and
(iii)recommendations and actions made to ensure the continuing effectiveness of the Compliance Program.
(e)SWA will provide a copy of the Compliance Review Report to the plaintiff within three (3) days of receiving it from the Consultant.
Recommendations
(a)SWA shall implement promptly and with due diligence any recommendations made by the Consultant or required by the plaintiff that are reasonably necessary to ensure that SWA maintains and continues to implement the Compliance Program in accordance with the Court Order.
(b)If requested by the plaintiff, SWA shall, at its own expense, provide the plaintiff with copies of documents and information in respect of matters that are the subject of the Compliance Program.
(c)SWA will, in the event that the Compliance Review Report identifies any recommendations or actions that have not been implemented provide ASIC with a written plan (Remedial Action Plan) setting out the:
(i)action SWA proposes to take to ensure that those recommendations and actions are implemented; and
(ii)specific timeframe(s) within with such action will be taken.
(d)SWA will provide the Remedial Action Plan to the plaintiff within seven (7) days of the Compliance Review Report being provided to the plaintiff.
(e)SWA will implement any Remedial Action Plan within the timeframe specified in paragraph 10.3.2 above, except that if the plaintiff requires any reasonable modifications to any Remedial Action Plan then SWA will implement the Remedial Action Plan as so modified.
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