Tarrant v Australian Securities and Investments Commission - [2013] AATA 926

[2013] AATA 926

Division GENERAL ADMINISTRATIVE DIVISION

File Number(s)

2011/5133

Re

Mervyn Ross Tarrant

APPLICANT

And

Australian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal
President D Kerr
Ms J L Redfern, Senior Member

Date 20 December 2013

Place Sydney
Decision Summary
The decision under review is affirmed.
The Tribunal’s order of 7 December 2011 staying ASIC from making any entry in the ASIC Gazette or issuing any media release notifying that orders have been made against the Applicant pursuant to sections 920A and 920B of the Corporations Act 2001 is revoked.
........................................................................
President D Kerr and Ms J L Redfern, Senior Member
Catchwords
Corporations Law – banning order – failure to comply with a financial services law – failure to have reasonable basis for financial advice – failure to disclose information about remuneration – false or misleading statements in respect of financial products – misleading or deceptive conduct in respect of a financial product or service
Corporations Law – banning order – length of banning order – no findings of fraud or dishonesty – contraventions serious and caused loss – applicant’s lack of insight into gravity of breaches – seven year banning order affirmed
Practice and Procedure – government policy – ASIC Regulatory Guide – whether Tribunal must apply policy unless policy unlawful or there are cogent reasons to the contrary – Tribunal not precluded from giving no weight to policy in a particular case – policy found to be sensible and calibrated – policy applied by Tribunal
Practice and Procedure – power of Tribunal to limit scope of review – limits of Tribunal’s power to confine the reception of evidence – relevance the criterion for admissibility of material in Tribunal – rules of evidence not applicable
Practice and Procedure – adjournments – failure by applicant to appear – history of non-compliance with directions – no evidence to suggest applicant’s circumstances likely to change if adjournment granted – adjournment refused
Practice and Procedure – applicant and witnesses absent from hearing – written statements – probative weight to be given to statements where not cross-examined
Practice and Procedure – application for dismissal of proceeding – failure by applicant to comply with directions of the Tribunal – circumstances in which Tribunal may dismiss application without proceeding to review the decision
Legislation
Administrative Appeals Tribunal Act 1975 ss 2A, 25(4A), 33(1), 42A(5)
Australian Securities and Investments Commission Act 2001 ss 1(2), 19
Corporations Act 2001 ss 50AAA, 761A, 766A(1)(a), 910A, 911A(1), 911A(2), 913B, 914A, 915A to 915J, 920(1)(f), 920A, 941A, 941B, 942C, 944A, 945A(1), 946A, 947B(2)(d), 947B(2)(e), 947C(1), 947C(2)(e), 947C(2)(f), 947D, 1012A, 1013C, 1013D, 1013E, 1013F, 1041E(1), 1041H(1)
Corporations Amendment (Future of Financial Advice) Act 2012
Cases
Re AK and Commissioner for Superannuation (1986) 11 ALN N106
Australian Postal Commission v Hayes (1989) 23 FCR 320
Australian Securities and Investments Commission v Adler and ors (2002) 42 ACSR 80; [2002] NSWSC 483
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364; [2011] FCAFC 19
Australian Securities and Investments Commission v Macdonald (No 11) (2009) 230 FLR 1; [2009] NSWSC 287
Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373
Australian Securities Commission v McLeod (2000) 18 ACLC 424
Re Saverio Barbaro and Minister for Immigration and Ethnic Affairs (1980) 3 ALD 1
Re Becker and Minister for Immigration and Ethnic Affairs (1977) 15 ALR 696
Boughey v R [1986] HCA 29; (1986) 161 CLR 10
Casey v Repatriation Commission (1995) 60 FCR 510
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577
Re Drake and Minister for Immigration and Ethnic Affairs (Drake No 2) (1979) 2 ALD 634
Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486
Goldie v Minister for Immigration and Multicultural and Indigenous Affairs (2002) 121 FCR 383
Heydon v NRMA (2000) 51 NSWLR 1
Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602; [2008] AATA 278
In the matter of Idylic Solutions Pty Ltd & Ors - Australian Securities and Investment Commission v Hobbs [2012] NSWSC 581
In the matter of Idylic Solutions Pty Ltd & Ors - Australian Securities and Investment Commission v Hobbs [2012] NSWSC 731
Re Murdaca and Australian Securities and Investments Commission (2010) 118 ALD 202
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 133 ALD 39; (2013) 296 ALR 307
R v Shawn Darrell Richard [2011] NSWSC 866
Secretary, Department of Social Security v Jordan (1998) 49 ALD 496
Shi v Migration Agents Registration Authority (2008) 235 CLR 286; [2008] HCA 31
Re Sleiman and Companies Auditors and Liquidators Disciplinary Board (2007) 98 ALD 170
Summers v Repatriation Commission (2012) 130 ALD 32; [2012] FCAFC 104
Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Ors [2010] NSWSC 286
Secondary Materials
ASIC Regulatory Guide 175, Licensing: Financial product advisers – Conduct and disclosure
ASIC Regulatory Guide 98, Licensing: Administrative action against financial services providers
Pearce, Administrative Appeals Tribunal (3^rd edition, 2013)
REASONS FOR DECISION
President D Kerr
Senior Member J Redfern
OVERVIEW

In May 2012 the Parliamentary Joint Committee on Corporations and Financial Services published its report on the collapse of Trio Capital, which was described by the Committee as “the largest superannuation fraud in Australian history”. Trio Capital was the responsible entity of two fraudulent managed investment schemes, one of which was the Astarra Strategic Fund (ASF). The Committee reported that $123 million invested in ASF was lost. It noted the role of financial advisers in recommending Trio Capital products and referred to the “regional cluster” of victims in South Australia, Sydney’s North Shore and Wollongong. The application before the Tribunal arises out of ASIC’s investigations into the collapse of Trio Capital and its action against one of the financial advisory firms that recommended ASF and its managing director and authorised representative, Mervyn Ross Tarrant.
Mr Tarrant is an accountant and tax agent who has lived all his life in Wollongong and practiced in the region for many years. He was a director of Tarrants Financial Consultants Pty Limited (TFC) from its inception in 1999 and managing director from 2006. TFC was the holder of an Australian Financial Services Licence (AFSL) from October 2003 and provided financial advice to clients in the Wollongong region until its liquidation on 6 August 2010. Mr Tarrant was an authorised representative of TFC.
From about March 2008 until December 2009, TFC recommended that its clients invest in ASF. ASF was a registered managed investment scheme comprising a fund of overseas hedge funds. ASIC issued stop orders in respect of ASF in October 2009 and on 16 December 2009 redemptions in ASF were frozen. ASF was wound up by the Supreme Court of New South Wales on 19 March 2010. It is common ground that investors in the AFS will not recover their investment and that AFS has been affected by the fraud of Mr Shawn Richard, a director of the investment manager of ASF, Absolute Alpha Pty Limited (AAM).
On 25 November 2011, a delegate of the Australian Securities and Investments Commission (ASIC) banned Mr Tarrant from providing financial services for a period of seven years. The delegate found that Mr Tarrant had not complied with various financial services laws and that his banning was warranted. Mr Tarrant lodged an application for a review of this decision on 30 November 2011 and sought a stay and confidentiality orders in respect of the hearing and the conduct of the proceedings.
The Tribunal refused to make confidentiality orders but made a non-publication order staying ASIC from publishing the banning order in the Government Gazette and from issuing any media release about the order.
The hearing commenced in October 2012 but was adjourned on numerous occasions. The Tribunal refused two applications for an adjournment by Mr Tarrant and an application by ASIC that the proceedings be dismissed for want of prosecution. The Tribunal heard more than 10 days of evidence and reviewed up to 15 volumes of evidence filed by both parties. Mr Tarrant was initially represented by counsel but did not attend the final days of the hearings. Both parties filed extensive written submissions. ASIC’s case focused on recommendations about ASF but the case raised broader issues about the processes used by Mr Tarrant to give advice to retail investors and to market the services of his related companies. The evidence and contentions made were extensive and necessitated detailed analysis of the alleged contraventions.
The Tribunal found that Mr Tarrant contravened numerous financial services laws and that these breaches were serious and warranted a banning order. The Tribunal affirmed the decision under review and the Tribunal’s reasons follow.
LEGISLATIVE FRAMEWORK
ASIC is a statutory authority charged with responsibility for administering certain laws relating to corporations, financial services, financial markets and those who participate in the financial system. Under s 1(2) of the Australian Securities and Investments Commission Act2001 (the ASIC Act), ASIC must strive to, amongst other things, “promote the confident and informed participation of investors and consumers in the financial system”.
Chapter 7 of the Corporations Act2001 (the Corporations Act) deals with the regulation of financial services and markets.
Part 7.6 establishes a licensing regime in respect of persons or entities that carry on a financial services business in Australia. It is unlawful for a person or entity to carry on a financial services business unless they hold an AFSL covering the provision of the financial services: s 911A(1). A financial services business means a business of providing financial services: s 761A. A person or entity provides financial services if they provide financial product advice: s 766A(1)(a). It is not necessary to be licensed if the person or entity providing financial services is doing so as a representative of an AFSL holder: s 911A(2)(a). A person will be a representative if they are authorised under s 916A or if they are an employee or director of the AFSL holder: s 910A.
The Corporations Act distinguishes between investments made by retail clients and wholesale or sophisticated clients. In recognition of the potential vulnerability of retail clients, Part 7.7 of the Corporations Act contains a number of statutory safeguards.
For instance, a financial services licensee or an authorised representative must give a retail client a Financial Services Guide (FSG) before providing financial services (s 941A and s 941B). The FSG must set out information about the licensee and authorised representatives, including information about associations or relationships that might reasonably be expected to be capable of influencing the providing entity in providing any of the authorised services (s 942C). When personal advice is provided to a retail client, the providing entity must give the client a statement of advice (s 946A). The statement of advice must include certain information, including a statement setting out the advice, information about the basis on which the advice is given, the details of the providing entity and information about the remuneration or other benefits that the providing entity (or another associated entity) is to receive that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice (s 947C). A financial services licensee or an authorised representative providing recommendations to acquire a financial product must give to retail clients a Product Disclosure Statement (PDS) in respect of that product (s 1012A). The PDS must contain information about the product which a person would “reasonably require for the purpose of making a decision, as a retail client, whether to acquire the financial product” (s 1013C – 1013F). This includes information about any significant benefits or risks associated with the product.
ASIC administers the licensing regime and is empowered to grant an AFSL (s 913B), impose conditions on the AFSL (s 914A), vary, suspend or cancel an AFSL (ss 915A to 915J) and, relevantly, make an order disqualifying a person from providing financial services (s 920A).
As a result of amendments to the Corporations Act by the Corporations Amendment (Future of Financial Advice) Act 2012 (effective from 27 June 2012), the Corporations Act was amended to improve disclosure to investors, enhance ASIC’s ability to take licensing and banning action and impose an obligation on advisers to act in the best interests of clients, rather than simply have a reasonable basis, when making recommendations. These reforms, referred to as FOFA, were in response to the 2009 Inquiry into Financial Products and Services in Australia by the Parliamentary Joint Committee on Corporations and Financial Services. Section 920A was amended to expand the grounds upon which ASIC can make a banning order.
While the Tribunal can take into account matters occurring after the decision, these legislative amendments predated the relevant conduct and the banning decision. The Tribunal must address the same question as was required to be addressed by the original decision-maker and therefore must consider the provisions of s 920A as at the time the banning order was made: Shi v Migration Agents Registration Authority (2008) 235 CLR 286; [2008] HCA 31. At the time of the banning order s 920A provided as follows:
ASIC's power to make a banning order
(1) ASIC may make a banning order against a person, by giving written notice to the person, if:
(a) ASIC suspends or cancels an Australian financial services licence held by the person; or
(b) the person has not complied with their obligations under section 912A; or
(ba) ASIC has reason to believe that the person will not comply with their obligations under section 912A; or
(bb) the person becomes an insolvent under administration; or
(c) the person is convicted of fraud; or
(e) the person has not complied with a financial services law; or
(f) ASIC has reason to believe that the person will not comply with a financial services law.
(2) However, ASIC may only make a banning order against a person after giving the person an opportunity:
(a) to appear, or be represented, at a hearing before ASIC that takes place in private; and
(b) to make submissions to ASIC on the matter.
By letter dated 9 August 2011, a delegate of ASIC caused to be served on Mr Tarrant a notice which particularised the delegate’s concerns that Mr Tarrant may not have complied with a financial services law (s 920A(1)(e)) and that he may have reason to believe that Mr Tarrant will not comply with a financial services law (s 920A(1)(f)). After providing Mr Tarrant with an opportunity to appear at a hearing and make submissions, the delegate on 25 November 2011 found that Mr Tarrant had not complied with certain financial services laws. He made no finding about whether there was reason to believe Mr Tarrant would not comply with a financial services law on the basis that it was not necessary to do so.
A financial services law is defined in s 761A to include a provision of Chapter 7, which sets out disclosure and conduct requirements for licensees and their authorised representatives and proscribes market misconduct (other than insider trading) relating to financial products and services. Relevantly, financial services laws include:
(a)the requirement to have a reasonable basis for financial advice (s 945A(1));
(b)the requirement of the licensee or the authorised representative of the licensee (whichever is providing the product advice) to disclose information about remuneration or other benefits that might reasonably be expected to influence the advice (s 947B(2)(d) and s 947C(2)(e));
(c)the prohibition on making false or misleading statements in respect of financial products (s 1041E(1)); and
(d)the prohibition on misleading or deceptive conduct in respect of a financial product or services (s 1041H(1)).
ASIC has published regulatory guides in respect of its approach to the regulation of licenced entities and the exercise of its administrative functions in respect of financial services.. In particular, it has published the following guidance:
(a)ASIC Regulatory Guide 175, Licensing: Financial product advisers – Conduct and disclosure
(b)ASIC Regulatory Guide 98, Licensing: Administrative action against financial services providers
Regulatory Guide 175 (RG 175) explains ASIC’s interpretation of the regulatory provisions set out in Part 7.7 of the Corporations Act, how ASIC will monitor compliance and how ASIC will assess whether there has been a breach. It should be noted that RG 175 was amended from time to time and has been substantially amended to reflect the 2012 FOFA reforms (issued October 2103). Prior to the most recent iteration of RG 175, there were relevantly two versions of RG 175 (from May 2007 until May 2009 and from May 2009 until the FOFA reforms). Regulatory Guide 98 (RG 98) explains ASIC’s approach to administrative action and, relevant to this case, how it will exercise its discretion under s 920A of the Corporations Act.
Simply deciding the matter in accordance with ASIC policy without regard to whether a more appropriate outcome might have been reached would be an error of law. In Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 Bowen CJ and Deane J stated at 590:
...the Tribunal is not, in the absence of specific statutory provision, entitled to abdicate its function of determining whether the decision made was, on the material before the Tribunal, the correct or preferable one in favour of a function of merely determining whether the decision made conformed with whatever the relevant general government policy might be.
It is in that context that Brennan J’s oft cited observations as President of the AAT in Re Drake and Minister for Immigration and Ethnic Affairs (Drake No 2) (1979) 2 ALD 634 that the Administrative Appeals Tribunal is entitled to have regard to government policy unless the policy is unlawful or there are cogent reasons to the contrary must be understood. Those remarks are often cited as if they preclude challenge to the soundness of policy. That ignores the holding of the Full Court and Brennan J’s own rejection of that proposition. In Re Drake No 2
(a)Brennan J noted the policy he was applying had been made in the exercise of explicit statutory power and was subject to parliamentary scrutiny (at 643-4);
(b)Brennan J referred to the distinction he had first adverted to in Re Becker and Minister for Immigration and Ethnic Affairs (1977) 15 ALR 696 between such high level ministerial policy and that made at a departmental level (at 644); and
(c)Brennan J recognised that the Tribunal could not deprive itself of its freedom to give no weight to a Minister's policy in a particular case.
Moreover, if the application of otherwise sound ministerial policy would work injustice in a particular case, Brennan J observed (at 645) that that of itself would provide a cogent and sufficient reason to depart from the policy as “consistency is not preferable to justice”.
However, insofar as they set out the policy formulated by ASIC, the Tribunal accepts it should apply the policy expressed in Regulatory Guides 98 and 175, notwithstanding it is agency rather than high level ministerial policy. Neither at the time when the applicant was legally represented, nor later when he was not, was it suggested that the Regulatory Guides were unlawful or that there were cogent and sufficient reasons to depart from the policy expressed by them. The Tribunal has not of its own motion identified any deficiencies to suggest such a conclusion should be reached. The Regulatory Guides appear to be carefully calibrated documents produced by an agency which has responsibility for prudential regulation of the provision of financial advice. The policy appears sound. That observation is not intended to preclude the possibility of later challenges—it is made merely to indicate that where a policy on its face is uncontentious the Tribunal is lawfully entitled to have regard to such policy and to apply it subject to the right of an applicant to put the matter in issue and subject to the policy not working unfairness in the particular case.

Section 1317B of the Corporations Act provides that applications for review of a decision of ASIC may be made to this Tribunal. The Tribunal conducts its own independent assessment and, while it must address the same question as required to be addressed by the original decision-maker, the Tribunal is not confined to the grounds argued at the original hearing. The Tribunal must make the correct and preferable decision based on the material and evidence before it and, subject to procedural fairness, may make a decision on different grounds from those argued by the parties: Shi v Migration Agents Registration Authority (2008) 235 CLR 286; [2008] HCA 31; Summers v Repatriation Commission (2012) 130 ALD 32; [2012] FCAFC 104.
CONTENTIONS AND ISSUES FOR DETERMINATION
ASIC contends Mr Tarrant has not complied with numerous financial services laws (particularised as Counts 1 to 4) and that the discretion under s 920A of the Corporations Act is thereby enlivened. The contraventions were serious and a banning order disqualifying Mr Tarrant from providing financial services for a period of seven years is appropriate in the circumstances. The decision of the delegate should be affirmed. Mr Tarrant denies he has breached any financial services laws. Even if there have been contraventions, any non-compliance with financial services laws was insignificant or an honest error for which he ought to fairly be excused. As such, a banning order is not warranted in the circumstances and the decision of the delegate should be set aside.
The non-compliance alleged by ASIC relates to payments made to an associate of Mr Tarrant and TFC for investments made in ASF, recommendations and statements made to TFC clients about ASF and representations made to TFC staff about the payment of commissions to TFC by product providers.
It is common ground that at all relevant times, Mr Tarrant was director of Tarrants Finance Pty Ltd (Tarrants Finance), which was an associate of TFC for the purposes of the Corporations Act (s 50AAA).
There is no dispute AAM paid $1,165,656.69 to Tarrants Finance in the period November 2008 to December 2009. What is in dispute is the existence and nature of any agreement about the payment of this money, the nature of the payments made and whether these payments gave rise to any other obligations under, or non-compliance with, a financial services law. ASIC contends Mr Tarrant entered into an agreement with Mr Richard in about April 2008 for AAM to pay a marketing allowance to Tarrants Finance in respect of moneys invested in ASF by clients of TFC. Mr Tarrant denies the existence of such an agreement.
Mr Tarrant was responsible for all financial product advice TFC provided to its clients, either as authorised representative of TFC or as the corporate representative of TFC. In the period April 2008 to August 2009, Mr Tarrant and TFC provided statements of advice to clients of TFC recommending they invest in the ASF. From April 2008 to May 2009, the statements of advice did not disclose the marketing allowance payable or paid by AAM to Tarrants Finance. In a number of these cases, Mr Tarrant was acting as an authorised representative of TFC and as such, was the “providing entity” for the purposes of various provisions of the Corporations Act (s 944A). These matters are not in dispute.
ASIC contends Mr Tarrant has failed to comply with s 947C(2)(e) of the Corporations Act insofar as he was the providing entity in respect of 20 of those statements of advice. ASIC also contends that statements made by Mr Tarrant in 24 statements of advice to the effect that TFC was “independent” and did not receive commissions or benefits were false or misleading given the existence and receipt of a marketing allowance for recommending ASF. Mr Tarrant thereby breached s 1041E(1) of the Corporations Act. It is further contended that statements were made by Mr Tarrant to staff of TFC to the effect that TFC did not receive commissions or benefits were misleading and deceptive, in breach of s 1041H (1) of the Corporations Act.
Mr Tarrant contends that any money payable and/or paid up until May 2009 was for the recovery of administration costs incurred by TFC. These payments were not required to be disclosed to clients of TFC. They were not commissions or benefits but rather compensation for extraordinary and unforeseen administration costs in facilitating investment in the ASF. There was a marketing allowance agreed which was payable from May 2009 but this was appropriately disclosed. Any statements made by Mr Tarrant in statements of advice issued prior to May 2009 about independence and commissions were therefore not false or misleading. To the extent statements of advice recommending ASF were issued after May 2009, the appropriate disclosure was made and any other statements inconsistent with this disclosure were made in error. Mr Tarrant does not make admit making any representations to staff about commissions and benefits but contends that any representations made to staff (and ultimately TFC clients) in educational PowerPoint presentations were not misleading and deceptive.
In addition to the contraventions alleged by ASIC arising out of the payments from AAM to Tarrants Finance, ASIC contends Mr Tarrant failed to have a reasonable basis for the advice given by him to eight clients of TFC, resulting in those clients suffering loss. It is alleged Mr Tarrant did not appropriately assess the clients’ financial needs and investment profile and recommended that they invest in a high risk product, namely ASF, using self-managed superannuation funds and risky gearing strategies. In contrast, Mr Tarrant contends that appropriate assessments were made and the advice given had a reasonable basis. At the time Mr Tarrant gave advice to invest in the ASF, it was not a high risk product. The scheme was registered and “a competent and responsible financial adviser would have heard no warning bells sounding”: Palmer J in Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd & Ors [2010] NSWSC 286 at [24]. ASF investments were affected by fraud and Mr Tarrant could not have known this at the time he recommended the product to clients of TFC. His advice should not be assessed with the benefit of hindsight.
Having regard to the submissions of the parties and the material before the Tribunal, the issues in dispute and questions for determination were:
(a)What was the nature and effect of any agreement between Mr Tarrant and/or TFC and Mr Shawn Richard on behalf of AAM about the payment of a marketing allowance for investment in ASF and when was the agreement made?
(b)Was Mr Tarrant required to disclose payments made or to be paid to Tarrants Finance by AAM?
(c)Were representations made by Mr Tarrant in statements of advice or statements of additional advice provided to clients of TFC about, inter alia, the independence of TFC false in a material particular or materially misleading?
(d)What representations were made by Mr Tarrant to staff of TFC in respect of ASF?
(e)Were the representations referred to in (d) misleading or deceptive?
(f)Did Mr Tarrant have a reasonable basis for advice given to eight TFC clients who were advised to invest in ASF?
(g)Having regard to (a) to (f), did Mr Tarrant contravene a financial services law?
(h)If the answer to (g) is yes, should Mr Tarrant be banned and, if so, for how long?
(i)If the answer to (g) is no, is the Tribunal nonetheless satisfied that there is reason to believe Mr Tarrant will not comply with a financial services law?
(j)If the answer to (i) is yes, should Mr Tarrant be banned and, if so, for how long?
CONDUCT OF HEARING AND INTERLOCUTORY ORDERS
Mr Tarrant made an application for the review of his banning on 30 November 2011. He applied for orders staying the operation and implementation of the decision under review, including entry of the decision into any register maintained by ASIC, publication of the decision in the Gazette, and disclosure of the decision in any media releases issued by ASIC; and orders that the applicant be described by a pseudonym, that the hearing take place in private, and that publication or disclosure of documents or evidence received by the Tribunal be restricted. The Tribunal did not grant the stay or the confidentiality orders but on 7 December 2011 made orders staying ASIC from making any entry in the ASIC Gazette or issuing a media release pending the determination of the application.
There is a history of repeated non-compliance by Mr Tarrant with orders and directions made by the Tribunal. The procedural history is relevant because Mr Tarrant sought a number of adjournments following his failure to comply with orders and directions, which were either refused or partially granted. ASIC made an application under AAT Act s 42A(5) for dismissal of the application after several days of hearing following Mr Tarrant’s initial failure to attend the hearing. This application was also refused. The following is a summary of the key milestones and directions made and Mr Tarrant’s compliance with those directions.
Directions were made on 13 July 2012 about the documents to be filed before the hearing; including a direction that Mr Tarrant file and serve the evidence on which he was to rely by 7 August 2012. Mr Tarrant did not comply with this direction and he was directed to file and serve his evidence by 19 October 2012.
Mr Tarrant filed and served statements of Nicholas McGowan and Peter Wood and his two unsigned statements dated 22 and 23 October 2012. He also filed a bundle of documents on the first day of the hearing.
The hearing commenced on 24 October 2012 and after four days of an opening by each of the parties, the tender of documents and evidence from Ms Seco, the proceedings were adjourned to 11 March 2013. Directions were made for the parties to file and serve amended statements of facts, any further evidence and expert’s reports. Mr Tarrant filed and served an expert’s report on 27 February 2013, seven days late.
The hearing resumed on 11 March 2013. On that day Mr Tarrant filed a further statement of Nicholas McGowan dated 10 March 2013 and a statement from him setting out the steps he had taken in instructing his expert.
The Tribunal heard evidence on 11, 12 and 13 March 2013. Mr Tarrant served ASIC with new evidence late on 13 March 2013, including research reports on which he sought to rely, and on the following morning provided further documents to ASIC. ASIC objected, Mr Tarrant’s counsel pressed the tender and in such circumstances the Tribunal had no alternative but to adjourn the hearing to 14 and 15 May 2013 and give further directions. The Tribunal directed that all outstanding documentary tenders be filed a week prior to the resumption of the hearing. ASIC foreshadowed it would be seeking the revocation of the suppression orders made on 7 December 2011.
Mr Tarrant failed to file his evidence by the due date and sought an extension, which was granted, to 12 April 2013. Mr Tarrant filed his statement, again unsigned, on 12 April 2013 and the three experts responded.
On 13 May 2013 Mr Tarrant filed an application that the hearing be adjourned for six months because his solicitor had ceased to act. Until this time, Mr Tarrant had been represented by solicitors and for most of the interlocutory applications and the hearings, also by counsel. An affidavit in support annexed a medical certificate from Dr G S Sharma stating that Mr Tarrant was or will be unfit for “work or court appearance” from 13 to 17 May 2013. It was unclear on the face of the certificate whether this was Dr Sharma’s opinion or whether it was based on the report of Mr Tarrant.
Mr Tarrant failed to appear at the resumed hearing on 14 May 2013. The Tribunal heard submissions from ASIC and adjourned both ASIC’s suppression order revocation application and Mr Tarrant’s adjournment application to 13 June 2013. Mr Tarrant was directed to file any medical reports or other evidence in support of his application for an adjournment by 6 June 2103. He was provided with the transcript of the hearing on 14 May 2013 and served with a copy of the orders made on this day.
On 6 June Mr Tarrant filed an affidavit stating that he was unable to appear on 13 June and annexing an unsigned letter from Allison Crossley of Saltwater Spirit Registered Psychological Services.
Mr Tarrant failed to appear on 13 June 2013. At this hearing ASIC foreshadowed an application for dismissal under s 42A(5) of the AAT Act. The Tribunal refused Mr Tarrant’s application for a six month adjournment but adjourned ASIC’s revocation application and the further hearing of the proceedings to 13 August 2013. Mr Tarrant was directed to inform that Tribunal by 15 July 2013 whether he would appear or be represented. The Tribunal directed that ASIC file any application, evidence and submissions in relation to the foreshadowed application by 23 July 2013. Mr Tarrant was directed to file any evidence and submissions in response by 6 August 2013.
The Tribunal delivered oral reasons for refusing Mr Tarrant’s adjournment application on 13 June 2013. The Tribunal was not satisfied there was sufficient evidence Mr Tarrant was unfit to participate in the hearing. Mr Tarrant neither appeared nor made arrangements for Allison Crossley, the psychologist on whose unsigned report he relied, to be available for cross-examination. The Tribunal had regard to Ms Crossley’s report and gave it such weight as it thought appropriate in the circumstances, bearing in mind that while her report suggested that Mr Tarrant suffered from severe depression and extremely severe anxiety Ms Crossley did not opine in any way that Mr Tarrant would be unfit to attend and participate in tribunal proceedings. Ms Cheeseman helpfully referred the Tribunal to In the matter of Idylic Solutions Pty Ltd & Ors - Australian Securities and Investment Commission v Hobbs [2012] NSWSC 731 where in relation to some quite severe instances of ill health Ward J declined to grant an adjournment on the basis that she had no confidence that the position would be any (or significantly) different whenever the matter came on for trial. That position seemed to the Tribunal to be analogous to the position before it.
The Tribunal also delivered brief reasons on 13 June for adjourning ASIC’s application for revocation of the stay order, namely that the Tribunal could discern nothing by way of prejudice that would be suffered by ASIC by a short delay where the proceeding was likely to reach its final disposition in the relatively near future either by way of the completion of the hearing or by way of some other means of disposal that may be sought by ASIC.
On 15 July 2013 Mr Tarrant emailed the Tribunal stating that he was not yet in a position to advise the Tribunal whether he would be represented on 13 August, and that he was “continuing under the treatment of Dr Alison Crossley and having an operation on 1^st August 2013 for cancer and a course of treatment”. Mr Tarrant noted that he expected to make a further adjournment application. ASIC requested a telephone directions hearing to deal with the adjournment application. The Tribunal wrote to Mr Tarrant seeking further details including his exact diagnosis, current prognosis, and the extent to which his health was likely to hinder his participation in the future hearing of the proceeding.
The Tribunal convened a telephone directions hearing on 23 July 2013. Mr Tarrant did not appear, and on the morning of the hearing emailed the Tribunal that he was “medically unfit” and had “no one that can appear for me”. Mr Tarrant was directed to file any adjournment application with evidence in support by 25 July. On 25 July he emailed the Tribunal stating that he was unable to comply with the Tribunal’s order as he was waiting on updated reports from his medical specialist and psychologist. On 29 July Mr Tarrant emailed the Tribunal attaching a one-paragraph letter from Allison Crossley dated 27 July, which stated inter alia that “I have proceeded to place Mr Tarrant on a stress-reduction program. Mr Tarrant has been instructed to limit his professional activities to non-stress related matters for half a day at a time. The program involves mindfulness-based manual labour for half of each working day and includes breathing strategies and yoga”. On 31 July Mr Tarrant emailed to the Tribunal a report of Dr Andrew MacKenzie-Wood of Wollongong Dermatology, which stated that Dr McKenzie-Wood had first reviewed Mr Tarrant on 4 July 2013 and had found two basal cell carcinomas requiring surgical excision, and actinic keratosis requiring treatment with a cream.
ASIC on 1 August 2013 wrote to the Tribunal opposing Mr Tarrant’s adjournment application and requesting that the time for ASIC to file its s 42A(5) dismissal application be extended until after the determination of Mr Tarrant’s adjournment application. The Tribunal declined to give a further extension and ASIC on 1 August accordingly filed its s 42A(5) application, submissions and evidence in support. Mr Tarrant filed submissions in reply on 8 August.
The hearing resumed on 13 August 2013. Mr Tarrant did not appear. The Tribunal heard and dismissed Mr Tarrant’s further adjournment application (made informally by email but treated as a formal adjournment application). The Tribunal had regard to the reports of Ms Crossley and Dr Mackenzie-Wood filed by Mr Tarrant, but held that there was no material before it to indicate any plausible basis for the Tribunal to find that Mr Tarrant would be unable to or significantly inconvenienced to participate in the proceeding. The Tribunal reminded itself that it was made very plain to Mr Tarrant that were he to rely on further medical materials in support of an adjournment application it would be expected that he would submit his medical practitioners to cross-examination. Not only did Mr Tarrant not make his medical practitioners available for cross-examination, he had failed to explain how in any foreseeable period of time his circumstances might alter.
Mr Tarrant in his adjournment application also relied on his financial incapacity to keep his lawyers in funds. Mr Tarrant never put on affidavit any statement of his financial position with any degree of precision. It may be well understood that Mr Tarrant expended a significant amount of money in relation to his prosecution of these proceedings as an applicant. He was represented by counsel and by a solicitor up to 13 May 2013, so the tribunal does not discount the fact that he incurred substantial sums in relation to it. But the financial incapacity was not proved in any way that the Tribunal could rely on and Mr Tarrant was not available for cross-examination. Mr Tarrant put nothing before the Tribunal to suggest that his impecuniosity would be removed in the near future and there was nothing to suggest that there was any imminent circumstance that would arise to change that position: see In the matter of Idylic Solutions Pty Ltd & Ors - Australian Securities and Investment Commission v Hobbs [2012] NSWSC 581 per Ward J at [94].
The Tribunal then heard and determined ASIC’s application for dismissal under AAT Act s 42A(5). This section provides:
If an applicant for a review of a decision fails within a reasonable time:
(a) to proceed with the application; or
(b) to comply with a direction by the Tribunal in relation to the application;
the Tribunal may dismiss the application without proceeding to review the decision.
The Tribunal delivered oral reasons for refusing ASIC’s application under s 42A(5) on 13 August 2013. In summary, the Tribunal considered that an order for dismissal under s 42A(5) could not be founded simply on the basis of Mr Tarrant’s failure to appear or to comply with the Tribunal’s directions where his application had already been substantially prosecuted over some eight days. The Tribunal noted that the power conferred under s 42A(5) is discretionary under both limbs, and that the first limb was not made out in the terms put by ASIC. In the absence of an express withdrawal, when relatively few matters remained to be disposed of relatively simply and with little or no prejudice to the respondent, the threshold for the Tribunal to exercise its discretion simply was not met. The Tribunal noted that the possibility of this proceeding if dismissed being brought back with a request for reinstatement seemed not to be implausible: Goldie v Minister for Immigration and Multicultural and Indigenous Affairs (2002) 121 FCR 383, per Wilcox and Downes JJ at [24] to [36]. Finally, the Tribunal noted the substantial public interest in having this proceeding, which by then had occupied eight days of public hearings, come to a proper conclusion upon the merits. In the absence of an express withdrawal the Tribunal’s duty is to come to the correct or preferable decision on the merits on the materials properly before it.

Following Mr Tarrant’s two unsuccessful applications for the adjournment of these proceedings, in consequence of the Tribunal also having rejected ASIC’s application under s 42A(5) of the AAT Act to dismiss the entirety of the proceedings, the hearing resumed on Thursday 15 August 2013.
There was no appearance by Mr Tarrant on that occasion. However, it was clear that Mr Tarrant had received notice of the Tribunal’s decision of two days previous that the proceedings would continue in his absence should he not be present when the hearing resumed. He had sent an e-mail to the President’s associate, copied to the Respondent, inter-alia, asking that his e-mail correspondence be treated as “the provision of additional information in support of my application dated August 8^th 2013 and specifically in response to the Tribunals (sic) decision to deny my application for an adjournment and to continue on without me”. That e-mail clearly was intended to be put before the Tribunal and the Tribunal received it as Ex AU.
Ms Cheeseman accepted that the communication recorded in Ex AU amounted, in substance, to a further, third, application for an adjournment. The Tribunal dealt with it on that basis. The Tribunal rejected the application for short reasons given orally.
Ms Cheeseman then made the application that she had foreshadowed she intended to make if Mr Tarrant did not attend on the resumption of the hearing. Ms Cheeseman provided written submissions in support of orders under s 25(4A) of the AAT Act that the Tribunal limit the scope of its review in the proceedings by excluding from its consideration Ex M (an Affidavit of Mr Peter Wood) and Ex O and Ex P; unsigned statements of Mr Tarrant of 22 October 2013 and 23 October 2013 respectively.
In the alternative Ms Cheeseman sought an order under s 33 of the AAT Act that the Tribunal reject from evidence Exhibits M, O, and P.
In her oral submissions to the Tribunal Ms Cheeseman accepted that there were distinct differences in ASIC’s objections to the Tribunal taking account of that material as between Mr Wood’s sworn statement Ex M and the unsigned statements of Mr Tarrant, Ex O and P. In respect of the former Mr Cheeseman confined her contention to an objection based on it being unfair to the Respondent for the Tribunal to place any weight on Mr Wood’s sworn statement because it was not capable of being tested by cross-examination: in respect of the statements of Mr Tarrant, Ms Cheeseman submitted additionally that, not only were those statements unsigned, but that they had been given exhibit status only as a convenience to the parties. Their inclusion as exhibits had been agreed to by the Respondent strictly on the assumption that the statements would subsequently be adopted by Mr Tarrant. Because Mr Tarrant had never signed or adopted them they were not properly before the Tribunal. It could not be known whether Mr Tarrant stood by their content. It would be unfair to both parties to place any weight at all on their content in those circumstances.
Given the nature of the submissions Ms Cheeseman advanced in respect of Ex M the Tribunal then drew Ms Cheeseman’s attention to another document that by analogy might require a similar ruling. The Tribunal observed that Mr Tarrant had previously filed a detailed sworn affidavit seemingly relevant to these proceedings. That affidavit, dated 5 December 2011, had been taken into evidence during earlier interlocutory proceedings before Senior Member Allan. The Tribunal noted that the AAT as an inquisitorial body was not bound by the rules of evidence and was able to take account of any relevant materials on its own motion subject to compliance with the rules of procedural fairness. It observed that on its face the contents of Mr Tarrant’s sworn affidavit appeared to be relevant to these proceedings. The affidavit did not suffer from the deficiencies attributed to Ex O and Ex P. The Tribunal enquired as to what Ms Cheeseman’s position would be, given that Mr Tarrant was now unrepresented and had chosen not to take part in what remained of the hearing, if the Tribunal of its own motion thought fit to consider that affidavit.
Ms Cheeseman submitted that the same outcome should apply in respect of that affidavit as she contended for in respect of Ex M, that is that the Tribunal should entirely exclude its contents from consideration, because of ASIC’s lack of opportunity to cross-examine upon it.
At the conclusion of submissions in respect of these matters the Tribunal made three rulings.
The Tribunal received into evidence, on its own motion; the affidavit of Mr Tarrant dated 5 December 2011 as Ex AV and ruled that it would have regard to it subject to submissions as to the weight to be given to its content given the absence of the opportunity for cross-examination.
The Tribunal ruled that it would have regard to the affidavit of Mr Wood, Ex M, subject to submissions as to the weight to be given to its content given the absence of the opportunity for cross-examination.
The Tribunal ruled that it would not have regard to the unsigned, unsworn statements of Mr Tarrant.
The Tribunal indicated that it would provide its reasons for those rulings in the Tribunal’s final decision: it does so now.
Section 25(4A)
Section 25(4A) of the AAT Act provides:
The Tribunal may determine the scope of the review of a decision by limiting the questions of fact, the evidence and the issues that it considers.
That provision enables the Tribunal to narrow the scope of the review of a decision (our emphasis). The scope of a review may be narrowed ‘by limiting the questions of fact, the evidence and the issues that [the Tribunal] considers’. Those words must be read in context. Their context is as part of a section of the AAT Act defining what decisions the Tribunal may review. It permits the Tribunal to confine the scope of its power of review should it think fit to do so. The purpose revealed by that language is to facilitate the Tribunal to limit the scope of its review function to consideration of matters that are truly material. The application of the sub-section is discussed in Pearce, Administrative Appeals Tribunal (3^rd edition, 2013) at [9.1] and illustrated by the examples cited therein—particularly Re Sleiman and Companies Auditors and Liquidators Disciplinary Board (2007) 98 ALD 170 at 174-5 and Re Murdaca and Australian Securities and Investments Commission (2010) 118 ALD 202 at 210. That discussion and those examples confirm the Tribunal’s view that the words do not confer an unconfined power to limit the reception of evidence.
In respect of the review the Tribunal was undertaking, questions relating to settling the scope of this review had occupied several days earlier in the proceedings. That had necessitated ASIC filing revised statements of facts issues and contentions. The Tribunal had since proceeded on the basis that the facts and evidence it would receive would be limited to those relevant to those facts, issues and contentions as settled.
In consequence, the Tribunal took no evidence relevant to whether the Tribunal, standing in the shoes of ASIC in this review, might make findings relevant to s 920(1)(f) of the Corporations Act. It raised that question with the parties but accepted that the scope of review would be narrowed to exclude that matter given that neither party wished any issue associated with that provision to be agitated.
ASIC advanced no argument that the substantive scope of the review be further constrained. There was no proper basis for the exercise of that power simply to exclude otherwise relevant material.
In the Tribunal’s opinion all of the material (sworn and unsworn; adopted or otherwise) the Respondent sought to exclude from consideration pursuant to s 25(4A) fell within the scope of the Tribunal’s review as previously determined.
Section 33
The position was entirely different with respect to Ms Cheeseman’s submissions based on s 33. The Tribunal did not doubt that it had the power, subject to its being persuaded to exercise it, to exclude from its consideration Exhibits M, O, P and AV pursuant to s 33(1)(a). Section 33(1)(a) of the AAT Act grants to the Tribunal the power to govern its own procedures. That extends to the Tribunal ruling with respect to what materials it will have regard to.
Section 33(1)(c) of the AAT Act states:
The Tribunal is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate.
That provision is to be read in the light of the AAT Act as a whole including s 2A which directs that in carrying out its functions:
the Tribunal must pursue the objective of providing a mechanism of review that is fair, just, economical, informal and quick;
and s 33(1)(b) of the AAT Act which directs that the proceedings of the AAT:
…shall be conducted with as little formality and technicality, and with as much expedition….as a proper consideration of the matters before the Tribunal permit.
Understood in that context s 33(1)(c) is not a grant of power occasionally to depart from the strict application of the rules of evidence; rather it presupposes and establishes a scheme for the Tribunal to inform itself of relevant matters in which, notwithstanding that the procedure of the Tribunal always remains within the Tribunal’s independent control, (see AAT Act s 33(1)(a)) the Tribunal, subject to the rules of natural justice, properly may rely on any probative materials relevant to its function. As Hill J observed in Casey v Repatriation Commission (1995) 60 FCR 510 at 514 and repeated in Secretary, Department of Social Security v Jordan (1998) 49 ALD 496 at 504:
…s 33 of the AAT Act means what it says. The fact that material may be inadmissible in accordance with the law of evidence does not mean that it can not be admitted into evidence by the Tribunal or taken into account by it. The criterion for admissibility of material in the Tribunal is not to be found within the interstices of the rules of evidence but within the limits of relevance.
Reception of relevant material before the Tribunal is of course subject to procedural fairness and any substantive legal rights of the parties as may arise from legal professional privilege and the rules against compelled self-incrimination.
The Tribunal also accepts that the power under s 33(1)(a) would be sufficient to cover the truly exceptional case where, for reasons other than procedural fairness, in the particular circumstances of a review, relevant seemingly probative material must be excluded from the Tribunal’s consideration because it would be unfair to a degree incapable of remedy to permit a party to rely on it. The Tribunal thinks it a power that can be exercised on the Tribunal’s own motion. It is not possible to define such circumstances in advance. If its exercise is asked for by a party the onus of persuading the Tribunal is a heavy one. In any event it is a power to be exercised in every case only in the most exceptional of circumstances.
But the issue of “admissibility” must be carefully distinguished from the weight to be attributed to material before the Tribunal.
Any party can make a submission that little or no probative weight should be given to material the Tribunal has indicated it will take account of by reference to principles derived analogously from the rules of evidence. However, the test the Tribunal applies in such a case is to ask itself whether the analogy had provided a persuasive reason to give lesser weight to the material and, if so by what degree—not whether the rules of evidence apply. That is the normal and routine function of the Tribunal.
Inability to cross-examine
The thrust of ASIC’s submissions on this issue was that the right to test an opponent’s case through cross examination was effectively a substantive legal right. The right to cross examine was, Ms Cheeseman submitted, a fundamental and integral feature of procedural fairness. It would be an error of law, prejudicing ASIC, for the Tribunal to admit Ex M.O, P and AV without the makers of those statements being available for cross-examination. Materials incapable of testing by cross-examination testing had to be excluded from the Tribunal’s consideration. In support of that proposition Ms Cheeseman cited Australian Postal Commission v Hayes (1989) 23 FCR 320.
However, recently similar submissions were rejected by Full Court of the Federal Court of Australia in Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 133 ALD 39; (2013) 296 ALR 307. As Jessup J observed:
[73] Although not a court and not bound by the rules of evidence, the Tribunal “is under a duty to observe the requirements of natural justice”: McMullen v Cmr for Superannuation (1985) 61 ALR 189 at 208. That duty does not necessarily involve the extension of the opportunity of cross-examination to any party against whom evidence is called. But it may, in particular circumstances, do so. Speaking generally of administrative inquiries, in O’Rourke v Miller (1985) 156 CLR 342 at 353; 58 ALR 269 at 276, Gibbs CJ said (with the agreement of Mason and Dawson JJ):
It was submitted that the appellant should have been given an opportunity to cross-examine, or at the very least, to confront, the two girls who made the complaints. In support of these submissions we were referred to Barrier Reef Broadcasting Corporation Pty Ltd v Staley (1978) 52 ALRJ 493 and Reg v Board of Visitors of Hull Prisoners; Ex parte St. Germain [1979] 1 WLR 1401. These were cases in which there was a hearing before a tribunal which refused to allow the cross-examination of persons who in the one case had given evidence and in the other had made hearsay statements and the decisions depended, as all cases of this kind do, on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal was acting and the subject-matter being dealt with: see Russell v Duke of Norfolk [1949] 1 All ER 109. Even when there is a hearing before a tribunal it does not follow that a person affected necessarily has a right to cross-examine witnesses: see National Companies and Securities Commission v News Corporation Ltd (1984) 156 CLR 296; 52 ALR 417. Natural justice does not require the application of fixed or technical rules; it requires fairness in all the circumstances.
[74] The judgment of Wilcox J in Australian Postal Commission v Hayes (1989) 23 FCR 320; 87 ALR 283; 18 ALD 135 has occasionally been taken as providing encouragement for the view that cross-examination of witnesses called to give evidence before the tribunal must be permitted. The actual question which came before the court in that case was whether a respondent to a claim for compensation had been denied procedural fairness when the tribunal ruled that a video which it proposed to be put to the claimant under cross-examination be played in her evidence-in-chief. There was no suggestion that she would not be cross-examined, but Wilcox J accepted the contention that, by trammelling upon the way in which counsel for the respondent (to the claim) proposed to use the video in cross-examination, the tribunal had denied it procedural fairness. The case is obviously no authority for the proposition that to admit evidence without the other party having the opportunity to test that evidence by cross-examination must necessarily amount to a denial of procedural fairness.
Accordingly the Tribunal was unable to accept the proposition Ms Cheeseman advanced.
The test to be applied
The Tribunal is bound by Rawson Finances. Whether or not procedural fairness requires evidence incapable of cross-examination to be excluded therefore cannot be determined by the application of fixed or technical rules; rather it requires the Tribunal to form a judgment of what fairness requires in all the circumstances of the individual case.
The Tribunal therefore gives specific reasons addressing each statement it has excluded or not excluded from its consideration having regard to those principles (see also Re Saverio Barbaro and Minister for Immigration and Ethnic Affairs (1980) 3 ALD 1 at 4-5 per Davies J (President)).
Ex O and Ex P: Mr Tarrant’s unsworn, unsigned, un-adopted statements
Ms Cheeseman submitted that the unsigned unsworn statements tendered on behalf of Mr Tarrant by his then counsel, Ms Hogan-Doran, at the outset of the proceeding had been only accepted as exhibits by the Tribunals on the premise that Mr Tarrant would be available for cross-examination. It was implicit that Mr Tarrant would be required to adopt those statements when he was sworn to give evidence for them to remain of relevance to the proceedings. Their availability as materials to be taken into account by the Tribunal was subject to an implied undertaking that that would occur.
Ms Cheeseman was undoubtedly correct in the position that had been reached with those documents.
That understanding was confirmed to the parties by the Tribunal as illustrated by an exchange between the Tribunal and Ms Cheeseman on 12 March 2013
MS CHEESEMAN:   Yes, certainly. Thank you, Your Honour. The other issue is - and my instructing solicitors have been liaising with Mr Nicholls - we have never been served with a signed copy of Mr Tarrant's first two statements, and if I am to cross-examine him tomorrow I should have a final form of the statements. So if I can just have an indication through my learned friend that there is no change and that evidence will be adopted tomorrow.
MS HOGAN-DORAN:   That's my expectation. If there is any change I will tell you very quickly.
HIS HONOUR:   There is no obligation for the statement to be signed, it will be either adopted or not adopted tomorrow and we'll pay no heed to it if it's not adopted.
MS CHEESEMAN:   But in terms of having notice of the evidence and given the constraints on time for cross-examination that's the reason I raise it.
The Tribunal’s recollection is that Mr Tarrant was present during that exchange.
In those circumstances there was merit in Ms Cheeseman’s submission that the two unsworn statements were never properly received by the Tribunal—but the Tribunal need not give a technical rather than a substantive justification for its rejection of the material.
The Tribunal does not accept that it would have been impossible, or unduly onerous, for ASIC to have been obliged to make submissions as to the weight to be given to the content of the statements had it been clear that Mr Tarrant unambiguously intended them to be his evidence in these proceedings.
However the Tribunal concluded it would be both an error and unfair for the Tribunal to give any regard to the unsigned, unsworn statements of Mr Tarrant, Ex O and Ex P. The Tribunal did not and does not know whether Mr Tarrant stood by those statements as true and correct. Despite his having had many opportunities to do so Mr Tarrant had never unambiguously adopted them. Even in his email correspondence to the Tribunal of 15 August 2013 in which he addressed ASIC’s foreshadowed submission that the Tribunal should not have regard to them he did not assert that he was the maker of those statements or assert that they were true and correct. Nor had his counsel or solicitors at any time during the proceedings when Mr Tarrant was represented ever made such a claim—the statements had remained unsigned, provisional and subject to possible alteration.
The problem of giving any weight at all to such statements is therefore not limited to unfairness to ASIC for want of cross-examination—in the actual circumstances of the present case for the Tribunal to have done so would potentially have risked the integrity of the Tribunal’s review. It would have required the Tribunal to take into account materials on a speculative basis. If the Tribunal had hypothesised that Ex O and Ex P did represent Mr Tarrant’s evidence and reasoned, for example, that something apparently stated as a fact in one of those exhibits was inconsistent with some other fact or circumstance that the Tribunal accepted as true and, as a result of that inconsistency, reached conclusions adverse to Mr Tarrant’s credit the Tribunal could have done him a grave disservice. If the Tribunal had avoided that problem by relying on the un-adopted statements only in so far as they helped Mr Tarrant and for that reason ignored submissions suggesting inconsistencies it would have effectively shut ASIC out from the possibility of testing materials accepted as having potential probative value. In the end the Tribunal would be merely guessing about whether it would be fair or not fair to draw such conclusions and that is not a proper basis for the Tribunal to act upon. The Tribunal rejected the relevance of Ex O and P for those reasons.

Finally the Tribunal notes that those two unsworn, unsigned and un-adopted statements were not the only materials which set out Mr Tarrant’s side of these proceedings. Mr Tarrant’s testimony in his s 19 examinations is in evidence before the Tribunal as is Ex AV which the Tribunal has admitted. The Tribunal’s decision to exclude Ex O and Ex P from its consideration therefore did not free ASIC from having to address to the extent it disputed them, the central premises of the case Mr Tarrant advanced. There was therefore no fundamental unfairness in the exclusion of these materials to counterbalance the decision the Tribunal reached.
Ex AV
The position is quite different with respect to Ex AV.
Earlier the Tribunal had ruled that Mr Tarrant’s decision not to participate in the hearing of his review after his three applications for an adjournment had been rejected did not result in him forfeiting his entitlement to the Tribunal fulfilling its review function. That having been decided the decision of the Full Court of the Federal Court of Australia in Summers v Repatriation Commission (2012) 130 ALD 32; [2012] FCAFC 104 at [60] is a recent reminder, if one were required, that the Tribunal’s review function remained an inquisitorial one. The Tribunal was not restricted to determine the “case” as articulated by the parties And, as s 33(1)(c) makes clear, subject to procedural fairness, the Tribunal may inform itself on any matter in any manner as it thinks appropriate.
An applicant who declines to give evidence and to submit himself to cross examination assumes the risks that flow from that choice. Those risks include that the Tribunal may not learn of matters that could have assisted the applicant’s case. Such an applicant also must accept the risk that the Tribunal could draw adverse conclusions in respect of his or her choice to decline to give evidence and be subject to cross examination—Re AK and Commissioner for Superannuation (1986) 11 ALN N106. However so long as the review remains properly on foot the Tribunal must otherwise conscientiously undertake its inquisitorial obligations having regard to any matter it thinks appropriate to inform itself about whether that matter is favourable or unfavourable to the applicant’s position.
Mr Tarrant’s affidavit of 5 December 2011 was admitted into evidence before SM Allan in interlocutory proceedings. It was evidence in support of his application for confidentiality of these hearings and his application that ASIC be stayed from publishing reasons for its decision and a press-release explaining them pending the outcome of these proceedings or further order.
The affidavit is a substantial statement. It incorporates a number of annexures. It includes the Applicant’s account of events and circumstances which are central to these proceedings. There is no doubt of its adoption. It was sworn evidence. It represents Mr Tarrant’s side of the story.
Subject to objections pressed upon the Tribunal it was relevant material of the kind an inquisitorial body would be expected to take into account. Subject to those objections there is no public interest or other proper reason for the Tribunal denying to itself cognisance of what Mr Tarrant put forward as an explanation.
ASIC suffered no surprise. It is material sworn in these proceedings, albeit at an interlocutory stage, of which ASIC long had notice.
It is true that ASIC could not cross-examine the applicant in respect of what he stated as facts in Ex AV. However that placed Ex AV in no different position to that which applied to Mr Tarrant’s exculpatory statements in his s 19 examinations (12 October and 26 October 2010) which are part of the “T” documents and which ASIC accepted were properly before the Tribunal. They also raised issues of disputed credit which might have to be determined by the Tribunal. As discussed earlier the inability to cross-examine is not an absolute bar. It remained open to ASIC to make submissions as to the adverse conclusions the Tribunal might draw in respect of Mr Tarrant’s choice not to submit his account to cross-examination. It was open to ASIC to suggest it be given little weight as a “self-serving” statement. The Tribunal is not a court—the rules of evidence do not apply and many documents and statements are routinely received without the parties able to cross-examine upon them. That does not mean the procedures are unfair. Despite dramatic exceptions to the rule, cross-examination is often less valuable than forensic attack on an account based on objective materials and other credible evidence. It remained open to ASIC to mount that attack.
Finally the Tribunal reminded itself that its rejection of Mr Tarrant’s three applications for an adjournment was not based on the Tribunal having decided that Mr Tarrant was deceiving the Tribunal about his being financially embarrassed, stressed, or suffering from skin problems. The Tribunal gave reasons which explained that to the extent those circumstances existed Mr Tarrant had failed to satisfy it that those circumstances rose to the degree sufficient to satisfy the Tribunal that there was a proper basis for the adjournment he sought. The Tribunal had concluded that to the degree they existed, there was no plausible basis for the Tribunal to have any confidence that those circumstances would change in the foreseeable future. Those findings did not discount the possibility that Mr Tarrant subjectively felt quite differently. The Tribunal therefore did not treat his decision not to attend the resumed hearing as contemptuous of the Tribunal. The Tribunal treated his absence as being analogous to his having closed his case at that point but with the expectation that the Tribunal would continue with its review informing itself as it saw appropriate.
In applying the test in Rawson Finances and forming its judgment of what fairness required in all the circumstances of the individual case the Tribunal therefore concluded it was fair to require ASIC to respond to what Mr Tarrant had stated as his account of events in Ex AV even if cross-examination could not be undertaken.
Ex M
A number of observations the Tribunal made in respect of Ex AV apply equally to the Tribunal’s reasoning in respect of Ex M. Ex M is an affidavit sworn in these proceedings by Mr Peter Wood. It was plainly relevant, ASIC had notice of it and, subject to ASIC’s objection that it had no opportunity to cross-examine its deponent, was material of the kind that this Tribunal properly would have regarded.
Ms Cheeseman submits that in the absence of an opportunity to cross-examine Mr Wood on materials that contain evidence directly contradicting the evidence of Mr Shawn Richard which had been tested through cross-examination these proceedings would lack fairness. As the Tribunal has discussed previously there is no absolute rule to that effect. Whether or not procedural fairness requires evidence incapable of cross-examination to be excluded requires the Tribunal to form a judgment of what fairness requires in all the circumstances of the individual case.
One of the circumstances that the Tribunal took into account in its ruling in respect of Ex M is that Mr Wood attended before the Tribunal to give his evidence at a much earlier stage of these proceedings when both parties were legally represented. The Tribunal therefore attributed no blame to Mr Tarrant or Mr Wood for the procedural skirmishing and delays in the timetable which led to Mr Wood’s oral evidence not being given. In the circumstances peculiar to this case, Ex M having been tendered the Tribunal saw no sufficient reason based on fairness to the parties to exclude it from consideration subject to such weight as it was entitled to given its inherent credibility or lack thereof and in light of the fact that its deponent could not be cross-examined.
The Tribunal accepted that had Mr Wood been cross-examined on his evidence by Ms Cheeseman hypothetically he may have dramatically recanted those parts of his testimony which contradicted that of Shawn Richards but against that is the Tribunal’s own experience, and much literature, that such dramatic occasions are rare. The Tribunal therefore concluded that the likely prejudice to ASIC by reason of the Tribunal receiving and taking into account Ex M was more likely to be speculative and hypothetical than real. Balancing all considerations the Tribunal concluded that fairness did not require the exclusion of Ex M the contents of which ASIC must always have understood to be part of the materials advanced by Mr Tarrant which ASIC would need to address. It would have been opportunistic rather than principled to ignore that material.
As the Tribunal noted previously in respect of Ex AV it remained open to ASIC to make submissions to such weight as Mr Wood’s statements were entitled to given their inherent credibility or lack thereof and in light of the fact that Mr Wood could not be cross-examined. Further as the Tribunal noted cross-examination per se is often less valuable in discrediting a witness than forensic examination in submissions by reference to objective materials and other credible evidence. It remained open to ASIC to mount both such attacks.
BACKGROUND FACTS
ASIC commenced investigations in relation to ASF in late 2009. As part of this process, ASIC issued notices to TFC and Mr Tarrant and conducted private examinations of Mr Tarrant and TFC staff under s 19 of the ASIC Act. ASIC also obtained documents and statements from investors, Mr Shawn Richard and TFC staff.
Most of the key facts on which the banning was based are not in issue. They are evidenced by documents and have been accepted by Mr Tarrant and ASIC in their respective statements of facts issues and contentions. There is no dispute about the recommendations given to TFC clients by Mr Tarrant, nor is there dispute that monies were paid to Tarrants Finance by AAM from November 2008 to September 2009. Central to the question of whether Mr Tarrant has contravened numerous financial services laws is the dispute about whether Mr Tarrant agreed to recommend ASF in exchange for a so called marketing allowance from April 2008 and whether he had a reasonable basis for the advice he gave to eight clients of TFC to invest in ASF using, inter alia, self-managed super funds and gearing strategies.
Mr Tarrant has worked as an accountant in the Wollongong area from about 1988. From 1992, he traded under the name “Tarrant Accountants & Business Advisers” (TABA). TABA provided a range of services, comprising tax, accounting and business advisory services. In 1999 Mr Tarrant expanded his advisory services to include financial advice. This advice was provided through TFC. TFC was incorporated on 12 March 1999 and was granted an AFSL on 2 October 2003. Prior to this, TFC was a licenced securities dealer. TFC provided financial planning and investment based services for a wide range of clients from 1999 until being placed in liquidation in 2010. Mr Tarrant is a certified practicing accountant, a registered tax agent and has a diploma in financial planning.
In the relevant period, namely from March 2008 to December 2009, Mr Tarrant operated a group of companies and businesses which he referred to as the “Tarrant Corporate Group”. The group comprised TABA, TFC, Tarrant Enterprises Pty Ltd (Tarrant Enterprises), Tarrants Finance and Tarrants Legal Services Pty Ltd, which traded as Tarrants Law. He was the sole director of TFC, Tarrant Enterprises and Tarrants Finance and a non-legal director of Tarrants Legal Services Pty Ltd. Tarrants Finance was the corporate trustee for the Tarrants Finance Unit Trust which was owned by TFC (82%) and Tarrant Enterprises (18%). Tarrant Enterprises was the corporate trustee for the MRT Family Trust. The shareholders of Tarrant Enterprises were Mr Tarrant‘s sister and ex-wife. The beneficiaries of the MRT Family trust were Mr Tarrant and his son and daughter.
TFC provided financial services in the form of financial product advice, mostly to retail clients. Mr Tarrant was an authorised representative of TFC from 26 November 2007 to 9 December 2009. He was the only authorised representative. On or about 6 August 2010, TFC was placed into liquidation and its AFSL was suspended.
It is common ground that Mr Tarrant managed TFC and was responsible for all financial product advice TFC provided, either in his capacity as the sole authorised representative of TFC or as corporate representative of TFC. This was acknowledged by Mr Tarrant in his private ASIC examination as follows:
I ran the business. I was responsible for the day-to-day operations of the business. I was the representative, authorised representative and representative at times of Tarrants Financial Consultants, and responsible for the advice that we provided.
Mr Tarrant provided services to clients through TABA and the various companies in the Tarrant Corporate Group. These entities formed part of what Mr Tarrant called the “Pathways to Prosperity”. There were cross referrals between each of the businesses within the group, generating multiple income streams. Clients who came to Mr Tarrant for accounting or tax advice would be offered financial advice through TFC. Tarrants Law was established to provide legal services to clients of TABA and TFC. For instance, if a client wanted to established a self-managed superannuation fund (SMSF) Tarrants Law would be able to prepare the legal documentation. Accounting and audit advice from TABA would be utilised to prepare financial statements for the fund. If finance was needed, Tarrant Finance would organise loans for clients for a fee. TFC had about 480 clients and $173 million in funds under management as at September 2009.
TFC comprised a client advisory team and a portfolio management team. The client advisory team was managed by Nick McGowan. The senior members of the client advisory team included Christian Lotter, Rick Newlyn, Gary Costa and Paul Noack. Mr Costa was also the investment manager, Christian Lotter was a client adviser and Rick Newlyn and Paul Noack were business development managers. They were primarily engaged in interviewing clients and providing draft advice for Mr Tarrant to review. Other staff members in the client advisory team included Brice Zarpellon, Roger Cady, James Brescia and Amir Riahi, who were the more junior members of the team. They prepared documentation for the advice provided by TFC but generally did not interview clients. As Roger Cady and James Brescia became more experienced, they commenced interviewing clients and giving client education presentations. The portfolio management team managed implementation and documentation associated with the portfolios of TFC clients. This team was managed by Nicole McCann.
Ms Stephanie Seco was the director of operations of the Tarrant Corporate Group. She reported to Mr Tarrant and was his second in charge. She responsible for a range of operational and management issues, including overseeing financial and compliance, the payment of invoices and the management of staff. Ms Seco also became the director of advice at TFC following the departure of Mr Costa in late 2009. She is currently an authorised representative of Market Street Holdings Pty Ltd, which is a corporate authorised representative of Wealthsure Financial Services Pty Ltd, an AFSL holder. Market Street Holdings Pty Ltd operates from the same premises as Mr Tarrant.
When Ms Seco was working for TFC she prepared template documents for use by the financial planning staff. These documents were used to ensure consistency and were approved by Mr Tarrant. Ms Seco updated the documents from time to time. These templates included a financial needs analyser and statements of advice with various optional clauses.
According to a compliance audit report prepared by Gold Seal Legal Pty Ltd (Gold Seal) in September 2009, TFC established advice procedures using the following process:
(a)At the initial meeting with a new client, a TFC staff member from the client advisory team would administer a questionnaire known as a “Financial Needs Analyser” (FNA) to each client. Clients also complete a Risk Profile Analysis tool to identify their risk profile. The answers given were allocated a point score and the total score was used to determine the risk profile of the client. The relevant risk profile categorisations were as follows:

Conservative

You are a conservative investor who does not wish to take any investment risk. You are prepared to accept lower returns to protect your capital. The negative effects of inflation do not concern you, provided your initial investment is protected.

Moderately Conservative

You are a moderately conservative investor. You are seeking better than basic returns, however you are only willing to accept small short-term risks in order to gain long-term capital growth.

Balanced

You are a balanced investor. Your priority is consistent capital growth with some income to smooth your returns. You require an investment portfolio which will cope with the effects of inflation. In order to achieve this you are willing to accept calculated risks in the short-term.

Assertive

You are an assertive investor. Your main priority is long-term capital growth, although you do not wish to make unbalanced investment decisions. You are willing to accept higher volatility and moderate risks in order to achieve your goals.

Aggressive

You are an aggressive investor. You may be prepared to compromise portfolio balance to pursue potentially long-term returns. Your investment choices are diverse, but carry with them higher levels of risk. Security of capital is secondary to potential for wealth accumulation.

(b)Staff would analyse the client data and devise a strategy to present to the client based on the client. TFC typically categorised its clients as assertive or aggressive.
(c)At a subsequent meeting, the client was presented with a PowerPoint “education” presentation and an in-principle advice. The PowerPoint presentation included statements about the benefits of gearing investments through borrowing to “remove the handbrake” and magnify returns. Gold Seal noted that it was the practice of TFC to include gearing in all client strategies using margin lending and portfolio warrants.
(d)Mr Tarrant did not generally meet with TFC clients and his involvement in the process was to review and approve the FNA and draft strategies before the statement of advice was drafted. He did not personally sign off on the final statement of advice and his electronic signature was instead applied by persons authorised by him to do so.
(e)Once the strategies were approved by Mr Tarrant, statements of advice were drafted in the back office of TFC under supervision or by either Nick McGowan or Gary Costa. From time to time clients were given new advice, which was provided in a statement of additional advice.

The advice from TFC to its clients, as reflected in the Pathways to Prosperity document, was that the most appropriate way to grow wealth was to be a more aggressive investor. This is not in dispute.
It is clear from the evidence of Ms Seco, the private ASIC examinations of Mr Tarrant and other TFC staff and documents produced to ASIC, a number of which were tendered, that Mr Tarrant managed the operations of the Tarrants Corporate Group, with the assistance of Ms Seco. He established its systems and procedures and made, directed or approved all key decisions. The management structure was like a pyramid with Mr Tarrant, as described by Ms Seco in her evidence, as the “pinnacle of the corporate group”.
During 2007 there were communications between Mr Richard and Mr Tarrant about whether TFC would include ASF on its product list for recommendation to TFC clients. Mr Richard sent TFC information about ASF, including PDS documents. Mr Tarrant attended a conference in Macau in early April 2008, at which Mr Richard was presenting. Following this presentation, Mr Tarrant had a meeting with Mr Richard in which they discussed ASF and another investment product, known as the Alpha Advantage Fund (AAF).

In his submission, Mr Tarrant states the contention by ASIC that the use of gearing or double gearing to invest in ASF “amplified the high level of risk” inherent in investing in ASF is “simplistic and not supported by the evidence”. The Tribunal rejects this submission. According to Mr Alafaci double gearing is an aggressive strategy, particularly when it is used for investment in a hedge fund. He also noted that Mr Tarrant did not consider the likely impact on the clients to whom he had recommended gearing or double gearing strategies if one of the investments sustained a serious attack, such as counterparty failure.
Mr Tarrant recommended these eight clients invest over 20% of their portfolio (and up to 42% in six cases) in ASF and that they borrow money to do so. The Tribunal accepts the evidence of Mr Alafaci that this had the effect of exacerbating the loss for the clients. Not only did the clients lose their investments in ASF but if they borrowed to invest in ASF they were left with a debt and continued to incur the cost of the interest on that part of the loan attributable to the ASF investment without any prospect of appreciation in the asset. For those clients with margin loans, they were forced to sell securities to repay the loans and this crystallised their losses.
Mr Tarrant recommended these eight clients establish SMSFs but there is no evidence he analysed performance as between the existing funds and likely returns and costs of the SMSF. The only comparison undertaken was an assertion that the SMSF was more desirable because it gave investors greater control over investments in the fund. It was nonetheless recommended that investors delegate portfolio management to TFC for a fee.
The Tribunal is not satisfied that Mr Tarrant gave adequate consideration to the suitability for these clients in investing through gearing, double gearing, and/or a SMSF.
Even though Mr Tarrant did not undertake adequate analysis of each of the clients’ financial needs and personal circumstances, he knew his clients were unsophisticated families or individuals of modest means. Having regard to what Mr Tarrant knew about his clients, the Tribunal is not satisfied that he gave due consideration to the investment products and strategies he was recommending, as required by s 945A(1)(b). This breach and the failure to assess his clients’ personal circumstances, resulted in Mr Tarrant providing inappropriate advice to each of the eight investors.
The advice to TR to establish a SMSF, borrow $35,000 and invest nearly a third of his superannuation portfolio in ASF was inappropriate because there was a risk the initial investment in the ASF may not be recovered, the fees and charges to establish and operate the SMSF were excessive given the modest balance, there was no evidence that the performance of the SMSF was likely to be demonstrably better than his existing superannuation funds when fees were taken into account and, relevantly, there was no evidence that Mr Tarrant conducted such an analysis.
The advice to JC and LC to borrow $318,000 (increasing their indebtedness by more than 100%) and invest approximately 42% in ASF was inappropriate because there was a risk that the investment in ASF may not be recovered and, if so, the losses incurred by JC and LC would be magnified and very significant given the value of their total net assets and their limited capacity to rebuild their portfolio through earnings. There is no evidence that Mr Tarrant undertook an analysis of the costs of financing the loans and the funds available to service the loans or that he undertook a cost/benefit analysis of the fees and charges payable to TFC as against the likely return to JC and LC.
Even though JC and LC did not accept the recommendation to establish a SMSF, borrow through a portfolio warrant and invest in ASF, this was a recommendation made by Mr Tarrant and he had an obligation to comply with s 945A regardless of whether the clients proceeded with the recommendation. This recommendation was not appropriate because there is no evidence that this option would have been more beneficial to JC and LC in terms of growth and return on their investment than their existing superannuation funds. Furthermore, there is no evidence that the benefits of the SMSF would outweigh the costs of fees and interest on the portfolio warrant.
The advice to AR and CR to borrow $661,388 (when they had no debt) and invest approximately 43% of their investment portfolio in ASF was inappropriate for the same reasons outlined in respect of JC and LC. Similarly, the advice to AR and CR to establish a SMSF was inappropriate and the fact that AR and CR did not proceed with the advice does not abrogate the obligation of Mr Tarrant to comply with s 945A.
The advice to DS and CS to borrow $296,000 (increasing their indebtedness by just over 100%), invest approximately 42% of their non-superannuation portfolio in ASF, establish a SMSF and invest 28% of their superannuation portfolio in ASF was inappropriate for the same reasons as outlined in respect of the advice given to JC and LC. The advice to establish a SMSF with a balance of $53,413 was also inappropriate given the ongoing costs of compliance, the establishment fees and the lack of due consideration about comparing investment in a SMSF with the existing superannuation funds.
The advice to BW to establish a SMSF, and borrow $103,263, when she had no debt, was inappropriate because there is no evidence this option would have been more beneficial to BW than remaining in her existing superannuation funds. As already noted, the fact that BW did not proceed with this advice does not abrogate Mr Tarrant's obligation to comply with s 945A. The advice to borrow $72,000 and redeem her investment in Platinum and invest in ASF was inappropriate for the reasons already outlined.
There is no evidence any of the eight investors had an appetite for the risk of investing in an alternative investment, where there was a risk of capital loss, through gearing. The profile of each of the investors would have been more appropriately assessed as balanced or possibly assertive. In each case, the recommendation by Mr Tarrant to invest in ASF was in excess of the percentages recommended by Aegis, Van Mac and Van Eyk.
The Tribunal finds that Mr Tarrant breached s 945A in respect of the various advices given to TR, JC and LC, AR and CR, Ds and CS and BW. These breaches were serious because there were serious consequences for each client in following the advice. All suffered significant loss to their assets and retirement savings. One of the contentions raised by Mr Tarrant in his submissions and by his counsel during the proceedings was that there was no obligation to comply with s 945A in respect of advice given to clients “for discussion purposes” or in respect of IPSOAs. The Tribunal rejects this submission. Section 945A imposes an obligation whenever an adviser provides advice to a client, regardless of whether that advice is given for the purposes of further discussion. It is implicit that when an adviser provides a client with various or alternative options, the adviser is recommending and giving advice in respect of those options. In the Tribunal’s view, it is therefore incumbent on the adviser to have a proper basis for those alternative recommendations.
Mr Tarrant submitted that the eight clients would have been better off but for the fraud by purporting to reconstruct each of their portfolios, excluding the loss. ASIC objected to this submission because the reconstruction is unsupported by evidence and is irrelevant to the question before the Tribunal. The Tribunal rejects the submission of Mr Tarrant. The methodology for the analysis adopted by Mr Tarrant in his reconstruction is not transparent and appears to rely on information that is not before the Tribunal. The Tribunal also agrees that this submission has little relevance given one of the key issues in the proceeding is whether ASF was a suitable investment for these clients. To exclude its failure is to not only reconstruct the result but the advice.
Conclusions
The Tribunal is satisfied that Mr Tarrant has breached:
(a)s 947C in respect of 20 statements of advice;
(b)s 1041E(1) in respect of statements made in 15 statements of advice;
(c)s 1041H(1) in respect of representations made to TFC staff and thereby clients of TFC from early October 2008 to May 2009; and
(d)s 945A in respect of advices given to eight TFC clients.
These breaches were all significant and serious because they affected unsophisticated retail investors and were over an extended period. They involved large amounts of money and there were multiple breaches. The consequences of the breaches have been devastating for both investors and TFC. The Tribunal accepts the consequences have been detrimental for Mr Tarrant because he has built a business over many years that is now in liquidation. He states his reputation has been severely damaged. The Tribunal accepts the collapse of ASF and Trio Capital and resulting publicity, investigations and court actions are likely to have a significant effect on Mr Tarrant. Mr Tarrant was not responsible for the collapse of ASF and Trio but he was responsible for the advice he gave, the disclosure he failed to make and the representations made to investors and TFC staff.
While the Tribunal accepts there is no evidence of prior breaches by Mr Tarrant it must also have regard to the fact Mr Tarrant does not accept responsibility for the breaches the Tribunal has found. Mr Tarrant lacks insight into the gravity of the breaches and this leads the Tribunal to have concerns about whether Mr Tarrant fully appreciates the obligations of an authorised representative. This was illustrated in his submissions. For example, when commenting on Mr Alafaci’s criticism of the advice he provided to DS and CS, Mr Tarrant made the following submission:
The ASIC expert, Alafaci is out of line expecting an adviser to tell a 47-year-old and 42-year-old when they should retire or what is too much money to expect in retirement.
It is not unusual for people in their 40s to think they can retire in their 50s but reality soon sets in and people reassess their expectations as they get older. This is not a situation to address with a 47-year-old and a 42-year-old client. This was a situation to help clients take advantage of the market crisis and that is what I did in a prudent and professional manner and then for the fraud at fund manager level.
Later in his submissions Mr Tarrant stated that “the clients’ level of experience should not determine whether they receive vanilla or sophisticated advice”. This submission underscores Mr Tarrant’s apparent failure to understand the importance of the personal circumstances of the client when giving advice.
Mr Tarrant is entitled to challenge the decision of the delegate and to seek a review of all the matters raised by ASIC but if the Tribunal finds, as it has, that Mr Tarrant has breached the Corporations Act, it is appropriate for the Tribunal to have regard to Mr Tarrant’s attitude to those breaches. This may be relevant to the question of whether there are legitimate concerns about Mr Tarrant’s compliance with financial service laws in the future and his understanding of those laws. Mr Tarrant does not say he did not understand his obligations at the time or that there was a mistake or error. The submissions previously referred to do not give the Tribunal any confidence Mr Tarrant will comply with the financial laws if he is again licensed. This impacts on the question of whether a banning order should be made and, if so, for how long.
SHOULD A BANNING ORDER BE MADE AND, IF SO, FOR WHAT PERIOD?
ASIC contended that the banning of seven years is appropriate and the decision of the delegate should be affirmed. ASIC relies on the factors identified by Santow J in Australian Securities and Investments Commission v Adler and ors (2002) 42 ACSR 80; [2002] NSWSC 483 at [55]–[56] as reflected in RG 98 published by ASIC, updated in February 2008.
Mr Tarrant contended that ASIC's case was “weak, opportunistic and contrary to the evidence”. He requested the Tribunal to award costs against ASIC in his favour, reinstate his AFSL and set aside the seven year banning order.
The Tribunal does not have power to award costs in this case nor to reinstate what the Tribunal assumes Mr Tarrant is referring to as the AFSL of TFC. The suspension of the AFSL is not the subject of this review and the Tribunal has no jurisdiction to make such an order. Once it has been established that a person has not complied with a financial services law or there is reason to believe the person will not comply with a financial service law, there is discretion to ASIC, and thereby this Tribunal, to make a banning order. The Tribunal has found that Mr Tarrant has breached various provisions of the financial services law and as such, the discretion to make a banning order has been enlivened. The key issue is how this discretion should be exercised, namely should the Tribunal make a banning order and, if so, for how long.
ASIC v Adler was about breach of civil penalty provisions and, in particular, breach of directors duties. Santow J helpfully set out the guiding principles to be taken into account when the disqualification of a director is being considered. These principles have subsequently been adopted a number of disqualification cases and in the Tribunal’s view the principles are relevant to the Tribunal’s discretion. As observed by the Tribunal in Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602; [2008] AATA 278 at [180]:
The weight of authority in the Federal and Supreme Courts to whose judgments we have referred seems to be to the effect that a disqualification order, and so a banning order, is made on the basis of what will protect the public. It is not made on the basis of what will punish the person concerned even though punishment or the imposition of a penalty may be the practical outcome of the making of an order. Deterrence is also a relevant concern. Deterrence may relate both to the person concerned and to others engaged or potentially engaged in the finance. If imposed, it is relevant in the case of the individual in that it protects the public from that person’s being involved in the industry. Whether imposed or not, the possibility that an order might be made is itself a deterrent both to an individual and to all of those engaged in that industry.
In ASIC v Adler Santow J identified 15 factors relevant to disqualification. Taking those factors in account and applying them to the present case, the Tribunal is of the view that the following matters are relevant to the Tribunal’s consideration:
(i)Banning orders are designed to protect the public from the harm, which includes the protection of investors;
(ii)The banning order is protective against present and future breach;
(iii)A banning order has a motive of personal deterrence, though it is not punitive;
(iv)The objects of general deterrence are also sought to be achieved;
(v)In assessing the fitness of a person to be permitted to provide financial advice, they have an understanding of their role and obligations;
(vi)In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public;
(vii)Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty;
(viii)It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct;
(ix)A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming;
(x)It is necessary to assess matters such as the character of the person, the nature of the breaches, risks to others from the continuation of the person as an authorised representative of a licensed person and the honesty and competence of the person;
(xi)Factors which lead to the imposition of the longest periods of disqualification include large financial losses, high propensity for the person to engage in similar conduct and lack of contrition or remorse; and
(xii)Factors which lead to the conclusion that these cases were serious though not “worst cases” resulting in disqualification from 7 to 12 years, include serious incompetence and irresponsibility, substantial loss or deliberate courses of conduct to enrich themselves at others’ expense, but with lesser degrees of dishonesty.
Having regard to these matters and the Tribunal’s findings of breach, the Tribunal finds a banning order is warranted and that an order of at least seven years is appropriate.
In this case, there have been numerous breaches of financial services laws. Those breaches have been serious and repeated. A consequence of the breaches has been significant loss to the retirement savings of investors. While there is no evidence of dishonesty, there is evidence of incompetence and negligent, if not wilful, breach. Mr Tarrant has not expressed any contrition or remorse for the wrongdoing and has sought to blame others for the losses. Specific deterrence is therefore a relevant consideration in this case. General deterrence and the importance of maintaining standards are also relevant. The protection of investors from possible future breach by Mr Tarrant but, more particularly, other advisers who may be deterred by the example of a banning order is a relevant consideration. Against this, it should be noted that Mr Tarrant will continue to suffer hardship if a banning order is imposed. He has already been banned for a period of two years and has no history of breach. TFC has been licensed, without incident, from 1999 and he managed and controlled TFC at all relevant times. As stated by Santow J, it is necessary to balance the personal hardship of the person against the public interest. There is no evidence Mr Tarrant now understands the problems and will reform. In the Tribunal’s view, the protection of the public and the seriousness of the breaches militate in favour of a lengthy banning order.
A banning in the range of 7 to 12 years would be appropriate given the nature of the breaches, Mr Tarrant’s conduct, the significant losses and the potential financial benefits to Mr Tarrant in respect of the breaches. The Tribunal notes that the length of the ban determined by the delegate was at the lower end of this range. ASIC did not press for an increased period of banning and submitted the decision of the delegate should be affirmed. While the Tribunal has found Mr Tarrant’s contraventions were serious and caused loss, the Tribunal has made no findings about dishonesty or fraud beyond those necessarily implicit in our findings relating to certain representations made to his staff and clients referred to above. The Tribunal has concerns Mr Tarrant will not comply with financial services laws in the future but has made no findings about this. When this issue was raised with ASIC at the outset, counsel disavowed that such a case was being advanced. Consequently, Mr Tarrant was not required to respond to this allegation and to make a finding about this in these circumstances would not be procedurally fair. In the absence of submissions to the contrary by ASIC, the Tribunal finds that a banning of seven years is the correct and preferable decision.
The Tribunal affirms the decision under review.
The Tribunal also revokes the order of 7 December 2011 staying ASIC from making any entry in the ASIC Gazette or issuing any media release notifying that orders have been made against the Applicant pursuant to ss 920A and 920B of the Corporations Act. This order was made to prevent gratuitous publicity pending the determination of the review. Having regard to the Tribunal’s conclusions, there is no longer any useful purpose in the order.

391. I certify that the preceding 390 (three hundred and ninety) paragraphs are a true copy of the reasons for the decision herein of Justice D Kerr, President, and Ms JL Redfern, Senior Member.

........................................................................
Associate
Dated: 20 December 2013

Dates of hearing
24, 25, 26, 29, 30 October 2012; 11, 12, 13, 14 March 2013; 14 May 2013; 13 June 2013; 13, 15 August 2013

Date final submissions received
22 November 2013

Counsel for the Applicant (to 13 May 2013)
Ms D Hogan-Doran
Ms D Dinnen
Ms I King

Solicitors for the Applicant (to 13 May 2013)
Christopher Nicholls and Associates

Counsel for the Respondent
Ms E Cheeseman SC
Ms S Talbert
Mr P McGuire
Mr J Conde

Solicitors for the Respondent Australian Securities and Investments Commission

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2011/5133
Re	Mervyn Ross Tarrant
APPLICANT
And	Australian Securities and Investments Commission
RESPONDENT

Tribunal	President D Kerr Ms J L Redfern, Senior Member
Date	20 December 2013
Place	Sydney

Conservative	You are a conservative investor who does not wish to take any investment risk. You are prepared to accept lower returns to protect your capital. The negative effects of inflation do not concern you, provided your initial investment is protected.
Moderately Conservative	You are a moderately conservative investor. You are seeking better than basic returns, however you are only willing to accept small short-term risks in order to gain long-term capital growth.
Balanced	You are a balanced investor. Your priority is consistent capital growth with some income to smooth your returns. You require an investment portfolio which will cope with the effects of inflation. In order to achieve this you are willing to accept calculated risks in the short-term.
Assertive	You are an assertive investor. Your main priority is long-term capital growth, although you do not wish to make unbalanced investment decisions. You are willing to accept higher volatility and moderate risks in order to achieve your goals.
Aggressive	You are an aggressive investor. You may be prepared to compromise portfolio balance to pursue potentially long-term returns. Your investment choices are diverse, but carry with them higher levels of risk. Security of capital is secondary to potential for wealth accumulation.

Dates of hearing	24, 25, 26, 29, 30 October 2012; 11, 12, 13, 14 March 2013; 14 May 2013; 13 June 2013; 13, 15 August 2013
Date final submissions received	22 November 2013
Counsel for the Applicant (to 13 May 2013)	Ms D Hogan-Doran Ms D Dinnen Ms I King
Solicitors for the Applicant (to 13 May 2013)	Christopher Nicholls and Associates
Counsel for the Respondent	Ms E Cheeseman SC Ms S Talbert Mr P McGuire Mr J Conde
Solicitors for the Respondent	Australian Securities and Investments Commission