The Sharemarket College Pty Ltd and Australian Securities and Investments Commission
[2016] AATA 1057
•24 November 2016
The Sharemarket College Pty Ltd and Australian Securities and Investments Commission [2016] AATA 1057 (24 November 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2016/5074; 5075; 5076
Re
The Sharemarket College Pty Ltd
Graeme Rogers
Jill Rogers
APPLICANTS
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal The Hon. Dennis Cowdroy OAM QC, Deputy President
Date 24 November 2016 Date of written reasons 21 December 2016 Place Sydney The applications for a stay of the delegate’s decision in each of the applications 2016/5074, 2016/5075 and 2016/5076, are refused.
...............................[sgd].........................................
The Hon. Dennis Cowdroy OAM QC, Deputy President
Catchwords
PRACTICE AND PROCEDURE – stay application – applicants prohibited from providing any financial services – utility of granting stay where applicant business has no business to conduct - prospects of success where legal and factual issues to be considered at hearing – public interest – consequences on application for review – application for stay dismissed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) s 41(2)
Corporations Act 2001 (Cth) ss 915C(1), 920E(2), 922A(1), 1317A, 1317B(1)Corporations Regulations 2001 (Cth) r 7.6.06(1)
Cases
Director of Public Prosecutions v Smith [1991] 1 VR 63
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471
REASONS FOR DECISION
The Hon. Dennis Cowdroy OAM QC, Deputy President
21 December 2016
On 30 August 2016 a delegate of the respondent made three decisions. First, the delegate found that the Sharemarket College Pty Ltd (the College), had engaged in conduct in relation to five specific matters which warranted cancellation of an Australian financial services licence (the licence) number 331635 pursuant to s 915C(1) of the Corporations Act 2001 (Cth). Secondly, the delegate found that one of the directors of the College, namely Jill Rogers, because of her involvement in the conduct referred to, leading to the cancellation of the licence of the College, should be banned from providing financial services for a period of three years. Thirdly, the delegate found that the remaining director, Graeme Rogers, because of his involvement in the breaches by the College of the conditions of its licence, should be banned from providing financial services for a period of four years.
By applications for review dated 23 September 2016, the College and Mr and Mrs Rogers have sought review of the three decisions of the delegate. Such decisions are reviewable decisions, see ss 1317A and 1317B(1) of the Corporations Act. The applications have not yet been set down for hearing. Each of the applications essentially challenge both the legal and factual matters contained in the delegate’s decisions. Each of the College and Mr and Mrs Rogers, collectively referred to hereafter as the applicants, seek a stay of the operation of the decision and consequential orders providing notification of a grant of any stay. Such stay application is brought pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act).
Statutory power also exists to stay the actions pursuant to s 920E(2) of the Corporations Act, which relates to publication of a decision in the Gazette, and s 922A(1) of the Corporations Act, and regulation 7.6.06(1) of the Corporations Regulations 2001, which relates to registers relating to financial services.
Applicable Principles
The principles which guide the Tribunal when considering whether a stay should be granted are well established. They include the prospects of success in the proceedings, the consequences for the applicants if the stay were not granted, the public interest, the consequences for the respondent in carrying out its functions, whether the review application would be rendered nugatory or pointless if the stay were not granted, and any other relevant matters.
The Evidence
The evidence filed in support of the stay application is found in the affidavits of Jill Rogers, affirmed on 8 November 2016, Graeme Rogers, affirmed on 8 November 2016 and Cheryl Short, affirmed on 8 November 2016. In addition, the solicitor for the applicants has filed an affidavit, that is Su-King Hii, affirmed on 16 November 2016. In addition, the applicants provided both written and oral submissions which incorporate three schedules which summarise the delegate’s reasons for terminating the licence and for imposing the banning orders on the individual directors. The respondent opposes the stay application, and whilst it has filed no evidence it has filed submissions which it addressed orally at the hearing.
Consideration
The basis of the application lies in alleged financial hardship that will be occasioned to the College if the stay is not granted. Some reference was also made to adverse media publicity, but this was only faintly referred to. The College was first registered on 3 June 2002 as a Registered Training Organisation, although at that time the business was known as Trend Marketing Systems conducted by a company registered as Leon Bird Pty Ltd. On 9 February 2004 the company name was changed to its present name. The College provided tuition to persons wishing to know the operation of the share market and trading in the market. In addition, from some date in 2004 the College became an authorised representative of Sonray Capital Markets.
On 11 March 2009 the College obtained its own Australian financial services licence. Such licence number, 331635, was issued to the College, it being recorded that Jill Rogers and Graeme Rogers were each responsible persons. A third responsible person was recorded as George Martin Michelini. Trading was conducted through a third party on the stock exchange, namely D2MX Pty Ltd. However, for present purposes this aspect is not relevant.
The classes of financial services which were authorised under the licence was the provision of general financial product advice only and dealing in a financial product. The licence conditions confirm that the College could carry on a financial business by, inter alia, providing general financial product advice in respect of certain products, dealing in financial products by applying for, acquiring them, varying or disposing of a financial product on behalf of another person.
The Tribunal now refers to the findings of the delegate. With respect to the College, five examples of conduct were placed before the delegate which were relied upon by the respondent to justify cancellation of the licence. Such conduct included the fact that emails had been sent to members of the College, and possibly to others, which made false claims concerning the financial success of the College’s model share portfolio. The claim alleged that returns of 67 per cent had been obtained, when in fact the College possessed no such model.
Secondly, it was claimed that the College, contrary to its licence, provided personal advice rather than general advice in relation to financial products.
Thirdly, it was alleged that the College had failed to lodge a breach report within 10 days of becoming aware of such a breach.
Fourthly, it was claimed that there was inadequate supervision of staff, leading to misleading and deceptive emails being sent to prospective members. One staff member had sent 14 of such emails, and another staff member had sent at least 27 such emails.
Fifthly, it was claimed that the company did not understand its obligations and could not be relied upon to discharge its duties under the licence.
In each case the delegate found that the claims should be upheld.
The conduct alleged against Jill Rogers largely related to the issue of emails which were said to be misleading or deceptive, and of her failure to supervise and to report breaches. Mrs Rogers was the responsible manager who had direct responsibility for the day to day operation of the business. The concerns related to her conduct were upheld and in addition, the concerns were upheld that she was likely to become involved in contravention of a financial services law by another person, and that she was likely to contribute to a breach of the financial services law because of her involvement in the failure of the College to comply with condition 1 on the College’s licence.
The conduct alleged against Graeme Rogers alleged that he authorised a sending of misleading or deceptive emails, was involved in the breach of condition 1 of the licence issued to the College, was involved in a contravention of s 912D of the Corporations Act by failing to lodge a report of the breach as required by s 1041H of the Corporations Act, for approximately seven months, that he failed to supervise financial services. Concerns were also raised concerning the likelihood of him becoming involved in future contraventions of a financial services law by another person. In each case the claims were upheld by the delegate.
At the hearing of this application much evidence was relied upon which related more to the merits of the application. The merits of the application is not the primary focus on an application for a stay, and indeed it is useful for background only to determine whether a claim being made has little prospects of success.
Observations
It is apparent from the material provided that in the cases where fraudulent emails were forwarded to potential clients, that work was conducted by an employee retained by the College. That person sent the emails, and both Mr and Mrs Rogers claimed to be unaware that such emails were being sent. This no doubt led to the charge brought against them that they had failed to supervise their employees.
It can be readily observed that there may be scope for factual conflict at the ultimate hearing, which would require a resolution on the application for review in each case. Further, it is apparent from the applications for review that issues of law will arise at the hearing, especially in relation to the liability of the directors, in respect of their alleged imputed knowledge of the breaches of the College’s licence conditions. Depending upon the outcome of those matters, it could be the case that the remaining matters, if established, might not justify the penalties which have been imposed for cancellation and suspension if the applications are not wholly successful. The Tribunal notes that the College has been in existence for more than 20 years, apparently without any adverse action.
The affidavit of Jill Rogers explains the separate nature of the businesses of the College, namely, firstly, the aspect of tuition which is offered through membership packages known as “Platinum Membership”. Such membership offers workshops to individuals who become members, accredited courses, mentoring, member evenings and market research reports. Each package sells for $14,880. The second aspect of the trading of the College is that of trading on behalf of the members of the College. It is claimed that because the licence has been cancelled, there has been a marked decline in the recruitment of new members. Further, it is submitted that the profit associated with the financial services business for the last financial year was $212,402, exclusive of rent of office space and outgoings. It is submitted that the income generated from the financial services business is vital to the continued operation of the business as a whole and of the education business.
Mrs Rogers, in her affidavit, states at paragraph 164:
The financial services business again in effect assisted in turning the business from an unprofitable business to a profitable one in FY2016. The total operating profit before tax for the financial year 2016 was $86,467. However, the profit associated with the financial services business was $212,402 - calculated based on revenue of $341,288 and costs (made up of advisor commissions, wages and costs relating to the [Australian financial services licence]) was $128,886.
She states also in paragraph 178 of her affidavit that:
Since 30 August 2016 only two new members have joined the College.
Profit and loss statements for the financial year 2016 have been provided. I refer also to the fact that there are other affidavits which I have already identified, which essentially place the claim for the stay on the question of financial hardship and the impact on the College. Apart from these claims, there is no other basis for the application for the stay.
Findings
Based upon the affidavit evidence of Mrs Rogers, prima facie a valid case for a stay would have existed. However there is a powerful reason why the evidence of Mrs Rogers must be balanced with documents tendered by the respondent during the hearing. On 7 September 2016 the College entered into a sale agreement of the business to Trysam Securities Pty Ltd (Trysam). This information was contained in a document described as a business sale agreement which was disclosed only three days before the hearing. It was not referred to in any affidavit of the applicants. As appears in ‘Schedule C’ to the agreement, included in the sale by the College to Trysam was its database, client list, course material, as well as its plant and equipment, office fittings and fixtures, stock value and intellectual property. The term “intellectual property” is defined in paragraph 1 of the agreement to include “database rights, business and trading names, domain names and all other industrial or intellectual property or other rights of a similar nature in any part of the world”.
The sale price for the business of the College was fixed at one dollar. Although not apparent from any evidence filed by the respondent, the Tribunal is informed that the purchaser is a company operated by the son of the directors of the College. A restraint of trade is specified to operate within five kilometres of the current place of business of the College, namely 46 Wharf Road, Kangaroo Point, Brisbane. The agreement was specified to be completed on 7 September 2016. It might be noted that the decision from which the stay is sought and the applications are filed is dated 30 August 2016.
On 9 September 2016 Trysam entered into an authorised representative agreement with another company known as Mejority Securities Pty Ltd (Mejority), pursuant to which Trysam appointed Mejority as the authorised representative to provide it financial services. There is no known link between Trysam and Mejority, however what is plain is that by virtue of the sale agreement, the College sold all its business to the purchaser, Trysam.
The relationship and the conduct of the College does not end there. Also on 6 September 2016 the College entered into another agreement with Trysam, recorded as a ‘Referral Services Agreement’. Pursuant to this agreement it was agreed to introduce potential clients to the College. Pursuant to clause 6, the College agreed for a period of two years after the expiry of the term of the agreement, in effect, not to persuade a client from dealing with Trysam or to carry on any contract for financial services or be engaged, concerned or incidentally associated with, otherwise involve any business activity that is competitive with any business carried on by Trysam.
It is also significant that Trysam sent out a letter to the former clients of the College, which relevantly states:
As discussed with The Sharemarket College Pty Ltd (SMC, AFSL 331635) we are writing to you via email to advise that D2MX Pty Ltd (D2MX, 297950) unfortunately is unable to provide execution services to SMC clients as that agreement has ceased.
The Sharemarket College Pty Ltd sold its advisory business to Trysam Securities Pty Ltd (Trysam Securities, CAR No 1247682), a corporate authorised representative of Mejority Securities Pty Ltd (Mejority Securities, AFSL 485760). Mejority Securities has an execution agreement with D2MX.
Trysam Securities can provide general advice and arrange execution of financial product transactions for you on your existing account. The key changes relate to your transactions being placed by Trysam Securities rather than SMC with D2MX to execute in the market, and contract notes will now be sent from Trysam Securities without any involvement or general advice by SMC.
In making the change to Trysam Securities, it is important to note that everything else will remain unchanged.
The business sale agreement accordingly results in the College having no business to conduct. It has sold its business.
Accordingly, in those circumstances it is impossible to see how the claims of hardship being occasioned to the College could be sustained as referred to in the affidavit evidence of Mrs Rogers. Counsel for the applicants stated that a letter was held, signed on the day of the hearing by Trysam, offering to transfer the business back to the College in the event that a stay is granted. Such arrangements, however, appear to be merely a device to maintain the business of the College. Counsel for the applicants disavowed any suggestion that the arrangements were a sham.
The Tribunal notes the definition in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 486, paragraph 46, where the Court said of the word “sham”, that it:
Refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences.
Accepting counsel for the applicants submission that the arrangement is not a sham, it must follow that the contract for the sale of the business must be regarded as a genuine contract, and that upon transfer of the business, pursuant to the business sale agreement, the purchaser, Trysam, is now operating the business and the College no longer operates it. The statement made to effectively re-transfer the business carries little weight, bearing in mind the practicalities that the hearing of the final applications brought by the applicants to this Tribunal can be disposed of relatively quickly.
Taking these matters into consideration, the Tribunal finds, firstly, that the basis of a claim for financial hardship because of the cancellation of the licence cannot be sustained. Secondly, any assertions of adverse media publication harmful to the applicants is scarcely justification for the grant of a stay. Thirdly, when there is both factual and legal issues to be raised at a hearing it is impossible to predict the likely outcome. The Tribunal can only observe that the application would appear to be arguable in each case.
Public Interest
Irrespective of the applicants claims, the Tribunal must consider the public interest. The definition of “public interest” was stated in Director of Public Prosecutions v Smith [1991] 1 VR 63 where the court said, at [5]:
The "public interest" is a term embracing matters, among others, of standards of human conduct and of the functioning of government and government instrumentalities tacitly accepted and acknowledged to be for the good order of society and for the wellbeing of its members. The interest is therefore the interest of the public as distinct from the interest of an individual or individuals.
There are authorities which recognise the importance of the public interest; see Comalco Aluminium (Bell Bay) Ltd v O’ Connor (1995) 131 ALR 657 at 681, where the principle has been recognised of the importance of the public interest with private interests.
Currently, there are three decisions of the delegate in respect of the College and its directors. In the absence of any valid reason why a stay should be granted, the public interest requires that the decisions made in the execution of a statutory duty should remain until another decision is made. Whilst this could be inconvenient to the College and the directors, the evidence does not establish, particularly in view of the sale transaction, that there are valid reasons to warrant a stay. The Tribunal is satisfied that the only foundation for the application was financial hardship and that that has shown to be in effect not available to rely upon.
The Tribunal has indicated to the parties that an early hearing would satisfy the interests of the applicants, and that a hearing could be arranged at relatively short notice. However, the applicants have stated through their counsel that they will be unable to pursue their applications until March 2017. The readiness for hearing of the applications for review is a matter largely in the hands of the applicants, however any delay resulting from a lack of readiness to proceed is not a ground for a stay in the absence of special reasons.
DECISION
For these reasons, in each application the Tribunal orders that the application for a stay of the delegate’s decision be refused.
I certify that the preceding 38 (thirty-eight) paragraphs are a true copy of the reasons for the decision herein of the Hon. Dennis Cowdroy OAM QC, Deputy President ...............................[sgd].........................................
Associate
Dated 21 December 2016
Date(s) of interlocutory hearing 16 November 2016 Counsel for the Applicant Ms D Hogan-Doran SC & Mr S Cominos Solicitors for the Applicant Innoinvest Pty Ltd Counsel for the Respondent Mr D Hume Solicitors for the Respondent Australian Securities and Investments Commission
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