Trading Life Services Pty Ltd and Australian Securities and Investments Commission
[2022] AATA 4746
•21 November 2022
Trading Life Services Pty Ltd and Australian Securities and Investments Commission [2022] AATA 4746 (21 November 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2022/8134; 2022/8137
Re:Trading Life Services Pty Ltd ACN 639 664 318; Gabriel Yakob
APPLICANTS
AndAustralian Securities and Investments Commission
RESPONDENT
Decision
Tribunal:Deputy President Bernard J McCabe
Date:21 November 2022
Place:Sydney
The interlocutory application for orders under ss 35 and 41(2) of the Administrative Appeals Tribunal Act 1975 is refused.
These reasons shall not be published (other than to the parties) for a period of 14 days after the date of these reasons.
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Deputy President Bernard J McCabe
Catchwords
PRACTICE and PROCEDURE - application for stay order - application for confidentiality order - where applicant ceasing to provide financial services - where order sought to prevent news of decision - where applicant victim of fraud - application refused
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Australian Securities and Investments Commissioner 2001 (Cth)
Corporations Act 2001 (Cth)
Cases
Australian Securities and Investments Commission v Administrative Appeals Tribunal (ASIC v AAT) [2009] FCAFC 185
Daly and Australian Securities and Investments Commission [2020] AATA 1516
MRWL and Australian Securities and Investments Commission [2022] AATA 3366
Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 36 FLR 482 at 510
Re Scott and Australian Securities and Investments Commission [2009] AATA 798
Rent-to-Own Australian Pty Ltd and Australian Securities and Investments Commission [2011] AATA 689
XQZT and Australian Securities and Investments Commission [2009] AATA 669REASONS FOR DECISION
Deputy President Bernard J McCabe
21 November 2022
A delegate of the Australian Securities and Investments Commission (ASIC) made a reviewable decision to ban the applicants – a corporation and the individual who controlled the corporation – from providing financial services for a period of 5 years pursuant to ss. 920A and 920B of the Corporations Act 2001. The applicants have sought review of the decision in the Tribunal. While the review proceeds, the applicants want the Tribunal to make orders under ss. 35 and 41(2) of the Administrative Appeals Tribunal Act 1975 (the AAT Act) that would:
·restrain ASIC from publicising the banning decision;
·provide for a private hearing
to contain reputational damage to the individual applicant pending the outcome of the review. ASIC agreed not to publish the banning order pending the outcome of the interlocutory application.
Counsel for the applicants, Mr Crutchfield KC, made clear at the outset of the interlocutory hearing of stay that the applicants were not asking the Tribunal to stay the operation of the banning orders as such. Mr Crutchfield confirmed the corporate applicant has effectively ceased trading. It was certainly not seeking to remain in a financial services’ business, so it made no practical difference to that entity if the banning order remained in place in the short term. Mr Crutchfield confirmed the individual applicant, Mr Yakob, had no intention of providing financial services either. To underline that commitment, Mr Yakob offered an undertaking that was in the same terms as the banning order imposed on him in the reviewable decision. It became apparent Mr Yakob’s real concern was to suppress news of the banning decision being published because of the reputational damage that he would sustain. It follows the orders he sought under s 41(2) were not so much directed to the operation of the banning order; they went to one aspect of its implementation – namely, to restrain ASIC from taking the steps it ordinarily takes to formally record the banning decision on a public register, and thereafter issue a media release or post a statement on its website. The orders under s 35 would square the circle by permitting the review to proceed in private.
There is no question that the Tribunal’s powers under s 41(2) extend in an appropriate case to restraining an occupational regulator from completing administrative tasks (such as publication) that follow from a banning decision: see Australian Securities and Investments Commission v Administrative Appeals Tribunal (ASIC v AAT) [2009] FCAFC 185 at [70]-[71] per Downes and Jagot JJ. The applicants suggest the Tribunal could achieve the same effect if it were to make orders under s 35 if it concluded the power under s 41(2) were not available. I do not need to resolve that issue. For now, it is enough to note the powers under s 35 and 41(2) overlap in a practical sense in a case like this – but they are still separate powers.
The stay power
Reviewable decisions ordinarily take effect according to their term even though a person lodges an application for review: s 41(1) of the AAT Act. The power to order a stay is contained in s 41(2). The power extends to staying the operation or implementation of the entirety of the decision under review, or some aspect of it, and a stay may be subject to conditions. The power to order a stay is conditioned on the Tribunal being satisfied the stay is directed to the requisite purpose – namely, to secure the effectiveness of the hearing and determination of the review. But even where the Tribunal is satisfied the condition is made out, the Tribunal may only exercise the discretion after considering whether it is desirable to make the order having regard to the interests of those who may be affected by the review.
The Tribunal conventionally approaches stay applications having regard to a list of factors identified by Downes J in Re Scott and Australian Securities and Investments Commission [2009] AATA 798 at [4]. Those factors are:
1.The prospects of success.
2.The consequence for the applicant of the refusal of a stay.
3.The public interest.
4.The consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not.
5.Whether the application for review would be rendered nugatory if a stay were not granted.
6.Other matters that are relevant, amongst which I would include the length of time that the ban has already been in place and the gap between today and the hearing of the application.
I will generally follow that approach in this case although it is important to recall:
(a)the list of factors suggested in Scott is not an exhaustive list. Other factors may need to be considered;
(b)the fifth factor referred to in Scott arguably encapsulates the requirement that the Tribunal be satisfied that the order is being sought for the requisite purpose. To the extent that is so, that consideration is not just a matter to be weighed in the balance;
(c)one must keep in mind the regulatory context – in this case, the objectives and powers in the Corporations Act and the Australian Securities and Investments Commission Act 2001 (ASIC Act).
Is the order sought for the purpose of securing the effectiveness of the hearing and determination of the review?
ASIC says the applicants in this case have failed to explain how a stay would secure the efficacy of the hearing or determination of the review. If that is so, the Tribunal could not be satisfied the power to order a stay is enlivened.
Mr Yakob’s livelihood is not at stake in the short term. There is no evidence that his financial or other circumstances are such that he will be prevented from progressing the application for review if the banning order were publicised. Indeed, the evidence about Mr Yakob’s resources suggests he can remain on the sidelines while the review progresses. It follows there is no reason why the hearing cannot proceed in an orderly way.
Mr Yakob argues the publication of the banning decision will cause him reputational damage in the short term that will not be recoverable even if he is wholly vindicated at the conclusion of the review. I was referred to affidavits sworn by business associates who are aware of the banning order but who continue to deal with Mr Yakob – although each of them says it will be impossible for them to remain in business with Mr Yakob as soon as the public becomes aware Mr Yakob has been the subject of a banning decision.
ASIC argues the applicants have already experienced reputational damage because the events which prompted the reviewable decision by the delegate are matters of public record. The affidavit evidence confirms some of Mr Yakob’s associates have already refused to deal with him after they became aware of the issues which ultimately led to the reviewable decision. ASIC says Mr Yakob might sustain some additional damage to his reputation if the banning order were publicised, but much of the damage has already been done.
Mr Yakob apparently anticipates the damage will be more significant and long-lasting. It is impossible for me to say for sure whether he is right, particularly at this juncture. Inevitably, both parties are inviting me to engage in a degree of speculation about the likely consequences of publicity. The affidavit material filed by Mr Yakob recording the attitudes of business associates is sufficient to satisfy me he likely would experience some additional reputational damage if the fact of the banning decision was publicised. It is more difficult to predict whether that reputational damage would be irrecoverable if the applicants were successful following a hearing of the application for review. While there is no reason to suppose the hearing itself would be frustrated or rendered pointless, there is a real possibility that a favourable determination might not make the applicants whole. If the applicants are completely successful on review, Mr Yakob (in particular) will have endured damaging publicity he did not deserve. Some of that loss might not be recovered, whether because valuable opportunities have already been foregone, or because potential business partners remain unsure of Mr Yakob notwithstanding a favourable decision.
I am prepared to accept the orders are being sought for the purpose of securing the efficacy of the review. It follows the discretion to make an order is enlivened.
The prospects of success
While the Tribunal has regard to the merits of the applicants’ substantive case, it can only do so much at this stage. It is not appropriate to conduct a mini-trial at this juncture. Where a case is obviously strong, that would usually weigh in favour of the exercise of the discretion. An obviously weak case might count against the exercise of the discretion. In most cases, provided the Tribunal is satisfied there is an arguable case, this consideration will not weigh heavily one way or another.
The applicants provided extensive submissions pointing to what they say are shortcomings in the delegate’s decision. In essence, they say the delegate applied unreasonably demanding expectations when evaluating the applicants’ behaviour. They say the delegate’s findings of misleading or deceptive conduct cannot be sustained on the facts. They also point out the applicants were the victims of a fraud, and that a less stringent regulatory sanction might be justified even if their conduct was criticised. ASIC says it is confident of defending its decision.
I accept the applicants have an arguable case and there are important questions that need to be resolved. It is difficult to be more precise than that at this early stage of the proceedings. I accept this factor weighs in favour of exercising the discretion, but it does not weigh heavily.
The consequences for the applicant if the stay is refused
I should say at once that the interests of the corporate applicant are not affected one way or another if the stay is not ordered. As I understand the evidence, the corporate applicant has ceased trading. It only remains in existence to bring claims against the individual that perpetrated the fraud which prompted the reviewable decision.
Mr Yakob’s interests are front-and-centre. He did refer to strain on his domestic relationships: he says the ASIC investigation and the circumstances which led to it are the primary contributor to his marriage breakdown – although that damage has already been done. Mr Yakob says he has not yet told his children of the banning decision, and publication of the decision will cause him and them to experience stress and anxiety.
Mr Yakob also referred to the professional embarrassment and commercial loss he anticipates if the banning decision is published. He contends – and the affidavits provided by associates generally confirm – he will be shunned by many businesses if the banning order is made public. That might be detrimental to some of those businesses who will be forced to look elsewhere for funding and expertise, but there was no clear evidence that would permit me to make a finding to that effect.
I accept Mr Yakob’s interests will be impacted appreciably if the banning decision is made public. I accept ASIC’s point that his reputation may already be tainted but the announcement of a formal banning order is likely to be a significant development in the mind of anybody that deals with him. This factor weighs in favour of the exercise of the discretion.
The public interest
This is usually the most important consideration in stay applications. The public interest must be considered in light of the statutory objectives. In cases of this nature, one must keep in mind the objectives referred to in s 760A of the Corporations Act, which refers to the need to promote (amongst other things):
(a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(aa)the provision of suitable financial products to consumers of financial products; and
(b)fairness, honesty and professionalism by those who provide financial services; and
(c)fair, orderly and transparent markets for financial products;…
I must also have regard to ASIC’s statutory objective given I step into ASIC’s shoes when reaching my final decision. Section 1(2) of the ASIC Act provides:
(2) In performing its functions and exercising its powers, ASIC must strive to:
(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and
(b) promote the confident and informed participation of investors and consumers in the financial system; and
(d) administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and
(e) receive, process and store, efficiently and quickly, the information given to ASIC under the laws that confer functions and powers on it; and
(f) ensure that information is available as soon as practicable for access by the public; and
(g) take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.
The Tribunal must also keep in mind its own role as a tool of good government. As Downes J and DP Hack explained in Rent-to-Own Australia Pty Ltd and Australian Securities and Investments Commission [2011] AATA 689 (at [47]):
The central consideration remains, however, good regulation and good administration, not an overanxious desire to permit regulated activity wherever possible.
This case is relatively unusual insofar as the applicants do not seek to remain in the business of providing financial services. It follows there is no imminent risk to consumers of financial services. The real issue here is in relation to transparency.
ASIC points out the regulatory framework emphasises the free flow of information. It is also important ASIC be seen to be an active ‘cop on the beat’ that deals with problematic behaviour. The carefully constructed decision-making process in the legislation – which includes a right of review in the Tribunal – must be seen to work. The AAT Act also contemplates reviews taking place in public unless there is good reason to hold the review in private. (The Tribunal’s principal means of promoting good government lies in its ability to model good decision-making behaviour. That becomes more difficult when the hearing is conducted behind closed doors.)
ASIC also refers to the importance of general deterrence. If decisions cannot be announced, even in the short term, deterrence may be less effective.
ASIC points out those who engage in regulated activity must, to some extent, accept the risk of reputational harm where they tangle with the regulator. Downes and Jagot JJ said as much in ASIC v AAT (at [76]):
It is difficult to accept that harm (even serious harm) to the recipient’s reputation resulting from public awareness of the banning order will be a sufficiently cogent reason to justify the grant of a stay in most cases. This is because the risk of harm of this type is inherent in the nature of a banning order
I enlarged on that point in Daly and Australian Securities and Investments Commission [2020] AATA 1516 where I observed (at [18]):
While the Tribunal will consider the reputational damage and economic loss that an applicant might experience if the reviewable decision is published while the review proceeds, it might not give those concerns much weight. Requests for suppression orders – for that is what they are, in substance – will be scrutinised very carefully where the reviewable decision in question relates to a person’s right to participate in a regulated occupation. Participation in a regulated occupation brings many benefits, including (in many cases) economic advantages that accrue to licence holders. Those economic advantages flow from the establishment of barriers to entry that incidentally reduce competition between the favoured few. The licence necessarily carries with it a requirement that the licensee conform to the rules and participate in regulatory processes according to law. Most of those regulatory regimes … place a premium on transparency. It follows that a risk of bad publicity accompanying adverse regulatory action will often be regarded as an incident of a licensee’s participation in a regulated occupation.
I acknowledge the applicants are no longer engaged in the regulated occupation. Mr Yakob is concerned about his reputation in the wider commercial community. But the public interest still generally favours transparency because there may be residual benefits in financial markets from ASIC and the Tribunal being seen to do their jobs.
Mr Crutchfield pointed out my primary focus (and that of ASIC) must be on the welfare of persons acquiring financial services. While the interests of others – for example, Mr Yakob’s business associates – might be relevant to my deliberations in that they are members of the public, Mr Crutchfield pointed out I do not hold a wide-ranging brief to protect members of the commercial community from Mr Yakob where those individuals are not participating in markets for financial services. There is something to this, although the Tribunal must always try to anticipate the undesirable consequences of orders it might make. In this case, the affidavit evidence makes clear that news of the banning order would have an adverse reaction. Businesses that deal with Mr Yakob would feel a commercial obligation to distance themselves from him if it became known he was the subject of a banning order. That information is, in other words, market sensitive information. Mr Yakob and his associates would presumably be obliged to disclose that information in many circumstances when doing deals, if only to avoid a claim of misleading or deceptive conduct from counterparties. To the extent that is true, it raises two concerns. First, Mr Yakob might have no choice but to disclose news of the banning order if he is to comply with his own legal obligations. This would suggest orders under ss 35 or s 41(2) of the AAT Act may be pointless in any event. Second, it would be troubling if Mr Yakob or anyone else felt constrained by the Tribunal from making disclosures that were otherwise required. The Tribunal’s orders might in that event contribute to misleading or deceptive conduct.
Mr Yakob offered an undertaking that he would disclose the fact of the banning order to commercial associates on what I infer is a need-to-know basis. I accept he has already informed his immediate associates of the regulatory action, which gives one some hope he would act appropriately. As a practical matter, I assume Mr Yakob is unlikely to actively pursue any engagements which would require him to make such disclosures; he would effectively ‘tread water’ in his business while the review proceeded.
ASIC has some concerns with an undertaking in those terms, but it is probably unnecessary in any event. The stay power is directed to the decision-maker rather than the applicant. Any other orders of the Tribunal could make clear they do not extend to preventing Mr Yakob from disclosing any information about the banning decision to any person where there is a legal or commercial obligation to make disclosure.
On balance, I am satisfied there is a public interest in transparency that weighs against exercising the discretion, although that interest does not weigh as heavily as it would if the applicants remained in the business of providing financial services.
The consequences for the respondent in carrying out its functions
The Tribunal must be conscious of the role of the regulator. The Tribunal should be cautious before making decisions that undercut that role. Having said that, the exercise of the stay power should not ordinarily be regarded as some sort of rebuke directed to ASIC. The stay power is a feature of the decision-making process. It is there to be used as appropriate.
There is always a danger that a regulator would be left in an embarrassing position were stay orders made. The embarrassment might arise if the regulator were asked a direct question by a journalist, a reporting service or even a member of the public. The regulator cannot be left in a position where it must shrug its shoulders in the face of an enquiry from somebody that relies upon the regulator for information.
I am satisfied this consideration weighs against the exercise of the discretion, although not heavily given the applicants have ceased trading in financial services and their other business activities occur beyond ASIC’s ken.
Whether the application for review would be rendered nugatory
I have already dealt with this consideration above. To the extent this consideration is relevant to the exercise of the discretion, I am satisfied it weighs in favour.
Other considerations
The only other consideration which appears to be relevant is the amount of time it would take to bring the matter on for a final hearing. The applicants say they are at an advanced stage of preparation. They are keen to bring the matter on for a hearing after the statements of facts, issues and contentions have been exchanged and the evidence has been produced. ASIC appears ready to meet that challenge. I expect a hearing could be listed in March 2023, or soon thereafter. The prospect of a quick hearing militates in favour of the exercise of a discretion.
The factors to consider when deciding whether to make orders under s 35 of the AAT Act
Before reaching my conclusion with respect to the stay, it is convenient to discuss the application for orders under s 35 of the AAT Act. I have already acknowledged the decision-making process in relation to s 35 is distinct from that required under s 41(2). Having said that, the applicants ask the Tribunal to make orders to the same practical end, and some of the principles which inform the exercise of the discretion are the same. The attitude I take to orders under s 41(2) might also impact on whether orders should be made under s 35, and vice versa.
The first point to make is that the power in s 35 is not, strictly speaking, a power to make confidentiality orders. The reference to ‘confidentiality orders’ is a shorthand reference to a number of individual powers. The first of them is contained in s 35(2). It is the power to order a private hearing, which includes a power to restrict who may attend. Section 35(3) sets out a power to order non-disclosure or non-publication of information that tends to reveal the identity of a party or witness or information concerning them, or information that reveals the identity of another person who is associated with them. Section 35(4) contains the power to restrict publication or disclosure of information relating to the proceeding which includes evidence or other information provided to the Tribunal. Importantly, though, the structure and text of s 35 make clear these are exceptional powers. Section 35(1) says (subject to the balance of the section) the hearing of a proceeding must be in public. Section 35(5) goes on to say that when considering whether to make orders under s 35:
(5) …the Tribunal is to take as the basis of its consideration the principle that it is desirable:
(a) that hearings of proceedings before the Tribunal should be held in public; and
(b) that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and
(c) that the contents of documents lodged with the Tribunal should be made available to all the parties.
However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.
It is difficult to identify anything inherently confidential about the existence of a banning order. Indeed, the opposite is true for reasons I have already explained: the banning order is intended to be public. The question is whether there are any other reasons in favour of making one or more directions under s 35. Those reasons would need to be cogent to justify making a direction given the ‘openness principle’ in s 35(5) of the AAT Act, the regulatory regime in the Corporations Act, and the role of ASIC set out in the ASIC Act.
Mr Yakob relies on the evidence suggesting he will suffer reputational damage in the short term which will be difficult to remedy even if he is vindicated at hearing. It is essentially an argument about hardship. The hardship extends to the stress and anxiety he might experience, particularly when news of the banning order was disclosed to his children. ASIC calls into question whether Mr Yakob will suffer significant additional reputational damage. ASIC also refers to and relies upon the various Court and Tribunal pronouncements that refer to the importance of transparency, most obviously the well-known observation of Downes and Jagot JJ in ASIC v AAT (at [76]) that reputational harm is unlikely to be a sufficiently cogent reason on its own to justify a banning order.
Downes and Jagot JJ pointed out elsewhere in their joint judgment (at [75]) suppression orders were rarely made in courts and tribunals. Litigants in all manner of cases were required to proceed in open hearings. Given that established approach:
It is not readily apparent why persons in business should be treated differently when, for example, employees may be disadvantaged.
Having said that, the applicants were able to cite other cases in the Tribunal where orders were made under s 35 to protect the identity of an applicant in similar circumstances: see, for example, XQZT and Australian Securities and Investments Commission [2009] AATA 669 and MRWL and Australian Securities and Investments Commission [2022] AATA 3366. I note the decision in XQZT pre-dated the judgment of the Full Court in ASIC v AAT, which potentially diminishes the value of XQZT. In MRWL, the Tribunal noted the applicant’s career might be ruined if the banning decision were publicised but the direct financial loss in that event was much more severe, the period of the ban was much shorter, there was no question about the competence of the applicant, and the extent of the harm relative to the period of the ban appeared to be an important consideration: at [91], [115].
I should add that in MRWL, the applicant was allowed to remain in business while the review proceeded. Mr Yakob may have a more compelling case at least in that respect: he is not asking for that indulgence. He is not continuing to provide financial services.
I must also consider whether orders may have the unintended effect of constraining the applicants from disclosing matters which they might otherwise be required to disclose (eg, by reasons of the law of misleading or deceptive conduct).
Should the Tribunal make orders under ss 35 and/or 41(2)?
There is no basis for making orders under ss. 35 or 41(2) in respect of the corporate applicant except to the extent it was thought appropriate to do so to protect Mr Yakob. Mr Yakob’s principal concern – reputational damage – does not apply to the corporate applicant.
Where does that leave Mr Yakob? The Full Court in ASIC v AAT emphasised the openness principle in s 35, even where an applicant might experience significant reputational hardship. The fact Mr Yakob has abandoned the regulated occupation means somewhat less weight might be attached to that value to the extent it also emanates from the regulatory framework.
It is clear that I require cogent reasons for exercising a discretion in s 35 that must be used ‘sparingly’: see Re Pochi and Minister for Immigration and Ethnic Affairs (1979) 36 FLR 482 at 510 per Brennan J. While I am not without sympathy for Mr Yakob, I do not think the reasons he has cited rise to that level. I considered whether it would be appropriate, at a minimum, to make orders at this stage suppressing the applicants’ identity under s 35 while leaving the question of a private hearing and other orders to a later point. I am not satisfied it would be appropriate to do so. The applicants’ have not satisfied me that the ‘openness principle’ in s 35 ought to be displaced.
I am also not satisfied it is appropriate to make the orders sought under s 41(2). I accept the discretion to do so is engaged, but the balancing exercise I am required to undertake weighs against the exercise of that discretion. I should say it is a close-run thing given Mr Yakob no longer provides financial services, which means he does not pose any sort of risk in the short term to participants in the market for financial services. But in the absence of orders under s 35, making a s 41(2) order creates a risk that the regulator will be embarrassed in the performance of its role if news of the banning decision leaks out and questions are raised.
Conclusion
The application for orders under ss 35 and 41(2) is refused. The Tribunal did not make interim orders because ASIC gave an undertaking that it would not publicise or formally record the banning decision pending the outcome of the interlocutory application. I expect ASIC will wait for a period of 14 days after these reasons have been published to the parties before taking any action with respect to publication so as to afford the applicants an opportunity to consider their position. If ASIC feels constrained to act before that time has elapsed, no doubt it will give the applicants notice of its intention to do so. The Tribunal will not publish the reasons more widely until after that period has expired.
I certify that the preceding 50 (fifty) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
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Associate
Dated: 21 November 2022
Date(s) of hearing: 15 November 2022 Counsel for the Applicant: Mr P Crutchfield KC and Mr Dean Luxton Solicitors for the Applicant: Arnold Bloch Leibler Counsel for the Respondent: Mr T Faulkner SC and Dr Philip Bender Solicitors for the Respondent: ASIC
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