Tweed and Australian Securities and Investments Commission - [2008] AATA 514

CATCHWORDS – CORPORATIONS – FINANCIAL SERVICES AND MARKETS – banning order – whether power to make a banning order – whether not complied with a financial services law – whether director of corporation can fail to comply on the basis that it is the controlling mind of a corporation that has failed to comply – whether other circumstances in which director can fail to comply when corporation failed to comply – relevance of finding that director involved in corporation’s contravention – whether banning order would protect public from certain unsolicited off-market offers to purchase shares – purpose of banning order – decision set aside.

Acts Interpretation Act 1901 ss 22(1)(a), 22(1)(j) and 33(2A)
Administrative Appeals Tribunal Act 1975 s 37(1)(a)
Australian Securities and Investments Commission Act 2001 ss 5, 12CA, 12BAA, 12BAB, 12CC, 12DF and12GH
Australian Securities and Investments Commission Regulations 2001 r 2C
Commonwealth Criminal Code ss 7(1) and11.2
Corporations Act 2001 ss 9, 52, 79, 760A, 761A, 761E , 763A, 763B, 766A , 766C, 769B, 911A, 911B, 911D, 912A, 913B, 914A, 915B, 915C, 916A, 916B, 915F, 920A, 920B, 920C, 920E, 922A, 1041H, 1019E, 1019D,1019G, 1019I, 1019K, 1040A and 1324
Fair Trading Act 1999 (Vic) ss 3 and 9(1)
Trade Practices Act 1974 ss 51AB, 51AC and 52

Aevum Pty Ltd v National Exchange Pty Ltd (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781
Arktos Pty Ltd v Idyllic Nominees Pty Ltd (2004) ATPR 42-005
Australian Securities & Investments Commission (ASIC) v National Exchange Pty Ltd (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226

Australian Securities and Investments Commission v Citrofresh International Ltd (2007) 164 FCR 333; 245 ALR 47; [2007] FCA 1873
Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24; 47 ACSR 128; [2003] FCA 955

Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC 192
Boucaut Bay Co Ltd v The Commonwealth (1927) 40 CLR 98
Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677
Cecil D Barker & Co v Blue Mountains City Council [2001] NSWLEC 244
Claro v Minister for Immigration, Local Government and Ethnic Affairs (1993) 119 ALR 342; 46 FCR 494
Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission and Others (2000) 203 CLR 194; 174 ALR 585
Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279
Commissioner of Taxation v Murry (1998) 193 CLR 605; 155 ALR 67; [1998] HCA 42
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106
H.L. Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159
Hamilton v Whitehead (1988) 166 CLR 121; 82 ALR 626
Houghton v Arms (2006) 225 CLR 553; 231 ALR 534; [2006] HCA 59
Ingram v Ingram (1938) 38 SR (NSW) 407
Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525
National Exchange Pty Ltd v Australian Securities & Investments Commission (2004) 49 ACSR 369; [2004] FCAFC 90
Power v Hamond [2006] VSCA 25
R v Lowery & King (No 2) [1972] VR 560
Re Howarth and Australian Securities and Investments Commission [2008] AATA 278
Re Ngu and Minister for Immigration and Citizenship [2007] AATA 1116
Re Proctor and Commissioner of Taxation (2005) 87 ALD 247; [2005] AATA 389
Re Tweed and Australian Securities and Investments Commission [2007] AATA 1226
Tesco Supermarkets Ltd v Nattrass [1972] AC 153
WA Pines Pty Ltd v Bannerman (1980) 41 FLR 175; 30 ALR 559

DECISION AND REASONS FOR DECISION [2008] AATA 514

ADMINISTRATIVE APPEALS TRIBUNAL )

) V2006/1131
GENERAL ADMINISTRATIVE DIVISION )
Re:DAVID TWEED
Applicant

And:AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent

DECISION

Tribunal:                   Deputy President S A Forgie
Date:  19 June 2008
Place:  Melbourne

Decision: The Tribunal:

sets aside the decision of ASIC dated 30 October 2006 to make a banning order.
S A Forgie
Deputy President

REASONS FOR DECISION

In two separate proceedings relating to unsolicited offers made to shareholders of two separate companies to purchase their shares, the Federal Court found that National Exchange Pty Ltd (National Exchange) had not complied with
s 1041H[1] of the Corporations Act 2001 (Corporations Act) in relation to one offer[2] and ss 1019E(2)[3] and 1019G(2) [4] in relation to the other.[5] In the former case, the Court also found that Mr Tweed had been involved in a contravention of s 1041H and made orders restraining both him and National Exchange in relation to certain activities relating to the offer and any acceptances of that offer. It also found that Mr Tweed had been the controlling mind of National Exchange.

[1] In summary, s 1041H provides that a person must not engage in conduct in relation to a financial product or a financial service that is misleading or deceptive or likely to mislead or deceive: see [80] below.

[2] Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24; 47 ACSR 128; [2003] FCA 955

[3] In summary, s 1019E(2) provides that the offer must be sent to the offeree as soon as practicable after the date it bears: see [81] below.

[4] In summary, s 1019G(2) provides that an offer may not be withdrawn within one month of the date it bears: see [81] below.

[5] Aevum Pty Ltd v National Exchange Pty Ltd (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781

On 30 October 2006, a delegate of the Australian Securities and Investments Commission (ASIC) decided to make a permanent banning order against Mr Tweed on the basis that he had not complied with a financial services law and was there was reason to believe that he would not comply with a financial services law in the future. At the hearing, ASIC relied on the breaches of ss 1019E(2), 1019G(2) and 1041H. It also relied on answers he gave to the Federal Court during cross-examination in proceedings National Exchange had brought against the Commonwealth Bank of Australia Ltd (CBA) to support the submission that Mr Tweed:
“… has acted in defiance of and inconsistently with the obligations imposed by the Act.
His opportunistic and predatory behaviour in the past means that he has a disrespect for the law and the obligations it imposes. He will continue to push the law to its boundaries and inevitably beyond, limited only by what he considers he might be able to get away with. That attitude is highly likely to lead to transgression of the law in the future.”[6]
[6] ASIC’s Statement of Facts and Contentions at [7]-[8]

There may well be many who agree with the sentiment expressed in this submission. A significant number of people have, for one reason or another, accepted offers made by National Exchange or one of the other companies with which Mr Tweed is associated when it is difficult to see how they could think that acceptance was to their benefit. They have come to regret their decision and have sought to have it set aside.[7] At the same time, there may be some who have, what are in their eyes, sound reasons for accepting the offers.
[7] Transcript VID3197 at 221-222

A review of the merits of ASIC’s decision to make a banning order against Mr Tweed requires me to have regard to the law for it is against the law that his actions must be judged. That is so whether, quite apart from the law, members of the community find his actions unconscionable and unacceptable or not. That is an essential element of the rule of law. Therefore, I must first decide whether the law permits a banning order to be made against Mr Tweed and, if it does, I must then decide whether I should make that banning order. If the law permits the banning order to be made, there will be occasion to consider the proper basis upon which it should be made. That consideration will necessarily encompass factors relating to the protection of members of the public and the extent to which it is necessary to protect all or some of them. Those factors, however, have no place in making the first decision that I must make.

I have decided that Mr Tweed has breached a financial services law that is provided for in s 1041H(1) in relation to conduct by one of his companies in making an offer for shares. That is not a law that he is likely to breach in the future and I am satisfied that he is not likely to breach any others. I have also concluded that making a banning order against Mr Tweed will not prevent him or corporations with which he is associated, from making unsolicited offers of the sort that he has made to shareholders in the past. For the reasons I give below, I am not satisfied that making a banning order against Mr Tweed would protect the public in any way from the behaviour that many in the community find unconscionable.

If I am correct in my decision and if it is felt that the public deserves protection from unsolicited offers of the sort I describe in these reasons, it is a matter that needs to be addressed with the Executive government and ultimately by Parliament. It may be that the myriad of personal circumstances that exist in the community is such that amendments to the Corporations Act banning such offers altogether would not cater for those who want to accept them while recognising that they are paying a high premium for the ease of divesting themselves of shares or for those holding shares that have no present realisable value in the market but that may be attractive to a person prepared to hold the stock on a speculative basis. For those who may require protection from unsolicited offers, it may be that the law needs to be changed to allow them to have a cooling off period of some sort or to have a means of seeking to set aside the contract that comes into being on their accepting an offer. These are not matters that can influence the decision that I must make on the law as it stands. Nor can my decision be influenced by the thought that, should Mr Tweed apply for an Australian Financial Services Licence (AFSL), ASIC could not grant it unless satisfied that there is no reason to believe that he is not of good fame or character. That is a different question for consideration should he ever apply for it or should he ever be a responsible officer of a corporation applying for an AFSL.[8] It is not a question that arises in deciding whether to make a banning order although, if a decision is made to make it, the issue of good fame or character may arise in determining the length of the banning order that is made.[9]
[8] See [69]-[72] below
[9] s 920B(2)

BACKGROUND

ASIC has focused on the actions of National Exchange and Country Estate and Agency Company Pty Ltd (Country Estate), which was formerly known as National Exchange Corporation Pty Ltd (NE Corporation) and those of Mr Tweed. At all relevant times, Mr Tweed has been the sole director and shareholder of those companies. In the following paragraphs, I set out the findings of fact that I have made in relation to matters that are uncontroversial between Mr Tweed and ASIC. I also set out course of events in relevant proceedings in the Federal Court and the findings of fact that were made in those proceedings. In doing so, I am aware that I am reproducing some of what I said in deciding Mr Tweed’s application for a stay[10] but I do so to enable these reasons to be read without the need to cross-reference to my earlier reasons.
[10] Re Tweed and Australian Securities and Investments Commission [2007] AATA 1226

The companies and Mr Tweed’s role in each

At all relevant times, Mr Tweed was the sole director and secretary of the following companies: Direct Share Purchasing Corporation Pty Ltd (Direct Share Purchasing); National Exchange; National Share Purchasing Corporation Pty Ltd (National Share Purchasing); Prudential Nominees Pty Ltd (Prudential Nominees); Australian Capital Alliance Pty Ltd (Australian Capital), which was, until 6 February 2005, known as National Exchange Securities Pty Ltd; and Australian Share Purchasing Corporation Pty Ltd (Australian Share Purchasing).

Again at all relevant times, Mr Tweed was also the sole director and secretary of Country Estate and Agency Company Pty Ltd (Country Estate). Country Estate has been known by three other names. Most recently, from 28 August 2002 to 6 February 2005, it was known as National Exchange Corporation Pty Ltd (NE Corporation). Previously, it was known as Country Estate and Agency Company Pty Ltd from 8 February 1990 to 27 August 2002 and as Raynor Tradings Proprietary Limited from 7 August 1962 to 7 February 1990. Between 30 January 1990 and 10 March 2004, Country Estate held a security dealer’s licence. It has held an AFSL since 4 February 2004. That licence authorises it to deal in and provide financial advice in respect of specified classes of financial products. Since 4 February 2004, Mr Tweed has been its Responsible Officer and Key Person in respect of the AFSL.

Mr Tweed has held a proper authority from McKinley Wilson Limited as a stockbroker during the period from 1 November 1989 to 8 January 1993.

Unsolicited off-market offers to shareholders to purchase OneSteel shares

Country Estate, Direct Share Purchasing, National Exchange, National Share Purchasing and Prudential Nominees make unsolicited off-market offers to purchase financial products from investors in Australia and New Zealand.[11] ASIC instituted proceedings against National Exchange and Mr Tweed in relation to unsolicited off-market offers that National Exchange had made for the purchase of shares in OneSteel Ltd (OneSteel). It alleged that, in doing so, it had engaged in conduct in relation to a financial product or a financial service that was misleading or deceptive or likely to mislead or deceive contrary to s 1041H of the Corporations Act.
[11] Examples are given at Exhibit 1, Tab G

Mr Tweed was a defendant in the proceedings and ASIC sought and obtained an injunction against him on the basis that he had been an accessory to National Exchange’s contravention within the meaning of s 1324 of the Corporations Act. Section 1324(1) provides that:
“Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:
(a)a contravention of this Act; or
(b)attempting to contravene this Act; or
(c)aiding, abetting, counselling or procuring a person to contravene this Act; or
(d)inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravened this Act; or
(e)being in a any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or
(f)conspiring with others to contravene this Act;
the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring the person to do any act or thing.”

At trial, Finkelstein J found that:
“[3] Onesteel is a listed public company. It manufactures and distributes steel products. It has around 190,000 shareholders, approximately 95% of whom hold 5000 shares or less. On 25 July 2003 the closing market price for shares in Onesteel was $1.93. That day National Exchange sent written offers to 5000 Onesteel shareholders offering to buy their shares for $2 each. Of these shareholders 4114 held less than 4000 shares. The offer was not a cash offer. The offer price was payable in 15 equal annual instalments, with the first instalment to be paid on 3 September 2004.”[12]
[12] Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24; 47 ACSR 128; [2003] FCA 955 at 26; 130; [3]

Under the heading of “Payment” in the single page offer, National

Exchange stated:

“ We will pay the Total Offer Price to you in fifteen equal instalments, paid annually on 3 September each year for fifteen years, commencing on 3 September next year.
We will post a cheque to you each year for the amount of the instalment payment.”[13]

[13] (2003) 202 ALR 24; 47 ACSR 128; [2003] FCA 955 at 26, 130; [5]

ASIC contended that the offer was misleading and National Exchange rejected that contention on the basis that, reading the offer as a whole, it can neither mislead nor be likely to mislead. Finkelstein J said that the issue had to be decided substantially by reference to the written offer but first analysed the legal principles that are relevant in deciding whether conduct is misleading or likely to mislead. I will return to those principles later in these reasons. His Honour also analysed the evidence which was, in the main, the offer document itself. A copy was annexed to his judgment. There was also the evidence of Mr Locke, the former company secretary of OneSteel who had initially thought that the offer was a cash offer until he telephoned National Exchange and read the offer document once more. No other shareholder had come forward with a legitimate complaint of being misled and only a few shareholders accepted the offer. Finkelstein J continued:
“[18] … Looked at in isolation these facts support National Exchange’s submission that the offer document is not misleading. There are, however, two factors which throw a different light on the situation. The first is that shortly after the offers were dispatched ASIC issued a media release warning against the acceptance of the unsolicited offer from National Exchange. It is reasonable to assume that many shareholders became aware of the release. The second factor is that the market price of Onesteel shares has risen above the offer price. As at 7 August 2003 the closing price for the shares was $2.10. So, by that time the offer was unattractive, even to those who believed it was for cash.
[19] In resolving this case it is impossible to ignore the fact (and I find it to be the fact) that the offer has been purposely composed so that it will mislead shareholders. No reasonable shareholder appreciating the offer price is payable over 15 years would accept it. …
[20] In the end I am left with the clear impression that a number of shareholders have wrongly formed the view that they had received a cash offer for their shares. I accept that they may be shareholders who did not stop to analyse the offer in detail and were only influenced by the general impression of the offer document. It is that impression which is misleading, though the offer contains no specific false statement. That is enough to establish a contravention of s 1041H. …”[14]
[14] (2003) 202 ALR 24 ; 47 ACSR 128; [2003] FCA 955 at 30-31, 134-135; [18]-[20]

Finkelstein J declared that:
“1. The first defendant [National Exchange] contravened s 1041H of the Corporations Act 2001 (Cth) by representing in written offers to purchase shares in Onesteel Ltd (the offers) that the offer price was payable in full upon acceptance of the Offers whereas the price was payable in 15 equal annual instalments.
2. The second defendant [Mr Tweed]:
(a) aided, abetted, counselled and procured the said contravention by the first defendant; and
(b) has been knowingly concerned in, and party to, the said contravention by the first defendant;
by causing the offers to be sent to shareholders of Onesteel Ltd.”[15]

His Honour also made various orders. Among them were orders restraining National Exchange and Mr Tweed from sending an offer to OneSteel shareholders in the form in which he had considered and, except in certain circumstances, from lodging for registration any transfer of shares they might have received as a result of the offer.

[15] (2003) 202 ALR 24 ; 47 ACSR 128; [2003] FCA 955 at 33; 137

The Full Court of the Federal Court, constituted by Dowsett, Jacobson and Bennett JJ, dismissed the appeal from Finkelstein J’s judgment.[16] Dowsett J gave a separate judgment with which Jacobson and Bennett JJ generally agreed but to which they added some further observations. His Honour canvassed the evidence given by two witnesses in addition to Mr Locke as well as examining the offer document.
[16] National Exchange Pty Ltd v Australian Securities & Investments Commission (2004) 49 ACSR 369; [2004] FCAFC 90

He examined too the finding made by Finkelstein J that the offer had been purposely composed to mislead shareholders. National Exchange had argued that the inference of purpose could not be made and could not be used in determining whether or not the offer was capable of being misleading or deceptive. Dowsett J rejected that argument saying that the he considered “… the inference to have been fairly open and indeed, to have been correct in the circumstances. …”.[17] He gave his reasons later after finding that:
“… The offers were capable of being understood as offering a purchase price significantly in excess of the closing market price, with the tacit representation that there was nothing else in the document which would seriously undermine the validity of such comparison. That representation was false.”[18]
[17] (2004) 49 ACSR 369; [2004] FCAFC 90 at 376, [28]
[18] (2004) 49 ACSR 369; [2004] FCAFC 90 at 379, [38]

After analysing the principles to be applied, his Honour gave his reasons:
“[39] I am conscious of the traditional caution exercised by courts in determining whether or not a person deliberately intended to mislead. However, as his Honour indicated, it is impossible to imagine even the most unworldly of investors finding the offer attractive, give the arrangements for deferred payment of the purchase price. It is of some significance that National Exchange sent the vast majority of the offers to the holders of relatively small parcels of shares. Such persons, or some of them, could have been expected to pay less attention to the offers than they would if large holdings were involved. I also note that the $1 offers were in a quite different form. It might be thought that National Exchange was, in those offers, trying to avoid any comparison between the offer of $1 per share and the closing market price of $1.93, or at least to minimise the effect of any such comparison. When these factors are taken into account it is impossible to avoid the conclusion that National Exchange expected that some people might accept the $2 offers without fully understanding them and tried to maximise the chances of uninformed acceptance. This view encourages me to infer that the offer was capable of being misleading or deceptive.”[19]
[19] (2004) 49 ACSR 369; [2004] FCAFC 90 at 379, [39]

Jacobson and Bennett JJ also set out the principles to which they had regard. They agreed that Finkelstein J’s finding that the offer document created a misleading impression was one that was open to him and one with which they agreed.[20] They agreed too with Dowsett J that Finkelstein J had been entitled to make the finding that the offer was deliberately composed to mislead.[21] Well before they reached that conclusion, they dealt with a submission drawing a distinction between a statement that is literally true but remains misleading or deceptive because it carries with it a false representation and a statement that is factually true. Their Honours

said:

“[50]   In our opinion, no such distinction can be drawn. A document which, when read as a whole, is factually true and accurate may still be capable of being misleading if it contains a potentially misleading primary statement which is corrected elsewhere in the document but without the reader’s attention being adequately drawn to the correction.
[51]     The principle which applies to those cases is that the qualifying material must be sufficiently prominent or conspicuous to prevent the primary statement from being misleading; see Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289 at [35] – [38] (per Stone J with whom Mansfield J agreed); see also J D Heydon, Trade Practices Law, Law Book Co Sydney 1989 at [11.730].
[52]     As Mason J said in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 210–211 (“Puxu”):
‘There may be situations where to exploit mistaken views of the public would contravene s 52 and would not be corrected by an inconspicuous accurate representation made in, for example, a concealed label or the ‘fine print’ of a contract.”[22]

[20] (2004) 49 ACSR 369; [2004] FCAFC 90 at 380, [47]

[21] (2004) 49 ACSR 369; [2004] FCAFC 90 at 382, [63]

[22] (2004) 49 ACSR 369; [2004] FCAFC 90 at 381; [50]-[52]

The examined the offer finding that:
“[53] … The striking feature of the document when read as a whole is the disparity between the impression created by the primary statement, namely that the offer is for payment in full on acceptance, and the true position stated in the qualification under which payment is to be made over 15 years. The primary statement is made in bold so as to emphasise it to the reader and it is repeated and reinforced in the comparative table.
[54] The representation made in the table is that the shareholders will receive in cash in full on acceptance a premium of 7c over the closing price. The true position is that accepting shareholders make an interest-free loan of the purchase price to the appellant over a period of 15 years. …”[23]
[23] (2004) 49 ACSR 369; [2004] FCAFC 90 at 381; [53]-[54]

Jacobson and Bennett JJ also examined various principles to which I will return. They looked too at the effect of a disparity between the primary statement made in the offer and the true position and whether it was likely to deceive the ordinary or reasonable shareholder. In general terms, they observed that:
“[55] Where the disparity between the primary statement and the true position is great it is necessary for the maker of the statement to draw the attention of the reader to the true position in the clearest possible way.”[24]

They then found that:

“[62]… The disparity between the primary representation and the qualification was so great that the warning [to consult an adviser if they did not understand the document – [65]] was insufficient to draw the true position to the attention of the ordinary shareholder.”[25]

[24] (2004) 49 ACSR 369; [2004] FCAFC 90 at 381; [55]

[25] (2004) 49 ACSR 369; [2004] FCAFC 90 at 382; [62]

On 10 December 2004, the High Court refused National Exchange’s application for special leave to appeal against the Full Court’s judgment.[26]
[26] [2004] HCATrans 557

Unsolicited off-market offers to shareholders to purchase Aevum shares

Aevum Ltd was a public company limited by shares that had its origins in the Hibernian Friendly Society of New South Wales formed to assist its members to meet sickness and funeral costs. As a friendly society, the liability of its members was limited by guarantee and their benefits defined by policies it issued. After demutualisation, the rights and obligations of its members were extinguished and each was allocated shares in Aevum’s capital. Aevum published a prospectus on 29 September 2004 offering 11.1 million new shares for subscription at $0.90 each. It planned to raise approximately $10 million. The prospectus indicated that Aevum would apply to the Australian Stock Exchange (ASX) to be admitted to its official list and for official quotation on the ASX of its shares. The application was made and shareholders of Aevum were advised that the offer under the prospectus would open on 18 October 2004 and close on 12 November 2004 and that listing on the ASX was expected to occur on 25 November 2004. That advice was given in a letter dated 29 September 2004. It was followed by a second letter dated 27 October 2004 in which Aevum advised its members that, among other matters, it had agreed to pay, for a four month period ending on 25 March 2005, all brokerage costs incurred by existing shareholders in selling all their shares in a single trade through a special retail share facility it had arranged. A third letter dated 12 November 2004 advised shareholders of the number of shares each held, that ASX listing was expected on 19 November 2004 and that the prospectus was oversubscribed. The letter also cautioned shareholders about selling shares off-market and referred to an offer that it described as “manifestly underpriced and is not supported by your Board.”[27] On 18 November 2004, Aevum announced that trading had begun on the ASX on 18 November 2004 with an opening price of $1.52. That represented a premium of $0.62 on the issue price.
[27] Aevum Pty Ltd v National Exchange Pty Ltd (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 323; 293, [27]

National Exchange mailed an offer to every Aevum shareholder before 18 November 2004. Its offer was dated 22 October 2004 but Emmett J found that it was not sent until 28 October 2004. The offer was to buy the shareholder’s shares in the company. Emmett J found that:
“[32] The consideration offered by National Exchange was 35 cents per share. However, the offer document also contains an estimate by National Exchange of the value of the shares as being within the range $0.90 to $1.29 per share. That estimate is followed by a statement that the estimate was given to satisfy a legal requirement and should not be considered to be a valuation.”[28]

The offer was to remain open until 10 November 2004 or until the acceptances National Exchange received exceeded 3,350,000 shares. If the offer closed before 10 November 2004, National Exchange would post a notice in a national newspaper to that effect.

[28] (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 324; 293; [32]

Aevum brought proceedings in the Federal Court against National Exchange seeking injunctive relief on the basis that National Exchange had not complied with ss 1019E, 1019G(2), 1019G(3) and 1019I(4) of the Corporations Act. These sections fall within Division 5A of Part 7.9 of the Corporations Act, which is concerned with unsolicited offers to purchase shares off-market. Emmett J decided that it did not have standing under s 1324(1) as a person whose interests have been, are or would be affected by National Exchange’s conduct.[29] At the same time, ASIC instituted separate proceedings seeking the same relief. In addition to the grounds on which Aevum sought injunctive relief, ASIC relied on ss 1019I(2), 1019K and 1041E(1) of Division 5A as well as on breaches it alleged had occurred of ss 12CA, 12CC and 12DF of the Australian Securities and Investments Commission Act 2001 (ASIC Act).
[29] (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 336-337; 303-304; [104]-[108]

The provisions of Division 5A are concerned with unsolicited offers to purchase shares off-market. At trial, Emmett J had decided that National Exchange’s offer had contravened s 1019E(2) of the Corporations Act in that it had not been sent out as soon as practicable after it had been dated. National Exchange had also contravened s 1019G(2) in that it had provided that the offer closed in a period shorter than a month of its date. The offer, however, did not contain a misleading or deceptive statement that was materially misleading and did not contravene in s 1019I(4) that it be worded and presented in a clear and effective manner. His Honour canvassed the evidence in relation to ASIC’s case that the conduct of National Exchange had been unconscionable and that it had contravened s 12CC(2) of the ASIC Act. That evidence had been given by Mr Tweed.

Emmett J considered each of the provisions and came to a conclusion on each. I do not propose to set out his Honour’s comprehensive analysis in detail but will return to passages referred to by Mr Niall later in these reasons. He found that the governing mind of National Exchange was relevantly Mr Tweed.[30] In relation to s 1019E(2), he found that National Exchange was in breach in that the offers were not sent to shareholders as soon as practicable after the date of the offers. He also concluded that it had breached s 1019G(2) in that the offers were not sent to expressed to remain open for one month.[31]
[30] (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 335; 302; [92]
[31] (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 325-326; 294-295; [38]-[42] and see also 330; 298; [67]

Having regard to ss 1019K and 1041E(1), Emmett J also concluded that:
“… there was no misleading or deceptive statement in the offer documents, that there was no statement in the offer document that was materially misleading and that National Exchange has not engaged in conduct that is liable to mislead the public as to the characteristics of the offers made by the offer documents.”[32]

In relation to s 1019I(4), he had earlier concluded that he did not consider that there was any substance in the “… complaint that the offer document is not worded in a clear, concise and effective manner.”[33]

[32] (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 338; 304; [112]

[33] (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 334; 301; [90]

Section 12CC(2) of the ASIC Act is concerned with unconscionable conduct in business. Emmett J concluded that there was no evidence that the acceptance of any of the offers was for the purpose of trade or commerce.

Apart from that:

“ It may be that National Exchange has sought to take advantage of persons who are inexperienced in holding or dealing with shares in the capital of limited liability companies. However, I do not consider that the Commission has established that National Exchange has engaged in conduct that is unconscionable.”[34]

[34] (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 336; 337; [103]

The Full Court of the Federal Court dismissed ASIC’s appeal.[35] It too came to the conclusion that National Exchange was controlled by Mr Tweed.[36] It too agreed with Emmett J that the offer could not be characterised as being for the purpose of trade or commerce. But for that finding, though, the Full Court would have found that National Exchange had engaged in unconscionable conduct for the purposes of s 12CC of the ASIC Act. That was a conclusion contrary to that reached by Emmett J. The reason for the difference lies in the view taken by the Full Court that his Honour had erred in approaching the question of unconscionable conduct on the basis of the limitations imposed by the general law on that concept[37] and on their view of the evidence.
[35] Australian Securities & Investments Commission (ASIC) v National Exchange Pty Ltd (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 per Tamberlin, Finn and Conti JJ
[36] (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 134; 133; [4]
[37] (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 140; 138-139; [30]

Their Honours referred to evidence that Mr Tweed had given in earlier proceedings:
“ … ASIC tendered a transcript into evidence in which Tweed admitted that he had directed offers to members of demutualised companies such as AMP, AXA and NRMA because it was likely the members would accept an offer at less than half the market value of the shares. This was because the members had not paid for the shares and it was likely that they were less interested in holding onto them. They would be more likely to sell regardless of the price offered. They would also be unlikely to know the value of their shares. Tweed did not claim that his offer was fair. It was merely an offer to buy at a price. It is this factual matrix that the conduct of National Exchange falls to be examined.”[38]
[38]

The Full Court also looked to other findings that it had made on the evidence. It referred to them after repeating the substance of the passage I have just set out:
“ Against these considerations must be weighed the fact that there was no communication between National Exchange and the shareholders other than by the offer document. Nor was there any fiduciary relationship or evidence that any recipient was under a special disability as to age or personal circumstances. The offer document, in our view, was not misleading and contained a recommendation that the shareholders consult an adviser and read the entire document. Moreover, National Exchange disclosed its estimate of the value of the shares. The document was a short one and was not in legalistic terms.”[39]
[39] (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 141; 140; [38]

The Full Court referred to the list of factors in s 12CC(2) as the starting point for a consideration of unconscionability. One of the factors is the extent to which the supplier of the financial service, in this case National Exchange, acted in good faith. Their Honours’ findings on this factor appear in the following passage of their judgment:
“… On the evidence and concessions before the Court as to Tweed’s strategies, it cannot be suggested that the conduct of Tweed was undertaken in good faith.
National Exchange set out to systematically implement a strategy to take advantage of the fact that amongst the official members there would be a group of inexperienced persons who would act irrationally from a purely commercial viewpoint and would accept the offer. They were perceived to be vulnerable targets and ripe for exploitation, as they would be likely to act inadvertently and sell their shares without obtaining proper advice, and they were a predictable class of members from whom Tweed would procure a substantial financial advantage by reason of their commercially irrational conduct. This is not a case of shrewd commercial negotiation between businesses within acceptable boundaries. The conduct can properly be described as predatory and against good conscience. This is not a case of obtaining a low price by shrewd negotiation. It is predatory conduct designed to take advantage of inexperienced offerees. The primary emphasis is on the conduct of the offeror towards the offeree in deciding whether conduct is unconscionable. The law is not, of course, intended to protect the reckless or the unreasonable and, as Spigelman J stated in Attorney-General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261 at [121], ‘[u]nconscionability is a concept which requires a high level of moral obloquy’. The concept of unconscionability is, however, concerned to prohibit conduct such as that of the offeror in this case, which was directed at exploiting the targeted recipients. There is a strong element of moral oloquy in this case.
Section 12CC requires the Court to focus primarily on the unconscionable conduct of the offeror and to determine whether that conduct is contrary to the norm of conscientious behaviour. In our view, the conduct of National Exchange in this case, pursuant to its carefully formulated and systematic approach, clearly offends against basic notions of good conscience and fair play.”[40]

Cross-examination of Mr Tweed in Federal Court proceedings between National Exchange and the Commonwealth Bank

[40] (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 142-143;140-141; [42]-[44]

National Exchange brought proceedings against the CBA in the Federal Court.[41] They were heard before Finkelstein J and Mr Tweed gave evidence on behalf of National Exchange. He was then cross-examined by Mr NJ Young QC and the issues included offers made by National Exchange to shareholders of OneSteel, AMP, IAG and AXA Australia Pacific Holdings Limited (AXA) in July 2003.[42] Another company of which Mr Tweed was then sole director, NE Corporation, which is now known as Country Estate, also made offers to shareholders of OneSteel and AMP Income Securities.
[41] No. VID 3197 of 2003. A search on eCourt on the website of the Federal Court notes that the proceedings were discontinued or withdrawn on 10 December 2004.
[42] Transcript VID 3197 at 194

Mr Tweed told Mr Young that he personally decided which company would make the offers.[43] He chose to make offers through NE Corporation in about May 2003 because it was a securities licence holder and, because it held that licence, it did not need to disclose the current market value of the securities on the offer. The ability of NE Corporation to make offers in that way changed in May 2003 when ASIC imposed a condition on its securities licence requiring it to disclose the market value on its offers.[44]
[43] Transcript VID 3197 at 195
[44] Transcript VID 3197 at 195

Mr Tweed said that the advantage to NE Corporation in not disclosing the current market value on its offers was that “… you’d probably get a higher acceptance rate than if you do disclose the market price.”[45] He did not believe that no-one would accept the offer if he were to disclose an offer price well below the market price. When asked for a reason why any shareholder would accept such an offer, he replied “It’s the ease of which you can do the transaction”.[46]
[45] Transcript VID 3197 at 196
[46] Transcript VID 3197 at 196

When speaking of offers that had been made to shareholders in companies formed as a result of demutualisation, Mr Tweed agreed with Mr Young that he appreciated that many shareholders held their shares simply because they had previously been policy holders. Examples were AMP, NRMA and AXA, which had formerly been the National Mutual Life Association.[47] Taking AXA as an example, he agreed that he had chosen that company because it had gone through a process of demutualisation and expected there to be many shareholders who held shares as a result. Mr Tweed denied that he expected them to be unsophisticated in their knowledge of the workings of the share market. For him, the attraction of those shareholders was his belief that:
[47] Transcript VID 3197 at 203-204
“… the shareholders have not had to pay for their shares, and some of the shareholders are not interested in holding their shares and I think they’re more likely to accept an offer to sell their shares. I think they’re more likely to sell shares.
For half their true value? --- They’re more likely to be sellers, full stop.
For half their true value, Mr Tweed? --- Yes. Half their market value.
Half their realisable value on the market? Right? --- Before costs, yes.
So you think that the fact that people got their shares because they were previously policy holders makes them more inclined to accept an offer for half the market value of the share? --- No, I think they’re just more likely to accept an offer.
They’re more likely to be ignorant of the true value of the shares, are they not? --- I don’t know.
That’s not something you’ve ever thought about. Is that what you’re saying? --- I really didn’t give it any thought, no.
…
Did you give any thought to their level of sophistication as shareholders? --- No.
…
Did you think those shareholders would be unlikely to be closely following the market price for their shares? --- I wouldn’t know.”[48]
[48] Transcript VID 3197 at 204-205

In a similar vein, Mr Young explored offers made by NE Corporation in relation to IOOF Holdings Ltd (IOOF), OFM Investments Group Ltd, Wool Stock Australia Ltd, and Bendigo Bank Ltd as well as offers made by National Exchange in relation to Aevum and AMP. In relation to AMP, Mr Tweed agreed that he had personally prepared the letter of offer and the attached transfer form.[49] He had instructed a data processor to insert the relevant shareholder’s full name in the box provided on the transfer form. Mr Tweed had access to a share register that had been provided to him. He targeted shareholders on that register on the basis of the size of their shareholdings and, on the basis of a conversation that he had with his data processor, thought that he chose shareholders with 30,000 or fewer shares down to those who had 100 shares.[50] He did not select them on the basis of the date on which they acquired their shares. No documentation existed to record these criteria but this was his recollection.[51] Mr Tweed said that he believed he selected about 750,000 AMP ordinary shareholders who would receive the offers in the first part of 2003.[52]
[49] Transcript VID 3197 at 211
[50] Transcript VID 3197 at 214 and see also 229. At 240, Mr Tweed retracted any statement that he had looked at the share register before sending the letters of offer to shareholders. He might have looked at the register to see that it was readable but did not go through it to determine any size numbers.
[51] Transcript VID 3197 at 215
[52] Transcript VID 3197 at 213 and 218

Mr Young took Mr Tweed through several offers that had been made on National Exchange letter head to AMP shareholders in January and February 2003. He showed Mr Tweed a letter addressed “Dear shareholder” offering “to pay $7.50 for each of your 377 shares”.[53] Annexed to the letter of offer was an AMP shares transfer form. Mr Tweed agreed that he had personally prepared both the letter of offer and the share transfer form. He was shown another letter in the same form and then another in the same form except that the amount offered was $5.00 for each share. Those made in January 2003 offered $7.50 but those offered in February 2003 offered $5.00. When asked who had made the decision to reduce the offer, Mr Tweed replied “I did”.[54] At the time, Mr Tweed agreed with the proposition that he was personally and closely following the market price of AMP ordinary shares. The differential between National Exchange’s offer price and the AMP market price accorded with his general recollection. None of the offers disclosed the market price of AMP ordinary shares and the explanation for that came in the following exchange between Mr Young and Mr Tweed:
“The reason for that was a deliberate choice on your part that you would enhance the prospect of getting acceptances if you did not disclose the market price? --- That’s correct.”[55]
[53] Transcript VID 3197 at 211
[54] Transcript VID 3197 at 212
[55] Transcript VID 3197 at 212

In the case of CBA, Mr Tweed indicated that he had specifically asked for shareholders on the basis of the date on which they acquired their shareholdings. He had a particular interest in that group “Because they initially received their shares as a result of demutualisation of the Colonial Mutual Life …”.[56] In the following exchange with Mr Young, Mr Tweed explained his reason for targeting shareholders who have received their shares as a result of demutualisation:
“… I thought that one of the reasons your targeted demutualisation companies was that you wanted to get to shareholders who received their shares for nothing in exchange for their policy-holding position. Is that right? --- They’re the preferable group.
And they’re to be preferred over shareholders who’d bought their stock in AMP on the share market at a later date. Is that right? --- Well, I think they’re a better class.
Why is that? --- Because I think they’re more likely to accept an offer.
And why are people who acquired their shares on market after that date less likely? --- Because they’ve paid for their shares and they’ve probably got more affinity with their shareholding.
What does that mean, more affinity with their shareholding? --- Well, when you go out and pay for something you buy it because you like it.
And you follow the price on the market. Is that what you mean? --- Well, you might just like it more, as well as follow the price on the market.
So they do, in your estimation, follow the price or are more likely to follow the price if they’ve paid for their shares? --- They’re probably more likely to follow the price of that stock if they’ve paid for the shares.”[57]
[56] Transcript VID 3197 at 215
[57] Transcript VID 3197 at 216

Mr Young also explored offers made by National Exchange in or about March 2003 to note holders of AMP perpetual floating rate notes (AMP PFR notes). The offer to which reference was made at the hearing was an offer to pay $210 “for your 21 income securities”. Another offer was for the purchase of AMP Reset Preferred Securities (AMP RP securities). That was an offer of $15,000 “for your 1500 RPS securities”.[58] Mr Tweed’s signature appeared on the offers made for both AMP PFR notes and AMP RP securities.[59]
[58] Transcript VID 3197 at 230
[59] Transcript VID 3197 at 230

Taking the offers relating to AMP PFR notes, he acknowledged that he had personally prepared each of the letters of offer. He had also personally prepared the relevant form of transfer attached to each offer. His initials, as well as his signature, appeared on the top of the copy he was shown. He indicated that this was probably a printer’s proof and that his initials indicated that he had approved the form.[60] Mr Tweed acknowledged also that his offer of $210 for 21 AMP RP securities represented an offer of $10 per security. He agreed that the market price for them on the date of the offer, 17 March 2003, was $75.86. That price is printed in the media.
[60] Transcript VID 3197 at 230

The following exchange took place between Mr Young and Mr Tweed:
“… Now, your form of offer of 17 March 2003 makes no reference to the prevailing market price on 17 March 2003 of $75.86 for each of these perpetual floating rate notes, does it? --- No.
That was deliberate? --- Yes.
You deliberately did that to secure an advantage. Is that right? --- I did it to hopefully improve my response rate.
Yes, and that’s an advantage, is it not? --- If you put it that way.
Because of the market price continued at a level of $75.86, for each note accepted, where the offer was accepted, you’d make a profit of $65.86 less costs? --- Yes.
That’s a sizeable advantage, is it not, Mr Tweed? --- Yes.
What was the reason why you decided to make an offer to note holders of perpetual floating rate notes? --- Well, I was getting a good response rate on AMP and I thought I’d try the notes.
Did you know anything about the date of issuance of the notes? --- I believe after I requested the register I subsequently found out more about them and in this case I believe these notes were issued to former holders of GIO Australia Ltd.
As part of the takeover consideration for GIO? --- That’s my understanding.
Did you see that as an advantage or not? --- I thought it would be.
Why? – Well, I thought they would probably have less affinity with their shares than, say, somebody who would purchase their shares directly in AMP.
Well, we’re talking about notes here as well. Did you think they had less affinity with their perpetual floating rate notes? --- I was talking about the notes.
All right. You said ‘shares’? --- My apologies.
What does ‘less affinity’ mean? --- It means – it’s a bit like the demutualisation. You know, they haven’t gone out and bought them so they haven’t really – this is not what they ordered.
Did you also form the view that holders of perpetual floating rate notes probably would not be closely following the market value of those notes? --- Again, didn’t really think about that.
You didn’t think about that? – No.
You’re quite clear, you didn’t think about that? --- It was certainly not the foremost thing in my consideration.
Well, was it any part of your consideration? --- It may have been.”[61]
[61] Transcript VID 3197 at 231-232

Mr Tweed was asked why he had chosen to couch the offer for AMP RP securities in global terms as, in the example, $15,000 for 1500 of them:
“Is there some reason why you couch the offer in these global terms; that is to say, not on a per security basis but on a basis of total dollars for total number of securities? --- I just thought I’d try something different. Hopefully it would improve the response rate.
You thought hopefully it might improve the response if you didn’t draw attention to the dollar figure being offered per security? --- Well, it’s just a slightly different form as well. I don’t know. You try things. I never know what works.
You never know what works? --- No.
Well, your experience over many offers must have told you what worked was to try and avoid any mention of the actual value per security. Is that right? --- Well, I’ve stated that I believe that it enhances your response if you do not include the market price.”[62]
[62] Transcript VID 3197 at 238

Mr Young asked Mr Tweed why he had made certain offers through National Exchange and others through NE Corporation. Changes in the Corporations Regulations (Regulations) meant that, from about 7 or 8 April 2003,[63] National Exchange could not make an unsolicited offer without disclosing the prevailing market price as it was not a licensed securities dealer. Those Regulations did not apply to NE Corporation, which was a licensed securities dealer, and between 7 April and a date in May 2003, Mr Tweed made offers to purchase AMP PFR notes without disclosing the prevailing market value. Mr Tweed explained that:
“… National Exchange Corporation was a licensed dealer in securities and it has the opportunity to make offers, albeit a small window, probably on a once-off basis to be able to make offers without disclosing the market price.”[64]
[63] Transcript VID 3197 at 233
[64] Transcript VID 3197 at 233

Mr Tweed talked to solicitors about changing the way he made offers through NE Corporation from 7 or 8 April 2003. He agreed that he saw his making offers without disclosing the prevailing market price to be an advantage. It was not such an advantage, though, that he would be unlikely to receive any acceptances if he disclosed the prevailing market price. Mr Tweed believed that his subsequent offers, which did disclose that price, and his previous offers at times when he had to disclose it, countered against that proposition. He was referring to his offer to purchase OneSteel shares for $2.00 with payment over fifteen years and his offer of $1.00 per share.[65]
[65] Transcript VID 3197 at 234

In relation to the offer to purchase OneSteel shares for $1.00, Mr Young and Mr Tweed had the following exchange about the offer document and transfer that Mr Tweed had approved and sent to the printer. The exchange begins after Mr Tweed’s attention had been drawn to the passage in the offer under the heading “Regulatory and other information”:
“‘Corporations regulation 7.133C [sic] requires that we provide the market value of a share and the total market value of all shares or offering,’ as at 25 July 2003 the market value of the share was $1.93 and the total market value or offering to buy from you was $4151.43. Right? --- Yes.
You were advised that you had to include some sort of description about the prevailing market price to make this $1 offer? --- Sure.
Who decided to put it down the bottom of the page in item 3? --- Well, these offers are all basically made up without consultation with my lawyers and that was a form of offer that it was decided would have been okay.
Yes. Was it your decision to place that information concerning the market value of the share in item 3? --- Certainly my decision, but it may not have been my idea.
You approved it? --- I approved it certainly.
You chose the print or font size to use, did you not? --- Yes.
You made a decision that that information would not be included in the box at the top of the page beside the offer price, did you not? --- Sure.
You did that, I suggest, Mr Tweed, deliberately because you felt that, if it was done that way, many people receiving this offer would not notice or give weight to what appears at the foot of the page about the prevailing market value. That’s right, isn’t it? --- Well, you certainly hope they don’t give a lot of notice to it or pay attention or don’t – don’t want to worry about it. You don’t want it in the heading – like a Mars Bar, if you’re selling Mars Bars, you don’t say “Look, go to the shop next door, you can get it for half price,” you don’t stick that in the window, do you?
You were trying to mislead these people into thinking that the offer you were making to them of $2151 for their 2151 shares was a fair offer, weren’t you? --- I don’t think the offer says anything about being fair, it’s merely an offer to buy your shares at a certain price.
A price you knew that reasonable people would not accept if in fact they had brought to their attention the true market price of the shares? --- I wouldn’t know whether a reasonable person would accept it or not.
You knew a reasonable person would be less likely to accept it if in fact they had prominently drawn to their attention the prevailing market price of the shares? --- I’d agree with that.”[66]
[66] Transcript VID 3197 at 235-236

They revisited the advantages of NE Corporation’s not disclosing the prevailing market price of OneSteel shares at the time:
“You made that offer without disclosing the market price because that provided real advantages to you over the situation that would have obtained had you gone ahead with National Exchange, complied with the regulation and disclosed the market price. Is that right? --- I believe so.
The real advantage was that you hoped to induce many more people to accept the offer if you did it in that form? --- Yes.”[67]
[67] Transcript VID 3197 at 238

During the proceedings, Mr Tweed was questioned about his offers made to purchase shares in Insurance Australia Group Ltd (IAG), which was formerly NRMA Insurance Group Ltd. In a letter dated 6 January 2003, National Exchange offered “$1.50 for each of your 1015 shares”.[68] That amounted to a total of $1,522.50. Mr Tweed acknowledged that he had signed the offer and that he had prepared both the letter and the transfer attached to it.[69] He said that he had done so in conjunction with speaking with solicitors. In doing this, he agreed that he had made a deliberate and conscious decision not to disclose the prevailing market price for IAG shares at the time of the offer.
[68] Transcript VID 3197 at 241
[69] Transcript VID 3197 at 241

He had made the same decision when deciding later to make an offer that amounted to $1.00 per share rather than $1.50. The offer was framed in terms of “… a total dollar figure for a total number of shares, in this case, ‘$377 for your 377 shares.”[70] Mr Tweed had personally made the decision to make the offer in a form which offered a total dollar price rather than a price per share. He said that he changed the form of the offer because he “… thought it would improve the acceptance rate.”[71]
[70] Transcript VID 3197 at 242
[71] Transcript VID 3197 at 242
“Your thinking was that if you didn’t specify a dollar figure per share that improved the likelihood that recipients would not check the current market price of the shares against your offer. Is that right? --- No, I don’t know if that’s right. I think I wanted people to just focus on the amount they’re getting. This way you’re getting – you’ve got 377 shares and I’m offering you $377. I just wanted to focus on that.
Well, you’ve previously, in the previous form, told them the amount they were getting? --- Yes.
So why do you say this form of offer improved the prospects of getting a greater number of acceptances? --- Well, I think less is more.
Less information is more likely to be successful from your viewpoint. Is that what you mean? --- Well, the more information you get, I mean, we’re getting. like, prospectuses of 200 pages. Is that better information than something that’s on two pages? I think less is more. You’re more likely to read what’s in front of you if there’s less there.
You’re more likely to be misled if there’s less information there on a per share basis? --- I can’t see that there is anything misleading with this offer. I mean, we’re offering $377 ---
…
… Did you believe that shareholders were more likely to accept the offer if they had less information specified on a per share basis? --- I don’t know that.
You believe they were more likely to be misled into accepting an offer if you gave them global information ex total dollars or ex total shares. Correct? --- I think they’re more likely to accept an offer when the information is clearly set out.
Yes. You also believed that they wouldn’t accept an offer if they knew or had an opportunity of checking the market price for their shares? --- I think they’re less likely to accept.
Yes, and more likely to be misled without that information, Mr Tweed? --- I can’t see what is misleading about this offer.”[72]
[72] Transcript VID 3197 at 242-243

Mr Tweed said that he targeted IAG shareholders because they could be expected to have obtained their shares on demutualisation. He had no other reason for doing so. He selected shareholders with holdings between 150 and 50,000 shares. Anything below 150 was not economic even if they accepted.

Mr Young also questioned Mr Tweed about offers to purchase shares in AXA for $5.10 each payable in 15 annual instalments at 34 cents each over 15 years. The market price of AXA shares on 11 August 2004 was $3.94 and on 7 September 2004 was $3.92. Again he approved the form of the offer in conjunction with his lawyers as well as the transfer.[73] It was his idea to make the offer in terms of paying for the shares over 15 years in 15 annual instalments. The advantage that he saw in making such an offer was, in his words:
[73] Transcript VID 3197 at 247
“I’m hoping to build up a large asset base there with accompanying liabilities and hopefully over time the shares that have been acquired exceed the value of what it’s cost.
Well, on the first day, Mr Tweed, the day you get the acceptance, you knew that the value of what you acquired would far exceed your payment obligations spread over 15 years? --- I hope so.
But you knew that yourself? --- Well, you don’t know that. The share price can fall.
…
You never calculated what the net present value as at the acceptance date of a payment stream spread over 15 years? --- That’s correct.
You knew it would be a fraction of the market value for each security of $3.92, didn’t you? --- Well, I think that depends on what discount rate you use.
You can use any reasonable discount rate you like, Mr Tweed. The answer to my question is yes, is it not? It would be a fraction of the market value of $3.92? --- Well, I haven’t calculated but my guess is, it would be.
…
Mr Tweed, in formulating an offer by reference to a total sum payable by 15 annual instalments you were hoping that the recipients of this offer would have no understanding of the difference between net present value and payments spread over a period of 15 years, weren’t you? --- I’m hoping they like the terms of the offer and they will accept it.
… You were hoping that the recipients would focus on the fact that you were saying you were making an offer at $5.10 each and compare that figure to the market value figure on 11 August 2004 for $3.94, weren’t you? --- Not really.
…
Wasn’t that your hope and expectation? --- I just hope they accept the offer.
Well, you structured this offer with considerable care, had you not? --- My word, I structured it with considerable care in taking into consideration Finkelstein’s J comments in our previous case, and with the pro forma that from memory was approved and set out, that would have been acceptable.
The difference between this offer and that considered by Finkelstein J in the OneSteel case was that now the reference to “15 annual instalments” appears in the heading of the offer and in the box giving the total offer price. Is that right? --- Yes.
That was the main change you made to take account of the decision in the OneSteel case? --- I believe so.
…
You had structured this offer … in this fashion because you wanted recipients to focus on two things, the fact they were being offered $5.10 for each share and the fact that they were being offered a total dollar figure of $920,550. Isn’t that right? --- I just tried to get an offer out that was complying.
Well, you structured it with care to focus the attention of the reader on particular things, didn’t you? --- I actually structured it with care to try to make it legal.
Yes, and to achieve your objective of getting acceptance? --- Certainly. But the primary objective is to make it legal.
Mr Tweed, every one of these offers I’ve taken you to, you’ve given considerable thought and careful thought to the question of, “How can I structure the offer so as to best produce an acceptance,” haven’t you? --- Yes.
This offer … is no exception, is it? --- This one was given special care.
You wanted the reader to focus on a comparison of $5.10 offered for each shared compared to a market value of $3.94? --- $5.10 payable over 15 years, of 15 instalments.
Well, you didn’t want them to focus on the payable over 15 instalments, did you? --- Well, it’s all in the same type font.
Well, previously you’d had that in fine print, hadn’t you? --- Well, now it’s in super large print.
But the objective hadn’t changed, had it? --- No, to get people to accept the offer.
You had structured this offer in this way because you believed that people would not understand the difference between present value and value spread over 15 years?--- I really don’t know what people understand.”[74]
[74] Transcript VID 3197 at 248-250

Country Estate

Country Estate had initially applied for an AFSL under the streamlined process set out in s 1433 of the Corporations Act. It did so on 10 December 2003 but ASIC refused its application on 4 February 2004 on the basis that Country Estate was not a person covered by that section. After Country Estate sought review of that decision in the Tribunal, it and ASIC reached agreement and a decision was made by the Tribunal by consent that it be granted an AFSL under ss 1433 and 913B.

In accordance with Condition 2 of its AFSL, Country Estate notified ASIC on 11 November 2006 that:
“Mr Tweed has not since 1 November 2006 performed duties on behalf of Country Estate which involve the provision of a financial service and subject to the [Banning] Order being reversed on appeal or review will not in future involve himself in the provision of a financial service.
…
Country Estate has not nominated a replacement key person as it understands that Mr Tweed is considering ASIC’s reasons for the Order with a view to seeking a re-hearing of the decision …”[75]
[75] Part of Exhibit 4

But for s 911B, Mr Tweed would be permitted to provide financial services on behalf of Country Estate. Section 911B(1) provides that:
“A person (the provider) must only provide a financial service in this jurisdiction on behalf of another person (the principal) who carries on a financial services business if one or more of the following paragraphs apply:
(a)these conditions are satisfied:
(i)the principal holds and Australian financial services licence covering the provision of the service; and
(ii)the provider is an employee or director of the principal or of a related body corporate of the principal; and
(iii)the provider is not an employee or director, or authorised representative, of any other person who carries on a financial services business and who is not a related body corporate of the principal; and
(iv)The provider is not an employee or director, or authorised representative, of a related body corporate of a person of the kind mentioned in subparagraph (iii);
…”

ASIC’s decision to ban Mr Tweed from providing financial services

On 11 August 2006, ASIC notified Mr Tweed that it was concerned that he might have contravened ss 1041H, 1019E(2) and 1019G(2) of the Corporations Act and might fail to comply with a financial services law and an obligation under s 912A of the Corporations Act in the future. As required by s 920A(2), it offered Mr Tweed the opportunity to be heard before it made a decision whether he should be banned or disqualified from providing financial services.[76] Mr Tweed took advantage of the opportunity by having his counsel attend at the hearing and make oral and written submissions on his behalf.
[76] T documents at Tab 4

A delegate of ASIC decided on 30 October 2006 that Mr Tweed be banned permanently from providing financial services. He did so on several bases. The first was that Mr Tweed had failed to comply with s 1041H of the Corporations Act. That conclusion was based in part on Finkelstein J’s declaration that Mr Tweed had aided, abetted, counselled and procured the contravention of that section by National Exchange and had been knowingly concerned in, and party to, that contravention by causing the offers to be sent to shareholders in Onesteel. It was also based in part on what is described in the statement of reasons given under s 37(1)(a) of the Administrative Appeals Tribunal Act 1975 (statement) as s 7(1) of the Commonwealth Criminal Code.[77] The statement sets out s 7(1) as providing that, when an offence is committed, certain persons are deemed to have taken part in committing it. Among them are those who have aided another person in committing it or who counsel of procure that person to commit the offence. The statement describes this as coming from ss 7(1)(c) and (d) of the Commonwealth Criminal Code,[78] On my search, s 7.1 of the Criminal Code Act 1995 is concerned with a situation entirely unrelated to aiding and abetting. An offence similar to that described in the statement is found in s 11.2.
[77] T documents at Tab 2 at 9
[78] T documents at Tab 2 at 9 -10

The delegate also decided that Mr Tweed had contravened ss 1019E(2) and 1019G(2) on the basis that he had counselled or procured National Exchange’s contravention of those sections. He took into account the finding by Emmett J in Aevum Limited v National Exchange Pty Ltd that Mr Tweed was the governing mind of National Exchange and that, through him, it had come to certain conclusions regarding those shareholders more likely to sell their shares than others.[79]
[79]Aevum Pty Ltd v National Exchange Pty Ltd (2004) 142 FCR 316; 23 ACLC 287; [2004] FCA 1781 at 321; 335; [92]

The delegate decided that ASIC had reason to believe that Mr Tweed would not comply with the financial services law. In brief outline, he relied on a finding by Finkelstein J in Australian Securities and Investments Commission v National Exchange Pty Ltd that “… the offer had been purposely composed so that it would mislead shareholders”.[80] He also appears to have referred to Emmett J’s judgment in Aevum Pty Ltd v National Exchange Pty Ltd regarding s 12CC.
[80] (2003) 202 ALR 24; 47 ACSR 128; [2003] FCA 955 at 30; 134; [19]

Having decided that Mr Tweed came within ss 920A(1)(e) and (f), he then considered Mr Tweed’s activities of making unsolicited offers and as the sole director and Responsible Officer of Country Estate, which holds an AFSL. In the past, he found, Mr Tweed had been a stock broker. Given these matters, the delegate decided that there was a real possibility that Mr Tweed might seek to re-enter the financial services industry in his own right or through a corporate vehicle. These matters justified a banning order.[81]

LEGISLATIVE BACKGROUND

[81] T documents, Tab 2 at [31]

Licensing of those who carry on a financial services business

Subject to s 911A of the Corporations Act, which exempts certain persons from the requirement, a person who carries on a “financial services business in this jurisdiction” must hold an AFSL covering the provision of the financial services.[82] A “financial services business” is a business of providing financial services.[83] There are exemptions to the requirement to be licensed[84] and regulation of the circumstances in which a person may provide a financial service on behalf of another person who carries on a financial services business.[85] Those who are licensed to provide financial services must comply with the obligations set out in Division 3 of Part 7.6. The general obligations are set out in s 912A of the Corporations Act. ASIC may impose conditions on an AFSL it issues.[86]
[82] s 911A(1). Section 911D prescribes when a financial services business is taken to be carried on in this jurisdiction.
[83] s 761A
[84] s 911A(2)-(6)
[85] s 911B
[86] s 914A

Who is a provider of financial services?

Part 7.6 of the Corporations Act provides for the licensing of providers of financial services. A “financial service” is not defined as such. Rather, s 766A sets out the circumstances in which a person “provides a financial service”. Those circumstances occur if the person:
“(a) provide[s] financial product advice (see section 766B); or
(b)deal[s] in a financial product (see section 766C); or
(c)make[s] a market for a financial product (see section 766D); or
(d)operate[s] a registered scheme; or
(e)provide[s] a custodial or depository service (see section 766E); or
(f)engage[s] in conduct of a kind prescribed by regulations made for the purposes of this paragraph.”[87]
[87] s 766A(1)

Regulations may be made that expand the range of persons who are taken to provide a financial service by prescribing that regulations may set out circumstances in which those facilitating the provision of a financial service may also be taken to provide that service.[88] Regulations may also be made setting out the circumstances in which persons are taken to provide, or not provide, a financial service.[89] A person is not taken to provide a financial service if that person’s conduct is done in the course of work ordinarily done by clerks.[90]
[88] s 766A(2)(a)
[89] s 766A(2)(b)
[90] s 766A(3)

An understanding of s 766A(1)(b) requires an understanding of what is meant by “dealing in financial product”. A “financial product” has the meaning given by Division 3 of Part 7.1 of the Corporations Act.[91] Section 763A sets out a general definition of a “financial product” but s 764A sets out specific things that are financial products. Among them is a “security”,[92] which is, in turn, defined in terms that include “a share in a body”.[93]
[91] s 761A
[92] s 764A(1)(a)
[93] S 761A

Dealing with a financial product is the subject of s 766C(1) which, in so far as it is relevant, provides that:
“For the purposes of this Chapter [7], the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:
(a)applying for or acquiring a financial product;
...”

In this case, financial products have not been applied for but may have been acquired. The meaning given to the word “acquire, in relation to a financial product, has a meaning affected by section 761E.”[94] Section 761E(7) provides that the Regulations may make provision determining the meaning of “acquire” in relation to a class of financial products. Regulation 7.9.86 does so in relation to certain superannuation interests but not otherwise.
[94] s 761A

That means that I must have regard to the ordinary meaning of the word “acquire”:
“… 1 to get, gain or develop something, especially through skill or effort. …”[95]
[95] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers

Applying for an AFSL

The manner in which a person applies for an AFSL is set out in s 913A of Division 4 of Part 7.6. Section 913B(1) provides that:
“ASIC must grant an applicant an Australian financial services licence if (and must not grant such a licence unless):
(a)the application was made in accordance with section 913A; and
(b)ASIC has no reason to believe that the applicant will not comply with the obligations that will apply under section 912A if the licence is granted; and
(c)the requirement in whichever of subsection (2) or (3) of this section applies is satisfied; and
(ca)the applicant has provided ASIC with any additional information requested by ASIC in relation to matters that, under this section, can be taken into account in deciding whether to grant the licence; and
(d)the applicant meets any other requirements prescribed by regulations made for the purposes of this paragraph.
…”

Where the applicant for an AFSL is a natural person, only s 913B(2) is relevant for the purposes of s 913B(1)(c). Section 913B(2) provides that:
“ASIC must be satisfied that there is no reason to believe that that applicant is not of good fame or character.”

Where the applicant for an AFSL is not a natural person, ASIC must be satisfied:
“(a) that:
(i)if the applicant is a body corporate – there is no reason to believe that any of the applicant’s responsible officers are not of good fame or character; or
(ii)if the applicant is a partnership or the trustees of a trust – there is no reason to believe that any of the partners or trustees who would perform duties in connection with the holding of the licence are not of good fame or character; or
(b)if ASIC is not satisfied of the matter in paragraph (a) – that the applicant’s ability to provide the financial services covered by the licence would nevertheless not be significantly impaired.”[96]
[96] s 913B(3)

Section 913B(4) is concerned with the aspect of good fame or character. It provides that:
“In considering whether there is reason to believe that a person is not of good fame or character, ASIC must (subject to Part VIIC of the Crimes Act 1914) have regard to:
(a)any conviction of the person, within 10 years before the application was made, for serious fraud; and
(b)whether the person has held an Australian financial services licence that was suspended or cancelled; and
(c)whether a banning order or disqualification under Division 8 has previously been made against the person; and
(d)any other matter ASIC considers relevant.”

Obligations of a financial services licensee under s 912A

Section 912A(1), as amplified by ss 912A(2) and (3), set out the obligations of a financial services licensee. Of relevance in this case are the provisions that:
“(a) do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and
…
(c)comply with the financial services laws; …”

In so far as they are relevant in this case, the laws that come within the term “financial services law” are:

“(a) a provision of this Chapter [7] …;
(b)a provision of Chapter 9 as it applies in relation to a provision referred to in paragraph (a);
(c)a provision of Division 2 of Part 2 of the ASIC Act; or

(d) …”[97]

[97] s 761A

Outline of provisions relating to suspension and cancellation licences

Division 4 of Part 7.6 is also concerned with the suspension and cancellation of licences. Where an AFSL is held by a natural person, s 915B provides that:
“ASIC may suspend or cancel and Australian financial services licence held by a natural person, by giving written notice to the person, if the person:
(a)ceases to carry on the financial services business; or
(b)becomes an insolvent under administration; or
(c) is convicted of serious fraud; or
(d)becomes incapable of managing their affairs because of mental or physical incapacity; or
(e)lodges with ASIC an application for ASIC to do so, which is accompanied by the documents, if any, required by regulations made for the purposes of this paragraph.
…”

There is no requirement in s 915B that ASIC give the person any notice of the suspension or cancellation. Section 915C provides for other circumstances in which ASIC may cancel or suspend an AFSL after giving the licensee an opportunity to appear, or be represented, at a private hearing before ASIC and to make submissions to ASIC on the matter.[98] Those circumstances occur if:
[98] s 915C(4)
“(a) the licensee has not complied with their obligations under section 912A;
(aa)ASIC has reason to believe that the licensee will not comply with their obligations under section 912A;
(b)ASIC is no longer satisfied of the matter in whichever of subsection 913B(2) or (3) applied at the time the licence was granted (about whether the licensee, or the licensee’s representatives, are of good fame and character);
(c)a banning order or disqualification order under Division 8 is made against the lcensee;
(d)a banning order or disqualification order under Division 8 is made against a representative of the licensee and ASIC considers that the representative’s involvement in the provision of the licensee’s financial services will significantly impair the licensee’s ability to meet its obligations under this Chapter.”[99]
“(a) the application for the licence was false in a material particular or materially misleading; or
(b)there was an omission of a material matter from the application.”[100]

The cancellation or suspension takes effect when written notice of it is given to the licensee.[101]

For these reasons, I have concluded that I have no reason to believe that Mr Tweed will not comply with a financial services law.

Is there reason to believe that Mr Tweed will not comply with s 912A?

On behalf of ASIC, it was submitted that there is reason to believe that Mr Tweed will cause or authorise Country Estate to not comply with its obligation as a financial services licensee under s 912A(1)(a) to:
“do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly…”.

In doing that, Mr Tweed will not comply with his obligations as the sole responsible officer and director of Country Estate under s 912A by virtue of s 52.

It seems to me that the obligation imposed by s 912A(1) is placed upon a financial services licensee. In this case, that is Country Estate. It is not placed on its director. As I have already said, s 52 provides that “A reference to doing an act or thing includes a reference to causing or authorising the act or thing to be done.” Applying that meaning to s 912A(1)(a), that means that a financial services licensee must, when doing a thing, or causing or authorising an act or thing to be done, ensure that the financial services covered by the licence are provided efficiently, honestly and fairly. The obligation is upon the financial services licensee. No reference is made in s 912A(1)(a) to those who control a financial services licensee that is a corporation. Section 52 does not operate to bring the director or responsible officer of the corporation into the purview of s 912A(1)(a) but, rather, to ensure that the financial services licensee is responsible not only for its own acts but for those it causes or authorises to be done.

For these reasons, I do not consider that s 912A(1)(a) has application to Mr Tweed as the responsible officer of Country Estate. Therefore, as s 912A(1)(a) is also a financial services law, I am not satisfied that there is reason to believe that he is will not comply with it within the meaning of s 920A(1)(f).

The breadth and discretionary nature of the power to make a banning order

For the reasons Dr Hughes and I gave in Howarth,[176] I have concluded that a finding that one of the gateway provisions in s 920A(1) has been met does not mean that a banning order must be made against a person. In providing that
s 920A(1) provides that “ASIC may make a banning order …” in the specified circumstances, there is an indication that the power is a discretionary power. When the purpose of a banning order and the statutory context in which the power is given are considered, I find that the discretionary nature of the power is confirmed.

[176] See [2008] AATA 278 at [139] –[149]

The power is given to ASIC to prevent persons from providing financial services or, at least, from providing those types of financial services that come within Division 4 of Part 7.1. It is a power that is not expressly directed to holders of an AFSL and I do not think that it should be read as limited to such persons. It is a power that exists in the context of Part 7.6, which provides for the licensing of providers of financial services, and in the broader context of the regulation of the provision of financial services under Chapter 7 of the Corporations Act.

When a person is the holder of an AFSL, Part 7.6 provides for regulation of the providers of financial services in two ways. In the first way, ASIC is directly involved through the grant of AFSLs and in the regulation of the holders of those AFSLs to ensure that they meet their statutory obligations. Quite apart from a banning order or an enforceable undertaking, ASIC may call upon its powers to suspend or cancel an AFSL as part of that regulation.

The second way involves the holders of AFSLs supervising those whom they authorise to represent them in the provision of financial services. It does that by holding the holder of the AFSL responsible for the actions of the representative. ASIC does not have power to interfere with a financial services licensee’s choice of a representative or with regulating their relationship. Putting to one side an enforceable undertaking, its only means of regulating the activities of a representative is through regulation of the holder of the AFSL, by means of a banning order to prevent the person engaging in the provision of financial services at all and by providing that the financial services licensee is liable in respect of any loss or damage suffered by a client as a result of an authorised representative’s conduct..

When a person is not the holder of an AFSL, there are statutory obligations that they must meet. They do not precisely match those of a financial services licensee for they are not, for example, required to meet those in s 912A. For all that, ASIC’s power to make a banning order under s 920A remains a relevant power for it is not limited to those who are financial services licensees. That is so even though some of the gateway provisions may only operate in relation to financial services licensees. Others, such as those in ss 920A(1)(e) and (f) operate more broadly.

What are the limits of that discretionary power?

Although in Howarth, Dr Hughes and I referred to two authorities dealing with the general nature of discretion, I think it important to refer to them again for they emphasise the care with which a discretionary power must be exercised. Part of that care must be directed to ensuring that a discretionary power is exercised for the purpose for which it was given and not for an unrelated purpose however desirable or popular the outcome its exercise would achieve.
As Windeyer J said in Finance Facilities Pty Ltd v Federal Commissioner of Taxation[177] when considering s 46(3) of the Income Tax Assessment Act 1936
“… If the scope of the permission be not circumscribed by context or circumstances it enables the doing, or abstaining from doing, at discretion, of the thing so authorized. But the discretion must be exercised bona fide, having regard to the policy and purpose of the statute conferring the authority and the duties of the officer to whom it was given: it may not be exercised for the promotion of some end foreign to that policy and purpose or those duties. …”[178]
[177] (1971) 127 CLR 106
[178] (1971) 127 CLR 106 at 134

While s 920A(1) may appear to give uncircumscribed power to ASIC, the reality is very different for constraints upon its exercise are to be found in the Corporations Act. Express constraints of a procedural sort are found in s 920A(2) as modified by s 920A(3) but there are implicit constraints also and the identification of those types of constraints was the subject of observations by Gleeson CJ, Gaudron and Hayne JJ in Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission and Others:[179]
“‘Discretion’ is a notion that ‘signifies a number of different legal concepts’ …. In general terms, it refers to a decision-making process in which ‘no one [consideration] and no combination of [considerations] is necessarily determinative of the result’ …. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made …. The latitude may be considerable as, for example, where the relevant considerations are confined only by the subject matter and object of the legislation which confers the discretion …. On the other hand, it may be quite narrow where, for example, the decision-maker is required to make a particular decision if he or she forms a particular opinion or value judgment.”[180]
[179] (2000) 203 CLR 194; 174 ALR 585
[180] (2000) 203 CLR 194; 174 ALR 585 at 204-205; 591-592 and see also Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60 at 590; 70 per Bowen CJ and Deane J and 602; 80 per Smithers J

In Howarth, Dr Hughes and I spent some time exploring the purposes for which the power under s 920A(1) could be properly exercised. There has been some suggestion that it can be used as a punitive measure against a person whose behaviour brings him or her within one of the paragraphs of s 920A(1). We rejected

that suggestion and I adopt our reasons for doing so.[181] I repeat our conclusion that:

“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. As was said in Re Donald and Australian Securities and Investments Commission,[182] the Tribunal said:
‘116.    The imposition of a banning order against a dealers representative certainly achieves, in respect of at least one member of that profession, the second aspect of public protection for the period in respect of which it is imposed. That is, it ensures that the public can be certain that a particular person, who has been found to have breached a statutory standard applicable to him or her, is no longer entrusted with dealing in shares. At the same time, it informs both other dealers representatives and members of the general public that the behaviour is neither acceptable nor tolerated.
117.     Whether it achieves the first aspect of public protection is more debateable. A period of prohibition may, rather like a retreat or a period of contemplation, lead a person to reflect upon his or her behaviour and to come to an understanding of why that behaviour has been regarded as inappropriate by others and, if it is necessary to do so, to take steps to improve his or her knowledge of what is an appropriate manner of behaviour. On the other hand, a period of prohibition may not result in such reflection or lead to a person’s coming to any greater understanding than he or she had when it was imposed.’[183]”[184]

[181] [2008] AATA 278 at [152]-[181]

[182] (2001) 38 ACSR 10; [2001] AATA 366, per Deputy President Forgie and Mr McLean and Mr Elsum AM, Members

[183] (2001) 38 ACSR 10; [2001] AATA 366 at 36-37; [116]-[117]

[184] [2008] AATA 278 at [180]

What purpose will a banning order achieve in the circumstances of this case?

The question that I have posed in the heading must be a relevant question to ask in any consideration of whether to impose a banning order to protect

the public. In this case, a banning order made against Mr Tweed will mean that:

he cannot be granted an AFSL contrary to the banning order[185] and, without that licence, cannot carry on a financial services business in this jurisdiction;[186]
ASIC may apply to the Court for an order disqualifying Mr Tweed “… permanently or for a specified period, from providing any financial services, or specified financial services, in specified circumstances or capacities”[187] or any other order the Court considers appropriate;[188]
if a corporation of which Mr Tweed is a responsible officer should apply for an AFSL, the banning order would be relevant in determining whether he is not of good fame or character and, of not of good fame or character, in determining whether the corporation’s ability to provide financial services covered by the licence would nevertheless not be significantly impaired;[189]
he will not be able to be an authorised representative;[190] and
MrTweed’s name will be included on a register of persons against whom banning orders have been made.[191]
[185] s 920C(1)
[186] s 911A(1)
[187] s 921A(2)(a)
[188] s 921A(2)(b)
[189] ss 913B(1), (3) and (4)
[190] s 916A(3)(b)
[191] s 922A(2)(c)

What a banning order will not achieve is to prevent Mr Tweed, or one of the companies with which he is associated, from making unsolicited offers to shareholders to purchase shares provided those offers meet the requirements of financial services laws. The requirements of financial laws such as ss 1019E(2) and 1019G(2) are procedural requirements and those of s 1041H(1) are directed to the substance of the offer and to the way in which it will be understood by those receiving it. Provided requirements of that nature are met, a banning order will not, on the law as it is currently drafted and understood by the Full Court of the Federal Court, prevent Mr Tweed, or one of his companies, from making offers at all. Furthermore, he and the companies with which he is associated will not be prevented from making offers in circumstances that would be regarded as unconscionable.

How can that be so? Well, in relation to financial services, an AFSL is only required if a person carries on a financial services business. A financial services business must be both a business and a business that is properly described as providing financial services. I have already set out what is understood by carrying on a business and that is not in issue in this context. The companies are carrying on a business.

If it is to be a financial services business, its activities must relate to the provision of financial services. Activities that are regarded as financial services include dealing in a financial product.[192] A financial product includes a security and so a share. I have no doubt that Mr Tweed’s companies are engaged in dealing with financial products in the sense that they are acquiring shares and disposing of them.[193] They are conducting financial services businesses as that would be generally understood in the community.
[192] s 766A(1)(b)
[193] s 766C(1)(a) and (e)

The notion of a financial services business is not, though, used as it is generally understood in the community. Section 766C(3) provides that a person is taken not to deal in a financial product if they do so on their own behalf in situations in which they are not an issuer of those products. Mr Tweed’s companies are not issuers of financial products as understood by s 761E of the Corporations Act. There is no evidence to suggest to me that the companies are doing anything other than dealing with shares on their own behalf. Certainly, they may sell those shares after acquisition but that activity is conducted on the companies’ own behalf.

As the companies have not been dealing in financial products, they have not been providing a financial service or conducting a financial services business. Therefore, they do not need to be the holders of an AFSL. As they do not need to hold an AFSL, it is irrelevant whether Mr Tweed, their sole director and controlling mind, is the subject of a banning order or not.[194]
[194]

What of s 12CC of the ASIC Act? It prohibits a person from engaging in conduct that is, in all the circumstances, unconscionable but only “in trade or commerce” in connection with the acquisition or possible acquisition of financial services, and so of shares, from another. That is the effect of s 12CC(1)(b). Section 12CC(3) sets out matters to which the Court must have regard “… for the purpose of determining whether a person (the acquirer) has contravened subsection (1) in connection with the acquisition or possible acquisition of financial services from a person (the business supplier) …”. The Court is not limited to those matters.

Section 12CC(7) provides that, subject to the limitation on the value of the acquisition imposed by s 12CC(9):
“… a reference in this section to the acquisition or possible acquisition of financial services is a reference to the acquisition or possible acquisition of financial services by a person whose acquisition or possible acquisition is or would be for the purpose of trade or commerce.”

The Full Court of the Federal Court in Australian Securities and Investments Commission v National Exchange Pty Ltd , but not Emmett J at first instance, decided that National Exchange’s activities had been in unconscionable within the meaning of s 12CC(1).

The reason why their Honours concluded that National Exchange was not in breach of s 12CC was their conclusion that:
“ Having regard to the extrinsic materials that indicate that s 51AC [of the Trade Practices Act 1974] was directed to protect small businesses in their relationships with more substantial enterprises, we are persuaded that s 12CC, being intended as a ‘mirror’ provision, should be approached in a similar way. The language on its face is clear. Having regard to the ordinary and natural meaning of the words ‘for the purpose of trade and commerce’ and to the extrinsic material referred to earlier, we are of the view that the primary judge was correct in his conclusion that, in this case, the acquisition or possible acquisition of the financial service (ie, the acceptance of the offer) is not for the purpose of trade or commerce. If ASIC wishes to control conduct like that of Tweed in the present case, it is necessary to consider different language to that selected in the present litigation to ensure that such conduct is prohibited. The acceptance in this case is not within either s 12CC or s 12CB, as presently framed, even if the conduct is found to be unconscionable, because of the limitation of the section to acquisition for the purpose of trade or commerce.”[195]
[195] Australian Securities & Investments Commission (ASIC) v National Exchange Pty Ltd (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 144; 131; [50]

The extrinsic material to which the Full Court referred was the Second Reading Speech in relation to the Trade Practices Amendment (Fair Reading) Bill 1997, which inserted s 51AC into the TP Act. Section 51AC is headed “Unconscionable conduct in business transactions” and provides in part that a corporation must not, in trade or commerce, in connection with the acquisition, or possible acquisition of goods or services from a person, engage in conduct that is, in all the circumstances, unconscionable.[196] The Second Reading Speech reads, in part:
“… This Government is strengthening the Trade Practices Act 1974 to better protect the legal rights of small businesses, to ensure that small businesses can confidently deal with large firms …
…
This bill will provide a new substantive legal remedy for small business against unconscionable conduct …”.[197]
[196] TP Act, s 51AC(1)(b)
[197] Mr Reith, Minister for Workplace Relations and Small Business, Hansard, House of Representatives, 30 September 1997 at 8800

Their Honours’ reliance on this passage and on s 51AC of the TP Act has caused me great consternation as has their conclusion. It is true that s 51AC is similar in its drafting to s 12CC of the ASIC Act but it is not true to say that it mirrors it. Section 51AC(1) frames the prohibition in trade or commerce in terms of the supply or possible supply by a “corporation” to a “person” and the acquisition or possible acquisition from a “person”. Section 51AC(2) provides for a prohibition that is almost identical except in so far as it imposes the prohibition on a “person” who, in trade or commerce, supplies or acquires, or possibly supplies or acquires goods or services from a “corporation”. It is easy to understand that s 51AC is directed to protecting those engaged in small business. A similarly framed prohibition in s 51AB is directed to the protection of consumers in relation to the supply or possible supply by a corporation of goods or services that are of a kind ordinarily acquired for personal, domestic or household use or consumption.[198] Unlike s 51AC, the prohibition in s 12CC is framed only in terms of a “person” and the only exclusion relates to the supply or acquisition or possible supply or acquisition by a listed public company. There is no suggestion on its face that its interpretation should be influenced by the interpretation given to s 51AC of the TP Act. That is the first matter that has caused me consternation.
[198] TP Act, ss 51AB(1) and (5)

There is another. It relates to their Honours’ conclusion that the acquisition or possible acquisition of the financial service was not for the purpose of trade or commerce. This is a finding that it was necessary to make in light of the requirement in s 12CC(7).[199] They identified the acquisition or possible acquisition of the financial service, and so that which had to be for the purpose of trade or commerce, as “the acceptance of the offer”.[200] Having characterised that as the acquisition, their Honours said:
“ The evidence does not provide any basis for the conclusion that any member accepted, or would have accepted, the offer for the purpose of trade of commerce. It is true that recipients would accept the offer for the purpose of realising an asset, however, this is not sufficient to satisfy the statutory requirement that the seller must sell for the purpose of trade or commerce.”[201]
[199] See [175] above
[200] Australian Securities & Investments Commission (ASIC) v National Exchange Pty Ltd (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 144; 142; [49]
[201] (2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 143; 141-142; [47]

The difficulty that I have is that it seems to me that the acquisition to which s 12CC(7) is referring is the acquisition or possible acquisition of the shares that are the subject of the offer made by National Exchange. The acquisition or possible acquisition is not the offeree’s acceptance or possible acceptance of the offer made by National Exchange. I have come to this view in this way. Section 12CC regulates certain conduct in relation to financial services. The expression “financial service” is, for the purposes of Division 2 of Part 2 of the ASIC Act, and so for the purposes of s 12CC(1)(b), given the meaning in s 12BAB. Section 12BAB does not define a “financial service” as such but sets out when a person provides a financial service. Subject to a very important qualification to which I will return,[202] a person does so when, among other activities, “deal[ing] in a financial product”.[203] Conduct that constitutes “dealing in a financial product” includes “… acquiring a financial product”.[204] A “financial product” for the purposes of Division 2 of Part 2 has the meaning given by s 12BAA.[205] That includes a security and so a share.[206]
[202] See [184] below
[203] ASIC Act, ss 12BAB(1)(b). When used in Division 2 of Part 2, the term “financial service” has the meaning given by s 12BAB: ASIC Act, s 5(1)
[204] ASIC Act, s 12BAB(7)(a)
[205] ASIC Act, s 5(1)
[206] ASIC Act, s 12BAA(7) and s 5(2) providing that an expression that is used but not defined in the ASIC Act but defined in s 761A of the Corporations Act is to be given the same meaning in the ASIC Act as in s 761A.

If I read these meanings into the prohibition in s 12CC(1)(b) as amplified by s 12CC(7), it becomes:
“A person must not, in trade or commerce, in connection with:
(b)the acquisition or possible acquisition of financial services [being the acquisition of a financial product that is shares] from another person (other than a listed company) [by a person whose acquisition or possible acquisition of the financial services [being the acquisition of a financial product that is shares] is or would be for the purpose of trade or commerce.]”

The prohibition is on the acquisition of financial services where that acquisition is for the purposes of trade or commerce. The only person in the transaction between National Exchange and the recipients of its offer who could acquire financial services in the senses of acquiring a financial product was National Exchange. It was its activities that had to be examined in order to ascertain whether they were for the purpose of trade or commerce and not those of the shareholders receiving its offer. The shareholders were not acquiring shares but disposing of them.

Although I have not examined the case law regarding trade or commerce, it is arguable that, on the findings made by the Full Court, National Exchange did breach the provisions of s 12CC. Initially, I thought that, if National Exchange’s conduct in relation to the offers had been for the purposes of trade or commerce, it would be a breach of a financial services law of the sort referred to in s 920A(1)(e) of the Corporations Act. As it is drafted in terms similar to s 1041H and as it is Mr Tweed’s conduct that directed National Exchange’s action, it would have been relevant to consider his conduct to decide whether he was a person who has engaged in unconscionable conduct.

I would have embarked on that enquiry but for one very important qualification appearing in s 12BAB. It is a qualification that appears also in the Corporations Act and it is that:
“A person is taken not to deal in a financial product if the person deals in the product on their own behalf, unless:
(a)the person is an issuer of financial products; and
(b)the dealing is in relation to one or more of those products.”[207]
[207] ASIC Act, s 12BAB(9)

If the financial product is constituted by shares and the person has not issued them, this means that the person is taken not to deal in them if dealing in them on their own behalf. Therefore, that person cannot be regarding as acquiring, or possibly acquiring, financial services when dealing with them and so does not come within the prohibition that is found in s 12CC. Given that National Exchange was making offers with a view to acquiring shares on its own behalf, its activities are not dealings with financial services of the sort that come within the scope of s 12CC. It matters not whether those activities are unconscionable for Parliament has not prohibited them. As National Exchange’s conduct is not prohibited nor can
Mr Tweed’s in directing its activities be the subject of the prohibition.

The question that I posed in the heading to this section seems to me capable of only one answer: none. It will not stop Mr Tweed or the companies with which he is associated from making offers of the sort that the Full Court of the Federal Court found unconscionable provided he and his companies observe the letter of the law in the Corporations Act and the ASIC Act.

Should a banning order be made against Mr Tweed?

Having read all of the evidence very carefully, I am satisfied that
Mr Tweed does not intend that either he or his companies will transgress again. He will make every effort to ensure that they are within the strict letter of the law. I am also satisfied that they will not be operating within what people, or some of them, may think is within the spirit of the law. That spirit, those people would say, is that we do not conduct ourselves in relation to others in ways that would be regarded as unconscionable.

The problem that I have is that the Corporations Act is not concerned with the spirit of the law. It is not concerned with moral opprobrium that right minded people may feel when a member of the community takes advantage of another. It not concerned with ethical or moral behaviour in a general sense. Certainly, all of those issues inform the policy and so the drafting of the Corporations Act and the ASIC Act to some extent. That is illustrated by the provisions of s 12CC of the ASIC Act. The legislation does not, though, establish a general moral code of behaviour in relation to the provision of financial services or financial products. All that the Corporations Act and the ASIC Act do is to modify human and corporate behaviour. People may conduct themselves on the basis that they must meet the standards of behaviour set by the law and no more. Disapproval of their behaviour in the community may be a price they are willing to pay. If the community finds their behaviour so unacceptable that community disapproval is too low a price, it can agitate for the law to be changed to further modify human and corporate behaviour.

In this case, I have found that Mr Tweed has breached one financial services law in relation to one set of offers made to shareholders of OneSteel. It is a breach that I find that he is unlikely to repeat. For the reasons that I have given, I am satisfied that a banning order would not prevent him or companies with which he is associated from sending offers to shareholders for the purchase of their shares. To make a banning order in these circumstances would seem to me to be for a purpose other than to protect the public. Whether it would be characterised as a punitive purpose or some other purpose, it would not be a purpose permitted by the Corporations Act. I have decided therefore, to set aside the decision of ASIC to make a banning order. The effect of my doing so is that no banning order has been made
against Mr Tweed and I need substitute no other decision to give effect to my decision.

I certify that the one hundred and eighty nine preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,

Signed: .......................................................................
Jayne Haydon Associate

Date of Hearing  17 December 2007
Date of Decision  19 June 2008
Counsel for the Applicant             Mr I. Waller SC
Solicitor for the Applicant            Piper Alderman

Counsel for the Respondent Mr R. Niall

(2005) 148 FCR 132; 56 ACSR 131; [2005] FCAFC 226 at 134; 133; [4] and see also 141;
139-140; [37]

I note that, with effect from 8 April 2003, r 7.1.33C(1) of the Regulations, when read with
s 766A(1)(f) of the Corporations Act, provided that a person provided a financial service if making an unsolicited offer to purchase a financial product other than through a licensed financial market and from a person who had acquired the financial product as a retail client: Corporations Amendment Regulations 2003 (No 2), r 3, Schedule 1, Item [1]. The effect was that National Exchange had to be the holder of an AFSL to make offers of the sort it made to shareholders in OneSteel and Aevum. There was, however, an exemption to the requirement to be licensed. That was provided in
r 7.1.33C(2) when, for the purposes of s 766A(2)(b), it provided that the person was taken not to provide a financial service if disclosing the market value of each financial product and the total value of all financial products covered by the offer (or a fair estimate) and the date the offer is issued and the date and time that each value is determined (or estimated) as well as leaving the offer open for at least one month and no more than two: Corporations Amendment Regulations 2003 (No 2), r 3, Schedule 1, Item [1]. The Explanatory Statement noted that the amendments would “… support the reforms to the regulation of the financial services industry … by promoting disclosure and protecting inexperienced financial product holders from businesses that offer to purchase financial products off-market at grossly undervalued prices.”

With effect from 14 January 2004, r 7.1.33C was repealed: Corporations Amendment Regulations 2003(No 11), s 3, Schedule 2, Item [1] and see also s 2(1). At the same time, Division 5A of Part 7.9 was added to Chapter 7 by the Financial Services Reform Amendment Act 2003, s 3, Schedule 1, Item [7]. That includes provisions such as ss 1019E(2) and 1019G(2), to which I have referred. It also includes s 1019J which obliges the offeror to update the market value of the financial product to which the offer relates. Division 5A does not require a person or a corporation such as National Exchange to be the holder of an AFSL when making unsolicited offers to purchase financial products off-market in the course of dealing on their own behalf. The extent of the protection offered remained that which I have referred to in the previous paragraph.