Vick and Australian Securities and Investments Commission
[2023] AATA 1486
•17 May 2023
Vick and Australian Securities and Investments Commission [2023] AATA 1486 (17 May 2023)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2022/7386
Re:Stephen Vick
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Senior Member G Lazanas
Date:17 May 2023
Place:Brisbane
The applications for a stay and confidentiality orders pursuant to ss 41 and 35 of the Administrative Appeals Tribunal Act 1975 (Cth), respectively, are refused.
These reasons shall not be published (other than to the parties) for a period of 14 days after the date of these reasons.
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Senior Member G Lazanas
CATCHWORDS
PRACTICE AND PROCEDURE – application for stay of decision and confidentiality orders – applicant banned from providing any financial services for five years – whether discretion of the Tribunal is enlivened to grant a stay – whether a stay is desirable for the purpose of securing the effectiveness of the hearing – applicant no longer providing financial services – whether consequences for applicant and third parties substantiated – public interest considerations – presumption of openness and transparency of proceedings – whether grounds for confidentiality orders made out – reputational damage and financial hardship not sufficient – applications for stay and confidentiality orders refused
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 35, 41
Australian Securities and Investments Commission Act 2001 (Cth) s 1
Corporations Act 2001 (Cth) ss 920A, 920B, 952E, 961B, 961G, 963A, 963G
National Consumer Credit Protection Act 2009 (Cth) ss 55, 80
CASES
Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80
Australian Securities & Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185
Australian Securities and Investments Commission v Forge [2007] NSWSC 1489
Australian Securities and Investments Commission v McCormack [2017] FCA 672
Daly and Australian Securities and Investments Commission [2020] AATA 1516
McLean v Australian Securities and Investments Commission [2016] AATA 22
McNamara and Secretary, Department of Social Services [2016] AATA 189
Poidevin and Australian Securities and Investments Commission [2018] AATA 124
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 133 ALD 39
Scott and Australian Securities and Investments Commission [2009] AATA 798
Trading Life Services Pty Ltd and Australian Securities and Investments Commission [2022] AATA 4746
SECONDARY MATERIALS
Regulatory Guide 98 ASIC’s Power to suspend, cancel and vary AFS licences and make banning orders
REASONS FOR DECISION
Senior Member G Lazanas
17 May 2023
INTRODUCTION
On 5 September 2022, Mr Stephen Vick, the Applicant, applied to the Tribunal seeking a review of the decision made by a Delegate of the Respondent (ASIC) on 30 August 2022 banning him under ss 920A and 920B of the Corporations Act 2001 (Cth) (Corporations Act). Specifically, Mr Vick was banned from providing any financial services, performing any function involved in the carrying on of a financial services business and controlling an entity that carries on a financial services business, for a period of five years (Banning Order).
Amongst other things, ASIC determined that Mr Vick earned substantial sums of ‘conflicted remuneration’ for the purposes of the Corporations Act without properly managing various conflicts of interest. ASIC considered these conflicts arose from the involvement of his various professional services entities in advising and providing services to clients and their self-managed superannuation funds (SMSF), at the same time as Mr Vick was providing those clients with financial services advice. ASIC believed Mr Vick put his financial interests ahead of the best interests of the clients.
Also, on 5 September 2022, Mr Vick filed an application requesting a stay of ASIC’s abovementioned decision pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). Mr Vick also requested orders pursuant to ss 35(2), 35(3) and 35(4) of the AAT Act. In other words, Mr Vick applied for a Stay Order pending the substantive review by the Tribunal of ASIC’s decision regarding the Banning Order, as well as Confidentiality Orders. On 7 September 2022, ASIC agreed not to publish notice of the Banning Order until the Tribunal decided the interlocutory applications regarding the Stay Order and the Confidentiality Orders.
At the interlocutory hearing regarding the abovementioned applications, the legal representative for Mr Vick argued that the grant of the Stay Order is appropriate because it would be undesirable for the Banning Order to take effect before the substantive review considering the unintended and disproportionate adverse consequences for Mr Vick and third parties. He submitted that it is open for the Tribunal to decide that Mr Vick’s case has merit. He also argued the public interest considerations are not jeopardised as Mr Vick is not presently advising on financial services. Mr Vick has not provided financial services advice since January 2022 and has no intention of doing so in the future. Mr Vick’s legal representative additionally argued that the Confidentiality Orders are warranted to guard against the reputational damage and dire financial consequences that would be visited upon Mr Vick, his family and third parties if it were to become public that Mr Vick is the recipient of the Banning Order.
Consequently, the real issue in the interlocutory applications concerns openness and transparency, namely, whether the Banning Order ought to be kept secret pending the Tribunal’s review of ASIC’s decision in the substantive proceedings as Mr Vick does not intend to continue to provide financial services. That is, the Stay Order sought under s 41(2) of the AAT Act was directed at one practical aspect of the implementation of ASIC’s decision, namely, to restrain ASIC from taking steps to formally record the Banning Order on its public register and in related publications. Additionally, the Confidentiality Orders were sought to allow the substantive proceedings to be heard in private and any decision to anonymise the name of Mr Vick and his businesses.
ASIC opposed the making of both the Stay Order and the Confidentiality Orders. Counsel for ASIC submitted that the consequences for Mr Vick, his family and third parties are not as extreme as Mr Vick asserts and or unsubstantiated. ASIC also argued that the public interest considerations including the primacy to be given to ASIC’s role in regulating financial service providers and the requisite transparency in the process of review, in any event, outweigh the other factors.
As these reasons explain, I have decided that it is not desirable to exercise the discretion to grant the Stay Order even though I find the discretion is enlivened on account of the possibility of irrecoverable reputational damage that Mr Vick may endure. It is also not appropriate to grant the Confidentiality Orders as there is no cogent reason to depart from the usual position in the AAT Act that proceedings be conducted in public and that there is full transparency as to the Banning Order.
FACTUAL BACKGROUND
The factual matters set out below are based on the outlines in the respective Statements of Facts Issues and Contention of the parties as well as the evidence of Mr Vick, to which I will also come to shortly. The description of the entities provides relevant context regarding Mr Vick’s business interests, which he says are jeopardised by the Banning Order.
The original Nexus group
Since 2012, Mr Vick has operated the “Nexus group” of companies comprising:
(a)Nexus Private Financial Planning Pty Ltd (Nexus Financial Planning) through which Mr Vick provided financial services as an authorised representative (AR) of Madison Financial Group Pty Ltd (the Licensee) up until about January 2020;
(b)National Property Advisory Pty Ltd, formerly known as Nexus Private Property Services Pty Ltd (National Property/ Nexus Property), through which Mr Vick operates a real estate business as a licensed real estate agent;
(c)Nexus Private Lending Services Pty Ltd (Nexus Lending) which holds an Australian Credit Licence (ACL); and
(d)Nexus Private Accounting Services Pty Ltd (Nexus Accounting) which, among other things, provides accounting services and establishes SMSFs.
The companies in the Nexus group set out immediately above were, at all relevant times, wholly owned subsidiaries of Vick Holdings Pty Ltd (Vick Holdings), which was solely owned by Mr Vick. On 8 March 2022, Vick Holdings changed its name to Blackstar Holdings (QLD) Pty Ltd (Blackstar Holdings QLD).
At all relevant times, both Nexus Financial Planning and Mr Vick were ARs of the Licensee. While an AR of the Licensee, Mr Vick was authorised to provide financial services including financial product advice in relation to, amongst other things, securities and superannuation.
ASIC’s investigations
On 22 January 2019, ASIC commenced the investigation that led to Mr Vick’s Banning Order. In or about February 2019, the Licensee and Mr Vick became aware of ASIC’s investigation. On 12 April 2022, the ASIC hearing involving Mr Vick took place and, on 30 August 2022, the Banning Order was made.
Changes in ownership of the Nexus group
On 28 May 2021, Mr Vick incorporated a new company, Nexus Private Financial Services Pty Ltd (Nexus Financial Services), at which time Mr Vick and Mr Matthew Tuton were directors and shareholders (50% each). On 18 June 2021, Nexus Financial Services applied for an Australian Financial Services Licence (AFSL). On 19 October 2021, Mr Vick resigned as a director of Nexus Financial Services, and transferred his 50% shareholding to Mr Tuton following receipt of ASIC’s notice of hearing under s 920A of the Corporations Act dated 12 October 2021.
Separate to ASIC’s investigations in relation to Mr Vick’s financial planning work, in mid-October 2021, Mr Vick also received ASIC’s notices of hearing under ss 55 and 80 of the National Consumer Credit Protection Act 2009 (Cth) (Credit Act). Those notices were concerned with whether Mr Vick and Nexus Lending should be banned from engaging in credit activities. It suffices to note for present purposes that ASIC later decided not to take any action against him or Nexus Lending under the Credit Act.
On 26 October 2021, Nexus Financial Services advised ASIC that as a result of the impending ASIC hearing in relation to Mr Vick, he was removed as a director and shareholder and Mr Tuton would be nominated as the Responsible Manager. Mr Tuton provided a statutory declaration dated 9 December 2021 to ASIC in which he stated: “Mr Stephen Vick will not be a shareholder, Director or Representative of [Nexus Financial Services] AFSL when approved”. On 18 January 2022, ASIC granted Nexus Financial Services an AFSL when Mr Tuton was the sole director and shareholder.
On 28 January 2022, Mr Vick ceased acting as a financial planner.
On 11 February 2022, Mr Vick incorporated Summah Investment Pty Ltd (Summah) jointly owned by him and his wife as to 50% each.
On 9 March 2022, Mr Vick sold 50% of Nexus Financial Planning to Mr Tuton.
On 17 March 2022, Cloudtec Accountants Pty Ltd (Cloudtec) was nominated as the registered tax agent for Nexus Accounting. Cloudtec’s directors and shareholders were Mr Matthew Bashford and Mr James Johnson.
On 28 June 2022, Blackstar Holdings QLD transferred the following shareholdings to Summah:
(a)50% in Nexus Financial Planning;
(b)50% in Nexus Accounting;
(c)100% in Nexus Lending; and
(d)100% in National Property.
On 30 June 2022, Cloudtec changed its name to Nexus Private Accountants Pty Ltd (Nexus Private Accountants).
On 11 August 2022, Mr Tuton incorporated Nexus Private Advisers Pty Ltd (Nexus Advisers). Mr Tuton was the sole director and shareholder of Nexus Advisers and on 15 August 2022, Nexus Advisers became a corporate authorised representative (CAR) of Nexus Financial Services.
On 2 September 2022, Nexus Financial Planning ceased its financial services operations, and all of its clients were transferred to Nexus Advisers.
On 17 October 2022, Mr Tuton sold 50% of his shares in Nexus Advisers to Summah.
ASIC pointed out with respect to the statutory declaration made by Mr Tuton (see [15] above), that Nexus Financial Services appointed Nexus Advisers as its CAR on 15 August 2022 and on 17 October 2022, Summah purchased 50% of Nexus Advisers from Mr Tuton That is, through his 50% stake in Summah, Mr Vick had retained an indirect financial interest in Nexus Advisers in circumstances where all of Nexus Financial Planning’s clients were transferred to Nexus Advisers. ASIC was concerned about these changes in the Nexus group as it submitted that Mr Vick had provided different positions as to his intentions about providing financial services in the future. In particular, ASIC asserted that Mr Vick had given the impression he had distanced himself from the financial services industry at the ASIC hearing on 12 April 2022, in an effort to ward off a banning order.
At the interlocutory hearing before me, Mr Vick was definitive that he did not intend to continue to provide financial services and product advice as he said he was disillusioned with the industry. However, as also evident from the abovementioned changes, while Mr Vick is not engaged in providing financial services advice, he still has an indirect beneficial interest in Nexus Advisers which is the CAR of Nexus Financial Services, and he maintains there is no prohibition against that.
Advice to clients and alleged contraventions
The Delegate of ASIC investigated the advice Mr Vick gave to six of his retail clients in 2018 where he recommended that they each roll over their existing superannuation into newly established SMSFs and borrow to invest in residential property. The six clients proceeded with Mr Vick’s advice and used National Property (then known as Nexus Property) to find and acquire an investment property. The clients used Nexus Accounting to establish the SMSF and provide them with ongoing accounting services. Most of the clients also used Nexus Lending to arrange finance for the acquisition of each property. That is, Mr Vick leveraged off his client relationships in his financial services business to promote his other businesses.
In respect of each of those six client files, the Delegate considered, among other issues, whether Mr Vick had acted in the best interests of clients in relation to the advice he provided them and whether he gave advice that was appropriate to the clients: see ss 961B and 961G of the Corporations Act. The Delegate concluded that Mr Vick’s advice had the hallmarks of “cookie cutter” advice in that he gave the same advice to all six clients irrespective of their objectives and financial situations. Further, Mr Vick’s calculated risk profiles were adjusted to high growth to suit the recommended advice and, in some cases, he failed to investigate the option of the clients keeping their existing superannuation plans.
Further findings by the Delegate included that template Statements of Advice were used by Mr Vick, that is, they were not tailored to each client’s circumstances and were, therefore, considered to be defective. This is because, according to the Delegate, they contained misleading statements including about their asset allocations and the clients’ current versus proposed scenarios: see s 952E(2) of the Corporations Act.
The Delegate concluded that Mr Vick’s business model prioritised his interests over the six clients’ interests in contravention of s 963A of the Corporations Act, and that clients did not achieve their goals. The Delegate also found that the Nexus group earned substantial sums for the implementation of the advice (for example, $135,000 in fees in respect of one of the six clients) as well as annual accounting fees for ongoing services (for example, $1,980 per annum). The Delegate further found that based on the advice Mr Vick gave to the clients, and the structure and operation of the Nexus group, Mr Vick failed to comply with s 963G of the Corporations Act by accepting ‘conflicted remuneration’.
THE EVIDENCE
Mr Vick relied on his affidavit affirmed on 11 November 2022 and gave oral evidence in support of his interlocutory applications and was cross examined. No other person gave evidence on behalf of Mr Vick. The oral evidence of Mr Vick mostly addressed matters referred to in ASIC’s written outline of submissions, for example, Mr Vick clarified that certain changes in ownership of the Nexus group (see [17] – [24] above) were in relation to tax structuring and risk mitigation strategies with respect to his client base.
In his affidavit, Mr Vick stated that the Stay and Confidentiality Orders are necessary so that he can continue to earn an income and livelihood from his other businesses (which do not provide financial services), and which would be adversely affected if the Banning Order is made public before the determination of the decision under review. Those businesses and relevant details about them, and the current state of play based on Mr Vick’s affidavit evidence are, as follows:
(a)National Property which provides buyer’s agent and property management services and has approximately 150 clients and employs 7 staff; National Property is 100% owned by Summah which, in turn, is owned by Mr Vick and his wife as to 50% each;
(b)Nexus Lending which provides mortgage broking services and has approximately 400 clients and employs 2 staff; Nexus Lending is 100% owned by Summah which, in turn, is owned by Mr Vick and his wife as to 50% each; and
(c)Nexus Accounting which provides tax and accounting services to approximately 600 clients and employs 8 staff; Nexus Accounting is 50% owned by Summah which, in turn, is owned by Mr Vick and his wife as to 50% each.
Mr Vick also stated that Nexus Advisers which is the CAR of Nexus Financial Services and the entity to which the clients of Nexus Financial Planning were transferred would also be disadvantaged by virtue of its association with the Banning Order against him even though he is no longer working in the financial services industry.
Mr Vick sought to demonstrate that his name is inextricably linked to the abovementioned businesses by stating that a google search of “Stephen Vick Nexus Private” showed that his name is tied to “Nexus Private” and similar brands. Mr Vick claimed that the publication of the Banning Order will prove to be disproportionately detrimental to the abovementioned businesses. He stated they will be unfairly tainted by the Banning Order and damaged, even though they have nothing to do with the provision of financial services advice by him.
Mr Vick further explained that he is the sole director and the face of the business of National Property and his ability to continue to earn income from that the property advisory business depends on his personal relationships and standing in the community because he is key to the business. He anticipated that National Property will be significantly impacted by the Banning Order naming him, although the entity had changed its name in July 2020 and no longer trades under the Nexus brand.
According to Mr Vick, the mortgage broking business of Nexus Lending would be vanquished as lenders would likely terminate their agreements with Nexus Lending, although he did not explain the reasons for this or the relevant terms of any agreements providing for such termination. He also stated that Nexus Lending would be unable to renew its professional indemnity insurance but did not explain the basis for this. Mr Vick added that Nexus Lending had undergone ASIC’s scrutiny as it had been separately investigated for potential contraventions under the Credit Act and been cleared. But it nevertheless now risked having an equivalent detrimental outcome because of the Banning Order against him for the unrelated financial services business. Mr Vick submitted that clients and the public do not know the difference between a business that provides financial services advice and a business that provides finance. Accordingly, Nexus Lending would be unjustifiably tainted by the Banning Order which is confined to Mr Vick providing financial services.
With respect to Nexus Accounting, Mr Vick pointed to the potential devastating effect on the value and the prospects of this firm because, even though he did not work there and had a minority shareholding in the company, it would be associated with him and the Nexus brand. Mr Vick pointed out that the careers and livelihoods of two other shareholders and directors who had become involved in the accounting business following the merger of that firm with Cloudtec would also be unfairly impacted.
Mr Vick also referred to the significant difficulties he foresaw for both attracting and retaining staff in the various Nexus businesses if his Banning Order became public because of the uncertainty that would ensue.
Besides the abovementioned financial impacts, Mr Vick also referred to the personal and mental health impacts suffered by him, including anxiety and depression following ASIC’s investigations, as well as stress on his family. He noted that the publication of the Banning Order would not only jettison the value of all his businesses operating under the Nexus brand but would also make it virtually impossible for him to work within any professional services industry in the future.
Mr Vick stated he is 53 years old and has worked in professional services for 27 years and has no other relevant skills to earn a living. He considered the effects on him and his family to be potentially catastrophic as he stated that everything he had worked for in over 10 years would be destroyed as his and his family’s income is solely derived from the Nexus Private group. He stated that he would probably have to sell their family home and take his daughter out of private schooling to survive, as well as make many other concessions. I acknowledge Mr Vick will suffer some financial stress, however, there was no independent evidence to corroborate the extent of the financial hardship, nor was there any evidence as to his current financial position.
RELEVANT STATUTORY PROVISIONS AND LEGAL PRINCIPLES
In relation to the Tribunal’s power to grant stay orders, s 41 of the AAT Act relevantly states:
(1) Subject to this section, the making of an application to the Tribunal for a review of a decision does not affect the operation of the decision or prevent the taking of action to implement the decision.
(2) The Tribunal may, on request being made by a party to a proceeding before the Tribunal (in this section referred to as the relevant proceeding), if the Tribunal is of the opinion that it is desirable to do so after taking into account the interests of any persons who may be affected by the review, make such order or orders staying or otherwise affecting the operation or implementation of the decision to which the relevant proceeding relates or a part of that decision as the Tribunal considers appropriate for the purpose of securing the effectiveness of the hearing and determination of the application for review.
The starting position set out in s 41(1) is that reviewable decisions ordinarily take effect according to their terms even though a person lodges an application for review with the Tribunal. The power to order a stay of the reviewable decision pursuant to s 41(2) of the AAT Act is available “for the purpose of securing the effectiveness of the hearing and determination of the application for review”. The power extends to staying the operation or implementation of the decision under review or aspects of it, and a stay may be conditional. The Tribunal must be satisfied the statutory purpose is present before the discretion is enlivened. Once the discretion is enlivened, the Tribunal must decide whether to exercise the discretion having regard to “the interests of any persons who may be affected by the review”.
In Re Scott and Australian Securities and Investments Commission [2009] AATA 798 at [4] (Re Scott), Downes J set out a list of non-exhaustive factors to consider when determining an application for a stay, as appropriate. These are: (1) the prospects of success; (2) the consequences for the applicant of the refusal of a stay; (3) the public interest; (4) the consequences for the respondent in carrying out its functions depending upon whether a stay is granted or not; (5) whether the application for review would be rendered nugatory if a stay were not granted; and (6) other relevant matters, such as the length of time that the ban has already been in place and the gap between the stay application and the hearing of the review. These factors typically inform the approach taken by the Tribunal in every application for a stay and are examined further below. Before doing so, it is instructive to also refer to the leading judicial principles regarding the Tribunal’s power to grant a stay.
ASIC relied on the leading decision of the Full Court of the Federal Court in Australian Securities & Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130 (ASIC v AAT) in opposing the Stay Order. Relevantly, Downes J and Jagot J (as her Honour then was) said at [71] in the context of decisions made by ASIC pursuant to the Corporations Act, as follows:
[C]areful consideration... must be given by the AAT in any exercise of power under s 41(2) of the AAT Act to the balance of competing rights and interests struck by parliament as embodied in the terms of the Corporations Act, particularly the balance between the rights and interests of the recipient of the banning order and of the public including existing and potential future clients of the recipient of the banning order. As we have said the scheme which the provisions of the Corporations Act embody — with the potential making of a banning order to remain private unless and until ASIC decides to make such an order after having given the recipient an opportunity to be heard — is not mere statutory background or a neutral factor in the process of the formation of the required opinion about what is desirable under s 41(2) of the AAT Act. The scheme which parliament has established in the Corporations Act, and the public interest in the right of the market to know relevant information as soon as practicable, must be treated as a fundamental element in the decision-making process required under s 41(2) of the AAT Act. (underlining is emphasis added)
At [52] of ASIC v AAT, Downes and Jagot JJ noted that the scheme of the Corporations Act is that a banning order protects the public. It is intended to protect the public from obtaining financial services from a person who has not, or who ASIC reasonably believes has not, complied with a financial services law. Banning orders also serve the purpose of deterrence. The Tribunal must treat as a fundamental element in the weighing of the competing considerations the elements of the statutory regime which strike the balance between the competing interests.
The Tribunal’s power to grant what are broadly referred to as “confidentiality orders” is set out in s 35 of the AAT Act. Subsection 35(1) states that “[s]ubject to this section, the hearing of a proceeding before the Tribunal must be in public”. Subsections 35(2)-(4) provide exceptions to that rule and set out the following powers:
Private hearing
(2) The Tribunal may, by order:
(a)direct that a hearing or part of a hearing is to take place in private; and
(b)give directions in relation to the persons who may be present.
Orders for non-publication or non-disclosure
(3) The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure of:
(a)information tending to reveal the identity of:
(i) a party to or witness in a proceeding before the Tribunal; or
(ii) any person related to or otherwise associated with any party to or witness in a proceeding before the Tribunal; or
(b)information otherwise concerning a person referred to in paragraph (a).
(4) The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure, including to some or all of the parties, of information that:
(a)relates to a proceeding; and
(b)is any of the following:
(i) information that comprises evidence or information about evidence;
(ii) information lodged with or otherwise given to the Tribunal.
Subsection 35(5) relevantly states that when making an order under ss 35(2)-(4):
(5) In considering whether to give directions under subsection (2), (3) or (4), the Tribunal is to take as the basis of its consideration the principle that it is desirable:
(a)that hearings of proceedings before the Tribunal should be held in public; and
(b)that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and
(c)that the contents of documents lodged with the Tribunal should be made available to all the parties.
However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.
In ASIC v AAT, Downes and Jagot JJ stated at [75]:
Suppression orders are rarely made in courts, even though publicity undoubtedly disadvantages the parties. Criminal proceedings are a good example. In the AAT itself facts which parties would not wish to be published and which may disadvantage them are frequently published. Social security applications are a good example. The reason these matters are not kept secret is the overriding importance of justice being administered openly and in public. It is not readily apparent why persons in businesses should be treated differently even when, for example, employees may be disadvantaged.
When measured against the existence of the norm of a public hearing and the scheme established by the Corporations Act with respect to banning orders, it is apparent that the AAT would need some cogent reason by reference to the particular case to depart from the ordinary requirement of a public hearing. It is difficult to accept that harm (even serious harm) to the recipient’s reputation resulting from public awareness of the banning order will be a sufficiently cogent reason to justify the grant of a stay in most cases. This is because the risk of harm of this type is inherent in the nature of a banning order. (underlining is emphasis added)
At [54] of ASIC v AAT, Downes and Jagot JJ observed as follows in relation to the issue of openness and transparency:
Moreover, information is the key to effective trading in any market. It takes the place of regulation in ensuring fairness. A market which is not fully informed is not operating properly. Is not an investor who is about to deposit funds with a person providing financial services entitled to know that a banning order has been made against the person? If the order has been stayed on substantial grounds the person is also entitled to know that. The informed investor may continue with the proposal. If the investor does not, then that is just an example of the operation of the market place. The critical matter is that the market is fully informed. If the banning order is not disclosed, but subsequently upheld, is not the investor entitled to complain that all the circumstances should have been made public? (underlining is emphasis added)
In Daly and Australian Securities and Investments Commission [2020] AATA 1516 at [17], Deputy President McCabe stated that:
The Tribunal will look carefully at requests to suppress news of a reviewable decision even where the Tribunal is otherwise prepared to issue a stay under s 41(2). The reasons for that caution are obvious enough. The Tribunal’s review mechanism is intended to operate in a transparent way. But the Tribunal is also conscious that others who continue to deal with an applicant will be understandably angry if they later discover they were kept in the dark about a reviewable decision that might have influenced their choices as consumers of the applicant’s services.
While the Tribunal will consider the reputational damage and economic loss that an applicant might experience if the reviewable decision is published while the review proceeds, it might not give those concerns much weight. Requests for suppression orders – for that is what they are, in substance – will be scrutinised very carefully where the reviewable decision in question relates to a person’s right to participate in a regulated occupation. Participation in a regulated occupation brings many benefits, including (in many cases) economic advantages that accrue to licence holders. Those economic advantages flow from the establishment of barriers to entry that incidentally reduce competition between the favoured few. The licence necessarily carries with it a requirement that the licensee conform to the rules and participate in regulatory processes according to law. Most of those regulatory regimes – including the one established in Chapter 7 of the Corporations Act 2001 (the Corporations Act) – place a premium on transparency. It follows that a risk of bad publicity accompanying adverse regulatory action will often be regarded as an incident of a licensee’s participation in a regulated occupation.
SHOULD A STAY ORDER BE GRANTED?
I turn now to a consideration of the relevant factors and submissions made for and against the grant of the Stay Order. It was common ground that “it will usually be the applicant who will need to provide the Tribunal with sufficient evidentiary material to enable it to exercise its discretion in accordance with law”: McNamara and Secretary, Department of Social Services [2016] AATA 189 at [12].
Mr Vick argued that he has strong prospects of success in relation to the substantive review. Mr Vick stated that he had previously sought advice in relation to his business model from lawyers and dealer groups in the financial services industry. Mr Vick stated that, over the years, he had received informal advice that his business model was compliant and in accordance with ASIC’s guidelines. He noted that he had never been issued with any breach notice regarding conflicts of interest. Further, Mr Vick submitted that he did not, in any event, receive conflicted remuneration because, at best, in the relevant years, he only received about 22% of the fees charged across the Nexus group of companies for the implementation of his advice and that was in the form of dividends from Vick Holdings. He argued his receipt of income from the various entities was subject to their profitability.
Mr Vick added that ASIC’s concerns were not widespread and did not evidence any incompetence, dishonesty, unprofessionalism, or systemic risk. According to Mr Vick, the conduct in question did not demonstrate “churn” or “template or one size fits all” advice and or strategies which might suggest ulterior motives such as him prioritising fees. Contrary to the Delegate’s findings, Mr Vick argued that he had an acute knowledge and understanding of the needs and objectives of the six clients in issue. He also volunteered that none of the six clients had suffered financial loss nor had they complained against him. On the contrary, according to Mr Vick, the clients had improved financial positions. Mr Vick additionally argued that ASIC’s concerns in relation to conflicts of interest and conflicted remuneration were misconceived and incorrect as a matter of law. Finally, Mr Vick maintained that the imposition of the Banning Order for a period of five years was misplaced as it was inconsistent with the Corporations Act and ASIC’s own guidance in Regulatory Guide 98 ASIC’s powers to suspend, cancel and vary AFS licenses and make Banning Orders. That is, Mr Vick did not believe he had done anything wrong to warrant a Banning Order.
ASIC argued that Mr Vick’s business advice model was flawed and riddled with conflicts which he did not properly manage. ASIC also argued the definition of ‘conflicted remuneration’ in s 963A of the Corporations Act is broad and encompasses the circumstances whereby Mr Vick received dividends paid by a company owned by him. This is because the definition of ‘conflicted remuneration’ covers any kind of benefit received by the adviser which could be reasonably expected to influence the choice of the financial product advice recommended to the retail client. At the relevant time, Mr Vick owned 100% of Vick Holdings which, in turn, wholly owned Nexus Property (as it was then known), Nexus Lending and Nexus Accounting.
It is well established that it is not the role of the Tribunal to conduct a preliminary hearing of the review application when considering an applicant’s prospects of success: Poidevin and Australian Securities and Investments Commission [2018] AATA 124 at [39] – [40]. It is relevant, however, for the Tribunal to examine whether, in light of the evidence before it, the applicant’s prospects of success are sufficiently high to justify the grant of a stay. Obviously, if an applicant has strong prospects of success, a stay is more likely to be granted. Most of the relevant facts do not appear to be in dispute between Mr Vick and ASIC (except perhaps as to Mr Vick’s knowledge and understanding of his clients’ objectives). Mr Vick’s position was premised on him having adhered to his obligations to act in the best interests of clients. Additionally, he maintained he did not have conflicts of interest or receive conflicted remuneration, due to legal arguments.
While it is difficult to evaluate the merits of his substantive review application, it appears that Mr Vick did not appreciate his obligations as a financial service provider and the seriousness of the allegations regarding poor conflicts management including the potential risks to retail clients. Those obligations include prioritising the best interests of clients. Moreover, the nature of the findings against Mr Vick relate to six client files, not an isolated incident. The undisputed facts are that entities in Mr Vick’s ownership structure received payments from the six clients in relation to different services and advice which related to the implementation of his financial services advice. Furthermore, based on the limited evidence before the Tribunal, it appears the financial services advice and strategies were not appropriate or tailored to the clients’ objectives and had the hallmarks of template advice.
Mr Vick did not meaningfully address, even at a high level, ASIC’s serious allegation that he put the interests of the Nexus group and himself above the interests of clients. Mr Vick also did not canvass how he managed any conflicts, except by stating he had received advice in the past as to his business model and had legal submissions regarding the definition of ‘conflicted remuneration’. These assertions were, disconcertingly, vague and failed, for example, to address the text of the ‘conflicted remuneration’ definition. Accordingly, Mr Vick has not demonstrated that he has sufficiently high prospects of an outcome which does not involve at least some disqualification. However, his case is not so obviously without any merit. In the circumstances, this factor weighs slightly against granting a stay under s 41(2).
Mr Vick addressed the consequences for himself and others of the refusal of a stay at some length in his affidavit and oral evidence but did not satisfactorily substantiate his claims. As stated above, Mr Vick stated he and his family would suffer significant financial hardship, and he would also incur reputational damage. As also stated above, Mr Vick stated that third parties, including approximately 15 staff across the various Nexus group entities, as well as several business associates, will incur unfair financial consequences and prejudice if the Banning Order is not stayed. However, besides his assertions, there was no probative evidence before the Tribunal to support him, especially his claim that absent a stay, the situation would be devastating for him. For example, there was no evidence as to Mr Vick’s assets and liabilities, nor did he provide financial statements for any of his related entities or explain his sources of income. There was also no suggestion that Mr Vick would not be able to continue his Tribunal proceedings because of a lack of financial resources.
Notwithstanding the abovementioned shortcomings in Mr Vick’s evidence, I am prepared to acknowledge there will be some detrimental financial consequences to him and his family although the extent of such impact is uncertain. However, I am also mindful that prejudice or hardship to an applicant is “hardly ever a sufficient basis for securing a stay”: McLean and Australian Securities and Investments Commission [2016] AATA 22 at [21]-[22].
In relation to the financial impacts on Mr Vick’s related entities, including because of their branding as “Nexus companies” and associations with Mr Vick, the evidence provided was also general in nature. ASIC’s submission was that Mr Vick had exaggerated the financial and reputational impacts on those entities. For example, in relation to Nexus Property, ASIC pointed out that, notwithstanding the impression given by Mr Vick in his affidavit about his property agency business being directly impacted because of its brand, Nexus Property had in fact changed its name to National Property in July 2020 and rebranded its website. Separately, Mr Vick had incorporated new entities after ASIC’s investigations had commenced, including Nexus Advisers and chose to use the Nexus brand, presumably to capitalise on the goodwill attaching to that name. Similarly, the Nexus Accounting business had apparently recently merged with another small accounting firm and the entity had maintained the Nexus Accounting name. Moreover, Mr Vick did not explain why steps had not been taken to mitigate any reputational damage by virtue of using the same Nexus name.
ASIC further argued that Mr Vick had failed to explain why the publication of the Banning Order in relation to a financial services business would result in significant financial harm to different businesses which provide different services, and why that harm would likely eventuate. ASIC’s arguments have considerable force as it, it is well established that the Tribunal “must proceed by reference to ‘rationally probative evidence”, rather than on ‘mere suspicion or speculation’”: see Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 133 ALD 39 at [62] per Jessup J. Besides, the disadvantages that may flow to those businesses are, in part, due to decisions made in the past to leverage off the Nexus brand and Mr Vick’s personal goodwill which must have had considerable value. The downsides that flow from any adverse publicity are inherent in any business where its brand depends on the good reputation of individuals. In all the circumstances, the evidence given by Mr Vick was deficient as to the financial and reputational harm to him and others and this factor, therefore, weighs against the grant of the stay.
Mr Vick accepts that the public interest of protecting the consumers of financial services is an important factor, however, he argued the public interest is not compromised as he is no longer engaged in providing financial services. The public interest is based on the objects of Chapter 7 of the Corporations Act set out in s 760A which relevantly includes:
(a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b)fairness, honesty and professionalism by those who provide financial services; and
(c)fair, orderly and transparent markets for financial products…
Subsection 1(2) of the Australian Securities and Investments Commission Act 2001 (Cth) provides further context to ASIC’s functions. Relevantly, ASIC must strive to, amongst other things, “maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty…” and “take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.” See Australian Securities and Investments Commission v McCormack [2017] FCA 672 at [60]-[67].
Against that background, it is acknowledged that banning orders under the Corporations Act are made by ASIC to protect the public interest, especially members of the public who deal with financial services providers. It follows that the need to protect consumers is paramount when assessing public interest impacts: see Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at [80]. Banning orders have also been recognised as having a deterrent purpose not only against the recipient of the order as in protecting the public against misconduct of that person, but as a general deterrent in respect of others involved in the industry. That is, the object of general deterrence is served by signalling to others, the serious consequences which will ensue if they breach their duties: see Australian Securities and Investments Commission v Forge [2007] NSWSC 1489 at [103]. It follows that even if Mr Vick’s representations that he does not wish to provide financial services in the future are accepted, it is not an appropriate regulatory outcome that he should avoid regulatory action and related publicity. It is also self-evident that ASIC is not constrained from making a banning order in respect of a person who is not presently providing or intending to provide financial services as banning orders serve a general deterrence for others. This factor strongly favours the refusal of the Stay Order even though Mr Vick himself does not pose a risk, because he is not continuing to work in that industry.
It is accepted that the grant of a stay would not have any adverse effect or consequences for ASIC in carrying out its regulatory functions. This is notwithstanding there is a public interest in ASIC’s decisions generally being implemented immediately and those charged with regulation being seen to be fulfilling their role: Scott and Australian Securities and Investments Commission [2009] AATA 798 at [10]. This is because the grant of a stay in an appropriate case is part of the review process and specifically provided for in the AAT Act. I have also considered Mr Vick’s statement that he ceased providing financial services and does not intend to do so in the future. This issue is therefore a neutral factor in balancing the considerations.
Mr Vick stated that there is a prospect the review could be rendered nugatory if a stay is not granted. This factor goes to the heart of whether the stay should be granted to secure the effectiveness of the hearing of the decision under review. Mr Vick was strongly of the belief that, even if he is successful on the review, he will likely not be able to work again in any professional services capacity as his reputation will have suffered considerable damage and he will never fully recover. Mr Vick referenced the fact that he operates in the Brisbane market and once his competitors learn of his predicament, they will likely take advantage of the situation.
It is a difficult task for the Tribunal to reach a position as to whether Mr Vick’s reputational damage would be irrecoverable and, therefore, whether the review proceedings could be rendered nugatory. I accept Mr Vick’s evidence on this aspect as being authentic. Mr Vick presented as a highly motivated businessman who had worked very hard to develop the various businesses over many years. It may be that his overzealous approach and business model flagged the concerns and criticisms which he is now addressing. While he may possibly rebuild his businesses, there also remains a prospect that if Mr Vick were to ultimately succeed in the review of ASIC’s decision regarding the Banning Order, he will not be able to fully recover from the reputational damage which will have been inflicted on him.
In Trading Life Services Pty Ltd and Australian Securities and Investments Commission [2022] AATA 4746, Deputy President McCabe concluded in that case - which presented similar difficulties about evaluating the reputational damage caused to a person following a banning order - that the orders were properly sought for the purpose of securing the effectiveness of the hearing of the application for review. Accordingly, the Tribunal concluded the discretion was enlivened. The Tribunal nevertheless refused to exercise the discretion on the basis that the public interest consideration outweighed the other considerations.
I have reached a similar conclusion in this case although the facts and circumstances are different. I accept that Mr Vick is seeking the Stay Order for the requisite purpose in s 41(2) of the AAT Act, albeit he is most concerned with the practical aspects of the Banning Order, namely, the publicity and its implications on his reputation and other business interests. It follows that the discretion to grant a stay under s 41(2) of the AAT Act is enlivened. However, as I place paramount importance on the public interest consideration, particularly, the general deterrence purpose, I have decided that it is not appropriate to exercise the discretion to grant the Stay Order. That is, the balancing of the competing factors as set out above does not favour the grant of the Stay Order.
SHOULD CONFIDENTIALITY ORDERS BE GRANTED?
Mr Vick states in his affidavit the following about the consequences if the Confidentiality Orders are refused:
27. Any publication of the order, or related documents such as a media release… will affect all my other businesses (which have nothing to do with financial services) and therefore my income and life. I say this because my name is linked to the “Nexus Private” and similar brands other businesses which do not involve the provision of financial services.
He also says that his ability to earn income and support his family would potentially be all but removed if the Banning Order is published. Mr Vick is concerned about the financial hardship he will endure when it becomes public that he is the recipient of the Banning Order, even if he was to ultimately succeed in the substantive review.
The decision-making process in relation to the Confidentiality Orders sought under s 35 depends on the appropriateness of departing from the usual position that the hearing of a proceeding must be in public (s 35(1) of the AAT Act). As stated at [46] above, there are exceptions. The Tribunal has the power to order a private hearing under s 35(2). The Tribunal also has the power to order non-disclosure or non-publication of information that tends to reveal the identity of a party or witness or other related information under s 35(3). Another exceptional circumstance is that the Tribunal may make an order prohibiting or restricting the publication or disclosure of information including to the parties under s 35(4). Mr Vick wanted orders under s 35(2)-(4) of the AAT Act to effectively supress the fact of the Banning Order.
It is well established, however, that the Tribunal’s powers to depart from the usual position of a public hearing and the naming of the applicant, are to be exercised only in exceptional circumstances based on the terms of s 35(5), which clearly reinforce the desirability of public hearings and transparency (see [47] above). Again, ASIC relied particularly on the decision in ASIC v AAT (see [48] – [49] above) where the Full Court emphasised the importance of openness and transparency in Tribunal proceedings.
I was not persuaded that there is any basis for making the orders sought under ss 35(2)-(4) and allowing Mr Vick’s proceedings to be kept secret. The fact that Mr Vick may suffer reputational damage is not a cogent reason to displace the usual position that the hearing of a proceeding in the Tribunal must be in public and there is full transparency in relation to the alleged misconduct: see ASIC v AAT at [75].
Nor is it appropriate to canvass any orders for non-disclosure or non-publication of information relating to the identity of Mr Vick or other entities, as that would be tantamount to suppressing the free flow of information where there is no information that is inherently confidential. This is especially the case in regulatory matters, for example, where ASIC, as the regulator, has concerns about contraventions under the Corporations Act and where publicity also serves to deter misconduct. After all, a banning order is required to be publicised. This is the case even though Mr Vick states he is no longer involved in the provision of financial services because there is an obvious public interest in ASIC being seen to be discharging its regulatory role. There is also no need to keep secret the fact of Mr Vick’s challenge to ASIC’s decision as that fact discloses Mr Vick’s current position, and the role of the Tribunal in independently reviewing ASIC’s decision.
DECISION
The applications for the Stay and Confidentiality Orders under ss 41 and 35 of the AAT Act, respectively, are refused. ASIC had earlier agreed, after a request from Mr Vick, not to publish any notice of the decision under review, including onto its register or in any media release, until the interlocutory applications were determined (see [3] above and T14). I anticipate that ASIC may wait for a number of days after the date of these reasons before taking steps with respect to any publication, or otherwise notify Mr Vick of its intentions regarding the recording of the Banning Order on its register and any related media releases. The Tribunal will not publish this decision (other than to the parties) for a period of 14 days after the date of the reasons.
I certify that the preceding 76 (seventy-six) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas
...............................[SGD].........................................
Associate
Dated: 17 May 2023
Date(s) of hearing:
1 February 2023
Solicitors for the Applicant:
Mr C Yazbeck, Hamilton Blackstone Lawyers
Counsel for the Respondent:
Mr S Cleary
Solicitors for the Respondent:
ASIC
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