Wright Patton Shakespeare Capital Limited and Australian Securities and Investments Commission
[2007] AATA 2101
•30 November 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 2101
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/0697
GENERAL ADMINISTRATIVE DIVISION ) Re Wright Patton Shakespeare Capital Limited Applicant
And
Australian Securities and Investments Commission
Respondent
DECISION
Tribunal Senior Member B J McCabe Date30 November 2007
PlaceBrisbane
Decision The Tribunal declines to make the order sought with regards to admissibility of evidence.
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Senior Member
CATCHWORDS
PRE HEARING DETERMINATION – admissibility of evidence of documents created by applicant’s competitors – two statements lodged in support of application – relevance of PDS published by rivals to review by Tribunal – rival PDS are of limited value – applicant allowed to offer evidence – issue of admissibility to be addressed at hearing – decline to make orders sought
Administrative Appeals Tribunal Act 1975 – s2A
Corporations Act 2001 – ss 769C, 1013C(3), 1013D, 1013E, 1014D, 1020E
WAKN v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 138 FCR 579
Shi v Migration Agents Registration Authority (2007) 158 FCR 525
REASONS FOR DECISION
30 November 2007 Senior Member B J McCabe introduction
1. Wright Patton Shakespeare Capital Limited, the applicant in these proceedings, wishes to introduce into evidence a number of documents that were created by its competitors. The documents are annexed to a statement prepared by one of the applicant’s executives. The applicant says the documents are relevant and should be available to the Tribunal in the course of reconsidering the respondent’s decision. The respondent says the documents should be excluded. Its principal objection is one of relevance, although it has other concerns as well. If the documents were not excluded, the respondent says it would be required to examine and introduce into evidence a wide range of documents. The respondent says that would be costly, and the exercise would in all likelihood significantly extend the time required for a hearing. On that basis, the respondent asked the Tribunal to hold a preliminary hearing to rule on the question of whether the evidence should be admissible. The respondent has also challenged the admissibility of another witness statement on the basis of relevance.
2. The Tribunal clearly has the power to hold a preliminary hearing[1] if it is desirable to do so, having regard to the Tribunal’s objectives set out in s 2A of the Administrative Appeals Tribunal Act 1975. But the Tribunal approaches these requests with caution. Experience suggests preliminary hearings do not always result in cost and time savings or greater convenience. The Tribunal is also wary of making a premature decision: it does not want to rule out evidence if there is a possibility its relevance might become apparent as the final hearing unfolds.
[1] WAKN v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 138 FCR 579 at [41]
3. I asked the parties to consider whether it was possible to agree on a process for identifying a sample of documents that could be produced at the final hearing without making a decision at this point as to relevance and admissibility. The question of admissibility could then conveniently be resolved at the final hearing. If the documents were not admissible, the parties and the Tribunal would not be unduly inconvenienced. But a sampling process could not be agreed. In those circumstances, I agreed to hold a preliminary hearing. I received written submissions from both parties and heard oral argument. My decision and reasons in relation to the application are set out below.
background to the dispute
4. The Australian Securities and Investments Commission (ASIC) made a decision under s 1020E of the Corporations Act 2001 (the Act) to stop Wright Patton Shakespeare Capital Limited from issuing a product disclosure statement (PDS) in connection with one of its investments funds. The decision was made on 11 January 2007, following a hearing by a delegate who heard submissions from the applicant. ASIC said the PDS:
·Did not include a number of items of information required pursuant to s 1013D of the Act;
·Included one statement that related to the future which did not have any reasonable basis, and was therefore misleading by reason of s 769C of the Act.
5. Wright Patton Shakespeare disagrees with these conclusions but sought to address them by issuing a supplementary PDS (a SPDS). Section 1014D says a PDS and SPDS should be read together as if they were one document. ASIC concluded the PDS supplemented by the SPDS would not satisfy the obligation to present the appropriate information in a clear, concise and effective manner as required under s 1013C(3).
6. Wright Patton Shakespeare asked the Tribunal to review the decision, although it issued a fresh PDS in the meantime. It asked the Tribunal to consider two statements lodged in support of its application. The first is a statement signed by Mr Dwayne Jones. Mr Jones is described as an investor in one of the applicant’s funds. The statement recounts a conversation between Mr Jones and an officer working at the ASIC Client Contact Centre in July 2007. The officer apparently spoke about the stop order made in January. Mr Jones said the officer’s comments could leave someone with a negative impression of the applicant. ASIC says the information is irrelevant because the events referred to in the statement occurred some time after the reviewable decision.
7. The second statement was signed by Mr Victor Sabados, a Wright Patton Shakespeare executive. Mr Sabados describes the applicant’s business and products. It also records Mr Sabados’s surprise at the stop order. Mr Sabados says he was surprised because he felt the standard of disclosure compared favourably with the PDS’s issued by several other named funds. He annexed copies of those PDS’s to his statement. He set out a table comparing the way in which the competitors’ PDS’s had handled the matters which were of concern to ASIC.
8. ASIC says Wright Patton Shakespeare should not be able to rely on those portions of Mr Sabados’s statement that refer to the PDS’s published by its competitors (i.e., paras 5, 20, 21, 22, 23, 24, 41 and 42 of the statement). ASIC says this evidence is irrelevant, although it objects on other grounds as well. ASIC also says the applicant should not be permitted to rely on the portions of the affidavit that refer to the evidence of Mr Jones (ie, paras 28 and 29).
9. I will deal firstly with the material in Mr Sabados’s statement that seeks to compare the PDS in this case with the PDS’s published by rivals. I will then deal with the issues arising out of the statement by Mr Jones.
are product disclosure statements published by rivals relevant to the tribunal’s review?
10. The statement of Mr Sabados invites an inference that ASIC has treated Wright Patton Shakespeare less favourably than its commercial rivals. The respondent denies it has acted improperly but insists in any event the allegation is irrelevant because the Tribunal conducts its own review on the merits. The applicant made clear during the course of submissions that it is not alleging unfairness or bias as a ground of review. But the applicant says the other PDS’s are still relevant. Mr O’Higgins, for Wright Patton Shakespeare, says the Tribunal would be assisted by comparing the applicant’s document with a selection of PDS’s issued by comparable funds because:
· The PDS’s issued by successful rivals have presumably been shaped in light of their experience of what investors want. The applicant says, in effect, that its rivals are experts on what the consumer expects and needs – an expertise that has been honed by the market.
· The reasonable investor’s expectations as to disclosure may have been shaped by the practice in the industry.
· ASIC’s own policy documents emphasise the importance of disclosure practices that promote product comparison: Regulatory Guide 168 Disclosure: Product Disclosure Statements (and other disclosure obligations)[2].
[2] See paras [27]-[28]
11. Mr O’Higgins insisted the Tribunal should accept that the PDS’s issued by other firms were logically probative and relevant to the question before the Tribunal, even if the Tribunal was not satisfied they were the best evidence.
12. ASIC takes a quite different view. Its counsel, Mr Plunkett, argues the reviewable decision included ten criticisms of the PDS. Eight of the criticisms relate to omissions of information that ASIC says are required under s 1013D. He explained s 1013D creates a check-list of required information that lends itself to a ‘tick and flick’ exercise. The Tribunal would not be assisted in conducting its own ‘tick and flick’ exercise by referring to other PDS’s, he argues: it will be apparent on the face of the applicant’s documents whether information required under s 1013D was included. Only one of the criticisms includes an allegation of misleading conduct, and that relates to a prediction. Predictions made without a reasonable basis are deemed misleading under s 769C. There is no need to look at the expectations or reactions of potential investors in those circumstances. Mr Plunkett says that aspect of the dispute can only be resolved by considering evidence obtained from the applicant describing the basis for its prediction.
13. I do not accept the respondent’s characterisation of my task on review as a ‘tick and flick’ exercise. I note that compiling at least some of the information referred to in s 1013D requires the exercise of judgement on the part of the issuer of the PDS. For example, the word ‘significant’ is used throughout s 1013D(1). There are references to information about significant risks, significant benefits, significant characteristics or features and significant taxation implications. One must judge what is significant having regard to a standard. Section 1013D(1) suggests the applicable standard is that of the person acting as a retail investor. That view is reinforced by s 1013F which says the issuer of a PDS is not required to include information in the PDS (even if it is information about matters referred to in s 1013D(1)) if:
it would not be reasonable for a person considering, as a retail client, whether to acquire the product to expect to find the information in the Statement.
14. In deciding whether or not an expectation is reasonable, s 1013F(2)(b) says one must have regard to a range of factors, including “the extent to which the product is well understood by the kinds of person who commonly acquire products of that kind as retail clients”.
15. It follows that the application of the standard will produce different disclosure outcomes in individual cases. ASIC recognise that fact in its submissions and in Regulatory Guide 168 at [26]. ASIC says the differences in the factors that the idiosyncrasies of each product and other factors make it pointless to compare PDS’s.
16. Would the Tribunal derive any assistance from comparing the PDS issued by Wright Patton Shakespeare in relation to this product with other supposedly similar products?
17. The PDS’s offered by rivals are likely to be of limited value. The best evidence of what consumers expect or need in terms of disclosure will presumably come in the form of surveys and other evidence prepared by experts in the study of consumer behaviour. Evidence of what other retailers think consumers expect or need to know would carry less weight – because it is not objective, for a start. If the applicant is merely presenting the PDS itself and offering it as evidence of what the rival appears to think about consumers’ needs or expectations, the comparison becomes even more problematic.
18. There is a possibility that a retail investor’s perception of what is significant for the purposes of s 1013D might be shaped or conditioned by the behaviour of other retailers in the same or similar markets. The reference to the experience of retail investors in s 1013F(2)(b) is certainly suggestive of that. It follows that evidence of the behaviour of competitors might be relevant to the task at hand – although I stress I would still expect that evidence from experts in analysing consumer behaviour would carry greater weight.
19. Subject to what follows, my analysis suggests Wright Patton Shakespeare should be allowed to offer the comparison evidence if it wishes to do so.
20. The applicant’s argument that a comparison will assist me to determine whether the PDS communicates the appropriate information in a clear, concise and effective manner as required under s 1013C(3) is less attractive. I accept the PDS stands to be judged according to a standard – presumably that of the reasonable retail investor. The best evidence of whether or not that standard has been satisfied is likely to be the document itself. Useful evidence might also be gleaned from experts in analysing consumer behaviour, or experts in communication. A bare comparison between PDS’s issued by rivals is unlikely to be productive.
21. I also accept the respondent’s argument that a comparison of PDS’s issued by rivals will not shed any light on the question of whether or not the applicant’s PDS is likely to mislead. ASIC’s delegate found the PDS included a prediction that was made without a reasonable basis. The statement was therefore misleading by reason of s 769C. That section operates as a deeming provision. I am not required to test the prediction itself against the standard of the reasonable investor in the course of conducting my review; rather, the applicant must identify evidence known to it that provides a foundation for the prediction. Evidence about what rivals do or know is irrelevant.
other objections to admitting the rival product disclosure statements as evidence in these proceedings
22. ASIC says allowing a comparison between PDS’s would put it in a difficult position. It says it may have required the issuers of those PDS’s to provide confidential information by way of reassurance. It says that confidential information might explain its approach in those cases. It says it is worried Wright Patton Shakespeare might compel disclosure of the confidential material in these proceedings.
23. I think ASIC’s concern is misplaced. If the rival PDS’s were to be offered in comparison, it is conceivable ASIC might explain differential treatment by stating it received confidential information from the issuer. But that does not mean it would be required to disclose that information. It is not clear how that information would assist the Tribunal in conducting its review, so it would in all likelihood be excluded – quite apart from any arguments ASIC might make about public interest immunity and the rules that prevent cross-examination from straying into matters that are collateral to the issue in the proceedings. At any rate, I am not satisfied at this point that the material ought to be excluded.
the statement of dwayne jones
24. ASIC argues the statement of Mr Jones ought to be excluded because it is irrelevant, and because it refers to matters arising after the reviewable decision was made.
25. Wright Patton Shakespeare said the statement is not being offered as evidence of some sort of misbehaviour on ASIC’s part. That is just as well, as allegations of misconduct or mistreatment are usually irrelevant in circumstances where the Tribunal conducts a de novo merits review. One situation in which evidence about misconduct could possibly be relevant is where the misconduct, if proved, would call into question the integrity of evidence offered by the respondent[3] But that is not the case here.
[3] See for example Tomkins and Anor and Civil Aviation Safety Authority [2007] AATA 1747 at [32]
26. The relevance of the statement is not entirely clear. Mr O’Higgins said it went to the question of utility. He said the comments allegedly made by an ASIC officer to a potential investor showed why the Tribunal’s review was essential, even though a fresh PDS has since been issued.
27. I am not persuaded at this point that the statement can or should be admitted, but I do not discount the possibility that its relevance might become apparent as the applicant’s case unfolds at the final hearing. I will therefore decline to exclude the evidence at this point on the grounds of relevance.
28. ASIC also argues the Full Federal Court’s decision in Shi v Migration Agents’ Registration Authority[4] means the evidence must be excluded. I think that argument can be addressed effectively at the hearing. I do not propose to resolve the issue now.
[4] (2007) 158 FCR 525.
29. ASIC has asked that Mr Jones be made available in person for cross-examination if his evidence is to be admitted. While I think the question of admissibility can be dealt with at the hearing, I would expect that Mr Jones would be available in person if his evidence were to be considered.
conclusion
30. I decline to make the orders sought by ASIC because I think the application is premature. I am satisfied the questions of admissibility can be dealt with at the hearing.
31. I have reached this view notwithstanding ASIC’s warnings that the hearing might be unnecessarily prolonged. In particular, ASIC warned that if the Trbunal were to entertain the applicant’s evidence about rival PDS’s it would be incumbent on ASIC to expend significant resources as it prepared its own analysis of the vast number of PDS’s that have been issued. I do not accept that will ultimately be necessary. Even if the applicant’s evidence is admitted, it is unclear whether it will carry much weight. I would have thought ASIC’s response to that evidence would also be relatively straightforward: the respondent can, if it wishes, criticise the examples offered by the applicant without referring to many (or perhaps any) other examples.
I certify that the 31 preceding paragraphs are a true copy of the reasons for the decision herein of
Signed: .....................................................................................
AssociateDate of Directions Hearing 7 November 2007
Date of Decision 30 November 2007
Solicitor for the Applicant Mr P O'Higgins
Solicitor for the Respondent Mr M Plunkett
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