XTWK and Australian Securities and Investments Commission
[2008] AATA 703
•8 August 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 703
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/4778
GENERAL ADMINISTRATIVE DIVISION ) Re XTWK Applicant
And
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal Mr Egon Fice, Member Date8 August 2008
PlaceMelbourne
Decision The Tribunal sets aside the reviewable decision made on 25 September 2007 to make an Order under s 920A of the Corporations Act 2001 prohibiting XTWK from providing any financial services for a period of three years. The result is that no Banning Order has been made against XTWK.
The parties shall have liberty to apply to remove or vary the Orders made under s 35 of the Administrative Appeals Tribunal Act 1975 in this proceeding.
The Tribunal certifies that the matter has terminated in a manner favourable to the applicant.
(sgd) Egon Fice
Member
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION ‑ Financial Service Law – power to make a banning order – employee of Australian financial services licence holder – personal share trading – breach of financial services law – staff dealing rules – ASX market rules – reason to believe will not comply with financial services law – protection of the public ‑ deterrent
Australian Securities and Investments Commission Act 2001
Financial Services Reform Act 2001
Corporations Act 2001 ss 920A, 991F, 911A, 910, 911B, 9, 46, 50, 806, 991F, 761A, 793B, 793C, 767A, 791A, 920A, 760A, Chapter 7
Acts Interpretation Act 1901 s 13
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16
Cody v JH Nelson Pty Ltd (1947) 74 CLR 629
Metropolitan Gas Company v Federated Gas Employees’ Industrial Union and Another (1925) 35 CLR 449
CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384
Re David Tweed and Australian Securities and Investments Commission [2008] AATA 514
Power v Hamond [2006] VSCA 25
Re Ducan Howarth and Australian Securities and Investments Commission [2008] AATA 278
Boucaut Bay Co Ltd v the Commonwealth (1927) 40 CLR 98
WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559
Inland Revenue Commission v Rossminster Ltd [1980] 1 All E.R. 80
REASONS FOR DECISION
8 August 2008 Mr Egon Fice, Member 1. On 25 September 2007 the Australian Securities and Investments Commission (ASIC) issued a notice to XTWK prohibiting him from providing any financial services for a period of three years.
2. On 3 October 2007 XTWK lodged an application for a review of ASIC’s decision with the Tribunal. XTWK also lodged an application pursuant to s 41(2) of the Administrative Appeals Tribunal Act 1975 (AAT Act), seeking a Stay of the operation and implementation of ASIC’s decision to ban him from providing any financial services for a period of three years and seeking an order that ASIC not publish any media release or make any public disclosure regarding its decision. He also sought Orders under s 35(2) of the AAT Act that his name not be disclosed; that publication of and access to his name and any material tending to identify him be restricted to members and staff of the Tribunal, the parties to the proceeding, the legal representatives and advisors and staff of any transcription service; and that all hearings be held in private.
3. On 3 October 2007 Deputy President SA Forgie ordered that the applicant be described by the letters XTWK for the purposes of this application and that publication of his name, of any material tending to identify him and or any entities in which he has an interest be restricted to members and staff of the Tribunal, the parties to the proceeding, the legal representatives and professional advisors and staff of Auscript, the transcription service. In an Interlocutory decision given on 5 October 2007, I decided that the operation and implementation of the decision of ASIC’s delegate made on 25 September 2007 be Stayed.
4. The issues which I must decide are:
(a)whether ASIC had jurisdiction to make the banning order; and
(b)if ASIC was empowered to make the banning order, whether the ban was warranted in the circumstances, and, if it was, whether the length of the ban was excessive.
RELEVANT BACKGROUND
5. In April 2001 XTWK started working with Company A as a junior sales trader on the institutional equities sales desk. Company A was the service company of Company B which held an Australian Financial Services Licence (AFSL), as that term is defined in Chapter 7 of the Corporations Act 2001 (Corporations Act).
6. Prior to being employed by Company A, XTWK had established a personal share trading account which he then transferred to another stockbroking firm, Stockbroker A. That account was in his name. XTWK continued to trade shares in his name through Stockbroker A after he joined Company A. XTWK also opened another share‑trading account with Stockbroker A in the name of the corporate trustee of his family trust.
7. XTWK continued to trade shares with Stockbroker A on his personal account and also on the account of the trustee company until 2006, when Company A was informed of this activity. When so informed, Company A terminated XTWK’s employment on the ground that he had breached internal staff dealing rules by conducting personal share‑trading with another stockbroking firm. Company A also conducted an investigation into an allegation that XTWK had caused a financial services licensee to enter into a financial product transaction on a licensed market without disclosing to the buyer that the licensee was acting on its own behalf in the proposed dealing. However, after investigation by a delegate of ASIC, who was authorised to hold hearings under Division 6 of Part 3 of the Australian Securities and Investments Commission Act 2001 (ASIC Act), ASIC determined that XTWK was not involved in a contravention of the Corporations Act by causing Company B to enter into a financial product transaction on the Australian Stock Exchange (ASX) without disclosing that it was acting as principal.
8. On 17 November 2006 the head of Compliance for the group of companies which included Companies A and B, informed ASIC of XTWK’s dismissal and that the circumstances of his dismissal had been reported to the ASX.
9. On or about 4 July 2007 XTWK was informed that ASIC would conduct a hearing commencing 7 August 2007 to determine whether he should be banned from providing financial services. The hearing was subsequently deferred to 6 September 2007. Evidence was taken at that hearing from a number of witnesses and XTWK provided a written statement. Mr Rubenstein of counsel represented XTWK at the ASIC hearing, as well as at the hearing of this matter before me.
10. ASIC handed down its decision on 25 September 2007. ASIC’s delegate found that XTWK had contravened s 991F(3) of the Corporations Act as a result of his personal trading with Stockbroker A. ASIC’s delegate also found that XTWK contravened ASX Market Rule 7.8.2 and he wilfully disregarded Company B’s compliance policies and procedures or, as they described in the documents, the Staff Dealing Rules. The delegate concluded that XTWK had contravened the Financial Services Law and may not in the future comply with a Financial Services Law. Therefore, the delegate determined that XTWK should be banned from providing financial services for a period of three years.
LEGISLATIVE SCHEME AND RELEVANT RULES
11. ASIC’s power to make a banning order is set out in s 920A of the Corporations Act. Insofar as it is relevant, s 920A(1) provides:
(1)ASIC may make a banning order against a person, by giving written notice to the person, if:
…
(e)the person has not complied with a financial services law; or
(f)ASIC has reason to believe that the person will not comply with a financial services law.
12. The following terms are defined in s 761A (Chapter 7) of the Corporations Act as follows:
Financial Services Law
…
(a)a provision of this Chapter or of Chapter 5C, 6, 6A, 6B, 6C or 6D; or
(b)a provision of Chapter 9 as it applies in relation to a provision referred to in paragraph (a); or
(c)a provision of Division 2 of Part 2 of the ASIC Act; or
(d)any other Commonwealth, State or Territory legislation that covers conduct relating to the provision of financial services (whether or not it also covers other conduct), but only in so far as it covers conduct relating to the provision of financial services.
Listing Rules
listing rules of a financial market, or proposed financial market, means any rules (however described) that are made by the operator of the market, or contained in the operator’s constitution, and that deal with:
(a) admitting entities to, or removing entities from, the market’s official list, whether for the purpose of enabling financial products of those entities to be traded on the market or for other purposes; or
(b) the activities or conduct of entities that are included on that list.
A participant
…
(b)in relation to a financial market, means a person who is allowed to directly participate in the market under the market’s operating rules …
A market licensee
…means a person who holds an Australian market licence.
13. ASIC contended that XTWK failed to comply with the Financial Services Law, namely s 991F(3) of the Corporations Act which is found in Chapter 7. Relevantly, s 991F provides:
…
(3)Subject to the regulations, a person:
(a)who is an employee of a financial services licensee that is a participant in a licensed market; and
(b)who is so employed in connection with a business of dealing in financial products;
must only, on their own behalf, acquire or agree to acquire a financial product of a kind that is able to be traded on that market if the licensee acts as the agent of the person in respect of the acquisition.
Note:Failure to comply with this subsection is an offence (see subsection 1311(1)).
(4)In this section, a reference to an employee of a financial services licensee includes, for a licensee that is a body corporate, a reference to an officer of the body.
14. Section s 911A(1) of the Corporations Act provides that:
… a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services. ..
There are a number of exemptions to the requirements set out in s 911A(1) and they are found in s 911A(2) of the Corporations Act. Of particular significance is the exemption set out in s 911A(2)(a) which exempts a person from holding an AFSL if the person provides a service as representative of a second person who holds an AFSL that covers the provision of the service. A representative is defined in s 910A as follows:
representative of a person means:
(a)if the person is a financial services licensee:
(i)an authorised representative of the licensee; or
(ii)an employee or director of the licensee; or
(iii)an employee or director of a related body corporate of the licensee; or
(iv)any other person acting on behalf of the licensee; or
(b)in any other case:
(i)an employee or director of the person; or
(ii)an employee or director of a related body corporate of the person; or
(iii)any other person acting on behalf of the person.
15. Representatives are nevertheless required to comply with s 911B of the Corporations Act which deals with providing financial services on behalf of the person who carries on a financial services business. Insofar as it is relevant, s 911B(1) provides:
(1)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 an 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); …
16. A licensed market operator, such as the ASX, must have operating rules which deal with matters prescribed by the regulations. The legal status of the operating rules (other than listing rules) of a licensed market is that they have effect as a contract under seal between the licensee and each participant in the market; and between a participant and each other participant (s 793B). It was not in dispute that the ASX holds an Australian market licence as it is required to do under s 791A of the Corporations Act. It has made operating rules which are generally referred to as the ASX Rules. Rule 7.8.1 provides:
In this Rule 7.8 a reference to a Prescribed Person is a reference to the following persons:
(a)an Employee;
(b)a company employed by an Employee; and
(c)a Controlled Trust (other than a trust controlled by an Immediate Family of an Employee or a trust in relation to which an Immediate Family of an Employee is a trustee or holds more than 50% of the whole beneficial interest).
17. Rule 7.8.2 deals with the consent required for trading by prescribed persons. It provides:
A Market Participant must ensure that the following requirements are satisfied in respect of each Market Transaction entered into by or for the account of its Prescribed Persons, whether the Market Transaction is conducted through that Market Participant or through another Market Participant:
(a)the Market Transaction must first be approved in writing by a Responsible Executive, Director or Partner of the Market Participant or a person with written delegation for that responsibility from a Responsible Executive, Director or Partner (other than the Employee concerned). That approval must be obtained separately for each relevant Market Transaction. The person who approves the Market Transaction has an obligation to take into account the circumstances of the proposed transaction and anything that might materially affect the price of the relevant Traded Product (or, in the case of a DTP Transaction, the price or value of the relevant Series) the subject of the Market Transaction;
(b)The approval in writing referred to in paragraph (a) must include:
(i)all information required by Rule 4.10 for orders, whether or not the Market Participant will be executing the order to which the approval relates;
(ii)the date and time of approval; and
(c)if the Market Transaction is conducted through another Market Participant, that Market Participant must, as soon as practicable after entering into the Market Transaction, give the employing Market Participant a confirmation in respect of the Market Transaction.
18. Employee is defined in Rule 2.10 and it means:
in relation to a Market Participant, a Director, Employee, Officer, Agent, Representative, Consultant or Advisor of that Market Participant, or an Independent Contractor who acts for or by arrangement with a Participant.
19. An officer is defined in s 9 of the Corporations Act as:
officer of a corporation means:
(a)a director or secretary of the corporation; or
(b)a person:
(i)who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii)who has the capacity to affect significantly the corporation’s financial standing; or
(iii)in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or
(c)a receiver, or receiver and manager, of the property of the corporation; or
(d)an administrator of the corporation; or
(e)an administrator of a deed of company arrangement executed by the corporation; or
(f)a liquidator of the corporation; or
(g)a trustee or other person administering a compromise or arrangement made between the corporation and someone else
XTWK’S EMPLOYMENT CONTRACT
20. XTWK was offered the position of Junior Sales Trader with Company A commencing 23 April 2001. Although the letter of offer uses the generic name of the group of companies which includes Company A, the letterhead clearly indicates that the letter has been written by Company A and in it, is stated: You will provide your services exclusively to [Company A]. The offer letter states that XTWK was employed at the Melbourne office but that [he] may be required to work at any other [generic name] office. The letter of offer also refers to rules regarding employee personal dealings which it is said are governed by the Staff Dealing Rules, a copy of which would be provided to XTWK.
21. On 3 July 2006 XTWK received a letter from Company A which said: We are delighted to confirm your revised terms and conditions [Company A] [“generic name”]. In other words, Company A was, for the purposes of that letter, defined by its generic name. Throughout the letter the generic name is used rather than Company A. For example, under the heading Duties and Responsibilities, it is stated: You will provide your services exclusively to [generic name]. The generic name, generally throughout the letter, is not set out in parenthesis and therefore it is not entirely clear if reference is being made to the group of companies using the generic name or whether the reference is to Company A. However, where it seeks XTWK’s acknowledgement of acceptance of the revised terms and conditions of his employment, the letter states: You acknowledge and agree that your duties and responsibilities to [“generic name”] as set out in this contract extend to [Company A] and all related entities.
22. A historical company extract of Company A provided by ASIC discloses that it is an unlisted Australian public company limited by shares. All of its ordinary shares are held by Company B. Its ultimate holding company is an overseas based corporation. On its letterhead paper it is described as a wholly-owned subsidiary of the overseas company. Company B is an unlisted Australian public company limited by shares. Its ultimate holding company is also the overseas company. All of its issued shares are held by an Australian private company. There can be no doubt, and it is not in issue, that Company A is a subsidiary of Company B in accordance with the meaning of that expression set out s 46 of the Corporations Act. Company B holds all of the issued capital in Company A. There is also no dispute and I am satisfied that Company A and Company B are related bodies corporate in accordance with the meaning of that expression set out in s 50 of the Corporations Act. That is because Company A is a subsidiary of Company B.
23. There was no dispute that Company B was the holder of an AFSL commencing on 4 March 2004. Prior to that, it held a Securities Dealer Licence, commencing 2 July 1984. It also held a Futures Broker Licence from 24 January 2002. There was also no dispute that Company B is properly described as a participant in the licensed market conducted by the ASX.
24. ASIC contends that XTWK’s services were exclusively offered to Company B. His role as an equities dealer was confined solely to the activities of Company B. Ms K Judd SC, who appeared on behalf of ASIC, referred to a letter provided to ASIC by the head of the Compliance department of the generic group of companies. There was much argument about the admissibility of this letter, given that the head of Compliance declined to be cross-examined by Mr Rubenstein despite the fact that Ms Judd understood that he was prepared to do so. For that reason no Summons was issued. The head of Compliance was contacted by telephone but, on the instructions of his solicitor, he declined to participate unless a Summons was issued. Mr Rubenstein then objected to the head of Compliance’s letter dated 28 March 2008 being admitted into evidence. After reading the letter, I formed the view that even if it were admitted into evidence and its author cross-examined; it would not take the issue regarding XTWK’s employment any further. Much of what was stated in that letter is able to be obtained from other documents which had already been supplied to the Tribunal under s 37 of the Administrative Appeals Act 1975 (AAT Act). Some of the matters referred to by the writer of the letter do not appear to be within his personal knowledge and, save for a representative notice, there were no other documents attached which supported the opinions offered by the writer. After considerable debate, Ms Judd finally conceded that the letter did not need to go into evidence.
25. The answer to the question regarding who employed XTWK for the purpose of trading equities is quite clear, despite the sometimes equivocal language used in the letters of his engagement. His first offer of employment in 2001 was made by Company A, on its letterhead paper. It stated that XTWK was required to provide his services exclusively to Company A. However, I do not take that statement to mean that XTWK’s work was not provided for the benefit of other companies in the generic company group. In fact, logically, given that Company B held the AFSL, his work in trading equities would necessarily be for that entity’s benefit. However, it does not mean that XTWK was employed by Company B. It is not unusual in the financial services industry and in other professional occupations, such as law and accounting, to have a service company employ all staff and have that service company provide the services of its staff to an associated entity. The very name of Company A suggests that was the case. Furthermore, there are many references to the generic group of companies throughout that letter of offer. XTWK was required to work at any of the other group’s offices, not simply in Melbourne.
26. The letter of 3 July 2006 setting out the revised terms and conditions of employment again makes it abundantly clear that Company A was XTWK’s employer. The revised terms and conditions are with Company A. XTWK was employed exclusively by Company A. However, Company A provided the services of its trading desk employees, if not others, to the company which held the AFSL. That is undoubtedly why the letter seeks acknowledgement that XTWK’s duties and responsibilities set out in the contract extend to all related entities. That letter also clearly states that the contract contained within it replaces all previous contracts of employment and serves to confirm XTWK’s terms and conditions of employment for the future.
27. XTWK put into evidence a number of salary payment advices. Those advices were issued by Company A indicating clearly that Company A paid XTWK’s salary. Furthermore, there were PAYG payment summaries in evidence submitted to the Australian Taxation Office. Those documents state that the payer’s name is Company A.
28. Finally, after XTWK’s personal trading was discovered and the head of Compliance of the generic group was notified, XTWK was sent a letter on 17 November 2006 terminating his employment. That letter is on the letterhead of Company A and its states: Therefore your employment with [Company A] will be terminated immediately without notice or payment in lieu, other than statutory rights.
29. From a Common Law perspective, I have no doubt whatsoever that XTWK was employed by Company A and not Company B. Despite the fact that his services were provided indirectly for the benefit of Company B, there was no suggestion in any of the evidence that his services were provided directly to Company B or that he was therefore employed by Company B. There was no evidence of any contract of employment between XTWK and Company B. I therefore find that for the purposes of the common law, XTWK was an employee of Company A. However, this raises a secondary question; whether XTWK was an employee of Company B for the purposes of s 991F(3). I deal with that at paragraph [36] and following.
EFFECT OF BREACH OF STAFF DEALING RULES
30. Although these rules are described as Staff Dealing Rules, the rules themselves have a wider ambit. In fact it is said that the rules apply to all personal dealings in securities or derivatives by staff connected or working for [generic group] including temporary staff, consultants and contractors. The Staff Dealing Rules are also said to apply to connected parties which includes a spouse or partner, children and other family members who operate trading accounts, where those accounts satisfy what is described as a benefits test or the influence test. Therefore, it is not envisaged that these rules be limited to persons who can only strictly be described as employees or staff. The Staff Dealing Rules also state:
It is a requirement of the Corporations Act that all employees of [Company B] trade securities through the broker or a related party broker. As [Company B] does not provide retail broking services to staff, all such staff are required to trade through [retail arm of the generic group].
The reference to a requirement of the Corporations Act seems to be a reference to s 991F(3).
31. It was a requirement that new staff members joining the firm provide the Human Resources department with a list of all existing holdings for themselves and any connected persons. An account must then be opened and all holdings transferred to the retail entity of the generic group. Additionally, prior to trading on personal accounts, all staff members were required to obtain prior clearance from the Compliance Department for that trading.
32. Prior to the introduction of the Financial Services Reform Act 2001 (Reform Act) which came into operation on 11 March 2002, representatives of a person holding a dealer’s licence could not act as a representative of a dealer unless the person held a proper authority from the dealer (s 806 Corporations Act). Furthermore, a licence holder was required to establish a register of persons who held a proper authority, the contents of which had to be notified to ASIC. Under the Reform Act, the new term representative was introduced and while a representative of the licence holder could be an authorised representative, it also included an employee or director of the licensee or an employee or director of a related body corporate of the licensee. As a result, because Company A is a related body corporate of Company B (the licence holder), and XTWK was an employee of Company A, no authorisation was required to act as the licensee’s representative. That is reflected in s 911B of the Corporations Act. There is the additional requirement that the employee must not be an employee, director or authorised representative of any other person who carries on a financial services business which is not a related body corporal of the principal.
33. Despite amendment of that part of the Corporations Act which required participants to hold a proper authority, the generic group issued what is described as Equity Dealers Guidelines in which it is stated that some staff would be issued with a Representative Notice, particularly if they advised clients. The guidelines state that the purpose of the Representative Notice was to notify the employee of the licensee for whom he or she acted, of the conditions contained in the licence and to inform the holder as to the products on which they are authorised to provide advice or in which they may deal. The guidelines repeat the requirement not to open an account with an external stockbroker without approval of the Compliance department. The purpose of the prohibition is to monitor the trader’s external dealing to ensure a trader is not using the external account to circumvent prohibitions on proprietary trading. In a schedule to the guidelines, it is stated that where a breach of the Staff Dealing Rules occurs, a written warning will be given and the company reserves the right to undo the transaction. If a second breach is detected, a staff member will be banned from buying or selling stock or participating in staff trades for a period of three months. The length of the ban is said to increase with further breaches.
34. Each year the generic company’s Compliance department provided staff with an email summarising the Compliance Policy and seeking confirmation from staff that they had complied with that policy. XTWK provided those compliance undertakings for the years he was employed by Company A.
35. There is no dispute about the fact that XTWK breached the Staff Dealing Rules. He admitted as much in his evidence. He also admitted that he was aware, at all times, of the internal policies and Staff Dealing Rules regarding personal trading and that he provided regular confirmations acknowledging that he had read and understood the compliance procedures including the Staff Dealing Rules. He said he continued his private trading through an external stockbroker for reasons of privacy. He said that he believed if his managers knew that he had substantial shareholdings, it may impact on their decision whether to pay him an annual bonus and it might affect the amount of the bonus he would receive. Nevertheless, in his written statement, XTWK said he recognised that his concern was not appropriate justification for trading through the external broker without approval from his employer or Company B.
36. XTWK said that his trading involved long term investment and not short term speculative trading. He said that the holding period for shares which were sold was generally in the order of two to three years, with no shares being sold in less than two years. Given that all of XTWK’s trading accounts were in evidence, I accept what XTWK says about his personal share trading. Its purpose was not to provide him with an opportunity for manipulative trading, insider trading or front running (buying shares ahead of client orders). There was no evidence of detriment to any of XTWK’s clients. Had that been the case, I have no doubt ASIC would have brought it to my attention. XTWK only traded shares and there was no derivative trading. No short-selling was involved. The investigation by the Compliance department resulted in a finding that XTWK had not traded against the interests of his clients; his employer; or any of the companies in the generic group.
DID XTWK BREACH s 991F(3) OF THE CORPORATIONS ACT?
37. The difficult question which arises from XTWK’s conduct in personally trading shares without notifying the Compliance department of the generic group is whether that conduct constitutes a breach of s 991F(3) of the Corporations Act. The prohibition set out in that section appears, on its face, to apply only to an employee of a financial services licensee that is a participant in a licensed market. I have already found, from a common law perspective, that XTWK was not an employee of Company B, the licence holder. Although XTWK was issued with a Representative Notice, it was unnecessary under the Corporations Act to do so. Section 910A of the Corporations Act defines representative as an employee or director of a related body corporate of the licensee. I am satisfied that Company A is a related body corporate of Company B and that XTWK was an employee of Company A. Therefore, irrespective of the Representative Notice, XTWK was a representative of Company B for the purposes of Part 7.6 of the Corporations Act. The financial services provided by XTWK were lawfully provided in accordance with s 911B of the Corporations Act. Although it is clear that an employee of a related body corporate of the licensee is authorised, without anything further, to provide financial services, the restrictions on personal trading set out in s 991F(3) do not appear to apply to persons other than an employees of the licensee.
38. Ms Judd accepted XTWK was employed by Company A and that the holder of the AFSL was Company B. She therefore submitted that the question I need to answer is whether XTWK could be said to have been simultaneously employed by Company A and Company B; and if not, whether the word employee in s 991F(3) of the Corporations Act has a broader meaning than when it is used in the ordinary sense.
39. In answer to the first question posed by Ms Judd, there was no evidence before me which would point to a contract of employment between XTWK and Company B. It is true to say that XTWK was subject to control and direction in the course of his work in trading securities on behalf of Company B. That is to be entirely expected in the course of the service company providing the services of its employees to a related body. In fact XTWK’s offer of employment and the letter revising the terms and conditions of his employment with Company A expressly states that his duties and responsibilities extend to all related entities. However, and with respect to Ms Judd, that situation does not, in my opinion, create a contract of employment with Company B or any other related entity for that matter. It simply indicates XTWK was required to acknowledge duties and responsibilities owed to any of the generic group of companies as a consequence of his contract of employment with Company A.
40. There are many cases which have dealt with the distinction between an independent contractor and an employee or, as it is frequently referred to, a contract of service as opposed to a contract for services. The most commonly cited example of the so called control test is set out in Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16. However this case, like many that followed it, deals with the distinction between an employee and a contractor, particularly in circumstances where there was no written agreement between the parties. In Stevens’ case, Brodribb owned a large hardwood sawmill at Orbost. To facilitate logging operations, Brodribb’s practice over a number of years was to engage persons in three categories, namely, tree felling, snigging and truck driving. Stevens was engaged as a truck driver and he was struck by a log. Stevens sought to impute liability to Brodribb in two ways. He said Brodribb was vicariously liable for the negligence of the man loading the truck because the relationship between that man and Brodribb was that of employer and employee. At trial, Beach J held that Stevens and the man loading his truck were employees of Brodribb. The Full Court of the Supreme Court dismissed an appeal by the man loading the truck but allowed an appeal by Brodribb and set aside the judgement. The majority of the Full Court held that both men were independent contractors. In determining the issue whether either or both of the men was an employee of Brodribb or an independent contractor, the High Court (Mason J) said at p24:
… A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it: Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 at 571; FC of T v Barrett (1973) 2 ALR 65 ; 129 CLR 395 at 402; Humberstone v Northern Timber Mills (1949) 79 CLR 389. In the last-mentioned case Dixon J said (at p 404):—
The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible, but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's order and directions.
But the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question: Queensland Stations Pty Ltd v FC of T (1945) 70 CLR 539 at 552; Zuijs’ case; FC of T v Barrett at p 401; Marshall v Whittaker's Building Supply Co (1963) 109 CLR 210 at 218. Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee.
41. Wilson and Dawson JJ added the following, at p36:
The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like.
Wilson and Dawson JJ did point out that the list of relevant matters could mislead because they could be no more than a guide to the existence of the relationship of master and servant.
42. While I accept that XTWK was subject to some control and direction by Company B, that, by itself, does not necessarily indicate a contract of employment. XTWK was paid by Company A. When his contract of employment was terminated, the only letter of termination was from Company A. It clearly stated his employment with Company A was terminated. Although XTWK was required to comply with the Staff Dealing Rules and the Equities Trading Guidelines prepared by Company B, that nevertheless is taken into account in the letter setting out the revised terms and conditions of his employment with Company A. It does not make him an employee of Company B. In my view, the evidence establishes that the services of XTWK were provided to Company B by Company A, which was Company B’s service company. There is evidence that charges were levied by Company A to Company B for the provision of XTWK’s services. The evidence overwhelmingly points to XTWK being employed solely by Company A.
43. The term employee is not defined under Chapter 7 of the Corporations Act. Where general words are used in a statute, they are given their plain and ordinary meaning unless the contrary is shown (Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 at 647). Employee is defined in the Shorter Oxford Dictionary as:
One who is employed; esp. one employed for wages or a salary by a business house or by government.
44. I am of course mindful that words should not merely be given their ordinary meaning without consideration of the context in which they appear. As Isaacs and Rich JJ said in Metropolitan Gas Company v Federated Gas Employees’ Industrial Union and Another (1925) 35 CLR 449 at 455:
… every passage in a document must be read, not as if it were entirely divorced from its context, but as part of the whole instrument:
45. The importance of examining the context in which an ordinary word appears was amplified by the High Court in CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 where Brennan CJ, Dawson, Toohey and Gummow JJ said at 408:
…
It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure (46) Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy (47) Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd (48) if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent (49)
46. Assistance may also be obtained by looking at the headings of parts, divisions and subdivisions of an Act as they are deemed to be part of the Act. (s 13, Acts Interpretation Act 1901). However, the heading to a section of an Act does not form part of the Act and cannot be used to assist in its interpretation.
47. In my view, it is not permissible to extend the meaning of the word employee in the expression employee of a financial services licensee that is a participant in licensed markets to a person who is employed by a related entity. Division 7, under which s 991F(3) falls, is headed Other Rules About Conduct. All of the sections which fall under Division 7 deal with the conduct of the AFSL. Section 991F generally deals with the employees of financial services licensees. In fact, s 991F(4) expands the meaning of the word employee for the purposes of s 991F to include an officer of the body corporate, where the licensee is such a body. While it appears anomalous that the restrictions on personal trading only apply to employees of the licensee and not to representatives, there is nothing in Division 7 or in s 991F which would even suggest that the restrictions contained in s 991F(3) are to apply to a representative of a licensee. This is despite the fact that for the purposes of the ASX Market Rules, reference to an employee of a market participant includes a representative. While this may appear to be anomalous, it cannot properly be described as inconvenient or improbable.
48. I am not persuaded that the restrictions set out in s 991F(3) were intended to apply to an employee of a related body corporate of the licensee. If they were, it would have been a simple matter to include a representative in the expanded definition of employee in s 991F(4). Accordingly, I find that XTWK, by trading shares on his own behalf and on the behalf of his family trust through an external broker rather than Company B, could not be said to have failed to comply with s 991F(3). That section does not apply to XTWK’s circumstances.
ASX MARKET RULES
49. Section 761A of the Corporations Act defines the term Operating Rules. The term means any rules that are made by the operator of a financial market that deal with the activities or conduct of the market or the activities or conduct of persons in relation to the market. Significantly, s 793B of the Corporations Act provides that the operating rules of a licensed market have effect as a contract under seal between the licensee and each participant on the one hand, and between a participant and each of the other participants on the other. Operating rules are enforced by the Court (s 793C). An application may be made to the court by ASIC, the licensee, the operator of a clearing and settlement facility which the licensee has a clearing and settlement arrangement, or a person aggrieved by the failure to comply with operating rules. The Court is empowered to make directions about compliance, or enforcement of the operating rules.
50. The term financial market is defined in s 767A. The activities of share trading clearly fall under that definition. The ASX is a person that holds an Australian Market Licence as is required under s 791A of the Corporations Act.
51. The ASX Market Rules include the following relevant rules which fall under Part 7.8 dealing with transactions by prescribed persons:
7.8.1 Application
In this rule 7.8 a reference to a prescribed person is a reference to the following persons:
(a)an Employee;
(b)a company controlled by an Employee; and
(c)a Control Trust (other than a trust controlled by an Immediate Family or an employee or a trust in relation to which an Immediate Family of an Employee is a trustee or holds more than 50% of the whole beneficial interest).
7.8.2 Internal Consent Required For Trading By Prescribed Persons
A Market Participant must ensure that the following requirements are satisfied in respect of each Market Transaction entered into by or for the account of its Prescribed Persons, whether the Market Transaction is conducted through that Market Participant or through another Market Participant;
(a)the Market Transaction must first be approved in writing by Responsible Executive, Director or Partner of the Market Participant or a person with written delegation for that responsibility from a Responsible Executive, Director or Partner (other than the Employee concerned). That approval must be obtained separately for each relevant Market Transaction. …
…
For the purposes of the ASX Market Rules, an employee is defined to include a director, employee, officer, agent, representative, consultant or advisor of that market participant, or an independent contractor who acts for or by arrangement with a participant.
52. XTWK admitted that he did not obtain approval for his personal trading from a responsible executive, director or partner of the market participant which, in this case, is Company B. There is no dispute about that. Because it is the market participant’s obligation to ensure that authorisation is given for transactions by prescribed persons, it is the market participant in this case which has breached Market Rule 7.8.2. XTWK did not breach that market rule nor could he. The operating rules have affect as a contract under seal between participants in the market and the holder of an Australian Market Licence. This is so even though his conduct caused Company B to be in breach of the Market Rules.
POWER TO MAKE A BANNING ORDER
53. ASIC relies on the powers contained in s 920A of the Corporations Act, and in particular, subsections 1(e) and (f). Before exercising that power, ASIC must give the person an opportunity to appear, or be represented at a hearing before ASIC and to make submissions at that hearing (s 920A(2)). I have been provided with transcripts of the hearing held by ASIC and I am satisfied that ASIC has complied with s 920A(2).
54. Under the first limb of s 920A upon which ASIC relies, ASIC must demonstrate by evidence that XTWK failed to comply with a Financial Services Law. The expression Financial Services Law is defined in s 761A of the Corporations Act and, insofar as it is relevant to this matter, it means a provision of Chapter 7.
55. As I understand it, ASIC’s contention is that XTWK has not acted in accordance with a Financial Services Law having regard to the main object of Chapter 7 which is set out in s 760A of the Corporations Act. Section 760A provides:
760A Object of Chapter
The main object of this Chapter is to promote:
(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; and
(d)the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
56. The ordinary meaning of the word comply is:
…(usually comply with something) to act in obedience to an order, command, request, etc; to agree. … (Chambers 21st Century Dictionary 1999).
57. ASIC contended that a person complies with a statutory obligation if they act in accordance with it. Equally, a person does not comply with the law that imposes a prohibition on certain conduct if he or she engages in conduct that constitutes or leads to a contravention.
58. Deputy President SA Forgie in ReDavid Tweed and Australian Securities and Investments Commission [2008] AATA 514 examined a number of authorities dealing with the meaning of the word comply in the context of s 920A(1)(e) of the Corporations Act. I agree with her where she said:
96. Although considering a different word and a different context, the judgments of both Jordan CJ in Ingram v Ingram and the High Court in Collector of Customs (NSW) v Southern Shipping Co Ltd reveal that some thought must be given to the words “has not complied” when used in s 920A(1)(e). On their face, they appear absolute. If the person has not acted in accordance with the law – has not observed the law – that person has not complied with it. There appears to be no room for any consideration that, for example, the transgression is trivial or for allocation of fault. That is the appearance and I think that it is the proper interpretation. Section 920A(1)(e) is a gateway provision in that it, or one of the other gateway provisions in s 920A(1) must be established before ASIC may exercise its power. …
59. I agree with ASIC’s contention that a person has not complied with the Financial Services Law where that person has not acted in accordance with a Financial Services Law, having regard to the main objects of Chapter 7, and in particular the object to promote fairness, honesty and professionalism by those who provide financial services.
60. ASIC contends that because XTWK engaged in personal trading of shares through an external stockbroker without the knowledge or approval of Company B, he engaged in conduct that did not comply with s 991F(3). It was not contended that XTWK’s breach of the Staff Dealing Rules constituted a failure to comply with the Financial Services Law. Also, as I have already said above, XTWK did not breach the ASX Market Rules even though his conduct may have resulted in Company B doing so. The problem for ASIC is that, as I have found above, s 991F(3) would only apply to XTWK if he were an employee of Company B or an officer of that body. On the evidence before me, XTWK does not fit within the definition of an officer of a corporation under s 9 of the Corporations Act.
61. Because I have found that s 991F(3) cannot apply to XTWK, ASIC cannot base its decision to make a Banning Order on the failure of XTWK to comply with a Financial Services Law.
62. The second basis which ASIC contends empowers it to make a Banning Order against XTWK is that it has reason to believe that he will not comply with a Financial Services Law. ASIC contended that the following matters support its belief that XTWK will not comply with a Financial Services Law:
(a)XTWK has not complied with the Financial Services Law;
(b)for the entire period he was a Securities Representative for Company B, XTWK wilfully and repeatedly contravened the requirements of the Staff Dealing Rules;
(c)for the entire period he was a Securities Representative for Company B, XTWK, as a “Prescribed Person” wilfully failed to inform Company B of his personal trading with an external stockbroker thereby causing Company B to be in breach of the ASX Market Rules;
(d)for the entire period as a Securities Representative for Company B, XTWK wilfully mislead Company B by providing confirmation that he was acting in compliance with its Staff Dealing Rules;
(e)XTWK’s conduct demonstrates a reluctance to have due regard to the legal framework in which the financial services industry is required to operate;
(f)XTWK’s conduct demonstrates a failure to observe fundamental ethical practices. Instead XTWK has demonstrated a preference for pursuing his own self interest. Further, ASIC does not accept that XTWK was not aware that his trading might possibly have been in breach of the law and that had he been aware of that possibility, he would not have engaged in that trading; and
(g)XTWK only ceased the trading complained of because he was found out. In this regard, ASIC does not accept that XTWK was remorseful, nor does it accept that XTWK’s efforts at regularising his trading had been brought about by reason of his remorse.
63. Ms Judd submitted that XTWK’s conduct had fallen far short of the minimum standards required of Securities Representatives. The public expected that those that fall short of minimum standards should be removed from the profession at least until the regulatory authority or Tribunal of review can be assured that they are prepared to and will comply with Financial Services Laws. Because of XTWK’s persistent, wilful and repeated disregard of the regulatory, compliance and ethical requirements applicable over many years, the Tribunal should have no confidence that XTWK will place his obligation to comply ahead of his own self interest.
64. In ReDucan Howarth and Australian Securities and Investments Commission [2008] AATA 278, Deputy President SA Forgie set out in some detail how the Tribunal should conclude whether it had reason to believe for the purposes of s 920A(1)(f) of the Corporations Act. Deputy President Forgie referred to the High Court decision in Boucaut Bay Co Ltd v the Commonwealth (1927) 40 CLR 98; where Starke J decided that the Court could not determine for itself whether facts existed which could reasonably lead to the Minister’s having reason to believe that the appellant had not carried out an agreement between it and the Commonwealth; and WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559 where, Lockhart J referred to the House of Lords decision in Liversidge v Sir John Anderson [1941] UKHL 1, (1942) A.C. 206. The House of Lords, in determining what was meant by the phrase has reasonable cause to believe, felt that those words in their context meant had honestly to suppose that he had reasonable cause to believe the requisite matter. However, subsequently, in Inland Revenue Commission v Rossminster Ltd [1980] 1 All E.R. 80 Lord Diplock said:
For my part I think the time has come to acknowledge openly that the majority of this House in Liversidge v Anderson were expediently and, at that time, perhaps excusably, wrong and the dissenting speech of Lord Atkin was right.
Lockhart J concluded that the words reason to believe mean there must be reasonable grounds or cause for that belief, before the powers conferred by the particular section may be exercised.
65. In Power v Hamond [2006] VSCA 25 the Supreme Court of Victoria (Chernov JA with whom Maxwell P and Ormiston JA agreed) cited Lockhart J’s judgement and said:
“… It is now settled law that the question whether there is ‘reason to believe’ a specific matter in a context such as the present is to be determined by the person concerned on an objective basis and that the correctness of the conclusion may be tested in court. Thus, for example, it was said in George v. Rockett that ‘[w]hen a statute prescribes that there must be “reasonable grounds” for a state of mind - including suspicion and belief - it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person.’ Consequently, in order to have launched the impugned investigation lawfully the Ombudsman had to conclude, on an objective basis, that Power's failure to obtain insurance might amount to misconduct or unsatisfactory conduct. The question, therefore, is whether, in all the circumstances, a reasonable Ombudsman would have so concluded.
106 It is not necessary in order to satisfy the requirement that there be ‘reason to believe’ that a prima facie case be made out against the person the subject of the investigation. … Moreover, in assessing whether the above requirement has been made out, the investigative nature of the powers must be borne in mind. Nevertheless, the belief must rest on objective facts that would induce the relevant state of mind in a reasonable person. I consider that, given the observations of Cummins, J. to which I have referred earlier,… and having regard to the material before the Court, no reasonable person in the Ombudsman’s position would have concluded that there was reason to believe that by continuing to practise without an operative practising certificate due to a bona fide failure to obtain indemnity insurance, Power might be found guilty by the Tribunal of misconduct or unsatisfactory conduct. Put another way, it was not open to the Ombudsman to form that view.”
66. Having examined the authorities, Deputy President Forgie said, at paragraph 135:
135. Although perhaps trite to say so, what amounts to reasonable grounds will depend on the context. In this case, the immediate context is that of s 920A(1)(f) but the broader context is that of founding a power on which to make a banning order. As we will conclude later in these reasons, that is a power that is exercised on the basis of the protection of the public and not for the punishment of the person banned or to penalise that person. There is no doubt, though, that a consequence of a banning order is to prevent the person banned from undertaking work that person has chosen to do in the past. That may well be work that has provided the person’s income and means of supporting him or her self and a family. That is a serious consequence for the person just as protecting the public is a weighty endeavour. These sorts of matters will be borne in mind in deciding whether there exist facts sufficient to induce in the mind of a reasonable person a reason to believe that the particular state of affairs exists.
136. In the case of s 920A(1)(f) that state of affairs is that the person “will not comply with a financial services law”. The state of affairs is not the person “may not comply with a financial services law”. To our minds, the distinction between what a person will do and what that person may do is very important. A state of mind in which a person has a reason to believe that another person may do something may well be reached before and on less convincing material than is required for a state of mind that the person will do something.
67. In my view, Deputy President Forgie’s analysis of the expression reason to believe is correct. The material relied upon, to make a finding that a person has reason to believe that the person will do something, must be convincing.
68. The first thing that must be said is there is no evidence of XTWK having breached the Financial Services Law at any time in the past. While that of course cannot be conclusive of whether there is reason to believe that he will do so in the future, if there were such evidence and the person’s behaviour were such that it indicated the placing of self interest ahead of the law, the requisite finding might be readily made. However, the evidence in this case does not go that far.
69. The only breach committed by XTWK was of the Staff Dealing Rules. It is true to say the breach of those rules was calculated, deliberate and persisted over a number of years. Although XTWK said that he was not aware this behaviour might have been in breach of the law, and had he been aware of that possibility he would not have engaged in private trading through an external stockbroker, in my opinion that is not to the point. Wilful non-compliance with the Financial Services Law is not a pre-requisite for its breach. Also, ASIC cannot rely on a breach of the ASX Market Rules because XTWK did not breach any market rules.
70. Although it is unsatisfactory that a person in the position of XTWK has wilfully avoided compliance with Staff Dealing Rules, the consequences of failure to do so, while clearly exposing that person to dismissal from his employment, might not ordinarily be regarded as serious particularly if there was no evidence that the wrongdoer did so for the purpose of gaining a financial advantage. In fact, under the Equities Dealers Guidelines, which it is reasonable to infer were read by XTWK, failure to comply with either ASX Market Rules or the Staff Dealing Rules is not automatically a ground for dismissal. It may result in a deduction from the person’s entitlement to a bonus or it may result in the right of the licensee to undo the transaction. It may also result in the staff member being banned from buying or selling stock or participating in staff trades for a period of three months or longer. Given that the sanctions for a breach of the Staff Dealing Rules are nothing like the severity of a Banning Order under the Corporations Act, a person’s willingness to take a risk with non-compliance of the Staff Dealing Rules cannot, in my view, found the belief that the person will not comply with the Financial Services Law. It may give rise to a view that the person may not comply with the Financial Services Law. However, that clearly is not sufficient.
71. Furthermore, after XTWK was dismissed by Company A, he was able to obtain employment with another financial services provider in the industry, Company C. He disclosed to Company C his reasons for dismissal from Company A and, prior to ASIC issuing a Banning Order against him, XTWK transferred his personal share account and that of his family trust company to a stockbroker approved by Company C, in accordance with its Staff Dealing Rules. In my view, XTWK’s behaviour following the disclosure of his breach of the Staff Dealing Rules indicates that he is now prepared to comply with those rules. It seems to me that in any future employment in the same industry, XTWK will need to fully disclose his prior conduct to any prospective employer and demonstrate that he is complying with Staff Dealing Rules. Therefore, it is safe to say that XTWK has learnt his lesson as a consequence of the very severe sanctions that have already been imposed on him by reason of his dismissal by Company A, and the evidentiary material does not disclose that, viewed objectively, there is reason to believe that he will not comply with the Financial Services Law. It follows that the grounds relied on by ASIC under s 920A(1)(f) of the Corporations Act are not made out.
SHOULD A BANNING ORDER BE MADE IF THE FINANCIAL SERVICES LAW WAS BREACHED?
72. However, even if I am wrong about whether the s 920A grounds have been made out, I would nevertheless decline to affirm ASIC’s decision to make a Banning Order. For the reasons set out in her decision in Howarth, I agree with Deputy President Forgie that the power to make a Banning Order pursuant to s 920A of the Corporations Act is discretionary. It does not require ASIC to make a Banning Order upon being satisfied that one or more of the circumstances in s 920A(1) have been established. This is consistent with the revised explanatory memorandum which accompanied the Financial Services Reform Bill 2001 in which it was said:
Section 920A sets out the circumstances in which ASIC can make a Banning Order against a person. ASIC will be able to ban persons …
73. Again, I refer to Deputy President Forgie’s extensive analysis in Howarth regarding the limits of the discretionary power. In particular, I adopt what she said, at paragraph 180:
The weight of authority in the Federal and Supreme Courts to whose judgments we have referred seems to be to the effect that 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 [2001] AATA 366 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.
74. In my view, given that XTWK’s private trading did not result in any detriment to that portion of the public who are consumers of financial products and services, it cannot be said that a Banning Order would necessarily protect the public. There was no evidence before me that XTWK’s trading was detrimental to any member of the public. The problem with XTWK’s conduct is that it opened the possibility that he might use his personal trading to his advantage at the expense of other consumers of financial products and services. While I accept that the consumers of financial products and services are entitled to absolute honesty and professionalism by those who provide financial products and services, and knowing of XTWK’s private share dealings would not engender confidence in those users of the market who were aware of those dealings, a Banning Order would not achieve anything at all by way of protecting the public. That is not to say that one must wait until the public is detrimentally affected by a person’s behaviour before a Banning Order is made. However, there should be some evidence that the risk of that occurring is real. The evidence in this matter does not disclose such a real risk.
75. I accept ASIC’s view that a Banning Order would have a deterrent effect. However, in my opinion, given that XTWK has suffered dismissal from his employment with Company A, and that he is likely to have difficulty in the future in obtaining similar positions to that which he held with Company A, there is already a significant deterrent to him from being involved in any trading which would breach a Financial Services Law. I accept that without a public sanction such as a Banning Order, it is unlikely that others would be deterred from behaving in a similar manner. Nevertheless, I would have thought that the high probability of dismissal if such trading is disclosed would be a sufficient deterrent.
CONCLUSION
76. For the reasons I have set out above, I am satisfied that a Banning Order should not be made in this case. I have therefore decided to set aside ASIC’s decision made on 25 September 2007 to make an Order under s 920A of the Corporations Act prohibiting XTWK from providing any financial services for a period of three years. The result is that no Banning Order has been made against XTWK.
I certify that the seventy‑six [76] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr Egon Fice, Member
Signed: Olympia Sarrinikolaou
Clerk
Dates of Hearing 14 – 16 April 2008
Date of Decision 8 August 2008
Counsel for the Applicant Mr S. Rubenstein
Solicitor for the Applicant Rockman & Rockman Solicitors
Counsel for the Respondent Ms K. Judd
Solicitor for the Respondent Australian Securities and Investments Commission
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