Australian Securities and Investments Commission v Financial Circle Pty Ltd

Federal Court of Australia|2018-01-10|Before: Moshinsky J

Pursuant to ss 1101B(5) and 1324(4) of the Corporations Act 2001 (Cth) and s 12GD(3) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), the defendant, by itself, its servants, agents or employees, until the hearing and determination of this proceeding or further order, be restrained from: (a) carrying on a financial services business; (b) carrying on a business related to, concerning or directed to financial products or financial services within the meaning of s 761A of the Corporations Act; (c) providing any of the following services: (i) providing financial product advice within the meaning of s 761A of the Corporations Act; (ii) dealing in financial products within the meaning of s 761A of the Corporations Act; (iii) entering into credit contracts as a credit provider within the meaning of s 6(1) of the National Consumer Credit Protection Act 2009 (Cth) (the National Credit Act); (d) in any way holding itself out as being involved in the matters referred to in subparagraphs (a) to (c) above; (e) promoting, advertising or offering loans or cash payments (including cash rebates) to prospective retail clients, on all internet websites within the power or control of the defendant (by any of its servants, agents or employees), in particular but not limited to the website conducted with the domain name http://www.financialcircle.com.au; (f) promoting, advertising or marketing any business or service that involves the offer of loans or cash payments (including cash rebates) to prospective retail clients in connection with financial products and/or financial services including all internet websites within the power or control of the defendant (by any of its servants, agents or employees), in particular but not limited to the website conducted with the domain name http://www.financialcircle.com.au; (g) making any offer to enter into a credit contract or to make a cash payment (including a cash rebate) to prospective retail clients in connection with: (i) the provision of financial advice; (ii) the switching of superannuation; and/or (iii) the purchase of insurance products; and (h) entering into a credit contract or arrangement for the payment of cash or a cash rebate with prospective retail clients, or assisting prospective retail clients to enter into a credit contract or arrangement for the payment of cash or a cash rebate in connection with: (i) the provision of financial advice; (ii) the switching of superannuation; and/or (iii) the purchase of insurance products.

Introduction 1 By its amended originating process, the plaintiff (ASIC) seeks against the defendant (Financial Circle): declarations of contraventions of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the National Consumer Credit Protection Act 2009 (Cth) (the National Credit Act); pecuniary penalty orders; interlocutory and permanent injunctions; and ancillary orders, including costs. These reasons for judgment concern an application by ASIC for interlocutory injunctions. 2 ASIC submits that this proceeding may be regarded as a "sequel" to proceeding VID 238 of 2017 (the WRM Proceeding) (see Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd [2017] FCA 477 (Wealth & Risk)). ASIC contends that, after interlocutory injunctions were granted against the corporate defendants in the WRM Proceeding (the Fuoco Group), Joshua Fuoco and other individuals who had managed the Fuoco Group discussed at length the further development of the cash rebate scheme that was the subject of that proceeding. ASIC alleges that, initially, Mr Fuoco and the other individuals created three new companies, referred to as the "A3 Group", and that the business model adopted by this group was substantially the same as the cash rebate scheme of the Fuoco Group, save that clients were offered loans instead of cash rebates. ASIC contends that the A3 Group ran into difficulties and, to overcome this, Financial Circle was purchased in or around August 2017. Financial Circle holds an Australian Financial Services Licence (AFSL), authorising it to provide financial advice, and an Australian Credit Licence (ACL), authorising it to engage in credit activities other than as a credit provider. ASIC submits that Financial Circle's business model is substantially the same as the cash rebate scheme of the Fuoco Group, save that clients are offered loans instead of cash rebates. 3 ASIC has not yet filed a concise statement or a pleading (the proceeding having been commenced only shortly before the interlocutory injunction hearing), but its claims appear from its amended originating process, its outline of submissions in support of its application for interlocutory injunctions, and the affidavits that it has filed. ASIC's contentions against Financial Circle fall into four distinct categories: (a) unconscionable conduct in contravention of s 12CB of the ASIC Act; (b) misleading or deceptive conduct, and other like conduct, in contravention of ss 12DA and/or 12DF of the ASIC Act and s 1041H of the Corporations Act (ASIC also relies on s 12DB of the ASIC Act); (c) contraventions of ss 912A and 961L of the Corporations Act (which concern financial advice); and (d) unauthorised provision of credit, contrary to s 29 of the National Credit Act. 4 ASIC seeks interlocutory injunctions pursuant to s 12GD(3) of the ASIC Act, ss 1101B(5) and 1324(4) of the Corporations Act, and s 177(3) of the National Credit Act. In broad terms, ASIC seeks orders restraining Financial Circle from: (a) carrying on a financial services business; (b) entering into, or offering to enter into, credit contracts or cash payment arrangements in connection with financial products or services; and (c) providing credit or otherwise entering into credit contracts as a credit provider. 5 For the reasons that follow, I consider that it is appropriate to grant injunctions in substance as sought by ASIC until the hearing and determination of the proceeding or further order. In particular, on the basis of the evidence currently before the Court, there is an appreciable risk of future contraventions by Financial Circle of each of the provisions relied upon by ASIC. I consider that the injunctions would have utility and serve the purposes of the relevant statutory provisions. Although the effect of granting the injunctions on Financial Circle's business may be severe, it is appropriate in the circumstances to restrain Financial Circle from engaging in the relevant conduct. 6 I note that the proceeding is at an early stage and that it may be that, through suitable adjustments to its processes, Financial Circle can address the issues that have been raised by ASIC. If Financial Circle is able to do so, it will be open to it to apply to have the interlocutory injunctions lifted or varied.

Applicable principles 7 Section 12GD of the ASIC Act is located in Div 2 of Pt 2 of the Act. That Division concerns unconscionable conduct and consumer protection in relation to financial services and includes, relevantly, ss 12CB, 12DA, 12DB and 12DF. Section 12GD provides, in part, as follows: (1) If, on the application of the Minister, ASIC or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute: (a) a contravention of a provision of this Division; or (b) attempting to contravene such a provision; or (c) aiding, abetting, counselling or procuring a person to contravene such a provision; or (d) inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision; or (e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or (f) conspiring with others to contravene such a provision; the Court may grant an injunction in such terms as the Court determines to be appropriate. … (3) If in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under subsection (1). (4) The Court may rescind or vary an injunction granted under subsection (1) or (3). (5) The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised: (a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; and (b) whether or not the person has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind. (6) The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised: (a) whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing; and (b) whether or not the person has previously refused or failed to do that act or thing; and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing. (7) If the Minister or ASIC makes an application to the Court for the grant of an injunction under this section, the Court must not require the applicant or any other person, as a condition of granting an interim injunction, to give any undertakings as to damages. … 8 Section 1101B of the Corporations Act is located in Ch 7 of that Act, which concerns financial services and markets. Chapter 7 includes, relevantly, ss 912A (regarding the general obligations of financial services licensees), s 961L (which imposes an obligation on a financial services licensee to take all reasonable steps to ensure that representatives of the licensee comply with ss 961B, 961G, 961H and 961J) and s 1041H (which prohibits misleading or deceptive conduct etc in relation to a financial product or a financial service). Section 1101B provides, in part, as follows: (1) The Court may make such order, or orders, as it thinks fit if: (a) on the application of ASIC, it appears to the Court that a person: (i) has contravened a provision of this Chapter, or any other law relating to dealing in financial products or providing financial services; or … (vi) is about to do an act with respect to dealing in financial products or providing a financial service that, if done, would be such a contravention; or … However, the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person. … (5) Before considering an application to the Court under subsection (1), the Court may make an interim order of the kind applied for to apply pending the determination of the application, if in the opinion of the Court it is desirable to do so. (6) However, if ASIC, a market licensee or a CS facility licensee applies for an order under subsection (1), the Court must not require the applicant, or any other person, to give any undertakings as to damages as a condition of making an interim order under subsection (5). 9 Section 1324 of the Corporations Act provides, in part, as follows: (1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute: (a) a contravention of this Act; or (b) attempting to contravene this Act; or (c) aiding, abetting, counselling or procuring a person to contravene this Act; or (d) inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or (e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or (f) conspiring with others to contravene this Act; the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing. … (4) Where in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under subsection (1). (5) The Court may discharge or vary an injunction granted under subsection (1), (2) or (4). (6) The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised: (a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; and (b) whether or not the person has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind. (7) The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised: (a) whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing; and (b) whether or not the person has previously refused or failed to do that act or thing; and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing. (8) Where ASIC applies to the Court for the grant of an injunction under this section, the Court must not require the applicant or any other person, as a condition of granting an interim injunction, to give an undertaking as to damages. 10 Section 177 of the National Credit Act provides, in part, as follows: (1) If, on the application of ASIC or any other person, the court is satisfied that a person has engaged or is proposing to engage in conduct that constitutes or would constitute: (a) a contravention of this Act; or (b) attempting to contravene this Act; or (c) aiding, abetting, counselling or procuring a person to contravene this Act; or (d) inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or (e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or (f) conspiring with others to contravene this Act; the court may grant an injunction on such terms as the court considers appropriate. … (3) The court may, if the court considers it appropriate, grant an interim injunction pending determination of an application under subsection (1). (4) The court may revoke or vary an injunction granted under subsection (1) or (3). (5) The power of the court to grant an injunction restraining a person from engaging in conduct may be exercised: (a) whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of that kind; and (b) whether or not the person has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to another person if the person engages in conduct of that kind. (6) The power of the court to grant an injunction requiring a person to do an act or thing may be exercised: (a) whether or not it appears to the court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing; and (b) whether or not the person has previously refused or failed to do that act or thing; and (c) whether or not there is an imminent danger of substantial damage to another person if the person refuses or fails to do that act or thing. (7) If ASIC applies to the court for the grant of an injunction under this section, the court must not require ASIC or another person, as a condition of granting an interim injunction, to give an undertaking as to damages. … 11 In Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd (2002) 42 ACSR 605 at [36], Palmer J summarised the relevant principles in relation to the power to grant an interim injunction under s 1324(4) of the Corporations Act: At the risk of some repetition, I summarise the principles which I draw from the presently applicable authorities: • the jurisdiction which the court exercises under CA s 1324 is a statutory jurisdiction, not the court's traditional equity jurisdiction; • Parliament has made it increasingly clear by successive statutory enactments that the court, in exercising its statutory jurisdiction under s 1324, is not to be confined by the considerations which would be applicable if it were exercising its traditional equity jurisdiction; • among the considerations which the court must take into account in an application for an injunction under CA s 1324 are the wider issues referred to by Austin J in Sweeney and Parkes, and by Davies AJ in Pegasus; they may be gathered under the broad question whether the injunction would have some utility or would serve some purpose within the contemplation of the Corporations Act; • these considerations are to be taken into account regardless of whether the application is for a permanent injunction under s 1324(1) or for an interim injunction under s 1324(4); • where an application under s 1324(4) is made by ASIC rather than a private litigant the court is more likely to give greater weight to the broad question whether the injunction would serve a purpose within the contemplation of the Corporations Act; • where there is an appreciable - that is, not fanciful - risk of particular future contraventions of the Corporations Act by a defendant, it would serve a purpose within the contemplation of the Corporations Act that the court grant not only a permanent injunction but, in an appropriate case, an interim injunction restraining such conduct. Section 1324 evinces an intention that the possibly severe consequences and the relative promptness of proceedings for contempt of court be added to criminal prosecutions as a deterrent to contraventions of the Corporations Act; • although the questions whether there is a serious question to be tried and where the balance of convenience lies will not circumscribe the court's consideration in an application for an interim injunction under s 1324(4), the interests of justice will always require that those questions be examined carefully when restrictions are sought to be imposed before the case has been properly examined by the court, even where the protection of the public is said to be involved: see per Young J (as his Honour then was), in Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (1986) 11 ACLR 566 at 570-1; • the balance of convenience will be viewed differently according to whether the applicant under s 1324(4) is ASIC or a private litigant. Where ASIC is acting to protect the public interest, the absence of an undertaking as to damages, exempted by s 1324(8), will usually be of little consequence. However, where the proceedings are brought to advance a plaintiff's private interests, then if such an undertaking is not proffered even though it is likewise exempted by subs (8), the court may take that circumstance into account as a matter of practicality, common sense and fairness in determining where the interests of justice lie and whether "it is desirable" to grant the injunction: see per Young J in Lombard Nash at 571. 12 In Wealth & Risk at [15], I expressed the view that these principles were applicable, not only to s 1324(4), but also to an application for an interim injunction pursuant to s 1101B(5). 13 In relation to s 12GD(3) of the ASIC Act and s 177(3) of the National Credit Act, ASIC submits that the principles that have been developed in relation to s 1324(4) of the Corporations Act are also applicable. ASIC submits that: (a) Although some cases relating to these provisions have approached the matter in terms of the traditional considerations applicable to the grant of an interlocutory injunction in equity (see Duckworth as Trustee for Ocean Farms Trust v H G & R Securities Pty Ltd [2007] FCA 1690 at [6] and [20] and Lucisano v Westpac Banking Corporation [2015] FCA 243 at [4], [6]-[8]), no argument was advanced in those cases that the Court should have regard to matters beyond the equitable considerations. (b) The power to grant an injunction under each of s 12GD(3) of the ASIC Act and s 177(3) of the National Credit Act is statutory, as with s 1324(4) of the Corporations Act. (c) Subsections 12GD(5) and (6) of the ASIC Act and ss 177(5) and (6) of the National Credit Act are in substantially the same form as ss 1324(6) and (7) of the Corporations Act. Each provides that an injunction may be granted whether or not it appears that the person has or intends to engage in contravening conduct, and whether or not there is an imminent danger of substantial damage to any person by reason of that conduct. Thus each of the provisions indicates that the statutory injunction may be issued even in circumstances where traditional equitable considerations would normally have led a court of equity to refuse an injunction. 14 I accept these submissions. I note that Financial Circle did not suggest that the principles that have been developed in relation to s 1324(4) were inapplicable to the other statutory injunction provisions relied on by ASIC.

The hearing 15 At the hearing of the application for interlocutory injunctions, ASIC relied on an affidavit of Nicholas Klooger (a senior lawyer in ASIC's Enforcement Financial Services Team) dated 18 December 2017; an affidavit of Andrew Lappos dated 19 December 2017; and an affidavit of Craig Hubbard dated 19 December 2017. Both Mr Lappos and Mr Hubbard worked as customer services officers (CSOs) for JECA Holdings Pty Ltd, one of the defendants to the WRM Proceeding, and subsequently for one of the entities in the A3 Group. Mr Lappos was also engaged as a CSO at Financial Circle. Financial Circle relied on an affidavit of Anthony Wynd (the sole director of Financial Circle) dated 21 December 2017. 16 None of the deponents was required to attend for cross-examination. Accordingly, I proceed for present purposes on the basis of the facts set out in the affidavits. It may be that, at a subsequent point in the proceeding, some of the facts in the affidavits are challenged.

The background facts 17 The background facts set out below are based on the affidavits referred to above, including the documents annexed to those affidavits. (I have had regard only to the evidence filed in this proceeding. I have not had regard to evidence filed in the WRM Proceeding that is not contained in the affidavits filed in this proceeding.)

Before August 2017 18 In March 2017, ASIC commenced the WRM Proceeding. The defendants to that proceeding were initially: Wealth & Risk Management Pty Ltd (WRM), JECA Holdings Pty Ltd and Yes FP Pty Ltd. It will be convenient to refer to these companies as the "Fuoco Group", adopting the label used in Mr Klooger's affidavit. Mr Fuoco was not initially a defendant to the WRM Proceeding, but was later joined as a defendant to that proceeding. The evidence in the WRM Proceeding included an affidavit of Glenn Childs, a senior investigator at ASIC, dated 9 March 2017 (the First Childs Affidavit). A copy of that affidavit is annexed to Mr Klooger's affidavit in this proceeding. On the basis of that affidavit, Mr Klooger states at [80] of his affidavit that the Fuoco Group operated a scheme whereby: (a) they offered clients loans, cash payments or rebates; (b) in order to obtain funds, they required clients to obtain and pay for financial advice from a WRM authorised representative; (c) the financial advice almost always recommended that clients switch their superannuation and insurance; (d) in order to obtain funds, they required clients to comply with that advice; (e) the Fuoco Group received a commission from the superannuation and insurance providers; and (f) the Fuoco Group paid the client part of the commission received. 19 On 8 May 2017, interlocutory injunctions were granted in the WRM Proceeding: see Wealth & Risk. The Fuoco Group companies then ceased operating. Mr Fuoco and other individuals who had previously managed the Fuoco Group started considering changes to the business model of those companies. Mr Fuoco and the other individuals established three new companies: CGF One Pty Ltd (trading as A3 Financial); EMJ Two Pty Ltd (trading as A3 Planning); and Firemac Pty Ltd (trading as A3 Debt Solutions) (together, the A3 Group). 20 The A3 Group ran into difficulty after a couple of months as its business model relied on loans being provided by a third party and the third party did not approve the loan applications.

Establishment of Financial Circle 21 Financial Circle was incorporated on 16 October 2003 and was called Utopia Financial Services Pty Ltd. 22 In or around August 2017, Financial Circle was purchased. Mr Klooger states in his affidavit that ASIC has been unable as yet to ascertain the circumstances of the purchase. Mr Wynd states in his affidavit (and I accept for present purposes) that the decision to "set up" Financial Circle was made by him, Aflal Hussain and Hizni Haleem. 23 On 18 August 2017, the company changed its name to Financial Circle Pty Ltd. Initially (that is, from late August 2017), Financial Circle operated from 424 St Kilda Road, Melbourne, being the same premises as that used by the Fuoco Group. However, since late October 2017, it has operated from 54-60 St Kilda Road, St Kilda. 24 Financial Circle currently has one director, Mr Wynd (appointed 4 October 2017). Mr Wynd is also the company secretary. Giuseppe Cossari, who is the sole shareholder, was a director of the company from 19 August 2017 to 10 October 2017. Financial Circle has 100 shares on issue, all held by Mr Cossari. 25 In addition to initially operating from the same premises, there are a number of other connections between the Fuoco Group or Mr Fuoco, on the one hand, and Financial Circle, on the other. In particular: (a) Mr Wynd, the sole director and the company secretary of Financial Circle, was employed by WRM from June 2016 until that company ceased carrying on business following the granting of the injunctions in the WRM Proceeding on 8 May 2017. In addition to being the sole director and the company secretary of Financial Circle, Mr Wynd is an authorised representative of Financial Circle for the purposes of its ACL. (b) Financial Circle's Senior Management Committee consists of Mr Wynd, Aflal Hussein, Arufa Hussein, Hizni Haleem and Ken Maher. Each of these individuals worked in the Fuoco Group. (c) All of Financial Circle's CSOs previously worked for the Fuoco Group, as did their manager. (d) Sungai Pfumojena, an authorised representative for Financial Circle, previously worked for the Fuoco Group. (e) Desma Fuoco, the mother of Mr Fuoco, works at Financial Circle as a payroll officer. She is a signatory to seven Financial Circle bank accounts. (f) In the course of ASIC's investigation in relation to Financial Circle (referred to below), ASIC obtained template documents used by Financial Circle in the course of providing financial advice to its clients. Mr Klooger states at [119]-[120] of his affidavit that he has reviewed and compared some of these documents with the same types of documents obtained via a similar process in the course of ASIC's investigation in relation to the Fuoco Group. As a result of that review and comparison, Mr Klooger states (and I accept for present purposes) that the template documents used by Financial Circle in the course of providing financial advice appear to be an updated iteration of template documents used at WRM, although they now bear the Financial Circle logo. (g) Financial Circle has a panel of private funders who provide funding for the advancement of loans to clients of Financial Circle. The Fuoco family is part of that panel. Of the 51 loan arrangements in place with Financial Circle clients (at the time of Mr Wynd's examination pursuant to s 19 of the ASIC Act (section 19 examination)), at least 30 had been funded by the Fuoco family. 26 Mr Wynd states in his affidavit that "Mr Fuoco has had and now has no role in Financial Circle's business whether executive, managerial or operational". However, Mr Lappos's affidavit contains contrary evidence relating to the period when he worked at Financial Circle. That evidence is disputed by Mr Wynd. I do not consider it necessary to decide whether or not to accept the statement in Mr Wynd's affidavit. 27 Financial Circle is the holder of an AFSL, authorising it to provide financial advice, and an ACL, authorising it to engage in credit activities other than as a credit provider. (I note that neither the Fuoco Group nor the A3 Group held an ACL.)

Financial Circle's marketing 28 Since September 2017, Financial Circle has attracted prospective clients through the website www.financialcircle.com.au (the Website). 29 Financial Circle's advertising for the Website, and the Website itself, target people with a poor credit history who are seeking money. Financial Circle runs advertisements through GoogleAds to direct people using search terms such as: (a) "bad debt loans"; (b) "bad credit loans"; (c) "small loans no checks"; and (d) "fast cash loans" to the Website. 30 Financial Circle's market is individuals in financial difficulty and requiring a loan, but with inadequate credit standing to obtain a loan from traditional lenders. As stated by Mr Wynd in his affidavit, potential clients landing on the Website "mainly have bad credit profiles".

The Website 31 The homepage of the Website states that Financial Circle provides two types of services: Lending Solutions and Financial Planning. When a consumer clicks on the words "Lending Solutions" in the top right hand corner of the Website, he or she is taken further down the homepage to a heading "Lending Services", with options to seek further information about various types of loans including: Investment Loans, Home Loans, Personal Loans, Plant and Equipment Loans, Car Loans and Business Loans. "Apply Now" appears below each of these headings. However, the only option that actually enables a customer to apply for a loan is "Personal Loans". Clicking on "Apply Now" under any of the other headings brings up a message stating "Currently being Updated". 32 Clicking on the "Apply Now" option under the heading "Personal Loans" provides two options: "Good Credit Personal Loans" and "Bad Credit Personal Loans". Clicking on these options directs consumers to two further webpages. These webpages can also be accessed from a tab at the very top right hand corner of the homepage titled "Personal Loans". 33 Clicking on the "Good Credit Personal Loans" option takes consumers to a new webpage with information about the loan products offered in these circumstances (the Good Credit Loans webpage). At the top of the page in large text appears the following: Fixed Rate Loan • Borrow from $2,000. • Fixed interest rates and fixed repayments allow you to remain in control. • Repayments of up to $1,000 extra per annum without additional fees. 34 Next to these statements is a box with the words "Apply Now Obligation Free". Clicking on this box takes consumers to an online application form. 35 Under the "Apply Now Obligation Free" box is a large heading "Do You Need Funds?". Under that heading, there is information about obtaining a personal loan and how personal loan funds can be used. Below this are three text boxes as follows: (a) "What could we do for you?", which sets out how Financial Circle can assist a person in obtaining a personal loan from various types of lenders; (b) "How could we help you?", which provides general information about personal loans; and (c) "About the interest rates?", which lists various interest rates for secured and unsecured loans. 36 Beneath this information, the consumer is invited to "Apply Now" (twice) or to call Financial Circle for "more details about our solutions". 37 Below the second "Apply Now" invitation are three further drop down options with information under the headings "About the loan", "Our requirements" and "Our fees & charges". 38 As stated by Mr Klooger at [99] of his affidavit, none of the information in the drop down sections under these headings mentions a requirement to engage a financial planner to provide financial advice, a requirement to implement the financial planning advice, the fees associated with obtaining that advice, or how such fees will be paid. 39 Clicking on the "Apply Now" tabs takes a consumer back to the "Apply Now Obligation Free" box at the top of the Good Credit Loans webpage. 40 I now turn to the "Bad Credit Personal Loans" option. Clicking on "Bad Credit Personal Loans" takes consumers to a new webpage with information about the loan products offered in these circumstances (the Bad Credit Loans webpage). At the top of the page in large text the following appears: Variable Rate Loan • Borrow from $2,000-$5,000 • Variable rates that are amongst the lowest if not the lowest in the market • Make unlimited additional repayments with [sic] any additional fees 41 Next to these statements is a box with the words "Apply Now Obligation Free". Clicking on this box takes consumers to the application form. 42 Beneath this is a box with the following text: Conventional Credit Checks Not Required Terms and conditions apply Neither the asterisk nor the text in this box links to any terms and conditions further down the webpage. In fact, the next asterisk on the page deals with an unrelated matter. 43 Immediately below the text box is an outline of an example loan of $3,500 repaid over 52 weeks. This example describes the amounts "you'll pay", including the establishment fee of $400, the total amount of repayments, the interest payable and the amount of each repayment. Further down the Bad Credit Loans webpage is the heading "Impaired Credit Personal Loans", under which it is stated: Financial Circle specialises in assisting you obtaining a personal loan, allowing for a poor credit history and or low credit score. Poor credit histories and or low credit scores are one effective and standardised method of accurately reflecting an individuals approach [sic] and or ability to satisfy their loan repayment obligations. But we understand that it is not the only accurate method. 44 There is then an option to click for more information. Below this are three text boxes as follows: (a) "What could we do for you?", which states that "Financial Circle specialises in identifying funding sources for applicants with impaired credit histories: private funders …"; (b) "How could we help you?", which provides general information about personal loans; and (c) "Is a sophisticated process for application", which describes the application process as sophisticated, seamless and paperless. It further states: "Once all the necessary information is collected, our assessment process typically takes no longer than 60 minutes, at which point a conditional loan approval is offered. Once the offer is accepted we will provide the loan to you as soon as possible." After this statement, consumers are invited to "Apply Now", which takes consumers to the "Apply Now Obligation Free" box described above. 45 At the bottom of the Bad Credit Loans webpage, the consumer is invited to "Apply Now" or call Financial Circle for "more details about our solutions" and there is also a drop down option headed "About the loan". 46 As stated in Mr Klooger's affidavit at [109], none of the information in this drop down section mentions a requirement to engage a financial planner to provide financial advice, a requirement to implement the financial planning advice, the fees associated with obtaining such advice, or how such fees will be paid. 47 As noted above, the "Apply Now Obligation Free" box at the top of both the Good Credit Loans webpage and the Bad Credit Loans webpage takes consumers to an application form (there are different applications forms depending on whether the application is a "good credit" or "bad credit" loan application). At the bottom of the application form, consumers are asked to tick three boxes confirming they have read and agree to, among other things, the "Terms, Conditions and Qualifying Criteria". This is the first time that a consumer visiting the Website is directed to the Terms, Conditions and Qualifying Criteria. Clicking on the words "Terms, Conditions and Qualifying Criteria" in the application form opens a text box titled "Terms, Conditions and qualifying criteria for the personal loan that starts at 6% p.a." (the T&C text box). This text box includes: 8. Applications [sic] must have adequate personal insurance in place. * you will be referred to one of our Authorised Representative [sic] (AR) of Australian Financial Services License (AFSL) 302 222 for assessment. … 9. Applicants must have a superannuation balance of at least $30,000 (can be spread across multiple funds). … 12. For the purposes of these terms, conditions and qualifying criteria the financial planning process requires and includes: - Applicant must be engaged with the financial adviser (AR) … 48 Consumers are then invited to "Click here for detailed Terms, Conditions and qualifying criteria for the personal loan that starts at 6% p.a.", which opens a new webpage (the T&C webpage). This webpage restates the 12 terms and conditions in the T&C text box and describes the Financial Planning process (as set out in Mr Klooger's affidavit at [113]). The T&C webpage includes a statement that the "Applicant must be engaged with the financial adviser (AR)" (paragraph 12). The description of the "Financial Planning process" on this webpage includes a diagram, alongside which step 1 is: "Agree to engage with a financial planner. Timeframe: 1 day". The text under the diagram includes: The financial adviser will assess the applicants' [sic] situation and will quote them on the fee for the work that needs to be done … Depending on the scope of the advice fees can potentially be charged out of the applicant's superannuation. This also includes insurance premiums, which could potentially be a few thousand dollars as the example below shows. 49 A link to the T&C webpage appears at the bottom of every page of the Website. The link is in small font at the bottom of each webpage. The only page that directs a consumer visiting the Website to the terms and conditions is the (online) application form. However, consumers on that webpage are not directed to the T&C webpage until they have completed the form and are ready to submit it. A consumer is required to tick that he or she has read and agreed to the terms and conditions before submitting the form, but it is possible for a consumer to submit the form without viewing the terms and conditions.

The application process 50 Applicants for a loan apply by completing the (online) application form or calling the telephone number provided on the Website. Those completing the application form are required to provide details of their personal circumstances, including their salary and estimated superannuation balance, as well as the "Requested Loan Amount". 51 Upon receipt of an application form from a client, Financial Circle sends an SMS to the client referring to the client's online application for a loan and requesting that the client makes contact to discuss the application. 52 A Financial Circle CSO then has a telephone discussion with the client. It is at this point that the client is informed that, in order to receive the loan, the client must agree to receive financial advice. 53 In the course of his section 19 examination, Mr Wynd stated that: (a) prospective clients must accept financial advice and implement that advice before a loan can be provided to them; (b) there has not been an occasion where a client has been provided with a loan without also accepting financial advice; and (c) Financial Circle would "charge the advice fee to the [client's] superannuation fund". 54 Mr Wynd commenced as a credit representative of Financial Circle on 21 September 2017 and is its only registered credit representative. During the course of his section 19 examination, Mr Wynd said that: Financial Circle is a facilitator of "peer-to-peer loans"; (as noted above) there is a panel of private funders who provide funding for the advancement of loans to clients of Financial Circle; most of the loans attract an interest rate of 6% although there are exceptions, including several at 0%; all the loans to date have been unsecured; loan contracts are sent out by Financial Circle and signed and returned by the client to Financial Circle; loan contracts are all displayed on Financial Circle letterhead and with the Financial Circle logo; Financial Circle receives income from each loan (in the form of a one-off $400 application fee, a monthly $5 account-keeping fee, and a fortnightly 60 cent direct debit fee), but the "main revenue driver" is the financial advice fee; all 51 clients who had (at that time) entered into credit contracts had accepted the advice of a Financial Circle authorised representative to switch their insurance to another provider; and only one of those clients had cancelled the new insurance within 14 days. 55 As at 16 December 2017, Financial Circle had advanced 57 loans with a total value of $196,406. The loan amounts were each between $1,200 and $5,000. 56 Mr Wynd gives the following evidence in his affidavit, which I accept for present purposes: (a) In two cases where a loan was advanced, the client's application for insurance was subsequently declined. As a result, Financial Circle was not paid either the advice fee or any insurance commission, but it did not require the client to "make it good" for either of those amounts. (b) In two other cases, after the loan was advanced, the advice fee was paid out of the client's superannuation fund, but because the client was found by the insurer to have adequate insurance already, the insurer declined to pay Financial Circle any commission. Again, Financial Circle "absorbed that loss". (c) Financial Circle does not invariably require clients to switch or rollover their superannuation funds in order to obtain a loan. 57 In response to notices served on it pursuant to s 30 of the ASIC Act, Financial Circle produced to ASIC a number of loan contracts that it had entered into with some of its clients. Financial Circle is named as the "lender" on those loan contracts. 58 During his section 19 examination, Mr Wynd stated that since Financial Circle was established there has been no training provided to authorised representatives either directly by Financial Circle or by anyone else engaged by Financial Circle. 59 Financial Circle provides a service to each of its client by providing them with access to software called Money Soft for a period of 12 months. The Money Soft program assists the client with budgeting and cashflow management. Mr Wynd states in his affidavit, and I accept for present purposes, that access to the software is provided for no charge. I note, however, that there is a fee of $550 for advice in relation to budgeting, savings, cash flow and debt management, being a fee that Financial Circle retains from insurance commissions.

Client A 60 Mr Klooger's affidavit describes, by way of example, the financial advice provided by Financial Circle to two clients, referred to as "Client A" and "Client B". 61 Client A completed the (online) application form on or about 20 September 2017. He stated that his income was $63,000 per annum and that he had a superannuation balance of $185,000. He wanted a loan of $3,000. None of the questions in the application form asked about his existing insurance arrangements or his desired insurance arrangements. 62 On or about 20 September 2017, Mushka Chishti, a Financial Circle Customer Account Executive, a term used interchangeably with CSO, sent an SMS to Client A requesting him to contact the Financial Circle office to discuss his application for an amount of $3,000. Mushka Chishti also telephoned Client A on or about the same day. Client A said that he needed to loan for car repairs in the amount of $1,600, school fees in the amount of $900 and a bill in the amount of $500. Client A said that he was not aware of other options and he just searched online and applied for a loan with Financial Circle. Ms Chishti explained Financial Circle's process to Client A and noted that he "seems fine with process". Client A was asked to call the Australian Taxation Office to find out about his existing superannuation funds. 63 On or about 21 September 2017, Client A contacted Financial Circle and asked what superannuation information he was required to provide to Financial Circle. 64 On or about 26 September 2017, Client A completed a Third Party Authority Form. 65 Ali Zaidi, a Financial Circle authorised representative, completed a Client Data Collection Form on behalf of Client A on or about 27 September 2017, over the phone. 66 On 27 September 2017, an email was sent to Client A, attaching a risk profile questionnaire for him to complete. 67 On the same day, Mr Zaidi had a telephone discussion with Client A and completed a "Fact Find Meeting File Note" of the conversation. The file note includes: "[Client A] has never met with financial planner before and would like to review his cashflow, insurances and super. His number one priority is … to clear his debt and sort his cashflow." The file note also records a discussion about "the protection which can support him financially in the event of disability and death". Mr Zaidi records that he "explained [to Client A] in detail … [the] different types of personal insurances and their features". It was also noted that Client A had never reviewed his superannuation funds and, due to changes of jobs, had "ended up in multiple super funds". Mr Zaidi noted that he "explained [to Client A] the importance of super and how it will help him to maximise his retirement savings". Later in the file note, alongside a heading "Initial and ongoing advice fees", it was recorded by Mr Zaidi: "We discussed about the fees and the clients [sic] have agreed to a fee of 5,500 inclusive of GST for the Statement of Advice." 68 An "External Para Planning Request Form", dated 4 October 2017, outlines that a recommendation would be made to Client A that he roll over his superannuation into a new fund and take out insurance with MLC. This form also contained a section headed "Budgeting Advice", which outlined advice that would be given about budgeting. 69 A statement of advice (SOA) dated 6 October 2017 was issued to Client A by email on 10 October 2017. Preparation of SOAs is outsourced by Financial Circle to a third party provider, named Valenta BPO. That firm uses a computer software program called Advisor Logic, which contains the template for the document. The SOA indicated that Client A would take out insurance policies (life, total and permanent disability and income protection) with MLC with total premiums of approximately $3,935 annually. The SOA also stated that a "superannuation advice preparation fee" of $5,500 would be deducted from his superannuation fund and a fee of $550 (for advice in relation to budgeting savings, cash flow and debt management) would be retained from insurance commissions. The SOA included advice regarding cash flow management and budgeting (eg, at p 11 of 92). 70 The advice fee (ie, the fee of $5,500 in the case of Client A) is set by Financial Circle on a case by case basis. 71 On or about 24 October 2017, a loan assessment was conducted by Debra Caruana, a credit assessor. The loan request details section on the second page of the document shows the loan amount as $3,000. (Although elsewhere the assessment form lists the loan amount as $5,000, this would appear to be a carryover from another document.) The term of the loan is listed as two years and the fees include $5 monthly fees and fortnightly repayments of $102.15. 72 On or about 26 October 2017, Ms Caruana sent loan documents to Client A and asked Nadeesha Munasinghe to organise the funds for Client A. The "Peer Loan Proposal" document in relation to Client A's loan was signed by Anna McDonald (the domestic partner of Mr Fuoco) who is also recorded as the "Peer". 73 Client A's "Consumer Loan Contract" stipulates that the amount of the loan is $3,405 with a 6% interest rate per annum and a term of two years. Financial Circle is identified as the "lender". 74 On 8 November 2017, Shadiya Jamaldeen sent an email to Client A attaching insurance and superannuation application and authority forms and asked Client A to sign these documents in order to have his file passed on to the loan team. 75 On 14 November 2017, Client A received a payment of $3,000 from Financial Circle's ANZ bank account. 76 Client A was advised by email on 22 November 2017 that his annual insurance premiums had been increased by MLC to $4,234.93 (from approximately $3,935, as set out above). Client A confirmed that he was happy to proceed with the new premiums. 77 In summary: (a) Client A applied for a loan amount of $3,000 and received a loan in the amount of $3,405. Of that amount, $405 was deducted by Financial Circle for the loan establishment fee and other charges. According to the loan contract, Client A will be charged a total of $632.40 in credit fees and charges over the course of the loan. (b) Client A was charged $5,500 for financial planning advice. This fee was deducted from his superannuation fund. (c) Financial Circle received, or is due to receive, $4,234.93 in upfront commissions and is due to be paid ongoing annual commissions of $433 for the insurance advice.

Client B 78 In the case of Client B, the process was broadly similar. Client B had a stated income of $65,000 per annum and a superannuation balance of $30,000. She applied for a loan of $3,000, indicating that the purpose of the loan was for dental work and various other bills. She was a recently discharged bankrupt. Ultimately, a loan of $3,405 was provided to Client B and she implemented advice to roll over her superannuation and take out insurance policies (life, total and permanent disability and income protection). In summary: (a) Client B applied for a loan amount of $3,000 and received a loan in the amount of $3,405. Of that amount, $405 was deducted by Financial Circle for the loan establishment fee and other charges. According to the contract, she will be charged a total of $632.40 in credit fees and charges over the course of the loan. (b) Client B was charged $5,500 for financial planning advice. This fee was deducted from her superannuation fund. (c) Financial Circle received, or is due to receive, $1,675 in upfront commissions and is due to be paid ongoing annual commissions of $262 for the insurance advice.

ASIC's investigation 79 In November 2017, ASIC commenced an investigation pursuant to Div 1 of Pt 3 of the ASIC Act into suspected contraventions by Financial Circle, its directors and officers of the Corporations Act, the ASIC Act and the National Credit Act. In the course of the investigation, a number of individuals were examined by ASIC officers following the service of notices pursuant to s 19 of the ASIC Act. The persons examined are listed in [34] of Mr Klooger's affidavit and the transcripts of the examinations are annexed to his affidavit.

Other matters 80 Financial Circle has 26 employees in Melbourne. Their employment will be affected if Financial Circle is required to cease trading. There are also seven staff at Sprit Marketing in Sri Lanka who work solely on Financial Circle's business. 81 Financial Circle has 37 loans ready to be advanced. These loans would ordinarily have been advanced during the 21 days after the date of Mr Wynd's affidavit (21 December 2017). However, at the end of the hearing of ASIC's application, Financial Circle agreed to give an undertaking substantially in the terms of the injunctions sought by ASIC, until 4.00 pm on 10 January 2018, in circumstances where I indicated that I would endeavour to deliver judgment on the morning of 10 January 2018. It may be assumed that these loans are ready to be advanced.

Consideration 82 ASIC contends that Financial Circle's business model is substantially the same as the cash rebate scheme of the Fuoco Group, with the only significant difference being that clients are offered loans instead of cash rebates. Further, ASIC submits, the Financial Circle business model imposes even greater hardship upon its clients than the cash rebate scheme, because it requires clients to repay the funds they receive. 83 The facts and matters set out above indicate certain similarities between the cash rebate scheme operated by the Fuoco Group and the business model of Financial Circle. However, I think the question whether interlocutory injunctions should be granted is best addressed, not by asking whether Financial Circle's business model is substantially the same as the cash rebate scheme of the Fuoco Group, but rather by considering the conduct of Financial Circle and determining whether it is appropriate in all the circumstances for interlocutory injunctions to be granted. 84 It will be convenient to address in turn each group of contraventions alleged by ASIC.

Unconscionable conduct in contravention of s 12CB of the ASIC Act 85 ASIC's contentions in relation to this claim can be summarised as follows: (a) Financial Circle has misled consumers about the nature of the products and services it offers, and has given inappropriate advice using unfair tactics, and thereby engaged in unconscionable conduct in contravention of s 12CB of the ASIC Act. (b) Financial Circle's conduct demonstrates a high level of moral obloquy (Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557; Tonto Home Loans Australia Pty Ltd v Tavares (2011) 15 BPR 29,699; [2011] NSWCA 389 at [291]; Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525 at 587; Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [217]) as its business model seeks to derive financial benefit from some of the more financially vulnerable members of society, many of whom were unable to obtain credit from anywhere else due to their poor financial circumstances. (c) This is not an incidental feature of the business. Financial Circle's advertising specifically targets this client base. (d) Financial Circle then exploits the vulnerability of applicants, by providing misleading information about its offering. 86 In my view, on the basis of the facts and matters set out above, there is an appreciable risk of contravention of s 12CB of the ASIC Act. Section 12CB(1) provides that a person must not, in trade or commerce, in connection with (among other things) the supply or possible supply of financial services to a person (other than a listed public company) engage in conduct that is, in all the circumstances, unconscionable. Section 12CB(4)(a) provides that it is the intention of the Parliament that s 12CB is not limited by the unwritten law of the States and Territories relating to unconscionable conduct. Section 12CC of the ASIC Act sets out matters that the Court may have regard to for the purposes of s 12CB. In the present case, the target market for the services provided by Financial Circle is persons in difficult financial circumstances seeking small value loans (for example, in the range $3,000 to $5,000). Financial Circle does not initially disclose the fact that the provision of a loan is, in effect, conditional upon the applicant obtaining financial advice from Financial Circle and implementing that advice (as well as paying a substantial fee for that advice). It appears that, in many cases, the financial advice fee is greater than the amount of the loan. (The loan applicant is presumably prepared to pay the financial advice fee, notwithstanding that it is greater than the value of the loan, because the fee is paid from the applicant's superannuation fund.) It is doubtful whether, absent the circumstances of financial difficulty and the need for the loan, many of the loan applicants would want to receive and implement the financial advice (and pay the associated financial advice fee). These circumstances suggest that Financial Circle is engaging in unfair tactics. It is arguably exploiting the loan applicant's circumstances of financial difficulty and need for a loan in order to derive lucrative advice fees and commissions. Further, Financial Circle's conduct is arguably exacerbated by the misleading impression that may be conveyed by the Website and its loan application process, as discussed below. Having regard to this and the other factors identified in s 12CC, there is an appreciable risk of contravention of s 12CB. 87 Senior counsel for Financial Circle submitted that the company was principally a provider of financial services rather than a lender, and saw benefit in coupling the provision of the two services. It was further submitted that the client was not "locked in" by any trick or tactic as the arrangements were fully disclosed before the client was required to commit to anything. However, this characterisation of the principal aspect of Financial Circle's business does not sit easily with the way it presents itself on the Website (as described above). While it is true that the client is told the costs of obtaining and implementing the financial advice before he or she is committed to the arrangement, this information is not easily discerned from the Website and the client is only informed about these matters in person once the application process is well underway. In any event, the client's financial circumstances and desire for the loan may well lead the client to accept the advice and pay the (substantial) financial advice fee (from his or her superannuation fund) whether or not the client actually needs or wants the advice. Thus I do not consider the matters raised on behalf of Financial Circle to negate the proposition that there is an appreciable risk of contravention of the unconscionable conduct provision.

Misleading or deceptive conduct and other like conduct 88 ASIC alleges contraventions of ss 12DA and/or 12DF of the ASIC Act and s 1041H of the Corporations Act. ASIC also relies on s 12DB of the ASIC Act. 89 ASIC's contentions can be summarised as follows: (a) The Website offers loans, but fails adequately to disclose that, in order to obtain a loan, the applicant: must receive and implement financial advice from a Financial Circle authorised representative; and will be required to purchase insurance and pay substantial advice fees before obtaining any loan. (b) After a loan applicant submits an (online) application form: a CSO informs the applicant that they must "embrace the financial planning process"; no independent examination is conducted to ascertain whether the loan applicant in fact needs financial advice; and the loan applicant is given pre-determined advice from an authorised representative. (c) In relation to the 51 credit contracts entered into by Financial Circle at the time of Mr Wynd's section 19 examination, in every case the authorised representative advised the client to switch his or her insurance and the client accepted that "advice". Of those 51 clients, all but one switched their superannuation. (d) The disclosure of the true costs of the advice and of the loan provided to each applicant is grossly inadequate. While there is an index to the SOA document that is provided to a "successful" applicant, it is unprepossessing and the reference to "What are the Costs" is given no prominence. Nor is the eventual disclosure of the actual costs, which appears only halfway through the document (at page 45 of 92) and with a style of presentation that does not alert the applicant that, for example, in the case of Client A, a loan of $3,500 would in fact come at an up-front cost of $5,500. 90 In my view, there is an appreciable risk of contraventions of the misleading or deceptive conduct provisions relied upon by ASIC. As detailed in the background facts section above, Financial Circle seeks to attract to its Website people in difficult financial circumstances. Once a person in such circumstances accesses the Website, it is not made clear at the outset or at an early stage of a person's likely engagement with the Website that (as is generally the case) in order to obtain a personal loan, the loan applicant will need to obtain and implement financial advice regarding superannuation and insurance and pay a substantial fee for that advice. The information to this effect is not provided until a late stage of a person's likely engagement with the Website. While there is disclosure of relevant information in the terms and conditions sections of the Website, these sections are unlikely to be viewed until a late stage, well after the person is in Financial Circle's 'marketing web'. Further, it is possible for a consumer to submit an application form without reviewing the terms and conditions. In these circumstances, there is an appreciable risk of contravention of the misleading or deceptive conduct provisions relied upon by ASIC.

Sections 912A and 961L of the Corporations Act 91 The third set of contraventions concerns an alleged failure by Financial Circle to do all things necessary to ensure its financial services were provided honestly and fairly, and to take reasonable steps to ensure its authorised representatives complied with the financial services laws. 92 ASIC's contentions can be summarised as follows: (a) Financial Circle does not have adequate training systems in place to ensure that its authorised representatives comply with financial services laws and provide services efficiently, honestly and fairly. Mr Wynd informed ASIC during his section 19 examination that Financial Circle had not provided any training to its authorised representatives since it was established. (b) It is apparent from the two client examples provided in Mr Klooger's affidavit that the advice provided to those clients was unlikely to be appropriate, in contravention of s 961G of the Corporations Act. Both Client A and Client B applied for a loan of $3,000 and received a loan of $3,405, but they were also both: charged an advice fee of $5,500, which was paid from their superannuation; charged an additional amount of $632.40 in credit fees and charges; and given insurance advice resulting in each client paying significantly more in annual premiums than the client had previously paid. (c) Further, there is an appreciable risk that Financial Circle's authorised representatives are contravening s 961B of the Corporations Act. The authorised representatives: fail properly to identify the subject matter of the advice sought by their clients as required by s 961B(2)(b)(i); inform prospective clients that they must "embrace the financial planning process" without giving any consideration to whether the individual client in fact needs financial advice or advice of the kind Financial Circle provides; and fail to base all judgments in advising their clients on the individual client's relevant circumstances, as required by s 961B(2)(f). This can be inferred from the facts that: all clients who entered into credit contracts were advised to switch their insurance; and the authorised representatives gave advice with a view to ensuring that Financial Circle would receive commissions upon implementation of the advice, rather than basing their judgments on the client's relevant circumstances. In doing so, the authorised representatives gave priority to the interests of Financial Circle, rather than its clients, in contravention of s 961J of the Corporations Act. (d) These deficiencies are a direct reflection of Financial Circle's business model. Its revenue stream depends upon: clients obtaining financial advice from its authorised representatives, even where the advice is not required; the authorised representatives giving pre-determined advice to clients to switch superannuation and/or purchase insurance; and clients implementing the advice, enabling Financial Circle to draw its advice fee from the clients' superannuation fund and from insurance commissions. (e) The business model makes it practically impossible for authorised representatives to act in the best interests of clients, to provide tailored and appropriate advice, to warn clients where advice is based on incomplete or inaccurate information, and to give priority to the client's interests as required by ss 961B, 961G, 961H and 961J of the Corporations Act. 93 In my view, there is an appreciable risk of contraventions of ss 912A and 961L of the Corporations Act. Section 912A(1) relevantly provides that a financial services licensee must "do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly" and "take reasonable steps to ensure that its representatives comply with the financial services laws". Section 961L provides that a "financial services licensee must take reasonable steps to ensure that representatives of the licensee comply with sections 961B, 961G, 961H and 961J". Section 961B(1) provides that a provider of personal financial advice to a person as a retail client "must act in the best interests of the client in relation to the advice" (see also s 961B(2)). See generally Australian Securities and Investments Commission v NSG Services Pty Ltd (2017) 122 ACSR 47 at [14]-[31]. Financial Circle's marketing is targeted at people in difficult financial circumstances who are in need of a loan. Financial Circle effectively makes it a condition of any such loan that the person must obtain and implement Financial Circle's financial advice regarding superannuation and insurance (in nearly all cases involving taking out new or changing insurance policies), and pay a substantial fee for the financial advice from the client's superannuation fund. It may be inferred that, in many cases, the client would not have been willing to obtain and implement the advice, and pay the fee, were he or she not in financial difficulty and in need of a loan. Financial Circle seems to be exploiting the client's position of financial difficulty and the client's need for a loan in order to derive lucrative advice fees and commissions. In these circumstances, there is an appreciable risk that the financial advice is not being provided "fairly". There is also an appreciable risk that Financial Circle is not taking reasonable steps to ensure that its representatives comply with the obligation to act in the best interests of the client in relation to the advice. 94 A particular concern is the cost of the financial advice relative to the client's superannuation balance. For example, in the case of Client B, the financial advice fee represented a significant percentage of her total superannuation balance (which was reduced by the amount of the fee). A further concern is the generic nature of the advice that is being provided. The evidence establishes that in every (or nearly every) case the client has been advised to purchase or switch insurance policies. Of the 51 credit contracts entered into by Financial Circle at the time of Mr Wynd's section 19 examination, the authorised representative in every case advised the client to switch his or her insurance and the client accepted that advice. This raises a question as to whether the advice is appropriately tailored to the circumstances of the individual client.

Section 29 of the National Credit Act 95 The fourth category of alleged contraventions relates to Financial Circle's activity of providing credit, without the authorisation required by s 29 of the National Credit Act. ASIC's submissions can be summarised as follows: (a) The licensing scheme aims to protect consumers by ensuring that only fit and proper persons are authorised to provide credit and by imposing responsible lending obligations on holders of an ACL. (b) Financial Circle holds an ACL that authorises it to engage in credit activities other than as a credit provider, that is, other than as a person that provides credit. (c) It is, however, named as the "lender" on the loan contracts it has produced to ASIC and there is currently no evidence that any other party holding an appropriate ACL is providing the credit. (d) Accordingly, it appears that Financial Circle has contravened, and will continue to contravene, s 29 of the National Credit Act by engaging in a credit activity, namely entering into credit contracts as a provider of credit, without a licence authorising it to do so. (e) This is by no means a technical contravention. The examples of Clients A and B, and the nature of Financial Circle's business model, indicate that its lending activity is part of an operation that imposes substantial and ongoing financial burdens on a vulnerable client group. Clients are signed up to loans that are "unsuitable" (as that term is defined in s 131(2) of the National Credit Act) and will cause them additional financial hardship. 96 In my view, there is an appreciable risk of contravention of s 29 of the National Credit Act. Section 29(1) provides that a person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity. The evidence establishes that Financial Circle's ACL authorises it to engage in credit activities "other than as a credit provider". However, as set out above, Financial Circle is named as the "lender" on a number of loan contracts and thus would appear to be acting as the credit provider. Senior counsel for Financial Circle accepted that the loan funds were transferred from Financial Circle's bank account to the bank account of the borrower, but submitted that the movement of money did not necessarily indicate a borrowing relationship. He accepted, however, that it was certainly arguable that there was such a relationship. In the circumstances, I consider there to be an appreciable risk of contravention of s 29 by Financial Circle.

Other matters 97 I consider that the injunctions sought by ASIC would have utility and serve the purposes of the relevant statutory provisions. The purpose of the provisions relied upon by ASIC is the protection of the public from certain types of conduct. In particular, the provisions of Div 2 of Pt 7.7A (ie, the best interests obligations), including s 961L, are designed to protect retail clients who receive personal financial advice. The injunctions would further the purposes of these provisions. 98 Although the effect of granting the injunctions on Financial Circle's business may be severe, in my view it is appropriate in the circumstances to restrain Financial Circle from engaging in the relevant conduct. The business model of Financial Circle raises serious concerns, as indicated above. In the circumstances, the interests of justice favour restraining Financial Circle from engaging in the relevant conduct until the hearing and determination of the proceeding.

Conclusion 99 For these reasons, I consider that it is appropriate to grant injunctions in substance as sought by ASIC until the hearing and determination of the proceeding or further order. I will make some minor adjustments to the minute of proposed orders handed up by senior counsel for ASIC at the hearing. In that minute of proposed orders, the injunctions are set out in paragraphs 2, 3 and 4 (with paragraph 1 relating to confidentiality, a matter that has now been the subject of a separate order). Paragraphs 2 and 3 contain the same opening lines. In these circumstances, I consider it preferable to deal with the matters set out in those proposed paragraphs in a single paragraph. Further, paragraphs 3(c) and (d) of the minute of proposed orders repeat the text of paragraphs 2(e) and (f). I propose not to repeat those sub-paragraphs. If either party wishes to raise any matter concerning the form of the orders, this can be raised pursuant to the liberty to apply contained in the orders, and the matter can then be listed for hearing, or the matter may be able to be dealt with 'on the papers'. I certify that the preceding ninety-nine (99) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

(Cth), the Australian Securities and Investments Commission Act 2001(Cth)

At a glance

Court

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Before

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Judgment (21 paragraphs)

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Legislation Cited (4)

Cases Cited (7)

Cited By (5)