Australian Securities and Investments Commission v Hutchison

Summary of Tribunal's findings 16 The Tribunal found that the applicable financial services provided by Mr Hutchison were financial product advice (reasons at [9]). 17 The Tribunal found that Mr Hutchison on about 16 occasions took payments for fees directly from clients, whether in cash, cheque or electronic transfer when those fees were instead payable to RI Advice, and that the value of those payments was about $17,000 (reasons at [27]-[29]). It found that Mr Hutchison made concessions as to nine cases and that he also conceded that in some of those cases it was necessary to refund some clients for double charging. It found that in relation to some clients there was no receipt or other record of payment issued by Mr Hutchison. 18 It is not in dispute that the direct receipt of fees breached the terms of the RI Advice Process and the RI Advice Procedures and Policies referred to above. ASIC relied on this and other conduct in asserting that Mr Hutchison's conduct was dishonest. 19 For the purpose of the banning order ASIC relied upon each of s 920A(1)(d), s 920A(1)(e) and s 920A(1)(f), which are included in these reason below. 20 In the context of s 920A(1)(e), the Tribunal referred to s 1041G and s 1041H and found that Mr Hutchison's conduct in receiving money directly from the client was not 'in relation to the financial services that [he] was providing'. It said such conduct was 'probably dishonest' (reasons at [52]). The Tribunal was more definitive as to one aspect of Mr Hutchison's conduct, being the conversion of a cheque made payable to RI Advice. It said that such conduct could be considered dishonest (reasons at [53]). 21 Mr Hutchison also admitted that certain clients were double charged but the Tribunal found that it occurred through lack of care and incompetence (reasons at [53]). The Tribunal proceeded on the basis that the double charging was not an integral part of ASIC's case (reasons at [26]). 22 The Tribunal also rejected ASIC's claim that Mr Hutchison's conduct was misleading or deceptive. It did not consider any relevant representation was made by Mr Hutchison to clients as to what was to happen to the money he received from them (reasons at [59]). It did not consider that the failure to amend documentation or to otherwise ensure that there was no automatic deduction by RI Advice for fees where money was received by Mr Hutchison directly was misleading, but more likely reflected incompetence (reasons at [58]). In any event, the Tribunal did not consider the conduct upon which ASIC relied was directly and substantially related to the financial product or service. It should be noted that the Tribunal's reasons address only whether there was misleading or deceptive conduct by Mr Hutchison in relation to clients, and not in relation to RI Advice. 23 As to s 920A(1)(f), having taken into account his past conduct generally, the Tribunal also rejected ASIC's claim that there was reason to believe that Mr Hutchison is likely to contravene a financial services law (reasons at [65]). 24 As to s 920A(1)(d), the Tribunal found that although Mr Hutchison's conduct might be described as 'bad behaviour', 'well below the standard which could reasonably be expected' and 'in some cases was dishonest', his conduct was not sufficient to establish that Mr Hutchison is not of good fame or character (reasons at [74]). 25 The Tribunal found in favour of Mr Hutchison and the banning order was accordingly lifted. ASIC appeals from that decision. 26 I note that the Tribunal in a more recent decision has come to a different view as to the interpretation of s 1041H. In Campbell and Australian Securities and Investments Commission [2019] AATA 110 the Tribunal applied the Full Court decision in Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211 (discussed below) and found that the relationship contemplated by the words 'in relation to' is such that an indirect or less than substantial connection is sufficient. It found that a report by an authorised representative to its licensee (and so not to a client) was sufficiently connected to the financial service provided within the meaning of s 1041H.

ASIC's grounds of appeal 27 ASIC appeals on two grounds. They can be summarised as follows: (1) the Tribunal misconstrued both s 1041G and s 1041H of the Corporations Act, in that it adopted an unduly narrow construction of the term 'in relation to a financial product or financial service' by requiring a 'direct and substantial' relationship between the relevant conduct, the financial product or service, and harm to clients; and (2) the Tribunal denied ASIC procedural fairness or otherwise constructively failed to exercise its review jurisdiction in that it failed to deal with a substantial, clearly articulated argument advanced by ASIC that Mr Hutchison's conduct was misleading or deceptive vis-à-vis RI Advice.

Statutory context 28 Chapter 7 of the Corporations Act deals with the regulation of financial markets and financial services. It covers a broad range of topics over the course of 12 parts, as outlined in s 760B. Those parts relate to matters including the licensing and supervision of financial markets; limitation on ownership of licensees; regulation of derivative transactions; licensing of providers of financial services; disclosure requirements for financial services licensees and authorised representatives; conduct requirements for financial services licensees; and market misconduct. 29 Section 760A states the object of Chapter 7: 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. 30 The power for ASIC to make banning orders is provided for by s 920A of the Corporations Act, which falls within Part 7.6 of Chapter 7 ('Licensing of providers of financial services'). It relevantly provides: 920A ASIC's power to make a banning order (1) ASIC may make a banning order against a person, by giving written notice to the person, if: (a) ASIC suspends or cancels an Australian financial services licence held by the person; or (b) the person has not complied with their obligations under section 912A; or (ba) ASIC has reason to believe that the person is likely to contravene their obligations under section 912A; or (bb) the person becomes an insolvent under administration; or (c) the person is convicted of fraud; or (d) ASIC has reason to believe that the person is not of good fame or character; or (da) ASIC has reason to believe that the person is not adequately trained, or is not competent, to provide a financial service or financial services; or (db) the person has not complied with any one or more of his or her obligations under section 921F (requirements relating to provisional relevant providers); or (dc) both of the following apply: (i) a supervisor referred to in section 921F has not complied with any one or more of his or her obligations under that section in relation to a provisional relevant provider; (ii) both the supervisor and the provisional relevant provider are authorised to provide personal advice to retail clients, on behalf of the person, in relation to relevant financial products; or (dd) both of the following apply: (i) a provisional relevant provider has not complied with his or her obligations under subsection 921F(7); (ii) the provisional relevant provider is authorised to provide personal advice to retail clients, on behalf of the person, in relation to relevant financial products; or (de) ASIC has reason to believe that the person was authorised, in contravention of subsection 921C(2), (3) or (4), to provide personal advice to retail clients in relation to relevant financial products; or (e) the person has not complied with a financial services law (other than section 921E (relevant providers to comply with the Code of Ethics)); or (f) ASIC has reason to believe that the person is likely to contravene a financial services law; or (g) the person has been involved in the contravention of a financial services law by another person; or (h) ASIC has reason to believe that the person is likely to become involved in the contravention of a financial services law by another person. 31 As noted, before the Tribunal ASIC relied on s 920A(1)(d), s 920A(1)(e) and s 920A(1)(f) with respect to Mr Hutchison's conduct. This appeal concerns ASIC's case under s 920A(1)(e). For the purpose of that provision, ASIC submits that Mr Hutchison failed to comply with s 1041G and s 1041H of the Corporations Act. By reason of the Chapter 7 definitions contained in s 761A, each of s 1041G and s 1041H is a 'financial services law'. 32 Section 1041G and s 1041H are found in Part 7.10 of Chapter 7. Part 7.10 is headed 'Market misconduct and other prohibited conduct relating to financial products and financial services'. 33 At the time of Mr Hutchison's conduct and the Tribunal decision, s 1041G read: 1041G Dishonest conduct (1) A person must not, in the course of carrying on a financial services business in this jurisdiction, engage in dishonest conduct in relation to a financial product or financial service. Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)). Note 2: Failure to comply with this subsection may also lead to civil liability under section 1041I. (2) In this section: dishonest means: (a) dishonest according to the standards of ordinary people; and (b) known by the person to be dishonest according to the standards of ordinary people. [Section 1041G(2) was deleted by an amending Act on 12 March 2019] 34 Section 1041H provides: 1041H Misleading or deceptive conduct (civil liability only) (1) A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. Note 1: Failure to comply with this subsection is not an offence. Note 2: Failure to comply with this subsection may lead to civil liability under section 1041I. For limits on, and relief from, liability under that section, see Division 4. (2) The reference in subsection (1) to engaging in conduct in relation to a financial product includes (but is not limited to) any of the following: (a) dealing in a financial product; (b) without limiting paragraph (a): (i) issuing a financial product; (ii) publishing a notice in relation to a financial product; (iii) making, or making an evaluation of, an offer under a takeover bid or a recommendation relating to such an offer; (iv) applying to become a standard employer‑sponsor (within the meaning of the Superannuation Industry (Supervision) Act 1993) of a superannuation entity (within the meaning of that Act); (v) permitting a person to become a standard employer‑sponsor (within the meaning of the Superannuation Industry (Supervision) Act 1993) of a superannuation entity (within the meaning of that Act); (vi) a trustee of a superannuation entity (within the meaning of the Superannuation Industry (Supervision) Act 1993) dealing with a beneficiary of that entity as such a beneficiary; (vii) a trustee of a superannuation entity (within the meaning of the Superannuation Industry (Supervision) Act 1993) dealing with an employer‑sponsor (within the meaning of that Act), or an associate (within the meaning of that Act) of an employer‑sponsor, of that entity as such an employer‑sponsor or associate; (viii) applying, on behalf of an employee (within the meaning of the Retirement Savings Accounts Act 1997), for the employee to become the holder of an RSA product; (ix) an RSA provider (within the meaning of the Retirement Savings Accounts Act 1997) dealing with an employer (within the meaning of that Act), or an associate (within the meaning of that Act) of an employer, who makes an application, on behalf of an employee (within the meaning of that Act) of the employer, for the employee to become the holder of an RSA product, as such an employer; (x) carrying on negotiations, or making arrangements, or doing any other act, preparatory to, or in any way related to, an activity covered by any of subparagraphs (i) to (ix). (3) Conduct: (a) that contravenes: (i) section 670A (misleading or deceptive takeover document); or (ii) section 728 (misleading or deceptive fundraising document); or (iia) section 738Y (other liabilities relating to defective CSF offer documents); or (iii) section 1021NA, 1021NB or 1021NC; or (b) in relation to a disclosure document or statement within the meaning of section 953A; or (c) in relation to a disclosure document or statement within the meaning of section 1022A; does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence. 35 Mr Hutchison places some weight on the terms of s 766A. Section 766A provides: 766A When does a person provide a financial service? General (1) For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they: (a) provide financial product advice (see section 766B); or (b) deal in a financial product (see section 766C); or (c) make a market for a financial product (see section 766D); or (d) operate a registered scheme; or (e) provide a custodial or depository service (see section 766E); or (ea) provide a crowd-funding service (see section 766F); or (f) engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph. … Exception for work ordinarily done by clerks or cashiers (3) To avoid doubt, a person's conduct is not the provision of a financial service if it is done in the course of work of a kind ordinarily done by clerks or cashiers. … 36 Section 766B(1) relevantly provides for the meaning of 'financial product advice' (subject to specified exceptions): 766B Meaning of financial product advice (1) For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or (b) could reasonably be regarded as being intended to have such an influence. 37 For completeness I note that there have been amendments to some of the relevant statutory provisions over the course of the time relevant to this matter. I also note that the Corporations Regulations include rules relating to Part 7.1. The parties did not suggest that any of the amendments or rules were of relevance to the substantive arguments on this appeal.

The approach of the Tribunal to s 1041G and s 1041H 38 It is convenient first to set out the factual contentions as summarised in ASIC's Statement of Facts, Issues and Contentions (SFIC) and as referred to by the Tribunal in its reasons (Mr Hutchison being described as 'the Applicant'): ASIC's factual contentions 104 The Delegate's decision should be upheld on the basis that fees received from 15 clients, 10 of whom were also double charged were received in cash or were paid by the Applicant into his own personal bank account. In doing so the Applicant: (a) converted to his own use cheques made payable to RI Advice; (b) provided a fraudulent tax invoice to Mr and Mrs [B]; (c) wrote his banking details on a with compliments slip and provided it to Mr and Mrs [P]; (d) received cash from Mrs [O] and potentially others; (e) did not provide a receipt for any of those fees to any payer; (f) did not record the receipt of those fees into the system; and (g) did not report the receipt of those fees to RI Advice. 105 In the cases of double charging, even if the Applicant did not intend that those clients would be double charged (a matter not conceded by ASIC), the Applicant did not take any or sufficient steps to ensure that did not occur. The double charging occurred because the documentation that the Applicant or his staff submitted authorised the deduction of fees from the clients' investment accounts. 106 The Applicant did not alter the documentation to ensure that the deduction would not occur. He did not tell the clients that their payment would not be recorded or that the documentation would operate to authorise a further deduction regardless of their payment of upfront fees. The failure of the Applicant in this regard was misleading and deceptive. 107 Concealing from the clients that he intended to take fees payable to RI Advice was dishonest and by any objective standard misleading to and deceptive of the clients. 108 There is additional evidence of a course of conduct by the Applicant in paying fees due to RI Advice to himself. 109 Further, the concealing of his course of conduct from RI Advice was dishonest and was, by any objective standard, misleading and deceptive. 110 The Applicant has demonstrated significant dishonesty within the meaning of s 1041G of the Corporations Act. As the Applicant submits, the test of dishonesty is that it be dishonest according to the standards of ordinary people. By that definition, the: (a) The conversion of cash and cheques payable to RI Advice or RI Advice; (b) The failure to advise the clients that he would be taking those fees for his own personal use and not for the use of either RI Advice or for WAWM was dishonest; (c) The failure to advise RI Advice that he had taken fees properly payable to RI Advice; (d) His evidence in support of the stay application; and (e) his continued refusal to accept that he had received those fees forcing ASIC to obtain documentary proof, was dishonest. 39 Mr Hutchison did not admit all of the details as to the payments (see the Tribunal's finding referred to at [17] above). In any event he contended that the relevant conduct on which ASIC relies was conduct towards RI Advice and so was not 'in relation to' a financial product or financial service, and so was not within the ambit of s 1041G or s 1041H. He submitted that accordingly he had not breached a financial services law for the purpose of s 920A(1)(e). 40 The Tribunal identified that both s 1041G and s 1041H have two distinct elements: that the conduct must be 'in the course of carrying on a financial services business'; and that the conduct must be 'in relation to a financial product or financial service'. It was not in dispute that Mr Hutchison carried on a financial services business. It was the second element that was in issue. 41 The Tribunal outlined the case law it considered applicable to the relevant question. In particular, the Tribunal at [46] relied on the following extract from the decision of the Full Court in Joye v Beach Petroleum NL & Cortaus Ltd (in liq) (1996) 67 FCR 275 at 285: Of the phrase 'relating to', Taylor J said, in Tooheys Ltd v Commissioner of Stamp Duties (1961) 105 CLR 602 at 620: '… the expression … is extremely wide but it is also vague and indefinite. Clearly enough it predicates the existence of some kind of relationship but it leaves unspecified the plane upon which the relationship is to be sought and identified. That being so, all that a court can do is to endeavour to seek some precision in the context in which the expression is used.' Taylor J went on to say (at 620) that 'relating to' in the context there considered was not the 'equivalent of "referring to"; the "relationship" must be based upon some more substantial ground'. Other decisions of the High Court have acknowledged that, ordinarily, 'relates to' is a wide term, and that it will depend upon context whether it is necessary that the relationship be direct or substantial, or whether an indirect or less than substantial connection will suffice … Tooheys' case has been followed in this Court. (citations omitted) 42 The Tribunal referred to s 760A of the Corporations Act (extracted above) as indicating that the focus of the legislation in this section is on the protection of consumers of financial services. The Tribunal also referred to ASIC's Regulatory Guide 98 Licensing: Administrative actions against financial service providers (2013) (Guide) as extrinsic material supporting its interpretation of the provisions. The Guide provides at reg 98.6 that: The financial services regime is intended to ensure that investors can feel confident when dealing with persons (or those acting on their behalf) who are licensed to provide those services or products or engage in those activities. 43 For the purposes of this appeal, the critical extract of the Tribunal's reasons is as follows: [50] The context in which the words in s 1041G of the Act should be read is the context of consumer or investor protection, the context of consumers or investors having confidence in the financial services and financial products. In that light the reference to dishonest conduct in s 1041G of the Act must be read as dishonest conduct which relates directly to the nature, qualities or characteristics of the financial service or financial product, not to the broader context of dishonesty in the carrying on of a financial services business which does not impact the consumer or investor. In that regard 'it is necessary that the relationship be direct or substantial' as envisaged by the Court in Joye v Beach in the passage cited at [46] above. [51] In the present case, even if the Applicant's conduct of not passing on the monies received from clients is considered to be dishonest, rather than merely a breach of the agreement between the Applicant and RI, it is not dishonesty directly in relation to the financial services that the Applicant provided to the clients. The payment of the fees may have been for the provision of financial services, however, that does not make conduct relating to how that money is dealt with thereafter conduct 'in relation to a financial product or financial service'. It simply makes it conduct in relation to money received. … [54] I am not satisfied that, on the evidence presented and on the interpretation of s 1041G of the Act as set out in [50] and [51] above, the Applicant failed to comply with a financial services law for the purposes of s 920A(1)(e) of the Act by failing to comply with s 1041G of the Act. Even if there was conduct which could be considered to be dishonest, such dishonesty was not 'in relation to a financial product or a financial service' for the purposes of s 1041G of the Act. (original emphasis) 44 Therefore, the Tribunal came to the view that the requirement that conduct be 'in relation to' a financial product or financial service in s 1041G should be understood narrowly as requiring a direct or substantial relationship. It found that the term 'in relation to' requires that the dishonest conduct relate directly to the nature, qualities or characteristics of the financial service or financial product, and not to the broader context of dishonesty in the carrying on of a financial services business which does not impact the consumer or investor. That was the test it applied. 45 The Tribunal then turned to s 1041H of the Corporations Act. The Tribunal identified two propositions arising out of ASIC's SFIC on this point: first, that Mr Hutchison's failure to properly amend the relevant documentation was misleading or deceptive; and second, that his conduct in failing to advise the clients that he was going to keep the fees paid by clients in breach of his contractual obligations to RI Advice was misleading or deceptive. 46 The Tribunal found that no part of the conduct was misleading, as already summarised (see [22] above). But it then considered that in any event the conduct was not 'in relation to' a financial product reaching the same view as to its interpretation as with s 1041G of the Corporations Act. On that basis it was not satisfied that Mr Hutchison had breached s 1041H. It is not entirely clear why the Tribunal refers at this point to a financial product rather than a financial service, although it appears it applied the same reasoning to both, regardless. It concluded: [60] In any event, as with s 1041G of the Act, the relevant misleading conduct for the purposes of s 1041H must be 'in relation to a financial product …'. Even if there was the claimed misrepresentation in relation to how fees were to be distributed as claimed by ASIC, that does not have the 'direct or substantial' connection to the financial product envisaged by the Court in Joye v Beach in the passage cited at [46] above to cause the conduct to come within the operation of s 1041H of the Act. The need for the conduct, in this case the misrepresentation, to be directly and substantially related to the financial product or service is even clearer in s 1041H than in s 1041G of the Act because of the provisions of s 1041H(2) of the Act. The subsections of s 1041H(2) of the Act make it clear that the misrepresentation must relate to the quality, characteristics and nature of the financial product. A misrepresentation relating to the arrangement between the Applicant and [RI Advice] does not have those characteristics and is therefore not a misrepresentation 'in relation to a financial product or financial service' for the purposes of s 1041H of the Act.

The issues raised by the parties 47 The main issues that arise from the parties' submissions for the purpose of the question of law raised by the first ground can be described generally as follows: (a) whether the authorities direct that the connecting words 'in relation to' are to be understood narrowly or broadly; (b) whether the Court should decline to follow Narain and if so, why; (c) whether the object of Chapter 7 is to be understood narrowly as focused on consumer protection; (d) whether the title and scope of Part 7.10 of Chapter 7 limits its application; (e) whether Narain applies in the context of s 1041G; (f) whether the Tribunal was obliged to apply the Briginshaw standard; and (g) whether there was a lack of findings as to dishonest or misleading or deceptive conduct by the Tribunal such that in any event the appeal is futile.

Authorities 48 It is not in issue that, having regard to the core principles of statutory interpretation as described in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, terms are to be construed based on their ordinary and grammatical sense and having regard to context and legislative purpose. 49 The connecting words 'in relation to' take their meaning from their context. They are used frequently in legislation and in a variety of circumstances. For a useful summary see Statutory Interpretation in Australia, D Pearce (9th ed) at 12.7-12.9. 50 In Travelex Ltd v Commissioner of Taxation [2010] HCA 33; (2010) 241 CLR 510, French CJ and Hayne J said: [25] It may readily be accepted that 'in relation to' is a phrase that can be used in a variety of contexts, in which the degree of connection that must be shown between the two subject matters joined by the expression may differ. It may also be accepted that 'the subject matter of the enquiry, the legislative history, and the facts of the case' are all matters that will bear upon the judgment of what relationship must be shown in order to conclude that there is a supply 'in relation to' rights. (footnotes omitted) 51 Nevertheless, the expression is 'of broad import': O'Grady v Northern Queensland Co Ltd [1990] HCA 16; (1990) 169 CLR 356 at 374 (Toohey and Gaudron JJ). 52 ASIC emphasises that the meaning of the expression in the context of s 1041H has been considered by the Full Court of this Court in Narain. It does not appear that Narain was brought to the attention of the Tribunal other than by inclusion in a footnote, a course which cannot be relied upon for the purpose of drawing an authority of some importance to the attention of a decision-maker. Further, the Court in Narain distinguished Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602, the case referred to in Joye v Beach Petroleum upon which the Tribunal relied. 53 Narain concerned a release to the Australian Stock Exchange about a listed entity, CTF. The announcement said that CTF was able to offer a solution that would reduce and eventually stop the spread of HIV using a product referred to as Citrofresh. The publication had an immediate effect on the share price of CTF shares. ASIC alleged that the release contained misleading representations relating to CTF shares and, relevantly, alleged that Mr Narain (who prepared the release) contravened s 1041H of the Corporations Act in relation to a financial product (shares falling within such definition). 54 The primary judge made no findings about the content of the release, and considered there was no need to do so because the release did not contain representations 'in relation to' the CTF shares. His Honour considered that the statements were made in relation to a product distributed by CTF but were not statements relating to CTF's shares. The primary judge extracted from the authorities two propositions: first, that there must be some relationship between the two subject matters; and second, that the relationship must appear 'on the face of the conduct': Australian Securities and Investments Commission v Citrofresh International Ltd [2007] FCA 1873; (2007) 164 FCR 333 at [73]. 55 The Full Court rejected such a narrow construction, Finkelstein J stating: [9] As regards the first issue in the appeal (whether the representations were 'in relation to' CTF shares), it is of course true, as the judge said, that the words 'in relation to' require a relationship or connection between two subject matters. In the context of Part 7.10 generally, and s 1041H in particular, the expression ought to receive broad construction. One important object of the Part is to ensure that participants in the market for financial products and financial services act with integrity and honesty and that consumers are adequately protected. To further this object I do not think the connection between misleading statements on the one hand and shares in a company on the other must necessarily be immediate or direct. I particularly do not accept as a necessary condition for conduct to be 'in relation to a financial product' that the conduct must 'on its face' refer to or, as the judge would have it, 'deal with' the financial product. With great respect to those who hold the opposite view, that approach gives s 1041H an unnecessarily narrow construction; a construction that will not promote its objects. 56 Also rejecting a narrow construction, Jacobson and Gordon JJ said: [67] … However, to narrow the scope of the conduct to that which appears 'on its face', as the learned primary judge did, is in our view contrary to the meaning of s 1041H(i) considered as a whole. Indeed, it would be contrary to the well-known principles of statutory construction stated in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]-[71]. … [72] Section 1041H was part of a package of measures introduced by the Financial Services Reform Act 2001 (Cth). It replaced s 995 of the Corporations Law. The Revised Explanatory Memorandum to the Financial Services Reform Bill states at [15.8] that the new section was proposed as a general prohibition on misleading and deceptive conduct. [73] The next paragraph of the Revised Explanatory Memorandum is perhaps of little assistance on the question of construction. It states that the new provision is to provide a general prohibition on misleading and deceptive conduct which will apply in relation to financial products and services. [74] But what the Revised Explanatory Memorandum shows is that the particular statutory context is that of a prohibition against misleading and deceptive conduct; the relationship between the two subject matters is that of misleading conduct and financial products. So much is also plain from the terms of s 1041H(1) itself. [75] Misleading and deceptive conduct takes many forms. The degree of the relationship between the financial product and the proscribed conduct is informed by the examples set out in s 1041H(2). They range from issuing a financial product (s 1041(2)(b)(i)) to carrying on negotiations or making arrangements or doing any other act preparatory to 'or in any way related to' an activity referred to in the nine earlier examples listed in that subsection: see s 1041H(2)(b)(x). [76] In our view this indicates that the relationship which is contemplated by s 1041H(1) is at the lower end of the spectrum so that an indirect or less than substantial connection is sufficient. … [78] The question in Tooheys was whether a particular document, namely a trust deed establishing a pension fund for retiring employees, was an instrument relating to the services of employees so as to fall within the exemption. The provision of the Stamp Duties Act which imposed liability for duty and the exemption provision were concerned with 'instruments', not with conduct. [79] This explains why in Tooheys, Taylor J emphasised at 622 that in considering whether the relationship contained in the exemption was applicable, the Court was confined to an examination of the instrument, without regard to extraneous circumstances. [80] The breadth of the relationship between the conduct proscribed by s 1041H(1) and the financial product is not confined in this way because the concept of misleading and deceptive conduct is one which embraces all of the circumstances in which the conduct takes place. This is illustrated not only by the terms of s 1041H(2) but by what the High Court has said about the amplitude of the 'conduct' which must be considered in analysing the question of whether it is misleading: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 605. … [82] To say that one must parse and analyse the announcement to determine whether it expressly refers to the company's shares or the value of them, is, with respect to the primary judge, contrary to the meaning of the section and to commercial reality. 57 Special leave to appeal to the High Court was refused. 58 Therefore, insofar as the Tribunal found at [60] of its reasons that the misleading or deceptive conduct the subject of s 1041H must relate to the 'quality, characteristic and nature of the financial product' and must be 'directly and substantially related' to the financial product or financial service, such finding is inconsistent with the decision in Narain. Rather, an indirect or less than substantial connection is sufficient. Absent any compelling reason I would not depart from a decision of the Full Court.

Whether the Court should decline to follow Narain 59 It is not necessary to refer to all of the submissions of the parties as to the breadth of s 1041H, as some are subsumed in the consideration of that provision in Narain. However I will deal with some of Mr Hutchison's submissions about its construction. ASIC's position, consistent with that expressed in Narain and the Court's reference in Narain to the Revised Explanatory Memorandum, is that s 1041H is a general prohibition on misleading or deceptive conduct that is expressed in broad terms and is not exhaustive. The examples provided in s 1041H(2) in fact reinforce the breadth of its scope. 60 Mr Hutchison submits that reliance on the statement of generality in the Revised Explanatory Memorandum is insufficient in light of the statutory context of s 1041H. In particular, he refers to a system of 'carve outs' which he characterises as follows: (1) first, general misleading or deceptive conduct relating to financial products and services under s 1041H is carved out from s 18 of the Australian Consumer Law, which addresses misleading or deceptive conduct in other contexts; and (2) second, misleading or deceptive conduct that is captured by specific liability provisions (such as s 670A, s 728, s 738Y) is carved out by s 1041H(3) from misleading or deceptive conduct otherwise captured by s 1041H. Conduct captured by these specific provisions is treated differently: for instance, it was argued, misleading or deceptive conduct relating to a fundraising document may be subject to criminal liability. 61 Mr Hutchison does not submit that his conduct is of a kind which is carved out by s 1041H(3). Rather, he submits that the existence of such carve outs demonstrates that s 1041H was not intended to be read broadly, contrary to the interpretation advanced by ASIC. I do not accept that such a conclusion follows. It is unclear why the existence of express provisions to deal with misleading or deceptive conduct in specified circumstances and in other legislation directs that s 1041H is to be read narrowly in those circumstances where it applies. 62 Mr Hutchison additionally relies on a distinction in the way 'financial products' and 'financial services' are treated under s 1041H. Both are referred to in s 1041H(1) but examples of conduct in relation to a 'financial product' only are provided by s 1041H(2). Mr Hutchison submits that the expansive approach to describing conduct in relation to a financial product indicates that the Court should in contrast adopt a narrow interpretation of conduct in relation to a financial service. The Acts Interpretation Act 1901 (Cth) provides in s 15AD that the inclusion of examples in an Act does not mean that the examples are exhaustive, and that examples may extend the operation of a provision. There may be a number of reasons that legislation includes examples to assist in the interpretation of certain terms. It does not follow from an absence of examples that a term is to be read narrowly. 63 A narrow interpretation in relation to financial services was said to be reinforced by the fact that s 12BAB of the ASIC Act adopts a broader definition of 'financial services' than s 766A of the Corporations Act. Of relevance here, however, is that s 766A(1) defines when a person provides a financial service for the purpose of Chapter 7. How it is defined for the purpose of another Act is not of itself of assistance: Yager v The Queen (1977) 139 CLR 28 at 43. 64 There are also textual matters that tell against a narrow construction of the same words 'in relation to' insofar as they refer to a financial service but not a financial product. In the present case, having regard to the Tribunal's finding that Mr Hutchison's conduct was the provision of financial product advice, s 766A(1) provides that a person provides a financial service if they 'provide financial product advice'. The nature of the financial service and the context in which it might occur is informed by the definitions of 'financial product advice' (s 766B) and the relevant financial product. For example, the broader the definition of financial product, the broader the circumstances in which financial product advice, and so financial services, might be provided. 65 There is also potential overlap between s 766A(1) and s 1041H(2) in that 'dealing in a financial product', being conduct that falls within the definition of providing a financial service, may also fall within the scope of 'engaging in conduct in relation to a financial product' (s 1041H(2)(a)). 66 In Narain the Court construed 'in relation to' in the context of a financial product rather than a financial service and therefore pointed to the examples in s 1041H(2) in order to support its finding that the relationship which is contemplated by s 1041H(1) is at the lower end of the spectrum so that an indirect or less than substantial connection is sufficient. However, nothing in Narain suggests that conduct in relation to a 'financial service' - also referred to in s 1041H(1) - requires a different assessment of that connection. Indeed it would be an odd result if the phrase 'in relation to' in s 1041H(1) were to be understood (without explanation) as requiring different levels or qualities of connection for each of the two forms of conduct to which it refers. 67 These matters do not support conduct in relation to 'financial services' being understood in a narrow or isolated sense. It must also be steadily borne in mind that the question is not whether conduct is itself a financial service but whether the relevant conduct is in relation to such service. 68 Mr Hutchison also submitted (in a footnote) that the Tribunal was wrong in its statement at [9] of its reasons that the financial services provided by Mr Hutchison were financial product advice and asserted that his conduct 'relates to dealing in a financial product'. He then submitted that the conduct did not fall within the parameters of s 1041H because it was not of the nature of conduct caught by the parameters of s 1041H(2)(b), but without addressing s 1041H(2)(a). Regardless, if the conduct were considered on the basis that it may relate to dealing in a financial product it is clear from Narain that an indirect or less than substantial connection is sufficient. 69 I add that Mr Hutchison's written submissions included many matters in footnotes and it has not been a simple task to ascertain whether or to what extent such matters are relied upon in addition to those matters included in the body of the submissions. In any event the matters I have referred to convey generally the nature of the contentions put on Mr Hutchison's behalf. 70 Mr Hutchison has not persuaded me that Narain is relevantly distinguishable in the context of financial services. 71 Further, far from considering that Narain may be plainly wrong, I respectfully agree with the reasoning. This is reinforced by matters relating to the objects of Chapter 7, to which I now turn.

Whether the object of Chapter 7 is to be understood narrowly 72 Section 760A is the first provision of Chapter 7. It is included above at [29]. 73 The Tribunal took the view, based on s 760A, that the focus of the legislation is on the protection of consumers of financial services and consumers or investors having confidence in the financial services and financial products. The Tribunal then relied on such 'focus' for its finding as to the requirement of a direct link between the relevant conduct and an impact on the consumer or investor (reasons at [50]). 74 The object provision, properly understood, reflects a broader intent. It is clear that protection of consumers is central, but the object recognises that such protection and the minimisation of risk is facilitated in a number of ways: by the promotion of fairness, honesty and professionalism by 'those who provide financial services'; by ensuring there is transparency in the market and by reducing systemic risk. The interrelationship between the subparagraphs of s 760A is to my mind obvious. Consumers will have an increased confidence in making decisions about financial products and services if those who provide financial services act with fairness, honesty and professionalism. So too systemic risk is reduced if there is fairness, honesty and professionalism in the industry. 75 It is true as Mr Hutchison submits, that s 760A(a) makes express reference to the position of a consumer. However, s 760A(a) is not to be read in isolation. When read with the other parts of the section it can be seen that it reflects but part of a desire to promote the values of fairness, honesty and professionalism throughout the financial services industry in a way which is not limited to honesty with respect to clients who are consumers. 76 Chapter 7 includes the provision as to licensing of financial services providers and their obligations, as summarised at [9] above. The role of a licensee is not to be overlooked in the discussion of the conduct of Mr Hutchison as an authorised representative. Compliance with the Act is a matter of interest to both an authorised representative and a licensee. The obligations on a licensee, given statutory force, to do all things necessary to ensure that financial services are provided honestly and efficiently highlights the need for an authorised representative to act honestly and professionally with respect to the licensee. It seems to me that a unilateral decision on the part of an authorised representative to deal with funds received from a client in a manner not contemplated by the licensee and contrary to terms agreed with a licensee, may be a matter that a licensee may expect to be disclosed to it as relevant to its interests. Therefore, depending on the circumstances, the class of person who might be misled or otherwise affected by the conduct of an authorised representative may well extend to a licensee. A construction of the provisions that permits consideration of the position of not only a consumer but also a licensee tends to promote the object in s 760A(b) of fairness, honesty and professionalism by the providers of financial services and is to be preferred. 77 Consistent with this approach, what Finkelstein J said in Narain in support of his rejection of an unnecessarily narrow construction should be recalled (see [55] above): One important object of the Part is to ensure that participants in the market for financial products and financial services act with integrity and honesty and that consumers are adequately protected. 78 I have not overlooked the decision in Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd [2009] FCA 883; (2009) 179 FCR 46. The Court in Avoca considered whether a representation by a licensee in a deed authorising a person to be its representative comprised conduct in relation to financial services for the purpose of s 51AF of the Trade Practices Act 1974 (Cth). The Court (which did not refer to Narain) in the context of a pleading dispute held that it did not, the deed having been entered into some time earlier and in circumstances separate to the provision of financial services and which were 'sufficiently remote' (at [232]). This finding on its facts is not inconsistent with the approach in Narain. The Court also accepted a submission that an authorised representative was not a consumer protected by the relevant provision. However, in doing so it focused on what was said to be the purpose of the relevant legislative provision, being consumer protection (at [234]-[236]). In that regard the position under Chapter 7 of the Corporations Act, with its broader purpose and objects, is distinguishable. 79 Mr Hutchison also focused on the use of the singular 'object' in the drafting of s 760A to support a contention that s 760A is to be read as directed to the singular main object of the Chapter, and that must be the specific protection of the consumer. That argument is not persuasive. Section 760A can readily be understood as describing an overarching object to promote the four aspects provided for in the provision, including the promotion of fairness, honesty and professionalism by the providers of financial services. 80 Finally, ASIC criticised the reliance by the Tribunal on the Guide as relevant extrinsic material for the purpose of construing Chapter 7. I do not consider the Guide to be helpful to assist with the ascertainment of the meaning of the relevant provisions and have not relied upon it. It reflects ASIC's view at a general level. It is not a document that falls within the scope of s 15AB(2) of the Acts Interpretation Act. ASIC's written and oral submissions more directly address its position for the purpose of this appeal.

Whether the title and scope of Part 7.10 limits the nature of relevant conduct 81 Mr Hutchison submits that Part 7.10, which includes s 1041G and s 1041H, is primarily concerned with prohibiting market misconduct. It was suggested that therefore s 1041G and s 1041H are intended to address conduct that relates directly to market misconduct. On this basis it was said that the conduct in Narain can be explained as falling within the scope of Part 7.10 because it concerned conduct that might affect a share price or disclosure to the market, in contrast to the conduct in which Mr Hutchison engaged. 82 The argument wrongly elevates the importance of the provisions as to market misconduct in order to obscure the proper scope and objects of the Part. The full title of Part 7.10 is 'Market misconduct and other prohibited conduct relating to financial products and financial services'. Part 7.10 is said to apply to 'various kinds of prohibited conduct (s 1040A). Division 2 of Part 7.10 of the Corporations Act, which includes s 1041G and s 1041H, encompasses prohibited conduct by way of market misconduct: so much is clear from for example, s 1041A, s 1041B and s 1041C. However, prohibited conduct is not limited to such conduct. There is no basis for inferring that conduct for the purpose of s 1041G and s 1041H is to be understood as limited to market misconduct. Having regard to the object of Chapter 7, it is readily apparent that Part 7.10 is also directed more generally to conduct relating to financial products and financial services, as the title to the Part suggests. Again, a construction that promotes a broader scope of prohibited conduct is consistent with the broader object expressed in s 760A as discussed above.

The application of Narain reasoning and s 1041G 83 I consider that the reasoning of the Court in Narain is also applicable in assessing whether there is a sufficient connection between identified dishonest conduct and financial products or services for the purpose of s 1041G. 84 I do not consider that dishonest conduct in relation to a financial product or service in s 1041G of the Corporations Act must be read, as the Tribunal found, as dishonest conduct which relates directly to the nature, qualities or characteristics of the financial service or financial product, and not to the broader context of dishonesty in the carrying on of a financial services business which does not impact the consumer or investor. In my view in coming to that conclusion the Tribunal implied additional words of limitation into s 1041G without an adequate reason for doing so. 85 The Court in Narain placed significance on the objects of Chapter 7. I have already set out why it is apparent that while consumer protection is one of the objects of Chapter 7, the main object extends more widely. An interpretation of a provision of an Act that best promotes that wider object - so extending to the promotion of 'fairness, honesty and professionalism by those who provide financial services' - is to be preferred over another interpretation: s 15AA of the Acts Interpretation Act. 86 The Court in Narain took into account that an assessment of misleading and deceptive conduct requires a consideration of the broader context of the conduct. The same can be said of an assessment of whether conduct is dishonest. Whether or not conduct is dishonest will depend on the context of the conduct, and may include an assessment of, for example, not only the person's knowledge but the knowledge of other parties and the nature of any disclosure, and is to be viewed against the standards of ordinary people. 87 There is no doubt that it was necessary for the Tribunal to be satisfied that there was a sufficient connection as between the impugned conduct and a financial product or financial service. For example, dishonest conduct by an authorised representative that is too remote from the circumstances of the commercial relationship between the customer, authorised representative and licensee may well have no sufficient or relevant connection. However, I consider the words 'in relation to' in s 1041G do not contemplate a requirement for a connection of the direct nature described by the Tribunal at [50] of its reasons. 88 Although Mr Hutchison referred to Briginshaw v Briginshaw (1938) 60 CLR 336 in the context of proof of dishonest conduct, he did not contend that the potential penal consequences of failure to comply with s 1041G point to an interpretation that the connection required by the words 'in relation to' must be a direct connection in the manner described by the Tribunal. Having regard to s 1041J of the Corporations Act, I have considered that possible contention. 89 As the objects make clear, the purpose of Chapter 7 is beneficial. Its provisions are to be interpreted in a way that makes their enforcement effective. Regard to the penal consequences does not exclude the application of the ordinary rules of construction: Waugh v Kippen (1986) 160 CLR 156 at 164 (Gibbs CJ, Mason, Wilson and Dawon JJ); Beckwith v The Queen (1976) 135 CLR 569 at 576 (Gibbs J); and Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 at [65]-[69]. A penal consequence is to be regarded as a minor consideration in the process of ascertaining the meaning of a provision: Grajewski v Director of Pubic Prosecutions (NSW) [2017] NSWCCA 251; (2017) 270 A Crim R 33 at [55] (Leeming JA), although there may be circumstances where the penal nature of a provision points against a broad or 'loose' construction: Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58; (2005) 224 CLR 193 at [45] (Gleeson CJ, Gummow, Hayne and Heydon JJ) as applied in Westpac Banking Corporation v Australian Securities and Investments Commission [2009] FCA 1506; (2009) 181 FCR 379 at [25] (Rares J). 90 In this case, even having regard to the potential penal consequences, the application of the ordinary rules of construction, including the requirement to have regard to the beneficial purpose of the provision, do not support the Tribunal's conclusion as to the interpretation of s 1041G. The promotion of honesty by persons in the industry is an express purpose and an interpretation of 'in relation to' that unduly circumscribes when the provision may operate by the introduction of unnecessary words does not promote that purpose. It is also to be recalled that liability under the provision is not at large. The meaning of 'in relation to' still requires a sufficient connection, as Narain demonstrates.

Mr Hutchison's submission on Briginshaw 91 Mr Hutchison submits that because s 1041G imports criminal liability alongside civil liability, any allegation by ASIC of 'dishonest conduct' must be proved to the standard set out in Briginshaw. Mr Hutchison's argument in this regard appears to address the findings of the Tribunal as to whether there was dishonest conduct and matters of proof, rather than the construction question before this Court. Mr Hutchison submits that the decision of the Tribunal did not support any finding of dishonesty 'to the Briginshaw standard'. 92 Briginshaw does not impose a third standard of persuasion that falls somewhere between the standards of beyond reasonable doubt and the balance of probabilities. Rather, as explained in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 at [31] and as the rule is reflected in s 140(2) of the Evidence Act 1995 (Cth), without limiting the matters that a court may take into account in deciding whether it is satisfied on the balance of probabilities, a court is to take into account: the nature of the cause of action or defence; the nature of the subject-matter of the proceeding; and the gravity of the matters alleged. 93 ASIC rejects the proposition that Briginshaw has a role to play in the exercise of the Tribunal's powers. In support of its position it relies upon Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93; (2014) 226 FCR 555 at [98]-[122] (Flick and Perry JJ). There, the Court held: [116] What procedure the Tribunal decides to follow in any particular case, and whether the Tribunal decides to either apply or inform itself by reference to the common law rules of evidence, is a matter which has been left by the legislature to the Tribunal itself to determine. The manner in which the Tribunal proceeds cannot, with respect, be pre-determined by any generally expressed 'principle of law' which is to be applied to some indeterminate fact findings which may be characterised as 'grave' or 'serious'. 94 However, that is not to say that the Tribunal should not have regard to Briginshaw as it considers appropriate. As the Court in Sullivan continued: [121] Cases may be found where the Tribunal has applied the decision in Briginshaw. But these cases are nothing more than the Tribunal proceeding, perhaps, in a manner which applies the common law rules of evidence. The provisions of s 33(1)(c) [of the AAT Act], it will be recalled, simply provided that the Tribunal is not 'bound' to apply those rules; it is not a prohibition upon the Tribunal applying those rules if it sees fit. 95 Reference to Briginshaw may assist a Tribunal in its assessment of whether it is satisfied as to whether identified conduct is proven to be dishonest. That is separate, however, to the question of the type of conduct that might be considered to be 'in relation to' a financial product or financial service.

Whether there was an absence of positive findings 96 Mr Hutchison submits that the Tribunal made no finding of dishonesty and no finding that the relevant conduct was misleading or deceptive. He noted the positive findings by the Tribunal at [53] that it was 'not satisfied that the double charging was part of a deliberate fraud' and was instead the result of incompetence and a lack of care and submitted that these findings were a clear rejection of any dishonesty concerning the alleged double charging. Accordingly, he submits that the appeal is fruitless because the requisite foundation for a finding of dishonesty or misleading or deceptive conduct did not exist. 97 I do not agree with that assessment of the Tribunal's findings. There was at least one aspect of Mr Hutchison's conduct which the Tribunal accepted was dishonest, which was the conversion of the cheque payable to RI Advice. Further, as ground 2 discloses, the Tribunal did not deal with the question of whether there may have been misleading or deceptive conduct with respect to RI Advice.

Conclusion 98 ASIC submits that the Tribunal wrongly inserted words and imposed limitations on the interpretation of s 1041G and s 1041H in making its findings at [50] and [60] of its reasons respectively, and that the correct approach is to assess the quality of the requisite connection by reference to Narain. For the reasons given, I agree that Narain should be followed and its reasoning applied with respect to both s 1041G and s 1041H. The words 'in relation to' require that a relevant connection must be established, but an indirect or less than substantial connection is sufficient. Whether such connection is established will depend on the facts of each case. 99 This interpretation promotes the object of Chapter 7. The Tribunal's approach was unnecessarily narrow and it was in error in that regard. Ground 1 is upheld and the matter should be remitted to the Tribunal for further hearing and determination according to law.

Ground 2 100 It is not strictly necessary to deal with ground 2 and I will do so only briefly. ASIC submits that the Tribunal's decision failed to address its submission that Mr Hutchison's conduct was misleading or dishonest with respect to RI Advice. It submits that there was therefore jurisdictional error on its part. 101 It can be seen from ASIC's factual contentions in the SFIC that it expressly contended before the Tribunal that Mr Hutchison's conduct in concealing his conduct from RI Advice including failing to advise RI Advice that he had procured direct payments from clients was dishonest and misleading and deceptive. 102 The Tribunal did not consider and made no findings with respect to this submission, presumably because of its conclusion that s 1041G and s 1041H did not apply to a broader context which does not impact the consumer or investor. It follows from ground 1 that the construction of the provisions does not direct such limitation. Conduct that is directed toward or impacts a licensee (for example) may be of a nature that has a sufficient and relevant connection to the financial product or service within the meaning of those provisions. Whether there is a sufficient connection will be a question of fact for a decision-maker to consider. 103 The submission was made clearly and ought to have been addressed: NABE v Minister for Immigration and Multicultural and Indigenous Affairs (No 2) [2004] FCAFC 263; (2004) 144 FCR 1 at [55], [68] (Black CJ, French and Selway JJ). Failure to do so may comprise a failure on the part of the Tribunal to carry out its statutory task: Viane v Minister for Immigration and Border Protection [2018] FCAFC 116; (2018) 263 FCR 53 at [14]-[32] (Rangiah J), [75]-[77] (Colvin J). A failure by a decision-maker to respond to a substantial, clearly articulated argument on established facts may also comprise a failure to accord natural justice: Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26 at [24] (Gummow and Callinan JJ), [95] (Hayne J). 104 Whilst there may be different ways to describe the error, in this case I prefer ASIC's submission that the Tribunal failed to carry out its statutory task and on that basis jurisdictional error is disclosed. The Tribunal failed to address a central question raised by ASIC. The submissions concerned matters material to the review of the delegate's decision by the Tribunal, and material to its task of arriving at the correct or preferable decision on the material and evidence before it. I would allow ground 2.

Orders 105 The appeal is allowed and the matter is to be remitted to the Tribunal for determination according to law. In the ordinary course, Mr Hutchison should pay ASIC's costs to be assessed if not agreed. As I have not heard from the parties on that question they may apply within seven days if any different costs order is sought. I certify that the preceding one hundred and five (105) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Banks-Smith.